SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998 or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
NU SKIN ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-12421 87-0565309
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
75 West Center Street
Provo, Utah 84601
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 345-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Class A Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes|X| No |_|
Based on the closing sales price of the Class A Common Stock on the New
York Stock Exchange on March 26, 1999, the aggregate market value of the voting
stock (Class A and Class B Common Stock) held by non-affiliates of the
Registrant was $704,691,842. For purposes of this calculation, voting stock held
by officers, directors, and affiliates has been excluded.
As of March 25, 1999, 33,165,315 shares of the Registrant's Class A
Common Stock, $.001 par value per share, and 54,606,905 shares of the
Registrant's Class B Common Stock, $.001 par value per share, were outstanding.
Documents incorporated by reference. Portions of the Company's 1998 Annual
Report to Stockholders to be furnished to the stockholders of the Company
pursuant to Rule 14a-3(b) in connection with Registrant's 1999 Annual Meeting of
Stockholders are attached hereto as Exhibit 13, and are incorporated herein by
reference into Parts II and IV of this Form. Portions of the Company's
definitive Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange commission within 120
days after the Registrant's fiscal year end are incorporated by reference in
Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
TABLE OF CONTENTS
PART I .......................................................................1
ITEM 1. Business..............................................................1
General...............................................................1
Recent Developments...................................................2
Business Divisions ...................................................4
Product Summary.......................................................6
Distribution System..................................................12
Product Development..................................................17
Sourcing and Production..............................................19
Regional Profiles....................................................20
Competition..........................................................22
Intellectual Property................................................23
Government Regulation................................................23
Employees............................................................27
Risk Factors.........................................................27
ITEM 2. Properties...........................................................35
ITEM 3. Legal Proceedings....................................................35
ITEM 4. Submission of Matters to a Vote of Security Holders.................36
PART II ......................................................................37
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................37
ITEM 6. Selected Financial Data..............................................37
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................37
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ..........37
ITEM 8. Financial Statements and Supplementary Data..........................37
ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.............................................37
PART III......................................................................38
PART IV ......................................................................38
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....38
Signatures....................................................................44
i
FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K, IN PARTICULAR "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"ITEM 1. BUSINESS," INCLUDE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS CONCERNING, AMONG OTHER THINGS,
FUTURE REVENUE, EARNINGS, AND OTHER FINANCIAL RESULTS, PROPOSED ACQUISITIONS AND
NEW PRODUCTS, ENTRY INTO NEW MARKETS, FUTURE OPERATIONS AND OPERATING RESULTS,
FUTURE BUSINESS AND MARKET OPPORTUNITIES. THE COMPANY WISHES TO CAUTION AND
ADVISE READERS THAT THESE STATEMENTS INVOLVE RISK AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS AND BELIEFS
CONTAINED HEREIN. FOR A SUMMARY OF CERTAIN RISKS RELATED TO THE COMPANY'S
BUSINESS, SEE "ITEM 1. BUSINESS -- RISK FACTORS" BEGINNING ON PAGE 27.
THE COMPANY HAS ENTERED INTO A LETTER OF INTENT TO ACQUIRE BIG PLANET,
INC. AND THE REMAINING PRIVATE AFFILIATES OPERATING IN NORTH AMERICA (OUTSIDE OF
THE UNITED STATES). THIS FORM 10-K CONTAINS INFORMATION CONCERNING THE BUSINESS
OF BIG PLANET, INC. AND THE PRIVATE AFFILIATES AND THE ANTICIPATED EFFECT OF
SUCH PROPOSED ACQUISITIONS ON THE BUSINESS OF THE COMPANY. THE COMPANY IS IN THE
PROCESS OF FINALIZING DEFINITIVE AGREEMENTS WITH RESPECT TO SUCH PROPOSED
ACQUISITIONS. THE PROPOSED ACQUISITIONS ARE SUBJECT TO SEVERAL CONDITIONS
INCLUDING COMPLETION OF DEFINITIVE DOCUMENTATION, RECEIPT OF NECESSARY
REGULATORY AND THIRD-PARTY APPROVALS, COMPLETION OF THE COMPANY'S DUE DILIGENCE
REVIEW, AND APPROVAL BY THE STOCKHOLDERS OF BIG PLANET AND THE PRIVATE
AFFILIATES. THERE CAN BE NO ASSURANCE THAT THE PROPOSED ACQUISITIONS WILL BE
COMPLETED AS PLANNED.
Unless the context requires otherwise, references to the Company are to
Nu Skin Enterprises, Inc. and its subsidiaries. In this Annual Report on Form
10-K, references to "dollars" and "$" are to United States dollars. Nu Skin,
Pharmanex, Interior Design Nutritionals, "6S Quality Process", and IDN are
trademarks of the Company. Big Planet and InterNetworking are trademarks of Big
Planet, Inc. The italicized product names used in this Annual Report on Form
10-K are product names and also, in certain cases, trademarks of the Company.
PART I
ITEM 1. BUSINESS
General
Nu Skin Enterprises, Inc. (the "Company") is a leading, global direct
selling company that currently distributes premium quality personal care
products and nutritional supplements. Upon completion of the planned acquisition
of Big Planet, Inc. discussed below, the Company will also offer Internet
connectivity, e-commerce, telecommunications, and other technology products and
services to consumers in the United States. The Company currently operates in 27
countries throughout North Asia, Southeast Asia, North America, Europe, and
South America and is reported to be one of the largest direct selling companies
in the world.
The Company distributes its products exclusively through a network
marketing system. The Company currently has a network of nearly 500,000 active
distributors located throughout its 27 markets that purchase products for resale
to consumers and for personal consumption. Nu Skin was among the first direct
selling companies to compensate distributors in their home countries for product
sales around the world. Under the Company's "Global Compensation Plan,"
distributors can develop a seamless network of downline distributors throughout
the world and across divisions. The Company believes that its extensive
distributor force and the Global Compensation Plan provide the Company with a
competitive advantage in gaining quick access to new geographic markets and
rapid market penetration of new products.
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During the past twelve months the Company has taken significant actions
to broaden the Company's business both geographically and across product lines
and to gain greater control over its product and business opportunity offerings.
These actions include:
* The acquisition of Pharmanex, Inc. ("Pharmanex"), a premier
developer of nutritional supplements.
* The expansion of operations into five new markets--Brazil, Sweden,
Denmark, Poland, and the Philippines.
* The acquisition of Nu Skin operations in the United States.
* The execution of a letter of intent to acquire Big Planet, Inc.
("Big Planet") and the Company's other private affiliates
operating in Canada, Mexico, and Guatemala.
These initiatives were designed to leverage the Company's primary asset, its
sales and distribution channel and related expertise, by strengthening existing
product lines, providing the Company with greater control over product and
business opportunity offerings, expanding the Company's geographic markets,
establishing a technology division, fortifying the Company's support
infrastructure, and positioning the Company for further growth.
The acquisition of the United States market and the planned
acquisitions of Big Planet and the remaining private affiliates operating in
North America should also simplify the Nu Skin corporate structure by
consolidating all of Nu Skin's operations under the Company. This should allow
the Company to transition from a geographic management focus to a strategic,
product-based business model along three general product divisions. The
divisions will offer the following three distinct business opportunities, each
specifically designed for the network marketing distribution channel, and each
managed and directed by dedicated, distinct management teams:
Nu Skin Personal Care. The Company's original product line and business
opportunity, offering over 100 premium quality personal care products
in several categories: facial care, body care, hair care, and color
cosmetics, as well as specialty products such as sun protection, oral
hygiene, and fragrance.
Pharmanex. A nutritional supplement division offering a variety of
nutritional supplements in several categories: multi-vitamin and
mineral products and supplements that are currently marketed under the
IDN (Interior Design Nutritional) trademark including LIFEPAK, the
Company's flagship nutritional supplement, five proprietary natural
supplements and a broad line of standardized botanical supplements
acquired in the acquisition of Pharmanex, and a line of sports
nutritional and general health solutions.
Big Planet. A communications and technology products and services
division that offers Internet access and related services, e-commerce,
telecommunications, unified communications, and on-line and CD-ROM
educational products.
Recent Developments
Acquisition of Nu Skin International. At the beginning of 1998, the
Company operated as the exclusive distribution vehicle for NSI in the countries
of Japan, Taiwan, Hong Kong (including Macau), Thailand, and South Korea, and
had the right to expand only into certain other Asian markets including the
Philippines, the People's Republic of China, Vietnam, Singapore, Malaysia, and
Indonesia. In February 1998, the Company commenced operations in the
Philippines. In March 1998, the Company acquired NSI and certain other
affiliated entities for $70.0 million in preferred stock, the issuance of
long-term notes payable to the stockholders of the NSI totaling approximately
$6.2 million, and the assumption of liabilities of approximately $173.8 million
in notes that were distributed by NSI prior to the closing to the NSI
stockholders as a distribution of all previously earned and undistributed "S"
corporation earnings. The preferred stock was subsequently converted into
2,978,159 shares of
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Class A Common Stock after giving effect to the cancellation of 8,504 shares
following an adjustment in the purchase price based on the audited closing
balance sheet of NSI. Through this acquisition, the Company obtained:
* Nu Skin's existing operations in New Zealand, Australia, and ten
countries in Europe, and the right to all other future markets.
* Ownership of all rights to the Nu Skin distributor force,
including all distributor agreements and the Global Compensation
Plan, and all trade names, trademarks, product formulations, and
other intellectual property rights and know how associated with
the Nu Skin business and products, all of which were previously
made available to the Company through a license from NSI.
* Greater control over product development, manufacturing, pricing,
and the strategic development of the Nu Skin products and business
offerings.
Acquisition of Pharmanex. In October 1998, the Company acquired
Pharmanex, a research and development company and manufacturer of natural
nutritional supplements, in exchange for the issuance of approximately 4.0
million shares of the Class A Common Stock of the Company and the assumption of
approximately $34.0 million in liabilities. The Company believes that the
acquisition of Pharmanex provides it with:
* Significant additional product research and development resources
with a staff of more than 40 M.D.and/or Ph.D. scientists and
laboratory facilities in China and the United States.
* Important clinical research and collaboration agreements and other
relationships with several major universities in the United States
and the People's Republic of China ("China") that the Company
believes will enhance its ability to perform cost-effective
clinical trials to help substantiate product claims.
* A line of existing proprietary nutritional and a broad line of
botanical supplements including CHOLESTIN, a nutritional
supplement shown to help maintain healthy cholesterol levels.
* Manufacturing capabilities with the acquisition of an extraction
facility in China.
Acquisition of North American Affiliates. In March 1999, the Company
acquired certain assets of its privately-held affiliate, Nu Skin USA, Inc., and
terminated the exclusive license and distribution agreements it had entered into
with such entity. Prior to this transaction, Nu Skin USA, Inc. had the exclusive
right to sell the Company's products and services within the United States. In
addition, the Company has also entered into a letter of intent to acquire its
other private affiliates operating in Canada, Mexico, and Guatemala (such
affiliates, together with Nu Skin USA, Inc., are hereinafter referred to as the
"North American Affiliates"). The total consideration paid or to be paid in
connection with such transactions includes cash payments of approximately $19.0
million and the assumption of certain liabilities (approximately $8.0 million in
the Nu Skin USA transaction).
Acquisition of Big Planet. In addition, the Company has entered into a
letter of intent to acquire Big Planet, Inc. The consideration will consist of a
cash payment of approximately $14.5 million, the issuance of a three-year
promissory note in the amount of approximately $14.5 million and the assumption
of certain liabilities. In addition, prior to such acquisition, Big Planet will
accelerate the employee stock awards and options of most Big Planet management
personnel and employees and cash them out. Unvested shares and options which are
not accelerated will be converted into shares of, and options to acquire shares
of, the Class A Common Stock of the Company. The Company also will provide
management personnel of Big Planet and certain key employees with certain equity
and cash incentives, some of which will be issued or paid only if Big Planet
achieves certain agreed
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upon performance criteria. The acquisition of Big Planet is subject to the
satisfaction of various conditions, including completion of definitive
documentation, obtaining necessary regulatory and third-party approvals, the
satisfactory completion of the Company's due diligence work, and approval by the
shareholders of Big Planet. The proposed acquisition is expected to be completed
by June 30, 1999. There can be no assurance, however, that all such conditions
will be satisfied or that unanticipated factors will not arise which could cause
the transaction to be delayed or not to be completed. See "Risk Factors - Risks
Related to the Integration of Recent and Contemplated Acquisitions."
Business Divisions
Nu Skin Personal Care
Nu Skin Personal Care is the Company's original product line and
business opportunity and currently consists of premium quality lines of over 100
personal care products in the areas of facial care, body care, hair care, skin
whiteners, and color cosmetics, as well as specialty products such as sun
protection, oral hygiene, and fragrances. According to the WWD Beauty Report
International, at the end of 1997, the Company was the tenth largest cosmetic
company in Asia.
Nu Skin Personal Care's strategy is to distribute high quality personal
care products and treatments that utilize advanced formulas. For example, the
Company was one of the first companies to market topical applications of various
vitamins including Vitamins E, C and A. Other examples include the MHA
REVITALIZING products, which utilize alpha and beta hydroxy acids to fight the
signs of aging, and CELLTREX, a concentrated solution of aloe vera and other
ingredients, designed to improve the skin's moisture content. The Company
recently entered into a nine-year contract with Stanford University for directed
research on skin care products and established the Nu Skin Center for
Dermatological Research at Stanford University's School of Medicine. Nu Skin
Personal Care also seeks to take advantage of the Company's highly educated
distributor force to provide consumers with a high level of information and
instruction about the products and guidelines for using them effectively.
Pharmanex
Following the acquisition of Pharmanex, the Company merged its
previously existing Interior Design Nutritional products division ("IDN") with
Pharmanex. The Company believes that combining Pharmanex's research and
development engine and its proprietary nutritional and botanical supplements
with IDN's existing product development resources and vitamin and mineral
products, including IDN's flagship product, LIFEPAK, helps position the Company
to further penetrate the growing nutritional supplement market. The combined
Pharmanex/IDN division offers over 60 nutritional supplements and nutri-food
products.
The Company believes that the nutritional supplement market is
expanding throughout the world because of changing dietary patterns, an
increasingly health-conscious population, and a growing amount of scientific
evidence supporting the benefits of using vitamin and natural self-care products
and supplements. The Company believes that its nutritional supplements are
particularly well suited to network marketing because the average consumer is
often uneducated about nutritional supplements. The Company believes that direct
selling is a more effective method than traditional retailing channels in
educating consumers regarding the benefits of nutritional supplements and
differentiating the quality and benefits of its products from those offered by
competitors. Because there are numerous providers of nutritional supplements of
varying degrees of quality, the Company believes that individual attention and
testimonials by distributors provide information and comfort to a potential
consumer. In January 1999, the Company discontinued selling Pharmanex
nutritional supplements in traditional retail channels where they had been
distributed by Pharmanex prior to its acquisition by the Company. Pharmanex
products are now available exclusively through the Company's distributor force,
which the Company believes can more effectively educate consumers about these
products on a person-to-person basis. Consistent with this personal selling
approach, Pharmanex will allow independent pharmacies to be distributors of its
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products because these smaller pharmacies tend to provide more personalized
service and accommodate the flow of information to consumers on a
person-to-person basis.
Pharmanex utilizes available scientific literature, existing research
and clinical studies, and its own research work and clinical studies, including
placebo controlled, double blind studies, in the evaluation and development of
its products and in connection with confirming the efficacy of its products. Two
of the Company's premier products, LIFEPAK, an advanced, uniquely formulated
multivitamin/mineral supplement, and CHOLESTIN, a proprietary nutritional
supplement that promotes healthy cholesterol levels, have been the subject of
recent independent clinical studies that have demonstrated the efficacy of these
products. The Company has also supported the creation of two research centers
for nutritional supplements: the UCLA Center for Human Nutrition/Pharmanex
Phytochemical Laboratory and the Pharmanex Institute for Cardiovascular Health
and Sports Nutrition. The Company believes that the proprietary supplements and
the broad line of botanical supplements acquired in the Pharmanex acquisition
complement the Company's multivitamin and nutritional products and provide the
Company with a strong portfolio of products for both the herbal and non-herbal
segments of the nutritional supplement market.
Big Planet
The Internet is rapidly emerging as a global medium for communications,
sharing information, and electronic commerce. An industry analyst, International
Data Corporation, estimates that the number of Web users will grow from
approximately 100 million in 1998 to over 200 million by 2001. The recent growth
of the Internet and electronic commerce is effecting significant changes in
information delivery and product purchasing. In addition, deregulation of
telecommunications and the growth in wireless communications have resulted in
changes and opportunities in the telecommunications markets. Big Planet was
founded for the purpose of providing a new business opportunity involving
technology products and services that attempts to:
* Take advantage of the opportunities provided by the rapid growth
of the technology and communication markets;
* Appeal to a new demographic of customers and distributors; and
* Utilize the strength and competitive advantages of the Company's
distribution system to reach new market segments of the
marketplace.
The core strategy of Big Planet is to be an "InterNetworking" company
that combines the global Internet revolution with the power of one-to-one
relationships to improve the way people "learn, communicate, work, shop, and
play.(TM)" The Company believes that there is a high degree of compatibility
between technology products and the Company's distribution system. Big Planet
seeks to leverage the direct selling expertise of the Company's distributor
force to assist the large number of consumers who want to take advantage of
technology's latest offerings but do not know how or are intimidated by
technology's constant innovations. Big Planet's representatives are trained to
provide the assistance and training necessary to help customers understand and
take advantage of the latest products. The Company believes that the combination
of its distribution system, a highly motivated sales force, and the proper
training of its Big Planet distributors will provide the Company with an
opportunity to help take technology to the masses.
Big Planet's product strategy is to offer an integrated suite of
products and services for education, telecommunications, Internet access, and
electronic commerce. Big Planet believes that multiple connections to the home
enhances customer retention by providing a broad range of integrated services.
Big Planet's communication and technology products and services are designed
specifically for consumers and small businesses who desire a responsive,
single-source provider of Internet connectivity, communications and on-line
purchasing via e-commerce. Big Planet currently generates revenue from providing
Internet access, telecommunications
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products and services including long distance and paging, from sales of a wide
selection of products through its e-commerce store and from sales of various
CD-ROM and on-line educational products.
Product Summary
In 1998, the Company offered products in two distinct categories:
personal care products, mainly marketed under the trademark "Nu Skin," and
nutritional supplements, mainly marketed under the trademark "IDN." The Company
is committed to building its brand name and distributor and customer loyalty by
selling personal care products with advanced formulas and nutritional products
that are backed by science and appeal to broad markets. The Company's product
philosophy is to combine the best of science and nature and include in each of
its products high quality ingredients which provide desired benefits to the
consumer.
The Company does not distribute all of its personal care products and
nutritional products in each market. When commencing operations in a country,
the Company selects a group of initial products to be distributed in such market
and adds additional products as the market matures and develops. The Company
determines which products will be marketed in a specific country based on the
likelihood of the particular product's success in the market as well as
applicable regulatory approvals and requirements. In certain of the Company's
markets, the Company has reformulated products to satisfy certain regulatory
requirements with respect to product ingredients and/or preservatives and to
meet the preferences of consumers in those markets. See "Government Regulation
Regulation of Personal Care Products and Nutritional Supplements." In addition,
the Company will also develop products designed for a particular market when
appropriate. Following the completion of the acquisition of Big Planet, the
Company will also offer Internet and telecommunication products and services.
See "Recent Developments."
Presented below are the dollar amount and percentage of revenue of each
of the two product categories and other sales aid revenue for each of the years
ended December 31, 1996, 1997, and 1998. This table should be read in connection
with the information presented under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
Company's Annual Report to Stockholders, which is incorporated by reference into
this Form 10-K and which discusses the costs associated with generating the
aggregate revenue presented.
Revenue by Product Category
(Dollar Amounts in Thousands)
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1997 December 31, 1998
------------------- ------------------- -------------------
Product Category $ % $ % $ %
- --------------------------------------- -------- ------ -------- ------ -------- ------
Nu Skin Personal Care.................. $554,974 72.9% $604,078 63.4% $531,915 58.2%
Pharmanex/IDN (Nutritional Supplements) 160,288 21.0 297,300 31.2 334,257 36.6
Sales Aids 46,376 6.1 52,044 5.4 47,322 5.2
-------- ------ -------- ------ -------- ------
Total.......................... $761,638 100.0% $953,422 100.0% $913,494 100.0%
======== ====== ======== ====== ======== ======
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Nu Skin Personal Care Products
The Company's current personal care products are divided into the
following lines: facial care, body care, hair care, color cosmetics, sun
protection, oral hygiene, fragrances, and certain speciality products. The Nu
Skin Personal Care product line consists of over 100 products. The Company also
offers product sets that includea variety of products in each product line as
well as small, sample-size packages to facilitate product sampling by potential
consumers. The product sets are especially popular during the opening phase of a
new country, when distributors and consumers are anxious to purchase a variety
of products, and during holiday and gift giving seasons in each market.
The following is a brief description of each line within the Nu Skin
Personal Care division offered by the Company as of December 31, 1998:
Facial Care. The facial care line is the premier line of the Company's
personal care products and consists of 20 different specialized treatment,
cleanser, and moisturizer products. The specialized treatment products utilize
advanced formulas and ingredients designed for specific skin care conditions.
These special treatment products include: MHA REVITALIZING products, which
utilize alpha and beta hydroxy acids to help fight the signs of aging; SKIN
BRIGHTENING COMPLEX, designed to diminish the appearance of discoloration caused
by sun exposure; FACE LIFT WITH ACTIVATOR, a product designed to stimulate and
firm skin; and CLARIFEX PH MUD ACNE TREATMENT.
The goal of the facial care line of cleansers and moisturizers is to
allow users to cleanse thoroughly without causing dryness and to moisturize with
effective humectants that allow the skin to attract and retain vital water.
These products include CELLTREX, a concentrated solution of aloe vera and other
ingredients, designed to improve the skin's moisture content, and REJUVENATING
CREAM, one the Company's most popular personal care products. Other facial care
products include CLEANSING LOTION, FACIAL SCRUB, EXFOLIANT SCRUB, FACIAL
CLEANSING BAR, CLAY PACK, PH BALANCE FACIAL TONER, NAPCA MOISTURIZER, INTENSIVE
EYE COMPLEX, HPX HYDRATING GEL, CLARIFEX CLEANSING SCRUB, CLARIFEX MUD, and
ALPHA EXTRA FACE.
Body Care. The Company's line of body care products relies on premium
quality ingredients to cleanse and condition skin. The cleansers are formulated
without soap, and the moisturizers contain light but effective humectants and
emollients. The body care line includes DERMATIC EFFECTS, a body contouring
lotion containing extracts of hibiscus and malvaceae that has been clinically
demonstrated to aid in preventing the appearance of cellulite and aging skin.
The Company's body care line currently consists of 11 other products:
ANTIBACTERIAL BODY CLEANSING GEL, LIQUID BODY LUFRA, BODY SMOOTHER, HAND LOTION,
NAPCA MOISTURE MIST, BODY BAR, BODY CLEANSING GEL, ENHANCER, JUNGAMALS CRAZY
CROCODILE CLEANER, ALPHA EXTRA BODY, and MHA REVITALIZING BODY LOTION.
Hair Care. The Company's hair care line, HAIRFITNESS, is designed to
meet the needs of people with all types of hair and hair problems. Focusing on
the condition of the scalp and its impact on hair quality, the Company's hair
care products use water-soluble conditioners like panthenol to reduce build-up
on the scalp and to promote healthy hair. HAIRFITNESS includes 12 products
featuring ceregen, a revolutionary wheat hydrocolloid complex of conditioning
molecules, designed to enhance hair repair and moisture control aspects: 3 IN 1
SHAMPOO, MOISTURIZING SHAMPOO, BALANCING SHAMPOO, VITAL SHAMPOO, DEEP CLARIFYING
SHAMPOO, GLACIAL THERAPY, WEIGHTLESS CONDITIONER, LUXURIOUS CONDITIONER,
CONDITIONING DETANGLER SPRAY, STYLING GEL, HOLDING SPRAY, and MOUSSE (Styling
Foam). The Company also carries DERMANATOR SHAMPOO, an anti-dandruff shampoo,
and JUNGAMALS TIGER TANGLE TAMER SHAMPOO, a shampoo for children. In 1999, the
Company also plans to introduce a hair care line, KANURE, specifically designed
and formulated for the Brazilian market to address the natural properties of
severely dry and curly hair.
Color Cosmetics. The Company's color cosmetic line, NU COLOUR, consists
of 13 products with over 150 SKU's including MOISTURESHADE LIQUID FINISH,
MOISTURESHADE PRESSED POWDER, BLUSH, EYE SHADOW, MASCARA,
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EYELINER, LIP LINER, LIPSTICK, DRAMATTEICS LIP PENCILS, LIP GLOSS, CREME
CONCEALER, FINISHING POWDER, and BROW PENCIL. Nu Skin Personal Care intends to
relaunch the NU COLOUR line in the second quarter of 1999 with new packaging and
new shades.
Sunscreen. The Company's line of SUNRIGHT products is designed to
provide a variety of sun screen protection with non-irritating and non-greasy
products. The sun protection line includes a sun preparation product that
prepares the skin for the drying impact of the sun, five sun screen alternatives
with various levels of SPF, and a sun screen lip balm.
Oral Hygiene. AP-24, a line of oral health care products which
incorporates anti-plaque technology designed to help prevent plaque build-up 24
hours a day, is exclusively licensed to the Company, together with the
associated trademark, for sale in the direct selling channel under the trademark
AP-24. This product line includes AP-24 ANTI-PLAQUE TOOTHPASTE, AP-24
ANTI-PLAQUE MOUTHWASH, AP-24 TRIPLE ACTION DENTAL FLOSS, AP-24 ANTI-PLAQUE
BREATH SPRAY, and AP-24 WHITENING FLUORIDE TOOTHPASTE. The AP-24 oral health
care products for children are designed to make oral care fun for children and
include JUNGAMAL'S TOUGH TUSK TOOTHPASTE and JUNGAMAL'S FLUFFY FLAMINGO FLOSS.
Fragrances. The Company offers a men's and a women's fragrance under
the trademark SAFIRO. In 1998, the Company also introduced BELIEVE, a new
women's fragrance developed with Christie Brinkley.
Specialty Products. Epoch is a unique line of ethnobotanical personal
care products created in cooperation with well known ethnobotanists. These
products, which unite natural compounds used by indigenous cultures with
advanced scientific ingredients, include AVA PUHI SHAMPOO, GLACIAL MARINE MUD,
DEODORANT WITH CITRISOMES, POLISHING BAR, EVERGLIDE FOAMING SHAVE GEL, DESERT
BREEZE AFTERSHAVE, POST SHAVE LOTION FOR WOMEN, and FIREWALKER FOOT CREAM. The
Company also offers a nail care kit.
NUTRIOL, a line of products licensed to the Company for sale in the
direct selling channel and manufactured in Europe, consists of five products:
NUTRIOL HAIR FITNESS PREPARATION, NUTRIOL SHAMPOO, NUTRIOL MASCARA, NUTRIOL
NAIL, and NUTRIOL EYELASH. NUTRIOL represents a product designed to replenish
the hair's vital minerals and elements. Each NUTRIOL product uses
mucopolysaccharide, a patented ingredient.
SCION, is a moderately-priced line of facial care, skin care, and hair
care products that was created for less-developed markets to address the
economic factors in such markets. This line was introduced in several of the
Company's markets in 1998.
Product Sets. The Company currently offers product sets that provide
samples of products from a given product line. These product sets are intended
to encourage increased product trials.
Pharmanex Products
The Company's nutritional supplements are currently distributed under
the brand names Pharmanex and IDN. As the Company integrates Pharmanex with its
existing nutritional supplement business offerings around the world, the Company
anticipates that certain products currently distributed under the IDN brand may
be distributed under the Pharmanex brand name. Such a determination will be made
on a market-by-market basis as the Company transitions to its new divisional
structure.
The Company's nutritional supplements currently are comprised of its
LIFEPAK line of multi-vitamin and mineral nutritional supplements, five
proprietary natural nutritional supplements, a broad-line of botanical
supplements, and additional nutritional products in the following lines: general
wellness, weight-management, nutritious foods and snacks, sports and fitness
products, health solutions for people with special needs, and a water filtration
system. The Company's nutritional products are designed to promote healthy,
active lifestyles
-8-
and general well-being through proper diet, exercise, and nutrition. In Taiwan
and South Korea, LIFEPAK is the official nutritional supplement of the Taiwan
and South Korea Olympic Committee, respectively.
Nutritional products generally require reformulation to satisfy the
strict regulatory requirements of many of the Company's different markets. While
each product's concept and positioning are generally the same, regulatory
differences between markets result in some product ingredient differences. In
addition, certain markets, such as Japan, have preferences and regulations that
favor tablets instead of capsules, which are typically used in the United
States. Regulatory requirements in certain markets may restrict the ability of
the Company to introduce certain products into such markets. See "Government
Regulation - Regulation of Personal Care Products and Nutritional Supplements."
The Company's herbal supplements are standardized, which allows
consumers to obtain a specific, consistent level of the recommended dosage of
the important components of the supplement. Recent studies have found that many
popular herbal supplements are not standardized and vary enormously in content,
which correspondingly varies the effectiveness of the product. Pharmanex uses
its "6S Quality Process" (Selection, Sourcing, Structure, Standardization,
Safety, and Substantiation) to standardize its botanical supplements to at least
one relevant active compound and to formulate its non-herbal products with key
ingredients in amounts designed to enhance the nutritional benefits. The Company
believes that this 6S Quality Process furthers the ability of the Company to
provide the consumer with safe, effective, and consistent products. See "Product
Development - Pharmanex."
The following is a brief description of each of the nutritional product
lines within the combined Pharmanex and IDN division:
General Wellness Multivitamin/Mineral Supplements. The LIFEPAK family
of products, the core IDN nutritional supplement, is designed to provide an
optimum mix of nutrients including vitamins, minerals, antioxidants, and
phytonutrients (natural chemical extracts from plants). The introduction of
LIFEPAK in 1994 resulted in a significant increase in revenue. LIFEPAK is
currently sold in 12 of the Company's markets, including the United States,
Japan, and Taiwan. LIFEPAK is offered in different formulations to meet the
unique needs of women, older adults, and pregnant women.
Additional General Wellness supplements include: VITOX, which
incorporates beta carotene and other important vitamins for overall health; and
IMAGE HNS, an all-around vitamin and antioxidant supplement. THE IDN MASTERS
WELLNESS SUPPLEMENT provides nutrition specifically for an aging generation.
JUNGAMALS LIFEPAK FOR KIDS chewables combine natural flavors and colors and
contain a blend of antioxidants, chelated minerals, and vitamins specifically
tailored for children. The Company also offers LIFE ESSENTIALS, a lower cost,
more general nutritional supplement.
Pharmanex Proprietary Supplements. Pharmanex currently offers five
proprietary natural nutritional supplements: CHOLESTIN; CORDYMAX CS4; TEGREEN
97; ST. JOHNS'; and BIO GINKGO 27/7. CHOLESTIN is a proprietary nutritional
supplement derived from a proprietary strain of red yeast rice. A recent
double-blind, placebo-controlled study conducted at the UCLA Center for Human
Nutrition and published in the February 1999 issue of the American Journal of
Clinical Nutrition demonstrated the effectiveness of CHOLESTIN in helping to
maintain healthy cholesterol levels. In February 1999, a Federal District Court
judge ruled that CHOLESTIN could be legally sold as a nutritional supplement
under the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). The
Food and Drug Administration ("FDA") had previously challenged the status of
CHOLESTIN as a dietary supplement, claiming it was a drug and could not be
marketed without FDA approval. There can be no assurance, however, that the FDA
will not appeal the decision, and, in the event of an appeal, that the Company
would be successful in any such appeal. See "Government Regulation -- Regulation
of Personal Care Products and Nutritional Supplements."
-9-
CORDYMAX CS-4 is a proprietary nutritional supplement designed to help
reduce fatigue. Several clinical trials have been conducted on this product
which have demonstrated that CORDYMAX can help promote vitality and stamina.
CORDYMAX CS-4 is offered as a stand-alone product and in a combination product
with ST. JOHN'S WORT distributed under the trademark BIO ST. JOHNS, which is
designed to promote positive mood and outlook as well as vitality levels. In
addition, the Company also offers BIO GINKGO 27/7, a proprietary ginkgo biloba
extract that promotes blood circulation to the brain, arms, and legs, and
TEGREEN 97, a nutritional supplement that contains a concentrated level of
decaffeinated green tea polyphenols that offer high levels of antioxidant
benefits naturally.
Pharmanex Broadline Botanicals. Pharmanex also currently offers a line
of ten standardized botanical supplements including GINSENG, KAVA KAVA,
ECHINACEA, GARLIC, and HAWTHORN. Botanicals can exhibit substantial differences
in content depending on various factors such as season, climate, soil, method of
harvest, storage, and processing. As a result, botanical products can vary
dramatically in quality and content. Pharmanex's botanical supplements are
standardized to provide consumers with a product that contains a specific,
consistent level of the desired dosage of the important components of the
supplement. In addition, Pharmanex implements quality control processes designed
to enhance the ability of the Company to keep its products pure and free from
insecticides, heavy metals, and other harmful contaminants.
Nutritious and Healthy Snacks. As part of the Company's mission to
promote a healthy lifestyle and long-term wellness, Pharmanex's NUTRI-FOODS line
of products includes FIBERRY FAT-FREE SNACK BARS, and APPEAL, a nutritional
drink containing chelated minerals and vitamins. In addition, the Company offers
a number of other nutritional drinks. SPLASH C with aloe vera is a healthy
beverage providing significant doses of Vitamins C and E as well as calcium in
each serving. Real fruit juice crystals are added to create orange or lemon
flavor. ALOE-MX, a nutritional aloe vera beverage drink, was specifically
produced for the Japanese and other Asian markets.
Sports and Fitness Products. Pharmanex's SPORTRITION line of sports and
fitness products caters to health conscious individuals with active lifestyles.
The line includes the SPORTS NUTRITION SYSTEM, a packaged group of nutritional
supplements offering a comprehensive, flexible program for individuals who
desire to optimize performance. The system includes: LIFEPAK; OVERDRIVE, a
sports supplement that features antioxidants, B vitamins, and chromium chelate;
GLYCOBAR energy bars; and SPORTALYTE, a performance drink formulated to help
supply the necessary carbohydrates, electrolytes, and chelated minerals to
optimize performance. Other products in this line include AMINO BUILD, a
low-fat, high-protein drink mix that is designed to replace nutrients before and
after workouts, and PROGRAM-16 protein bars, a product designed to provide
nutritional support for individuals involved in strenuous exercise.
Health Solutions. Pharmanex products include customized supplementation
addressing the specialized interests of health conscious individuals. These
supplements include: CARTILAGE FORMULA, which contains an advanced blend of
glucosamine to help maintain normal structure and function of healthy joints;
EYE FORMULA, which contains significant levels of beta-carotene and Vitamins C
and E to help maintain the normal structure and function of healthy eyes;
OPTIMUM OMEGA, a pure source of omega 3 fatty acids; NIGHTIME COMPLEX WITH
MELATONIN, to promote normal sleep; FIBRENET and FIBRENET PLUS, fiber
supplements; and NUTRIFI, a product that contains four grams of soluble and
insoluble fibers per serving in a powder that can be added to liquids and foods
to supplement the recommended daily amounts of fiber.
HealthTrim 2000. The HEALTHTRIM 2000 weight management program includes
a line of nutritional products designed to provide nutritional support to weight
conscious individuals marketed under the following product names: APPEAL LITE
HT, APPSIGNAL, APPCHOCOLATES, LIFEPAK TRIM, TRIMPAK, METABOTRIM, and BOTANAME.
Specialty Products. In the fourth quarter of 1998, the Company
introduced a high-performance home water filtration system in Japan. The
FOUNTAIN FRESH filtration system was designed by and is being manufactured
exclusively for the Company by CUNO Incorporated, a worldwide manufacturer of
home and industrial filtration systems.
-10-
Big Planet Products
Upon completion of the proposed Big Planet acquisition, the Company
will add technology and communication products and services to its product
offering. Big Planet currently provides technology and communication products
and services in both standalone and packaged bundles designed specifically for
consumers and small businesses who desire a responsive, single-source provider
of Internet connectivity, communications, and the ability to purchase on-line
through e-commerce. Big Planet was launched in the United States in April 1998.
In connection with its products and service offerings, Big Planet has
invested significantly in its Internet facilities and operation support
facilities. Big Planet also has entered into contractual relationships with
several industry-leading technology companies, including Qwest Communications,
UUNet, SkyTel, IBM, Sun Microsystems and other key vendors, to provide simple,
convenient, and reliable technology products and services through one-to-one
relationships provided by the Company's network of distributors. Big Planet's
sales representatives receive commissions based on Big Planet's gross margin on
each sale of products or services, or based on the commission received by Big
Planet with respect to products sold directly by third-party vendors to Big
Planet's customers. Big Planet's products and services are built around the
following core areas: Internet services; telecommunications; unified
communications; e-commerce; and education.
Big Planet's strategy has been to combine the benefits of a direct
marketing approach together with the emerging Internet opportunity to form an
"InterNetworking" company that is committed to improving the way people "learn,
communicate, work, shop, and play.(TM)" The following summarizes Big Planet's
current product and service offerings:
Internet Services. Big Planet provides dial-up Internet services to its
customers through three separate access plans designed to cover the needs of a
broad demographic group of consumers. Big Planet outsources Internet access
through a nationwide telecommunications network of over 1,600 dial up access
sites, or "POPS," in cities throughout the United States. Big Planet provides
easy to use, reliable, and competitively priced Internet access, electronic
mail, and content filtration for its sales representatives and consumers. In
October 1998, Big Planet introduced two Internet devices; the IPHONE, an
innovative telephone that provides simple and convenient Internet access via a
phone set; and the APLIOPHONE, a device that connects to the phone and allows
the user to route long-distance calls over the Internet.
Telecommunications. Big Planet currently offers domestic and
international long distance, prepaid calling cards, paging products and
services, and personal 800 numbers. Big Planet offers both residential and
business long distance services through its relationship with Qwest
Communications. Big Planet also plans to offer wireless telecommunication
services in the near future through a contract with a wireless service provider.
Big Planet also has a business relationship with SkyTel which allows Big Planet
to sell SkyTel's prepaid paging products, including SkyTel's BEEPWEARPRO pager
watch.
Unified Communications. Big Planet currently offers a DYNAMIC WEB PAGE
BUILDER that provides a powerful, yet easy to use tool for creating and
maintaining sophisticated Web sites. DYNAMIC WEB PAGE BUILDER is designed for
small businesses or for a distributor/representative's personal use. Big Planet
is also exploring the possibility and feasibility of potential products that
would integrate the Internet and voice-based messaging.
E-commerce and Computing. The Big Planet on-line store
(www.bpstore.com) provides an on-line shopping environment to Big Planet sales
representatives and their customers. The Big Planet store was initially opened
in September 1998 and currently offers access to a wide selection of products
and services from numerous different vendors in addition to Nu Skin Personal
Care and Pharmanex products. A key focus of the store is on computing products,
including Internet appliances like the IPHONE and the APLIOPHONE. Big Planet has
several relationships with other parties which links the Big Planet on-line
store to Web sites such as OnlineOfficeSupplies.com and the FlowerCompany.com.
Representatives earn commissions on purchases by their customers through the
store.
-11-
Education and Training. Big Planet offers a variety of educational and
training products for Big Planet independent sales representatives and their
customers via a combination of the Internet and CD ROM packages. These products
include LEARNING UNIVERSITY, KIDS EDUCATION EXCHANGE, children multi-media
education products, the INTERACTIVE ACHIEVEMENT CENTER, the WORLD BOOK
ENCYCLOPEDIA, and the LEARNING CENTER. Sales Aids
The Company provides an assortment of sales aids to facilitate the
sales of its products. Sales aids include videotapes, promotional clothing,
pens, stationery, business cards, brushes, combs, cotton pads, tissues, and
other miscellaneous items to help create consumer awareness of the Company and
its products. Sales aids are priced at the Company's approximate cost, and
distributors do not receive commissions on purchases of sales aids.
Product Guarantees
The Company believes that it is among the most consumer-protective
companies in the direct selling industry. For 30 days from the date of purchase,
the Company's product return policy allows a retail purchaser to return any
product to the distributor through whom the product was purchased for a full
refund. After 30 days from the date of purchase, the return privilege is in the
discretion of the distributor. Because distributors may return unused and
resalable products to the Company for a refund of 90% of the purchase price for
one year, they are encouraged to provide consumer refunds beyond 30 days. In
addition, the product return policy is a material aspect of the success of
distributors in developing a retail customer base. The Company's experience with
actual product returns has averaged less than 3.5% of annual revenue through
1998. Because many of Big Planet's products and services are provided directly
to consumers by third-party vendors, the same 30-day return privilege does not
apply to products purchased by consumers from such vendors unless such vendors
otherwise agree.
Distribution System
Overview of Distribution System. The foundation of the Company's sales
philosophy and distribution system is network marketing. Under most network
marketing systems, distributors purchase products for resale to consumers and
for personal consumption. Pursuant to the Company's Global Compensation Plan,
products are sold exclusively to or through independent distributors who are not
employees of the Company. Because of the nature of the products and services
provided by Big Planet, Big Planet distributors do not buy products for resale
but act as independent sales representatives of Big Planet. Under most network
marketing systems, independent distributors purchase products for resale and for
personal consumption.
Network marketing is an effective vehicle to distribute the Company's
products because:
* A consumer can be educated about a product in person by a
distributor, which the Company believes is more effective than
using television and print advertisements;
* Direct sales allow for actual product testing by a potential
consumer;
* The impact of distributor and consumer testimonials is enhanced;
and
* As compared to other distribution methods, distributors can give
customers higher levels of service and attention, by, among other
things, delivering products directly to a consumer and following
up on sales to ensure proper product usage and customer
satisfaction, and to encourage repeat purchases.
Direct selling as a distribution channel has been enhanced in the past
decade due to advancements in communications, including telecommunications and
Internet connectivity, and the proliferation of the use of videos and fax
machines. Direct selling companies rely on telecommunications, the Internet, and
videos to project a
-12-
desired image for such companies and their product lines. The Company believes
that high quality sales aids play an important role in the success of
distributor efforts. For this reason, the Company maintains an in-house staff of
video production personnel and video and audio cassette duplication equipment
for timely and cost-effective production of sales materials. In addition, the
Company intends to leverage the expertise of Big Planet management following the
completion of the proposed Big Planet acquisition to implement effective
Internet strategies in each of the Company's product divisions. The Company
believes that the Internet will become an increasingly important business factor
as more and more consumers purchase products over the Internet as opposed to
traditional retail and direct sales channels. As a result, the Company expects
that direct sellers will need to adapt their business models to integrate the
Internet into their operations to remain successful. Management is committed to
fully utilizing current and future technological advances to continue enhancing
the effectiveness of direct selling. See "Risk Factors -- "Risks Related to
Potential Changes in Business Model."
The Company's network marketing program differs from many other network
marketing programs in several respects. First, the Company was among the first
to develop the ability for distributors to be compensated in their home
countries for sales across the globe. The Company's Global Compensation Plan
allows Company distributors to develop a seamless global network of downline
distributors. Second, the Company's order and fulfillment systems eliminate the
need for distributors to carry significant levels of inventory. Third, the
Global Compensation Plan is among the most financially rewarding plans offered
to distributors by network marketing companies, and can result in commissions to
distributors aggregating up to 58% of a product's wholesale price. On a global
basis, commissions have averaged approximately 39 to 41% of revenue from
commissionable sales over the last eight years. Big Planet does not pay
commissions on the wholesale price but on the gross margins from sales of
services and products. If products and services are purchased directly by
distributors or customers from third parties with contractual relationships with
Big Planet, the commission is based on the total commission that Big Planet
receives from such third parties with respect to such sales. Accordingly,
commissions paid with respect to Big Planet products and services would be less
as a percentage of revenue than the Company's historic commission levels.
In connection with the proposed acquisition of Big Planet and the
Company's decision to shift to a divisional structure, the Global Compensation
Plan will be re-engineered to allow distributors to develop a seamless global
network of downline distributors across any or all of the Company's divisions.
Currently, distributors can be compensated to some degree for sales in other
divisions. The Company, however, intends to modify the Global Compensation Plan
to simplify this process and increase the ability of distributors to develop a
network of downline distributors across divisions. The Company believes this
will benefit the Company by allowing distributors to focus on one division while
still being eligible to be compensated for sales generated by their downline
distributors in other divisions. By developing a compensation plan and structure
that does not penalize a distributor for focusing on one division, distributors
will be better able to develop expertise in an area of interest to them, which
should allow them to provide a greater level of service. This structure should
also promote cross-selling by distributors across divisions as they recruit
downline members with differing interests because they will still be compensated
for sales generated by such downline members. The re-engineered Global
Compensation Plan will be the same essentially as the existing plan to avoid
confusion, but the structure for commissions on the front-end of the plan (i.e.,
sales by distributors to its direct customers) may be modified for a particular
product division.
The Company's revenue depends directly upon the efforts of
distributors. Growth in sales volume requires an increase in the productivity of
distributors and/or growth in the total number of distributors. There can be no
assurance that the productivity or number of distributors will be sustained at
current levels or increased in the future. See "Risk Factors -- Reliance upon
Independent Distributors." Furthermore, the Company estimates that, as of
December 31, 1998, approximately 300 distributorships worldwide comprised
Hawaiian Blue Diamond and Blue Diamond executive distributor levels, which are
the Company's two highest executive distributor levels and, together with their
extensive downline networks, account for substantially all of the Company's
revenue. Consequently, the loss of such a high-level distributor or another key
distributor, together
-13-
with a group of leading distributors in such distributor's downline network, or
the loss of a significant number of distributors for any reason, could adversely
affect the Company's results of operations.
Sponsoring. The Company relies on its distributors to sponsor new
distributors. While the Company provides, at cost, product samples, brochures,
magazines, and other sales materials, distributors are primarily
responsible for educating new distributors with respect to products, the Global
Compensation Plan, and how to build a successful distributorship. See "Risk
Factors - Reliance upon Independent Distributors."
The sponsoring of new distributors creates multiple levels in the
network marketing structure. Persons whom a distributor sponsors are referred to
as "downline" or "sponsored" distributors. If downline distributors also sponsor
new distributors, they create additional levels in the structure, but their
downline distributors remain in the same downline network as their original
sponsoring distributor.
Sponsoring activities are not required of distributors. However,
because of the financial incentives provided to those who succeed in building a
distributor network that consumes and resells products, the Company believes
that most of its distributors attempt, with varying degrees of effort and
success, to sponsor additional distributors. Generally, distributors invite
friends, family members, and acquaintances to sales meetings in which Company
products are presented and the Global Compensation Plan is explained. People are
often attracted to become distributors after using Company products and becoming
regular retail customers. Once a person becomes a distributor, he or she is able
to purchase products directly from the Company at wholesale prices for resale to
consumers or for personal consumption. The distributor is also entitled to
sponsor other distributors in order to build a network of distributors and
product users.
A potential distributor must enter into a standard distributor
agreement with the Company which obligates the distributor to abide by the
Company's policies and procedures. Additionally, in all countries except Japan,
a new distributor is required to enter into a product purchase agreement with
the Company's local subsidiary, which governs product purchases. In certain of
the Company's markets, distributors are also required to purchase a starter kit,
which includes the Company's policies and procedures and are sold for the
approximate cost of producing the starter kit.
Global Compensation Plan. Management believes that one of the Company's
key competitive advantages is the Global Compensation Plan. Distributors receive
higher levels of commissions as they advance under the Global Compensation Plan.
The Global Compensation Plan is seamlessly integrated across all markets in
which the Company's personal care products, nutritional supplements, and upon
completion of the proposed acquisition of Big Planet, Big Planet's products and
services, are sold, allowing distributors to receive commissions for global
product sales, rather than merely local product sales. This seamless integration
means that the Company's distributor base has global reach and that the
knowledge and experience of current distributors can be used to build
distributor leadership in new markets. The Global Compensation Plan will be
modified in connection with the Company's shift to a divisional structure to
seamlessly integrate it across all divisions.
Allowing distributors to receive commissions at the same rate for sales
in foreign countries as for sales in their respective home countries and across
each division is a significant benefit to distributors. Distributors benefit
from this because they are not required to establish new distributorships or
requalify for higher levels of commissions within each new country in which they
begin to operate or in each new division, which is frequently the case under the
compensation plans of the Company's major competitors. Under the modified Global
Compensation Plan, a distributor will be paid consolidated monthly commissions
in the distributor's home country, in local currency, for product sales in that
distributor's global downline distributor network across all divisions.
High Level of Distributor Incentives. Based upon its knowledge of
distributor compensation plans, the Company believes that the Global
Compensation Plan is among the most financially rewarding plans offered to
distributors by network marketing companies. There are two fundamental ways in
which distributors can earn
-14-
money: (i) through retail markups, for which the Company recommends a range from
43% to 60%; and (ii) through a series of commissions on product sales, which can
result in commissions to distributors aggregating up to 58% of a product's
wholesale price. On a global basis, however, commissions have averaged
approximately 39 to 41% of revenue from commissionable sales over the last eight
years. Because Big Planet pays commissions on the gross margins from sales of
services and products, or on commissions received by Big Planet from third
parties with respect to sales from such third parties, as opposed to the
wholesale price, the commissions paid with respect to Big Planet products and
services would be less as a percentage of revenue than the Company's historic
commission levels.
Each product carries a specified number of sales volume points.
Commissions are based on total personal and group sales volume points per month.
Sales volume points are essentially based upon a product's wholesale cost, net
of any point-of-sale taxes. As a distributor's retail business expands and as he
or she successfully sponsors other distributors into the business who in turn
expand their own businesses, he or she receives a higher percentage of
commissions.
Once a distributor becomes an executive, the distributor can begin to
take full advantage of the benefits of commission payments on personal and group
sales volume. To achieve executive status, a distributor must submit a
qualifying letter of intent and achieve specified personal and group sales
volumes for a four-month period of time. To maintain executive status, a
distributor must generally also maintain specified personal and group sales
volumes for a two-to-four month period. An executive's commissions increase
substantially as multiple downline distributors achieve executive status. In
determining commissions, the number of levels of downline distributors that can
be included in an executive's group increases as the number of executive
distributorship directly below the executive increases.
As of the dates indicated below, the Company had the following number
of executive distributors.
Total Number of Executive Distributors
As of December 31,
-------------------------------------------------
Executive Distributors 1994 1995 1996 1997 1998
------------------------ ------ ------ ------ ------ ------
North Asia ............. 3,613 4,017 14,844 16,654 17,311
Southeast Asia ......... 2,778 4,129 6,199 5,642 5,091
Other Markets .......... -- 27 436 393 379
------ ------ ------ ------ ------
Total .................. 6,391 8,173 21,479 22,689 22,781
====== ====== ====== ====== ======
On a monthly basis, the Company evaluates requests for exceptions to
the Global Compensation Plan. While the general policy is to discourage
exceptions, management believes that the flexibility to grant such exceptions is
critical in retaining distributor loyalty and dedication. In each market,
distributor services personnel evaluate each such instance and make appropriate
recommendations to the Company.
Distributor Support. The Company is committed to providing high-level
support services tailored to the needs of its distributors in each market. The
Company meets the needs and builds the loyalty of its distributors with
personalized distributor service, a support staff that assists distributors as
they build networks of downline distributors, and a liberal product return
policy. Because many distributors have only a limited number of hours each week
to concentrate on their Nu Skin business, management believes that maximizing a
distributor's efforts through effective support of each distributor has been and
will continue to be important to the success of the Company.
-15-
Through training meetings, annual conventions, distributor focus
groups, regular telephone conference calls, and personal contacts with
distributors, the Company seeks to understand and satisfy the needs of each
distributor. The Company provides walk-in, telephonic, and computerized product
fulfillment and tracking services that result in user-friendly, timely product
distribution. In addition, the Company is committed to evaluating new ideas in
technology and services, such as automatic product reordering, that the Company
can provide to distributors. The Company currently utilizes voicemail,
teleconferencing, and fax services. Global Internet access (including Company
and product information, ordering abilities, and group and personal sales volume
inquiries) is anticipated to be provided to distributors in the future. Each
walk-in center maintains meeting rooms which distributors may utilize in
training and sponsoring activities.
Rules Affecting Distributors. The Company's standard distributor
agreement, policies and procedures, and compensation plan contained in every
starter and/or introductory kit outline the scope of permissible distributor
marketing activities. The Company's distributor rules and guidelines are
designed to provide distributors with maximum flexibility and opportunity within
the bounds of governmental regulations regarding network marketing and prudent
business policies and procedures. Distributors are independent contractors and
are thus prohibited from representing themselves as agents or employees of the
Company. Distributors are obligated to present the Company's products and
business opportunity ethically and professionally. Distributors agree that the
presentation of the Company's business opportunity must be consistent with, and
limited to, the product claims and representations made in literature
distributed by the Company. Under most regulations governing nutritional
supplements, no medical claims may be made regarding the products, nor may
distributors prescribe any particular product as suitable for any specific
ailment. Even though sponsoring activities can be conducted in many countries,
distributors are prohibited from conducting marketing activities outside of
countries in which the Company conducts business and are not allowed to export
products from one country to another. See "Risk Factors -- Reliance upon
Independent Distributors."
Distributors must represent that the receipt of commissions is based on
retail sales and substantial efforts. Exhibiting commission statements or checks
is prohibited. Sales aids such as videotapes, promotional clothing, pens,
stationery, and other miscellaneous items must be produced or pre-approved by
the Company.
Distributors may not use any form of media advertising to promote
products. Products may be promoted only by personal contact or by literature
produced or approved by the Company. Generic business opportunity advertisements
(without using the Company name) may be placed in accordance with certain
guidelines in some countries. The Company's logos and names may not be
permanently displayed on physical premises. Distributors may not use the
Company's trademarks or other intellectual property without the Company's
consent.
Products generally may not be sold, and the business opportunity may
not be promoted, in traditional retail environments. Pharmanex has made an
exception to this rule for its nutritional supplements and has allowed such
products to be sold in independently-owned pharmacies and drug stores meeting
certain requirements. Additionally, distributors may not sell at conventions,
trade shows, flea markets, swap meets, and similar events. Distributors who own
or are employed by a service-related business such as a doctor's office, hair
salon, or health club, may make products available to regular customers as long
as products are not displayed visibly to the general public in such a way as to
attract the general public into the establishment to purchase products.
Generally, a distributor can receive commission bonuses only if, on a
monthly basis, (i) the distributor achieves at least 100 points (approximately
$100) in personal sales volume, (ii) the distributor documents retail sales to
at least five retail customers, (iii) the distributor sells and/or consumes at
least 80% of personal sales volume, and (iv) the distributor is not in default
of any material policies or procedures.
The Company systematically reviews alleged reports of distributor
misbehavior. If the Company determines that a distributor has violated any of
the distributor policies or procedures, it may either terminate the
distributor's rights completely or impose sanctions such as warnings, probation,
withdrawal or denial of an award, suspension of privileges of a distributorship,
fines or penalties, withholding commissions until specified conditions
-16-
are satisfied, or other appropriate injunctive relief. Distributor terminations
based on violations of the Company's policies and procedures have aggregated
less than 1.0% of the Company's distributor force since inception. A distributor
may voluntarily terminate his/her distributorship at any time.
Payment. Distributors generally pay for products prior to shipment.
Accordingly, the Company carries minimal accounts receivable. Distributors
typically pay for products in cash, by wire transfer, and by credit
cards. Cash, which represents a significant portion of all payments, is received
by order takers in the distribution centers when orders are personally picked up
by a distributor.
Product Development
The Company is committed to building its brand name and distributor and
customer loyalty by selling premium quality, innovative personal care products
and nutritional supplements that appeal to broad markets. The Company's product
philosophy is to combine the best of science and nature and to include in each
of its products the highest quality ingredients with the greatest amount of
benefit to the consumer. Independent distributors need to have confidence that
they are distributing the best products available that are distinguishable from
"off the shelf" products. The Company is committed to developing and providing
quality products that can be sold at attractive retail prices and allow the
Company to maintain reasonable profit margins.
The Company believes that timely and strategic product introductions
are critical to maintaining the growth of independent distribution channels.
Distributors become enthusiastic about new products and are generally excited to
share new products with their customer base. An expanding product line helps to
attract new distributors and generate additional revenues.
Nu Skin Personal Care. The development philosophy of the Company with
respect to its personal care products is represented by its personal care
products slogan "All of the Good and None of the Bad." Nu Skin personal care
products do not contain soaps and other harsh cleansers that can dry and
irritate skin, undesirable oils such as lanolin, elements known to be irritating
and pore clogging, and conditioning agents that leave heavy residues. The
Company is also committed to constantly improving its evolving personal care
product formulations to incorporate innovative and proven ingredients into its
product line. Whereas many consumer product companies develop a formula and stay
with that formula for years, and sometimes decades, the Company believes that it
must stay current with product and ingredient evolution to maintain its
reputation for innovation to retain distributor and consumer attention and
enthusiasm. For this reason, the Company continuously evaluates its entire line
of products for possible enhancements and improvements.
Nu Skin Personal Care maintains a laboratory and a staff of
approximately 40 individuals involved in personal care product development. The
Company also relies on an advisory board comprised of recognized authorities in
various disciplines. The Company recently entered into a nine-year
directed-research agreement to form the Nu Skin Center for Dermatological
Research with Stanford University Medical Center's Department of Dermatology
pursuant to which the Company will direct research and clinical trials of Nu
Skin products or materials. The Company also evaluates a significant number of
product ideas that are presented by distributors, vendors, and other outside
sources. The Company believes that strategic relationships with certain vendors
provides important access to innovative product concepts. The Company intends to
continue to develop products tailored to appeal to the particular needs of the
Company's markets.
Pharmanex. From the date it first decided to begin offering nutritional
products, the Company has been committed to providing high quality nutritional
supplements, as typified by the Company's best selling nutritional product,
LIFEPAK. This philosophy has led to the Company's commitment to avoid stimulants
and any ingredients that are reported to have any long-term addictive or harmful
effects, even if the short-term effects may be desirable. Through the
acquisition of Pharmanex, the Company believes that its increased research and
development capabilities will solidify the Company as one of the industry
leaders in developing and distributing high-grade, clinically-substantiated
nutritional supplements. The Company believes that it is one of the few
-17-
nutritional supplement companies in the United States that has a research and
development department patterned after the pharmaceutical industry and believes
that this research and development capability will provide the Company with an
important competitive advantage in this industry. Moreover, because a
substantial portion of its research and development activities are conducted in
China, the Company believes that it should be able to conduct quality research
and development work as well as initial clinical trials at costs that are less
than would be incurred if conducting comparable work in the United States.
In its development of natural and botanical supplements, the Company's
primary research and development goal is to selectively develop proprietary
technologies for the purification and standardization of efficacious
"single-species" herbal products. Selection of a botanical/natural or
nutritional product for development is based on available scientific data
concerning safety and efficacy and consumer need. The Company utilizes its "6S
Quality Process" (Selection, Sourcing, Structure, Standardization, Safety, and
Substantiation) in its development and sourcing activities, which are designed
to provide a precise, standardized, recommended dosage of each beneficial
natural ingredient in every capsule. The "6S Quality Process" generally involves
the following actions:
* Selection. Conducting a scientific review of research and
databases in connection with the selection of potential products
and ingredients, and determining the authenticity, usefulness, and
safety standards for such potential products and ingredients.
* Sourcing. Investigating potential sources, evaluating the quality
of such sources, and performing botanical and chemical evaluations
where appropriate.
* Structure. Determining the structural analyses of natural
compounds and active ingredients.
* Standardization. Standardizing the product to at least one
relative active ingredient.
* Safety. Assessing safety from available research, and, where
necessary, performing additional tests such as microbial tests and
chemical, toxin, and heavy metal analyses.
* Substantiation. Reviewing documented pre-clinical and clinical
trials, and where necessary and appropriate, initiating studies
and clinical trials sponsored by the Company.
The Company employs approximately 50 M.D. and Ph.D.-level scientists at
its dedicated research and development center in Shanghai, China, and at its
Provo, Utah and San Francisco, California offices. The Company also relies on an
advisory board comprised of recognized authorities in various related
disciplines. In addition, the Company evaluates a significant number of product
ideas that are presented by distributors and other outside sources. The Company
believes that strategic relationships with certain vendors also provide
important access to innovative product concepts. The Company has established
collaborative agreements with four established universities and research
institutions in China: Shanghai Medical University, Beijing Medical University,
Institute of Materia Medica, and National Laboratory of Contraceptive and
Devices Research. The staff of each institution includes scientists with
expertise in natural product chemistry, biochemistry, pharmacology, and clinical
studies. Collaborative efforts with these institutions are coordinated with and
validated by the Company's Research and Development Center in Shanghai. The
Company also currently has collaborative research and clinical study programs
with several major university research centers in the United States, including
UCLA, Tufts University, Columbia University, Kansas University, and the Scripps
Institute.
Big Planet. To date, Big Planet's product development has focused on
developing its Internet facilities and operational systems in order to develop
operational and support platforms necessary to ensure consistent introduction of
new products and services, which Big Planet believes is necessary to maintain
excitement among sales representatives. Big Planet seeks to identify and secure
contractual relationships with various vendors and suppliers that will enable
Big Planet to sell competitively-priced technology products and services through
its distribution channel. In addition, Big Planet is committed to identifying
and securing contractual relationships with various vendors and suppliers for a
wide selection of products for sale through its on-line store.
-18-
Substantially all of the Company's products and services are currently
contracted from third parties. See "Sourcing and Production - Big Planet."
Sourcing and Production
Virtually all of the Company's personal care and nutritional products
are currently produced by manufacturers unaffiliated with the Company in
accordance with specifications provided by the Company or developed by such
manufacturers for the Company. The Company's profit margins, and its ability to
deliver its existing products on a timely basis, are dependent upon the ability
of these outside manufacturers to continue to supply products in a timely and
cost-efficient manner. Furthermore, the Company's ability to enter new markets
and sustain satisfactory levels of sales in each market depends in part upon the
ability of suitable outside manufacturers to reformulate existing products, if
necessary to comply with local regulations or market environments, for
introduction into such markets. Finally, the development of additional new
products in the future will likewise depend in part on the services of suitable
outside manufacturers. The Company has been shifting some of its manufacturing
of products to its foreign markets in order to protect its gross margins during
fluctuations in currency exchange rates. For example, in 1998 the Company
contracted to have LIFEPAK (for Taiwan) manufactured locally in the Taiwanese
market.
Nu Skin Personal Care. The Company currently acquires products or
ingredients for its personal care products from sole suppliers or suppliers that
are considered by the Company to be the superior suppliers of such ingredients.
The Company currently relies on one unaffiliated supplier for approximately 50%
of its personal care products. The Company's contract with this supplier expires
at the end of 2000. The Company believes that, in the event it is unable to
source any products or ingredients from this supplier, the Company could produce
such products or replace such products or substitute ingredients without great
difficulty or prohibitive increases in the cost of goods sold. However, there
can be no assurance that the loss of this supplier would not have a material
adverse effect on the Company's business and results of operations. See "Risk
Factors -- Reliance on Limited Suppliers."
Pharmanex. Substantially all of the Company's nutritional supplements
and ingredients, including LIFEPAK, are produced or provided by third-party
suppliers that are considered by the Company to be the superior suppliers of
such products and/or ingredients. The Company currently relies on one
unaffiliated supplier for approximately 30% of its nutritional supplements. The
Company believes that, in the event it is unable to source any products or
ingredients from this supplier or its other current suppliers other than set
forth below, the Company could produce such products or replace such products or
substitute ingredients without great difficulty or prohibitive increases in the
cost of goods sold. However, there can be no assurance that the loss any of such
suppliers would not have a material adverse effect on the Company's business and
results of operations. In addition, one of the Company's proprietary nutritional
supplements, CordyMax Cs4, is sourced or licensed from a sole supplier of such
product in China pursuant to a ten-year contract. CHOLESTIN is sourced from two
different suppliers pursuant to contracts that expire in 2008 and 2016. The
CHOLESTIN and CordyMax agreements have minimum purchase requirements. In the
event the Company fails to satisfy these minium purchase requirements, it will
be required to pay a penalty. In addition, the Company is required to pay a
termination fee if its wants to terminate the agreements prior to the end of
their respective terms. In the event the Company is unable to source products
from these suppliers, the Company could have difficulty finding another source
of these products. See "Risk Factors - Reliance on Limited Suppliers."
As part of the acquisition of Pharmanex, the Company acquired an
extraction and purification facility located in Huzhou, Zhejiang Province, China
where it currently produces the extracts for its BIOGINKO 27/7 and TEGREEN 97
products and also a certain potential new product.
The Company has focused on a five-step sourcing process for its
proprietary natural supplements, such as CHOLESTIN and BIO GINKO 27/7 to ensure
product quality. The first step in this process is to identify the sources of
raw material from among many different species. This requires the Company to
employ or engage the
-19-
necessary botanical expertise to identify the species required for a particular
product. The second step involves evaluating the raw material's availability.
The Company focuses on products that utilize raw materials that can be
cultivated in quantities sufficient to produce satisfactory yields. Variables
such as location, seasonal availability, stability, access, and alternative
sources must e considered. Once the sources of supply have been identified, the
third step is to evaluate their quality--which can differ significantly not just
by source, but by time of harvest and method of harvest. The Company has found
that steps two and three require an on-the-ground presence and local expertise
to be done properly. Step four is to identify the source of supply. To ensure
raw material supply, the Company may engage in both forward contracts as well as
contracts with multiple suppliers. As a final step to ensuring quality, the
Company, when possible, physically supervises the harvest and shipment of all
raw materials and bulk extract purchased. This activity involves not only visual
inspection, but also chemical analysis of the level of active ingredient in the
material at the harvest site and at the receiving dock.
The Company has contract cultivation areas in China and in Chile.
Because certain of its botanical products such as ST. JOHNS WORT and BIOGINKO
27/7 come from crops that can only be harvested once a year, problems with such
crops could limit the ability of the Company to produce products associated with
that plant species during a poor harvest year. In addition, as these products
can only be produced once a year, the Company must rely on the accuracy of its
estimates of its product requirements in sourcing these products. If the Company
underestimates its product requirements, it may not be able to re-stock such
product until the next growing season. In order to help alleviate this problem,
the Company is working on sourcing raw materials in both the Northern and
Southern hemisphere to provide for two separate growing seasons. See "Risk
Factors -- Reliance on Limited Suppliers."
Big Planet. Substantially all of the services and products offered by
Big Planet currently are contracted from unaffiliated third parties pursuant to
contractual arrangements. For example, Big Planet has contracted with Qwest
Communications to provide long distance phone services for the Company and
contracted with UUNET for dial-up access. By acting as a reseller of these
services, Big Planet is able to avoid the large capital deployment and
investment that would be required to build the infrastructure to provide such
services itself until such time as it has developed a sufficient customer base
to make investments in infrastructure and equipment economically feasible.
However, Big Planet's profit margins and its ability to deliver quality service
at competitive prices are dependent upon its ability to negotiate and maintain
favorable terms with such third-party providers. Big Planet also contracts with
or enters into various business relationships with various unaffiliated parties
to acquire the right to distribute unique and innovative products, such as the
i-Phone through its e-commerce services.
Big Planet, however, has invested significantly in its Internet
facilities and customer support in order to add value and differentiate itself
in the market place. Additionally, implementation of operational support systems
allows Big Planet to own the complete relationship with the customer, which
enhances the Company's ability to retain customers and market additional new
products and services.
Regional Profiles
For information on the Company's revenue for each of the geographic
regions in which the Company operated for the years ended December 31, 1996,
1997, and 1998 and other related information, reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
Note 16 to the Company's Consolidated Financial Statements, each of which are
incorporated herein by reference to the Company's 1998 Annual Report to
Stockholders, sections of which are filed herewith as Exhibit 13.
North Asia. The Company's North Asia region currently consists of its
markets in Japan and South Korea. Japan is the Company's largest market with
approximately $654.2 million in revenue in 1998. According to the World
Federation of Direct Selling Associations ("WFDSA"), the direct selling channel
in Japan generated sales of approximately $30 billion of goods and services in
1997, making Japan the largest direct selling market in the world. Management
believes that as many as six million people are involved in direct selling
businesses in Japan. Direct selling is governed by detailed government
regulation in Japan. See "Risk Factors -- Government
-20-
Regulation of Direct Selling Activities." The Company's success to date can be
directly attributed to the growth of its Japanese business in recent years.
While the direct sales market as a whole has remained relatively flat for
several years in Japan, the Company has posted double-digit growth in revenue,
on a local currency basis, each year since the Company entered this market in
1993.
As of December 31, 1998, the Company offered 94 of its 116 personal
care products and 19 of its 62 nutritional supplements, including LIFEPAK and
LIFEPAK Trim, the Company's core nutritional supplements. In addition, in the
fourth quarter of 1998, the Company also introduced a home water filtration
system designed for the Japanese market. With a suggested retail price of
approximately $400, this is the Company's first large-ticket item to be
distributed through its channel. The Company currently offers 59 of its 116
personal care products and six of its 62 nutritional supplements in South Korea.
The Company has not introduced any of the proprietary natural health supplements
or botanical supplements acquired in connection with the recent acquisition of
Pharmanex such as CHOLESTIN and CordyMax Cs-4 in either Japan or South Korea.
Subject to obtaining all necessary regulatory approvals and registrations, the
Company plans to begin to introduce certain of the Pharmanex botanical products
into Japan and South Korea sometime in the second or third quarter of 1999. See
"Risk Factors -- Government Regulation of Personal Care Products and Nutritional
Supplements."
Southeast Asia. The Company's Southeast Asia region currently consists
of its markets in Taiwan, Hong Kong, Thailand, the Philippines, New Zealand, and
Australia. This region has been significantly affected by the Asian economic
crisis, which has severely curtailed consumer spending, particularly in
Thailand. See "Risk Factors -- Economic and Political Conditions in the
Company's Markets."
Taiwan is the largest market in this region with revenue of $ 119.5
million in 1998. According to the WFDSA, the direct selling channel in Taiwan
generated approximately $1.7 billion in sales of goods and services in 1996, of
which approximately 43% were nutritional products. Management believes that the
direct selling industry in Taiwan contracted during 1998. The contraction was
more significant in United States dollar terms as a result of the weakening
Taiwanese dollar. Approximately two million people (approximately 10% of the
population) are estimated to be involved in direct selling. Because a large
percentage of its population is involved in direct selling activities, the
Taiwan government regulates direct selling activities to a significant extent.
For example, the Taiwan government has enacted tax legislation aimed at ensuring
proper tax payments by distributors on their transactions with end consumers.
See "Risk Factors -- Government Regulations of Direct Selling Activities." The
Company believes that it is one of the largest direct selling companies in
Taiwan. As of December 31, 1998, the Company offered 94 of its 116 personal care
products and 17of its 62 nutritional supplements in Taiwan.
Other Countries. The Company's Other Countries region currently
consists of the Company's 13 markets in Europe, Brazil, and United States,
which, until March 1999, had been operated by private affiliates. See "Recent
Developments." The European markets first opened in 1995 with the opening of the
United Kingdom, Belgium, the Netherlands, France, and Germany. Since that
initial opening, an additional eight markets have been opened in Europe,
including Sweden, Denmark, and Poland in 1998. Approximately 75 of the Company's
personal care products are sold in Europe. The Company has introduced three to
five of its IDN products in a liminted number of its European markets. The
Company believes the nutritional supplement market provides the Company with its
greatest growth potential in Europe. The Company recently hired a new European
vice president and continues to refine its operations in Europe to fit the
European mold. On March 8, 1999, the Company acquired the Nu Skin operations in
the United States, and plans to acquire Big Planet and the other North American
Affiliates in the second quarter of 1999. Substantially all of the Company
personal care and nutritional supplements are distributed in the United States.
The Company is assuming control over the United States operations at an
important time. The newly combined Pharmanex/IDN division was recently launched
in the United States and Big Planet continues to develop and implement its
technology and telecommunication products and services in the United States.
Following are the weighted average currency exchange rates of $1 into
local currency for each of the Company's markets in which revenue exceeded $5.0
million for at least one of the quarters listed:
-21-
1996 1997 1998
---------------------------------- ---------------------------------- ----------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Japan(1) 105.8 107.5 109.0 112.9 121.4 119.1 118.1 125.6 128.2 135.9 139.5 119.3
Taiwan 27.4 27.4 27.5 27.5 27.5 27.7 28.4 31.0 32.8 33.6 34.5 32.6
Hong Kong 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.8 7.8 7.8
South Korea 782.6 786.5 815.5 829.4 863.9 889.6 894.8 1,097.0 1,585.7 1,392.6 1,327.0 1,278.9
Thailand 25.2 25.3 25.3 25.5 26.0 25.4 31.5 40.3 45.1 40.3 40.9 37.1
- ------------------
(1) Since January 1, 1992, the highest and lowest exchange rates for the
Japanese yen have been 147.3 and 80.6, respectively.
Competition
Personal Care and Nutritional Products. The markets for personal care
and nutritional products are large and intensely competitive. The Company
competes directly with companies that manufacture and market personal care and
nutritional products in each of the Company's product categories and product
lines. The Company competes with other companies in the personal care and
nutritional products industry by emphasizing the uniqueness, value and premium
quality of the Company's products and the convenience of the Company's
distribution system. Many of the Company's competitors have much greater name
recognition and financial resources than the Company. In addition, personal care
and nutritional products can be purchased in a wide variety of channels of
distribution. While the Company believes that consumers appreciate the
convenience of ordering products from home through a sales person or through a
catalog, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. The Company's
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other personal care and nutritional
product companies. There can be no assurance that the Company's business and
results of operations will not be affected materially by market conditions and
competition in the future. See "Risk Factors -- Competition."
Technology Products and Services; Telecommunications. The Internet
services and on-line commerce market is new, rapidly evolving, and intensely
competitive. The Company expects competition to intensify further in this market
in the future. Barriers to entry for e-commerce are relatively low as current
and new competitors can launch new Web sites at relatively low cost. Big
Planet's e-commerce services also compete with other channels of distribution,
including catalogue sales and traditional retail sales. Big Planet currently or
potentially competes with other companies for its Internet services and
products, including: established on-line services such as America Online and
Microsoft Network, local, regional, and national Internet service providers such
as MindSpring and national telecommunication companies; and other numerous
e-commerce Web sites such as Amazon.com and Buy.com. Many of Big Planet's
competitors have much greater name recognition and financial resources than Big
Planet or the Company. In addition, the Company understands that some e-commerce
vendors have elected to sell products for little or no gross margins and to
generate revenue through the sale of advertising. Big Planet would have a
difficult time competing based on price with such vendors because its
distribution system results in a commission payment based on such sales. There
can be no assurance that Big Planet's business and results of operations will
not be affected materially by the intense competition in the Internet market.
See "Risk Factors -- Competition."
The telecommunications industry is highly competitive. Many of the Big
Planet's existing and potential competitors in this market segment have
financial, personnel, marketing, and other resources significantly greater
-22-
than those of the Company or Big Planet, as well as other competitive
advantages. Increased consolidation and strategic alliances in the industry
resulting from the Telecommunications Act of 1996 (the "Telecom Act of 1996")
could give rise to significant new competitors to Big Planet. Competition is
primarily on the basis of pricing, transmission quality, network reliability,
and customer service and support. Big Planet may be at a disadvantage because it
does not have its own facilities and must rely on its ability to acquire quality
and reliable services from third-party vendors at a price that allows it to
resell such services at competitive rates. The ability of Big Planet to compete
effectively in this market will depend upon its ability to maintain high quality
services at prices equal to or below those charged by its competitors. There can
be no assurance that Big Planet or the Company will be able to contract with
third parties to obtain rates that allow it to compete on the basis of price in
the future or that it will be able to successfully compete in this market. See
"Risk Factors - Competition."
Network Marketing Companies. The Company also competes with other
direct selling organizations, some of which have a longer operating history and
higher visibility, name recognition, and financial resources. The leading
network marketing company in the Company's existing markets is Amway Corporation
and its affiliates. The Company competes for new distributors on the strength of
its multiple business opportunities, product offerings, compensation plan,
management strength, and appeal of its international operations. Management
envisions the entry of many more direct selling organizations into the
marketplace as this channel of distribution expands over the next several years.
There can be no assurance that the Company will be able to successfully meet the
challenges posed by this increased competition. See "Risk Factors--Competition."
Intellectual Property
The Company's major trademarks are registered in the United States and
in many other countries, and the Company considers its trademark protection to
be very important to its business. The major trademarks used by the Company
include the following: Nu Skin, IDN, Pharmanex, LIFEPAK, and Big Planet. The
Company generally registers its important trademarks in the United States and
each market where the Company operates or has plans to operate. In addition, a
number of the Company's products utilize proprietary technologies and
formulations.
Government Regulation
Direct Selling Activities. Direct selling activities are regulated by
various federal, state, and local governmental agencies in the United States and
foreign countries. These laws and regulations are generally intended to prevent
fraudulent or deceptive schemes, often referred to as "pyramid," "money games,"
"business opportunity" or "chain sales" schemes, that promise quick rewards for
little or no effort, require high entry costs, use high pressure recruiting
methods, and/or do not involve legitimate products. The laws and regulations in
the Company's current markets often (i) impose certain cancellation/product
return, inventory buy-backs and cooling-off rights for consumers and
distributors, (ii) require the Company or its distributors to register with the
governmental agency, (iii) impose certain reporting requirements on the Company,
and/or (iv) impose various requirements, such as requiring distributors to have
certain levels of retail sales to qualify to receive commissions, to ensure that
distributors are being compensated for sales of products and not for recruitment
of new distributors. The extent and provisions of these laws, however, vary from
country to country and can impose significant restrictions and limitations on
the Company's business operations. For example, in South Korea, the Company
cannot pay more than 35% of its revenues to its distributors in any given month.
In Germany, the German Commercial Code prohibits the use of direct salespersons
to promote a multi-level marketing arrangement by making the inducement to
purchase products for resale illegal. Accordingly, the Company, through its
German subsidiary, sells its products to consumers through a "commercial agent"
rather than a wholesale distributor. A commercial agent is similar to an
employee. Therefore, Nu Skin is subject to potential tax and social insurance
liability as well as agency law governing the termination of a commercial agent.
Based on research conducted in opening its existing markets (including
assistance from local counsel), the nature and scope of inquiries from
government regulatory authorities, and the Company's history of operations in
-23-
such markets to date, the Company believes that its method of distribution is in
compliance in all material respects with the laws and regulations relating to
direct selling activities of the countries in which the Company currently
operates. Certain countries, including Singapore and China, currently have laws
in place that would prohibit or significantly limit the Company from conducting
business in such markets in accordance with its existing business model. There
can be no assurance that the Company will be allowed to conduct business in new
markets or continue to conduct business in each of its existing markets. See
"Risk Factors - Government Regulation of Direct Selling Activities."
Regulation of Personal Care and Nutritional Supplements. The Company's
personal care and nutrition products and related marketing and advertising are
subject to extensive governmental regulation by numerous domestic and foreign
governmental agencies and authorities, including the FDA, the Federal Trade
Commission (the "FTC"), the Consumer Product Safety Commission, and the United
States Department of Agriculture in the United States, and the Ministry of
Health and Welfare in Japan (the "MOHW").
The Company's markets have varied regulations concerning product
formulation, labeling, packaging, and importation. These laws and regulations
often require the Company to, among other things: (i) reformulate products for a
specific market to meet the specific product formulation laws of such country;
(ii) conform product labeling to the regulations in each country; and (iii)
register or qualify products with the applicable government authority or obtain
necessary approvals or file necessary notifications for the marketing of such
products. For example, in Japan, the MOHW requires the Company to have an import
business license and to register each personal care product imported into Japan.
The Company has also had to reformulate many products to satisfy MOHW
regulations. In Taiwan, all "medicated" cosmetic and pharmaceutical products
require registration. These regulations can limit the ability of the Company to
import certain products into certain of its markets and can delay the
introduction of products into markets as the Company goes through the
registration and approval process for such products. The sale of cosmetic
products is regulated in the European Union ("EU") member states under the EU
Cosmetics Directive, which requires a uniform application for foreign companies
making personal care product sales.
Nutritional supplements are strictly regulated in the Company's
markets. The Company's markets have varied regulations that apply to and
distinguish dietary health supplements from "drugs" or "pharmaceutical
products." For example, the Company's products are regulated by the FDA in the
United States under the Federal Food, Drug and Cosmetic Act (the "FDCA"). The
FDCA has been amended several times with respect to nutritional supplements,
most recently by the Nutrition Labeling and Education Act and the Dietary
Supplement Health and Education Act ("DSHEA"). DSHEA establishes rules for
determining whether a product is a nutritional supplement. Under DSHEA,
nutritional supplements are regulated more like foods than drugs, are not
subject to the food additive provisions of the law, and are generally not
required to undergo regulatory clearance prior to market. None of this
infringes, however, upon the FDA's power to remove an unsafe substance from the
market, but the law clearly shifts the burden of proof to the FDA. In Japan,
regulations strictly limit the types of claims and regulations that can be made
regarding the efficacy of nutritional supplements. In the event a product, or an
ingredient in a product, is classified as a drug or pharmaceutical product in
any market, the Company will generally not be able to distribute such product in
such market through its distribution channel because of the strict restrictions
applicable to drug and pharmaceutical products.
Many of the Company's existing markets also regulate product claims and
advertising. These laws regulate the types of claims and representations that
can be made regarding the efficacy of products, particularly dietary
supplements. For example, in the United States the Company is unable to make any
claim that any of its nutritional supplements will diagnose, cure, mitigate,
treat, or prevent disease. DSHEA, however, permits substantiated, truthful, and
non-misleading statements of nutritional support to be made in labeling, such as
statements describing general well-being resulting from consumption of a dietary
ingredient or the role of a
-24-
nutrient or dietary ingredient in affecting or maintaining a structure or a
function of the body. The FDA recently issued a proposed rule concerning these
issues. The FTC similarly requires that any claims be substantiated. One of the
strategic purposes of the acquisition of Pharmanex was to provide the Company
with additional resources to enhance the ability of the Company to comply with
these requirements. In Japan, the Company and its distributors are severely
restricted in making any claims concerning the health benefits of the Company's
nutritional supplements. Accordingly, these regulations can limit the ability of
the Company and its distributors to inform consumers of the full benefits of the
Company's products. See "Risk Factors -- Government Regulation of Products and
Marketing; Import Restrictions."
The Company and its vendors are also subject to laws and regulations
governing the manufacturing of its products. For example, in the United States
the FDA regulations establish Good Manufacturing Practices for foods and drugs.
Detailed Good Manufacturing Practices have been proposed by the FDA for
nutritional supplements; however, no regulations establishing such Good
Manufacturing Practices have been adopted.
To date, the Company has not experienced any difficulty maintaining its
import licenses but has experienced complications regarding health and safety
and food and drug regulations for nutritional products. Many of the Company's
products have required reformulation to comply with local requirements. In
addition, in Europe there is no uniform legislation governing the manufacture
and sale of nutritional products. Complex legislation governing the
manufacturing and sale of nutritional products in this market have inhibited the
ability of the Company to gain quick access to this market for its nutritional
supplements and could continue to adversely affect and delay sales of the
Company's nutritional supplements in these markets, particularly Germany, which
already has a large nutritional, herbal, and dietary products industry.
Currently, the Company is only actively marketing a few of its core nutritional
products in a limited number of countries in its European market.
Telecommunications Regulation. Following the acquisition of Big Planet,
the Company, through Big Planet, will be subject to varying degrees of
telecommunications regulation in each of the jurisdictions in which it operates.
As a nondominant carrier in the United States, the Company's provision of
international and domestic long distance telecommunications services is
generally regulated on a streamlined basis. Despite recent trends toward
deregulation, some countries do not currently permit competition in the
provision of public switched voice telecommunications services.
United States Regulation of Domestic and International
Telecommunications Services
In the United States, Big Planet's provision of domestic
telecommunications service is subject to the provisions of the Communications
Act, as amended by the Telecom Act of 1996, and the Federal Communications
Commission ("FCC") regulations promulgated thereunder, as well as the applicable
laws and regulations of the various states. The FCC exercises jurisdiction over
all facilities of, and services offered by, telecommunications common carriers
to the extent those facilities are used to provide, originate, or terminate
interstate or international communications. State regulatory commissions retain
some jurisdiction over the same facilities and services to the extent they are
used to originate or terminate intrastate common carrier communications. The FCC
and relevant state authorities regulate the ownership of transmission
facilities, the provision of services, and the terms and conditions under which
such services are provided. Nondominant carriers such as Big Planet are required
by federal and state law and regulations to file tariffs listing the rates,
terms, and conditions for the services they provide. In addition, Big Planet is
subject to contribution requirements for federal and state universal service
funds, which serve to fund affordable telephone service in designated sectors.
With regard to regulation of international telecommunications services
in the United States, common carriers, such as Big Planet, are required to
obtain authority under Section 214 of the Communications Act and are subject to
a variety of international service regulations, including the FCC's
International Settlements Policy,
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which governs permissible arrangements between United States carriers and their
foreign correspondents to settle the cost of terminating traffic on each other's
networks and settlement rates, and rules requiring the filing of international
tariffs, carrier contracts (including foreign carrier agreements), and traffic
and revenue reports.
Regulation of Telecommunications Services in Foreign Countries
Many overseas telecommunications markets are undergoing dramatic
changes as a result of privatization and deregulation. In Europe, the regulation
of the telecommunications industry is governed at a supranational level by EU,
which has developed a regulatory framework aimed at ensuring an open,
competitive telecommunications market. Each EU member state has a different
regulatory regime, and the requirements for Big Planet to obtain necessary
licenses vary considerably from one member state to another and are likely to
change as competition is permitted in new service sectors. In other overseas
markets, Big Planet would be subject to the regulatory regimes in each of the
countries in which it seeks to conduct business. Local regulations range from
permissive to restrictive, depending upon the country. Despite recent trends
toward deregulation, some countries do not currently permit competition in the
provision of public switched voice telecommunications services, which will limit
the ability of Big Planet to provide telecommunication services in all of the
Company's markets.
Internet Access
In the United States, Internet service providers are generally
considered "enhanced service providers" and are exempt from federal and state
regulations governing common carriers. Accordingly, Big Planet's provision of
Internet access services is currently exempt from tariff, certification, and
rate regulation. Nevertheless, regulations governing disclosure of confidential
information, copyright, excise tax, and other requirements that may apply to Big
Planet's provision of Internet access services could be adopted in the future.
In addition, the applicability of existing laws governing many of these issues
to the Internet is uncertain. The majority of such laws were adopted prior to
the advent of the Internet and related technologies and do not address unique
issues associated with the Internet and related technologies. There can be no
assurance that the Company's operation will not be adversely affected by the
adoption of any such laws or the application of existing laws to the Internet.
In addition, there can be no assurance that regulatory requirements in markets
outside of the United States will not adversely affect the ability of the
Company to implement Internet services in such markets.
Other Regulatory Issues. As a United States entity operating through
subsidiaries in foreign jurisdictions, the Company is subject to foreign
exchange control and transfer pricing laws that regulate the flow of funds
between its subsidiaries and the Company for product purchases, management
services, and contractual obligations such as the payment of distributor
commissions. The Company believes that it operates in compliance with all
applicable foreign exchange control and transfer pricing laws. However, there
can be no assurance that the Company will continue to be found to be operating
in compliance with foreign exchange control and transfer pricing laws, or that
such laws will not be modified, which, as a result, may require changes in the
Company's operating procedures.
As is the case with most companies which operate in the Company's
product segment, the Company has from time to time received inquiries from
various government regulatory authorities regarding the nature of its business
and other issues such as compliance with local direct selling, customs,
taxation, foreign exchange control, securities, and other laws. Although to date
none of these inquiries has resulted in a finding materially adverse to the
Company, adverse publicity resulting from inquiries into the Company's
operations by certain government agencies in the early 1990s, stemming in part
out of inappropriate product and earnings claims by distributors, materially
adversely affected the Company's business and results of operations. There can
be no assurance that the Company will not face similar inquiries in the future,
which, either as a result of findings
-26-
adverse to the Company or as a result of adverse publicity resulting from the
instigation of such inquiries, could have a material adverse effect on the
Company's business and results of operations. See "Risk Factors -- Risks of
Government Inquiry and Investigation."
Based on the Company's experience and research (including assistance
from counsel) and the nature and scope of inquiries from government regulatory
authorities, the Company believes that it is in material compliance with all
regulations applicable to it. Despite this belief, the Company could be found
not to be in material compliance with existing regulations as a result of, among
other things, the considerable interpretative and enforcement discretion given
to regulators or misconduct by independent distributors. In 1994, NSI and three
of its distributors entered into a consent decree with the FTC with respect to
its investigation of certain product claims and distributor practices, pursuant
to which NSI paid approximately $1.0 million to settle the FTC investigation. In
August 1997, NSI reached a settlement with the FTC with respect to certain
product claims and its compliance with the 1994 consent decree, pursuant to
which settlement NSI paid $1.5 million to the FTC.
Any assertion or determination that the Company or its distributors
are not in compliance with existing laws or regulations could have a material
adverse effect on the Company's business and results of operations. In addition,
in any country or jurisdiction, the adoption of new laws or regulations or
changes in the interpretation of existing laws or regulations could generate
negative publicity and/or have a material adverse effect on the Company's
business and results of operations. The Company cannot determine the effect, if
any, that future governmental regulations or administrative orders may have on
the Company's business and results of operations. Moreover, governmental
regulations in countries where the Company plans to commence or expand
operations may prevent, delay, or limit market entry of certain products or
require the reformulation of such products. Regulatory action, whether or not it
results in a final determination adverse to the Company, has the potential to
create negative publicity, with detrimental effects on the motivation and
recruitment of distributors and, consequently, on the Company's sales and
earnings. See "Risk Factors -- Risks of Government Inquiry and Investigation."
Employees
As of December 31, 1998, the Company had approximately 1,500 full-time
and part-time employees. None of the employees is represented by a union or
other collective bargaining group. The Company believes its relationship with
its employees is good, and does not currently foresee a shortage in qualified
personnel needed to operate the business.
Risk Factors
There are certain significant risks facing the Company, many of which
are substantial in nature. The following risks and information should be
considered in connection with the other information contained in this filing.
Economic and Political Conditions in the Company's Markets. Through
1997 and 1998, economic and political conditions in certain of the Company's
markets have deteriorated. These adverse conditions have been reflected most
significantly in the Company's operating results in its North Asia and Southeast
Asia market regions. Many countries currently labor under declining stock and
currency markets, mounting bad bank debt, bankruptcies involving large business
enterprises, excess capacity, declining demand for foreign goods, and political
unrest. Many commentators expect economic and political conditions in certain
markets to worsen in the foreseeable future. Adverse economic or political
conditions in Japan, which accounted for approximately 70% of the Company's 1998
revenues, could have a particularly adverse impact on the Company and its
results of operations.
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Currency Fluctuation and Exchange Rate Factors. Most of the Company's
revenue are recognized primarily outside of the United States while inventory
purchases are primarily transacted in United States dollars from vendors in the
United States. Each entity's local currency is considered the functional
currency. All revenue and expenses are translated at weighted average exchange
rates for the periods reported. Therefore, the Company's reported revenue and
net income will be positively impacted by a weakening of the United States
dollar and will be negatively impacted by a strengthening of the United States
dollar. The weakening of the Japanese Yen relative to the United States dollar
significantly affects the Company's reported revenue and net income since
approximately 70% of the Company's revenue is currently derived from the
Japanese market. Given the uncertainty of exchange rate fluctuations, the
Company cannot estimate the effect of these fluctuations on its future business,
product pricing, results of operations, or financial condition. However, because
nearly all of the Company's revenue is realized in local currencies and the
majority of its cost of sales is denominated in United States dollars, the
Company's gross profits will be positively affected by a weakening in the United
States dollar and will be negatively affected by a strengthening in the United
States dollar. The Company reduces its exposure to fluctuations in foreign
exchange rates by creating offsetting positions through the use of foreign
currency exchange contracts. The Company does not use such financial instruments
for trading or speculative purposes. The Company regularly monitors its foreign
currency risks and periodically takes measures to reduce the impact of foreign
exchange fluctuations on the Company's operating results. See "Regional
Profiles."
Reliance upon Independent Distributors. The Company distributes its
products exclusively through independent distributors who have contracted
directly with the Company, through its subsidiary NSI. Distributor agreements
are voluntarily terminable by distributors at any time. The Company's revenue is
directly dependent upon the efforts of these independent distributors, and any
growth in future sales volume will require an increase in the productivity of
these distributors and/or the growth in the total number of distributors. As is
typical in the direct selling industry, there is turnover in distributors from
year to year, which requires the sponsoring and training of new distributors by
existing distributors to maintain or increase the overall distributor force and
motivate new and existing distributors. The Company experiences seasonal
decreases in distributor sponsoring and product sales in some of the countries
in which the Company operates because of local holidays and customary vacation
periods. The size of the distribution force can also be particularly impacted by
general economic and business conditions and a number of intangible factors such
as adverse publicity regarding the Company, or the public's perception of the
Company's products, product ingredients, distributors or direct selling
businesses in general. Historically, the Company has experienced periodic
fluctuations in the level of distributor sponsorship (as measured by distributor
applications). However, because of the number of factors that impact the
sponsoring of new distributors, and the fact that the Company has little control
over the level of sponsorship of new distributors, the Company cannot predict
the timing or degree of those fluctuations. There can be no assurance that the
number or productivity of the Company's distributors will be sustained at
current levels or increased in the future. In addition, the number of
distributors as a percentage of the population in a given country or market
could theoretically reach levels that become difficult to exceed due to the
finite number of persons inclined to pursue a direct selling business
opportunity.
Because distributors are independent contractors, the Company is not in
a position to provide the same level of direction, motivation, and oversight as
it would with respect to its own employees. Although the Company has a
compliance department responsible for the enforcement of the policies and
procedures that govern distributor conduct, it can be difficult to enforce these
policies and procedures because of the large number of distributors and their
independent status, as well as the impact of regulations in certain countries
that limit the ability of the Company to monitor and control the sales practices
of distributors or terminate distributors. See "Distribution System."
Risks Related to the Integration of Recent and Contemplated
Acquisitions. The Company believes that its recent acquisitions of NSI,
Pharmanex, and the business operations of Nu Skin USA, Inc., and its proposed
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acquisitions of the remaining private North American Affiliates and Big Planet,
have created or will create opportunities for long-term efficiencies in the
Company's operations and other benefits that should positively affect future
results of the combined operations of the Company. However, no assurances can be
given whether or when such efficiencies and benefits will be realized. In
addition, the Company has become more complex and diverse since the acquisitions
of NSI, Pharmanex, and the business operations of Nu Skin USA, Inc., and will
become even more so after the consummation of the acquisition of Big Planet and
the remaining private North American Affiliates. The combination of the
Company's business with that of its recent and contemplated acquisitions will
present difficult challenges for the Company's management because of the
increased time and resources required to manage a complex world-wide business.
Also, the accounting for the completed and contemplated acquisitions using the
purchase method has resulted and could result in significant intangible assets
or a significant charge against operations, or both, which could adversely
affect future results of operations. While management and the Board of Directors
of the Company believe that the continued integration of the recent acquisitions
and the contemplated acquisition of Big Planet will be effected in a manner
which will increase the value of the Company, no assurance can be given that
such realization of value will be achieved. The Company will also need to
integrate the products of Pharmanex, which until recently were marketed only in
the mass market, into the Company's direct sales distribution system. There can
be no assurance that the Company will be able to successfully integrate the
products of Pharmanex into the Company's current distribution system, that
Pharmanex products will gain acceptance in this channel, or that the Company
will not incur significant costs and expenses in connection with such
integration. The closing of the proposed Big Planet acquisition is subject to
certain contingencies including the satisfactory completion of definitive
documentation and the Company's due diligence investigation of Big Planet and
the receipt of various governmental approvals. The Company cannot assure that
the Big Planet acquisition will be consummated. In addition, Big Planet, like
many Internet companies, has experienced significant operating losses to date.
There can be no assurance that Big Planet will be able to operate profitably in
the highly competitive Internet market in the near future or that such products
can be profitably marketed through a network marketing system. See "Recent
Developments."
Government Regulation of Direct Selling Activities. Direct selling
activities are regulated by various governmental agencies in the United States
and foreign countries. Direct selling in certain of the Company's markets is
restricted or subject to stringent regulation. There can be no assurances that
regulatory authorities in the Company's existing markets will not impose new
legislation or change existing legislation that adversely affects the Company's
business in those markets, or that new judicial interpretation of existing law
may be issued that adversely affect the Company's business. There can be no
assurance that the Company will be allowed to conduct business in each of its
existing markets or potential new markets. See "Government Regulation -- Direct
Selling Activities."
Government Regulation of Products and Marketing; Import Restrictions.
The Company is subject to or affected by extensive governmental regulations not
specifically related to network marketing. Such regulations govern, among other
things:
* The Company's personal care products and nutritional supplements;
* The Company's telecommunication products and services offered
through Big Planet;
* Product formulation, manufacturing, labeling, packaging, and
importation;
* Product claims and advertising, whether made by the Company or its
distributors;
* Fair trade and distributor practices;
-29-
* Taxes, transfer pricing, and similar regulations that affect
foreign taxable income and customs duties; and
* foreign companies generally.
With the exception of a small percentage of revenue, virtually all of
the Company's sales historically have been derived from the sale of its own
products. All of those products historically have been imported into the
countries in which they were ultimately sold. The countries in which the Company
currently conducts business impose various legal restrictions on imports. In any
given country, duties on imports may be changed to materially adversely affect
the Company's sales and competitive position compared to locally produced goods.
In some jurisdictions, regulators have or may prevent the importation of the
Company's products altogether.
The Company's personal care and nutritional products and related
marketing and advertising also are subject to extensive governmental regulation.
The Company may not be able to introduce its nutritional products in markets
outside the United States if it is unable to obtain regulatory approval of such
products or if such products or any ingredients contained in such products are
prohibited in such markets. The Company may also be prohibited from making
therapeutic claims regarding such products in certain markets even if the
Company may have research and independent studies supporting such claims.
Present or future health and safety or food and drug regulations, or judicial
interpretations thereof, could delay or prevent the introduction of new products
into a given country or marketplace or suspend or prohibit the sale of existing
products in such country or marketplace. See "Government Regulation --
Regulation of Personal Care and Nutritional Supplements."
The Company's proposed provision of Internet access services through
Big Planet is currently exempt from significant regulation in the United States.
However, the applicability of existing laws to the Internet and related
technologies is uncertain, and laws and regulations may be adopted that apply to
such technologies in the future. There can be no assurance that the Company's
operations will not be adversely effected by the adoption of any such laws or
the application of existing laws to the Internet. In addition, the Company could
be subject to regulations in its foreign markets that are applicable to the
Internet. There can be no assurance that any of such laws could not delay or
prevent the Company from introducing Big Planet products and services into such
markets, or otherwise adversely affect the ability of the Company operate in
these markets. See "Government Regulation -- Telecommunications Regulation."
As a United States entity operating through subsidiaries in foreign
jurisdictions, the Company is subject to foreign exchange control and transfer
pricing laws that regulate the flow of funds between the Company, its
subsidiaries, and affiliates. There can be no assurance that the Company will
continue to operate in compliance with foreign customs, exchange control, and
transfer pricing laws, or that such laws will not be modified, which, as a
result, may require changes in the Company's operating procedures. See
"Government Regulation -- Other Regulatory Issues."
Risks of Government Inquiry and Investigation. As is the case with most
direct sales companies, the Company has from time to time, received inquiries
from various government regulatory authorities regarding the nature of its
business and other issues such as compliance with local business opportunity and
securities laws. Also, its subsidiaries are periodically subject to reviews and
audits by various governmental agencies. There is no assurance that the Company
or its subsidiaries will not face similar inquiries and other investigations in
the future. Any assertion or determination that the Company, or any of its
distributors, are not in compliance with existing laws or regulations, could
potentially have a material adverse effect on the Company's business and results
of operations. In addition, in any country or jurisdiction, the adoption of new
laws or regulations or changes in the interpretation of existing laws or
regulations could generate negative publicity and/or have a material adverse
effect on its business and results of operations. The Company cannot determine
the effect, if any, that future
-30-
governmental regulations or administrative orders may have on its business and
results of operations. Moreover, governmental regulations in countries where the
Company plans to commence or expand operations may prevent, delay, or limit
market entry of certain products or require the reformulation of such products.
Regulatory action, whether or not it results in a final determination adverse to
the Company, has the potential to create negative publicity, with detrimental
effects on the motivation and recruitment of distributors and, consequently, on
the Company's revenue and net income. See "Government Regulation -- Other
Regulatory Issues."
Reliance on Limited Suppliers. The Company currently acquires products
and ingredients from sole suppliers or from suppliers considered to be the
superior suppliers of such ingredients. The loss of any of these suppliers could
have a material adverse effect on the Company's business and results of
operations. Because certain of the Company's botanical products are derived from
crops that can only be harvested once a year, problems with a certain crop could
limit the ability of the Company to produce a product associated with that plant
species in a given year. See "Sourcing and Production."
Competition. The markets for the Company's personal care and
nutritional products, and the technology products and services offered by Big
Planet are intensely competitive. The Company also competes with other direct
selling organizations. Many of the Company's competitors have much greater name
recognition and financial resources than the Company, which may give them a
competitive advantage. There can be no assurance that the Company's business and
results of operations will not be affected materially by market conditions and
competition in the future. Although the Company distributes certain products it
considers proprietary, it does not currently have significant patent protection
for its products. In addition, competitors may also introduce products utilizing
the same natural ingredients and herbs as the Company's proprietary health
supplement CHOLESTIN, the Company believes competitors have introduced competing
products utilizing red yeast rice. Because of restrictions under regulatory
requirements concerning claims that can be made with respect to dietary
supplements, the Company may have a difficlult time differentiating its products
from those of competitors. See "Competition."
Year 2000 Risks. The Company may not accurately identify all potential
Year 2000 problems within its business, and the corrective measures that it may
implement may be ineffective or incomplete. The Company cannot assure that Big
Planet will not experience Year 2000 problems related to or affecting its
business. Any such problems could adversely affect the Company. The Company also
contracts with many third parties that could be affected by the Year 2000
problem, such as technology and telecommunication service providers and other
suppliers and manufacturers. If any of these or other third parties on which the
Company relies experience Year 2000 problems, the Company's business could be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report to
Stockholders, sections of which are attached hereto as Exhibit 13.
Risks Related to Potential Changes in Business Model. The Company
believes that direct sellers will need to adapt their business models to
integrate the Internet into their operations as more and more consumers purchase
goods and services over the Internet instead of through traditional retail and
direct sales channels. The Company cannot assure that it or its distributors
will be able to adequately adapt to the use of new technology or sales channels
or effectively integrate the Internet into their respective operations. See
"Distribution System."
Potential Effects of Adverse Publicity. The size of the Company's
distribution force and the results of the Company's operations can be
particularly impacted by adverse publicity regarding the Company, or their
competitors, including publicity regarding the legality of network marketing,
the quality of the Company's products and product ingredients or those of its
competitors, regulatory investigations of the Company or the Company's
competitors and their products, distributor actions, and the public's perception
of the Company's distributors and direct selling businesses generally. The
Company's operations in the past have been adversely affected by such adverse
publicity in certain markets, and there can be no assurance that the Company's
operations will not be adversely
-31-
affected in the future by adverse publicity concerning the Company, its
distribution system, or network marketing in general.
Control by Existing Stockholders; Anti-Takeover Effect of Dual Classes
of Common Stock. The shares of Class B Common Stock, which are held by the
original stockholders of NSI and their affiliates, enjoy ten to one voting
privileges over the shares of Class A Common Stock until the outstanding shares
of Class B Common Stock constitute less than 10% of the total outstanding shares
of Common Stock. These stockholders and certain of their affiliates collectively
own 100% of the outstanding shares of the Class B Common Stock, representing
more than 90% of the combined voting power of the outstanding shares of Common
Stock. Accordingly, these stockholders and certain of their affiliates, acting
fully or partially in concert, will have the ability to control the election of
the Board of Directors of the Company and thus the direction and future
operations of the Company without the supporting vote of any other stockholder
of the Company, including decisions regarding acquisitions and other business
opportunities, the declaration of dividends, and the issuance of additional
shares of Class A Common Stock and other securities. As long as these
stockholders are majority stockholders of the Company, assuming they elect to
act in concert, third parties will not be able to obtain control of the Company
through purchases of shares of Class A Common Stock.
Taxation Risks and Transfer Pricing. The Company is subject to taxation
in the United States, where it is incorporated, at a statutory corporate federal
tax rate of 35.0% plus any applicable state income taxes. In addition, each
subsidiary is subject to taxation in the country in which it operates, at rates
above and below the current tax rate in the United States. For example, the
Company's subsidiary in Japan has historically been subject to a tax rate of
approximately 57%. The Company is eligible to receive foreign tax credits in the
U.S. for the amount of foreign taxes actually paid in a given period. In the
event that the Company's operations in high tax jurisdictions such as Japan grow
disproportionately to the rest of the Company's operations, the Company will be
unable to fully utilize its foreign tax credits in the U.S., which could,
accordingly, result in the Company paying a higher overall effective tax rate on
its worldwide operations.
Because the subsidiaries operate outside of the United States, the
Company is subject to the jurisdiction of numerous foreign tax authorities. In
addition to closely monitoring the subsidiaries' locally based income, these tax
authorities regulate and restrict various corporate transactions, including
intercompany transfers. The Company believes that the tax authorities in Japan
and South Korea are particularly active in challenging the tax structures of
foreign corporations and their intercompany transfers. Although the Company
believes that its tax and transfer pricing structures are in compliance in all
material respects with the laws of every jurisdiction in which it operates, no
assurance can be given that these structures will not be challenged by foreign
tax authorities or that such challenges or any required changes in such
structures will not have a material adverse effect on the Company's business or
results of operations.
Product Liability. The Company may be subject, under applicable laws
and regulations, to liability for loss or injury caused by its products.
Accordingly, the Company maintains a policy covering product liability claims
for itself and its affiliates with a $1 million per claim and $1 million annual
aggregate limit and an umbrella policy with a $40 million per claim and $40
million annual aggregate limit. Although the Company has not been the subject of
material product liability claims, no assurance can be given that the Company
may not be exposed to future product liability claims, and, if any such claims
are successful, there can be no assurance that the Company will be adequately
covered by insurance or have sufficient resources to pay such claims.
Note Regarding Forward-Looking Statements. Certain statements made in
this filing under the caption "Business" are "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In addition, when used in this Report the words or phrases
"will likely
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result," "expects," "intends," "will continue," "is anticipated," "estimates,"
"projects," "management believes," "the Company believes" and similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Exchange Act.
Forward-looking statements include plans and objectives of management
for future operations, including plans and objectives relating to the products
and the future economic performance of the Company in each country in which the
Company operates and the financial results of the Company. These forward-looking
statements involve risks and uncertainties and are based on certain assumptions
that may not be realized. Actual results and outcomes may differ materially from
those discussed or anticipated. The forward-looking statements and associated
risks set forth herein relate to the: (i) proposed acquisitions of Big Planet
and the remaining private North American Affiliates, (ii) proposed shift to a
strategic, product-based divisional operating structure and related
modifications of the Global Compensation Plan; (iii) expansion of the Company's
market share in its current markets; (iv) Company's entrance into new markets;
(v) development of new products and new product lines tailored to appeal to the
particular needs of consumers in specific markets; (vi) stimulation of product
sales by introducing new products and reintroducing existing products with
improvements; (vii) creation of new nutritional products through the research
and development capabilities of Pharmanex; (viii) establishment of relationships
with major universities to assist in nutritional product development and
testing; (ix) establishment of strategic relationships to expand the Company's
and Big Planet's products offered for sale on the Internet; (x) enhancement and
expansion of Big Planet's telecommunication and technology services and other
products, including the offering of wireless services through a third-party
wireless service provider and prepaid paging products through SkyTel; (xi)
promotion of distributor growth, retention, and leadership through local market
initiatives; (xii) upgrading of the Company's technological resources to support
distributors, including using the Internet in distributing products; (xiii)
utilization of technological advancements to improve the Company's direct
selling efforts; and (xiv) obtaining of regulatory approvals for certain
products.
All forward-looking statements are subject to known and unknown risks
and uncertainties, including those discussed in the above-referenced Risk
Factors, that could cause actual results to differ materially from historical
results and those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made.
The Company wishes to further advise readers that the important factors
presented in the above-referenced Risk Factors could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any views or statements expressed with respect
to future periods. Important factors and risks that might cause such differences
include, but are not limited to (a) adverse economic and political conditions in
some of the Company's markets, particularly in the Company's Asian markets; (b)
fluctuations in foreign currency values relative to the United States dollar,
(c) factors related to the Company's reliance upon independent distributors, (d)
risks related to the continued integration of recent acquisitions by the
Company; (e) the possibility the proposed acquisitions of Big Planet and the
remaining private North American Affiliates may not be consummated, (f) the
inability of the Company to gain market acceptance of new products, including
the Pharmanex products and Big Planet products and services, (g) government
regulation of the Company's direct selling activities in its existing and future
markets, (h) government regulation of products and marketing generally, (i)
risks inherent in the importation, regulation, and sale of personal care and
nutritional products in the Company's markets, (j) other regulatory issues,
including regulatory action against the Company or its distributors in any of
the Company's markets, (k) the Company's reliance on limited suppliers of the
Company's products, (l) competition in the Company's existing and future
markets, (m) risks that the Company's and its vendors' plans to remedy Year 2000
issues may be inadequate, which could result in disruptions of the Company's
business, and (n) risks related to potential changes in direct selling
practices, particularly those changes prompted by changes in technology.
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In light of the significant uncertainties inherent in forward-looking
statements, the inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. The Company disclaims any obligation or intent
to update any such factors or forward-looking statements to reflect future
events or developments.
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ITEM 2.PROPERTIES
The Company generally leases its warehouse, office, or distribution
facilities in each geographic region in which the Company currently has
operations. Nu Skin believes that its existing facilities are adequate for its
current operations in each of its existing markets. The following table
summarizes, as of March 5, 1999, the Company's major leased office and
distribution facilities.
Location Function Approximate Square Feet
- -------- -------- -----------------------
Provo, Utah Distribution center 198,000
Provo, Utah Corporate offices 125,000
Los Angeles, California Warehouse 126,000
Yokohama, Japan Warehouse 37,000
Tokyo, Japan Central office/distribution center 44,000
Taipei, Taiwan Central office/distribution center 26,000
Nankan, Taiwan Warehouse/distribution center 37,000
Venlo, Netherlands Warehouse/offices 20,000
In connection with the acquisition of Pharmanex, the Company acquired a
production facility located in Huzhou, Zhejiang Province, China. The design and
construction of this extraction and purification facility was completed in
October 1994 and on-line production began in November 1994.
ITEM 3. LEGAL PROCEEDINGS
NSI is a party to an action entitled Natalie Capone on behalf of
Herself and All Others Similarly Situated v. Nu Skin Canada, Inc., Nu Skin
International, Inc. Blake Roney, et. al. which was filed with the United States
District Court for the District of Utah, Central Division (the "Court") in March
1993. Ms. Capone filed a class action complaint against NSI and certain
affiliated parties (the "Defendants"). The complaint alleges violations of the
anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange
Act of 1934, common law fraud, and violations of the Utah Consumer Sales
Practices Act. The plaintiff also sought injunctive relief, disgorgement by
Defendants, and restitution to plaintiff of all earnings, profits, compensation,
and benefits obtained by the Defendants. In June 1997, the Court denied NSI's
motion for summary judgment but also denied the plaintiff's motion to certify a
similarly situated class of distributors. In May 1998 the Court, upon
reconsideration, granted the plaintiff's motion to certify a similarly situated
class of distributors based on more limited claims under the Securities Act of
1933 and the Utah Anti-Pyramid statute. The case continues in discovery. The
Company's potential liability associated with this case is limited by certain
indemnities provided to the Company in connection with the acquisition by the
Company of NSI.
At the time of the Company's acquisition of Pharmanex, Inc. in the
fourth quarter of 1998, Pharmanex was a party to an action entitled Pharmanex,
Inc. v. Donna Shalala which was filed by Pharmanex with the United States
District Court for the District of Utah, Central Division ("Court") in April
1997 after the Food and Drug
-35-
Administration informed Pharmanex that it considered Pharmanex's product,
CHOLESTIN, to be a drug. The matter was held in abeyance pending an issuance of
a final decision by the FDA. On May 20, 1998, the FDA issued a "Final Order"
announcing the FDA's decision that it considers CHOLESTIN to be a "drug" and a
"new drug" rather than a dietary supplement. On June 1, 1998, Pharmanex filed an
amended complaint requesting the Court to find that the FDA decision was
contrary to the law. On February 16, 1999, the Court ruled that CHOLESTIN was
not a drug and could be legally sold as a dietary supplement. There can be no
assurance that the FDA will not appeal such order, or in the event of such
appeal, that the Company would prevail. An adverse decision on appeal could
restrict the ability of the Company to distribute CHOLESTIN in the United States
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended December 31, 1998.
-36-
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned "Common
Stock" in the Company's 1998 Annual Report to Stockholders, sections of which
are attached hereto as Exhibit 13. On October 16, 1998, the Company issued a
total of 3,777,992 shares of Class A Common Stock to the shareholders of
Generation Health Holdings, Inc. pursuant to the merger of Generation Health
Holdings, Inc. with and into Sage Acquisition Corporation, a wholly-owned
subsidiary of the Company. The issuance of such shares was made in a private
transaction in reliance on the exemptions provided by Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned "Selected
Financial Data" in the Company's 1998 Annual Report to Stockholders, sections of
which are attached hereto as Exhibit 13.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report to Stockholders, sections of
which are attached hereto as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A of Form 10-K is incorporated herein
by reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations " and Note 14 to the Consolidated Financial Statements in the
Company's 1998 Annual Report to Stockholders, sections of which are attached
hereto as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated herein
by reference to the Consolidated Financial Statements and the related notes set
forth in the Company's 1998 Annual Report to Stockholders, sections of which are
attached hereto as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-37-
PART III
The information required by Items 10, 11, 12, and 13 of Part III are hereby
incorporated by reference to the Company's Definitive Proxy Statement filed or
to be filed with the Securities and Exchange Commission not later than April 30,
1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements (pursuant to Part II, Item 8)
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1997 and 1998
Consolidated Statements of Income for the years ended
December 31, 1996, 1997, and 1998
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997, and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: Financial statement
schedules have been omitted because they are not required
or are not applicable, or because the required information
is shown in the financial statements or notes thereto.
3. Exhibits: The following Exhibits are filed with this Form
10-K:
Exhibit
Number Exhibit Description
------- -------------------
2.1 Stock Acquisition Agreement between Nu Skin
Asia Pacific, Inc. and each of the persons on
the signature pages thereof, dated February 27,
1998, incorporated by reference to Exhibit 2.1
of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2.2 Restated Agreement and Plan of Reorganization
and Merger by and between Nu Skin Enterprises,
Inc., Sage Acquisition Corporation and
Generation Health Holdings, Inc. dated as of
October 16, 1998, incorporated by reference to
Exhibit 2.1 to the Company's Current Report on
Form 8-K filed November 2, 1998.
-38-
3.1 Amended and Restated Certificate of
Incorporation of the Company incorporated by
reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No.
333-12073) (the "Form S-1").
3.2 Certificate of Amendment to the Amended and
Restated Certificate of Incorporation
incorporated by reference to Exhibit 3.1 of the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998.
3.3 Certificate of Designation, Preferences and
Relative Participating, Optional, and Other
Special Rights of Preferred Stock and
Qualification, Limitations and Restrictions
Thereof.
3.4 Amended and Restated Bylaws of the Company
incorporated by reference to Exhibit 3.2 to the
Company's Form S-1.
4.1 Specimen Form of Stock Certificate for Class a
Common Stock incorporated by reference to
Exhibit 4.1 to the Company's Form S-1.
4.2 Specimen Form of Stock Certificate for Class B
Common Stock incorporated by reference to
Exhibit 4.2 to the Company's Form S-1.
10.1 Form of Indemnification Agreement to be entered
into by and among the Company and certain of
its officers and directors incorporated by
reference to Exhibit 10.1 to the Company's Form
S-1.
10.2 Intentionally left blank.
10.3 Employment Contract, dated December 12, 1991,
by and between Nu Skin Taiwan and John Chou
incorporated by reference to Exhibit 10.3 to
the Company's Form S-1.
10.4 Employment Agreement, dated May 1, 1993, by and
between Nu Skin Japan and Takashi Bamba
incorporated by reference to Exhibit 10.4 to
the Company's Form S-1.
10.5 Service Agreement, dated January 1, 1996, by
and between Nu Skin Korea and Sung-Tae Han
incorporated by reference to Exhibit 10.5 to
the Company's Form S-1.
10.6 Form of Purchase and Sale Agreement between Nu
Skin Hong Kong and NSI incorporated by
reference to Exhibit 10.6 to the Company's Form
S- 1.
10.7 Form of Licensing and Sales Agreement between
NSI and each subsidiary (prior to the Company's
acquisition of NSI and other than Nu Skin
Korea) incorporated by reference to Exhibit
10.7 to the Company's Form S-1.
10.8 Form of Regional Distribution Agreement between
NSI and Nu Skin Hong Kong incorporated by
reference to Exhibit 10.8 to the Company's Form
S-1.
-39-
10.9 Form of Wholesale Distribution Agreement
between NSI and each Subsidiary (prior to the
Company's acquisition of NSI and other than Nu
Skin Hong Kong) incorporated by reference to
Exhibit 10.9 to the Company's Form S-1.
10.10 Form of Trademark/Tradename License Agreement
between NSI and each subsidiary (prior to the
Company's acquisition of NSI) incorporated by
reference to Exhibit 10.10 to the Company's
Form S-1.
10.11 Form of Management Services Agreement between
Nu Skin International Management Group, Inc.
("NSIMG")and each subsidiary (prior to the
Company's acquisition of NSI) incorporated by
reference to Exhibit 10.11 to the Company's
Form S-1.
10.12 Form of Licensing and Sales Agreement between
NSI and Nu Skin Korea incorporated by reference
to Exhibit 10.12 to the Company's Form S-1.
10.13 Form of Independent Distributor Agreement by
and between NSI and Independent Distributors in
Hong Kong/Macau incorporated by reference to
Exhibit 10.13 to the Company's Form S-1.
10.14 Form of Independent Distributor Agreement by
and between NSI and Independent Distributors in
Japan incorporated by reference to Exhibit
10.14 to the Company's Form S-1.
10.15 Form of Independent Distributor Agreement by
and between NSI and Independent Distributors in
South Korea incorporated by reference to
Exhibit 10.15 to the Company's Form S-1.
10.16 Form of Independent Distributor Agreement by
and between NSI and Independent Distributors in
Taiwan incorporated by reference to Exhibit
10.16 to the Company's Form S-1.
10.17 Nu Skin Asia Pacific, Inc. 1996 Stock Incentive
Plan incorporated by reference to Exhibit 10.17
to the Company's Form S-1.
10.18 Form of Bonus Incentive Plan for Subsidiary
Presidents incorporated by reference to Exhibit
10.18 to the Company's Form S-1.
10.19 Option Agreement by and between the Company and
M. Truman Hunt incorporated by reference to
Exhibit 10.19 to the Company's Form S-1.
10.20 Form of Mutual Indemnification Agreement by and
between the Company and NSI incorporated by
reference to Exhibit 10.20 to the Company's
Form S-1.
10.21 Manufacturing Sublicense Agreement, dated July
27, 1995, by and between NSI and Nu Skin Japan
incorporated by reference to Exhibit 10.21 to
the Company's Form S-1.
10.22 1996 Option Agreement by and between the
Company and NSI incorporated by reference to
Exhibit 10.22 to the Company's Form S-1.
-40-
10.23 Form of Addendum to Amended and Restated
Licensing and Sales Agreement incorporated by
reference to Exhibit 10.23 to the Company's
Form S-1.
10.24 Form of Administrative Services Agreement
incorporated by reference to Exhibit 10.24 to
the Company's Form S-1.
10.25 Form of Amended and Restated Stockholders
Agreement dated as of November 28, 1997,
incorporated by reference to Exhibit 10.25 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.26 Demand Promissory Note in the original
principal amount of $5,000,000 dated December
10, 1997, from Nedra D. Roney payable to Nu
Skin Asia Pacific, Inc. incorporated by
reference to Exhibit 10.26 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1997.
10.27 Stock Pledge Agreement between Nu Skin Asia
Pacific, Inc. and Nedra Roney dated as of
December 10, 1997, incorporated by reference to
Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31,
1997.
10.28 Stock Purchase Agreement dated as of December
10, 1997, between Nu Skin Asia Pacific, Inc.
and Kirk V. Roney and Melanie R. Roney,
incorporated by reference to Exhibit 10.28 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.29 Stock Purchase Agreement dated as of December
10, 1997, between Nu Skin Asia Pacific, Inc.
and Rick A. Roney and certain affiliates,
incorporated by reference to Exhibit 10.29 to
the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.30 Stock Purchase Agreement dated as of December
10, 1997, between Nu Skin Asia Pacific, Inc.
and Burke F. Roney, incorporated by reference
to Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1997.
10.31 Stock Purchase Agreement dated December 10,
1997, between Nu Skin Asia Pacific, Inc. and
Park R. Roney, incorporated by reference to
Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.32 Stock Purchase Agreement dated December 10,
1997, between Nu Skin Asia Pacific, Inc. and
The MAR Trust incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.33 Form of Management Services Agreement by and
each of between NSIMG and Nu Skin USA, Inc.
("Nu Skin USA") and the other North American
Affiliates.
10.34 Form of Wholesale Distribution Agreement by and
between NSI and each of Nu Skin USA and the
other North American Affiliates.
-41-
10.35 Form of Licensing and Sales Agreement by and
between NSI and each Nu Skin USA and the other
North American Affiliates.
10.36 Form of Trademark\Tradename Licensing Agreement
by and between NSI and each of Nu Skin USA and
the other North American Affiliates.
10.37 Tax Sharing and Indemnification Agreement dated
December 31, 1997, by and among NSI, Nu Skin
USA, and the shareholders of NSI and Nu Skin
USA and their successors and assigns.
10.38 Assumption of Liabilities and Indemnification
Agreement dated December 31, 1997, by and
between NSI and Nu Skin USA.
10.39 Employee Benefits Allocation Agreement by and
between NSI and Nu Skin USA.
10.40 Form of Licensing Agreement between NSI and Big
Planet.
10.41 Form of Management Services Agreement between
NSI and Big Planet.
10.42 Warehouse Lease Agreement dated March 1996,
between NSI and Aspen Investments, Ltd.
10.43 Lease Agreement dated January 27, 1995, by and
between NSI and Scrub Oak, Ltd.
10.44 Sublease Agreement dated January 1, 1998, by
and between NSI and Nu Skin USA.
10.45 Warehouse Lease Agreement (Annex) dated October
1, 1993, by and between NSI and Aspen
Investments, Ltd.
10.46 Contribution and Distribution Agreement dated
as of December 31, 1997, by and between NSI an
Nu Skin USA.
10.47 Form of the Company's Employee Incentive Bonus
Plan.
10.48 Amendment in Total and Complete Restatement of
Deferred Compensation Plan.
10.49 Form of Deferred Compensation Plan (New Form).
10.50 Amendment in Total and Complete Restatement of
NSI Compensation Trust.
10.51 Employment Agreement by and between Pharmanex,
Inc. and William McGlashan, Jr.
-42-
10.52 Asset Purchase Agreement by and among the
Company, Nu Skin United States, Inc., and Nu
Skin USA, dated as of March 8, 1999.
10.53 Termination Agreement by and between NSI and Nu
Skin USA, dated as of March 8, 1999.
10.54 Indemnification Limitation Agreement by and
among the Company, Nu Skin United States, Inc.,
NSI, Nu Skin USA, and the other parties who
executed such agreement.
10.55 Amendment No. 1 to Amended and Restated
Stockholders Agreement dated as of November 28,
1997.
13 1998 Annual Report to Stockholders (Only items
incorporated by reference).
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent and Report of Grant Thornton LLP.
27. Financial Data Schedule.
(B) The Company filed two Current Reports on Form 8-K during the
last quarter of the period covered by this report.
On October 6, 1998, the Company filed a Current Report on Form
8-K to report that it had entered into an agreement to purchase
Generation Health Holdings, Inc., the parent company of
Pharmanex.
On November 2, 1998, the Company filed a Current Report on Form
8-K to report that it had completed the acquisition of
Generation Health Holdings, Inc. on October 16, 1998.
(c) The exhibits required by Item 601 of Regulation S-K are set
forth in (a)3 above.
(d) The financial statement schedules required by Regulation S-K
are set forth in (a)2 above.
-42-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 1999.
NU SKIN ENTERPRISES, INC.
By: /s / Steven J. Lund
Steven J. Lund, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1999.
Signature Capacity in Which Signed
- ---------------------------- ------------------------------------------------
/s/ Blake M. Roney Chairman of the Board
Blake M. Roney
/s/ Steven J. Lund President, Chief Executive Officer, and Director
Steven J. Lund (Principal Executive Officer)
/s/ Corey B. Lindley Chief Financial Officer (Principal Financial
Corey B. Lindley Officer and Accounting Officer)
/s/ Sandra N. Tillotson Senior Vice President, Director
Sandra N. Tillotson
/s/ Keith R. Halls Senior Vice President, Director
Keith R. Halls
/s/ Brooke B. Roney Senior Vice President, Director
Brooke B. Roney
/s/ Daniel W. Campbell Director
Daniel W. Campbell
/s/ E. J. "Jake" Garn Director
E. J. "Jake" Garn
/s/ Paula Hawkins Director
Paula Hawkins
/s/ Max L. Pinegar Director
Max L. Pinegar
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
2.1 Stock Acquisition Agreement between Nu Skin Asia Pacific, Inc. and
each of the persons on the signature pages thereof, dated February
27, 1998, incorporated by reference to Exhibit 2.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2.2 Restated Agreement and Plan of Reorganization and Merger by and
between Nu Skin Enterprises, Inc., Sage Acquisition Corporation and
Generation Health Holdings, Inc. dated as of October 16, 1998,
incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed November 2, 1998.
3.1 Amended and Restated Certificate of Incorporation of the Company
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-12073) (the "Form
S-1").
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation incorporated by reference to Exhibit 3.1 of the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998.
3.3 Certificate of Designation, Preferences and Relative Participating,
Optional, and Other Special Rights of Preferred Stock and
Qualification, Limitations and Restrictions Thereof.
3.4 Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3.2 to the Company's Form S-1.
4.1 Specimen Form of Stock Certificate for Class a Common Stock
incorporated by reference to Exhibit 4.1 to the Company's Form S-1.
4.2 Specimen Form of Stock Certificate for Class B Common Stock
incorporated by reference to Exhibit 4.2 to the Company's Form S-1.
10.1 Form of Indemnification Agreement to be entered into by and among
the Company and certain of its officers and directors incorporated
by reference to Exhibit 10.1 to the Company's Form S-1.
10.2 Intentionally left blank.
10.3 Employment Contract, dated December 12, 1991, by and between Nu
Skin Taiwan and John Chou incorporated by reference to Exhibit 10.3
to the Company's Form S-1.
10.4 Employment Agreement, dated May 1, 1993, by and between Nu Skin
Japan and Takashi Bamba incorporated by reference to Exhibit 10.4
to the Company's Form S-1.
10.5 Service Agreement, dated January 1, 1996, by and between Nu Skin
Korea and Sung-Tae Han incorporated by reference to Exhibit 10.5 to
the Company's Form S-1.
10.6 Form of Purchase and Sale Agreement between Nu Skin Hong Kong and
NSI incorporated by reference to Exhibit 10.6 to the Company's Form
S-1.
10.7 Form of Licensing and Sales Agreement between NSI and each
subsidiary (prior to the Company's acquisition of NSI and other
than Nu Skin Korea) incorporated by reference to Exhibit 10.7 to
the Company's Form S-1.
Exhibit
Number Exhibit Description
- ------- -------------------
10.8 Form of Regional Distribution Agreement between NSI and Nu Skin
Hong Kong incorporated by reference to Exhibit 10.8 to the
Company's Form S-1.
10.9 Form of Wholesale Distribution Agreement between NSI and each
Subsidiary (prior to the Company's acquisition of NSI and other
than Nu Skin Hong Kong) incorporated by reference to Exhibit 10.9
to the Company's Form S-1.
10.10 Form of Trademark/Tradename License Agreement between NSI and each
subsidiary (prior to the Company's acquisition of NSI) incorporated
by reference to Exhibit 10.10 to the Company's Form S-1.
10.11 Form of Management Services Agreement between Nu Skin International
Management Group, Inc. ("NSIMG")and each subsidiary (prior to the
Company's acquisition of NSI) incorporated by reference to Exhibit
10.11 to the Company's Form S-1.
10.12 Form of Licensing and Sales Agreement between NSI and Nu Skin Korea
incorporated by reference to Exhibit 10.12 to the Company's Form
S-1.
10.13 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Hong Kong/Macau incorporated by
reference to Exhibit 10.13 to the Company's Form S-1.
10.14 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Japan incorporated by reference to
Exhibit 10.14 to the Company's Form S-1.
10.15 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in South Korea incorporated by reference
to Exhibit 10.15 to the Company's Form S-1.
10.16 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Taiwan incorporated by reference to
Exhibit 10.16 to the Company's Form S-1.
10.17 Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan incorporated
by reference to Exhibit 10.17 to the Company's Form S-1.
10.18 Form of Bonus Incentive Plan for Subsidiary Presidents incorporated
by reference to Exhibit 10.18 to the Company's Form S-1.
10.19 Option Agreement by and between the Company and M. Truman Hunt
incorporated by reference to Exhibit 10.19 to the Company's Form
S-1.
10.20 Form of Mutual Indemnification Agreement by and between the Company
and NSI incorporated by reference to Exhibit 10.20 to the Company's
Form S-1.
10.21 Manufacturing Sublicense Agreement, dated July 27, 1995, by and
between NSI and Nu Skin Japan incorporated by reference to Exhibit
10.21 to the Company's Form S-1.
10.22 1996 Option Agreement by and between the Company and NSI
incorporated by reference to Exhibit 10.22 to the Company's Form
S-1.
10.23 Form of Addendum to Amended and Restated Licensing and Sales
Agreement incorporated by reference to Exhibit 10.23 to the
Company's Form S-1.
Exhibit
Number Exhibit Description
- ------- -------------------
10.24 Form of Administrative Services Agreement incorporated by reference
to Exhibit 10.24 to the Company's Form S-1.
10.25 Form of Amended and Restated Stockholders Agreement dated as of
November 28, 1997, incorporated by reference to Exhibit 10.25 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.26 Demand Promissory Note in the original principal amount of
$5,000,000 dated December 10, 1997, from Nedra D. Roney payable to
Nu Skin Asia Pacific, Inc. incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.27 Stock Pledge Agreement between Nu Skin Asia Pacific, Inc. and Nedra
Roney dated as of December 10, 1997, incorporated by reference to
Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997..
10.28 Stock Purchase Agreement dated as of December 10, 1997, between Nu
Skin Asia Pacific, Inc. and Kirk V. Roney and Melanie R. Roney,
incorporated by reference to Exhibit 10.28 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.29 Stock Purchase Agreement dated as of December 10, 1997, between Nu
Skin Asia Pacific, Inc. and Rick A. Roney and certain affiliates,
incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.30 Stock Purchase Agreement dated as of December 10, 1997, between Nu
Skin Asia Pacific, Inc. and Burke F. Roney, incorporated by
reference to Exhibit 10.30 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
10.31 Stock Purchase Agreement dated December 10, 1997, between Nu Skin
Asia Pacific, Inc. and Park R. Roney, incorporated by reference to
Exhibit 10.31 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
10.32 Stock Purchase Agreement dated December 10, 1997, between Nu Skin
Asia Pacific, Inc. and The MAR Trust incorporated by reference to
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
10.33 Form of Management Services Agreement by and each of between NSIMG
and Nu Skin USA, Inc. ("Nu Skin USA") and the other North American
Affiliates.
10.34 Form of Wholesale Distribution Agreement by and between NSI and
each of Nu Skin USA and the other North American Affiliates.
10.35 Form of Licensing and Sales Agreement by and between NSI and each
Nu Skin USA and the other North American Affiliates.
10.36 Form of Trademark\Tradename Licensing Agreement by and between NSI
and each of Nu Skin USA and the other North American
Affiliates.10.33 Management Services Agreement dated December 31,
1997, by and between NSIMG and Nu Skin USA, Inc. ("Nu Skin USA").
Exhibit
Number Exhibit Description
- ------- -------------------
10.37 Tax Sharing and Indemnification Agreement dated December 31, 1997,
by and among NSI, Nu Skin USA, and the shareholders of NSI and Nu
Skin USA and their successors and assigns.
10.38 Assumption of Liabilities and Indemnification Agreement dated
December 31, 1997, by and between NSI and Nu Skin USA.
10.39 Employee Benefits Allocation Agreement by and between NSI and Nu
Skin USA.
10.40 Form of Licensing Agreement between NSI and Big Planet.
10.41 Form of Management Services Agreement between NSI and Big Planet.
10.42 Warehouse Lease Agreement dated March 1996, between NSI and Aspen
Investments, Ltd.
10.43 Lease Agreement dated January 27, 1995, by and between NSI and
Scrub Oak, Ltd.
10.44 Sublease Agreement dated January 1, 1998, by and between NSI and Nu
Skin USA.
10.45 Warehouse Lease Agreement (Annex) dated October 1, 1993, by and
between NSI and Aspen Investments, Ltd.
10.46 Contribution and Distribution Agreement dated as of December 31,
1997, by and between NSI an Nu Skin USA.
10.47 Form of the Company's Employee Incentive Bonus Plan.
10.48 Amendment in Total and Complete Restatement of Deferred
Compensation Plan.
10.49 Form of Deferred Compensation Plan (New Form).
10.50 Amendment in Total and Complete Restatement of NSI Compensation
Trust.
10.51 Employment Agreement by and between Pharmanex, Inc. and William
McGlashan, Jr.
10.52 Asset Purchase Agreement by and among the Company, Nu Skin United
States, Inc., and Nu Skin USA, dated as of March 8, 1999.
10.53 Termination Agreement by and between NSI and Nu Skin USA, dated as
of March 8, 1999.
10.54 Indemnification Limitation Agreement by and among the Company, Nu
Skin United States, Inc., NSI, Nu Skin USA, and the other parties
who executed such agreement.
10.55 Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of November 28, 1997.
13 1998 Annual Report to Stockholders (Only items incorporated by
reference).
Exhibit
Number Exhibit Description
- ------- -------------------
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent and Report of Grant Thornton LLP.
27. Financial Data Schedule.
EX-3.3(I)
NU SKIN ASIA PACIFIC, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RELATIVE
PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
SERIES A PREFERRED STOCK
(Par Value $0.001 per share)
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Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------------------------
NU SKIN ASIA PACIFIC, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify that, pursuant to the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation (the "Board of Directors"), at a meeting of the Board of Directors
duly held on February 24, 1998, adopted the following resolution, which
resolution remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors is authorized, within the
limitations and restrictions stated in the Certificate of Incorporation of the
Corporation, to fix by resolution or resolutions the designations of each series
of preferred stock of the Corporation (the "Preferred Stock") and the powers,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof, including, without
limitation, such provisions as may be desired concerning voting, redemption,
dividends, dissolution or distribution of assets, conversion or exchange, and
such other subjects or matters as may be fixed by resolutions of the Board of
Directors under the General Corporation Law of the State of Delaware, and
WHEREAS, it is the desire of the Board of Directors, pursuant to
its authority as aforesaid, to authorize and fix the terms of one series of
Preferred Stock and the number of shares constituting such series,
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized
such series of Preferred Stock on the terms and with the provisions herein set
forth:
1. Designation and Amount. The distinctive serial designation of
this series shall be "Series A Preferred Stock" (the "Series A Preferred
Stock"). The number of authorized shares of Series A Preferred Stock
shall be 2,986,663.
2. Definitions. For purposes of the Series A Preferred Stock, in
addition to those terms otherwise defined herein, the following terms
shall have the meanings indicated:
"Board of Directors" shall mean the board of directors of
the Corporation or any committee authorized by such Board of
Directors to perform any of its responsibilities with respect to
the Series A Preferred Stock.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the City of New
York are authorized or obligated by law or executive order to
close.
"Class A Common Stock" shall mean the Class A Common Stock
of the Corporation, par value $.001 per share.
"Class B Common Stock" shall mean the Class B Common Stock
of the Corporation, par value $.001 per share.
"Common Stock" shall mean the Class A Common Stock, the
Class B Common Stock and all other classes of common stock of the
Corporation.
"Dividend Periods" shall mean quarterly dividend periods
commencing on the first day of January, April, July and October
of each year and ending on and including the day preceding the
first day of the next succeeding Dividend Period (other than the
initial Dividend Period which shall commence on the Preference
Date and end on and include December 31, 1998).
"Preference Date" shall mean September 30, 1998.
"Preference Value" shall mean $14.0625.
"Redemption Price" shall mean the lower of (i) the
Preference Value or (ii) 60% of the average of the last sales
prices per share of the Class A Common Stock of the Corporation
on the New York Stock Exchange for the 20 consecutive trading
days ending on the trading day which is five trading days prior
to the date of redemption pursuant to Section 7 hereof.
"Stock Repurchase Program" shall mean [the stock
repurchase program approved by the Board of Directors of the
Corporation on February 12, 1998].
"Stockholder Approval" shall mean approval by the
stockholders of the Corporation at an annual or special meeting
or by written consent of such stockholders of a resolution
approving the conversion of the Series A Preferred Stock to Class
A Common Stock in compliance with Rule 312.03 of the New York
Stock Exchange (or a determination by the Board of Directors that
such approval is not required).
3. Dividends. (a) Prior to the Preference Date, so long as any
shares of the Series A Preferred Stock are outstanding, except for (i)
purchases of Common Stock by the Corporation pursuant to its stock
repurchase program, (ii) the making of any payments by the Corporation
with respect to any options or rights to purchase securities granted
pursuant to any employee benefit plan or program of the Corporation or
with respect to the exercise of any such option or right, (iii) the
purchase of stock of the Corporation ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation, dissolution or
winding up in exchange for, or out of the proceeds of the
contemporaneous issuance of, other stock of the Corporation ranking
junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up, or (iv) any redemption or
conversion of shares of the Series A Preferred stock in accordance with
the terms hereof, no dividends shall be declared or paid or set apart
for payment on any class or series of stock of the Corporation ranking,
as to dividends, on a parity with or junior to the Series A Preferred
Stock (including the Common Stock), for any period unless an equal per
share dividend shall be declared, paid or set apart, as the case may be,
on the Series A Preferred Stock nor shall any such stock of the
Corporation ranking on a parity with the Series A Preferred Stock or
junior to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up (including the Common Stock) be
redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund or otherwise for
the purchase or redemption of any shares of any such stock) by the
Corporation.
(b) In the event that Stockholder Approval has not been obtained
prior to the Preference Date, and so long as any shares of the Series A
Preferred Stock are outstanding, the following shall apply from and
after such Preference Date:
(i) Holders of shares of the Series A Preferred Stock will
be entitled to receive, when, as and if declared by the Board of
Directors, out of the funds of the Corporation legally available
therefor, an annual cash dividend at the rate of 7% of the
Preference Value per share of Series A Preferred Stock per annum,
payable in quarterly installments on March 31, June 30, September
30 and December 31 (each a "Dividend Payment Date"), commencing
December 31, 1998 (and, in the case of any accrued but unpaid
dividends, at such additional times and for such interim periods,
if any, as determined by the Board of Directors). If any Dividend
Payment Date shall be on a day other than a
Business Day, then the Dividend Payment Date shall be on the next
succeeding Business Day. Dividends on the Series A Preferred
Stock will be cumulative from (but not before) the Preference
Date, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the
payment of such dividends and whether or not such dividends are
declared, and will be payable to holders of record as they appear
on the stock books of the Corporation on such record dates (each
such date, a "Dividend Payment Record Date"), which shall be not
more than 60 days nor less than 10 days preceding the Dividend
Payment Dates thereof, as shall be fixed by the Board of
Directors. Dividends on the Series A Preferred Stock shall accrue
(whether or not declared) on a daily basis from the Preference
Date and accrued dividends for each Dividend Period shall
accumulate to the extent not paid on the Dividend Payment Date
first following the Dividend Period for which they accrue. As
used herein, the term "accrued" with respect to dividends
includes both accrued and accumulated dividends.
(ii) The amount of dividends payable for each full
Dividend Period for the Series A Preferred Stock shall be
computed by dividing the annual dividend rate by four (rounded
down to the nearest cent). The amount of dividends payable for
the initial Dividend Period on the Series A Preferred Stock, or
any other period shorter or longer than a full Dividend Period on
the Series A Preferred Stock shall be computed on the basis of a
360-day year consisting of twelve 30-day months. Holders of
shares of Series A Preferred Stock called for redemption on a
redemption date falling between the close of business on a
Dividend Payment Record Date and the opening of business on the
corresponding Dividend Payment Date shall, in lieu of receiving
such dividend on the Dividend Payment Date fixed therefor,
receive such dividend payment together with all other accrued and
unpaid dividends on the date fixed for redemption. No interest,
or sum of money in lieu of interest, shall be payable in respect
of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
(iii) No dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for
payment on any class or series of stock of the Corporation
ranking, as to dividends, on a parity with the Series A Preferred
Stock, for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on
the Series A Preferred Stock for all Dividend Periods terminating
on or prior to the date of payment, or setting apart for payment,
of such dividends on such parity stock. When dividends are not
paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, upon the shares of the Series A Preferred
Stock and any other class or series of stock ranking on a parity
as to dividends with the Series
A Preferred Stock, all dividends declared upon shares of the
Series A Preferred Stock and all dividends declared upon such
other stock shall be declared pro rata so that the amounts of
dividends per share declared on the Series A Preferred Stock and
such other stock shall in all cases bear to each other the same
ratio that accrued dividends per share on the shares of the
Series A Preferred Stock and on such other stock bear to each
other.
(iv) No other stock of the Corporation ranking on a parity
with the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up shall be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any
such stock) by the Corporation (except for (i) the making of any
payments by the Corporation with respect to any options or rights
to purchase securities granted pursuant to any employee benefit
plan or program of the Corporation or with respect to the
exercise of any such option or right, or (ii) any redemption or
conversion of shares of the Series A Preferred stock in
accordance with the terms hereof) unless (A) the full cumulative
dividends, if any, accrued on all outstanding shares of the
Series A Preferred Stock shall have been paid or set apart for
payment for all past Dividend Periods and (B) sufficient funds
shall have been set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred
Stock.
(v) No dividends (other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe
for or purchase shares of, Common Stock or other stock ranking
junior to the Series A Preferred Stock, as to dividends and upon
liquidation, dissolution or winding up) shall be declared or paid
or set apart for payment and no other distribution shall be
declared or made or set apart for payment, in each case upon the
Common Stock or any other stock of the Corporation ranking junior
to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common
Stock nor any other such stock of the Corporation ranking junior
to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid
to or made available for a sinking fund or otherwise for the
purchase or redemption of any shares of any such stock) by the
Corporation (except for (i) purchases of Common Stock by the
Corporation pursuant to [the Stock Repurchase Program], (ii) the
making of any payments by the Corporation with respect to any
options or rights to purchase shares of Common Stock granted
pursuant to any employee benefit plan or program of the
Corporation or with respect to the exercise of any such option or
right, or (iii) the purchase of stock of the Corporation ranking
junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up in exchange for, or
out of the proceeds of the contemporaneous issuance of, other
stock of the Corporation ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation, dissolution or
winding up) unless, in each case (A) the full cumulative
dividends, if any, accrued on all outstanding shares of the
Series A Preferred Stock and any other stock of the Corporation
ranking on a parity with the Series A Preferred Stock as to
dividends shall have been paid or set apart for payment for all
past Dividend Periods and all past dividend periods with respect
to such other stock and (B) sufficient funds shall have been set
apart for the payment of the dividend for the current Dividend
Period with respect to the Series A Preferred Stock and for the
current dividend period with respect to any other stock of the
company ranking on a parity with the Series A Preferred Stock as
to dividends.
(c) The holders of shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions except as
provided in this Section 3.
4. Liquidation Preference. (a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, then, before any distribution or payment shall be made to
the holders of the Common Stock or any other series or class or classes
of stock of the corporation ranking junior to the Series A Preferred
Stock, each holder of Series A Preferred Stock then outstanding shall be
entitled to be paid, in respect of each share of Series A Preferred
Stock then held, out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to the
Preference Value of such share of Series A Preferred Stock (collectively
for all shares of Series A Preferred Stock outstanding, the "Series A
Preference Amount"). After payment of the Series A Preference Amount,
holders of the Common Stock shall be entitled to receive, from any
remaining assets available for distribution, a per share distribution
equal to the Series A Preference Amount previously distributed to the
holders of Series A Preferred Stock (the "Common Preference Amount").
After such distributions to the holders of each outstanding share of
Series A Preferred Stock and each outstanding share of Common Stock, any
remaining assets available for distribution shall be distributed to the
holders of shares of Series A Preferred Stock and shares of Common Stock
pro rata based on the total number of such shares held by each holder.
(b) The sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all
the property or assets of the Corporation or the consolidation or merger
of the Corporation with any other entity (other than any such
consolidation or merger in which the Series A Preferred Stock then
issued and outstanding remain outstanding immediately thereafter) shall
be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation for purposes of this Section 4.
(c) If the assets of the Corporation are not sufficient to
generate cash sufficient to pay in full the Series A Preference Amount,
then the holders of Series A Preferred Stock shall share ratably in any
distribution of cash generated by such assets in accordance with the
respective amounts that would be payable on such distribution if the
amounts to which the holders of outstanding shares of Series A Preferred
Stock are entitled were paid in full.
(d) If, after payment of the Series A Preference Amount, the
remaining assets of the Corporation are not sufficient to generate cash
sufficient to pay in full the Common Preference Amount, then the holders
of Common Stock shall share ratably in any distribution of cash
generated by such remaining assets in accordance with the respective
amounts that would be payable on such distribution if the amounts to
which the holders of outstanding shares of Common Stock are entitled
were paid in full.
(e) In case the outstanding shares of Series A Preferred Stock or
shares of Common Stock are subdivided into a greater number of shares of
Series A Preferred Stock or Common Stock, as the case may be, the Series
A Preference Amount or the Common Preference Amount, as applicable, in
effect immediately prior to each such subdivision shall, simultaneously
with the effectiveness of such subdivision, be proportionately reduced
and, conversely, in case the outstanding shares of Series A Preferred
Stock or shares of Common Stock shall be combined into a smaller number
of shares of Series A Preferred Stock or shares of Common Stock, as the
case may be, the Series A Preference Amount or the Common Preference
Amount, as applicable, in effect immediately prior to each such
combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased.
5. Voting Rights. (a) General. The holders of Series A Preferred
Stock shall not have any voting rights except as set forth below or as
otherwise from time to time required by law. In connection with any
right to vote, each holder of Series A Preferred Stock will have one
vote for each share held. Any shares of Series A Preferred Stock held by
the Corporation or any entity controlled by the Corporation shall not
have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Default Voting Rights. Whenever dividends on the Series A
Preferred Stock or any outstanding shares of stock on a parity as to
dividends with the Series A Preferred Stock ("parity dividend stock")
shall be in arrears in an amount equal to at least six quarterly
dividends (whether or not consecutive), (i) the number of members of the
Board of Directors of the Corporation shall be increased by two,
effective as of the time of election of such directors as hereinafter
provided, and (ii) the holders of the Series A Preferred Stock (voting
separately as a class with all other affected classes or series of the
parity dividend stock upon which like voting rights have been conferred
and are exercisable) will have the exclusive right to vote for and elect
such two
additional directors of the Corporation at any meeting of stockholders
of the Corporation at which directors are to be elected held during the
period such dividends remain in arrears. The right of the holders of the
Series A Preferred Stock to vote for such two additional directors shall
terminate when all accrued and unpaid dividends on the Series A
Preferred Stock have been declared and paid or set apart for payment.
The directors elected pursuant to this Section shall serve until the
earlier of (i) the next annual meeting or until their respective
successors shall be elected and shall qualify or (ii) until such time as
all dividends accumulated on Series A Preferred Stock shall have been
paid or declared and funds set aside for payment in full; any director
elected by the holders of the Series A Preferred Stock may be removed
by, and shall not be removed otherwise than by, the vote of the holders
of a majority of the voting power of the outstanding shares of the
Series A Preferred Stock who were entitled to participate in such
election of directors, voting as a separate class, at a meeting called
for such purpose or by written consent as permitted by law and the
Certificate of Incorporation and Bylaws of the Corporation.
The foregoing right of the holders of the Series A Preferred
Stock with respect to the election of two directors may be exercised at
any annual meeting of stockholders or at any special meeting of
stockholders held for such purpose. If the right to elect directors
shall have accrued to the holders of the Series A Preferred Stock more
than 90 days preceding the date established for the next annual meeting
of stockholders, the President of the Corporation shall, within 20 days
after the delivery to the Corporation at its principal office of a
written request for a special meeting signed by the holders of at least
ten percent (10%) of the Series A Preferred Stock then outstanding, call
a special meeting of the holders of the Series A Preferred Stock to be
held within 60 days after the delivery of such request for the purpose
of electing such additional directors.
(c) Class Voting Rights. So long as shares of the Series A
Preferred Stock are outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of all outstanding Series A Preferred Stock
outstanding at the time, voting separately as a class, in person or by
proxy, either in writing or at a meeting (i) authorize, create or issue,
or increase the authorized or issued amount of, any class or series of
stock ranking prior to or on a parity with the Series A Preferred Stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, or reclassify
any authorized capital stock of the Corporation into any such shares, or
create, authorize or issue any obligation or security convertible into
or evidencing the right to purchase any such shares; or (ii) amend,
alter or repeal (whether by merger, consolidation or otherwise) any
provision of the Corporation's Certificate of Incorporation or the
resolutions of the Board of Directors contained in this Certificate of
Designation, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock or
the holders thereof; provided, however, that any increase in the amount
of the authorized preferred stock of the
Corporation or the creation or issuance of any other series of preferred
stock of the Corporation, or any increase in the amount of authorized
shares of Series A Preferred Stock or of any other series of preferred
stock of the Corporation, in each case ranking junior to the Series A
Preferred Stock, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers. A class vote on
the part of the Series A Preferred Stock shall, without limitation,
specifically not be deemed to be required (except as otherwise required
by law or resolution of the Corporation's Board of Directors) (a) in
connection with an amendment to the Corporation's Certificate of
Incorporation, to increase the number of authorized shares of preferred
stock of the Corporation; or (b) if, at or prior to the time when the
act with respect to which such vote would otherwise be required shall be
effected, all outstanding shares of Series A Preferred Stock shall have
been converted pursuant to Section 6 hereof or shall have been redeemed
pursuant to Section 7 hereof or called for redemption pursuant thereto
and sufficient funds and Redemption Notes shall have been deposited in
trust to effect such redemption.
6. Conversion. (a) Upon Stockholder Approval, all of the issued
and outstanding shares of Series A Preferred Stock shall automatically
convert into fully paid and non assessable shares of Class A Common
Stock at a conversion ratio (the "Conversion Ratio") of one share of
Class A Common Stock for each share of Series A Preferred Stock, subject
to adjustment pursuant to this Section 6 ("Automatic Conversion"). From
and after the date of Automatic Conversion, (w) dividends (if any) on
the shares of the Series A Preferred Stock shall cease to accrue and
accumulate, (x) the shares of Series A Preferred Stock shall be deemed
no longer outstanding, (y) each share of Series A Preferred Stock shall
be deemed to represent the number of shares of Class A Common Stock into
which such share of Series A Preferred Stock is convertible on the date
of Automatic Conversion, whether or not such share of Series A Preferred
Stock is surrendered for conversion, and (z) all rights of the holders
thereof as stockholders of the Corporation (except the right to receive
from the Corporation shares of Class A Common Stock upon conversion,
subject to adjustment pursuant to this Section 6) shall cease.
(b) In case the Corporation shall at any time or from time to
time (i) declare a dividend, or make a distribution, on the outstanding
shares of Common Stock or any class thereof in the form of shares of its
capital stock, (ii) subdivide or reclassify the outstanding shares of
Common Stock or any class thereof into a greater number of shares of
Common Stock, (iii) combine or reclassify the outstanding shares of
Common Stock or any class thereof into a smaller number of shares of
Common Stock, (iv) reclassify the outstanding shares of Common Stock or
any class thereof into other securities of the Corporation, (v) or
otherwise issue any shares of its capital stock to the holders of
outstanding shares of Common Stock or any class thereof, then, and in
each such case, the Conversion Ratio shall be adjusted so that the
holder of each share of Series A Preferred Stock thereafter surrendered
for conversion pursuant to this Section
6 shall be entitled to receive, upon such conversion, the number and
kind of shares of Class A Common Stock or other securities that the
holder of a share of Series A Preferred Stock would have been entitled
to receive after the happening of any of the events described in this
clause (b) had such share of Series A Preferred Stock been so converted
immediately prior to the date of the happening of such event or the
record date therefor, whichever is earlier. Any adjustment made pursuant
to this clause (b) shall become effective (i) in the case of any such
dividend or distribution, immediately after the close of business on the
record date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (ii) in the case
of any such subdivision, reclassification or combination, at the close
of business on the day upon which such corporate action becomes
effective.
(c) In the event that at any time, as a result of an adjustment
made pursuant to clause (b) above, the holder of any Series A Preferred
Stock thereafter converted shall become entitled to receive any shares
of capital stock of the Corporation other than its Class A Common Stock,
thereafter the number of such shares so receivable upon conversion shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Class A Common Stock contained in clause (b) above.
(d) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock or its
treasury shares, solely for the purpose of issuance upon the conversion
of the Series A Preferred Stock, such number of shares of Class A Common
Stock as are then issuable upon the exchange of all then outstanding
shares of the Series A Preferred Stock.
(e) The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 6 shall be made without charge to the holders of such
converted shares of Series A Preferred Stock for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection
with such conversion and the related issuance of shares of Class A
Common Stock; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other
than that of the holder or former holder of Series A Preferred Stock so
converted.
(f) No fractional shares of Class A Common Stock shall be issued
upon the conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the
average of the last sales prices per share of the Class A Common Stock
of the Corporation on the New York Stock Exchange for the 20 consecutive
trading days ending on the trading day which is five trading days prior
to the conversion date.
7. Optional Redemption. (a) In the event that Stockholder
Approval has not been obtained prior to the Preference Date, on or after
such Preference Date the Corporation, at the option of the Board of
Directors, may redeem the shares of Series A Preferred Stock, in whole
(but not in part), out of funds legally available therefor, at any time
or from time to time, subject to the notice provisions described below,
by resolution of its Board of Directors at a per share redemption price
equal to the Redemption Price. The Redemption Price of any shares of
Series A Preferred Stock redeemed pursuant to this Section 7 shall,
unless otherwise agreed upon by the holder of such shares and the
Corporation, be payable 25% in cash on the Preference Date and the
remaining 75% in a promissory note or promissory notes (collectively,
the "Redemption Notes"), payable in three (3) equal consecutive annual
payments of principal[, with interest on the unpaid principal balance at
a rate per annum equal to the Interest Rate; provided, however, that the
Corporation shall have the right, at any time, to prepay without penalty
the then unpaid portion of such Redemption Notes. The annual installment
of principal on the Redemption Notes shall be paid in each year on the
anniversary of the redemption date in such year or, if such date is not
a Business Day, on the first Business Day following such date. The
"Interest Rate" for purposes of this Section 7 shall mean the fixed rate
of interest, per annum, equal to the corresponding applicable federal
rate, as defined in the Internal Revenue Code of 1986, as amended.
(b) In the event the Corporation shall redeem the shares of
Series A Preferred Stock, a Corporation notice of such redemption shall
be given by first class mail, postage prepaid, mailed not less than 10
nor more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed, at such holder's address as the
same appears on the stock records of the Corporation. Each such notice
shall state: (i) the redemption date; (ii) the redemption price; (iii)
the place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (iv) that payment in
cash and Redemption Notes will be made upon presentation and surrender
of such Series A Preferred Stock; (v) that dividends on the shares to be
redeemed shall cease to accrue immediately after such redemption date;
and (vi) that dividends accrued to and including the date fixed for
redemption will be paid as specified in said notice. Notice having been
mailed as aforesaid, immediately after the redemption date, unless the
Corporation shall be in default in providing the payment of the
redemption price (including any accrued and unpaid dividends to (and
including) the date fixed for redemption), (x) dividends on the shares
of Series A Preferred Stock so called for redemption shall cease to
accrue, (y) such shares shall be deemed no longer outstanding and (z)
all rights of the holders thereof as stockholders of the Corporation
(except the right to receive from the Corporation the moneys payable
upon redemption) shall cease.
Upon surrender in accordance with such notice of the certificates
for any such shares so redeemed (properly endorsed or assigned for
transfer, if the Board of
Directors shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the applicable redemption price
and in the manner aforesaid.
(c) The Series A Preferred Stock may not be redeemed except as
provided in this Section 7.
8. Reissuance of Preferred Stock. Shares of Series A Preferred
Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of
authorized but unissued shares of Preferred Stock of the Corporation
undesignated as to series and may be designated or redesignated and
issued or reissued, as the case may be, as part of any series of
preferred stock of the Corporation; provided that any issuance of such
shares as Series A Preferred Stock must be in compliance with the terms
hereof.
9. Record Holders. The Corporation and any transfer agent of the
Corporation may deem and treat the record holder of any shares of Series
A Preferred Stock as the true and lawful owner thereof for all purposes,
and neither the Corporation nor any such transfer agent shall be
affected by any notice to the contrary.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
to be made under the seal of the Corporation and signed by Steven J. Lund, its
President and Chief Executive Officer, and attested by Keith R. Halls, its
Secretary, this 25th day of March, 1998.
NU SKIN ASIA PACIFIC, INC.
By:/s/ Steven J. Lund
Name: Steven J. Lund
Title: President and Chief
Executive Officer
(Corporate Seal)
Attest:
By: /s/ Keith R. Halls
Name: Keith R. Halls
Title: Secretary
EX-10.33
(This is the form of Management Services Agreement for Nu Skin USA, Inc. and the
other North American Private affiliates.)
MANAGEMENT SERVICES AGREEMENT
between
NU SKIN INTERNATIONAL MANAGEMENT GROUP, INC.
and
NU SKIN U.S.A., INC.
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS................................................1
"Agreement"................................................1
"Allocable Expenses".......................................1
"Consulting Personnel".....................................1
"Direct Expenses"..........................................2
"Intercompany Agreements" .................................2
"Management and Consulting Services" ......................2
"NSI" .....................................................2
ARTICLE 2 MANAGEMENT AND CONSULTING SERVICES.........................2
Services...................................................2
Performance of Services. ..................................2
ARTICLE 3 COMPENSATION OF SERVICE PROVIDER...........................2
Compensation for Services by Consulting Personnel..........2
Determination of Allocable Expenses. .....................3
Currency. ................................................3
Payment and Invoicing......................................3
Due Date...................................................3
Delinquent Payments........................................3
ARTICLE 4 PREPARATION AND SHARING OF REPORTS AND INFORMATION
Periodic Reports on Management and Consulting Services.....3
Time Allocation Study......................................3
Sharing of Information and Witnesses.......................3
ARTICLE 5 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.................4
ARTICLE 6 TERM.......................................................5
ARTICLE 7 TERMINATION................................................5
ARTICLE 8 EFFECT OF TERMINATION......................................6
Cessation of Rights........................................6
Damages....................................................6
(i)
ARTICLE 9 COMPLIANCE WITH APPLICABLE LAWS............................6
Compliance Generally.......................................6
Authorizations.............................................8
ARTICLE 10 GENERAL PROVISIONS.........................................6
Assignment.................................................6
Notices....................................................7
Waiver and Delay...........................................7
Force Majeure..............................................7
Governing Law and Dispute Resolution.......................8
Integrated Contract........................................8
Modifications and Amendments...............................8
Severability...............................................8
Counterparts and Headings..................................8
(ii)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective
December 31st , 1997 between Nu Skin International Management Group, Inc., a
corporation organized under the laws of the State of Utah, U.S.A. (hereinafter
referred to as "NSIMG"), and Nu Skin U.S.A., Inc., a corporation organized under
the laws of the State of Delaware, U.S.A. (hereinafter referred to as "NSUSA").
I NSIMG and NSUSA shall hereinafter be collectively referred to as the "Parties"
and each shall be individually referred to as a "Party."
W I T N E S S E T H
WHEREAS, NSIMG desires to provide Management and Consulting Services
(as hereinafter defined) to NSUSA, and NSUSA desires to obtain such Management
and Consulting Services from NSIMG;
NOW, THEREFORE, in consideration of the premises, the mutual promises
and covenants hereinafter set forth and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meaning set out below:
1.1 "Agreement" shall mean this Management Services Agreement
between NSIMG and NSUSA, as the same may be modified, amended
or supplemented from time to time.
1.2 "Allocable Expenses" shall mean all expenses incurred by NSIMG
in providing Management and Consulting Services other than
Direct Expenses including without limitation, the following:
rents, utilities, telephone, equipment, recruitment, office
supplies, and other overhead expenses, certain salary costs,
payroll, benefits and expenses related to conventions, travel
and accommodations at anniversary events, the permitted use
and appropriation of the names and licenses of directors, and
executive officials of NSUSA or NSIMG, telephone calls and
counseling and conferences and meetings with NSUSA managers
and NSIMG independent distributors. Allocable Expenses shall
be calculated in accordance with Sections 3.2 and 4.2.
1.3 "Consulting Personnel" shall mean employees of NSIMG or, with
the consent of NSUSA, such other persons or entities as NSIMG
may retain, hire, or otherwise contract with for the provision
of Management and Consulting Services on behalf of, or in
conjunction with, NSIMG.
1.4 "Direct Expenses" shall mean all expenses incurred in the
provision of Management and Consulting Services for NSUSA,
which expenses are measured solely for the benefit of NSUSA,
including, without limitation, certain salary costs, benefits
and business expenses, convention expenses and travel
expenses.
1.5 "Intercompany Agreements" shall mean the Wholesale
Distribution Agreement, The Licensing and Sales Agreement, The
Management Services Agreement, and the Trademark/Tradename
License Agreement between the Parties.
1.6 "Management and Consulting Services" shall mean the following
services provided by Consulting Personnel: management, legal,
financial, marketing and distribution support/training, public
relations, international expansion, human resources, strategic
planning, product development and operations administration
and such other services as the Parties may agree to from time
to time.
1.7 "NSI" shall mean Nu Skin International, Inc., a corporation
duly organized and existing under the laws of the State of
Utah.
ARTICLE 2
MANAGEMENT AND CONSULTING SERVICES
2.1 Services. NSIMG hereby agrees to provide Management and
Consulting Services to NSUSA as NSUSA may request from time to
time, until termination of this Agreement. NSUSA agrees to
reimburse and compensate NSIMG for Management and Consulting
Services rendered pursuant to this Agreement in accordance
with the applicable compensation and invoicing provisions
hereof.
2.2 Performance of Services. Unless otherwise agreed between the
Parties, the Management and Consulting Services shall be
provided through Consulting Personnel, as requested by NSUSA.
2.3 Approval of Services. NSUSA hereby agrees that, by accepting
and paying invoices as provided in Article 3 herein, NSUSA
will be deemed to have approved the nature and extent of the
Management and Consulting Services so invoiced.
ARTICLE 3
COMPENSATION OF SERVICE PROVIDER
3.1 Compensation for Services by Consulting Personnel. NSUSA
agrees to compensate NSIMG for Management and Consulting
Services that it provides to NSUSA in the form of a fee equal
to the Direct Expenses plus Allocable Expenses incurred by
NSIMG for Management and Consulting Services provided to NSUSA
plus three percent (3%) of such Direct Expenses and Allocable
Expenses, as such fee may be adjusted from time to time by
mutual agreement of
the Parties; provided that, unless otherwise agreed between
the Parties, Allocable Expenses shall not, for any period,
exceed one and one-half percent (1.5%) of NSUSA's revenues for
such period.
3.2 Determination of Allocable Expenses. Allocable Expenses for
any period shall be equal to the total Allocable Expenses
incurred by NSIMG or NSIMG's internal departments for such
period multiplied by the percentage of such Allocable Expenses
allocable to NSUSA pursuant to the then applicable time
allocation study prepared pursuant to Section 4.2 hereof.
3.3 Currency. Any compensation to be paid to NSIMG for Management
and Consulting Services rendered pursuant to this Agreement
shall be paid in United States Dollars.
3.4 Payment and Invoicing. Within thirty (30) days after the end
of each month, NSIMG shall prepare and deliver an invoice to
NSUSA setting forth the fees payable hereunder for Management
and Consulting Services rendered pursuant to this Agreement
during such month.
3.5 Due Date. Payments due under this Agreement shall be due and
payable within sixty (60) days after the date of dispatch of
the invoice for such payments.
3.6 Delinquent Payments. Without limiting any of Parties' other
rights and remedies under this Agreement, amounts outstanding
under the terms of this Agreement not paid within sixty (60)
days from the date due and payable, and as set forth in the
payment provisions herein, shall bear interest at the prime
interest rate as reported in the Wall Street Journal plus two
percent (2%) for the full period outstanding. Whether or not
interest charges are actually levied is at the discretion of
the Party to whom payment is due and payable.
ARTICLE 4
PREPARATION AND SHARING OF REPORTS AND INFORMATION
4.1 Periodic Reports on Management and Consulting Services. NSUSA
may, upon thirty (30) days written notice, request operations
reports of NSIMG setting forth such information regarding the
Management and Consulting Services provided under this
Agreement and for such time periods as NSUSA shall reasonably
request.
4.2 Time Allocation Study. NSIMG has prepared a study accurately
reflecting the allocation of time spent by NSIMG's internal
department and consulting personnel on the services provided
to NSUSA under this Agreement. The study shall be updated on a
quarterly basis. NSUSA may request a copy of the then
applicable time allocation study from NSIMG upon thirty (30)
days written notice.
4.3 Sharing of Information and Witnesses. At all times during the
term of this Agreement and for a period of three years
thereafter, each of the Parties shall maintain at its
principal place of business full, complete and accurate books
of account and records with regard to its activities under
this Agreement. In addition to books and records, NSIMG and
NSUSA may from time to time have in their possession or under
their control (or the control of persons or entities which
have rendered services) additional books, records, contracts,
instruments, data and other information (together with the
books and records referred to in the first sentence of this
Section 4.3, the "Information") which may prove necessary or
desirable to the other in connection with the other's
business. Accordingly, (i) NSIMG shall provide to NSUSA, and
NSUSA shall provide to NSIMG upon the other's request, at all
reasonable times, full and complete access to persons and all
Information as the other may reasonably request and require in
the conduct of its business, and (ii) NSIMG shall make
available to NSUSA and NSUSA shall make available to NSIMG,
upon the other's request, such persons as may reasonably be
required to assist with any legal, administrative or other
proceedings in which NSUSA or NSIMG, as the case may be, may
from time to time be involved. The Information shall include,
without limitation, information sought for audit, accounting,
claims, litigation and tax purposes. The Party providing
Information or making available witnesses shall be entitled to
receive from the other Party, upon the presentation of
invoices therefor, payment for its reasonable out-of-pocket
expenses incurred in connection therewith (but not the labor
costs thereof), but shall not be entitled to receive any other
payment with respect thereto. Nothing in this Agreement shall
require either Party to reveal to the other any information if
to do so would violate such Party's written and enforceable
duty of confidence to a third party from whom or which such
information was obtained; under such circumstances, however,
the parties shall work together to obtain a release of such
information without violation of such duty of confidence.
ARTICLE 5
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
All trade secrets, proprietary technology, know-how or other non-public
or proprietary business or technical information owned or used by NSIMG or NSUSA
and supplied to or acquired by the other whether in oral or documentary form
(the "Confidential Information") shall be supplied and acquired in confidence
and shall be solely for the use of the receiving party pursuant to this
Agreement and such party shall keep the Confidential Information confidential
and shall not disclose the same, at any time during the term of this Agreement
or after its termination, except to its employees for the purposes of its
business in accordance with this Agreement and except as may be required by law;
provided that if the receiving party determines that a disclosure is required by
law, the receiving party shall notify the disclosing party in order to give the
disclosing party an opportunity to seek an injunction or otherwise attempt to
keep the Confidential Information confidential. The receiving party shall, at
the request of the disclosing party, destroy or return the Confidential
Information without retaining copies if, as and when this Agreement is
terminated or expires. For purposes of this Agreement, the term "Confidential
Information" shall not include information or documents that (i) become
generally available to the public other than as a result of a disclosure by the
receiving party, (ii) was otherwise lawfully available to the receiving party,
or (iii) was generated independently by the receiving party. The provisions of
this Article shall survive termination of this Agreement.
ARTICLE 6
TERM
This Agreement shall be effective from the Effective Date for a term of
five (5) years unless terminated Pursuant to Article 7. The term of this
Agreement shall be renewed automatically for successive one year terms ,unless
terminated ninety (90) days prior to the end of the then current term.
ARTICLE 7
TERMINATION
7.1 This Agreement may be terminated by either Party immediately
or at any time after the occurrence of any of the following
events:
(a) the other Party shall commence any case, proceeding or
other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or
seeking to adjudicate it as bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, compensation or other relief with
respect to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar action; or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause
(a) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 90 days.
Events described in clauses (a) and (b) of this Section 7.1(a)
shall be referred to as a "Bankruptcy Event". If a Bankruptcy
Event occurs, all amounts owing under this Agreement shall
become immediately due and payable, without any notice
thereof; or
(c) if the other Party causes or allows a judgment in excess
of twenty-five million dollars ($25,000,000) to be entered
against it or involuntarily allows a lien, security interest,
or other encumbrance to attach to its assets which secures an
amount in excess of twenty-five million dollars ($25,000,000).
7.2 This Agreement may be terminated by either Party, if the other
Party is in default in the performance of any material
obligation under this Agreement and such default has not been
cured within sixty (60) days after receipt of written notice
of such default by the defaulting Party; or
7.3 This Agreement may be terminated by NSIMG if the original
pre-IPO shareholders of Nu Skin Asia Pacific no longer own or
control a majority of the voting interest in NSUSA. Such
termination shall be effective thirty (30) days after NSIMG
gives written notice to NSUSA of the occurrence of a change in
control and its intention to terminate this Agreement based
thereon.
7.4 NSUSA may terminate any specific Management and Consulting
Service provided pursuant to this Agreement by providing
written notice thereof to NSIMG not less than sixty (60) days
prior to the desired termination date. NSIMG may discontinue
providing any specific Management and Consulting Service
provided pursuant to this Agreement by providing written
notice thereof to the NSUSA not less than sixty (60) days
prior to the desired termination date; provided, however, that
NSIMG shall not deliver any such notice in respect of any
service to the extent that NSIMG continues to provide such
service to any other international affiliate of NSIMG.
ARTICLE 8
EFFECT OF TERMINATION
8.1 Cessation of Rights. Upon expiration or termination
(collectively, the "Termination") of this Agreement for any
reason whatsoever, all rights and obligations of the Parties
hereunder shall cease; provided, however, that upon
Termination of this Agreement, no Party shall be released from
its obligations to pay monies due or to become due or to
complete any unfulfilled obligations under this Agreement, and
the provisions of Article 5 shall service such Termination.
8.2. Damages. Upon the Termination of this Agreement for any
reason, no Party shall be liable or obligated to the other
Party with respect to any payments, future profits, exemplary,
special or consequential damages, indemnifications or other
compensation regarding such Termination, and, except as
otherwise required by applicable law, each Party hereby waives
and relinquishes any rights, pursuant to law or otherwise, to
any such payments, indemnifications or compensation.
ARTICLE 9
COMPLIANCE WITH APPLICABLE LAWS
9.1 Compliance Generally. In the performance of its obligations
under this Agreement, the Parties shall, at all times,
strictly comply with all applicable laws, regulations and
orders of the countries and jurisdictions in which they
operate and such United States laws as outlined in paragraph
9.3 of this Article.
9.2 Authorizations. Each Party shall, at its own expense, make,
obtain and maintain in force at all times during the term of
this Agreement, all filings, registrations, reports, licenses,
permits and authorizations required under applicable law,
regulations or orders in order for it to perform its
obligations under this Agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1 Assignment. This Agreement shall be binding on and inure to
the benefit of the heirs, successors, assigns and
beneficiaries of the Parties; provided that no Party may
assign this Agreement or any rights or obligations hereunder,
whether by operation of law or otherwise, without the prior
written consent of all the other Party's authorized
representatives (which consent may be granted or withheld).
Any attempted assignment by any Party without the prior
written consent of the other Party shall be void and
unenforceable.
10.2 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been
duly given, if delivered by hand, or if communicated by
facsimile to the facsimile number as may be provided from time
to time by each Party to the other, at the time that receipt
thereof has been confirmed by return electronic communication
signal that the message has been received, or if sent by
reputable international courier service three (3) days after
dispatch addressed to the Parties at the addresses outlined
hereafter. Either Party may change its facsimile number or
address by a notice given to the other Party in the manner set
forth as follows:
If to NSIMG: Attn.: General Manager
75 West Center
Provo, Utah 84601 USA
(801) 345-5500
(801) 345-5999 Fax
If to NSUSA: Attn.: Assistant Secretary
Nu Skin U.S.A., Inc.
Provo, Utah USA
(801) 345-3099
(801) 345-5060 Fax
10.3 Waiver and Delay. No waiver by any Party of any breach or
default in performance by any other Party, and no failure,
refusal or neglect of any Party to exercise any right, power
or option given to it hereunder or to insist upon strict
compliance with or performance of the other Party's
obligations under this Agreement, shall constitute a waiver of
the provisions of this Agreement with respect to any
subsequent breach thereof or a waiver by any Party of its
right at any time thereafter to require exact and strict
compliance with the provisions thereof.
10.4 Force Majeure. The Parties shall not be responsible for
failure to perform hereunder due to force majeure, which shall
include, but not be limited to: fires, floods, riots, strikes,
labor disputes, freight embargoes or transportation delays,
shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on
account of shortage thereof, acts of God or of the public
enemy, war or civil disturbances, any existing or future laws,
rules, regulations or acts of any government (including any
orders, rules or regulations issued by any official or agency
or such government) affecting a Party that would delay or
prohibit performance hereunder, or any cause beyond the
reasonable control of a Party. If an event of force majeure
should occur, the affected Party shall promptly give notice
thereof to the other Party and such affected Party shall use
its reasonable best efforts to cure or correct any such event
of force majeure.
10.5 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Utah, applicable to contracts made and to be wholly
performed within such State. Any dispute arising out of this
Agreement, if not resolved by mutual agreement of NSIMG and
NSUSA within 30 days after written notice of such dispute is
given by NSIMG or NSUSA, as the case may be, shall be resolved
through arbitration with the Utah office and division of the
American Arbitration Association ("AAA"). If the dispute is
not resolved within such 30-day period, the Parties shall
petition the AAA to promptly appoint a competent,
disinterested person to act as such arbitrator. Within 30 days
after the designation or appointment of such arbitrator, such
arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be
fixed by the arbitrator, who shall so notify NSIMG and NSUSA.
Such arbitration proceeding shall be conducted in accordance
with the applicable rules and procedures of the AAA, and/or as
otherwise may be agreed by NSIMG and NSUSA and may be enforced
in any court of competent jurisdiction. The expenses and costs
of such arbitration shall be divided and borne equally by
NSIMG and NSUSA; provided, that such of NSIMG and NSUSA shall
pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
10.6 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter
hereof and supersedes all prior or contemporaneous
negotiations, representations, agreements and understanding
(both oral and written) of the Parties.
10.7 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in
writing and executed by all Parties.
10.8 Severability. To the extent that any provision of this
Agreement is (or, in the opinion of counsel mutually
acceptable to all Parties, would be) prohibited, judicially
invalidated or otherwise rendered unenforceable in any
jurisdiction relevant to the Parties, such provision shall be
deemed ineffective only to the extent of such prohibition,
invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially
invalidated or unenforceable provision of this Agreement will
not invalidate or render unenforceable any other provision of
this Agreement, nor will such provision of this Agreement be
invalidated or rendered unenforceable in any other
jurisdiction.
10.9 Counterparts and Headings. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. All headings and captions are inserted
for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and year first-above written.
NU SKIN INTERNATIONAL NU SKIN USA, INC.
MANAGEMENT GROUP, INC.
By: /s/ Blake M. Roney By: /s/ Keith R. Halls
Name: Blake M. Roney Name: Keith R. Halls
Title: President Title: Vice President
EX-10.34
(This is the form of Wholesale Distribution Agreement for Nu Skin USA, Inc. and
the other North American Private affiliates. Payments are paid in the local
currency of the country in which the private affiliate operates)
Nu Skin International, Inc.
AND
Nu Skin USA, Inc.
WHOLESALE DISTRIBUTION AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................2
1.1 "Agreement"....................................................2
1.2 "Independent Distributor Network"..............................2
1.3 "Intercompany Agreements"......................................2
1.4 "NSI Independent Distributor"..................................2
1.5 "NSI"..........................................................2
1.6 "Products".....................................................2
1.7 "Sales Aids"...................................................3
1.8 "Territory"....................................................3
1.9 "Trademarks"...................................................3
ARTICLE II APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR.................3
2.1 Scope..........................................................3
2.2 Sub-distributors...............................................3
2.3 Sales of Products and Sales Aids...............................3
2.4 NSI Sales in the Territory.....................................4
2.5 Sales Outside the Territory....................................4
2.6 Territory Orders and Inquiries.................................4
ARTICLE III GOVERNMENTAL APPROVALS AND REGISTRATIONS.......................5
ARTICLE IV OBLIGATIONS OF NSUSA AS EXCLUSIVE WHOLESALE DISTRIBUTOR
IN THE TERRITORY...............................................5
4.1 Marketing and Distribution.....................................5
4.2 NSUSA Operations...............................................6
4.3 Pricing Information............................................7
4.4 NSUSA Claims and Representations...............................7
4.5 Capitalization.................................................7
4.6 Customer Support...............................................7
4.7 Allocation of Expenses.........................................7
ARTICLE V PURCHASE SALE & DELIVERY OF PRODUCTS AND SALES AIDS............8
5.1 Agreement to Purchase..........................................8
5.2 Payment Due Date...............................................9
5.3 Passage of Title and Risk of Loss..............................9
5.4 Product Returns/Exchanges Inspection...........................9
ARTICLE VI PRODUCT AND SALES AIDS PURCHASE PRICES AND TERMS OF PAYMENT...10
6.1 Product Availability and Pricing..............................10
6.2 Payment Method................................................10
ARTICLE VII OBLIGATIONS OF NSUSA AS SUPPLIER OF PRODUCTS AND
SALES AIDS....................................................11
7.1 Product Formulation...........................................11
7.2 Warranty......................................................11
7.3 Delivery......................................................11
ARTICLE VIII SALE AND MANUFACTURE OF PRODUCTS..............................12
8.1 Non-Competing Products........................................12
8.2 Competing Products............................................12
8.3 Discontinued Products.........................................12
ARTICLE IX NATURE OF RELATIONSHIP........................................13
ARTICLE X TERM..........................................................13
ARTICLE XI TERMINATION...................................................13
ARTICLE XII EFFECT OF TERMINATION.........................................15
ARTICLE XIII CONFIDENTIALITY...............................................16
ARTICLE XIV INDEMNIFICATION AND INSURANCE.................................17
ARTICLE XV MISCELLANEOUS 19
15.1 Assignment....................................................19
15.2 Notices.......................................................19
15.3 Waiver and Delay..............................................20
15.4 Force Majeure.................................................20
15.5 Governing Law and Dispute Resolution..........................21
15.6 Integrated Contract...........................................21
15.7 Modifications and Amendments..................................22
15.8 Severability..................................................22
15.9 Counterparts and Headings.....................................22
WHOLESALE DISTRIBUTION AGREEMENT
THIS WHOLESALE DISTRIBUTION AGREEMENT (hereinafter "Agreement") entered
into and made effective this 31st day of December, 1997 (the "Effective Date"),
by and between Nu Skin U.S.A., Inc., a corporation organized under the laws of
the State of Delaware, U.S.A., (hereinafter "NSUSA"), and Nu Skin International,
Inc., a corporation organized under the laws the State of Utah, U.S.A.,
(hereinafter "NSI"). Hereinafter, NSUSA and NSI collectively shall be referred
to as the "Parties."
W I T N E S S E T H
WHEREAS, NSI is engaged in the design, production and marketing of
Products and Sales Aids (as hereinafter defined) for distribution in markets
through a network of independent distributors; and,
WHEREAS, NSUSA desires, on the terms and conditions hereinafter set
forth, to act as NSI's exclusive distributor of NSI of Products and Sales Aids
in the Territory (as hereinafter defined); and,
WHEREAS, NSI is willing, on the terms and conditions hereinafter set
forth, to grant to NSUSA the exclusive right to so distribute Products and Sales
Aids in the Territory; and,
WHEREAS, the Parties wish to enter into a Wholesale Distribution
Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises,
the mutual covenants herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement the following words, terms, and
phrases shall have the meaning assigned to them in this Article I, unless the
context otherwise requires or the parties otherwise agree within the terms of
this Agreement: 1.1 "Agreement" shall mean this Wholesale Distribution Agreement
between NSI and NSUSA (together with any exhibits and schedules hereto), as the
same may be modified, amended or supplemented from time to time.
1.2 "Independent Distributor Network" shall mean the network of all NSI
Independent Distributors.
1.3 "Intercompany Agreements" shall mean the Wholesale Distribution
Agreement, The Licensing and Sales Agreement, The Management Services Agreement
and the Trademark/Tradename Agreement between the Parties.
1.4 "NSI Independent Distributor" shall mean a person or business
entity authorized by contract with NSI to distribute, as an independent
contractor, the Products and Sales Aids in accordance with the terms of such
distributor contract.
1.5 "NSI" shall mean Nu Skin International, Inc., a corporation duly
organized and existing under the laws of the State of Utah, U.S.A.
1.6 "Products" shall mean cosmetics, nutritional products, dietary
supplements, vitamins, over-the-counter drugs, quasi-drugs, drugs and
pharmaceutical products that are produced, manufactured or purchased by NSI for
sale or resale, and bearing a Nu Skin brand or trademark existing as of the date
hereof, subject to availability due to local regulatory requirements in the
Territory.
1.7 "Sales Aids" shall mean materials, in whatever form, designed,
approved and produced by NSUSA to assist in the marketing of the Products in the
Territory.
1.8 "Territory" shall mean the United States of America including all
its territories.
1.9 "Trademarks" shall mean those words, symbols, devices, logos, trade
names and company names or combinations thereof owned by NSI and used in
relation to or on Products and Sales Aids, whether or not registered.
ARTICLE II
APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR
2.1 Scope. NSI hereby appoints NSUSA as NSI's exclusive distributor,
during the term of this Agreement, for the sale and distribution of Products and
Sales Aids in the Territory, under the Products' names, logos, and Trademarks,
subject to all terms and conditions of this Agreement, and NSUSA hereby accepts
such appointment and authorization.
2.2 Sub-distributors. Except for the sale of Products and Sales Aids to
NSI Independent Distributors, NSUSA shall not, without the prior written
approval of NSI, appoint sub-distributors or agents to promote or distribute
Products or Sales Aids inside or outside the Territory.
2.3 Sales of Products and Sales Aids.
2.3(a) NSUSA agrees that any distribution of Products or Sales
Aids in the Territory shall be made only to NSI Independent
Distributors.
2.3(b) To facilitate sales to NSI Independent Distributors,
NSUSA shall have the right to access information regarding such NSI
Independent Distributors in the Territory on NSI's computer system or
as otherwise retained by NSI .
2.4 NSI Sales in the Territory. NSI agrees not to sell and, to use its
best efforts to prohibit any third party from selling Products or Sales Aids to
any party within the Territory or to any party outside the Territory for
delivery within the Territory, except to NSUSA pursuant to the terms and
conditions of this Agreement, unless NSI has received the written consent of
NSUSA. Notwithstanding the foregoing, NSI retains the right to license to other
entities the use of the Independent Distributor Network for distribution of
products other than those included in the definition of Products in Section 1.5,
without the consent of NSUSA.
2.5 Sales Outside the Territory. NSUSA agrees that it will neither sell
nor enable any third party to sell Products or Sales Aids outside the Territory
or sell Products or Sales Aids to any party within the Territory for resale or
delivery outside the Territory. Further, NSUSA shall not promote or solicit
customers for Products or Sales Aids sales outside the Territory. NSUSA shall
not establish any facility outside the Territory through which orders are
solicited or in which inventories of Products or Sales Aids are stored without
NSI's written consent.
2.6 Territory Orders and Inquiries. The Parties acknowledge that from
time to time inquiries and orders concerning the Territory will arise. If NSI
receives any order or inquiry concerning the sale of Products or Sales Aids in
the Territory, NSI agrees to give prompt notice of such inquiry or order to
NSUSA, such notice to include the name and address of the person making the
order or inquiry as well as any other relevant details regarding such order or
inquiry that NSUSA shall reasonably request. If NSUSA receives any order or
inquiry concerning the sale of Products or Sales Aids outside the Territory,
NSUSA agrees to give NSI prompt notice of such inquiry or order, such notice to
include the name and address of the person making the order or inquiry, as well
as any other relevant details regarding such order or inquiry that NSI shall
reasonably request.
ARTICLE III
GOVERNMENTAL APPROVALS AND REGISTRATIONS
NSUSA agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances of
the Territory to enable this Agreement to become effective, to enable the
Products or Sales Aids to be imported in the Territory (except as otherwise
provided herein) or to enable any payment pursuant to the provisions of this
Agreement to be made. NSUSA agrees to keep NSI informed of the progress in
obtaining all such government approvals.
ARTICLE IV
OBLIGATIONS OF NSUSA AS EXCLUSIVE WHOLESALE
DISTRIBUTOR IN THE TERRITORY
4.1 Marketing and Distribution. NSUSA shall have the following
obligations with respect to marketing and distribution of the Products and Sales
Aids:
4.1(a) To use its best efforts to further the promotion,
marketing, sales and other distribution of the Products and Sales Aids
in the Territory.
4.1(b) To maintain, or cause to be maintained, an adequate and
balanced inventory of Products, Sales Aids, supplies and necessary
materials to promote, market, sell and distribute the Products and
Sales Aids within the Territory.
4.1(c) To ensure that all inquiries by NSI Independent
Distributors and customers, including complaints are responded to
promptly. To ensure that all orders are processed and all shipments of
Products and Sales Aids are made within the Territory in a timely
fashion.
4.1(d) To diligently investigate or cause to be investigated
all leads with potential customers referred to it by NSI or NSI, or
their affiliates.
4.1(e) To permit NSI to visit NSUSA and to visit NSUSA's place
of business and inspect its inventories, service records, financial
records and other relevant documents.
4.1(f) To maintain, cause to be maintained, or contract to
maintain, adequate personnel, distribution and laboratory facilities
dedicated on a full-time or part-time basis to the quality control and
sale of Products, in compliance with and to the extent required by all
laws, ordinances and regulations applicable within the Territory.
4.1(g) To provide, at the request of NSI, a business plan for
the term and in the form and detail reasonably requested by NSI and to
update such business plan as reasonably requested by NSI.
4.1(h) To provide, at the request of NSI, reports of its
activities and sales respecting the Products and Sales Aids in the
Territory in a form and in such detail and for such time period as NSI
may reasonably require.
4.2 NSUSA Operations. NSUSA agrees to maintain, or cause to be
maintained, such facilities and other places of business within the Territory
necessary to effect the purposes and intentions of this Agreement. NSUSA further
agrees to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting and legal expenses, relating to
such facilities.
4.3 Pricing Information. At the request of NSI, NSUSA agrees to advise
NSI of the distribution prices of the Products or Sales Aids to be sold to NSI
Independent Distributors within the Territory.
4.4 NSUSA Claims and Representations. NSUSA shall not make any
promises, representations, warranties or guarantees respecting the Products,
Sales Aids or the NSI distributor sales and compensation plan, except in
accordance with those representations, warranties or guarantees as provided by
NSI with respect thereto and in accordance and compliance with the applicable
laws of the Territory.
4.5 Capitalization. NSUSA agrees to capitalize itself adequately and
maintain its operations both on a financially sound basis and in compliance with
all applicable laws, regulations or ordinances covering the operations of such a
business entity within any country in which it may conduct business.
4.6 Customer Support. NSI agrees to cooperate with NSUSA in dealing
with any NSI Independent Distributor or customer complaints concerning the
Products and the Sales Aids and to take any action requested by NSUSA to solve
such complaints. NSI also agrees to assist NSUSA in arranging for any customer
warranty service required by law or required pursuant to the judgement of NSUSA.
4.7 Allocation of Expenses.
4.7(a) Import Licenses. To the extent import licenses are
required for the importation of the Products or Sales Aids into the
Territory, NSUSA hereby agrees that it will be responsible for securing
and maintaining such import licenses and payment of all costs and
expenses associated therewith.
4.7(b) Import Expenses. NSUSA agrees that it will be
responsible for payment of all customs duties, excise taxes, similar
governmental charges and levies, and any other charges or expenses
related to any Products or Sales Aids imported into the Territory.
4.7(c) Other Expenses. In addition to the costs and expenses
described in clauses (a) and (b) above, NSUSA agrees that it will be
responsible for payments of the following expenses, fees and costs,
related to the development and maintenance of the Nu Skin business in
the Territory: (a) fees and expenses to incorporate operating entities;
(b) fees and expenses for obtaining business licenses and permits; (c)
fees, costs and expenses incurred in drafting and producing required
promotional documentation, Sales Aids, and other literature such as
product catalogues as well as contracts such as local product purchase
agreements; (d) fees and costs incurred in determining the requirements
for registering Products, including ascertaining and complying with
labelling and custom\import requirements; (e) expenses and costs
related to locating and establishing office, warehouse and other
physical facilities, including build out, furnishings and equipment, as
well as negotiation and securing of necessary leases and permits; (f)
all costs and expenses related to hiring a general manager and staff,
and compliance with local labor laws and requirements.
ARTICLE V
PURCHASE, SALE AND DELIVERY OF PRODUCTS AND SALES AIDS
5.1 Agreement to Purchase. NSUSA shall order such quantities of
Products and Sales Aids as it deems necessary to meet its sales requirements
within the Territory.
5.1(a) NSI shall use its best effort to supply and deliver
Products and Sales Aids to NSUSA in a timely and productive manner,
subject to Section 15.4 hereof and the availability of NSI's current
inventory of the Product(s) or Sales aids requested by NSUSA.
5.1(b) NSUSA shall source Products and Sales Aid(s)
exclusively from NSI; provided however that, if NSI cannot deliver such
Product(s) or Sales Aid(s) in a timely fashion, NSUSA may source any
such Product(s) or Sales Aid(s) from any other Nu Skin affiliate. 5.2
Payment Due Date. NSUSA shall pay for each delivery of Products and
Sales Aids within sixty (60) days after the date of arrival or the date
of dispatch of a commercial shipping invoice, whichever is later, and
shall make payment for such Products and Sales Aids as provided in
Section 6.2 of this Agreement.
5.3 Passage of Title and Risk of Loss. Title to and risk of loss for
any Product(s) or Sales Aid(s) ordered and supplied pursuant to this Agreement
shall pass to NSUSA upon delivery of the goods unless otherwise indicated in
writing. Delivery shall be made in a commercially reasonable manner in
accordance with standards applicable in the trade and industry. Delivery and
passage of title shall be effected within the confines of the NSI
distribution/warehousing facility as NSUSA personnel pick Products and/or Sales
Aids from inventory set for shipping to Independent Distributors.
5.4 Product Returns/Exchanges Inspection. If any Products or Sales Aids
are returned to NSUSA because of defect, NSUSA shall within forty-five (45) days
following actual receipt, return such Products or Sales Aids to NSI. In the
event of such a return, NSI shall make appropriate arrangements, acceptable to
NSUSA, to replace any such defective Products or Sales Aids at NSI's sole cost
and expense or, failing such replacement, shall, at the option of NSI, either
credit the purchase price of the defective Products or Sales Aids to NSUSA's
account or promptly grant NSUSA a cash refund for such purchase price. If NSI is
not notified in writing of any defective Products or Sales Aids within
forty-five (45) days after actual receipt thereof by NSUSA, then NSUSA shall be
deemed to have waived its right to claim any defect in the Products or Sales
Aids; provided that for any latent or other defect not reasonably discernible
upon inspection of the Products or Sales Aids under the prevailing circumstances
NSUSA shall have until forty-five (45) days after discovery of such defect to
exercise its rights under this Section 5.4.
ARTICLE VI
PRODUCT AND SALES AIDS PURCHASE PRICES AND TERMS OF PAYMENT
6.1 Product Availability and Pricing. Prices to be paid by NSUSA to NSI
for Products and Sales Aids purchased hereunder shall be negotiated and
determined on an arm's length basis and be adjusted from time to time as agreed
by the Parties in writing, provided that the purchase and price terms shall be
based upon the terms offered by NSI to its other Nu Skin affiliates.
6.2 Payment Method. NSUSA shall pay the commercial invoices for
Products and Sales Aids shipped under this Agreement in immediately available
funds by wire transfer to a bank or banks designated by NSI, or by such other
means of payment agreed to by NSI from time to time. All purchases of Products
and Sales Aids will be payable in U.S. dollars . Without limiting any of NSI's
other rights and remedies pursuant to this Agreement, amounts not paid within
the time period set forth in the payment provisions herein shall bear interest
at the prime interest rate as reported in The Wall Street Journal plus two
percent (2%) for the full period outstanding.
ARTICLE VII
OBLIGATIONS OF NSUSA AS SUPPLIER OF PRODUCTS AND SALES AIDS
7.1 Product Formulation. NSI and NSUSA agree to cooperate to mutually
determine the formulae or ingredients to be used for Products in the Territory
based on local market regulations and consumer preferences.
7.2 Warranty. NSI warrants that the Products and Sales Aids supplied
hereunder shall be merchantable under (and will comply with) the laws and
regulations of the jurisdiction in which distribution of such Product or Sales
Aid is intended; that it will deliver good title thereto and that Products and
Sales Aids will be delivered free from any lawful security interest or other
lien or encumbrance.
7.2(a) NSI's liability for any breach of such warranties shall
not exceed in amount the price of the Products or Sales Aids in respect
of which any breach is claimed. NSI'S WARRANTY STATED HEREIN IS
EXPRESSLY IN LIEU OF ANY OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
7.2(b) NSI neither assumes nor authorizes any person or entity
to assume for it any other liability in connection with the Products or
Sales Aids supplied hereunder, and there are no oral contracts or
warranties collateral to or affecting this Agreement. NSI shall not be
liable to NSUSA or any third parties for consequential, special or
incidental damages.
7.3 Delivery. NSI shall promptly, in accordance with normal and
commercially reasonable delivery schedules in the trade, deliver to NSUSA those
Products or Sales Aids for which NSUSA requires in accordance with Article V
hereof.
ARTICLE VIII
SALE AND MANUFACTURE OF PRODUCTS
8.1 Non-Competing Products. Nothing contained herein, shall restrict or
prohibit NSUSA from selling, distributing, manufacturing or causing to be
manufactured products or materials which do not compete directly or indirectly
with the Products and Sales Aids, provided that such other products do not
infringe upon any patent, name, Trademark, emblem, trade name, design right,
model or other commercial or industrial property right of NSI.
8.2 Competing Products. During the term of this Agreement, NSUSA shall
not, and shall not authorize a third party to, manufacture, cause to be
manufactured, distribute or sell (i) any products or materials which directly or
indirectly compete with the Products or the Sales Aids or (ii) copies of the
Products, Sales Aids, or other products that might reasonably be deemed under
U.S. or foreign law to be confusingly similar to the Products or Sales Aids, in
each case without the prior written consent of NSI.
8.3 Discontinued Products. Notwithstanding the foregoing, in the event
NSUSA receives notice from NSI of the discontinuance of the sale of any Product,
NSUSA may elect to manufacture or cause to be manufactured such Product;
provided that, if such discontinued Product competes directly or indirectly with
any other NSI Product, the prior written consent of NSI shall be required which
consent shall not be unreasonable withheld or delayed. If NSUSA elects to so
manufacture or cause to be manufactured such discontinued Product, NSI shall, ,
request that NSI license the formula to such discontinued Product to NSUSA on
substantially the same terms as set forth in the Trademark/Tradename License
Agreement, dated as of the date hereof, by and between NSI and NSUSA.
ARTICLE IX
NATURE OF RELATIONSHIP
The relationship of NSUSA and NSI shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other.
ARTICLE X
TERM
This Agreement shall be effective from the Effective Date for a term
of five (5) years unless terminated pursuant to Article XI. The Term of this
Agreement shall be renewed automatically for successive one (1) year terms
unless terminated 90 days prior to the expiration of the current term.
ARTICLE XI
TERM AND TERMINATION
11.1 Term. This Agreement shall be effective from the Effective Date
for a term of five (5) years unless terminated pursuant to paragraph 7.2 below.
The term of this Agreement shall be renewed automatically for successive one
year terms unless terminated (90) days prior to the then current term.
11.2 Termination. This Agreement may be terminated by either party
immediately or at any time after the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or
other action (i) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, compensation or other relief with respect to
it or its debts, or (ii) seeking appointment of a receiver, trustee,
custodian or other similar action; or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 90 days. Events described in clauses (a) and
(b) of this Section 7.2 shall be referred to as a "Bankruptcy Event".
If a Bankruptcy Event occurs, all amounts owing under this Agreement
shall become immediately due and payable, without any notice thereof.
11.3 Termination on Default. This Agreement may be terminated by either
party, if the other party is in default in the performance of any material
obligation under this Agreement and such default has not been cured within
ninety (90) days after receipt of written notice of such default by the
defaulting party.
11.4 Termination by NSI . This Agreement may be terminated by NSI (a)
if the original pre-IPO shareholders of Nu Skin Asia Pacific no longer owns or
controls a majority of the voting interest in NSUSA; such termination will be
effective thirty (30) days after delivery of written notice by NSI to NSUSA of
the occurrence of a change in control and its intention to terminate this
Agreement based thereon); or, (b) if NSUSA causes or allows a judgment in excess
of twenty-five million dollars ($25,000,000) to be entered against it or
involuntarily allows a lien, security interest, or other encumbrance to attach
to its assets which secures an amount in excess of twenty-five million dollars
($25,000,000).
11.5 Survival of Obligations. The obligations of the Parties to pay any
sums which are due and payable as of the expiration or termination of this
Agreement shall survive the expiration or termination of this Agreement.
11.6 Reversion of Rights. Upon termination of this Agreement by NSI all
rights and licenses herein granted to NSUSA shall immediately cease and shall
revert to NSI, and NSUSA shall cease representing to any third party that it has
any right to use, assign, convey or otherwise transfer the Licensed Property.
ARTICLE XII
EFFECT OF TERMINATION
12.1 Upon termination of this Agreement by NSI, all rights and licenses
herein granted to NSUSA shall cease and shall revert to NSI and NSUSA shall
immediately cease holding itself out to the public as NSI's exclusive wholesale
distributor in the Territory or otherwise represent that it is associated in any
manner with NSI.
12.2 Upon termination of this Agreement, NSI may either (a) deliver,
and NSUSA shall pay for, all Products and Sales Aids ordered by NSUSA prior to
such termination or (b) cancel, without cost or liability, the order of such
Products or Sales Aids. 12.3 Upon termination of this Agreement, neither party
shall be released from its obligations to pay monies due or to become due to the
other party or to complete any unfulfilled obligations under this Agreement, and
each party shall immediately pay, perform and discharge all debts, obligations
and liabilities hereunder.
12.4 Upon termination of this Agreement for any reason, neither party
shall be liable for any special, indirect, incidental, punitive or consequential
damages, regarding such termination, irrespective of whether such obligations or
liabilities may be contemplated in any law applicable within the Territory and
or elsewhere, and, except as otherwise provided by applicable law, each party
hereby waives and relinquishes any rights, pursuant to law or otherwise, to any
such damages. The remedies contained herein shall be exclusive.
12.5 The provisions of Article XII, Article XIII and Article XIV, as
well as any other provisions that by their terms so provide, shall survive
termination of this Agreement and continue in full force and effect thereafter.
ARTICLE XIII
CONFIDENTIALITY
13.1 All trade secrets, proprietary technology, know-how or other
non-public or proprietary business or technical information owned or used by NSI
or NSUSA and supplied to or acquired by the other whether in oral or documentary
form (the "Confidential Information") shall be supplied and acquired in
confidence and shall be solely for the use of the receiving party pursuant to
this Agreement and such party shall keep the Confidential Information
confidential and shall not disclose the same, at any time during the term of
this Agreement or after its termination, except to its employees, or its
affiliates, or its affiliates' employees for the purposes of its business in
accordance with this Agreement and except as may be required by law; provided
that if the receiving party determines that a disclosure is required by law, the
receiving party shall notify the disclosing party in order to give the
disclosing party an opportunity to seek an injunction or otherwise attempt to
keep the Confidential Information confidential. The receiving party shall, at
the request of the disclosing party, destroy or return the Confidential
Information without retaining copies if, as and when this Agreement is
terminated or expires. For purposes of this Agreement, the term "Confidential
Information" shall not include information or documents that (i) become
generally available to the public other than as a result of a disclosure by the
receiving party, (ii) was otherwise lawfully available to the receiving party,
or (iii) was generated independently by the receiving party. The provisions of
this Article shall survive termination of this Agreement.
ARTICLE XIV
INDEMNIFICATION AND INSURANCE
14.1 NSI agrees during and after the term of this Agreement to
indemnify and hold harmless NSUSA from liability, loss, cost or damage,
(including reasonable attorneys' fees)which NSUSA may incur as a result of
claims, demands or judgements, of any kind or nature, by anyone whomsoever,
arising out of (i) an alleged or actual defect in the design, manufacture or
content of, or any harm caused by any Products or Sales Aids or the failure of
any Product to comply with all applicable regulatory requirements in the
Territory; or (ii) a claim that NSI's proprietary information infringes any
patent, copyright, trade secret or other intellectual property right of a third
party; provided that NSUSA provides NSI with prompt notice in writing of any
such claim or demand and NSUSA cooperates with NSI in the defense or settlement
of any such claim or action. Notwithstanding the foregoing, NSI shall have no
obligation to indemnify NSUSA for any liabilities arising out of NSUSA's failure
or the failure of the NSI Independent Distributors in the Territory to utilize,
sell, market or promote the Products (i) in the manner for which the Products
are reasonably intended, (ii) in compliance with Nu Skin policies and procedures
or (iii) as contemplated by the Intercompany Agreements, including, but not
limited to, liabilities arising out of false or misleading claims made by the
NSI Independent Distributors, unless NSUSA shall have requested NSI to take
disciplinary actions against an NSI Independent Distributor operating in the
Territory and NSI shall have, either negligently or in breach of its fiduciary
duties, failed to take such actions against such NSI Independent Distributor and
the failure of NSI to take such actions is deemed to have reasonably and
proximately resulted in NSUSA incurring a loss in which event NSI shall
indemnify NSUSA for such loss pursuant to the provisions of this Section 14.1.
14.2 NSUSA agrees during and after the term of this Agreement to indemnify and
hold harmless NSI from liability, loss, cost or damage (including reasonable
attorney's fees), which NSI may incur as a result of claims, demands or
judgements, of any kind or nature, by anyone whosoever, arising out of or
resulting from the possession, use or sale of the Products or Sales Aids by
NSUSA or any of the NSI Independent Distributors (except to the extent NSI has
indemnified NSUSA against such claims, demands, or judgements pursuant to
Section 14.1 hereof);
By way of elaboration, but not limitation, NSUSA shall indemnify NSI for any
liabilities arising out of NSUSA's failure or the failure of the NSI Independent
Distributors to utilize, sell, sell, market or promote the Products (i) in the
manner for which the Products are reasonably intended, (ii) in compliance with
Nu Skin policies and procedures or (iii) as contemplated by the Intercompany
Agreements, including but not limited to, liabilities arising out of false or
misleading claims made by NSI Independent Distributors. Notwithstanding the
foregoing, in the event NSUSA shall have requested NSI to take disciplinary
actions against an NSI Independent Distributors operating in the Territory and
NSI shall have, either negligently or in breach of its fiduciary duties, failed
to take such actions against such NSI Independent Distributor, NSUSA shall not
be obligated to indemnify NSI for any loss which NSI might incur as a reasonable
and proximate result of such failure. 14.3 At all times during and following the
terms of this Agreement, each of NSI and NSUSA shall maintain insurance (or
cause the other party to be added as an additional insured to any policy not
maintained by such party) with one or more reputable insurers reasonable in
coverage and amount in direct proportion and corresponding to the business to be
conducted by such party pursuant to this Agreement.
ARTICLE XV
MISCELLANEOUS
15.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither Party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
15.2 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return electronic communication or signal that the message has been received, or
if mailed, ten (10) days after dispatch by registered airmail, postage prepaid,
from any post office addressed as follows:
If to NSI: Attn.: General Manager
Nu Skin International, Inc.
75 West Center Street
Provo, Utah 84601
USA
Facsimile: 801-345-5999
If to NSUSA: Attn.: General Manager
Nu Skin U.S.A., Inc.
75 West Center Street
Provo, Utah 84601
USA
Facsimile No.: 801-345-5099
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
15.3 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
15.4 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event of
force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
15.5 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSUSA within 30 days after written notice of such dispute is given by
NSI or NSUSA, as the case may be, shall be resolved through the Utah office and
division of the American Arbitration Association ("AAA"). If the dispute is not
resolved within such 30-day period, the Parties shall petition the AAA to
promptly appoint a competent, disinterested person to act as such arbitrator.
Within 30 days after the designation or appointment of such arbitrator, such
arbitrator shall be required to commence the arbitration proceeding in the State
of Utah at a time and place to be fixed by the arbitrator, who shall so notify
NSI and NSUSA. Such arbitration proceeding shall be conducted in accordance with
the applicable rules and procedures of the AAA, and/or as otherwise may be
agreed by NSI and NSUSA. The decision of the arbitrator shall be final and
binding upon NSI and NSUSA and may be enforced in any court of competent
jurisdiction. The expenses and costs of such arbitration shall be divided and
borne equally by NSI and NSUSA; provided, that each of NSI and NSUSA shall pay
all fees and expenses incurred by it in presenting or defending against such
claim, right or cause of action.
15.6 Integrated Contract. This Agreement together with the document and
agreements referred to herein constitutes the entire agreement between the
Parties relating to the subject matter hereof and supersedes all prior or
contemporaneous negotiations, representations, agreements and understandings
(both oral and written) of the Parties.
15.7 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
15.8 Severability. To the extent that any provision of this Agreement
is (or, in the opinion of counsel mutually acceptable to both parties, would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
15.9 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and the year first above written.
NU SKIN INTERNATIONAL, INC. NU SKIN USA, INC.
By: /s/ Steven J. Lund By: /s/ Keith R. Halls
Name: Steven J. Lund Name: Keith R. Halls
Its: Executive Vice President & Secretary Its: Vice President
EX-10.35
(This is the form of Licensing and Sales Agreement for Nu Skin USA, Inc. and the
other North American Private affiliates. Payments are paid in the local currency
of the country in which the private affiliate operates)
NU SKIN INTERNATIONAL, INC.
AND
NU SKIN USA, INC.
LICENSING AND SALES AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................2
1.1 "Agreement".................................................2
1.2 "Bonus Payments"............................................2
1.3 "Commission Expense.........................................2
1.4 "Copyrights" ...............................................2
1.5 "Distributor Contract"......................................3
1.6 "Distributor Lists".........................................3
1.7 "Fixed Commission Expense"..................................3
1.8 "Independent Distributor Network"...........................3
1.9 "Intercompany Agreements"...................................3
1.10 "Introductory Kit"..........................................3
1.11 "Know-How"..................................................3
1.12 "Licensed Property".........................................3
1.13 "Net Sales".................................................3
1.14 "NSI Independent Distributor"...............................4
1.15 "Products"..................................................4
1.16 "Proprietary Information"...................................4
1.17 "Resident NSI Independent Distributor"......................5
1.18 "Sales Compensation Plan"...................................5
1.19 "Sales Aids"................................................5
1.20 "Territory".................................................5
ARTICLE II GRANT OF LICENSE AND PARTIAL ASSIGNMENT OF
OBLIGATIONS; LICENSE FEES...................................5
2.1 Grant of License............................................5
2.2 Assignment of Obligations...................................5
2.3 NSI's Interest in Licensed Property.........................6
2.4 Recitals of Value of Licensed Property......................6
2.5 Warranty of Title...........................................6
2.6 Modifications...............................................6
2.7 License Fee.................................................6
ARTICLE III COMPUTATION AND PAYMENT TERMS...............................6
3.1 Bonus Payments..............................................6
3.2 License Fee.................................................8
3.3 Records.....................................................9
3.4 Payments to NSI.............................................9
3.5 Payments to NSUSA...........................................9
3.6 Default Rate................................................9
ARTICLE IV CERTAIN OBLIGATIONS OF THE PARTIES UNDER
THE AGREEMENT...............................................9
4.1 Certain Obligations, Rights and Duties of NSI...............9
4.2 Certain Obligations, Rights and Duties of NSUSA............10
ARTICLE V INTRODUCTORY KIT SALES.....................................11
5.1 Agreement to Purchase Introductory Kits....................11
5.2 Pricing....................................................11
5.3 Payment Method.............................................11
5.4 Quantities.................................................12
5.5 Quality of Introductory Kits...............................12
5.6 Merchantability............................................12
ARTICLE VI GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS...............12
6.1 Government Approvals.......................................12
6.2 Compliance with Laws.......................................13
6.3 Compliance of Licensed Property............................13
ARTICLE VII TERM AND TERMINATION.......................................13
7.1 Term.......................................................13
7.2 Termination................................................13
7.3 Termination on Default.....................................14
7.4 Termination on Change of Control...........................14
7.5 Survival of Obligations....................................14
7.6 Reversion of Rights........................................14
ARTICLE VIII INFRINGEMENT; INDEMNIFICATION..............................15
ARTICLE IX NATURE OF RELATIONSHIP.....................................16
ARTICLE X CONFIDENTIALITY............................................17
ARTICLE XI MAINTENANCE OF LICENSED PROPERTY; RECORDING................18
ARTICLE XII TECHNOLOGY TRANSFER REGISTRY (TTR) REQUIREMENTS............18
12.1 Continued Access to Improvements...........................18
ARTICLE XIII MISCELLANEOUS..............................................18
13.1 Assignment.................................................18
13.2 Force Majeure..............................................18
13.3 Governing Law and Dispute Resolution.......................19
13.4 Waiver and Delay...........................................19
13.5 Notices....................................................20
13.6 Integrated Contract........................................20
13.7 Modifications and Amendments...............................20
13.8 Severability...............................................21
13.9 Counterparts and Headings..................................21
LICENSING AND SALES AGREEMENT
THIS LICENSING AND SALES AGREEMENT (hereinafter the "Agreement") is
entered into and made effective this 31st day of December, 1997 (the "Effective
Date"), between Nu Skin International, Inc., a corporation organized under the
laws of the State of Utah, U.S.A. (hereinafter referred to as "NSI"), and Nu
Skin USA, Inc., a corporation organized under the laws of the State of Delaware,
U.S.A. (hereinafter "NSUSA"). Hereinafter, NSI and NSUSA shall collectively be
referred to as the "Parties."
W I T N E S S E T H
WHEREAS, NSI is engaged in the design, production and marketing of
products and related sales aids, for multi-national distribution through a
network of independent distributors; and
WHEREAS, NSUSA desires to act as the wholesale distributor of NSI
products in the Territory (as hereafter defined) , having entered a separate
written Wholesale Distribution Agreement with NSI; and,
WHEREAS, NSI and NSUSA desire to allocate use of NSI's Independent
Distributor Network (as defined below) to promote sales of Products and Sales
Aids (as hereafter defined); and
WHEREAS, NSI desires to further develop and enlarge its Independent
Distributor Network in the Territory with the assistance of NSUSA, for their
mutual benefit, in accordance with the terms and conditions hereinafter
provided; and
WHEREAS, NSUSA recognizes and agrees that NSI has expended considerable
time, effort and resources to develop and maintain the Licensed Property (as
hereafter defined) and NSUSA further agrees it will derive a considerable
benefit from its use of the Licensed Property in the Territory and from NSI's
efforts and expenditures respecting the Licensed Property; and
WHEREAS, the Parties wish to enter into this Licensing and Sales
Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual promises,
covenants, and warranties hereinafter set forth and for other valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following words and terms shall
have the meaning assigned to them in this Article I:
1.1 "Agreement" shall mean this Licensing and Sales Agreement (together
with any exhibits and schedules hereto), as the same may be modified, amended or
supplemented from time to time.
1.2 "Bonus Payments" shall mean, for any Independent Distributor, all
monetary obligations due to such distributor accrued under the terms of the
Sales Compensation Plan portion of such distributor's Distributor Contract .
1.3 "Commission Expense" shall mean all direct expenses of NSI incurred
in operating, managing, and executing the Sales Compensation Plan. These
expenses include, but are not limited to amounts paid to Independent
Distributors as Bonus Payments as well as NSI's operational costs associated
with the calculation of these monthly payments.
1.4 "Copyrights" shall mean any and all protectable software, programs,
databases, source codes and applications owned by NSI or which NSI has a right
to use, license or sub-license, relating directly or indirectly to the
Independent Distributor Network, Distribution Lists or the Sales Compensation
Plan.
1.5 "Distributor Contract" shall mean, for any NSI Independent
Distributor, its contract pursuant to which it is authorized to distribute
Products and Sales Aids.
1.6 "Distributor Lists" shall mean any and all individual or
accumulated name, address, identification number, sponsor name and/or similar
lists of all present or future NSI Independent Distributors expressed in any
medium.
1.7 "Fixed Commission Expense" shall mean, for any period, forty-two
percent (42%) of the aggregate amount in U.S. dollars of Net Sales of Products
by NSUSA during such period.
1.8 "Independent Distributor Network" shall mean the network of all NSI
Independent Distributors.
1.9 "Intercompany Agreements" shall mean the Wholesale Distribution
Agreement, The Licensing and Sales Agreement, the Management Services Agreement,
and the Trademark/Tradename License Agreement between the Parties.
1.10 "Introductory Kit" shall mean those materials purchased by an NSI
Independent Distributor upon the execution of a Distributor Contract which
explains the Sales Compensation Plan and other NSI policies, procedures and
programs, the contractual relationship with NSI and the marketing support
programs for the Territory.
1.11 "Know-How" shall mean any information, including, without
limitation, any commercial or business information, lists, marketing methods,
marketing surveys, processes, specifications, quality control reports, drawings,
photographs, or any other information owned by NSI, whether or not considered
proprietary, relating to the Independent Distributor Network, the Distributor
Lists, and the Sales Compensation Plan.
1.12 "Licensed Property" shall mean the Independent Distributor
Network, the Distributor Lists, the Sales Compensation Plan, the Copyrights, and
the associated Know-How.
1.13 "Net Sales" shall mean, for any period, the number of Products and
Sales Aids sold by NSUSA to NSI Independent Distributors during such period,
multiplied by NSUSA's then current selling price to NSI Independent Distributors
for each such Product or Sales Aids less applicable value added taxes and
returns or refunds reasonably accepted and credited by NSUSA during such period.
1.14 "NSI Independent Distributor" shall mean a person or business
entity who has entered into a Distributor Contract.
1.15 "Products" shall mean those goods sold by NSI or NSUSA which carry
a point value within the Sales Compensation Plan.
1.16 "Proprietary Information" shall mean, without limitation, all
information other than information in published form or expressly designated by
either party in writing as non-confidential, which is directly or indirectly
disclosed to the other party, regardless of the form in which it is disclosed,
relating in any way to the following property owned by the Parties or which the
Parties have been licensed to use or sub-license: (1) proprietary technical
information related to the Licensed Property and the Introductory Kit; (2)
information respecting actual or potential customers or customer contacts and
customer sales strategies, names, addresses, phone numbers, identification
numbers, database information and its organization, unique business methods; (3)
market studies, penetration data, customers, products, contracts, copyrights,
computer programs, applications, technical data, licensed technology, patents,
inventions, procedures, methods, designs, strategies, plans, liabilities,
assets, cost revenues, sales costs, production costs, raw material sources and
other market information; (4) other sales and marketing plans, programs and
strategies; (5) trade secrets, Know-How, designs and proprietary commercial and
technical information, methods, practices, procedures, processes, formulae with
respect to manufacturing, assembly, design or processing products subject to
this Agreement and any component, part or manufacture thereof; (6) profits,
organization, employees, agents, distributors, suppliers, trade marks, trade
names and services; (7) other business and commercial practices in general
relating directly or indirectly to the foregoing; and, (8) computer disks or
other records or documents, originals or copies, containing in whole or in part
any of the foregoing.
1.17 "Resident Independent Distributor" shall mean any NSI Independent
Distributor whose country of primary residence for tax purposes as shown on the
records of NSI is the Territory.
1.18 "Sales Compensation Plan" shall mean the copyrighted method set
forth in the Distributor Contract employed by NSI to calculate Bonus Payments
paid to the Independent Distributor Network upon the sale of Products.
1.19 "Sales Aids" shall mean materials, in whatever form and/or design
produced to assist in the marketing of Products. 1.20 "Territory" shall mean the
United States including all of its Territories.
ARTICLE II
GRANT OF LICENSE AND PARTIAL ASSIGNMENT OF
DISTRIBUTOR CONTRACT OBLIGATIONS; AND LICENSE FEES
2.1 Grant of License. Subject to the terms and conditions of this
Agreement, NSI hereby grants to NSUSA an exclusive license to use the Licensed
Property in the Territory; provided that all such uses shall comply in all
material respects with the terms of this Agreement and; provided further that
NSUSA shall not have the right to grant any right, title use or sublicense for
the Licensed Property.
2.2 Assignment of Obligations. NSI hereby transfers and assigns to
NSUSA its obligations to make Bonus Payments to Resident Independent
Distributors under their Distributor Contracts and NSUSA hereby accepts such
transfer and assignment and assumes such obligations. NSUSA shall be obligated
to make such Bonus Payments earned on a monthly basis, and shall bear
responsibilities and financial obligations associated with any exceptions NSUSA
may grant under the terms of the Sales Compensation Plan (hereafter the
"Exceptions").
2.3 NSI's Interest in Licensed Property. NSI hereby retains legal title
to the Licensed Property for all purposes, including but not limited to, the
bringing or defending of any legal action in the Territory which it deems
reasonable to protect its rights therein. NSUSA agrees to assist NSI in any
manner to protect NSI's rights in the Licensed Property which NSI may reasonably
request. NSI shall reimburse NSUSA for any third party costs incurred by NSUSA
in providing such assistance.
2.4 Recitals of Value of Licensed Property. NSUSA recognizes and agrees
that NSI has expended considerable time, effort and resources to develop,
maintain and enhance the Licensed Property. NSUSA further agrees it will derive
a considerable benefit from its use of the Licensed Property in the Territory
and from NSI's efforts and expenditures respecting the Licensed Property.
2.5 Warranty of Title. NSI hereby warrants and represents that it is
the sole and exclusive owner of the Licensed Property and that to the best of
its knowledge and information no claim exists or has been made contesting the
ownership and title of said Licensed Property.
2.6 Modifications. NSUSA shall make no modification to the Licensed
Property without the express, prior written consent of NSI.
2.7 License Fee. As compensation for the licenses granted pursuant to
the terms of this Agreement, NSUSA shall pay to NSI a license fee equal to two
percent (2%) of its Net Sales of Products, Sales Aids and other items (exclusive
of Introductory Kits and goods sold on consignment) sold to NSI Independent
Distributors (the "License Fee").
ARTICLE III
COMPUTATION AND PAYMENT TERMS
3.1 Bonus Payments. Pursuant to Section 2.2 hereof, NSUSA agrees to
make Bonus Payments to Resident NSI Independent Distributors to which they are
entitled pursuant to their Distributor Contracts. The Parties further agree to
settle the difference between the amount of such Bonus Payments paid by NSUSA in
each month (excluding the Exceptions) and the Fixed Commission Expense in such
month. The procedures for such payment and settlement are as follows:
3.1(a) Within eight (8) days following the close of each month, NSUSA
shall deliver to NSI, by electronic transmission or such other medium
as the Parties shall agree to from time to time, a statement of NSUSA's
Net Sales during such month (including a detail of sales to each NSI
Independent Distributor to which sales were made during such month and
any Exceptions granted ) and of such other items as NSI shall
reasonably request from time to time (the "Detailed Sales Report").
3.1(b) By the later of twelve (12) days after receipt of the Detailed
Sales Report or twenty (20) days after the end of such month, NSI shall
deliver to NSUSA, by electronic transmission or such other medium as
the parties shall agree to from time to time, a calculation of the
Bonus Payments due to Resident Independent Distributors under their
Distributor Contracts for such month (the "Monthly Bonus Amount"), a
calculation of the Fixed Commission Expense for such month and such
other items as NSUSA shall reasonably request from time to time (the
"Bonus Statement").
3.1(c) By the later of ten (10) days after receipt of the Bonus
Statement or thirty (30) days after the end of such month, NSUSA shall
pay Bonus Payments due to the. Resident Independent Distributors.
Concurrently with or promptly after such payment NSUSA shall deliver to
NSI (i) if the aggregate Monthly Bonus Amounts excluding any Exceptions
paid to all Resident Independent Distributors is less than the Fixed
Commission Expense for such month, payment of the deficiency in
accordance with the procedures set forth in Section 3.4 hereof, or (ii)
if the aggregate Monthly Bonus Amounts excluding any Exceptions paid to
all Resident NSI Independent Distributors exceeds the Fixed Commission
Expense for such month, an invoice to NSI for reimbursement of such
excess amount. In the event NSUSA shall have given NSI an invoice for
reimbursement of excess Bonus Payments as set forth in clause (ii)
above, NSI shall pay the amount so invoiced to NSUSA pursuant to the
procedures set forth in this Section 3.1 and Section 3.5 below within
10 days after receipt thereof.
3.1(d) The Parties agree that the percentage used in calculating the
Fixed Commission Expense shall remain consistent with actual Commission
Expense as a percentage of sales of Products to Resident Independent
Distributors, shall be negotiated and determined on an arm's length
basis, and may be adjusted from time to time as agreed by the Parties
in writing based upon an annual review thereof.
3.2 License Fee. The procedures for payment of the License Fee payable
hereunder are as follows:
3.2(a) Within 30 days following the close of each month, NSUSA shall
deliver to NSI, by electronic transmission or such other medium as the
parties shall agree to from time to time, a statement of its Net Sales
during such month in the Territory and a computation of the License Fee
payable under Section 2.7 hereof. NSUSA shall make payment of such
License Fee in accordance with Section 3.4 hereof concurrently with
delivery of such statement.
3.2(b) For purposes of computing the License Fee, Products and Sales
Aids shall be considered sold when recognized for accounting purposes
as a sale by NSUSA as per U.S. GAAP.
3.2(c) The Parties agree that the License Fee shall remain competitive
within the market and shall be negotiated and determined on an arm's
length basis and may be adjusted from time to time as agreed by the
Parties in writing.
3.3 Records. Each Party shall keep complete and accurate records of its
compliance with its obligations under this Agreement which shall be open to
inspection by authorized representatives of the other Party at any reasonable
time.
3.4 Payments to NSI. Payments made by NSUSA to NSI under this Agreement
shall be payable in U.S. dollars. Payments shall be made either directly to NSI
in immediately available funds by wire transfer to an account designated by NSI
or by such other means of payment acceptable to NSI from time to time.
3.5 Payments to NSUSA. Payments made by NSI to NSUSA under this
Agreement shall be payable in U.S. dollars. Payments shall be made either
directly to NSUSA in immediately available funds by wire transfer to an account
designated by NSUSA or by such other means of payment acceptable to NSUSA from
time to time
3.6 Default Rate. Without limiting any of NSI's other rights and
remedies under this Agreement, amounts outstanding under the terms of this
Agreement not paid within 60 days from the date due and payable, and as set
forth in the payment provisions herein, shall bear interest at the prime
interest rate as reported in the Wall Street Journal plus two percent (2%) for
the full period outstanding.
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT
4.1 Certain Obligations, Rights and Duties of NSI. NSI agrees that, in
addition to its other obligations under this Agreement, NSI will maintain and
provide support for the Sales Compensation Plan. NSI agrees, among other things:
(1) to maintain a computer system, including hardware, software, data links,
computer peripherals, printers, etc. to adequately fulfill NSI's obligations
under the Sales Compensation Plan; (2) to provide necessary training and support
to NSUSA relating to the Resident NSI Independent Distributors, including
information relating to training methods, motivational strategies, convention
and event planning, technical policies and procedure knowledge, etc; (3) to
receive and use NSUSA's sales information to compute the correct and appropriate
payments to the Resident NSI Independent Distributors as set forth in Section
3.1(b) hereof; (4) in consultation with NSUSA, to discipline NSI Independent
Distributors as it deems necessary to help insure the reputation of NSI; (5) to
maintain a record of the Distributor Contracts and provide such information to
NSUSA, as reasonably requested; and (6) to perform any other function or provide
the necessary support to comply with the terms of this Agreement and to
otherwise support and maintain the Independent Distributor Network within the
Territory.
4.2 Certain Obligations, Rights and Duties of NSUSA. In addition to its
other obligations under this Agreement NSUSA agrees, among other things: (1) to
maintain, at its sole cost and expense, such facilities and other places of
business within the Territory necessary to effect the purposes and intentions of
this Agreement and to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting, legal and such similar expenses,
relating to the business of NSUSA under the terms and conditions of this
Agreement, unless otherwise agreed in writing by the Parties; (2) to manage its
business affairs in such a manner that the reputation of NSI is not damaged; (3)
to sell Introductory Kits to potential Resident Independent Distributors in
accordance with all applicable laws and industry standards; (4) to collect
requests for Distributor Contracts from potential Resident Independent
Distributors and forward these contracts to NSI in a timely fashion (provided
that all such requests for Distributor Contracts shall be reviewed for
acceptance or rejection by NSI in the United States and in no instance shall
NSUSA accept such requests for Distributor Contracts); (5) to train and lend
assistance to Resident Independent Distributors in the Territory; (6) to
transmit information regarding Net Sales to Resident Independent Distributors
and such other information as NSI may reasonably request; (7) to pay Bonus
Payments to Resident Independent Distributors as set forth in Sections 2.2 and
3.1 hereof; (8) to use its best efforts to monitor and supervise the activities
of Resident Independent Distributors; (9) to use its best efforts to cause the
enforcement of the Distributor Contracts to ensure compliance therewith and with
NSI's policies and procedures and to any action againstResident Independent
Distributors for violation of the terms and conditions of a Distributor
Contract, NSI's policies and procedures, or any other rules and regulations of
NSI or NSUSA as NSI shall reasonably request; and (10) to perform any other
function or provide support as NSI shall reasonably request to enable NSI to
fully perform its obligations to Resident Independent Distributors under the
Sales Compensation Plan and their Distributor Contracts.
ARTICLE V
INTRODUCTORY KIT SALES
5.1 Agreement to Purchase Introductory Kits. The Parties acknowledge
that, pursuant to this Agreement, NSUSA is being granted a non-exclusive license
to use the Licensed Property, including the Independent Distributor Network, in
the Territory. NSUSA agrees to use its best efforts in supporting the
development of the Independent Distributor Network in the Territory by selling
to potential Resident Independent Distributors in the Territory Introductory
Kits which NSUSA has either (i) purchased from NSI, or (ii) has sourced and
priced locally, or any part thereof, subject to review, approval and oversight
of NSI and in accordance with instructions and specifications given by NSI.
5.2 Pricing. The Parties agree that the price of Introductory Kits
shall be negotiated and determined on an arm's length basis and may be adjusted
from time to time as agreed by the Parties in writing.
5.3 Payment Method. NSUSA shall pay the commercial invoices for
Introductory Kits shipped under this Agreement in the manner set forth in
Section 3.4.
5.4 Quantities. NSUSA agrees to purchase sufficient quantities of the
Introductory Kits from NSI to fill orders, in a timely fashion, received from
potential NSI Independent Distributors in the Territory.
5.5 Quality of Introductory Kits. NSI shall use its best efforts to
maintain and augment the quality, image and value of the Introductory Kits.
5.6 Merchantability. NSI warrants that Introductory Kits it may sell to
NSUSA pursuant to this Agreement will be merchantable and of sufficient quality
for sales within the Territory. If NSUSA determines that certain Introductory
Kits supplied under this Agreement are not merchantable, a claim for a refund of
the price paid can be made within 45 days from the day the Introductory Kits are
received in the Territory. NSI agrees to refund, or credit the account of NSUSA,
for the purchase price of such non-merchantable Introductory Kits.
ARTICLE VI
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
6.1 Compliance of Licensed Property. NSUSA agrees to obtain, or cause
to be obtained, at its sole cost and expense, any governmental approval and
make, or cause to be made, any filings or notifications required under all
applicable laws, regulations and ordinances of the Territory to enable this
Agreement to become effective or to enable any payment pursuant to the
provisions of this Agreement to be made. NSI agrees to take, or cause to be
taken, at its sole cost and expense, all actions necessary to ensure the
compliance of the Licensed Property with applicable laws, regulations and
ordinances in the Territory (including, without limitation, direct selling laws)
(collectively, the "Territory Laws"). NSI agrees to keep NSUSA informed of its
progress in obtaining all such government approvals and ensuring such compliance
with the Territory Laws. NSUSA agrees to cooperate with NSI and to take such
actions as NSI shall reasonably request in order to obtain such approvals and
ensure such compliance.
6.2 Compliance with Laws. Each party agrees to refrain from any action
that will cause the other party to be in violation of any applicable law,
regulation, or ordinance of any jurisdiction in the Territory.
6.3 Use of Licensed Property. NSUSA agrees to use the Licensed Property
in compliance with the Territory Laws and, to the extent not in conflict with
the foregoing, in a manner reasonably consistent with prior use of the Licensed
Property in the Territory.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. This Agreement shall be effective from the Effective Date for
a term of five (5) years unless terminated pursuant to paragraph 7.2 below. The
term of this Agreement shall be renewed automatically for successive one year
terms unless terminated (90) days prior to the then current term.
7.2 Termination. This Agreement may be terminated by either party
immediately or at any time after the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or other action (i)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, compensation or other relief with respect
to it or its debts, or (ii) seeking appointment of a receiver, trustee,
custodian or other similar action; or (b) there shall be commenced against the
other Party any case, proceeding or other action of a nature referred to in
clause (a) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 90 days. Events described in clauses (a) and (b) of
this Section 7.2 shall be referred to as a "Bankruptcy Event". If a Bankruptcy
Event occurs, all amounts owing under this Agreement shall become immediately
due and payable, without any notice thereof.
7.3 Termination on Default. This Agreement may be terminated by either
party, if the other party is in default in the performance of any material
obligation under this Agreement and such default has not been cured within
ninety (90) days after receipt of written notice of such default by the
defaulting party.
7.4 Termination by NSI . This Agreement may be terminated by NSI (a) if
the original pre-IPO shareholders of Nu Skin Asia Pacific no longer own or
control a majority of the voting interest in NSUSA; such termination will be
effective thirty (30) days after delivery of written notice by NSI to NSUSA of
the occurrence of a change in control and its intention to terminate this
Agreement based thereon; or, (b) if NSUSA causes or allows a judgment in excess
of twenty-five million dollars ($25,000,000) to be entered against it or
involuntarily allows a lien, security interest, or other encumbrance to attach
to its assets which secures an amount in excess of twenty-five million dollars
($25,000,000).
7.5 Survival of Obligations. The obligations of the Parties to pay any
sums which are due and payable as of the expiration or termination of this
Agreement and their obligation under Sections 2 and 3.1, Article VIII and
Article X hereof shall survive the expiration or termination of this Agreement.
7.6 Reversion of Rights. Upon termination of this Agreement by NSI all
rights and licenses herein granted to NSUSA shall immediately cease and shall
revert to NSI, and NSUSA shall cease representing to any third party that it has
any right to use, assign, convey or otherwise transfer the Licensed Property.
ARTICLE VIII
INFRINGEMENT; INDEMNIFICATION
8.1 NSI agrees during and after the term of this Agreement to indemnify
and hold harmless NSUSA from liability, loss, cost or damage, (including
reasonable attorneys' fees) which NSUSA may incur as a result of claims, demands
or judgements, of any kind or nature, by anyone whomsoever, arising out of (i)
an alleged or actual defect in the design, manufacture or content of, or any
harm caused by any Products or Sales Aids or the failure of any Product to
comply with all applicable regulatory requirements in the Territory; or (ii) a
claim that NSI's Licensed Property infringes any patent, copyright, trade secret
or other intellectual property right of a third party; provided that NSUSA
provides NSI with prompt notice in writing of any such claim or demand and NSUSA
cooperates with NSI in the defense or settlement of any such claim or action.
Notwithstanding the foregoing, NSI shall have no obligation to indemnify NSUSA
for any liabilities arising out of NSUSA's failure or the failure of any
Resident Independent Distributors to utilize, sell, market or promote the
Products (i) in the manner for which the Products are reasonably intended, (ii)
in compliance with Nu Skin policies and procedures or (iii) as contemplated by
the Intercompany Agreements, including, but not limited to, liabilities arising
out of false or misleading claims made by the Resident Independent Distributors,
unless NSUSA shall have requested NSI to take disciplinary actions against a
Resident Independent Distributor and NSI shall have, either negligently or in
breach of its fiduciary duties, failed to take such actions against such
Resident Independent Distributor and the failure of NSI to take such action is
deemed to have reasonably and proximately resulted in NSUSA incurring a loss in
which event NSI shall indemnify NSUSA for such loss pursuant to the provisions
of this Section 8.1.
8.2 NSUSA agrees during and after the term of this Agreement to
indemnify and hold harmless NSI from liability, loss, cost or damage (including
reasonable attorney's fees), which NSI may incur as a result of claims, demands
or judgements, of any kind or nature, by anyone whosoever, arising out of or
resulting from the possession, use or sale of the Products or Sales Aids by
NSUSA or any Resident Independent Distributors (except to the extent NSI has
indemnified NSUSA against such claims, demands, or judgements pursuant to
Section 8.1 hereof). By way of elaboration, but not limitation, NSUSA shall
indemnify NSI for any liabilities arising out of NSUSA's failure or the failure
of the Resident Independent Distributors to utilize, sell, market, or promote
the Products (i) in the manner for which the Products are reasonably intended,
(ii) in compliance with Nu Skin policies and procedures or (iii) as contemplated
by the Intercompany Agreements, including but not limited to, liabilities
arising out of false of misleading claims made by the Resident Independent
Distributors. Notwithstanding the foregoing, in the event NSUSA shall have
requested NSI to take disciplinary actions against a Resident Independent
Distributor operating in the Territory and NSI shall have, either negligently or
in breach of its fiduciary duties, failed to take such actions against such
Resident Independent Distributor, NSUSA shall not be obligated to indemnify NSI
for any loss which NSI might incur as a reasonable and proximate result of such
failure.
8.3 At all times during and following the terms of this Agreement, each
of NSI and NSUSA shall maintain insurance (or cause the other party to be added
as an additional insured to any policy not maintained by such party) with one or
more reputable insurers reasonable in coverage and amount in direct proportion
and corresponding to the business to be conducted by such party pursuant to this
Agreement.
ARTICLE IX
NATURE OF RELATIONSHIP
The relationship of NSUSA and NSI shall be and at all times remain,
respectively, that of Licensee and Licensor. Nothing contained or implied in
this Agreement shall be construed to constitute either Party as the legal
representative or agent of the other or to constitute or construe the Parties as
partners, joint venturers, co-owners or otherwise as participants in a joint or
common undertaking. Neither Party is authorized to conclude any contract or
agreement or make any commitment, representation or warranty that binds the
other or otherwise act in the name of or on behalf of the other.
ARTICLE X
CONFIDENTIALITY
All Proprietary Information or other non-public or proprietary business
or technical information owned or used by NSI or NSUSA and supplied to or
acquired by the other whether in oral or documentary form (the "Confidential
Information") shall be supplied and acquired in confidence and shall be solely
for the use of the receiving party pursuant to this Agreement and such party
shall keep the Confidential Information confidential and shall not disclose the
same, at any time during the term of this Agreement or after its termination,
except to its employees, or its affiliates or its affiliates' employees for the
purposes of its business in accordance with this Agreement and except as may be
required by law; provided that if the receiving party determines that a
disclosure is required by law, the receiving party shall notify the disclosing
party in order to give the disclosing party an opportunity to seek an injunction
or otherwise attempt to keep the Confidential Information confidential. The
receiving party shall, at the request of the disclosing party, destroy or return
the Confidential Information without retaining copies if, as and when this
Agreement is terminated or expires. For purposes of this Agreement, the term
"Confidential Information" shall not include information or documents that (i)
become generally available to the public other than as a result of a disclosure
by the receiving party, (ii) were otherwise lawfully available to the receiving
party, or (iii) were generated independently by the receiving party. The
provisions of this Article shall survive termination of this Agreement for a
period of 10 years after the termination of this Agreement provided that this
Agreement is not extended or renegotiated.
ARTICLE XI
MAINTENANCE OF LICENSED PROPERTY; RECORDING
NSI shall use its best efforts and take all reasonable steps consistent
with its existing internal policies and procedures and with this Agreement to
maintain the Licensed Property in the Territory. In no event shall this clause
be construed to require NSI to establish or maintain a branch office, subsidiary
corporation or fixed place of business or similar permanent establishment in the
Territory. NSI, in its sole discretion, shall have the right to record this
Agreement or proof thereof, or to enter NSUSA as a registered user in the
Territory. NSUSA agrees to cooperate, as reasonably requested by NSI, in
arranging for such recordings or entries, or in bearing or canceling such
recordings or entries in the event of amendments to or termination of this
Agreement for any reason.
ARTICLE XII
KNOW -HOW AND IMPROVEMENTS
12.1 Continued Access to Improvements. NSI shall give to NSUSA
reasonable continued access to improvements in techniques and processes related
to the Licensed Property during the term of this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
13.2 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event of
force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
13.3 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSUSA within 30 days after written notice of such dispute is given by
NSI or NSUSA, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If the
dispute is not resolved within such 30-day period, the Parties shall petition
the AAA to promptly appoint a competent, disinterested person to act as such
arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSUSA. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSUSA and may be enforced in any
court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSI and NSUSA; provided, that such of NSI
and NSUSA shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
13.4 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
13.5 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return electronic communication or signal that the message has been received, or
if mailed, ten (10) days after dispatch by registered airmail, postage prepaid,
from any post office addressed as follows:
If to NSUSA: General Manager
Nu Skin U.S.A., Inc.
75 West Center Street
Provo, Utah 84601
USA
Facsimile No.: 801-345-5099
If to NSI: General Manager
Nu Skin International, Inc.
75 West Center Street,
Provo, Utah 84601, U.S.A.
Facsimile No.: (801) 345-5999
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
13.6 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
13.7 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
13.8 Severability. To the extent that any provision of this Agreement
is (or in the opinion of counsel mutually acceptable to both Parties would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
13.9 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and year first-above written.
NU SKIN INTERNATIONAL, INC. NU SKIN USA, INC.
By: /s/ Steven J. Lund By: /s/Keith R. Halls
Name: Steven J. Lund Name: Keith R. Halls
Its: Executive President & Secretary Its: Vice President
EX-10.36
(This is the form of Trademark\Tradename Licensing Agreement for Nu Skin USA,
Inc. and the other North American Private affiliates. Payments are paid in the
local currency of the country in which the private affiliate operates)
NU SKIN INTERNATIONAL, INC.
AND
NU SKIN USA, INC.
TRADEMARK\TRADENAME LICENSING AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..................................................2
1.1 "Agreement".................................................2
1.2 "Business Portfolios".......................................2
1.3 "Commercial Materials"......................................2
1.4 "Independent Distributor Network"...........................2
1.5 "Intercompany Agreements"...................................2
1.6 "Know-How"..................................................3
1.7 "Licensed Marks and Names"..................................3
1.8 "Net Sales".................................................3
1.9 "NSI Independent Distributor"...............................3
1.10 "NSI Trademark"............................................3
1.11 "NSI Tradename"............................................3
1.12 "Product"..................................................4
1.13 "Proprietary Information"..................................4
1.14 "Sales Aid"................................................5
1.15 "Territory"................................................5
ARTICLE II GRANT OF EXCLUSIVE LICENSE; ROYALTIES........................5
2.1 Grant of Exclusive License..................................5
2.2 NSI's Interest in Licensed Marks and Names..................5
2.3 Recitals of Value of Licensed Marks and Names...............5
2.4 Warranty of Title...........................................6
2.5 Royalties...................................................6
ARTICLE III COMPUTATION AND PAYMENT TERMS................................6
3.1 Royalty Payments............................................6
3.2 Records.....................................................7
3.3 Payment Terms...............................................7
3.4 Default Rate................................................7
ARTICLE IV CERTAIN COVENANTS............................................7
4.1 Use of Licensed Marks and Names.............................7
4.2 Modifications...............................................8
4.3 Prejudicial Use.............................................8
4.4 Labels......................................................8
4.5 Goodwill....................................................8
4.6 Export of Products..........................................9
ARTICLE V TERM.........................................................9
ARTICLE VI TERMINATION..................................................9
ARTICLE VII EFFECT OF TERMINATION........................................10
7.1 Obligation of NSUSA Upon Termination........................10
7.2 Survival of Obligations.....................................11
7.3 Reversion of Rights.........................................11
ARTICLE VIII GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS.................11
ARTICLE IX INFRINGEMENT; INDEMNIFICATION................................12
ARTICLE X CONFIDENTIALITY..............................................13
ARTICLE XI NATURE OF RELATIONSHIP.......................................14
ARTICLE XII MAINTENANCE OF TRADEMARKS; RECORDING;
REGISTRATION OF TRADEMARK..................................14
ARTICLE XIII MISCELLANEOUS................................................15
13.1 Assignment..............................................15
13.2 Force Majeure...........................................15
13.3 Governing Law and Dispute Resolution....................16
13.4 Waiver and Delay........................................17
13.5 Notices.................................................17
13.6 Integrated Contract.....................................18
13.7 Modification and Amendment..............................18
13.8 Severability............................................18
13.9 Counterparts and Headings...............................18
TRADEMARK \ TRADENAME LICENSING AGREEMENT
THIS TRADEMARK \ TRADENAME LICENSING AGREEMENT (hereinafter the
"Agreement") is entered into and made effective this 31st day of December, 1997,
between Nu Skin International, Inc., a corporation organized under the laws of
the State of Utah, U.S.A., (hereinafter referred to as "NSI"), and Nu Skin USA,
Inc., a corporation organized under the laws of the State of Delaware, U.S.A.
(hereinafter "NSUSA"). Hereinafter, NSI and NSUSA shall collectively be referred
to as the "Parties" and each shall be individually referred to as "Party."
W I T N E S S E T H
WHEREAS, NSI is engaged in the design, production and marketing of
Products (as defined below) and related Sales Aids (as defined below) for
distribution in worldwide markets through a network of independent distributors;
and,
WHEREAS, NSUSA acts as the exclusive wholesale distributor of
Products in the Territory (as hereafter defined) , having entered into a
separate Wholesale Distribution Agreement with NSI dated as of the date hereof,
WHEREAS, NSUSA desires to affix NSI Trademarks (as defined below) to
Products and to affix NSI Tradenames (as defined below) to Commercial Materials
it envisions for the Territory thereby deriving benefit from the goodwill, value
and reputation such marks and names shall lend when used to identify such
Products and Commercial Materials; and,
WHEREAS, the Parties desire to enter into this Trademark \ Tradename
Licensing Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual promises,
covenants, and warranties hereinafter set forth and for other valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following words and terms
shall have the meaning assigned to them in this Article I:
1.1 "Agreement" shall mean this Trademark\Tradename Licensing
Agreement (together with any exhibits and schedules hereto), as the same may be
modified, amended or supplemented from time to time.
1.2 "Business Portfolios" shall mean those materials approved by NSI
and not purchased from NSI that are intended for sale in conjunction with the
execution of a distributor contract to NSI Independent Distributors in the
Territory explaining the Nu Skin independent business opportunity, the
contractual relationship with NSI and the marketing support programs for the
Territory.
1.3 "Commercial Materials" shall mean, without limitation, any
business marquis, sign, letterhead, business card, pamphlet, brochure, magazine,
flyer, newsletter, Sales Aid, advertisement or other associated tangible
materials NSUSA uses in its activities with the Independent Distributor Network
or the public to enhance its image and competitiveness in the Territory that
NSUSA has not purchased from NSI. Commercial Materials shall not, for the
purposes of this Agreement, include Business Portfolios (as defined below).
1.4 "Independent Distributor Network" shall mean the network of all
NSI Independent Distributors.
1.5 "Intercompany Agreements" shall mean The Wholesale Distribution
Agreement, The Licensing and Sales Agreement, The Management Services Agreement,
and The Trademark/Tradename Agreement between the Parties.
1.6 "Know-How" shall mean any information, including, without
limitation, any commercial or business information, lists, marketing methods,
marketing surveys, processes, specifications, quality control reports, drawings,
photographs, or any other information owned by NSI, whether or not considered
proprietary, relating to the Independent Distributor Network, NSI Independent
Distributors, the NSI distributor lists, and the NSI sales compensation plan.
1.7 "Licensed Marks and Names" shall mean any NSI Trademark,
including those affixed to any Product for purposes of identifying, promoting or
selling such Product in the Territory to any NSI Independent Distributor, and
any NSI Tradename, including those affixed to or used in connection with any
Commercial Materials produced to further NSUSA's commercial activities in the
Territory and any product formula as agreed to by the Parties from time to time.
1.8 "Net Sales" shall mean, for any period, the number of Products,
Commercial Materials and Introductory Kits (or any part thereof) sold by NSUSA
during such period, multiplied by NSUSA's then current selling price to NSI
Independent Distributors for each such Product, Commercial Material and
Introductory Kits, less applicable consumption taxes and returns or refunds
reasonably accepted and credited by NSUSA during such period.
1.9 "NSI Independent Distributor" shall mean a person or business
entity authorized by contract with NSI to distribute, as an independent
contractor, Products and Sales Aids.
1.10 "NSI Trademark" shall mean any NSI service mark, trademark, logo
or device (or combination thereof) used or for which NSI has a bonafide intent
to use, registered or otherwise.
1.11 "NSI Tradename" shall mean any commercially valuable "mark,"
"name," or "device" or combination thereof whether or not similar in appearance
to any NSI Trademark of which NSI is the owner, registered or otherwise.
1.12 "Product" shall mean any of the following bearing an NSI
Trademark: any product, including, without limitation, cosmetics, nutritional
products, dietary supplements, vitamins, over-the-counter drugs, quasi-drugs,
drugs and pharmaceutical products, and other products, which NSUSA designs,
manufactures, produces and/or distributes or causes to be designed,
manufactured, produced or distributed in the Territory, that NSUSA has not
purchased from NSI. Products shall not, for the purposes of this Agreement,
include Business Portfolios.
1.13 "Proprietary Information" shall mean, without limitation, all
information other than information in published form or expressly designated by
either party in writing as non-confidential, which is directly or indirectly
disclosed to the other party, regardless of the form in which it is disclosed,
relating in any way to the following property owned by the Parties or which the
Parties have been licensed to use or sub-license: (1) proprietary technical
information related to the Licensed Marks and Names and the Business Portfolios;
(2) information respecting actual or potential customers or customer contacts
and customer sales strategies, names, addresses, phone numbers, identification
numbers, database information and its organization, unique business methods; (3)
market studies, penetration data, customers, products, contracts, copyrights,
computer programs, applications, technical data, licensed technology, patents,
inventions, procedures, methods, designs, strategies, plans, liabilities,
assets, cost revenues, sales costs, production costs, raw material sources and
other market information; (4) other sales and marketing plans, programs and
strategies; (5) trade secrets, Know-How, designs and proprietary commercial and
technical information, methods, practices, procedures, processes, formulae with
respect to manufacturing, assembly, design or processing products subject to
this Agreement and any component, part or manufacture thereof; (6) profits,
organization, employees, agents, distributors, suppliers, trademarks, tradenames
and services; (7) other business and commercial practices in general relating
directly or indirectly to the foregoing; (8) computer disks or other records or
documents, originals or copies, containing in whole or in part any of the
foregoing; and (9) tax information, returns and other financial information.
1.14 "Sales Aid" shall mean materials, in whatever form and/or design
produced to assist in the marketing of Products or the Nu Skin independent
business opportunity in the Territory.
1.15 "Territory" shall mean the United States of America, including
its territories.
ARTICLE II
GRANT OF NON EXCLUSIVE LICENSE; ROYALTIES
2.1 Grant of Exclusive License. NSI hereby grants to NSUSA an
exclusive license and right to use, the Licensed Marks and Names in the
Territory, provided that all such uses shall comply in all material respects
with the terms of this Agreement.
2.2 NSI's Interest in Licensed Marks and Names. NSI hereby retains
legal title to the Licensed Marks and Names for all purposes, including but not
limited to, the bringing or defending of any legal action in the Territory which
it deems reasonable to protect its rights therein. NSUSA agrees to assist NSI in
any manner to protect NSI's rights in the Licensed Marks and Names which NSI may
reasonably request. NSI shall reimburse NSUSA for any third party costs incurred
by NSUSA in providing such assistance.
2.3 Recitals of Value of Licensed Marks and Names. NSUSA recognizes
and agrees that NSI has expended considerable time, effort and resources to
develop, register, apply for registrations, maintain and enhance the value and
reputation of the Licensed Marks and Names. NSUSA further agrees it will derive
a considerable benefit from its use of the Licensed Marks and Names in the
Territory and from NSI's efforts and expenditures respecting the Licensed Marks
and Names.
2.4 Warranty of Title. NSI hereby represents and warrants that it is
the sole and exclusive owner of the Licensed Marks and Names and that to the
best of its knowledge and information no claim exists or has been made
contesting the ownership and title of said Licensed Marks and Names.
2.5 Royalties. As compensation for the exclusive licenses granted
pursuant to the terms of this Agreement, NSUSA shall pay to NSI a royalty equal
to five percent (5%) (or as otherwise mutually agreed upon by the Parties) of
its Net Sales in the Territory during the entire term of this Agreement. If
NSUSA elects to produce and/or purchase any Products from a third party rather
than through or from NSI, and such Product is based on or contains NSI
proprietary information, formulas or ingredients, and such Product bears
Licensed Marks and Names, the applicable royalty shall be eight percent (8%) of
Net Sales, or as otherwise mutually agreed upon by the Parties.
ARTICLE III
COMPUTATION AND PAYMENT TERMS
3.1 Royalty Payments.
3.1(a) Within 30 days following the close of each month, NSUSA
shall deliver to NSI, by electronic transmission or such
other medium as the parties shall agree from time to
time, a statement of its Net Sales during such month in
the Territory and a computation of the royalties payable
hereunder. NSUSA shall make payment of such royalties in
accordance with Section 3.3 hereof concurrently with the
delivery of such statement.
3.1(b) For purposes of computing the royalty, Products and
Commercial Materials shall be considered sold when
recognized for accounting purposes as a sale by NSUSA as
per U.S. GAAP.
3.1(c) The Parties agree that the royalty shall remain
competitive within the Territory and shall be negotiated
and determined on an arm's length basis and may be
adjusted from time to time as agreed by the Parties in
writing.
3.2 Records. Each Party shall keep complete and accurate records of
its activities under this Agreement which shall be open to inspection by
authorized representatives of the other party at any reasonable time.
3.3 Payment Terms. Payments made by NSUSA to NSI under this Agreement
shall be payable in U.S. dollars. Payments shall be made either directly to NSI
in immediately available funds by wire transfer to an account designated by NSI,
or by such other means of payment acceptable to NSI from time to time.
3.4 Default Rate. Without limiting any of NSI's other rights and
remedies under this Agreement, amounts outstanding under the terms of this
Agreement not paid within sixty (60) days from the date due and payable, and as
set forth in the payment provisions herein, shall bear interest at the prime
interest rate as reported in the Wall Street Journal plus two percent (2%) for
the full period outstanding. Whether or not interest charges are actually levied
is at the discretion of NSI.
ARTICLE IV
CERTAIN COVENANTS
4.1 Use of Licensed Marks and Names. NSUSA may use the Licensed Marks
and Names only in accordance with the terms of this Agreement.
4.1(a) All Products and Commercial Materials bearing the
Licensed Marks and Names shall be approved by NSI and
shall be used in accordance with standards,
specifications and instructions approved by NSI; and,
4.1(b) NSI shall have the right to inspect the premises of
NSUSA and those of any of NSUSA's subcontractors at
which Product(s) are being manufactured, at reasonable
times, and also to receive samples of such Product(s),
in accordance with a reasonable schedule to be
established promptly between NSI and NSUSA; and,
4.1(c) NSUSA agrees to correct, as promptly as possible, any
defects in the Product(s) and/or manufacturing thereof
brought to NSUSA's attention by NSI or otherwise; and,
4.1(d) NSUSA agrees to submit to NSI for prior approval, which
approval will not be unreasonably withheld, labels,
packaging, advertising and promotional materials, in
relation to which any of the Licensed Marks and Names
are proposed to be used, including the marking legends
intended to be used in relation thereto.
4.2 Modifications. NSUSA shall make no modification to the Licensed
Marks and Names without the express, prior written consent of NSI.
4.3 Prejudicial Use. NSUSA shall not use the Licensed Marks and Names
in any way that will prejudice NSI's rights therein.
4.4 Labels. At the request of NSI, labels or packaging which bear any
of the Licensed Marks and Names shall also bear an asterisk placed immediately
above the end of the mark to reference a statement which shall appear underneath
the mark and shall contain the words "TM Registered - Licensed by Nu Skin
International, Inc." (where the mark is registered) or "TM - Licensed by Nu Skin
International, Inc." (where the mark is not registered).
4.5 Goodwill. All goodwill generated by use of the Licensed Marks and
Names shall inure to NSI, and, upon termination of this Agreement, NSUSA shall
not have any claim against NSI for compensation for loss of distribution rights,
loss of goodwill or any similar loss.
4.6 Export of Products. The Licensee shall not export any product on
which any Licensed Mark or Name is affixed to any country outside the Territory
without the prior written consent of NSI.
ARTICLE V
TERM
This Agreement shall be effective from the Effective Date for a term
of two (5) years unless terminated pursuant to Article 11. The Term of this
Agreement shall be renewed automatically for successive one year terms unless
terminated (90) days prior to the end of the then current term .
ARTICLE VI
TERMINATION
6.1 This Agreement may be terminated by either Party immediately or
at any time after the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or
other action (i) under any existing or future law of any
jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
dissolution, compensation or other relief with respect
to it or its debts, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar action; or
(b) there shall be commenced against the other Party any
case, proceeding or other action of a nature referred to
in clause (a) above which (A) results in the entry of an
order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for
a period of 90 days. Events described in clauses (a) and
(b) of this Section 12.1(a) shall be referred to as a
?Bankruptcy Event?. If a Bankruptcy Event occurs, all
amounts owing under this Agreement shall become
immediately due and payable, without any notice thereof.
6.2 This Agreement may be terminated by either Party, if the other
Party is in default in the performance of any material obligation under this
Agreement and such default has not been cured within ninety (90) days after
receipt of written notice of such default by the defaulting Party; or
6.3 This Agreement may be terminated by NSI (a) if the original
pre-IPO Shareholders of Nu Skin Asia Pacific shall no longer owns or controls a
majority of the voting interest in NSUSA; (such termination will be effective
thirty (30) days after NSI gives written notice to NSUSA of the occurrence of a
change in control and its intention to terminate this Agreement based thereon);
or (b) if NSUSA causes or allows a judgment in excess of twenty-five million
dollars ($25,000,000) to be entered against it or allows a lien, security
interest, or other encumbrance to attach to its assets which secures an amount
in excess of twenty-five million dollars ($25,000,000).
ARTICLE VII
EFFECT OF TERMINATION
7.1 Obligation of NSUSA Upon Termination. Upon termination of this
Agreement by either Party, NSUSA agrees to (a) sell, destroy or otherwise
dispose of all Products and Commercial Materials bearing the Licensed Marks and
Names within 45 days after such termination; (b) immediately discontinue use of
the Licensed Marks and Name in any form and not adopt in place thereof any word
or design that is confusingly similar thereto; and (c) return to NSI all
manuals, drawings, and standards or any other documents provided by NSI to NSUSA
relating to the use of the Licensed Marks and Names.
7.2 Survival of Obligations. The obligations of the Parties to pay
any sums which are due and payable as of the expiration or termination of this
Agreement and their obligations under Section 2.2, Article IX and Article X
hereof shall survive the expiration or termination of this Agreement.
7.3 Reversion of Rights. Upon termination of this Agreement by NSI,
all rights and licenses herein granted to NSUSA shall immediately cease and
shall revert to NSI, and NSUSA shall cease representing to any third party that
it has any right to use, assign, convey or otherwise transfer the Licensed Marks
and Names.
ARTICLE VIII
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
8.1 NSUSA agrees to obtain, or cause to be obtained, at its sole cost
and expense, any governmental approval and make, or cause to be made, any
filings or notifications required under all applicable laws, regulations and
ordinances of the Territory to enable this Agreement to become effective or to
enable any payment pursuant to the provisions of this Agreement to be made.
NSUSA agrees to keep NSI informed of the progress in obtaining all such
government approvals. NSUSA agrees to cooperate with NSI and to take such
actions as NSI shall reasonably request in order to obtain such approvals. NSI
shall reimburse NSUSA for any third party costs incurred by NSUSA in taking such
actions. 8.2 Each party agrees to refrain from any action that will cause the
other party to be in violation of any applicable law, regulation, or ordinance
of the Territory .
ARTICLE IX
INFRINGEMENT; INDEMNIFICATION
NSI hereby represents and warrants that, as of the date hereof, there
are no infringement or misappropriation suits pending or filed or, to its
knowledge, threatened against NSI within the Territory that relate to the
Licensed Marks and Names and NSI is not presently aware of any such infringement
or misappropriation. NSI shall indemnify and hold NSUSA harmless from and
against all claims, actions, suits, proceedings, losses, liabilities, costs,
damages and attorneys' fees in respect of a third party claim alleging
infringement or misappropriation by NSUSA in respect of its use of the Licensed
Marks and Names in the Territory; provided that NSUSA shall give NSI prompt
written notice of any such claim, action, suit or proceeding and, without
limiting the generality of Section 2.2 hereof, shall cooperate with NSI in the
defense of any such claim, action, suit or proceeding. Notwithstanding the
foregoing, NSI shall have no obligation to indemnify NSUSA for any liabilities
arising out of NSUSA?s failure or the failure of the NSI Independent
Distributors in the Territory to utilize the Licensed Marks and Names (i) in the
manner for which the Licensed Marks and Names are reasonably intended, (ii) in
compliance with Nu Skin policies and procedures or (iii) as contemplated by the
Intercompany Agreements. NSI shall have the right to select counsel in any such
claim, action, suit or proceeding. In the event that any such claim, action,
suit or proceeding is successful, NSI shall use reasonable efforts to make such
changes in the Licensed Marks and Names to permit NSUSA to continue to use of
the Licensed Marks and Names free and clear of all infringement and
misappropriation. NSUSA shall give NSI prompt written notice of any infringement
or misappropriation of the Licensed Marks and Names by any third party. NSI
shall have the sole right to initiate any and all legal proceedings against any
such third party and, without limiting the generality of Section 2.2 hereof,
NSUSA shall cooperate with NSI in the pursuit of any such proceeding. NSI shall
retain any damage award obtained from such third party.
ARTICLE X
CONFIDENTIALITY
All Proprietary Information or other non-public or proprietary
business or technical information owned or used by NSI or NSUSA and supplied to
or acquired by the other whether in oral or documentary form (the "Confidential
Information") shall be supplied and acquired in confidence and shall be solely
for the use of the receiving party pursuant to this Agreement and such party
shall keep the Confidential Information confidential and shall not disclose the
same, at any time during the term of this Agreement or after its termination,
except to its employees, or its affiliates, or its affiliates? employees for the
purposes of its business in accordance with this Agreement and except as may be
required by law; provided that if the receiving party determines that a
disclosure is required by law, the receiving party shall notify the disclosing
party in order to give the disclosing party an opportunity to seek an injunction
or otherwise attempt to keep the Confidential Information confidential. The
receiving party shall, at the request of the disclosing party, destroy or return
the Confidential Information without retaining copies if, as and when this
Agreement is terminated or expires. For purposes of this Agreement, the term
"Confidential Information" shall not include information or documents that (i)
become generally available to the public other than as a result of a disclosure
by the receiving party, (ii) was otherwise lawfully available to the receiving
party, or (iii) was generated independently by the receiving party. The
provisions of this Article shall survive termination of this Agreement for a
period of 10 years after he termination of this Agreement provided that this
Agreement is not extended or renegotiated.
ARTICLE XI
NATURE OF RELATIONSHIP
The relationship of NSUSA and NSI shall be and at all times remain,
respectively, that of Licensee and Licensor. Nothing contained or implied in
this Agreement shall be construed to constitute either party as the legal
representative or agent of the other or to constitute or construe the Parties as
partners, joint venturers, co-owners or otherwise as participants in a joint or
common undertaking. Neither party is authorized to conclude any contract or
agreement or make any commitment, representation or warranty that binds the
other or otherwise act in the name of or on behalf of the other.
ARTICLE XII
MAINTENANCE OF TRADEMARKS; RECORDING;
REGISTRATION OF TRADEMARK
NSI covenants to use its best efforts to maintain the registrations
of the NSI Trademarks currently registered in the Territory as set forth in
Exhibit A hereto. NSI, in its sole discretion, shall have the right to record
this Agreement or proof thereof, or to enter NSUSA as a registered user in the
Territory. NSUSA agrees to cooperate, as reasonably requested by NSI, in
arranging for such recordings or entries, or in bearing or canceling such
recordings or entries in the event of amendments to or termination of this
Agreement for any reason. Upon termination of this Agreement for any reason, the
Parties agree to do everything necessary to effect cancellation of the record of
NSUSA as a registered user of the NSI Trademarks in the Territory.
At the request of NSUSA, NSI shall file applications in the Territory
for the registration of all new NSI Trademarks that NSUSA intends to use in the
Territory. If any mark used by NSI in the United States of America with respect
to certain products is used by NSUSA in the Territory in relation to similar
products, then, whether or not the mark is registered in the Territory, NSUSA
shall not claim any proprietary interest in any NSI trademarks. If any of such
marks are immediately registrable in the Territory, NSUSA will cooperate with
NSI in filing an application for registration of the marks in the name of NSI.
If any such marks are not immediately capable of registration because they lack
distinctiveness, then at any time when in the opinion of legal counsel for NSI
the use of the marks by NSUSA has conferred on them sufficient distinctiveness
to permit registration in the Territory, NSUSA shall, when requested by NSI, do
all things necessary and execute all documents required to register such marks
in the Territory and assign the eventual registrations to NSI who shall
reimburse NSUSA for the cost of registration and assignment, but shall not be
obligated to make any other payment in consideration for the assignment.
ARTICLE XIII
MISCELLANEOUS
13.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party through its authorized representative.
Any such attempted assignment without the written consent provided herein shall
be void and unenforceable.
13.2 Force Majeure. The Parties shall not be responsible for failure
to perform hereunder due to force majeure, which shall include, but not be
limited to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event of
force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
13.3 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSUSA within 30 days after written notice of such dispute is given by
NSI or NSUSA, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If the
dispute is not resolved within such 30-day period, the Parties shall petition
the AAA to promptly appoint a competent, disinterested person to act as such
arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSUSA. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSUSA and may be enforced in any
court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSI and NSUSA; provided, that such of NSI
and NSUSA shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
13.4 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
13.5 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered by hand, or if communicated by facsimile, cable or similar electronic
means to the facsimile number or cable identification number as previously
provided by each party to the other, at the time that receipt thereof has been
confirmed by return electronic communication or signal that the message has been
received, or if mailed, ten (10) days after dispatch by registered airmail,
postage prepaid, from any post office addressed as follows:
If to NSUSA: General Manager
Nu Skin U.S.A., Inc.
75 West Center Street
Provo, Utah 84601
USA
Fax: 801-345-3099
If to NSI: General Manager
Nu Skin International, Inc.
75 West Center Street
Provo, Utah 84601, U.S.A.
Facsimile Number: (801) 345-5999
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
13.6 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
13.7 Modification and Amendment. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
13.8 Severability. To the extent that any provision of this Agreement
is (or in the opinion of counsel mutually acceptable to both Parties would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
13.9 Counterparts and Headings. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and year first-above written.
NU SKIN INTERNATIONAL, INC. NU SKIN USA, INC.
By: /s/Steven J. Lund By: /s/ Keith R. Halls
Name: Steven J. Lund Name: Keith R. Halls
Its: Executive Vice President & Secretary Its: Vice President
EX-10.37
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND INDEMNIFICATION AGREEMENT (the "Agreement") is
dated as of December 31, 1997, is by and among Nu Skin International, Inc., a
Utah corporation ("NSI"), Nu Skin USA, Inc., a Delaware corporation ("NUSA"),
and the shareholders of NSI and NUSA and their successors and assigns (the
"Shareholders").
RECITALS
WHEREAS, NSI and NUSA have entered into a Contribution and Distribution
Agreement dated as of December 31, 1997 (the "Distribution Agreement"); and
WHEREAS, pursuant to the Distribution Agreement, NSI shall distribute
all the issued and outstanding common stock of NUSA (pro rata) to the
Shareholders (the "Distribution"); and
WHEREAS, there are no tax allocation agreements between NSI and NUSA;
WHEREAS, NSI and NUSA each have been taxed as an "S corporation" as
that term is defined in Section 1361 of the Code at all times during their
respective existences;
WHEREAS, the Shareholders intend to transfer the stock of NSI along
with the stock of other corporations to Nu Skin Asia Pacific, Inc., a Delaware
corporation ("NSAP") in exchange for stock of NSAP.
WHEREAS, NSI will receive or has received an opinion of Price
Waterhouse that the Distribution, taking into account the contribution of NSI by
the Shareholders to NSAP, will qualify for tax-free treatment under Section
368(a)(1)(D) and 355 of the Code;
WHEREAS, NSI, NUSA and the Shareholders desire to enter into this
Agreement to provide for the allocation among NSI, NUSA and the Shareholders of
all responsibilities, liabilities and benefits relating to or affecting Taxes
(as hereinafter defined) paid or payable by any of them for all taxable periods,
whether beginning before, on or after the Distribution Date (as hereinafter
defined), to indemnify NSI if the Contribution and Distribution fails to qualify
for tax-free treatment under Section 368(a)(1)(D) and 355 of the Code, and to
provide for certain other matters. This Agreement also provides, among other
things, for NUSA, NSI and the Shareholders to assist each other for an interim
period in the preparation of Tax Returns (as hereinafter defined) required to be
filed after the Distribution Date.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
ARTICLE I.
DEFINITIONS
Section 1.1 As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and the plural forms of the terms defined). Capitalized terms used
herein and not otherwise defined shall have the meanings given to them in the
Distribution Agreement.
"Action" shall have the meaning ascribed to such term in Section 4.1.
"Change" shall mean (i) any audit, amendment or other change in a Tax
Return, or (ii) the expiration of the statute of limitations with respect to any
Tax Item allocated to NUSA and/or NSI in the Workpapers; provided, such Tax Item
was not subject to a Change by application of clause (i) of this definition.
"Closing Balance Sheets" shall mean the NUSA Closing Balance Sheet and
the NSI Closing Balance Sheet.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted federal tax laws.
"Corporate-Level Restructuring Taxes" shall mean Restructuring Taxes
payable by NSI or NUSA.
"Corporate-Level Taxes" means Taxes that are taxed to NSI or NUSA and
not to the Shareholders.
"Distribution" shall have the meaning ascribed to such term in the
recitals.
"Final Determination" shall mean the final resolution of the liability
for any Tax Item for a taxable period, (i) by IRS Form 870 or 870-AD (or any
successor forms thereto), on the date of acceptance by or on behalf of the IRS
with respect to United States Federal taxes, or by a comparable form under the
laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form
that reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the taxing authority to
assert a further deficiency for any Tax Item shall not constitute a Final
Determination for such Tax Item; (ii) by a decision, judgment, decree, or other
order by a court of competent jurisdiction, which has become final and
unappealable; (iii) by a closing agreement or accepted offer in compromise under
Section 7121 or 7122 of the Code, with respect to Federal Taxes, or comparable
agreements as to other Taxes under the laws of other jurisdictions; (iv) by an
allowance of a refund or credit in respect of any overpayment of Tax, but only
after the expiration of all periods during which such refund may be recovered by
the Tax imposing jurisdiction; or (v) by any other final disposition, including
by reason of the expiration of the applicable statute of limitations.
"IRS" shall mean the Internal Revenue Service.
"NSI Businesses" means the businesses conducted by NSI immediately
following the Distribution.
"NSI Closing Balance Sheet" shall mean the balance sheet of NSI, dated
as of December 31, 1997.
"NSI Group" shall mean NSI and all of its future subsidiaries.
"NSI" shall have the meaning ascribed to such term in the preamble.
"NUSA Businesses" means the businesses conducted by NUSA immediately
following the Distribution.
"NUSA Closing Balance Sheet" shall mean the balance sheet of NUSA ,
dated as of December 31, 1997.
"NUSA Group" shall mean NUSA and all of its future subsidiaries.
"NUSA" shall have the meaning ascribed to such term in the preamble.
"Permanent Tax Item" shall mean any Tax Item other than a Temporary Tax
Item.
"Reorganization" shall mean NSI's distribution of all of the NUSA
shares to the Shareholders.
"Restricted Period" shall mean the two-year period following the
Distribution Date.
"Restructuring Taxes" means any Taxes (other than Transfer Taxes)
resulting from the Reorganization or the Distribution including, without
limitation, any Tax arising pursuant to, or as a result of, Section 311 of the
Code.
"Settlement Amount" shall have the meaning ascribed to such term in
Section 4.1.
"Tax Benefit" means any item of loss, deduction, credit or any other
Tax Item which decreases Taxes paid or payable.
"Tax Detriment" means any item or income, gain, recapture of credit or
any other Tax Item which increases Taxes paid or payable.
"Tax Item" means any return, form, filing, questionnaire or other
document required to be filed (or which may be filed), including requests for
extensions of time, filings made with estimated tax payments, claims for refund
and amended returns that may be filed, for any period with any taxing authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether or
not a payment is required to be made with respect to such filing).
"Tax Returns" means any return, declaration, statement, report,
schedule, certificate, form, information return or any other document (and
related or supporting information) including an amended tax return filed with
respect to Taxes.
"Taxes" means all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use, ad valorem,
gross receipts, value added, franchise, transfer, recording, withholding,
payroll, employment, excise, occupation, and property taxes, together with any
related interest, penalties and additions to any such tax, or additional amounts
imposed by any taxing authority (domestic or foreign) upon NSI or NUSA their
divisions or branches or upon the Shareholders.
"Temporary Tax Item" shall mean any Tax Item to the extent the Tax
Detriment or Tax Benefit relating to such Tax Item in one tax period creates or
results from a corresponding Tax Benefit or Tax Detriment, respectively, in a
different tax period; provided, that if the parties cannot agree whether a Tax
Item is a Temporary Tax Item, then generally accepted accounting principles in
effect on the Distribution Date shall determine if a Tax Item is a Temporary Tax
Item.
"Transfer Taxes" shall mean any real property transfer or gains, sales,
use, transfer, value added, stock transfer, and stamp taxes, any transfer,
recording, registration, and other fees, and any similar Taxes which become
payable in connection with the Distribution or Reorganization.
"Workpapers" shall mean the workpapers underlying the preparation of
the 1997 Federal Tax Return of NSI and the Closing Balance Sheets.
ARTICLE II.
PREPARATION AND FILING OF TAX RETURNS
Section 2.1 Manner of Preparation. All Tax Returns of NSI or NUSA filed
after the Distribution Date shall be prepared on a basis which is consistent
with the tax opinions obtained from Price Waterhouse in connection with the
Reorganization and the Distribution (in the absence of a controlling change in
law or circumstances) and shall be filed on a timely basis (including pursuant
to extensions) by the party responsible for such filing under this Agreement. In
the absence of a controlling change in law or circumstances, or except as
otherwise agreed in writing, all Tax Returns of NSI or NUSA filed after the date
of this Agreement shall be prepared on a basis consistent with the elections,
accounting methods, conventions, and principles of taxation used for the most
recent taxable periods for which Tax Returns of NSI involving similar Tax Items
have been filed, except that, with respect to Tax Items not relating to the
Reorganization or Distribution, one party may take an inconsistent position to
the extent that, with respect to Tax Items not relating to the Reorganization or
Distribution, such position does not create a Tax Detriment to the other party
or to the Shareholders of the other party.
Section 2.2 Pre-Distribution Tax Returns.
(a) All federal or state income Tax Returns that are required
to be filed for periods beginning before the Distribution Date shall be
prepared and filed by the Shareholders or by NSI.
(b) All Tax Returns for state and local sales, use, property,
transfer and other Taxes for periods beginning before the Distribution
Date which are not measured by income shall be prepared and filed by
NSI. NSI shall prepare all Federal and state payroll Tax Returns
required to be filed by it after the Distribution which include any
period beginning before the Distribution Date.
(c) All foreign Tax Returns and any other Tax Returns not
described elsewhere in this Section 2.2 that are required to be filed
for any period beginning before the Distribution Date shall be prepared
and filed by NSI.
Section 2.3 Post-Distribution Corporate Tax Returns. All Tax Returns
for periods beginning after the Distribution Date with respect to NSI shall be
prepared and filed by NSI. All tax returns for periods beginning after the
Distribution Date with respect to NUSA shall be prepared and filed by NUSA. The
Shareholders shall file all Tax Returns required to be filed by them that relate
to or include Tax Items associated with NSI or NUSA.
ARTICLE III.
PAYMENT OF TAXES
Section 3.1 Tax for Taxable Periods Beginning Prior to the Distribution
Date.
(a) The Shareholders shall pay all Taxes due (or receive all
refunds) in connection with the filing of NSI's federal income Tax
Returns for all taxable periods ending on or before the Distribution
Date.
(b) NSI or the Shareholders shall pay to the relevant taxing
authority all non-U.S. federal income Taxes for the Tax Returns for all
taxable periods ending on or before the Distribution Date with respect
to which NSI and the Shareholders each have a respective filing
responsibility under relevant state, local or foreign law.
(c) NSI shall be responsible for the payment of all Taxes due
or payable with respect to taxable periods beginning on or before the
Distribution Date that are required to be reported on the Tax Returns
described in Sections 2.2(b) and 2.2(c).
Section 3.2 NSI and Shareholder Tax Deficiencies and Refunds for
Periods Prior to the Distribution Date. If there is a Change in a Tax Return
filed by NSI and with respect to which NSI, for a taxable period prior to the
Distribution Date, has tax liability pursuant to Section 3.1, irrespective of
whether such Change occurs before, on or after the Distribution Date, NSI shall
pay and discharge any Tax or receive any refund of Tax associated with such
Change. For taxable periods beginning prior to the Distribution Date, the
Shareholders shall bear the burden of any Tax arising from a Change in Tax
Returns filed by them that relate to or include Tax Items associated with NSI
and with respect to which they are liable, and shall have the benefit of any
refund of Tax associated with such Change, irrespective of whether such Change
occurs before, on or after the Distribution Date.
Section 3.3 Transfer Taxes. NUSA or the Shareholders shall pay to the
relevant taxing authority all Transfer Taxes.
Section 3.4 Indemnities, Payments, Temporary Tax Items and Code Section
336(e).
(a) NUSA and Shareholders Indemnity Obligations. NUSA and the
Shareholders shall indemnify and hold harmless NSI against:
(i) any and all Restructuring Taxes and
Corporate-Level Restructuring Taxes imposed as a result of the
completion of the Distribution or Reorganization, except to
the extent that such taxes result solely from NSI's breach of
the covenants contained in Section 5.4, and
(ii) any and all Taxes for which NUSA or the
Shareholders have agreed to be responsible pursuant to Article
III of this Agreement.
(b) NSI Indemnity Obligations. NSI shall indemnify and hold
harmless NUSA and the Shareholders against any Restructuring Taxes or
Corporate-Level Restructuring Taxes imposed upon or incurred by the
Shareholders or NUSA if NSI breaches the covenants contained in Section
5.4 and such breach results in the failure of the Distribution or
Reorganization to qualify for tax-free treatment under Section
368(a)(1)(D) or Section 355 of the Code or similar provisions of the
state or local law. The Shareholders shall be indemnified and held
harmless under this Section 3.4(b) without regard to the fact that NSI
received an opinion or ruling from the IRS as contemplated by Section
5.4(b).
(c) All payments required to be made by NUSA pursuant to
Section 3.4(a) or by NSI pursuant to Section 3.4(b) shall be made no
later than 10 days after notice of a Final Determination of such
Restructuring Taxes or Corporate-Level Restructuring Taxes. Any payment
not so made within 10 days shall thereafter bear interest at two
percentage points above the applicable Federal short-term rate
established pursuant to Section 6621 of the Code.
(d) If Section 3.4(a)(i) applies to the payment of
Corporate-Level Restructuring Taxes, and the Tax Item creating such
Corporate-Level Restructuring Taxes is a Temporary Tax Item, NSI shall
pay to NUSA _______ percent of the Tax Benefit relating to such
Temporary Tax Item that NSI realizes. Any payment required to be made
under this Section 3.4(c) shall be made at the time the Tax Return on
which such Tax Benefit is realized is filed.
(e) If NSI is otherwise required to recognize gain pursuant to
Section 311 of the Code with respect to the Distribution, then, to the
extent permitted by law or regulation, the parties shall elect pursuant
to Section 336(e) of the Code to treat the Distribution as a
disposition of all the assets of NUSA.
Section 3.5 Reduction in Corporate-Level Taxes.
(a) If there is a reduction of any Corporate-Level Taxes of
NSI for a taxable period beginning after the Distribution Date, by
reason of a Tax Item attributable to the NUSA Businesses arising with
respect to a period on or before the Distribution Date, NSI shall pay
NUSA an amount equal to such reduction in Taxes. If there is a
reduction of any Corporate-Level Taxes of NUSA for a taxable period
beginning after the Distribution Date, by reason of a Tax Item
attributable to the NSI Businesses arising with respect to a period on
or before the Distribution Date, NUSA shall pay NSI an amount equal to
such reduction in Taxes.
(b) Any payment required to be made pursuant to this Section
3.5 shall be made no later than 10 days after the Tax reduction is
actually or deemed received, credited or otherwise utilized by a party.
Any payment not so made within 10 days shall thereafter bear interest
at two percentage points above the then applicable Federal short-term
rate established pursuant to Section 6621 of the Code.
Section 3.6 Payment. Pursuant to the Assumption of Liabilities and
Indemnification Agreement and Article III of this Agreement, NSI will or may
assume or satisfy, or make an indemnification payment with respect to, a
liability of NUSA, and vice versa. If, pursuant to a Final Determination, the
after-Tax position of either NUSA or NSI is different than it would have been
had NSI or NUSA made all payments directly to the relevant third party obligees,
then such party shall make a payment to the other party (or the other party
shall make a payment to such party) in an amount such that, on an after-Tax
basis, the parties will share the payment of the underlying claim in accordance
with the allocation of such claim between NUSA and NSI set forth in the
Assumption of Liabilities and Indemnification Agreement or this Agreement, as
the case may be.
ARTICLE IV.
TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
Section 4.1 Notice of Proposed Adjustments. If a notice of audit is
given, an audit is begun, an audit adjustment is (or has been) proposed, or any
other claim is (or has been made) by any taxing authority with respect to a Tax
liability that, pursuant to the terms hereof, which could be indemnified
pursuant to Article III of this Agreement (collectively, a "Notice of Proposed
Adjustment"), the party receiving such Notice of Proposed Adjustment shall
promptly notify the other parties to this Agreement in writing of such receipt.
Thereafter, the party receiving such Notice of Proposed Adjustment shall keep
the other parties, on a timely basis, informed of all material developments in
connection with audits, administrative proceedings, litigation and other similar
matters that may affect their respective Tax liabilities. Failure or delay in
providing notification hereunder shall not relieve any party hereto of any
obligation hereunder in respect of any particular Tax liability, except to the
extent that (i) such failure or delay precludes the ability of such party to
contest such liability administratively or in the courts, and (ii) otherwise
materially and adversely prejudices such party.
Section 4.2 Tax Audits and Controversies Involving Corporate-Level Tax
Items. In the event (i) either NSI or NUSA notifies the other party in writing
that it wishes to settle any audit, inquiry, suit, action or proceeding (each an
"Action") affecting the Tax liability of the other party (including by
application of this Agreement), and (ii) the Action relates to a Permanent Tax
Item, such other party shall have the right (by giving written notice to the
party wishing to settle the Action within a reasonable amount of time,
considering all the facts and circumstances, of having received notice of the
intention to settle), to prohibit such settlement, in which case the party
favoring settlement shall have the right (within 30 days of receipt of the other
party's written notice prohibiting the settlement) to pay to the other party (or
receive from the other party) an amount (a `Settlement Amount') equal to the
aggregate amount which it would have paid (or received), after application of
each provision of this Agreement other than this Section 4.2, in full
satisfaction of the Action and its obligation to pay amounts (or right to
receive amounts) as provided in this Agreement. The party opposing the
settlement shall thereafter control, in its sole and absolute discretion, the
further defense and disposition of the Action, shall be fully and wholly liable
for all Taxes (and receive any refund of Taxes) resulting therefrom and shall
indemnify and hold harmless the party favoring the settlement from and any and
all liability for Taxes which results from the ultimate resolution of the Action
in excess of the Settlement Amount. The party opposing the settlement shall have
no obligation or duty to reimburse or refund to the other party any portion of
the Settlement Amount, regardless of the ultimate resolution of the Action. The
party favoring the settlement shall have the right, at its own expense, to
participate in any Action for which the other party has assumed control under
this Section 4.2. If the party favoring settlement does not on a timely basis
exercise its right to make or receive a Settlement Amount, the obligations of
NSI and NUSA under this Agreement shall be determined as if the proposed
settlement did not exist (e.g., the party favoring settlement cannot settle an
action without again complying with the procedure set forth in this Section
4.2).
Section 4.3 Retention of Books and Records. NSI agrees to retain all
Tax Returns, related schedules and Workpapers, and all material records and
other documents relating thereto existing on the date hereof or created through
or with respect to taxable periods ending on or before the Distribution Date,
until the later of (i) the expiration of the statute of limitations (including
extensions) of the taxable year to which such Tax Returns and other documents
relate, or (ii) ten years from the date hereof.
Section 4.4 Cooperation in Return Filings, Examinations and
Controversies.
(a) In addition to any obligations imposed pursuant to the
Distribution Agreement, NUSA and the Shareholders shall fully cooperate
with NSI and its representatives and with the Shareholders (if
necessary), in a prompt and timely manner, in connection with (i) the
preparation and filing of and (ii) any inquiry, audit, examination,
investigation, dispute, or litigation involving, any Tax Return filed
or required to be filed by or for NSI and the Shareholders for any
taxable period beginning before the Distribution Date. Such cooperation
shall include, but not be limited to, making available to NSI and the
Shareholders, during normal business hours, and within sixty (60) days
of any request therefor, all books, records and information (which
books, records and information may be copied by NSI or the Shareholders
at their expense), and the assistance of all officers and employees,
reasonably necessary or useful in connection with any Action.
(b) In addition to any obligations imposed pursuant to the
Distribution Agreement, NSI and the Shareholders shall fully cooperate
with NUSA and its representatives, in a prompt and timely manner, in
connection with (i) the preparation and filing of and (ii) any inquiry,
audit, examination, investigation, dispute, or litigation involving,
any Tax Return filed or required to be filed by or NUSA or the
Shareholders. Such cooperation shall include, but not be limited to
making available to NUSA and the Shareholders, during normal business
hours, and within sixty (60) days of any request therefor, all books,
records and information (which books, records and information may be
copied by NUSA or the Shareholders at their expense), and the
assistance of all officers and employees, reasonably necessary or
useful in connection with any Action.
ARTICLE V.
REPRESENTATIONS AND COVENANTS
Section 5.1 Representations of NUSA and the Shareholders. NUSA and the
Shareholders hereby represent and warrant to NSI that NUSA has no present
intention to undertake any of the transactions set forth in Section 5.2 or to
cease to engage in the active conduct of the NUSA Businesses (within the meaning
of Section 355(b)(2) of the Code).
Section 5.2 Covenants of the Shareholders and NUSA.
(a) Except as provided in Section 5.2(b), the Shareholders,
both directly and on behalf of NUSA, and NUSA directly covenant and
agree with NSI that during the Restricted Period:
(i) NUSA shall continue to actively conduct the NUSA
Businesses in the United States (within the meaning of Section
355(b)(2) of the Code) and shall continue to maintain in the
United States a substantial portion of its assets and business
operations as they existed prior to the Distribution, provided
that the foregoing shall not be deemed to prohibit NUSA from
entering into or acquiring other businesses or operations
which may or may not be consistent with NUSA's Businesses and
operations as they existed prior to the Distribution so long
as NUSA continues to conduct the NUSA Businesses in the United
States and continues to so maintain such substantial portion
of its assets in the United States;
(ii) NUSA shall not dispose of any of the assets that
NUSA owned immediately after the Distribution, except for
dispositions of such assets made in the ordinary course of
business;
(iii) neither NUSA nor any of its directors,
officers, or other representatives shall undertake, authorize,
approve, recommend, facilitate, or enter into any contract, or
consummate any transaction with respect to: (A) the issuance
of NUSA capital stock (including options, warrants, rights or
securities exercisable for, or convertible into, NUSA capital
stock) in a single transaction or in a series of related or
unrelated transactions or otherwise or in the aggregate which
would exceed ten percent (10%) when expressed as a percentage
of the outstanding capital stock of NUSA immediately following
the Distribution; (B) any redemptions, repurchases or other
acquisitions or capital stock of NUSA in a single transaction
or a series of related or unrelated transactions or otherwise
or in the aggregate which would exceed ten percent (10%) when
expressed as a percentage of the outstanding capital stock of
NUSA immediately following the Distribution; or (C) the
dissolution, merger or complete or partial liquidation of NUSA
or any announcement of such action.
(b) The Shareholders, both directly and on behalf of NUSA, and
NUSA directly, may take any action or engage in conduct otherwise
prohibited by Section 5.2 so long as prior to such action or conduct,
as the case may be, NUSA receives: (i) an opinion from NUSA's counsel
in form and substance reasonably satisfactory to NSI and upon which NSI
can rely to the effect that the proposed action or conduct, as the case
may be, will not cause the Distribution and Reorganization to fail to
qualify for the tax-free treatment under Section 368(a)(1)(D) and
Section 355 of the Code, or (ii) a ruling from the IRS in form and
substance reasonably satisfactory to NSI and upon which NSI can rely to
the effect that the proposed action or conduct, as the case may be,
will not cause the Distribution and Reorganization to fail to qualify
for tax-free treatment under Section 368(a)(1)(D) and Section 355 of
the Code.
Section 5.3 Representations of NSI. NSI hereby represents and warrants
to the Shareholders that NSI has no present intention to undertake any of the
transactions set forth in Section 5.4 or to cease to engage in the active
conduct of the NSI Businesses (within the meaning of Section 355(b)(2) of the
Code).
Section 5.4 Covenants of NSI.
(a) Except as provided in Section 5.4(b), NSI covenants and
agrees with NUSA and the Shareholders that during the Restricted
Period:
(i) NSI shall continue to actively conduct the NSI
Businesses in the United States (within the meaning of Section
355(b)(2) of the Code) and shall continue to maintain in the
United States a substantial portion of its assets and business
operations as they existed prior to the Distribution, provided
that the foregoing shall not be deemed to prohibit NSI from
entering into or acquiring other businesses or operations
which may or may not be consistent with the NSI Businesses and
operations as they existed prior to the Distirbution so long
as NUSA continues to conduct the NSI Businesses in the United
States and continues to so maintain such substantial portion
of its assets in the United States;
(ii) NSI not dispose of any of the assets that NSI
owned immediately after the Distribution, except for the
dispositions of such assets made in the ordinary course of
business;
(iii) neither NSI nor any of its directors, officers,
or other representatives shall undertake, authorize, approve,
recommend, facilitate, or enter into any contract, or
consummate any transaction with respect to: (A) the issuance
of NSI capital stock (including options, wrrants, rights or
securities exercisable for, or convertible into, NSI capital
stock) in a single transaction or in a series of related or
unrelated transactions or otherwise or in the aggregate which
would exceed ten percent (10%) when expressed as a percentage
of the outstanding capital stock of NSI immediately following
the Distribution; (B) any redemptions, repurchases or other
acquisitions of capital stock of NSI in a single transaction
or a series of related or unrelated transactions or otherwise
or in the aggregate which would exceed ten percent (10%) when
expressed as a percentage of the outstanding capital stock of
NSI immediately following the Distribution; or (C) the
dissolution, merger or complete or partial liquidation of NSI
or any announcement of such action.
(b) NSI may take any action or engage in conduct otherwise
prohibited by Section 5.4 so long as prior to such action or conduct,
as the case may be, NSI receives (i) an opinion from NSI's counsel in
form and substance reasonably satisfactory to NUSA and upon which NUSA
can rely to the effect that the proposed action or conduct, as the case
may be, will not cause the Distribution and Reorganization to fail to
qualify for the tax-free treatment under Section 368(a)(1)(D) and
Section 355 of the Code, or (ii) a ruling from the IRS in form and
substance reasonably satisfactory to NUSA and upon which NUSA can rely
to the effect that the proposed action or conduct, as the case may be,
will not cause the Distribution and Reorganization to fail to qualify
for tax-free treatment under Section 368(a)(1)(D) and Section 355 of
the Code.
Section 5.5 The parties hereto recognize that failure to comply with
their respective obligations under this Section 5.1 may result in irreparable
harm to the other party and that the other party may not be adequately
compensated by monetary damages for such failure. If either party shall fail to
comply with its respective obligations under this Section 5.1, the other party
shall be entitled to injunctive relief and specific performance in addition to
all other remedies.
ARTICLE VI.
MISCELLANEOUS
Section 6.1 Expenses. Unless otherwise expressly provided in this
Agreement or in the Distribution Agreement, each party shall bear any and all
expenses that arise from their respective obligations under this Agreement.
Section 6.2 Entire Agreement; Termination of Prior Agreements. This
Agreement constitutes the entire agreement of the parties concerning the subject
matter hereof and supersedes all other agreements, whether or not written, in
respect of any Tax between or among them. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. Anything in
this Agreement or the Distribution Agreement and/or Assumption of Liabilities
and Indemnification Agreement to the contrary notwithstanding, in the event and
to the extent that there shall be a conflict between the provisions of this
Agreement and the Distribution Agreement and/or the Assumption of Liabilities
and Indemnification Agreement, the provisions of this Agreement shall control.
Section 6.3 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
If to NSI:
Nu Skin International, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. Richard M. Hartvigsen
If to NUSA:
Nu Skin USA, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. Richard M. Hartvigsen
With a copy to:
Holland & Hart, LLP
215 South State Street, Suite 500
Salt Lake City, UT 84111
Attention: David R. Rudd
If the last day for providing any notice, communication or payment hereunder is
a Saturday, Sunday or legal holiday, such due date shall be extended to the next
business day.
Section 6.4 Resolution of Disputes. In the event of a dispute arising
with respect to this Agreement which the parties are unable to resolve on their
own, such dispute shall be resolved by arbitration conducted as described in
Section 3.9 of the Assumption of Liabilities and Indemnification Agreement being
executed concurrently herewith, with the parties on each side of the dispute
selecting one arbitrator and the two arbitrators so selected selecting a third
arbitrator.
Section 6.5 Application to Present and Future Subsidiaries. This
Agreement is being entered into by NSI and NUSA on behalf of themselves and each
member of the NSI Group and NUSA Group, respectively. This Agreement shall
constitute a direct obligation of each such member and shall be deemed to have
been readopted and affirmed on behalf of any corporation which becomes a member
of the NSI Group or NUSA Group in the future. NSI and NUSA hereby guarantee the
performance of all actions, agreements and obligations provided for under this
Agreement of each member of the NSI Group and the NUSA Group, respectively. NSI
and NUSA shall, upon the written request of the other, cause any of their
respective Group members formally to execute this Agreement. This Agreement
shall be binding upon, and shall inure to the benefit of, the successors,
assigns and persons controlling any of the corporations bound hereby for so long
as such successors, assigns or controlling persons are members of the NSI Group
or the NUSA Group, respectively, or their respective successors and assigns.
Section 6.6 Term. This Agreement shall commence on the date of
execution indicated below and shall continue in effect until otherwise agreed to
in writing by NSI and NUSA, or their successors.
Section 6.7 Titles and Headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part or to affect the meaning or interpretation of this Agreement.
Section 6.8 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 6.9 Singular and Plural. As used herein, the singular shall
include the plural and vice versa.
Section 6.10 Governing Law. This Agreement shall be governed by the
laws of Utah.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
31st day of December, 1997.
THE COMPANIES:
NU SKIN INTERNATIONAL, INC.
By: /s/ Keith Halls
Name: Keith Halls
Title: Vice President
NU SKIN USA, INC.
By: /s/ Keith Halls
Name: Keith Halls
Title: Vice President
THE SHAREHOLDERS:
/s/ Blake M. Roney
Blake M. Roney
/s/ Nedra Dee Roney
Nedra Dee Roney
/s/Sandie N. Tillotson
Sandie N. Tillotson
/s/ Craig Bryson
Craig Bryson
/s/ Craig S. Tillotson
Craig S. Tillotson
/s/ Steven J. Lund
Steven J. Lund
/s/ Brooke R. Roney
Brooke R. Roney
/s/ Kirk V. Roney
Kirk V. Roney
/s/ Keith R. Halls
Keith R. Halls
EX-10.38
ASSUMPTION OF LIABILITIES AND
INDEMNIFICATION AGREEMENT
This Assumption of Liabilities and Indemnification Agreement (the
"Agreement") is made and entered into effective as of the 31st day of December,
1997 (the "Effective Date"), by and between Nu Skin International, Inc., a Utah
corporation ("NSI") and 252nd Shelf Corporation, a Delaware corporation which is
in the process of changing its name to Nu Skin USA, Inc. ("NUSA").
Recitals
A. Immediately prior to the Effective Date, NUSA was a wholly-owned
subsidiary of NSI.
B. NSI's integrated business is being divided into two separate
businesses and entities as of the Effective Date, pursuant to the terms of a
Contribution and Distribution Agreement entered into between NSI and NUSA as of
the Effective Date (the "Contribution and Distribution Agreement"). The
separation and reorganization is being accomplished through a contribution of
specified NSI assets to NUSA and a distribution of the outstanding capital stock
of NUSA to NSI's stockholders.
C. As part of such separation and reorganization, NSI and NUSA have
agreed to an allocation of liabilities arising from the historical operation of
NSI's business. The allocation is intended to generally have the liabilities
follow the entity holding the assets and continuing the business to which such
liabilities relate or from which they arise.
D. The parties hereto have determined that the allocation of
liabilities between NSI and NUSA is to be as provided in this Agreement.
Agreement
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties contained herein, the parties hereby agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings ascribed to them in the
Contribution and Distribution Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"Benefits Agreement" shall mean that certain Employee Benefits
Allocation Agreement entered into by NSI and NUSA as of the Effective Date.
"Claim" shall mean: (a) A suit, proceeding or investigation by or
before any court or governmental or regulatory agency or body or a written
demand for payment of a Liability or cause of action, asserted against NSI, NUSA
or both by a Claimant; or (b) a written demand or assertion by or on behalf of a
Claimant that a cause of action giving rise or relating to a Liability exists
against NSI or NUSA.
"Claimant" shall mean any person or entity asserting a Claim.
"Effective Date" shall mean December 31, 1997.
"Indemnified Claim" shall mean any Liability or Claim as to which an
Indemnifying Party has agreed to indemnify an Indemnified Party.
"Indemnified Loss" shall mean a cost, expense or loss incurred in
connection with an Indemnified Claim, for which an Indemnified Party receives or
is entitled to receive a payment from an Indemnifying Party.
"Indemnified Party" shall mean a party or other person or entity
entitled to be indemnified from any Indemnified Claims and Indemnified Losses
pursuant to the terms of this Agreement.
"Indemnifying Party" shall mean a party indemnifying another party from
any Indemnified Claims and Indemnified Losses pursuant to the terms of this
Agreement.
"Jointly Shared Liabilities" shall mean Liabilities of NSI that are to
be jointly shared, assumed and paid by NSI and NUSA as provided in this
Agreement, as identified on the Listing of Liabilities or pursuant to the terms
of this Agreement.
"Liabilities" of any party hereto shall mean all losses, debts,
liabilities, damages, obligations, claims, demands, judgments or settlements of
any nature or kind owed by such party, whether accrued or contingent, and
including all penalties, costs and expenses (legal, accounting or otherwise)
associated therewith, but excluding "Taxes" as such term is defined in the Tax
Sharing and Indemnification Agreement.
"Listing of Liabilities" shall mean the listing of Liabilities attached
hereto as Exhibit A, which lists certain NUSA Assumed Liabilities, NSI Retained
Liabilities and Jointly Shared Liabilities.
"NSI Continuing Business" shall mean the business to be conducted by
NSI immediately after giving effect to the transactions contemplated by the
Contribution and Distribution Agreement, utilizing the NSI Retained Assets, and
including: the business of marketing and distributing of Nu Skin products;
managing and licensing the Nu Skin Global Compensation Plan; licensing of the
right to use the Nu Skin trademarks and trade names, products and distributor
lists; providing management services to local Nu Skin entities; developing new
formulas and ingredients for Nu Skin products; and all other businesses
conducted by NSI prior to the Effective Date, other than the NUSA Acquired
Business.
"NSI Employees" shall mean all individuals who immediately prior to the
Effective Date were employed by NSI and who, after giving effect to the
transactions contemplated by the Contribution and Distribution Agreement, are
intended to remain employed by NSI or in the NSI Continuing Business.
"NSI Retained Assets" shall mean, collectively, all assets of NSI,
other than the NUSA Acquired Assets.
"NSI Retained Liabilities" shall mean each of the Liabilities of NSI
other than the NUSA Assumed Liabilities and the NUSA portion of the Jointly
Shared Liabilities. The NSI Retained Liabilities shall include each of those
Liabilities identified as such on the Listing of Liabilities or pursuant to the
terms of this Agreement.
"NUSA Acquired Assets" shall mean, collectively, those assets of NSI
transferred to and acquired by NUSA pursuant to the terms of the Contribution
and Distribution Agreement, as identified in Exhibit E attached thereto.
"NUSA Acquired Business" shall mean the business to be conducted by
NUSA immediately after giving effect to the transactions contemplated by the
Contribution and Distribution Agreement, utilizing the NUSA Acquired Assets, and
including the marketing and distribution of Nu Skin products in the United
States as permitted by the Intercompany Agreements (as defined in the
Contribution and Distribution Agreement).
"NUSA Assumed Liabilities" shall mean each of the Liabilities of NSI
that are to be assumed by NUSA as of the Effective Date as provided in this
Agreement and identified as NUSA Assumed Liabilities in the Listing of
Liabilities or pursuant to the terms of this Agreement.
"NUSA Employees" shall mean all individuals who immediately prior to
the Effective Date were employed by NSI and who, after giving effect to the
transactions contemplated by the Contribution and Distribution Agreement, are
intended to be employed by NUSA, as identified in the Benefits Agreement.
"Settlement Payment" shall mean a payment made by a party hereto to the
other party pursuant to and in exercise of its rights under Section 4.10 hereof.
"Tax Sharing and Indemnification Agreement" shall mean that certain Tax
Sharing and Indemnification Agreement entered into by NSI and NUSA as of the
Effective Date.
2. ASSUMPTION AND ALLOCATION OF LIABILITIES.
2.1 NSI Retained Liabilities. Except as may be otherwise
specifically provided herein, NSI shall retain, assume, pay, perform
and discharge all of the NSI Retained Liabilities.
2.2 NUSA Assumed Liabilities. Except as otherwise specifically
provided herein, from and after the Effective Date, NUSA shall assume,
pay, perform and discharge the NUSA Assumed Liabilities. In addition to
those items specifically referenced as NUSA Assumed Liabilities on the
Listing of Liabilities, NUSA Assumed Liabilities shall include the
following:
(a) Liabilities that result from a Claim arising out of
the operation of the NUSA Acquired Business, whether
based on events occurring prior to or after the
Effective Date; and
(b) Liabilities that arise out of or relate to any
activity undertaken by, or any failure to act by,
NUSA after the Effective Date.
2.3 Jointly Shared Liabilities. From and after the Effective
Date, NSI shall assume, pay, perform and discharge 50%, and NUSA shall
assume, pay, perform and discharge 50% of the Jointly Shared
Liabilities, unless a different allocation of any particular Jointly
Assumed Liabilities is specified in the Listing of Liabilities. In
addition to those Liabilities identified as Jointly Shared Liabilities
in the Listing of Liabilities, Jointly Shared Liabilities shall include
the following:
(a) Liabilities arising from Claims based on events
occurring prior to the Effective Date and which: (i)
are not identified in the Listing of Liabilities as
either NSI Retained Liabilities or as NUSA Assumed
Liabilities, and (ii) arise, in more than a de
minimis way, from the businesses or operations of
both the NSI Continuing Business and the NUSA
Acquired Business.
(b) Liabilities not identified as either NSI Retained
Liabilities or NUSA Acquired Liabilities in the
Listing of Liabilities, which result from Claims for
indemnification (and the advancement of expenses in
connection with a proceeding as to which such a Claim
may later be asserted) arising out of facts or
circumstances existing on or events occurring on or
prior to the Effective Date, made against NSI
pursuant to any law or any provision in any
certificate of incorporation, bylaws or agreement, by
any director, officer, employee or agent of NSI whose
duties involved, in more than a de minimis way, both
the NSI Continuing Business and the NUSA Acquired
Business.
2.4 Intent of Assumption and Allocation. In applying Sections
2.1, 2.2 and 2.3, the parties intend that Liabilities not specifically
identified in the Listing of Liabilities but incurred (or based on
facts existing) prior to the Effective Date ("Unidentified Existing
Liabilities") be allocated by a fair and reasonable application of the
principle that: (i) NSI shall be solely responsible for Liabilities
arising from or relating to the NSI Retained Assets or the conduct of
the NSI Continuing Business and in which the NUSA Acquired Assets and
NUSA Acquired Business had no more than a de minimis role; and (ii)
NUSA shall be solely responsible for Liabilities arising from or
relating to the NUSA Acquired Assets or the conduct of the NUSA
Acquired Business and in which the NSI Retained Assets and NSI
Continuing Business had no more than a de minimis role. Unidentified
Existing Liabilities in which both (i) the NSI Retained Assets or NSI
Continuing Business and (ii) the NUSA Acquired Assets or NUSA Acquired
Business have more than a de minimis role shall be shared by NSI and
NUSA in accordance with the provisions of Section 2.3, as Jointly
Shared Liabilities.
2.5 Liability Insurance Coverage. If any Liabilities to which
this Section 2 applies are covered by any liability insurance carried
by NSI for periods prior to the Effective Date, NSI and NUSA shall each
have access to such insurance within the aggregate limits thereof, in
proportion to their respective obligations pursuant to this Section 2.
Any insurance recoveries covering Liabilities to be assumed and
allocated pursuant to Section 2.3 shall be shared by the parties in the
proportions provided in Section 2.3
2.6 Actions to Effect Assignment and Assumption of NUSA
Assumed Liabilities.
(a) NSI and NUSA shall use their reasonable best efforts
to cause all rights and obligations of NSI in respect
of the NUSA Assumed Liabilities to be assigned to and
assumed by NUSA effective as of the Effective Date,
or as promptly thereafter as practicable.
(b) From and after the Effective Date, NSI and NUSA shall
use their reasonable best efforts to obtain from each
obligee to which the NUSA Assumed Liabilities are
owed a full release of NSI from any liability or
obligation in respect of such NUSA Assumed
Liabilities, effective as of the Effective Date or as
of the earliest possible date.
(c) Each of NSI and NUSA shall cooperate with the other
and execute such instruments and documents as may be
necessary or reasonably requested by the other party
in connection with the assignment, assumption and
release of any NUSA Assumed Liabilities as
contemplated herein.
(d) If and to the extent that NSI and NUSA are unable to
obtain the assignment, assumption and release of any
NUSA Assumed Liabilities as contemplated herein, as
between NSI and NUSA, effective as of the Effective
Date, NUSA agrees to pay and perform as and when due
all Liabilities and obligations of NSI in respect of
such NUSA Assumed Liabilities, whether arising prior
to, on or after the Effective Date, and, in the event
that for any reason NUSA does not make any such
payment or perform any such obligation as and when
due or NSI makes any such payment or performs any
such obligation, NUSA shall promptly reimburse NSI
for all costs and expenses incurred by NSI in
connection therewith.
3. INDEMNIFICATION.
3.1 By NSI. NSI shall indemnify and hold harmless NUSA, and
each officer, director, employee and agent of NUSA, from and against
any and all Liabilities and Claims which NSI has agreed to assume, pay,
perform and discharge pursuant to the terms of this Agreement
including: (i) all NSI Retained Liabilities; (ii) NSI's proportionate
share of all Jointly Shared Liabilities; (iii) all Claims relating to
or arising from such Liabilities; and (iv) all costs, expenses and
obligations arising from, relating to or incurred in connection with
such Liabilities and Claims.
3.2 By NUSA. NUSA shall indemnify and hold harmless NSI, and
each officer, director, employee and agent of NSI, from and against any
and all Liabilities and Claims which NUSA has agreed to assume, pay,
perform and discharge pursuant to the terms of this Agreement,
including: (i) all NUSA Assumed Liabilities; (ii) NUSA's proportionate
share of all Jointly Shared Liabilities; (iii) all Claims relating to
or arising from such Liabilities; and (iv) all costs, expenses and
obligations arising from, relating to or incurred in connection with
such Liabilities and Claims.
3.3 Payment Terms. All payments to be made by an Indemnifying
Party pursuant to its obligations under this Section 3 shall be made
within ten (10) business days of receipt of notice from the Indemnified
Party that an Indemnified Loss has been incurred by the Indemnified
Party and stating the amount of such Indemnified Loss and the basis for
the indemnification obligation, unless the Indemnifying Party contests
the obligation to indemnify the Indemnified Party with respect to a
claimed Indemnified Loss, as set forth in Section 3.9 below.
3.4 Taxes and Employee Benefits. Concurrently with the
execution of this Agreement, the parties are executing the Tax Sharing
and Indemnification Agreement and the Benefits Agreement. Obligations
relating to allocations of Liabilities for taxes, as well as the effect
of taxes on a party in respect of an Indemnified Loss, shall be
governed by the Tax Sharing and Indemnification Agreement. Obligations
with respect to accrued and ongoing benefits payable to the NSI
Employees and NUSA Employees will be as set forth in the Benefits
Agreement.
3.5 Insurance. The indemnification provisions of this
Agreement are not to be construed to be insurance coverage and do not
amend or affect in any manner any insurance policies purchased by NSI
prior to the Effective Date. Each party shall use its best efforts to
collect on insurance as to which it is the insured party, without
regard to whether it is the Indemnified Party or the Indemnifying Party
hereunder with respect to the subject of the insurance claim. If either
party receives insurance proceeds relating to an Indemnified Loss after
the receiving party has received a payment from the other party with
respect to such Indemnified Loss, the receiving party shall promptly
remit to the paying party a portion of such insurance proceeds equal to
the paying party's proportion of the Indemnified Loss. If an
Indemnified Party receives insurance proceeds relating to an
Indemnified Loss prior to receipt of payment from the Indemnifying
Party, then the amount of the Indemnified Loss to be paid by the
Indemnifying Party shall be appropriately reduced.
3.6 Effect of Other Reductions of Indemnified Loss. If the
amount of any Indemnified Loss shall at any time prior or subsequent to
indemnification pursuant to this Agreement be reduced by recovery,
settlement or otherwise, the amount of the Indemnified Loss paid or to
be paid by the Indemnifying Party shall be adjusted by an amount equal
to the Indemnifying Party's share of such reduction (determined in the
same proportion as parties' assumption and allocation of such
Liabilities as provided in Section 2 hereof), less any expenses
reasonably incurred in connection therewith, and in the event the
Indemnifying Party has previously paid the Indemnified Loss, the amount
of the Indemnifying Party's share of the reduction shall promptly be
repaid by the Indemnified Party to the Indemnifying Party.
3.7 Waiver of Subrogation. Each party hereby waives any right
of subrogation it may have with respect to any Indemnified Loss.
3.8 In Event of Unenforceability. To the extent that any
party's undertakings as an Indemnifying Party set forth in this Section
3 may be unenforceable, such party shall contribute the maximum amount
it is permitted to contribute under applicable law to the payment and
satisfaction of Indemnified Losses incurred by an Indemnified Party.
3.9 Disputes Relating to Claims for Indemnification.
(a) If an Indemnifying Party contests its obligation to
indemnify an Indemnified Party with respect to any
claimed Indemnified Losses, the Indemnifying Party
may deliver a written objection to the claim within
ten (10) business days following receipt of the
notice provided by the Indemnified Party as described
in Section 3.3 above.
(b) In the event an Indemnifying Party gives such notice
of objection to an Indemnified Party, the parties
shall attempt in good faith to agree upon the rights
of the respective parties with respect to the
disputed Indemnified Claim, consistent with the terms
of this Agreement. If no such agreement can be
reached after good faith negotiation, either the
claiming Indemnified Party or the Indemnifying Party
may demand arbitration of the matter. The Indemnified
Party and the Indemnifying Party shall each select
one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The decision of the
arbitrators so selected as to the validity and amount
of any Indemnified Claim shall be binding and
conclusive upon the parties to this Agreement.
(c) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any
such arbitration shall be held in Utah County, Utah
under the rules then in effect of the American
Arbitration Association. In any arbitration hereunder
in which the amount of any Indemnified Losses to
which an Indemnified Party is entitled is at issue,
the fees and expenses payable to the arbitrators, to
the American Arbitration Association and to the
parties' attorneys, shall be allocated between the
Indemnified Party and the Indemnifying Party in the
same proportion that the aggregate amount of the
disputed Indemnified Losses submitted to arbitration
which are unsuccessfully disputed or claimed by each
party (as determined by the arbitrators) bears to the
total amount of the disputed Losses so submitted.
4. CONTROL OF CLAIMS.
4.1 NSI Retained Liabilities. Subject to the restrictions and
provisions set forth in this Section 4, NSI shall have full control
over any action taken with respect to NSI Retained Liabilities and all
related Claims and Indemnified Losses.
4.2 NUSA Assumed Liabilities. Subject to the restrictions and
provisions set forth in this Section 4, NUSA shall have full control
over any action taken with respect to NUSA Acquired Liabilities and all
related Claims and Indemnified Losses.
4.3 Jointly Shared Liabilities. Subject to the restrictions
and provisions set forth in this Section 4, NSI shall have full control
over any action taken with respect to Jointly Shared Liabilities and
related Claims.
4.4 Specified Claims. Claims identified on the Listing of
Liabilities as being subject to control other than as provided herein
shall be controlled as provided in the Listing of Liabilities.
4.5 Rights Arising From Control of Claims.
(a) A party entitled to control a Claim shall have the
right, without limitation, to select counsel, to
settle the Claim on any terms it deems advisable and
in its discretion (except as otherwise specifically
provided herein, and except that an Indemnified Party
may not settle a Claim for which an Indemnifying
Party shall be responsible without the consent of the
Indemnifying Party, except as provided in Section
4.10), to appeal any adverse decision rendered in any
court, to discontinue any action, and otherwise to
make any decision with respect thereto as it in its
discretion deems advisable, provided however, that
with respect to any such Claim with a value, or
potential value, of $250,000 or more, the party
controlling the claim shall obtain the prior written
consent of the other party hereto to the selection of
counsel, which consent shall not be unreasonably
withheld.
(b) Notwithstanding anything to the contrary herein, if
there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate
in the judgment of an Indemnified Party for the same
counsel to represent both such Indemnified Party and
the Indemnifying Party, then the Indemnified Party
shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party
determines counsel is required, at the expense of the
Indemnifying Party. In the event an Indemnifying
Party exercises the right to undertake the defense of
a Claim as provided herein, the Indemnified Party
shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party,
at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the
Indemnified Party's possession or under the
Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party.
Similarly, in the event the Indemnified Party is,
directly or indirectly, conducting the defense
against a Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense
and make available to the Indemnified Party, at the
Indemnifying Party's expense, all such witnesses,
records, materials and information in the
Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto as is
reasonably required by the Indemnified Party.
4.6 Legal Action. If either party is served with any judicial
or administrative process concerning any Claim, the defense of which
such party believes should be conducted by the other party, such party
shall: (a) take all steps necessary or appropriate to preserve both
parties' legal rights and remedies; (b) notify the other party of the
pendency of the action; and (c) request that the other party assume
conduct of the defense and that the other party use its reasonable best
efforts to have itself substituted as a party to the action. Unless and
until the parties agree to a transfer of control of a particular
action, the party originally notified or served shall have full control
over, and responsibility for, the conduct of the proceedings, and shall
be solely liable for any default. If both parties are served with
judicial or administrative process concerning any Claim covered by this
Agreement, each party shall use its reasonable best efforts to reach
agreement with the other as to which party should control the conduct
of the proceedings. Pending such agreement, each party shall have full
control over, and responsibility for, preserving its legal rights and
remedies, and shall be solely responsible for any default entered
against it.
4.7 Other Actions. If either party receives from a Claimant
any demand, not related to judicial or administrative action, for
payment against which such party believes it is entitled to be
indemnified pursuant to this Agreement, the Indemnified Party shall
promptly forward such demand to the Indemnifying Party with a request
that the Indemnifying Party assume control of the Claim and acknowledge
its obligation to indemnify the Indemnified Party with respect to such
Claim. The Indemnifying Party shall respond to such a request from the
Indemnified Party within 30 days.
4.8 Consultation and Cooperation. NSI and NUSA agree to
cooperate fully with each other in connection with all Claims as to
which either such party may claim a right to indemnification hereunder,
in order to minimize the effects of such Claims on the businesses of
both parties. NUSA shall consult and cooperate with NSI's counsel
concerning any action taken with respect to Claims relating to Jointly
Assumed Liabilities.
4.9 Costs of Defense. Costs of defense of Claims relating to
Jointly Assumed Liabilities shall be by each party in proportion to its
assumption and agreement to pay and discharge such Claims as provided
in this Agreement. NSI shall provide to NUSA a monthly accounting of
expenses (other than counsel fees directly billed to each party as
provided above) incurred in connection with defense of Claims relating
to Jointly Assumed Liabilities, and NUSA shall promptly pay to NSI its
share of such expenses, determined in the proportion that Jointly
Shared Liabilities are assumed and allocated as provided herein.
4.10 Settlement Rights. If either party hereto or any Claimant
proposes settlement or compromise of any Claim subject to an
indemnification obligation hereunder, each party shall use all
reasonable efforts to agree on such settlement, considering
minimization of the Liability resulting from such Claim and the adverse
effects on the businesses of both parties. If the parties cannot agree,
the party favoring acceptance of the proposal shall have the right to
pay to the other party a Settlement Payment equal to its proportionate
share of the dollar value of the proposal in full satisfaction of its
assumption and agreement to pay and discharge the Claim as provided in
this Agreement. The party receiving the Settlement Payment shall
thereafter solely control the further defense and disposition of the
Claim, shall be totally liable for all Liability resulting therefrom
and shall indemnify and hold harmless the party making the Settlement
Payment from any and all Liability over and above the amount of the
Settlement Payment. The party receiving the Settlement Payment shall
have no obligation or duty to reimburse or refund any part of the
Settlement Payment, regardless of the ultimate resolution of the Claim.
4.11 Resolution of Disputes. In the event of any controversy
or dispute between the parties hereto arising out of or in connection
with this Agreement, the parties shall attempt, promptly and in good
faith, to resolve any such dispute. If the parties are unable to
resolve any such dispute within a reasonable time (not to exceed 90
days), all unresolved disputes arising under this Agreement shall be
submitted to mandatory and binding arbitration in Utah County, Utah
under the then applicable rules of the America Arbitration Association
or any successor organization, consistent with the procedures set forth
in Section 3.9 above.
5. MISCELLANEOUS PROVISIONS.
5.1 Notice. All notices, requests, demands and other
communications required or permitted to be given or made under this
Agreement shall be in writing and shall be deemed to have been given
(i) on the date of personal delivery or (ii) provided such notice,
request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, on the date
of (A) deposit in the United States mail, postage prepaid, by
registered or certified mail, return receipt requested, (B)
transmission by telegram, cable, telex or facsimile transmission, or
(C) delivery to a nationally-recognized overnight courier service, in
each case, addressed as follows, or to such other person or entity as
either party shall designate by notice to the other in accordance
herewith:
If to NSI:
Nu Skin International, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. M. Truman Hunt
With a copy to:
Holland & Hart, LLP
215 South State Street, Suite 500
Salt Lake City, UT 84111
Attention: David R. Rudd
If to NUSA:
Nu Skin USA, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. Richard M. Hartvigsen
With a copy to:
Holland & Hart, LLP
215 South State Street, Suite 500
Salt Lake City, UT 84111
Attention: David R. Rudd
5.2 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah applicable
to contracts entered into and to be performed entirely within such
State.
5.3 Severability. The parties agree that each provision to
this Agreement shall be construed independent of any other provision of
this Agreement. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions
hereof. This Agreement shall be construed in all respects as if such
invalid or unenforceable provision were omitted.
5.4 Entire Agreement. This Agreement, together with the
Contribution and Distribution Agreement, constitutes the entire
agreement between the parties with respect to the subject matter
hereof. This Agreement supersedes all prior written or contemporaneous
oral agreements related to the subject matter hereof. The Listing of
Liabilities constitutes a part of this Agreement and is incorporated
herein by reference in its entirety.
5.5 Amendment and Modifications. No amendment or other
modification to this Agreement shall be binding upon any party unless
executed in writing by all of the parties hereto.
5.6 Waiver. No waiver by any party of any of the provisions of
this Agreement will be deemed, or will constitute, a waiver of any
other provision, whether similar, nor will any waiver constitute a
continuing waiver. No waiver will be binding unless executed in writing
by the party making the waiver.
5.7 Assignment. Neither party may assign, by operation of law,
merger or otherwise, license, sublicense or otherwise transfer any of
its rights or obligations under this Agreement to any other person or
entity without obtaining the prior written consent of the other party.
5.8 Captions. All captions in this Agreement are intended
solely for the convenience of the parties and none shall be deemed to
affect the meaning and construction of any provision hereof.
5.9 Cumulative Remedies. No right or remedy conferred upon or
reserved to any of the parties under the terms of this Agreement is
intended to be, nor shall it be deemed, exclusive of any other right or
remedy provided herein or by law or equity, but each shall be
cumulative of every other right or remedy.
5.10 Binding Effect of Agreement. Except as otherwise
specifically provided herein, this Agreement shall be binding upon, and
shall inure to the benefit of and be enforceable by, the parties
hereto, and their respective affiliates, successors and assigns.
5.11 No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, shall confer on any person other than the parties
any rights or remedies under or by virtue of this Agreement.
5.12 Counterparts. This Agreement may be executed in
counterparts and each taken together shall constitute one and all the
same document.
IN WITNESS WHEREOF, the parties by their duly authorized officers, have
executed and delivered this Agreement on the date first written above.
NU SKIN INTERNATIONAL, INC.
By: /s/ Steven J. Lund
Name: Steven J. Lund
Title: Executive Vice President & Secretary
NU SKIN USA, INC.
By: /s/ Keith Halls
Name: Keith Halls
Title: Vice President
EXHIBIT A
LISTING OF LIABILITIES
I. NSI Retained Liabilities. The NSI Retained Liabilities as defined in
the attached Agreement shall include the following:
A. Those distribution compensation exceptions listed on Schedule
A-1 attached hereto.
B. Legal expenses, losses and Liabilities arising from the
following pending or threatened litigation, claims and legal
ations:
1. Nu Skin v. Leviton Manufacturing Co., Inc., et al.
2. Nu Skin v. Neways, Inc., et al.
3. Lane v. Spector Management Group, Salt Lake County,
NSI
4. Rebecca Smith, et al v. NSI
II. NUSA Acquired Liabilities. The following Liabilities shall be
considered NUSA Acquired Liabilities for purposes of the attached
Agreement:
A. The following Liabilities, as referenced in the NSI financial
statements (copies of which are attached hereto as Schedule
A-2):
Estimated
Amount
----------
1. Accounts payable 542,720
2. Related party payables 932,622
3. Accrued commissions 5,799,511
4. Other accrued liabilities
(Gallery of Gifts, payroll and sales tax) 4,170,961
5. Other current liabilities (Deferred income,
funds collected but orders not shipped) 1,876,673
6. Independent warehouse deposits 115,186
----------
Total financial statement liabilities to be transferred 13,437,673
==========
B. Contractual and other obligations:
1. Canada office and warehouse lease agreement
2. Obligation to fund and support Merasoft
3. Obligation to fund and support Big Planet
4. US Olympic Committee agreement
5. Other than the exceptions listed in the Disclosure Schedule, or in Schedule
A-1 attached hereto, the obligation to fund any distributor commission
exceptions granted by NUSA is transferred to NUSA if such exceptions
cumulatively combined with all commissions paid on the sale of Products in
the USA exceed 42%
6. UPS Contract
7. Convention Technology Services Agreement
8. Free-Flow Packaging Contract
9. Obligations under intercompany agreements applicable to U.S. operations,
including support services, license fees, distributor incentives, trademark
royalties and distribution agreement
10. Abravenel Hall contract
11. Salt Lake Fine Arts Division Contract
12. Pinnacle Group (Kurt Bestor - convention)
13. Vertex Contract
14. Fast Tax Contract
15. Currently the State of Utah is auditing unclaimed distributor checks. If
an obligation results from this audit, it will be the responsibility of
NUSA.
16. Obligations owed to Craig Bryson as described in Section 3.08 of the
Disclosure Schedule attached to the Stock Acquisition Agreement.
17. All existing US convention related obligations (see item III B).
C. Pending or threatened litigation, claims or assessments
1. Splash Product Liability Case
2. Any liabilities relating to the Big Planet operations.
III. Jointly Assumed Liabilities. The following Liabilities shall be treated
as Jointly Assumed Liabilities, for purposes of Section 2.3 of the
attached Agreement:
A. Pending or threatened litigation, claims or assessments
1. Cappone v. NSI, et al Obligation to be split 50/50 between
NUSA and NSI
B. Convention Expenses - NSI has agreed to reimburse a portion of
the net loss (total convention expenses to a maximum of $5
million less convention registration fees). NUSA will bear the
portion of the loss which corresponds with the percentage of
the attendees who are US distributors and NSI will bear the
portion of the loss that corresponds witch the percentage of
total attendees who are not US distributors
SCHEDULE A-1
LIST OF DISTRIBUTOR COMPENSATION
EXCEPTIONS TO BE RETAINED BY NSI
Lang Chou @@####
Betty Sung ###-##-####
Tim Sales ###-##-####
Lisa Fairbanks ###-##-####
Craig Bryson ###-##-####
Craig Tillotson ###-##-####
CJM - Claram McDermott ##-#######
World Network - Richard Kall ##-#######
MillerTime - Murray and Susan Miller ##-#######
Janice Aruta - ###-##-####
Resource Marketing - Mark and Lana Barrett ##-#######
International Enterprises - Mike Chapman ##-#######
Paul Cook-Erlich ###-##-####
Duel Forces - Kathleen Duel ##-#######
Samco Marketing - Seth Ferman ##-#######
Karen Johnson ###-##-####
Gloria Miller ###-######
Nancy Rawle ###-##-####
Planet Network -- Eric Sheranian ##-#######
Career Development - Kay Smith ##-#######
Speaks/Ellis Group - Jerry Speaks ##-#######
Bryan Stepanian ###-##-####
Jerry Sude ###-##-####
Dean Marchi ###-##-####
Deborah Lipner ###-##-####
Winwood Brokerage - Raymond Goodwin (or Bud Corkin) ##-#######
Kathy Dennison - ###-##-####
Jerry Campisi ##-#######
Jack Pfeifer ###-##-####
Suzzane Brudge ### ## ####
EX-10.39
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
This Employee Benefits Allocation Agreement (this "Agreement") is
effective as of the date of execution by and between Nu Skin International,
Inc., a Utah corporation ("NSI"), and Nu Skin USA, Inc., a Delaware corporation
("NUSA").
Recitals:
Whereas, pursuant to the terms of the Contribution and Distribution
Agreement (the "C&D Agreement") effective as of December 31, 1997 by and between
NSI and NUSA, NSI and NUSA have agreed to determine each party's rights and
obligations as applied to employee benefits.
Whereas, as a result of the events contemplated in the C&D Agreement,
NSI will transfer certain employees to NUSA (the "NUSA Employees").
Whereas, following the execution of the Stock Acquisition Agreement
between the stockholders of NSI and Nu Skin Asia Pacific, Inc. ("NSAP"), a
Delaware Corporation, it is reasonably likely that NSI and NUSA will no longer
be in the same "controlled group" under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended (the "Code"), but neverthless will
continue to have substantial common ownership.
Agreement:
Now, therefore, the parties do agree as follows:
1. Nu Skin International, Inc. 401(k) Plan (the "401(k) Plan").
(a) Employee Participation; Participating Employer
Status.
Subject to compliance with applicable law, NUSA
Employees shall continue to participate in the 401(k) Plan on
the same terms and conditions under which they participated
prior to the execution of this Agreement. NUSA shall become a
participating employer in the 401(k) Plan as soon as possible
following the execution of the Agreement, and in no event
later than the next following payroll date of NUSA. NUSA shall
execute the original of the 401(k) Plan or a supplemental
participation agreement as a participating employer in a
multiple employer plan. NSI shall continue to serve as plan
sponsor and plan administrator of the 401(k) Plan. The power
to amend the 401(k) Plan shall remain exclusively with NSI,
subject to NUSA's right to withdraw from the 401(k) Plan.
(b) 401(k) Plan Contributions/Expenses.
Contributions made to the 401(k) Plan by NUSA and
administrative expenses incurred by the 401(k) Plan on behalf
of NUSA Employee participants of the 401(k) Plan shall be paid
by NUSA in accordance with the terms of the 401(k) Plan and
shall be paid either directly to the trustee and service
providers of the 401(k) Plan or through an internal accounting
charge from NSI to NUSA; provided, that in all cases, all NUSA
Employee participant elective deferrals shall be forwarded to
the 401(k) Plan trustee within the legally required time
frame.
(c) Application of "Same Desk" Rule.
The "same desk" rule of Code section 401(k) shall
apply to all NUSA Employees for purposes of restricting the
ability of any NUSA Employee to receive a distribution from
the 401(k) Plan following their transfer from NSI to NUSA. No
"separation from service" shall be deemed to have occurred
with respect to the NUSA Employees transferred under the
Agreement.
2. Nu Skin International Employee Medical Benefit Plan (the "Medical
Plan").
(a) Employee Participation; Participating Employer
Status.
NUSA Employees shall continue to participate in the
Medical Plan on the same terms and conditions under which they
participated prior to the execution of this Agreement. NSI
shall amend the Medical Plan to permit participation by NUSA
Employees in the Medical Plan.
(b) Notification to Carriers; Additional Actions.
NSI agrees to notify all of its insurance carriers
who provide welfare benefits under the Medical Plan as soon as
possible following the execution of this Agreement that NUSA
Employees are to be covered employees of the NSI insured group
pursuant to the terms of the respective insurance
arrangements. Such notification shall be provided to the
following insurance carriers: Blue Cross/ValueCare; FHP
Healthcare; Standard Insurance Company; and Sun Life Assurance
Company of Canada. NSI also agrees to provide notification of
the coverage of NUSA Employees as part of the NSI insured
group to any other medical, life or disability insurance
carrier that may cover any of the NSI employees who become
NUSA Employees. NSI and NUSA agree to take any actions that
may be required by any insurance carrier to ensure coverage of
the NUSA Employees on an uninterrupted basis.
(c) Premiums/Plan Expenses.
Premiums, administrative expenses and claims incurred
or paid by the Medical Plan on behalf of NUSA Employee
participants of the Medical Plan shall be paid by NUSA, either
directly by NUSA, by NUSA to the insurance carriers of the
Medical Plan, or through an internal accounting charge from
NSI to NUSA.
3. Nu Skin USA, Inc. Cafeteria Plan (the "Cafeteria Plan").
(a) Implementation of New Cafeteria Plan.
Effective as soon as possible following the execution
of the Agreement, but in no event later than the first payroll
date of NUSA, NUSA shall adopt the Cafeteria Plan, which shall
be identical to the Nu Skin International, Inc. Cafeteria Plan
(the "NSI Cafeteria Plan") in which NUSA Employees
participated while employed by NSI. NUSA Employees shall
participate in this Cafeteria Plan on the same terms and
conditions under which they participated in the NSI Cafeteria
Plan prior to the execution of the Agreement. No "change in
family status" under Section 5.4 of the NSI Cafeteria Plan
shall be deemed to have occurred as a result of the transfer
of NUSA Employees from NSI to NUSA.
(b) Transfer of Accounts.
NSI and NUSA shall transfer to the Cafeteria Plan
following its adoption all amounts deferred into the NSI
Cafeteria Plan medical flexible spending account by NUSA
Employees year-to-date.
4. Nu Skin International, Inc. Deferred Compensation Plans and Trust
Plan (the "Deferred Compensation Plans").
(a) Employee Participation; Participating Employer
Status.
NUSA Employees who are currently participating in the
Deferred Compensation Plans shall continue to participate in
the Deferred Compensation Plans on the same terms and
conditions under which they participated prior to the
execution of this Agreement. NSI shall amend the Deferred
Compensation Plans to permit participation by NUSA Employees
in the Deferred Compensation Plans.
(b) Crediting of Service.
The transfer of the NUSA Employees from NSI to NUSA
shall not be deemed to cause a "Retirement Date" to occur
under section 10 of the Deferred Compensation Plans. All
service with NUSA shall be recognized for purposes of vesting
pursuant to section 13.2 of the Deferred Compensation Plans.
5. Nu Skin USA, Inc. 1998 Stock Incentive Plan (the "Stock Plan").
(a) Implementation of New Stock Plan.
Effective as soon as possible following the execution
of this Agreement and, if required, with appropriate approval
by the stockholders of NSAP, NUSA shall adopt the Stock Plan,
which shall be identical in form and substance to the Nu Skin
International, Inc. 1996 Stock Incentive Plan (the "NSI Stock
Plan") in which NUSA Employees participated while employed by
NSI. NUSA Employees shall participate in the Stock Plan on the
same terms and conditions under which they participated in the
NSI Stock Plan prior to the execution of this Agreement.
(b) Transfer of Shares.
Following the adoption by NUSA of the Stock Plan, NSI
and NUSA shall take all actions necessary to transfer to NUSA
shares of NSAP Class A Common Stock in accordance with the
terms of the C&D Agreement. NUSA shall bear all costs of such
transfer and subsequent holding of such shares including, but
not limited to: (1) any filing fees in the event that
additional registration or other filing with the Securities
and Exchange Commission or state securities regulatory body is
required; and (2) NUSA's allocable portion of any costs
associated with updating any previously filed registration
statement covering such shares.
(c) Assumption of Outstanding Awards.
NUSA shall assume all award agreements
governing the terms of awards made pursuant to the NSI Stock
Plan to NUSA Employees. The transfer of NUSA Employees from
NSI to NUSA under the C&D Agreement shall not constitute a
termination of employment for purposes of awards granted under
the NSI Stock Plan. Prior service with NSI shall be recognized
for purposes of the vesting of awards granted under the NSI
Stock Plan and assumed by NUSA.
6. Vacation/Sick Leave and Severance Policies.
(a) Adoption of Identical Policies.
Effective on the first day following the execution
date of the Agreement, NUSA shall adopt vacation/sick leave
and severance policies which are identical to those provided
by NSI immediately prior to the execution of the Agreement.
(b) Crediting of Service; Accounting of Leave Used .
Any service to NSI resulting in the accrual of
vacation/sick leave or severance by an NUSA Employee prior to
his or her transfer from NSI shall be recognized by NUSA for
purposes of accrual under the NUSA programs. Correspondingly,
any vacation or sick leave used by an NUSA Employee during the
1998 calendar year prior to his or her transfer from NSI shall
be treated as if used while employed by NUSA
7. Family and Medical Leave Act ("FMLA").
NUSA shall be a "successor in interest" to NSI under the terms of FMLA.
As such, NUSA shall count for NUSA Employees periods of employment with NSI to
determine eligibility for FMLA leave, grant or continue leave to NUSA Employees
who had previously provided notice to NSI, and comply with job restoration
requirements for NUSA Employees at the conclusion of FMLA leave.
8. Other Non-Enumerated Benefits.
It is the parties' intent that NUSA Employees be provided with the same
benefits following the execution of this Agreement as were provided to them by
NSI prior to the execution of this Agreement, subject to compliance with
applicable law. With respect to benefit plans or programs that are not
specifically discussed herein, where legally permissible and advisable, the
parties shall construe this Agreement liberally so as to permit continued
participation by NUSA employees in NSI benefit plans or programs. Participation
shall be continued without the imposition of new restrictions, including, but
not limited to (where applicable) new eligibility periods, new vesting periods,
new deductibles, new out-of-pocket maximums or new service accrual periods.
Where participation by NUSA Employees in NSI benefit plans is not legally
permissible, administratively practicable or finanically feasible (for either
NSI or NUSA), NUSA shall adopt parallel plans and policies to replicate the
benefits previously available to NUSA Employees while employed by NSI. A
termination of employment shall not be deemed to have occurred for benefits
purposes with respect to the NUSA Employees transferred under the C&D Agreement.
9. Appropriate Action.
As soon as possible following the execution of this Agreement, to
permit NUSA to become a participating employer in the 401(k) Plan, the Medical
Plan and the Deferred Compensation Plans, NSI and NUSA shall: (1) execute
appropriate Board resolutions approving NUSA's participation as a participating
employer in such plans; (2) adopt an amendment to each such plan reflecting
NUSA's participation; and (3) take any other actions necessary or advisable to
permit such participation. With respect to all other employee benefit plans or
policies, NSI and NUSA agree to take all actions necessary or advisable to carry
out the parties' stated intent.
10. Incorporation by Reference. To the extent not inconsistent with the
terms of this Agreement, Article V of the C&D Agreement shall be incorporated
herein by reference.
In Witness Whereof, the parties have caused this Agreement to be duly
executed as of this _______ day of _______, 199__.
Nu Skin International, Inc.
By: /s/ Steven J. Lund
Name: Steven J. Lund
Title:
Nu Skin USA, Inc.
By: /s/ Keith Halls
Name: Keith Halls
Title:
EX-10.40
NU SKIN
INTERNATIONAL, INC.
AND
BIG PLANET, INC.
LICENSING
AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................1
1.1 "Agreement".................................................1
1.2 "Bonus Payments"............................................2
1.3 "BP Independent Representative".............................3
1.4 "BP Sales Compensation Plan"................................3
1.5 "Business Information"......................................2
1.6 "Distributor Agreement" ....................................2
1.7 "Distributor Lists".........................................2
1.8 "Independent Distributor Network" ..........................2
1.9 "Independent Representative Agreement"......................2
1.10 "Licensed Property".........................................3
1.11 "Net Revenue"...............................................3
1.12 "NSI Independent Distributor"...............................3
1.13 "Products"..................................................3
1.14 "Proprietary Information"...................................3
1.15 "Territory".................................................4
ARTICLE II GRANT OF LICENSE AND PARTIAL ASSIGNMENT OF
OBLIGATIONS; LICENSE FEES......................................4
2.1 Assignment of Big Planet Independent Representatives........4
2.2 Grant of License............................................4
2.3 NSI's Interest in Licensed Property.........................4
2.4 Recitals of Value of Licensed Property......................5
2.5 Warranty of Title...........................................5
2.6 Modifications...............................................5
2.7 Scope of License............................................5
2.8 License Fee.................................................5
ARTICLE III COMPUTATION AND PAYMENT TERMS..................................5
3.1 Statement of Net Revenues...................................6
3.2 License Fee.................................................6
3.3 Records.....................................................6
3.4 Payments to NSI.............................................6
3.5 Default Rate................................................6
ARTICLE IV CERTAIN OBLIGATIONS OF THE PARTIES UNDER
THE AGREEMENT..................................................7
4.1 Certain Obligations, Rights and Duties of NSI...............7
4.2 Certain Obligations, Rights and Duties of BP................7
ARTICLE V GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS...................7
5.1 Compliance with Laws........................................7
5.2 Compliance with Licensed Property...........................8
ARTICLE VI TERM AND TERMINATION...........................................8
6.1 Term and Termination........................................8
6.2 Termination for Cause.......................................8
6.3 Termination for Insolvency..................................8
6.4 Survival of Obligations.....................................9
6.5 Reversion of Rights.........................................9
ARTICLE VII INFRINGEMENT; INDEMNIFICATION..................................9
ARTICLE VIII NATURE OF RELATIONSHIP........................................10
ARTICLE IX CONFIDENTIALITY...............................................10
ARTICLE X MISCELLANEOUS.................................................11
10.1 Assignment.................................................11
10.2 Force Majeure..............................................11
10.3 Governing Law and Dispute Resolution.......................11
10.4 Waiver and Delay...........................................12
10.5 Notices....................................................12
10.6 Integrated Contract........................................13
10.7 Modifications and Amendments...............................13
10.8 Enforceability.............................................13
10.9 Counterparts and Headings..................................13
LICENSING AGREEMENT
THIS LICENSING AGREEMENT is effective the 1st day of April, 1998,
between Nu Skin International, Inc., a Utah corporation, ("NSI"), and Big
Planet, Inc., a Utah corporation ("BP"). NSI and BP may collectively be referred
to as the "Parties."
W I T N E S S E T H
A. NSI is engaged in the design, production and marketing of products and
related sales aids, for multi-national distribution through a network of
independent distributors. NSI possesses essential direct selling industry
know-how, proprietary information and competitive advantages that BP desires to
utilize for its commercial activities.
B. BP desires to make use of such know-how, information and competitive
advantages in the United States, Canada and their territories through the
licensed use of NSI's Licensed Property (as defined below) to promote the sale
of BP's products, services, sales aids and other commercial activities in the
direct selling industry.
C. NSI is willing to license to BP certain information pursuant to the terms and
conditions of this Licensing Agreement.
NOW THEREFORE, in consideration of the mutual promises, covenants, and
warranties hereinafter set forth and for other valuable consideration, the
sufficiency of which is hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following words and terms shall
have the meaning assigned to them in this Article I:
1.1 "Agreement" shall mean this Licensing Agreement, together with any
attached exhibits and schedules, as the same may be modified, amended or revised
from time to time pursuant to Section 10.7.
1.2 "Bonus Payments" shall mean, for any BP Independent Representative,
all monetary obligations due to such Representative under the terms of the BP
Sales Compensation Plan.
1.3 "BP Independent Representative" shall mean a person or business
entity that has executed a BP Independent Representative Agreement with BP to
sell Products as of the effective of this Agreement or during the term of this
Agreement.
1.4 "BP Sales Compensation Plan" shall mean the method BP employs to
calculate Bonus Payments earned by BP Independent Representatives.
1.5 "Business Information" shall mean any information that NSI elects
to provide to BP hereunder, including without limitation, any commercial or
business information, lists, marketing or customer service methods, marketing
surveys, processes, specifications, quality control reports, drawings,
photographs, or any other information owned by NSI , whether or not considered
proprietary, relating to NSI's network of NSI Independent Distributors,
Distributor Lists, NSI's sales compensation plan or other valuable commercial
information related to the direct selling industry and NSI.
1.6 "Distributor Agreement" shall mean, for any NSI Independent
Distributors, his/her contract with NSI by which NSI authorizes the NSI
Independent Distributor to distribute its products.
1.7 "Distributor Lists" shall mean any and all individual or
accumulated names, addresses, identification numbers, sponsor names and/or
similar lists of all present or future NSI Independent Distributors that NSI
elects to provide to BP hereunder.
1.8 "Independent Distributor Network" shall mean the network of NSI
Independent Distributors and BP Independent Representatives that executed either
a Distributor Agreement or Independent Representative Agreement.
1.9 "Independent Representative Agreement" shall mean, for any BP
Independent Representative, his/her contract with BP by which BP authorizes the
BP Independent Representative to distribute BP Products.
1.10 "Licensed Property" shall mean the Proprietary Information,
Distributor Lists and Business Information that NSI elects to provide to BP
hereunder.
1.11 "Net Revenue" or "Net Revenues" shall mean, for any period, the
number of Products sold by BP during such period, multiplied by BP's then
current selling price to its customers less costs, applicable sales taxes,
returns, or refunds reasonably accepted and credited by BP during such period.
1.12 "NSI Independent Distributors" shall mean a person or business
entity that has executed an NSI distributor agreement for the purchase and
resale of NSI products.
1.13 "Products" shall mean those goods, services and sales aids that
carry an assigned point value or other fixed amount of compensation under the
terms of the BP Sales Compensation Plan.
1.14 "Proprietary Information" shall mean, without limitation, all
information other than information made available to the public or expressly
designated by NSI in writing as non-confidential that NSI elects to provide BP
hereunder, regardless of the form in which it is disclosed, relating in any way
to the following property owned by NSI or which NSI has been licensed to use or
sub-license: (1) proprietary technical information; (2) information respecting
actual or potential customers or customer contacts and customer sales
strategies, names, addresses, phone numbers, identification numbers, database
information and its organization, unique business methods; (3) market studies,
penetration data, customers, products, contracts, copyrights, computer programs,
applications, technical data, licensed technology, patents, inventions,
procedures, methods, designs, strategies, plans, liabilities, assets, cost
revenues, sales costs, production costs, raw material sources and other market
information; (4) other sales and marketing plans, programs and strategies; (5)
trade secrets, processes and formulae with respect to manufacturing, assembly,
design or processing products and any component, part or manufacture thereof;
(6) profits, organization, employees, agents, representatives, Distributor
Lists, suppliers, and services; (7) other business and commercial practices in
general relating directly or indirectly to the foregoing; and, (8) computer
disks or other records or documents, originals or copies, containing in whole or
in part any of the foregoing.
1.15 "Territory" shall mean the United States of America, Canada and
their respective territories.
ARTICLE II
GRANT OF LICENSE AND; LICENSE FEES
2.1 Assignment of Big Planet Independent Representatives. NSI
acknowledges that BP and the BP Independent Representatives have executed
Independent Representative Agreements that detail the rights, duties and
obligations of the parties. In consideration for the licenses granted in this
Agreement, Big Planet sells, assigns, and transfers to NSI all its right, title,
interest, duties and obligations in and to the Independent Representative
Agreements with the BP Independent Representatives. The Big Planet
Representatives shall become part of the Independent Distributor Network, which
is exclusively owned by NSI and is licensed to BP hereunder, with all concurrent
proprietary rights therein.
2.1.1 As owner of the BP Independent Representatives, NSI
licenses to BP and BP assumes the obligation to perform all of the
duties and obligations required under the Independent Representative
Agreement with BP Independent Representatives, including the obligation
to make commission and bonus payments to the Independent
Representatives and BP shall remain liable at all times for such
payments on a monthly basis pursuant to the terms of BP's sales
compensation plan for BP Independent Representatives.
2.2 Grant of License. Subject to the terms and conditions of this
Agreement, NSI hereby grants to BP a non-exclusive license to use the Licensed
Property to sell Products in the Territory; provided that all such uses shall
comply in all material respects with the terms of this Agreement and; provided
further that BP shall not grant any right, title, use or sublicense to the
Licensed Property except as permitted in this Agreement in the ordinary course
of business. The license to use the Licensed Property shall be limited to the
sale of Products in the Territory. BP agrees not to use the Licensed Property or
to conduct business outside of the Territory without the prior written consent
of NSI.
2.3 NSI's Interest in Licensed Property. NSI hereby retains legal title
to the Licensed Property for all purposes, including but not limited to, the
bringing or defending of any legal action in the Territory which it deems
reasonable to protect its rights therein. BP agrees to assist NSI in any
reasonable manner to protect NSI's rights in the Licensed Property. NSI shall
reimburse BP for any reasonable out-of-pocket costs incurred by BP in providing
such assistance.
2.4 Recitals of Value of Licensed Property. BP recognizes and agrees
that NSI has expended considerable time, effort and resources to develop,
maintain and enhance the Licensed Property. BP further agrees it will derive a
considerable benefit from its use of the Licensed Property in the Territory and
from NSI's efforts and expenditures respecting the Licensed Property.
2.5 Warranty of Title. NSI hereby warrants and represents that it is
the sole and exclusive owner of the Licensed Property and that to the best of
its knowledge no claim exists or has been made contesting the ownership and
title of the Licensed Property.
2.6 Modifications. BP shall not attempt to modify any or all of the
Licensed Property without the express, prior written consent of NSI.
2.7 Scope of License. During the term of this Agreement, the Licensed
Property shall be used by BP to sell or distribute technology products and
services, whether hardware or software, that either are, or a function of,
telecommunications, paging, internet access, internet service, on-line
education, unified communication systems, and internet commerce. Any Products
sold by BP shall not directly compete with the existing or planned products,
product categories or services of Nu Skin, IDN or Pharmanex ("Nu Skin Products")
at the time of BP's introduction of said product or service. If any Product does
directly or substantially compete with the Nu Skin Products, then BP may only
sell said products or service with the prior written consent of NSI.
2.8 License Fee. As compensation for the licenses granted pursuant to
the terms of this Agreement, BP shall pay to NSI a license fee equal to one
percent (1%) of its Net Revenue ("License Fee").
ARTICLE III
COMPUTATION AND PAYMENT TERMS
3.1 Statement of Net Revenues. Within thirty (30) days following the
close of each month, BP shall deliver to NSI, by electronic transmission or such
other medium as the Parties shall agree to from time to time, a statement of
BP's Net Revenues during such month. Upon the written request of NSI, BP shall
provide sales reports and such other information as NSI may reasonably request
from time to time (the "Detailed Sales Report"), but no more than four times per
year.
3.2 License Fee. The procedures for payment of the License Fee payable
hereunder are as follows:
3.2.1 Within thirty (30) days following the delivery of the
statement of Net Revenues("Payment Date") , BP shall deliver to NSI,
the License Fee, as calculated by BP .
3.2.2 For purposes of computing the License Fee, Products
shall be considered sold when recognized for accounting purposes as a
sale by BP based on generally accepted accounting principles.
3.3 Records. Each Party shall keep complete and accurate records of its
compliance with its obligations under this Agreement which shall be open to
inspection by authorized representatives of the other Party at any reasonable
time during business hours, but no more than once a quarter and so long as the
inspection does not interfere with normal business operations.
3.4 Payments to NSI. Payments made by BP to NSI under this Agreement
shall be payable in United States Dollars. Payments shall be made either
directly to NSI in immediately available funds by wire transfer to an account
designated by NSI or by such other reasonable means of payment acceptable to
NSI.
3.5 Default Rate. Without limiting any of the Parties other rights and
remedies under this Agreement, undisputed amounts outstanding under the terms of
this Agreement not paid within sixty (60) days from the date due and payable,
shall bear interest at the prime interest rate as reported in the western
edition of the Wall Street Journal as of the Payment Date plus two percent (2%)
for the full period outstanding.
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT
4.1 Certain Obligations, Rights and Duties of NSI. NSI agrees that, in
addition to its other obligations under this Agreement, NSI will maintain and
provide support for the services provided by NSI pursuant to the Management
Services Agreement between the Parties effective as of April 1, 1998. NSI
agrees, among other things: (1) to maintain a computer system, including
hardware, software, data links, computer peripherals, printers, etc. to
adequately fulfill NSI's obligations hereunder; (2) to provide necessary
training and support to BP relating to the BP Independent Representatives,
including information relating to training methods, motivational strategies,
convention and event planning, technical policies and procedure knowledge, etc;
(3) to maintain any record or any other information related to Bonus Payments
that BP may reasonably request; and (4) to perform any other function or provide
the necessary support to comply with the terms of this Agreement.
4.2 Certain Obligations, Rights and Duties of BP. In addition to its
other obligations under this Agreement BP agrees, among other things: (1) to
maintain, at its sole cost and expense, such facilities and places of business
within the Territory necessary to effect the purposes and intentions of this
Agreement and to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting, legal and such similar expenses,
relating to the business of BP, unless otherwise agreed to in writing by the
Parties; (2) to manage its business affairs in such a reasonable manner that the
reputation of NSI is not materially damaged; (3) to employ commercially
reasonable efforts to comply with all applicable laws and industry standards;
and (4) to employ commercially reasonable efforts to monitor and supervise the
activities of BP Independent Representatives.
ARTICLE V
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
5.1 Compliance with Laws. Each party agrees to refrain from any action
that will cause the other party to be in violation of any applicable law,
regulation, or ordinance of any jurisdiction in the Territory or elsewhere or
any international convention or bilateral or multilateral treaty to which the
United States is a signatory, including, without limitation, the U.S. Foreign
Corrupt Practices Act of 1977, the U.S. Export Control Laws, and the U.S.
Anti-Boycott laws.
5.2 Compliance of Licensed Property. NSI agrees to take, or cause to be
taken, at its sole cost and expense, all actions necessary to ensure the
compliance of the Licensed Property with applicable laws, regulations and
ordinances in the Territory, provided, however, BP is responsible for compliance
with all laws, regulations and ordinances applicable to BP. NSI agrees to keep
BP informed of its progress in obtaining all such government approvals.
ARTICLE VI
TERM AND TERMINATION
6.1 Term. NSI grants to BP a perpetual license which shall commence on
the effective date of April 1, 1998. BP shall pay NSI a monthly License Fee that
will allow it to retain a perpetual license or until it is terminated as set
forth in this Section 6. Upon termination of the Agreement, the obligation to
pay the License Fee shall terminate.
6.2 Termination for Cause. In the event that either party hereto
materially or repeatedly defaults on the performance of any of its duties or
obligations under this Agreement, which default shall not be substantially cured
within sixty (60) days after written notice is given to the defaulting party
specifying the default, then the party not in default may, by giving written
notice thereof to the defaulting party, terminate this Agreement as of a date
specified in such notice of Termination.
6.3 Termination for Insolvency. In the event that either party hereto
becomes or is declared insolvent or bankrupt, is the subject of any proceedings
related to its liquidation, insolvency or for the appointment of a receiver or
similar action, makes an assignment for the benefit of all or substantially all
of its creditors, or enters into an agreement as to the composition, extension,
or readjustment of all or substantially all of its obligations, then the other
party hereto may, by giving written notice to such party, terminate this
Agreement as of a date specified in such notice of termination.
6.4 Survival of Obligations. The obligations of the Parties to pay any
sums which are due and payable as of the expiration or termination of this
Agreement and their obligation under Section Article VII and Article IX hereof
shall survive the expiration or termination of this Agreement. If the date of
termination is prior to the expiration of the Initial Term or a succeeding term,
BP shall only be obligated to pay monies due as of the date of termination and
not the remainder of any term.
6.5 Reversion of Rights. Upon termination of this Agreement, all rights
and licenses herein granted to BP shall immediately cease and shall revert to
NSI, and BP shall cease using any Licensed Property or representing to any third
party that it has any right in or to Licensed Property.
ARTICLE VII
INFRINGEMENT; INDEMNIFICATION
NSI hereby represents and warrants that, as of the date hereof, there
are no infringement or misappropriation suits pending or filed or, to its
knowledge, threatened against NSI within the Territory that relate to the
Licensed Property and NSI is not presently aware of any such infringement or
misappropriation. NSI shall indemnify and hold BP harmless from and against all
claims, actions, suits, proceedings, losses, liabilities, costs, damages and
attorneys' fees in respect of a third party claim alleging infringement or
misappropriation by BP in respect of its use of the Licensed Property in the
Territory; provided that BP shall give NSI prompt written notice of any claim,
action, suit or proceeding and without limiting the generality of Section 2.3
hereof, shall cooperate with NSI in the defense of any such claim, action, suit
or proceeding. NSI shall have the right to select counsel in any such claim,
action, suit or proceeding. In the event that any such claim, action or
proceeding is successful, NSI shall use reasonable efforts to make such changes
in the Licensed Property to permit BP to continue to make use of the Licensed
Property free and clear of all infringement and misappropriation. BP shall give
NSI prompt written notice of any infringement or misappropriation of the
Licensed Property by any third party. NSI shall have the sole right to initiate
any and all legal proceedings against any such third party and, without limiting
the generality of Section 2.3 hereof; BP shall cooperate with NSI in the pursuit
of any such proceeding. NSI shall retain any damage award obtained from such
third party. If NSI elects not to pursue any infringement, BP shall have the
right to do so at its own expense and shall retain any damage award obtained
from any third party.
ARTICLE VIII
NATURE OF RELATIONSHIP
The relationship of BP and NSI shall be and at all times remain, respectively,
that of Licensee and Licensor. Nothing contained or implied in this Agreement
shall be construed to constitute either party as the legal representative or
agent of the other or to constitute or construe the Parties as partners, joint
venturers, co-owners or otherwise as participants in a joint or common
undertaking. Neither party is authorized to conclude any contract or agreement
or make any commitment, representation or warranty that binds the other or
otherwise act in the name of or on behalf of the other.
ARTICLE IX
CONFIDENTIALITY
All confidential information or other non-public or proprietary business or
technical information owned or used by NSI or BP and supplied to or acquired by
the other whether in oral or written form (the "Confidential Information") shall
be supplied and acquired in confidence and shall be solely for the use of the
receiving party pursuant to this Agreement and such party shall keep the
Confidential Information confidential and shall not disclose the same, at any
time during the term of this Agreement or after its termination, except to its
employees, or its affiliates or its affiliates' employees for the purposes of
its business in accordance with this Agreement and except as may be required by
law; provided that if the receiving party determines that a disclosure is
required by law, the receiving party shall notify the disclosing party in order
to give the disclosing party an opportunity to seek an injunction or otherwise
attempt to keep the Confidential Information confidential. The receiving party
shall, at the request of the disclosing party, destroy or return the
Confidential Information without retaining copies if, as and when this Agreement
is terminated or expires. For purposes of this Agreement, the term "Confidential
Information" shall not include information or documents that (i) become
generally available to the public other than as a result of a disclosure by the
receiving party, (ii) were otherwise lawfully available to the receiving party,
or (iii) were generated independently by the receiving party. The provisions of
this Article shall survive termination of this Agreement for a period of five
(5) years.
ARTICLE X
MISCELLANEOUS
10.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party, which shall not be unreasonably
withheld. Any such attempted assignment, without the written consent provided
herein, shall be void and unenforceable.
10.2 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event of
force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
10.3 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah. Any
action brought to enforce this Agreement must be brought in Utah County, Utah.
The parties consent to the personal jurisidiction of said court within the State
of Utah and waive any objection to improper venue. In the event of legal action
between the parties, reasonable attorney's fees (including inside counsel
expenses) shall be awarded to the prevailing party.
10.4 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
10.5 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return electronic communication or signal that the message has been received, or
if mailed, ten (10) days after dispatch by registered airmail, postage prepaid,
from any post office addressed as follows:
If to BP: Richard King, President
Big Planet, Inc.
75 West Center Street
Provo, UT 84601
TEL: (801) 345-1200
FAX: (801) 345-1299
If to NSI: General Counsel
Nu Skin International, Inc.
75 West Center Street,
Provo, Utah 84601, U.S.A.
TEL: (801) 345-5000
FAX: (801) 345-5999
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
10.6 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
10.7 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
10.8 Enforceability. To the extent that any provision of this Agreement
is (or in the opinion of counsel mutually acceptable to both Parties would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
10.9 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized representatives as of the day and
year first above written.
NU SKIN INTERNATIONAL, INC. BIG PLANET, INC.
BY: __________________________ BY: __________________________
Steven J. Lund Richard W. King
ITS: President ITS: President
EX-10.41
MANAGEMENT SERVICES AGREEMENT
between
NU SKIN INTERNATIONAL MANAGEMENT GROUP, INC.
and
BIG PLANET, INC.
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS...............................................1
1.1 "Agreement"...............................................1
1.2 "Allocable Expense" ......................................1
1.3 "Consulting Personnel"....................................1
1.4 "Direct Expenses".........................................1
1.5 "Management and Consulting Service"...................... 2
ARTICLE 2 MANAGEMENT AND CONSULTING SERVICES........................2
2.1 Services..................................................2
2.2 Performance of Services. .................................2
2.3 Approval of Services......................................2
2.4 Revision of Services......................................3
ARTICLE 3 COMPENSATION OF SERVICE PROVIDER..........................3
3.1 Compensation for Services by Consulting Personnel.........3
3.2 Determination of Allocable Expenses.......................3
3.3 Payment and Invoicing.....................................3
3.4 Due Date..................................................3
3.5 Delinquent Payments.......................................3
ARTICLE 4 PREPARATION AND SHARING OF REPORTS AND INFORMATION........4
4.1 Periodic Reports on Management and Consulting Services....4
4.2 Sharing of Information and Witnesses......................4
ARTICLE 5 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION................4
ARTICLE 6 TERM......................................................5
ARTICLE 7 TERMINATION...............................................5
ARTICLE 8 EFFECT OF TERMINATION.....................................6
8.1 Cessation of Rights.......................................6
8.2 Damages...................................................6
ARTICLE 9 COMPLIANCE WITH APPLICABLE LAWS...........................6
9.1 Compliance Generally......................................6
9.2 Authorizations............................................6
ARTICLE 10 GENERAL PROVISIONS........................................7
10.1 Assignment................................................7
10.2 Notices...................................................7
10.3 Waiver and Delay..........................................7
10.4 Force Majeure.............................................8
10.5 Governing Law and Dispute Resolution......................8
10.6 Integrated Contract.......................................8
10.7 Modifications and Amendments..............................8
10.8 Severability..............................................8
10.9 Counterparts and Headings.................................9
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made effective as of April 1,
1998 between Big Planet, Inc., a Utah corporation ("BP"), and Nu Skin
International Management Group, Inc., a Utah corporation ("NSIMG"). BP and NSIMG
shall hereinafter be collectively referred to as the "Parties" and each shall be
individually referred to as a "Party."
W I T N E S S E T H
WHEREAS, BP desires to obtain certain general and administrative
services from BP so that BP will not be required to duplicate these services,
and BP desires to obtain such services from NSIMG; NSIMG is willing to provide
these services to BP pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meaning set out below:
1.1 "Agreement" shall mean this Management Services Agreement between
BP and NSIMG, as the same may be modified, amended or revised from time to time.
1.2 "Allocable Expenses" shall mean all expenses incurred by NSIMG in
providing Management and Consulting Services other than Direct Expenses
including without limitation, the following: rent, utilities, telephone,
equipment, recruitment, office supplies, and other overhead expenses, certain
salary costs, payroll, benefits and expenses related to conventions, travel and
accommodations at anniversary events, telephones calls and counseling and
conference calls and meetings with BP managers and the independent distributors
of Nu Skin International, Inc., and the permitted use and appropriation of the
names and licenses of directors and executive officials of NSIMG or BP.
Allocable Expenses shall be calculated in accordance with the terms of this
Agreement.
1.3 "Consulting Personnel" shall mean employees of NSIMG or, with the
consent of BP, such other persons or entities as NSIMG may retain, hire, or
otherwise contract with for the provision of services on behalf of, or in
conjunction with, NSIMG.
1.4 "Direct Expenses" shall mean all expenses incurred in the provision
of Management and Consulting Services for BP, which expenses are incurred solely
for the benefit of BP, including, without limitation, certain salary costs,
benefits, business expenses, and travel expenses.
1.5 "Management and Consulting Services" shall include services
requested by BP that NSIMG has the capability of providing, and shall include
but not be limited to the following services: management, legal, financial,
distribution support/training, public relations, information technology,
commission and bonus calculations, SAP computer services as defined in attached
Exhibit "A", and operations administration. Any specific services estimated to
cost more then $____________ shall be requested by BP in writing.
ARTICLE 2
MANAGEMENT AND CONSULTING SERVICES
2.1 Services. NSIMG hereby agrees to provide Management and Consulting
Services to BP as BP may request from time to time, until termination of this
Agreement. BP agrees to reimburse and compensate NSIMG for Management and
Consulting Services in accordance with the applicable compensation and invoicing
provisions hereof.
2.2 Performance of Services. Unless otherwise agreed between the
Parties, the Management and Consulting Services shall be provided through
Consulting Personnel, as requested by BP. The Management and Consulting Services
provided by NSIMG will be performed by appropriately qualified and experienced
personnel. Upon the reasonable request of BP, NSIMG will not use any personnel
for services under this Agreement that are deemed by BP to be incompetent,
careless, or unqualified to perform the work assigned, or that is otherwise
unsatisfactory to BP.
2.3 Approval of Services. Unless BP disputes any invoices delivered to
BP hereunder by written notice within one hundred eighty (180) days of the date
of the invoice, BP hereby agrees that, by paying any undisputed invoices as
provided in Article 3 herein, BP shall be deemed to have approved the nature and
extent of the costs and expenses invoiced. If BP disputes an invoice in a timely
manner, then within a mutually agreeable time NSIMG shall permit BP to have
access to audit NSIMG's records and books of account for the purpose of
determining whether the appropriate expenses have been invoiced to BP. The audit
shall be conducted by a firm of certified public accountants chosen by BP. Any
auditors shall be required to execute a non-disclosure agreement with NSIMG that
protects NSIMG's rights to confidential information and restricts the
information provided by the auditor to BP to only that information necessary to
indicate whether BP has been properly billed. If the auditors' report reveals a
discrepency, then within thirty (30) days the party in whose favor the error was
made will pay the amount of the error to the other party. If the auditors report
reveals that NSIMG owes BP a refund of an amount greater than five percent (5%)
of the total invoiced amount during the audit period, then the refund shall bear
interest at eight percent (8%) and NSIMG shall reimburse BP for the cost of the
audit.
2.4 Revision of Services. For greater certainty, the Parties agree that
any one or more of the specific services to be provided by NSIMG to BP, as
described in this Agreement, may be reasonably expanded or curtailed by the
Parties if mutually agreed to in writing by the Parties.
ARTICLE 3
COMPENSATION OF SERVICE PROVIDER
3.1 Compensation for Management and Consulting Services. BP shall pay
NSIMG the total of all Direct Expenses and Allocable Expenses plus three percent
(3%) ("Fee") of the total of such Direct Expenses and Allocable Expenses. The
Fee may be adjusted from time to time by mutual agreement of the Parties. Unless
otherwise agreed between the Parties, Allocable Expenses shall not, for any
billing period, exceed one and one-half percent (1.5%) of BP's revenues for such
billing period.
3.2 Determination of Allocable Expenses. Allocable Expenses for any
period shall be equal to the total Allocable Expenses incurred by NSIMG for such
period multiplied by the percentage of such Allocable Expenses allocable to BP
pursuant to and the then applicable time allocation study prepared pursuant to
Section 4.1 hereof.
3.3 Payment and Invoicing. Within thirty (30) days after the end of
each month, NSIMG shall prepare and deliver an invoice to BP setting forth the
fees due and owing under this Agreement during such month.
3.4 Due Date. Payments due under this Agreement shall be due and
payable within sixty (60) days after the date of receipt of the invoice for such
payments ("Payment Date").
3.5 Delinquent Payments. Without limiting any of the Parties' other
rights and remedies under this Agreement, any amounts outstanding under the
terms of this Agreement that are not paid by the Payment Date, shall bear
interest at the prime interest rate as reported in the western edition of the
Wall Street Journal, on the Payment Date, plus two percent (2%) for the full
period outstanding. Whether or not interest charges are actually levied is at
the discretion of NSIMG.
ARTICLE 4
PREPARATION AND SHARING OF REPORTS AND INFORMATION
4.1 Periodic Reports on Management and Consulting Services. BP may,
upon thirty (30) days written notice to NSIMG, request operations reports of
NSIMG setting forth specific information regarding the Management and Consulting
Services provided under this Agreement and for such time periods as BP shall
reasonably request. NSIMG shall maintain accurate and ongoing records of the
allocation of time of Consulting Personal, including executive management and
other employees rendering services to BP. NSIMG shall provide full access to BP
and its auditors to all records and documentation relating to the Management and
Consulting Services and any other services provided under this Agreement, and
will permit BP, at its expense, to make any copies as may be reasonably
requested. NSIMG has prepared a study accurately reflecting the allocation of
time spent by NSIMG's internal department and Consulting Personnel on the
services provided to BP under this Agreement. The study shall be updated on a
quarterly basis. BP may request a copy of the then applicable time application
study from NSIMG upon thirty (30) days written notice. All of the information,
reports and studies referenced in this Section 4.1 shall be referred to
collectively as the "Information".
4.2 Sharing of Information and Witnesses. At all times during the term
of this Agreement and for a period of three years thereafter, each Party shall
maintain at its principal place of business full, complete and accurate records
of the Information. The parties shall provide to each other reasonable access to
the Information. In the event of any claims made against a Party, the other
Party shall make available Information and/or witnesses as reasonably requested.
The Party providing Information or making available witnesses shall be entitled
to receive from the other Party, upon presentation of invoices therefore,
payment for its reasonable out-of-pocket expenses incurred in connection
therewith. Nothing in this Agreement shall require either Party to reveal to the
other any information that would violate such Party's written and enforceable
duty of confidence to a third party from whom or which such information was
obtained; under such circumstances, however, the parties shall work together to
obtain a release of such information without violation of such duty of
confidence.
ARTICLE 5
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
All trade secrets, proprietary technology, know-how or other non-public
or proprietary business or technical information owned or used by NSIMG or BP
and supplied to or acquired by the other whether in oral or documentary form
(the "Confidential Information") shall be supplied and acquired in confidence
and shall be solely for the use of the receiving party pursuant to this
Agreement and such party shall keep the Confidential Information confidential
and shall not disclose the same, at any time during the term of this Agreement
or for a period of seven (7) years after its termination, except to its
employees for the purposes of its business in accordance with this Agreement and
except as may be required by law; provided that if the receiving party
determines that a disclosure is required by law, the receiving party shall
notify the disclosing party in order to give the disclosing party an opportunity
to seek an injunction or otherwise attempt to keep the Confidential Information
confidential. The receiving party shall, at the request of the disclosing party,
destroy or return the Confidential Information without retaining copies if, as
and when this Agreement is terminated or expires. For purposes of this
Agreement, the term "Confidential Information" shall not include information or
documents that (i) become generally available to the public other than as a
result of a disclosure by the receiving party, (ii) was otherwise lawfully
available to the receiving party, or (iii) was generated independently by the
receiving party. The provisions of this Article shall survive termination of
this Agreement.
ARTICLE 6
TERM
This Agreement shall be effective beginning April 1, 1998, and shall be
for an initial term of five (5) years ("Initial Term") unless otherwise
terminated pursuant to Article 7. This Agreement shall be renewed automatically
upon expiration of the Initial Term for successive one year terms, unless
otherwise terminated as provided in Article 7.
ARTICLE 7
TERMINATION
7.1 This Agreement may be terminated by either Party without cause upon
ninety (90) days written notice to the other Party, or at any time after the
occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or
other action (i) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, compensation or other relief with respect to
it or its debts, or (ii) seeking appointment of a receiver, trustee,
custodian or other similar action; or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment desribed above, or (B) remains undismissed,
undischarged or unbonded for a period of 90 days. Events described in
clauses (a) and (b) of Section 7.1(a) shall be referred to as a
?Bankruptcy Event?. If a Bankruptcy Event occurs, all amounts owing
under this Agreement shall become immediately due and payable, without
any notice thereof; or
(c) if the other Party causes or allows a judgment in excess
of Twenty-Five Million dollars ($25,000,000.00) to be entered against
it or involuntarily allows a lien, security interest, or other
encumbrance to attach to its assets which secures an amount in excess
of Twenty-Five Million Dollars ($25,000,000.00).
7.2 This Agreement may be immediately terminated by either Party, if
the other Party is in default in the performance of any material obligation
under this Agreement and such default has not been cured within sixty (60) days
after receipt of written notice of such default by the defaulting Party; or
7.3 BP may terminate any specific service of the Management or
Consulting Services by providing written notice thereof to NSIMG not less than
sixty (60) days prior to the date for cessation of said service. NSIMG may
discontinue providing any specific part of the Management and Consulting
Services by providing written notice to BP not less than sixty (60) days prior
to the desired date for cessation of said service.
ARTICLE 8
EFFECT OF TERMINATION
8.1 Cessation of Rights. Upon expiration or termination (collectively,
the "Termination") of this Agreement for any reason whatsoever, all rights and
obligations of the Parties hereunder shall cease, provided, however, that upon
Termination of this Agreement, no Party shall be released from its obligations
to pay monies due or to become due as of the date of Termination or to complete
any unfulfilled obligations under this Agreement, and the provisions of Article
5 shall survive such Termination. If the date of Termination is prior to the
expiration of the Initial term or a succeeding term, BP shall only be obligated
to pay monies due as of the date of Termination and not for the remainder of any
term.
8.2. Damages. Except provided in paragraph 8.1, upon Termination of
this Agreement for any reason, no Party shall be liable or obligated to the
other Party with respect to any payments, future profits, exemplary, special or
consequential damages, indemnifications or other compensation regarding such
termination, and each Party hereby waives and relinquishes any rights, pursuant
to law or otherwise, to any such payments, indemnifications or compensation.
ARTICLE 9
COMPLIANCE WITH APPLICABLE LAWS
9.1 Compliance Generally. In the performance of their obligations under
this Agreement, the Parties shall, at all times, strictly comply with all
applicable laws, regulations and orders of the countries and jurisdictions in
which they operate.
9.2 Authorizations. Each Party shall, at its own expense, make, obtain
and maintain in force at all times during the term of this Agreement, all
filings, registrations, reports, licenses, permits and authorizations required
under applicable law, regulations or orders in order for it to perform its
obligations under this Agreement.
ARTICLE 10
GENERAL PROVISIONS
10.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that no Party may assign this Agreement or any rights or obligations
hereunder, whether by operation of law or otherwise, without the prior written
consent of the other Party which shall not be unreasonably withheld. Any
attempted assignment by any Party without the prior written consent of the other
Party shall be void and unenforceable.
10.2 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile to the facsimile number as may be provided
from time to time by each Party to the other, at the time that receipt thereof
has been confirmed by return electronic communication signal that the message
has been received, or if sent by reputable international courier service three
(3) days after dispatch addressed to the Parties at the addresses outlined
hereafter. Either Party may change its facsimile number or address by a notice
given to the other Party in the manner set forth as follows:
If to NSIMG: Attn.: Secretary
Nu Skin International, Inc.
75 West Center
Provo, Utah 84601 USA
(801) 345-5500
(801) 345-5999 Fax
If to BP: Attn.: President
Big Planet, Inc.
Provo, Utah 84601 USA
(801) 345-7000
(801) 345-1299 Fax
10.3 Waiver and Delay. No waiver by any Party of any breach or default
in performance by any other Party, and no failure, refusal or neglect of any
Party to exercise any right, power or option given to it hereunder or to insist
upon strict compliance with or performance of the other Party's obligations
under this Agreement, shall constitute a waiver of the provisions of this
Agreement with respect to any subsequent breach thereof or a waiver by any Party
of its right at any time thereafter to require exact and strict compliance with
the provisions thereof.
10.4 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a Party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a Party. If an event of
force majeure should occur, the affected Party shall promptly give notice
thereof to the other Party and such affected Party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
10.5 Governing Law and Dispute. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah. Any action brought
to enforce this Agreement must be brought in Utah County, Utah. The parties
consent to the personal jurisdiction of said court within the State of Utah and
waive any objection to improper venue. In the event of legal action between the
parties, reasonable attorney's fees (including inside counsel expenses) shall be
awarded to the prevailing party.
10.6 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understanding (both oral and written) of the Parties.
10.7 Modifications and Amendments. No modification or amendment of this
Agreement shall be binding unless it is in writing and executed by both Parties.
10.8 Severability. To the extent that any provision of this Agreement
is (or, in the opinion of counsel mutually acceptable to both Parties, would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction relevant to the Parties, such provision shall be deemed ineffective
only to the extent of such prohibition, invalidation or unenforceability in that
jurisdiction, and only within that jurisdiction. Any prohibited, judicially
invalidated or unenforceable provision of this Agreement will not invalidate or
render unenforceable any other provision of this Agreement, nor will such
provision of this Agreement be invalidated or rendered unenforceable in any
other jurisdiction.
10.9 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized representatives as of the day and
year first-above written.
NU SKIN INTERNATIONAL MANAGEMENT GROUP, INC.
By: ______________________
Name: Steven J. Lund
Its: President
BIG PLANET, INC.
By: ______________________
Name: Richard W. King
Its: President
EX-10.42
WAREHOUSE LEASE AGREEMENT
This Warehouse Lease Agreement ("Lease") is entered into on this day of
March, by and between Nu Skin International, Inc. ("Lessee") having a place of
business at 75 West Center Street, Provo, Utah 84061 and Aspen Investments,
Ltd., having a place of business at 75 West Center Street, Provo, Utah 84601
("Lessor"). The Lessor and Lessee are collectively hereinafter referred to as
the "Parties."
RECITALS
A. Lessor is the sole owner of the premises described below, having warehouse
space for lease in such premises.
B. Lessee is in the business of marketing and selling personal and health care
products and desires to lease warehouse and office space from Lessor.
AGREEMENT
In consideration of the mutual covenants contained herein, the Parties
agree as follows:
1. Leased Premises.
1.1 Lessor hereby leases to Lessee the premises ("Premises") located
at 180 East 1325 South, Provo, Utah 84601, commonly known as the
Nu Skin Warehouse.
1.2 The Premises shall be used as a warehouse and offices.
2. Term.
2.1 The term ("Term") of this Lease shall be two (2) years and shall
commence retroactively on February 1, 1996 and shall terminate
on February 1, 1998 unless otherwise renewed.
2.2 Lessee shall surrender the Premises to Lessor immediately upon
termination of this Lease.
3. Rent.
3.1 Lessee shall pay to Lessor as fixed rent for the term of this
Lease, the sum of Six Hundred Seventy Five Thousand and No/100
Dollars ($675,000.00) per year payable at the rate of Fifty Six
Thousand Two Hundred Fifty Dollars ($56,250.00) per month due on
the first day of each month.
3.2 Lessee acknowledges that the late payment by Lessee to Lessor of
rent or other sums due under this Lease will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of
which would be extremely difficult and impractical to ascertain.
In the event Lessee should fail to pay any installment of rent
or any other sum due under his Lease within 10 days after such
sum is due, Lessee shall pay to Lessor, as additional rent, a
late charge equal to 10 percent (10 %) of each installment or
sum. Waiver of the late charge with respect to any installment
or sum shall not be deemed to constitute a waiver with respect
to any subsequent installment or sum so due.
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4. Triple Net Lease. As provided hereafter, Lessee is responsible for the
payment of all taxes, utilities, insurance and maintenance incurred with
respect to the use of the leased Premises, and hereby releases and holds
Lessor harmless for the payment of the same.
5. Use.
5.1 Lessee shall use the Premises solely for the main and related
purposes of inventory storage, shipping, packaging and office
space. Lessee shall comply with all rules, regulations,
ordinances, statutes, and other lawful requirements of
governmental agencies, consistent with Lessee's use thereof.
5.2 Lessee shall not use or permit the Premises, or any part of the
building, to be used for any purposes other than those set forth
in this Lease. Lessee shall neither permit on the Premises any
act, sale, or storage that may be prohibited under standard
forms of fire insurance policies, or use the Premises for any
such purpose. In addition, no use shall be made or permitted to
be made that shall result in hazardous waste, or improper,
unlawful, or objectionable use, including sale, storage, or
preparation, of food, alcoholic beverages, or materials
generating an odor on the Premises.
6. Abandonment. Lessee shall not vacate or abandon the Premises at any time
during the Term of this Lease. If Lessee does vacate or abandon the
Premises or is dispossessed by process of law, any personal property
belonging to Lessee and left on the Premises shall be deemed abandoned
at the option of Lessor and shall become the property of Lessor.
7. Taxes.
7.1 Lessee shall pay prior to delinquency all taxes, assessments,
charges, and fees assessed against and levied upon the real
property as well as personal property including trade fixtures,
furnishings, equipment and all other personal property of Lessee
contained in the Premises or elsewhere. 7.2 Lessee shall pay the
total amount of an increase in real property taxes resulting
from any and all improvements of any kind whatsoever placed on
or in the Premises for the benefit of or at the request of
Lessee regardless of whether said improvements were installed of
construction either by Lessor or Lessee.
8. Utilities.
8.1 Heat and Air Conditioning - Lessee shall arrange for and pay all
heat and air conditioning needs throughout the year.
8.2 Electricity - Lessee shall provide for its own electricity
needs.
8.3 Janitorial - Lessee shall provide janitorial service and
maintain the Premises in a clean and orderly manner.
8.4 Water, Sewer, and Garbage - Lessee shall provide for hot and
cold water, sewer service and garbage service.
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8.5 Snow Removal - Lessee shall ensure the removal of snow in the
parking and walkway areas during applicable seasons. Lessee
shall further keep walkways salted and free from snow buildup.
9. Alterations, Modifications, and Repairs.
9.1 Lessee shall take good care of the Premises and shall not alter,
repair, or change the Premises, including, but not limited to
addition of cables, electrical wires, etc. that may damage the
walls, without the prior, express, and written consent of
Lessor.
9.2 All alterations, improvements, and changes that Lessee may
desire shall be done either by or under the direction of Lessor,
but at the expense of Lessee and shall become the property of
Lessor and remain on the Premises, except that at the option of
Lessor, Lessee shall, at its expense, remove from the Premises
all such alterations, improvements, and changes.
9.3 All damage or injury done to the Premises by Lessee, its agents
or employees, or any person who may be in or on the Premises
with the consent of Lessee shall be paid for by Lessee.
9.4 Lessee shall, at the termination of this Lease, surrender the
Premises to Lessor in as good condition or same condition as
when entered upon by Lessee except for ordinary wear and tear.
9.5 Lessor shall be responsible for making all routine repairs,
maintaining the landscape, and for performing routine
maintenance. Lessee shall permit Lessor and Lessor's agent to
enter the Premises at all reasonable times to inspect and
maintain the building and Premises, make repairs, alterations,
or additions to the Premises, or any portion of the building,
including the erection of scaffolding, props, or other
mechanical devices, to post notices of nonliability for
alterations, additions, or repairs, or to place on the premises
any usual or ordinary "For Sale" signs, without any rebate of
rent to Lessee or damages for any loss of occupation or quiet
enjoyment of the Premises. Lessor may place "To Let" or "to
Lease" signs wherever Lessor sees fit. Lessor and Lessor's
agents may, during the last-mention period, enter on the
Premises at reasonable hours, and exhibit them to prospective
tenants.
10. Insurance.
10.1 Lessee shall obtain and keep in force during the Term of this
Lease, a policy of comprehensive general liability insurance
insuring Lessee and Lessor (as an additional named insured
thereon) against any liability arising out of the ownership,
use, occupancy or maintenance of the premises. Such insurance
shall have a combined single limit of at least One Million
($1,000,000.00) dollars, including both liability and property
damage and insure against any liability for personal injury,
death or property damage, as set forth above, and shall be
written on and "occurrence basis." The limits of said insurance
shall not, however, limit the liability of the Lessee hereunder.
Lessee shall provide to Lessor a certificate of insurance and
keep said policy current.
11. Liability of Lessor.
11.1 Lessee will indemnify Lessor on account of any damage or injury
to any person, or to the goods of any person, arising from the
use of the Premises by Lessee, or arising from the failure of
Lessee to keep the Premises in good condition as provided in
this Lease.
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11.2 Lessor shall not be liable to Lessee for any damage by or from
any act or negligence of any other occupant of the same
building, or by any owner or occupant of adjoining or contiguous
property.
11.3 Lessee agrees to pay for all damage to the building, as well as
all damage or injury suffered by tenants or occupants of the
building caused by the misuse or neglect of the Premises by
Lessee.
12. Assignment and Sublease.
12.1 Lessee shall not assign any rights or duties under this Lease
nor sublet the Premises or any part of the Premises, nor allow
any other person to occupy or use the Premises without the
prior, express, and written consent of Lessor. A consent to one
assignment, sublease, or occupation or use by any other person
shall not be a consent to any subsequent assignment, sublease,
or occupation or use by another person. Any assignment or
subletting without consent shall be void.
12.2 This Lease shall not be assignable without the written consent
of Lessor.
13. Breach or Default.
13.1 The occurrence of any one or more of the following events shall
constitute a material default in breach of this Lease by Lessee:
13.1.1 Vacation or abandonment of the Premises. Vacation and
abandonment includes, but is not limited to, any absence
of Lessee from the Premises for 30 business days or
longer.
13.1.2 Failure by Lessee to make any payment required under
this Lease as and when due, where such failure shall
continue for a period of 15 days after written notice
from Lessor.
13.1.3 Failure by Lessee to observe or to perform any of the
covenants, conditions, or provisions of this Lease,
other than the making of any payment, where such failure
shall continue for a period of 15 days after notice of
such failure from Lessor or such additional period of
time as is reasonably necessary to cure such failure,
provided Lessee diligently prosecutes such cure.
13.2 In the event of any default by Lessee, in addition to any other
remedies available to Lessee at law or in equity, Lessor shall
have the immediate option to terminate this Lease and all rights
of Lessee under this Lease. In the event that Lessor shall so
elect to terminate this Lease, then Lessor may recover from
Lessee the worth at the time of the award of any unpaid rent
that was due and owing at the time of termination
13.3 In the event of any such default by Lessee, Lessor shall also
have the right, adhering to applicable legal processes, with or
without terminating this Lease, to reenter the demised premises
and remove all persons and property from the Premises. Such
property may be removed and stored in a public warehouse or
elsewhere at the cost of or on the account of Lessee.
13.4 In the event of any such default by Lessee, Lessor shall also
have the right, adhering to applicable legal processes, with or
without terminating this Lease, to reenter the Premises and to
relet them.
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14. Indemnification.
14.1 Lessee shall indemnify, defend, and hold Lessor harmless from
any and all claims and damages (including reasonable attorney
fees and costs) arising from Lessee's use of the Premises or the
conduct of its business or from any activity, work, or thing
done, permitted, or suffered by Lessee, in or about the Premises
and/or the building in which the Premises are located, unless
caused by the negligent acts of Lessor or Lessor's agents or
employees.
14.2 Lessee shall further indemnify, defend, and hold Lessor harmless
from any and all claims and damages (including reasonable
attorney fees and costs) arising from any breach or default in
any of the terms or conditions of this Lease, or arising from
any act of negligence, faulty, or omission of Lessee or Lessee's
agents, employees, or invitees, and from and against any and all
cost, reasonable attorney fees, expenses, and liabilities
incurred in or about such claim or any action or proceeding
brought on such claim.
15. General.
15.1 Governing Law. It is agreed that this Lease shall be governed
by, construed, and enforced in accordance with the laws of the
State of Utah.
15.2 Waivers. Waivers by Lessor of any breach of any covenant or duty
of Lessee under this Lease is not a waiver of a breach of any
other covenant or duty of Lessee, or of any subsequent breach of
the same covenant or duty.
15.3 Entire Agreement. This Lease shall constitute the entire
agreement between the parties. Any prior understanding or
representation of any kind preceding the date of this Lease
shall not be binding upon either party except to the extent
incorporated in this Lease Agreement.
15.4 Modification of Agreement. Any modification of this Lease or
additional obligation assumed by either party in connection with
this Lease shall be binding only if evidenced in a writing
signed by each party.
15.5 Notices. All notices, demands, or other writing in this Lease
provided to be given, made, or sent, or which may be given,
made, or sent, by either party to the other, shall be deemed to
have been fully given, made, or sent when made in writing and
either personally delivered or deposited in the United States
mail, return receipt requested, and addressed to the applicable
party at the address set forth at the beginning of this Lease.
15.6 Lessor covenants that no conveyances, encumbrances, assignment
or other change of interest of Lessor in the Premises whether
recorded or unrecorded, shall be binding upon Lessee.
15.7 Unless exempt under the rules and regulations of the Secretary
of Labor or other proper authority, this Lease is subject to
applicable laws and executive orders relating to equal
opportunity and non-discrimination in employment.
15.8 The conditions and provisions of this Lease shall inure to the
benefit of and be binding upon the parties; the personal
representatives, executors, administrators of Lessor; and the
receivers, trustees in bankruptcy, successors and assigns of
both Lessor and Lessee.
5
15.9 The invalidity or illegality of any provision of this Lease
shall not affect the remainder of this Lease.
IN WITNESS WHEREOF, the Parties hereto have executed this Lease on the
date first above written.
NU SKIN INTERNATIONAL, INC. ASPEN INVESTMENTS, LTD.
For Nu Skin International, Inc. the General
Partner for Aspen Investments, Ltd.
By: Michael D. Smith By: Keith Halls, a General Vice President
Its: General Counsel for Nu Skin International, Inc.
6
EX-10.43
LEASE AGREEMENT
This Lease Agreement (the "Lease") dated this 27th day of January,
1995, by and between Scrub Oak, Ltd., a Utah Limited Partnership (the
"Landlord") with a place of business at 75 West Center and Nu Skin
International, Inc. (the "Tenant") with a place of business at 75 West Center
Street, Provo, Utah 84601.
1. Premises. Landlord hereby leases to Tenant and Tenant hires from Landlord for
the term of this Lease upon the conditions set forth below certain commercial
property located at approximately 75 West Center Street, Provo, Utah,
("Premises") and more specifically described on Exhibit A. The lease of the
Premises is subject to all conditions, covenants and restrictions, reciprocal
easements and other matters that are now or that may hereafter become of record
with respect to the Premises.
2. Term. The term of this Lease shall be for twenty (20) years commencing on the
date first above written and ending twenty (20) years thereafter.
3. Rent. Tenant shall pay to Landlord as fixed rent for the first five (5) years
of this lease, the sum of One Million Six Hundred Eighty Thousand and No/100
Dollars ($1,680,000.00) per year payable at the rate of One Hundred Forty
Thousand and No/100 Dollars ($140,000.00) per month. All rent shall be payable
in advance in lawful money of the United States on or before the first business
day of each calendar month of the term, without demand therefore or any
deduction or offset, at the offices of Landlord located at the address set forth
above or such other place as the Landlord may direct by written notice given to
Tenant.
4. Triple Net Lease. As provided hereafter, Tenant is responsible for the
payment of all taxes, utilities, insurance and maintenance incurred with respect
to the use of the leased premises, and hereby releases and holds Landlord
harmless for the payment of the same.
5. Use of Premises. The Premises shall be used and occupied by Tenant solely for
the main and related purposes of office space. Tenant shall, at Tenant's
expense, comply promptly with all applicable statues, ordinances, rules,
regulations, orders and requirements in effect during the term of this Lease
regulating the use by Tenant of the Premises. Tenant shall not use or permit the
use of the Premises in any manner than will tend to create waste or a nuisance
or which shall tend unreasonably to disturb other tenants of the Building.
Notwithstanding any other provision of this Lease, Tenant shall not use, keep or
permit to be used or kept on the Premises any foul or noxious gas or substance,
nor shall Tenant do or permit to be done anything in and above the Premises,
either in connection with activities hereunder expressly permitted or other
wise, which would cause a cancellation of any policy of insurance (including
fire insurance) maintained by Landlord in connection with the Premises or the
Building. Tenant shall forthwith pay to Landlord upon demand therefor the amount
of any additional insurance assessed to Landlord with respect to the Premises
and the Building on account of activities of Tenant or Tenant's vacation of the
Premises, whether or not they are permitted by this Lease. Tenant shall comply
with all restrictive covenants, easements and requirements that may be of record
either presently or in the future and that burden the Premises. Tenant shall
faithfully observe and comply with the rules and regulations that Landlord shall
from time to time promulgate respecting use and occupancy of the Building. Such
rules and regulations shall be binding upon Tenant upon delivery of a copy of
them to Tenant. Landlord shall not be responsible to Tenant for the breach
thereof by any other tenants of the Building or occupants if applicable.
Tenant's occupancy of the Premises shall be deemed to be an acceptance of the
Premises "as is" and an acknowledgement that the Premises have been
satisfactorily completed and are in good condition, except for latent defects.
6. Maintenance, Repairs and Alterations.
a. Landlord's Maintenance Obligations. Subject to the provisions of
paragraph 7 below, and except for damage caused by Tenant, its agents or
invitees, Landlord shall keep in good condition and repair the foundations,
exterior walls and roof of the Building, utility lines to the Premises (but not
including utility distribution services within the Premises), and major repaving
work in parking areas adjacent to the Building, normal wear and tear excepted.
Unless otherwise agreed in writing Landlord shall not be obligated to make any
repairs under this subparagraph until a reasonable time after receipt of written
notice of the need for such repairs; and Tenant shall not be entitled to any
damages or abatement of rent during the period of such repairs.
b. Tenant's Alteration of Premises. Tenant shall not, without
Landlord's prior written consent , make any alterations, improvements or
additions in or about the Premises, including, without limitation, the extension
of any utility lines within the Premises. As a condition to giving consent,
Landlord may require that Tenant remove any such alterations, improvements or
additions at the expiration of the term, and restore the Premises to their prior
condition. Before commencing any work relating to alterations, additions, or
improvements affecting the Premises, Tenant shall notify Landlord in writing of
the of the expected date of commencement thereof and shall, at Landlord's
option, and at Tenant's expense, provide Landlord a payment and performance bond
in an amount equal to one and one-half times the estimated cost of such
improvements to insure completion of the work. Tenant shall provide workmen's
compensation, public liability and property damage insurance that are
satisfactory to Landlord during the period of construction. Landlord shall then
have the right at any time and from time to time to stop and maintain on the
Premises such notices as Landlord reasonably deems necessary to protect the
Premises and Landlord from mechanics' liens, or any other liens. In any event,
Tenant shall pay, when due, all claims for labor or materials furnished to or
for Tenant at or for use in the Premises. Tenant shall not permit any mechanics'
or materialsmen's liens to be levied against the Premises for any labor or
material furnished to Tenant or claimed to have been furnished to Tenant or to
Tenant's agents or contractors in connection with work of any character
performed or claimed to have been performed on the Premises by or at the
direction of Tenant and shall indemnify Landlord against its costs (including
attorneys fees) for defending against the same. If Tenant defaults under any of
its obligations hereunder, then Landlord may, but shall not be required to, pay
any lien or claim and any costs (including a reasonable attorney's fee)
associated therewith, whereupon Tenant shall immediately pay Landlord the entire
amount that is so advanced by Landlord. Unless Landlord requires their removal,
as set forth above, all alterations, improvements or additions which may be on
the Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term; provided, however,
that Tenant's machinery, equipment and trade fixtures, other than any which may
be affixed to the premises so that they cannot be removed without material
damage to the Premises, shall remain the property of Tenant and may be removed
by Tenant, if Tenant is not then in default hereunder.
7. Indemnity.
a. Indemnification by Tenant. Tenant shall indemnify, defend, and hold
Landlord harmless from any and all claims arising from Tenant's use of the
Premises or from the conduct of its business or from any activity, work, or
thing, which may be permitted or suffered by Tenant in or about the Premises and
shall further indemnify, defend, and hold Landlord harmless from and against any
and all claims from any breach or default in the performance of any obligation
or Tenant's part to be performed under the provisions of this Lease or assigning
from any negligence of Tenant of any of its agents, contractors, employees, or
invitees and from any all cost, attorney's fees, expenses, and liabilities
incurred in the defense of any claim or any action or proceeding brought
thereon, including negotiations in connection therewith. Tenant hereby assumes
all risk of damage to property or injury to persons in or about the Premises
from any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, excepting where said damage arises out of Landlord's negligence or
intentional acts.
b. Landlord's Obligation. Tenant hereby agrees Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about the Premises;
nor, unless through Landlord's negligence or intentional torts, shall Landlord
be liable for injury to the person of Tenant, Tenant's employees, agents or
contractors and invitees, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said damage or injury results from condition arising upon the
Premises or upon other portions of the Building, or from other sources or
places, and regardless of whether the cause of such damage or injury of the
means of repairing the same is inaccessible to Landlord or Tenant. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the Building, or such other Tenant's agents, contractors,
employees or invitees.
8. Damage or Destruction.
a. Complete Insurance Coverage. If during the term of this Lease the
Premises are totally or partially destroyed, or any other portion of the
Building is damaged in such a way that Tenant's use of the Premises is
materially interfered with, from a risk which is wholly covered by insurance,
then Landlord shall proceed with reasonable diligence to repair the damage or
destruction and the Lease shall not be terminated; provided, however, that if in
the opinion of the Landlord's architect, contractor, or engineer, the work of
repair cannot be completed in ninety (90) days, then Landlord may at its
election terminate the Lease upon written notice given to Tenant.
b. Partial Insurance Coverage. If during the term of this Lease the
Premises are totally or partially destroyed, or any other portion of the
Building is damaged in such a way that Tenant's use of the Premises is
materially interfered with, from a risk which is wholly covered by Landlord's
insurance, then Landlord may at its election restore the Premises or terminate
this Lease.
c. Abatement of Rent. In case of destruction or damage which materially
interferes with the Tenant's use of the Premises, where the Lease is not
terminated as above provided, and in case such damage was not caused or
contributed to be the act of negligence of Tenant, its agents, employees,
invitees or those from whom Tenant is responsible, rent shall be abated during
the period required for the work of repair as to that portion of the Premises
that is rendered untenantable. Except for abatement of rent, Tenant shall have
no claim against Landlord for any loss suffered by Tenant due to damage or
destruction of the Premises or any work of repair undertaken as herein provided.
d. Insurance Proceeds. In no event shall Tenant be entitled to receive
any insurance proceeds that are payable to Landlord as a result of damage to the
Premises, whether or not Landlord elects to make any repairs pursuant to this
paragraph.
9. Real and Personal Property Taxes.
a. Tenant's Obligation. Tenant shall pay the prior to delinquency all
taxes, assessments, and fees assessed against and levied upon the real property
as well as personal property including trade fixtures, furnishings, equipment
and all other personal property of Tenant contained in the Premises or
elsewhere.
b. Tax Increase Due to Tenant's Improvements. Tenant shall pay the
total amount of any increase in real property taxes resulting from any and all
improvements of any kind whatsoever placed on or in the Premises or the Building
for the benefit of or at the request of Tenant regardless of whether said
improvements were installed or constructed either by Landlord or Tenant, except
those items included with the original Premises.
10. Assignments and Subletting.
a. Tenant shall not voluntarily or by operation of law assign,
transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises without Landlord's prior
written consent, which consent Landlord shall not unreasonably withhold. Any
attempted assignment, transfer, mortgage, encumbrance, or subletting without
such consent shall be void and shall constitute a breach of the Lease.
b. Landlord's Costs. Tenant shall pay all costs and expenses, including
reasonable attorney's fees, incurred by Landlord in connection with Landlord's
review of and participation in any proposed assignment, subletting, encumbrance
or other transfer.
c. Landlord's Assignment. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation to pay the
rent and perform all other obligations to be performed by Tenant hereunder for
the Term of this Lease. The acceptance of rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any subsequent
assignment of subletting.
d. Landlord's Assignment. Landlord shall have the right to transfer,
encumber, and assign, in whole or part, its right, title estate and obligations
in the Premises and the Building. From and after the date of such assignment or
transfer, Landlord shall be released from all liability with respect to
Landlord's obligations hereunder; provided however, that any security deposits
with respect to the Premises shall be delivered to Landlord's assignee, and
provided that the terms herein shall be binding upon transferees and assignees
for the term of this Lease. Tenant shall be bound to such assignee in accordance
with the provisions of this Lease and shall attorn to such assignee.
e. Landlord's Lien. As security for Tenant's performance of its
obligations hereunder, Tenant, hereby grants Landlord a security interest in all
equipment inventory and other personal property that is owned in whole or in
party by Tenant and that is located either presently or subsequently upon the
Premises. To the extent that this paragraph grants Landlord greater rights then
are provided by the Utah Lessor's Liens law, Utah Code Annotated ss. 38-3-1 to
ss. 38-3-8 (1974, Supp. 1981, 1987 and as amended from time to time), this
paragraph shall be construed as a security agreement under the Utah Uniform
Commercial Code. At Landlord's request shall execute and deliver to Landlord a
Financing Statement for the purpose of perfecting Landlord's security interest
under this Lease.
11. Tenant's Default. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
a. Abandonment. The vacating or abandonment of the Premises by Tenant.
b. Failure to Pay Amounts Due. The failure by Tenant to make any
payment of rent or any other payment required to be made by Tenant hereunder, as
and when due
c. Failure to Perform Other Covenants. The failure by Tenant to observe
or to perform any of the covenants, conditions or provision of this Lease to be
observed or performed by Tenant, where such failure continues for a period of
thirty (30) days after written notice thereof from Landlord to Tenant; provided,
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
d. Tenant's Insolvency. The making by Tenant of any general assignment,
or general arrangement for the benefit of creditors; the filing by or against
Tenant of a petition to have Tenant adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within (60)
days); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets or of Tenant's interest in this Lease,
where possession is not restored to Tenant within thirty (30) days; or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days.
12. Landlord's Remedies. In the event of any such default or breach of Tenant,
Landlord at any time thereafter, with or without notice or demand and without
limiting Landlord in the exercise of any other right or remedy which Landlord
may have by reason of such default or breach, shall have the following rights
and remedies:
a. Termination of Lease. Landlord may terminate this Lease and all
rights of Tenant hereunder by giving Tenant written notice of such termination.
If Landlord so terminates this Lease, then Tenant shall immediately surrender
the Premises to Landlord and Landlord may recover from Tenant the sum of:
(1) Past Due Rent. The worth at the time of award of any
unpaid rent which had been earned at the time of termination;
(2) Rent From Termination to Time of Award. The worth at the
time of award of the amount by which the unpaid rent which would have
been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been
reasonably avoided;
(3) Rent After Time of Award. The worth at the time of award
of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided;
(4) Landlord's Detriment. Any other amount necessary to
compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform Tenant's obligations hereunder or which,
the ordinary course of things, would be likely to result therefrom,
including leasing commissions, attorney's fees, and Tenant improvement
expenses incurred in reletting the Premises.
(5) Miscellaneous Amounts. All such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable Utah law, and
(6) Calculation of Rental Amounts. As used in subparagraph
12(a)(2), the "worth at the time of award" shall be computed by
allowing interest at the rate of eighteen percent (18%) per annum. As
used in subparagraph 12(a)(3) above, the "worth at the time of award"
shall be computed by discounting such amount at the rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent
(1%). As used in this paragraph the term "rent" shall include both
charges equivalent to rent and any other periodic payments to be made
by Tenant hereunder (including, without limitation, Tenant's share of
parking lot, common area and landscape maintenance cost; utility costs
and real property taxes).
b. Recovery of Rent if Lease Not Terminated. If Tenant vacates,
abandons, or surrenders the Premises without Landlord's consent, of if Landlord
re-enters the Premises as provided below or takes possession of the Premises
pursuant to legal proceedings (less the net proceeds, if any, of reletting the
Premises after deducting Landlord's expenses in connection with such reletting,
including without limitation attorneys' fees, lease commissions and alteration
costs) and if Landlord may, from time to time recover all rent and other amounts
payable hereunder as they become due and/or relet the Premises, any part thereof
or the Premises and additional portions of the Building on behalf of Tenant for
such term (which may be shorter or longer than the original term thereof) at
such rent and pursuant to such other provisions (which may include the
alteration and repair of the Premises) as Landlord in its sole discretion may
deem advisable. Landlord reserves the right following such re-entry and/or
reletting to exercise its right to terminate this Lease upon giving Tenant
written notice.
c. Removal of Property From Premises. Upon an event of default
hereunder, Landlord shall also have the right, with or without terminating this
Lease, to re-enter the Premises and to remove all persons and property
therefrom. Landlord may cause property so removed from the Premises to be stored
in a public warehouse or elsewhere at the expense and for the amount of Tenant
and may cause the same to be disposed of in accordance with the provisions of
Utah law.
d. Non-Termination of Lease. None of the foregoing remedial actions,
singly or in combination, shall be construed as an election by Landlord to
terminate this Lease unless Landlord has in fact given Tenant written notice
that this Lease is terminated or unless a court of competent jurisdiction
decrees termination of this Lease: any act by Landlord to maintain or preserve
the Premises; any efforts by Landlord to relet the Premises; any re-entry,
repossession or reletting of the Premises by Landlord pursuant to the foregoing
provisions; the appointment of a receiver, upon the initiative of Landlord's
interest under this Lease; or a notice from Landlord under a forcible entry and
unlawful detainer statute.
e. Default by Landlord. If Tenant fails to perform any of its
obligations hereunder, then Landlord, in its sole discretion, may advance sums
or take action that may be necessary to cure Tenant's breach. Tenant shall repay
Landlord all such amounts, together with interest thereon, as herein provided,
immediately upon Landlord's making demand therefore.
13. Default by Landlord. Landlord shall not be in default hereunder unless
Landlord fails to perform obligations required of Landlord hereunder within a
reasonable time, but in no event later than thirty (30) days after written
notice is given by Tenant to Landlord specifying wherein Landlord has failed to
perform such obligation; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for performance,
then Landlord shall not be in default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
14. Condemnation.
a. Definitions.
(1) "Condemnation" means the exercise of any governmental
power, whether by legal proceedings or otherwise, by a condemnor and
(b) a voluntary sale or transfer by Landlord to any condemnor, either
under threat of condemnation or while legal proceedings for
condemnation are pending.
(2) "Date of taking" means the date the condemnor has the
right to possession of the property being condemned.
(3) "Award" means all compensation, sums, or anything of value
awarded, paid, or received on a total or partial condemnation.
(4) "Condemnor" means any public or quasipublic authority, or
private corporation, or individual, having the power of condemnation.
b. Total Taking. If during the Term of this Lease the Building is
totally taken by Condemnation, then this Lease shall terminate on the date of
taking.
c. Partial Taking. If during the Term of this Lease any portion of the
Building or attached parking facility, if any, is taken by Condemnation, then
this Lease shall remain in effect, except that Tenant may elect to terminate
this Lease if such taking renders the Premises unsuitable for Tenant's continued
use and occupation. If Tenant elects to terminate the Lease pursuant to this
provision, then Tenant must do so by written notice given to the Landlord no
later than (30) days after the date of taking. If Tenant does not terminate the
Lease within such period, then the Lease shall continue in full force and
effect, subject to abatement of rent as provided below.
d. Abatement of Rent. If any portion of the Building or the attached
parking facility, if any, is taken by condemnation and if this Lease is not
terminated then as of the date of taking the monthly rental otherwise payable
hereunder shall be abated as to that portion of the Premises that is rendered
untenantable.
e. Right to Award. The award shall belong to and be paid over to
Landlord. Tenant waives any interest therein based upon the value of its
leasehold interest thereunder, excepting any claim that Tenant may have against
Condemnor only for Tenant's moving expenses.
15. Notices. Any notice to be given by either party hereto shall be in writing
and shall be either personally delivered or mailed by certified mail, postage
prepaid to Landlord at the office where rent is payable as provided above and to
Tenant at the Premises. Such notice shall be deemed to be given at the time of
delivery if delivered personally, or three (3) business days after the date of
the postmark, if mailed, as to the case may be.
16. Estoppel Certificate.
a. Tenant's Execution of Certificate. Tenant shall at any time upon not
less than five (5) days prior to written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing (1) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent, security deposit,
and other charges are paid in advance, if any, and (2) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults, if any, which are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
b. Failure of Tenant to Execute Certificate. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (1) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (2) that there are no uncured defaults in Landlord's
performance and (3) that not more than one (1) month's rent has been paid in
advance.
c. Delivery of Financial Statements. If Landlord desires to finance or
refinance the Premises or the whole or a portion of the Building, then Tenant
shall deliver to any lender designated by Landlord such financial statements of
Tenant as may be reasonably required by such lender. All such financial
statements shall be received by Landlord in confidence and shall be used for the
purposes herein set forth.
17. Subordination.
a. Subordination. This Lease, at Landlord's option, shall be shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which Premises are part and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease prior to
the lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to tenant, then this Lease shall be deemed prior to such
mortgage, deed of trust, or ground lease, whether this Lease is dated prior or
subsequent on the date of said mortgage, deed of trust, or ground lease or the
date of recording thereof.
b. Documentation. Tenant shall execute any documents required to
effectuate such subordination or to make this lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be, and Tenant's
failing to do so within ten (10) days after receiving Landlord's written demand
does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney in fact and in Tenant's name, place and stead, to do so.
18. Attorney's Fees. If any legal action is taken to interpret or enforce any
provision of this Lease or on account of a breach thereof, then the prevailing
party shall be entitled, in addition to any other remedy available in law or
equity, to recover its costs, expenses and reasonable attorney's fees actually
incurred in connection therewith or in connection with negotiations prior
thereto, whether such costs, expenses or fees are incurred with or without suit,
at trial or on appeal.
19. Signs. Tenant shall no place or suffer to be placed or maintained on any
exterior door, wall, or window of the Premises or the Building, any sign,
awning, or canopy, or advertising matter or other thing of any kind, and will
not place or maintain any decoration , lettering, or advertising matter on the
glass of any window or door of the Premises without first obtaining Landlord's
written approval. Tenant shall maintain any such sign, awning, canopy,
decoration, lettering, advertising matter, or other things as may be approved in
good condition and repair at all times and at Tenant's expense shall remove such
signs and advertising matter at the termination of this Lease. Tenant's
installation, maintenance and removal of said signs and advertising matter shall
be made in such manner so as to avoid any damage to the Premises and the
Building.
20. General Provisions.
a. Interpretation. This Lease shall be governed by and construed in
accordance with the laws of the State of Utah. The captions that precede the
paragraphs of this Lease are for convenience of reference only and shall in no
way affect the manner in which any provision herein is construed as if such
covenant is independent, and Tenant shall not be entitled to any offset of the
amounts that are due to Landlord hereunder if Landlord does not perform its
obligations hereunder.
b. Invalidity. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
c. Complete Agreement. This Lease contains all agreements of the
parties with respect to any matter mentioned herein. This Lease may be modified
only in writing signed by the parties hereto. No representations have been made
to induce the parties to enter into this Lease except as are set forth herein.
d. Waiver. No waiver by Landlord of any provision hereof shall be
deemed a waiver of any provision hereof or of any subsequent breach by Tenant of
the same or any other Provision. Landlord's consent to or approval of any act
shall be deemed to render unnecessary the obtaining of Landlord's consent to or
approval of any subsequent act by Tenant. The acceptance of rent hereunder by
Landlord shall not be a waiver of any proceeding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent. No failure or delay of Landlord in the exercise
of any rights shall constitute a waiver thereof, nor shall any single or partial
exercise of any rights preclude other or further exercises thereof or of any
other right.
e. Recordation. Tenant shall not record this Lease. Any such
recordation shall be a breach hereof.
f. Holding Over. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the Term hereof with the consent of
Landlord then such occupancy shall be a tenancy from month to month at a rental
in the amount of the last month's rental during the Term hereof plus all other
charges payable hereunder, and upon all other terms hereof.
g. Remedies. No remedy or election hereunder shall be deemed exclusive,
but shall, wherever possible, be cumulative with all other remedies at law or in
equity, by statute or otherwise and including without limitation, injunctive
relief and specific performance.
h. Covenants and Conditions. Each provision of this Lease that is
performable by Tenant shall be deemed both a covenant and a condition.
i. Investment. Subject to the provisions of this Lease restricting
assignment or subletting by Tenant, this Lease shall bind and shall inure to the
benefit of the parties hereto, their personal representatives, successors and
assigns.
j. Inspection of Premises. Landlord and Landlord's agent shall have the
right to enter the Premises at all reasonable times for the purpose of
inspecting the same, showing the same to prospective purchasers, or lenders and
making such alterations, repairs, improvements or additions to the premises or
to the Building or which they are a part as Landlord may deem necessary or
desirable. Landlord may at any time place on or about the Premises any ordinary
"For Sale" signs and Landlord may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Sale or Lease" signs, all without rebate of rent or liability to Tenant.
k. Auctions. Tenant shall not conduct any auction at the Premises,
without Landlord's prior written consent.
l. Merger. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
m. Authority. If Tenant is a corporation, then each individual
executing this Lease on behalf of said corporation represents and warrants that
he or she is duly authorized to execute and deliver this Lease on behalf of said
corporation and that this Lease is binding upon said corporation in accordance
with its terms.
n. Landlord. The term "Landlord" as used herein means the owner of the
Building for the time being only and in the event of a sale of such Building,
Landlord shall be automatically relieved of all obligations of Landlord
hereunder, except for acts or omissions of Landlord theretofore occurring.
o. Interest and Service Charge. If Tenant fails to pay any rent,
additional rent or other sum that is due hereunder when the same is due, then
Tenant shall pay Landlord interest on such unpaid amounts at the rate of
eighteen percent (18%) per annum from the due date thereof to the date of
payment. In addition thereto, at Landlord's option, Tenant shall pay Landlord a
sum of Fifty Dollar ($50.00) for each delinquent payment as a service fee.
p. Additional Documents. The parties thereto shall do such further acts
and things and shall execute, acknowledge and deliver such additional documents
and instruments as may be necessary or desirable to carry out the intent of the
Lease or as the other party, or its counsel, may reasonably require to
consummate, evidence or confirm the provisions contained herein.
q. Time of the Essence. Time is the essence of this Lease.
r. Force Majeure. Landlord and Tenant shall be excused for the period
of any delay in the performance of any obligations hereunder when prevented from
so doing by cause of causes beyond Landlord's or Tenant's control, including
labor disputes, civil commotion, war, governmental regulations or controls, fire
or other casualty, inability to obtain any materials or services, or acts of
God.
s. Recourse by Tenant. Notwithstanding anything contained in this Lease
to the contrary, Tenant shall look solely to the estate and property of Landlord
in the land and buildings comprising the Building, subject to prior rights of
any mortgagee of the Building, or any part thereof, for the collection of any
judgment or other judicial process requiring the payment of money by Landlord
with respect to any of the terms, covenants and conditions of this Lease to be
observed and/or performed by Landlord, and no other assets of Landlord shall be
subject to levy, execution, or other procedures for the satisfaction of Tenant's
remedies.
t. Joint and Several Liability. If there is more than one Tenant, then
all liability of Tenant hereunder shall be joint and several.
u. Authority of Signatories. Each person executing this individually
and personally represents and warrants that he is duly authorized to execute and
deliver the same on behalf of the entity for which he is signing (whether it be
a corporation, general or limited partnership, or otherwise), and that his Lease
is binding upon said entity in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the day and year first above written.
LANDLORD: SCRUB OAK, LTD.
BY: NU SKIN INTERNATIONAL, INC. (General Partner)
By: /s/Michael D. Smith
Name: Michael D. Smith
Its: General Counsel
TENANT: NU SKIN ENTERPRISES, INC.
By: /s/Michael D. Smith
Name: Michael D. Smith
Its: General Counsel
EXHIBIT A - LEGAL DESCIPTION OF THE PREMISES
State of Utah, County of Utah:
PARCEL 1: Commencing at the Southwest corner of Block 66, Plat "A",
Provo City Survey of Building Lots; and running thence North
396.00 feet, more or less to the Northwest corner of said
Block 66; thence East 110.00 feet; thence South 396.00 feet
more or less, to a point due East of the point of beginning;
thence West 110.00 feet to the place of beginning.
PARCEL 2: Commencing at a point 110.00 feet East of the Northwest
corner of Block 66, Plat "A", Provo City survey of Building
lots; and running thence East 60.00 feet; thence South 233.00
feet; thence West 60.00 feet; thence North 233.00 feet to the
point of beginning.
PARCEL 3: Commencing at a point South 89(degree)38'45" East 110.00
feet from the Southwest corner of Block 66, Plat "A", Provo
City survey of Building Lots; thence North 00(degree)18'34"
East 165.675 feet; thence South 89(degree)30'01" East 15.0
feet; thence South 00(degree)18'34" West 165.74 feet; thence
North 89(degree)38'52" West 15.0 feet to the point of
beginning.
Together with all buildings, fixtures, and improvements thereon and all
water rights, easements, rents, issues, profits, income, tenements,
hereditaments, privileges and appurtenances thereto belonging now, or hereafter
used, or enjoyed with said property or any parts thereof ("Premises").
EX-10.44
NU SKIN INTERNATIONAL, INC.
NU SKIN USA, INC.
SUBLEASE AGREEMENT
This Sublease Agreement ("Lease") is entered into and made effective this 1st
day of January 1998 (the "Effective Date") by and between Nu Skin International,
Inc. ("Lessor"), having a place of business at 75 West Center Street, Provo,
Utah 84601 and Nu Skin USA, Inc. ("Lessee"), having a place of business at 75
West Center Street, Provo, Utah 84601. The Lessor and Lessee may be hereinafter
referred to individually as a "Party" or collectively as the "Parties."
RECITALS
A. Lessor is the lessee of the premises described below, having space for
sublease on such premises; and
B. Lessee desires to lease space from Lessor in such premises on
the terms and conditions hereafter set forth.
AGREEMENT
In consideration of the mutual covenants contained herein, the Parties agree as
follows:
1. Leased Space.
A. Lessor hereby leases to Lessee certain office, warehouse,
distribution, and other related space collectively hereinafter
referred to as "Space") in the amounts of square footage and
located in the office buildings as set forth on Exhibit "A"
attached hereto. As of the Effective Date, the occupied area
used by Lessee consists of approximately 114, 123 sq. ft. of
Space.
B. The Space shall be used for the purposes set forth in Exhibit
B hereto.
2. Term.
A. The initial term ("Term") of this Lease shall be for a period
of 5 years commencing on the Effective Date and continuing
year-to-year thereafter. This Lease shall renew automatically
for subsequent terms of 1 year, unless either Party notifies
the other in writing at least ninety (90) days prior to the
expiration of the initial or any renewal Term(s).
B. Lessee shall surrender the Space to Lessor immediately upon
termination or expiration of this Lease.
3. Rent.
A. During the first year of the Term hereof, Lessee shall pay an
annual rent of $1,744,135.00 (the "Annual Rent"). The Annual
Rent reflects a blended per square foot rental amount of
US$15.28 per square foot. The Annual Rent shall be satisfied
through monthly payments of $US 145,344.58, due and payable on
the first day of each month.
B. Effective as of January 1, 1999 and as of each January 1
thereafter during the Term of this Lease and any renewals
thereof, the Annual Rent Asahi be adjusted in accordance with
changes in the Consumer Price Index. The Consumer Price Index
shall mean the average for "all items" shown on the "United
states city average for urban wage earners and clerical
workers, all items, groups, sub-groups, and special groups of
items as promulgated by the Bureau of Labor Statistics of the
United States Departments of Labor." using the period
1982-1984 as a base of 100.
C. In no event, however, shall the Annual Rent be less than
$1,744,000.00 ($ 15.28/blended sq. ft.) nor more than
$2,000,000.00 ($ 17.52/blended sq. ft.). In the event that the
Consumer Price Index is substantially revised, an adjustment
shall be made in the revised Consumer Price Index which would
produce results equivalent, as nearly as possible, to those
which would have been obtained if the Consumer Price Index
shall become unavailable to the public because publication
discontinuation or otherwise, then the Prorates shall agree to
an alternative measurement.
D. In the event Lessee should fail to pay any installment of rent
or any other sum due under this Lease with 30 days after such
sum is due, Lessee shall pay to Lessor, as additional rent, a
late charge equal to 10 percent of each installment or sum.
Waiver of the late charge equal to 10 percent of each
installment or sum. Waiver of the late charge with respect to
any installment or sum shall not be deemed to constitute a
waiver with respect to any subsequent installment or sum so
due.
4. Use.
A. In addition to being used for the purposes specified in
Exhibit "B" attached hereto, Lessee shall comply with the
Rules and Regulations attached hereto as Exhibit "C" and with
all rules, regulations, ordinances, statues, and other lawful
requirements of governmental agencies, consistent with
Lessee's use thereof.
B. Lessee shall not use or permit the Space to be used for any
purpose(s) other than those set forth in this Lease and the
Exhibits hereto. Lessee shall neither permit on the Space any
activity, including any act, sale or storage of any substance
that may be prohibited under standard forms of fire insurance
policies, nor use the Space for any such purpose. In addition,
no use shall be made or permitted to be made that shall result
in:
1. The use or storage of hazardous materials or waste;
2. Public or private nuisance that may disturb the quiet
enjoyment of other tenants in the buildings;
3. Improper, unlawful, or objectionable use, including
sale, storage, or preparation of food, alcoholic
beverages, or materials generating an odor on the
Space; or
4. Noises or vibrations that may disturb other tenants.
5. Security Deposit.
No deposit is requested and no deposit has been made.
6. Abandonment.
Lessee shall not vacate or abandon the Space, or any portion thereof, at any
time during the Term of the Lease. If Lessee does vacate or abandon the Space
(or any portion thereof) of is dispossessed by process of law, any personal
property belonging to Lessee and left in or on the Space shall be deemed
abandoned at the option of Lessor and shall become the property of Lessor.
7. Taxes.
Lessor shall pay real property taxes and assessments associated with the Space
during the Term of this Lease.
8. Utilities, Other Costs.
A. Lessor shall pay all charges for water, sewer, garbage
removal, power and gas.
B. Lessor shall provide for Space and common area janitorial
service and maintain the Space in a clean and orderly manner.
C. Lessor shall ensure the removal of snow in the parking and
walkway areas during applicable seasons., lessor shall further
keep walkways salted and free from snow buildup.
D. Lessor shall provide office furniture, equipment (including
reasonable computer, printing and photocopying equipment), and
office supplies that may be reasonably requested by Lessee and
in accordance with Lessor's polices with respect to its
business operations in the Space. Less shall have access to
all facilities and services available within the Space at no
additional cost to Lessee.
9. Alterations, Modifications and Repairs.
A. Lessee shall maintain the Space in a reasonable and well kept
and shall not alter, repair or change the Space including, but
not limited to addition of cables, electrical wires, etc.,
that may damage walls, without prior, express, and written
consent of Lessor.
B. All alterations, improvements, and changes that Lessee may
desire shall be done either by or under the direction of
Lessor, and at the expense of Lessor and shall become the
property of Lessee and remain on the Space.
C. All damage or injury done to the Space by Lessee, its agents
or employees, or any person who may be in or on the Space with
the consent of Lessee shall be paid for be Lessee.
D. Lessee shall, at the termination of the Lease, surrender the
Space to Lessor in as good condition or the same condition as
when entered upon by Lessee excepting ordinary wear and tear.
E. Lessor shall be responsible for making all routine repairs,
maintaining the landscape and performing routine maintenance.
Lessee shall permit Lessor and Lessor's agent to enter the
Space at all reasonable times to inspect and maintain the
building and Space, make repairs, alternation, or additions to
the Space, or any portion of the building, including the
erection of scaffolding, props or other mechanical devices, to
post notices or non-liability for alternations, additions or
repairs.
10. Insurance.
The Parties shall each obtain and keep in force during the Term of this Lease, a
policy of comprehensive general liability insurance naming the other Party as an
additional insured.
11. Assignment and Sublease.
A. Lessee shall not assign any rights or duties under this Lease
nor sublet the Space or any part of the Space nor allow any
other person to occupy or use the Space without the prior,
express, and written consent of lessor. A consent to one
assignment, sublease or occupation or use by any other person
shall not be consent to any subsequent assignment, sublease,
or occupation or use by another person. Any assignment or
subletting without consent shall be void.
B. This Lease shall not be assignable without the written consent
of both Parties.
12. Breach or Default.
A. The occurrence of any one or more of the following events
shall constitute a material default in breach of this Lease by
Lessee:
1. Vacation or abandonment of the Space, including, but
not limited to, any absence of Lessee from the Space
for 30 business days or longer.
2. Failure by Lessee to make any payment required under
this Lease as and when due, where such failure shall
continue for a period of 30 days after written notice
form Lessor.
3. Failure by Lessee to observe or to perform any of the
covenants, conditions, or provisions of this Lease,
other than the making of any payment, where such
failure shall continue for a period of 60 days after
notice of such failure from Lessor or such additional
period of time as is reasonably necessary to cure
such failure, provided Lessee diligently prosecutes
such cure.
B. In the event of any default by Lessee, in addition to any
other remedies available to Lessee at law or in equity, Lessee
shall have the immediate option to terminate this Lease and
all rights of Lessee under this Lease.
C. In the event of any such default by Lessee, Lessor shall also
have the right, adhering to applicable legal processes, with
or without terminating this Lease, to re-enter the Space and
remove all persons and property from the Space. Such property
may be removed and stored in a public warehouse or elsewhere
at the cost of or on the account of Lessee.
D. In the event of any such default by Lessee, Lessor shall also
have the right, adhering to applicable legal processes, with
or without terminating this lease, to reenter the Space and to
relet it.
E. In the event of any default by Lessor, which default shall
remain uncured after 30 days' notice to Lessor, Lessee shall
have all rights and remedies provided by applicable law,
including, but not limited to , rights of offset against the
Annual Rent, injunctive relief and other equitable and legal
remedies.
13. Indemnification.
A. Lessee shall indemnify, defend, and hold Lessor harmless from
any and all claims and damages (including reasonable attorney
fees and costs) arising from Lessee's use of the Space or the
conduct of its business or from any activity, work or thing
done, permitted or suffered by Lessee, in or about the Space
and/or the buildings in which the Space is located, unless
caused by the negligent acts of Lessor or Lessor's agents or
employees.
B. Each Party Lessee shall indemnify, defend, and hold the other
harmless from any and all claims and damages (including
reasonable attorney fees and costs) arising from their
respective breach or default in any of the terms or conditions
of this Lease, or arising form any act of negligence, fault,
or omission of their respective agents, employees or invitees,
and from and against any and all cost, reasonable attorney
fees, expenses and liabilities incurred in or about such claim
or any action or proceeding brought on such claim.
14. General.
A. Governing Law. It is agreed that this Lease shall be governed
by, construed, and enforced in accordance with the laws of the
State of Utah.
B. Waivers. Waivers by Lessor of any breach of any covenant or
duty of lessee under this Lease is not a waiver of a breach of
any other covenant or duty of Lessee. or of any subsequent
breach of the same covenant of duty.
C. Entire Agreement. This Lease shall constitute the entire
agreement between the Parties. Any prior understanding or
representation of any kind preceding the date of this Lease
shall not be binding upon either Party except to the extent
incorporated in this Lease Agreement.
D. Assignment/Modification of Agreement. Any assignment or other
modification of this Lease or additional obligation assumed by
either Party in connection with this Lease shall be binding
only if evidenced in writing signed by each Party.
E. Notices. All notices, demands, or other writing in this Lease
to be given, made or sent or which may be given, made or sent
be either Party to the other, shall be deemed to have been
fully given , made, or sent when made in writing and either
personally delivered or deposited in the United States mail,
return receipt requested, and addressed as follows:
TO LESSOR: At the address set forth at the beginning of this Lease.
TO LESSEE: At the address set forth at the beginning of this Lease.
F. Invalidity. The invalidity or illegality of any provision of
this Lease shall not affect the remaining provision of this
Lease.
IN WITNESS WHEREOF, the Parties hereto have executed this Lease on the Effective
Date above written.
NU SKIN INTERNATIONAL, INC. NU SKIN USA, INC.
By: /s/ Steven J. Lund By: /s/Keith R. Halls
Name: Steven J. Lund Name: Keith R. Halls
Its: Executive Vice President Its: Vice President
EXHIBIT A
LOCATION AND DESCRIPTION OF SPACE
One Nu Skin Plaza
75 West Center Street
Provo, Utah 84601
Common Sub
Space Area Total %Allocation Total
------ ------ ----- ----------- ------
17,942 8,016 25,958
Kress Building
40 South 100 West
Provo, Utah 84601
Common Sub
Space Area Total %Allocation Total
------ ------ ----- ----------- ------
1,315 501 1,816
Distribution Center
275 East 1325 South
Provo, Utah 84606
Common Sub
Space Area Total %Allocation Total
------ ------ ----- ----------- ------
74,215 12,024 86,349
EXHIBIT B
PURPOSES
Name of Building/Space Permitted Uses
---------------------- --------------
One Nu Skin Plaza Office Space
75 West Center Street
Provo, Utah 84601
Kress Building Office Space
40 South 100 West
Provo, Utah 84601
Nu Skin Distribution Center -Office Space
275 East 1325 South -Packaging/Shipping
Provo, Utah 84606 Center
EXHIBIT C
Lessee agrees to comply fully with the following rules and regulations and with
such reasonable modifications of and additions to such rules and regulations as
lessor may make from time to time.
Any sign, lettering, picture, notice, or advertisement installed within the
Space that is visible to the public from within the building shall be installed
in such a manner and be of such character and style as Lessor shall approve in
writing. No sign, lettering, picture, notice, or advertisement shall be placed
on any outside window or in a position to be visible from outside the building.
Lessee shall not advertise the business, profession, or activity of Lessee
conducted in the building in any manner that violates any code of ethics adopted
by an recognized association or organization pertaining to the business,
profession, or activity, shall not use the name of the building for any purpose
other than that of the business address of Lessee.
Lessee shall not obstruct sidewalks, entrances, passages, courts, corridors,
vestibules, halls, or stairways in or about the building, nor shall Lessee place
objects against doors or windows that would be unsightly from the building's
corridors or from the exterior of the building.
No animals or pets or bicycles or other vehicles shall be brought or permitted
to be in the building or the Space.
Lessee shall not make excessive noises, cause disturbances or vibrations, or use
or operate any devices that emit loud sound or air waves that may disturb or
annoy other tenants or occupants of the building or that would interfere with
the operation or any device or equipment or radio or television broadcasting or
reception from or within the building or elsewhere.
Lessee shall not make any room-to-room canvass to solicit business from other
tenants of the building.
Lessee shall not create any odors that may be offensive to other tenants or
occupants of the building.
The building is a no-smoking building and Lessee shall not, nor allow its
invitees to smoke while in the building or Space.
Lessee shall not waste electricity, water, or air conditioning, and shall
cooperate fully with Lessor to assure the most efficient operation of the
building's heating and air conditioning system. Lessee shall not adjust any
controls other than room thermostats installed for Lessee's use. Lessee shall
not tie, wedge, or otherwise fasten open any water faucet or outlet. Lessee
shall keep all corridor doors closed.
No additional locks or similar devices shall be attached to any door and no
locks shall be changed without lessor's prior written consent.
Lessee assumes full responsibility for protecting the Space from theft, robbery,
and pilferage. Except during Lessee's normal business hours, Lessee shall keep
all doors to the Space locked and other means of entry to the Space closed and
secure.
No peddlers, solicitors, or beggars shall be allowed in the building, and if
present, shall be reported by Lessee to Lessor.
No person not employed, contracted for, or approved by Lessor shall perform any
window washing, cleaning, repairing, janitorial, decorating, painting, or other
services or work in or about the Space.
Lessee shall not in any manner deface or injure the building.
Lessee shall not bring into the building or the Space inflammables such as
gasoline, kerosene, naphtha, and benzene, or explosives, or any other articles
or any intrinsically dangerous nature. If by reason of the failure of Lessee to
comply with the provisions of this paragraph, any insurance premium payable by
Lessor for all or any part of the building shall at any time be increased,
Lessor shall have the option either to terminate the Lease Agreement or to
require lessee to make immediate payment of the amount of such increase.
Lessee shall not install or operate any steam or internal combustion engine,
boiler, machinery, refrigeration or heating device or air conditioning
apparatus, or carry on any mechanical business in or about the building or
Space.
Lessee shall be responsible for the observance of all of the rules and
regulations by Lessee's employees, agents, clients, customers, invitees, and
guests, Lessor shall not be responsible for any violation of the rules and
regulations by other tenants of the building and shall have no obligation to
enforce the rules and regulations against other tenants.
The work "Building" as uses herein means the building of which the Space is a
part.
HIGH RISE $32 PER SQ FOOT
USA HIGH RISE SQUARE FOOTAGE 25,958
RENT (INCLUDES SPACE, UTILITIES, EQUIPMENT)
SPACE-$14.00 PER SQUARE FOOT 363,412
UTILITIES-$3.5 PER SQUARE FOOT 90,853
PROPERTY TAXES-$1.70 PER SQUARE FOOT 4,413
FURNITURE & FIXTURES-$12.80 PER SQUARE FOOT 332,262
-------
790,940
USA KRESS BUILDING SQUARE FOOTAGE 1,816
RENT (INCLUDES SPACE, UTILITIES, EQUIPMENT)
SPACE - $10 PER SQUARE FOOT 18,160
UTILITIES - $3.5 PER SQUARE FOOT 6,356
PROPERTY TAXES - $1.70 PER SQUARE FOOT 3,087
FURNITURE & FIXTURES - $12.80 PER SQUARE FOOT 23,245
-------
50,848
USA DISTRIBUTION CENTER SQUARE FOOTAGE 86,349
RENT (INCLUDES SPACE, UTILITIES, EQUIPMENT)
SPACE- $3.5 PER SQUARE FOOT 302,222
UTILITIES - $3.5 PER SQUARE FOOT 302,222
PROPERTY TAXES - $1.70 PER SQUARE FOOT 146,793
FURNITURE & FIXTURES - $1.75 PER SQUARE FOOT 151,111
-------
EX-10.45
WAREHOUSE LEASE AGREEMENT
This Warehouse Lease Agreement ("Agreement") was made and entered into on
October 1, 1993 by and between Nu Skin International, Inc. ("Lessee") a Utah
Corporation with a principal place of business at 75 West Center Street, Provo,
Utah 84601 and Aspen Investments, Ltd. ("Lessor") a Utah Limited Partnership
with a place of business at 75 West Center, Provo, Utah 84601.
In consideration of the mutual covenants contained in this triple net lease
Agreement, the parties agree as follows:
1. Description of Premises: Lessor hereby leases to Lessee that part of the
premises located at 1085 South 250 East, Provo Utah, otherwise known as
the Annex (or old Wicat building) and more particularly described as:
The Lessors building and ground 160 feet East and West by 300 feet North
and South, located at 1085 South 250 East, Provo, Utah, together with
the use with Lessor of a 200 foot by 140 foot asphalt parking lot
located at the corner of 1000 South 350 East, containing approximately
100 parking spaces.
And as set forth on Exhibit A (hereinafter referred to as the "Leased
Premises") attached hereto and incorporated herein by this reference for
the term and at the rental provided for in this Agreement.
2. Rental: In consideration of the lease of the Leased Premises, Lessee
shall pay Lessor a monthly rental of Seven Thousand Seven Hundred and
no/100 Dollars ($7,700.00) beginning on October 1, 1993 with succeeding
payments due on the first day of each month during the term of this
Agreement plus other charges as hereinafter set forth.
3. Term: This Agreement shall have a term of five (5) years commencing on
October 1, 1993 and shall renew automatically for like terms unless
otherwise terminated pursuant to this Agreement.
4. Use of Leased Premises:
4.1 The Leased Premises shall be used and occupied for the storage of
property and for whatever lawful business activities Lessee deems
necessary.
4.2 Lessee shall not store any items that Lessee possesses illegally
or items that are unlawful to be possessed. Lessee shall not
store any flammable, explosive, or dangerous material or illegal
drugs in the Leased Premises.
5. Access To Leased Premises by Lessor: Lessee shall, for the purpose of
storage or removal of any merchandise, goods, or other property in the
Leased Premises, be permitted easy and convenient passage at any and all
times, through any part of the abutting premises occupied or controlled
by Lessor.
6. Facilities of Lessor:
6.1 For the convenient moving of merchandise, goods, and other
property to or from the Leased Premises, Lessee may use, at no
extra cost, pulleys, scales or any other fixture or appliances
located in the Leased Premises.
6.2 Lessee may place any marks, signs, or other evidences of
possession in or on the Leased Premises or on the merchandise or
goods stored in the Leased Premises that Lessee may deem
necessary or desirable.
7. Entry in Leased Premises by Lessor: Lessor reserves the right to enter
the Leased Premises at any time to inspect the Leased Premises, perform
required maintenance and repairs, or make additions, alterations, or
modifications to any part of Leased Premises, and Lessee shall permit
Lessor to do so. Lessor may erect scaffolding, fences, and similar
structures, post relevant notices, and place movable equipment in
connection with making alterations, additions, or repairs, all without
incurring liability to Lessee for disturbance of quiet enjoyment of the
Leased Premises, or loss of use of the Leased Premises.
8. Repairs and Maintenance: Lessee shall maintain the Leases Premises and
keep such Leased Premises in good repair at Lessee's expense. Lessee
shall maintain and repair windows, doors, skylights, adjacent sidewalks,
the building front, and interior walls.
9. Utilities:
9.1 Lessee shall contract for all utility services required on the
Leased Premises in the name of Lessee and shall be liable for
payment for all services received. Lessor shall arrange and
grant all necessary easements to utility service suppliers to
facilitate installation, maintenance, and repairing of utility
services required by Lessee.
9.2 Toilet and washroom facilities for the use of the Lessee and
employees of Lessee are designated to be used in common with
Lessor and shall be maintained by lessee.
10. Insurance: Lessee shall, during the term of this Agreement and any other
period of occupancy of the Leased Premises, at Lessees's sole expense,
maintain a reasonable amount of insurance on the Leased Premises and its
property stored therein.
11. Taxes and Other Charges: Lessee shall pay and discharge when due, as
part of the rental of the Leased Premises all property, state,
municipal, and local taxes assessments, levies and other charges,
general and special, ordinary and extraordinary, of whatever name,
nature, and kind that are or may be during the term of this Agreement or
any renewal, beginning with 1994, levied assessed, imposed, or charged
on the land or the Leased Premises, or on improvements now on or after
the date of this Agreement to be built or made on the Leased Premises.
12. Termination of Lease: Either party may terminate this Agreement for any
reason upon 30 days prior written notice to the other.
13. Entire Agreement: This Agreement shall constitute the entire agreement
between the parties. Any prior understanding or representation preceding
the date of this Agreement shall not be binding on either party except
to the extent incorporated in this Agreement.
14. Governing law. The validity of this Agreement and the interpretation and
performance of all of its terms shall be governed by the substantive and
procedural laws of the State of Utah. Each party expressly submits and
consents to exclusive personal jurisdiction and venue in the courts of
Utah County, State of Utah or in any Federal District Court in Utah.
15. Alternative Dispute Resolution (ADR): In the event of a dispute between
the parties arising out of or related to this Agreement the parties
shall set up an initial negotiation meeting to negotiate, in good faith,
a settle the dispute. If, within thirty (30) days after such meeting,
the parties have not succeeded in settling the dispute, they shall
submit the dispute to mediation in accordance with the procedures of a
mutually acceptable neutral ADR provider not affiliated with either
party. If the parties are not successful in settling the dispute within
thirty (30) days after the mediation session, then the dispute shall be
submitted to binding arbitration under a mutually agreed to organization
not affiliated with either party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of
the date first above written.
NU SKIN INTERNATIONAL, INC.
By: /s/Michael D. Smith
Name: Michael D. Smith
Its: General Counsel
ASPEN INVESTMENTS, Ltd.
By: /s/Keith Halls
Name:Keith Halls
For: Nu Skin International, Inc., The General Partner of Aspen Investments, Ltd.
Its: Vice President
EX-10.46
CONTRIBUTION AND DISTRIBUTION AGREEMENT
THIS CONTRIBUTION AND DISTRIBUTION AGREEMENT (the "Agreement") is made
and entered into effective as of December 31, 1997 (the "Effective Date"), by
and between NU SKIN INTERNATIONAL, INC., a Utah corporation ("NSI"), and 252nd
Shelf Corporation, a recently formed Delaware corporation and a wholly-owned
subsidiary of NSI, which is in the process of changing its name to Nu Skin USA,
Inc. ("NUSA").
Recitals
A. NSI has determined it is appropriate and desirable to separate NSI
into two companies by contributing certain assets to, and providing for an
assumption of certain liabilities by, NUSA, and by distributing to the
stockholders of NSI all of the outstanding shares of NUSA. These transactions
are are intended to qualify as a reorganization and distribution under Sections
368(a)(1)(D) and 355 of the Code (as defined).
B. The assets to be contributed to NUSA are to include those associated
with the sale and distribution of Nu Skin products within the United States.
C. The separation and contribution described above are intended to
permit NSI to combine its global business operations (i.e., distribution rights
for areas outside of the United States) with Nu Skin Asia Pacific, Inc.
("NSAP"). NSI understands that NSAP will not consider an acquisition of NSI's
United States business operations, so the transactions described herein are
necessary to facilitate a possible sale of NSI's global business operations to
NSAP. It is anticipated that the acquisition by NSAP, if consummated, will be
structured as a transfer of all outstanding shares of NSI and the other Acquired
Entities (as defined) to NSAP (the "Stock Acquisitions"), intended to qualify,
at least in part, as a tax-free exchange under Section 351 of the Code.
D. NSI and NUSA have determined that it is appropriate and desirable to
set forth in this Agreement the agreement and understanding between the parties
with respect to the subject matter hereof, to provide for the corporate
transactions required to effect the above-referenced separation and
reorganization, and to establish the terms of such contribution, assumption and
distribution.
Agreement
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 General Definitions. Capitalized terms as used in this
Agreement and not defined elsewhere herein shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Acquired Entities" shall mean NSI and all other affiliated Nu Skin
entities around the world, including Nu Skin International Management Group,
Inc., but excluding NUSA, Scrub Oak, Ltd., Aspen Investments, Ltd. and the Nu
Skin affiliates operating in Canada, Mexico, Guatemala and Puerto Rico.
"Assumption" shall mean the assumption by NUSA of the NUSA Assumed
Liabilities.
"Assumption of Liabilities and Indemnification Agreement" or
"Indemnification Agreement" shall mean the Assumption of Liabilities and
Indemnification Agreement in the form attached hereto as Exhibit A, to be
executed by NSI and NUSA concurrently with the execution of this Agreement and
dated as of the Effective Date.
"Benefits Agreement" shall mean the Employee Benefits Allocation
Agreement in the form attached hereto as Exhibit B to be executed by NSI and
NUSA and dated as of the Effective Date. The Benefits Agreement relates to the
NUSA Employees who are to become employees of NUSA in connection wtih the
Contribution, Assumption and Distribution, and NUSA's obligations with respect
to the accrued and ongoing benefits payable to the NUSA employees.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Contribution" shall mean NSI's contribution of the NUSA Acquired
Assets to NUSA.
"Conveyancing and Assumption Instruments" shall mean, collectively,
such instruments of transfer, assignment and assumption as may be mutually
agreed upon by NSI and NUSA to effect the transfer of the NUSA Acquired Assets
to NUSA and the assumption of the NUSA Assumed Liabilities by NUSA in the manner
contemplated by this Agreement and the other Transaction Documents.
"Distribution" shall mean the distribution of all NUSA Shares to the
NSI Stockholders as provided in Section 2.4 hereof.
"Effective Date" shall mean December 31, 1997.
"Intercompany Agreements" shall mean the Intercompany Agreements in the
form attached hereto as Exhibit C, to be executed by NSI, NUSA and certain
affiliated entities and dated as of the Effective Date. The Intercompany
Agreements relate to the provision of rights, licenses and services to NUSA in
connection with NUSA's conduct of the NUSA Acquired Business, including: access
to the NSI distribution network; management services to be provided to NUSA;
licensing of the right to use the Nu Skin trademarks and trade names; and
agreements relating to licensing, sales, and pricing of products to be offered
by NUSA through the NUSA Acquired Business.
"Lease Agreement" shall mean the Lease Agreement in the form attached
hereto as Exhibit D, to be executed by NSI and NUSA and certain affiliated
entities and dated as of the Effective Date.
"Liabilities" of any party hereto shall mean all losses, debts,
liabilities, damages, obligations, claims, demands, judgments, or settlements of
any nature or kind owed by such party, whether accrued or contingent, and
including all penalties, costs and expenses (legal, accounting or otherwise)
associated therewith.
"NSAP" shall mean Nu Skin Asia Pacific, Inc., a Delaware corporation.
"NSI Board" shall mean the Board of Directors of NSI.
"NSI Common Stock" or "NSI Shares" shall mean the 1,000,000 currently
outstanding shares of NSI Common Stock, $0.01 par value per share.
"NSI Continuing Business" shall mean the business to be conducted by
NSI immediately after giving effect to the Distribution, utilizing the NSI
Retained Assets, and including: the business of marketing and distributing of Nu
Skin products; managing and licensing the Nu Skin Global Compensation Plan;
licensing of the right to use the Nu Skin trademarks and trade names, products
and distributor lists; providing management services to local Nu Skin entities;
developing new formulas and ingredients for Nu Skin products; and all other
businesses conducted by NSI prior to the Effective Date, other than the NUSA
Acquired Business.
"NSI Employees" shall mean all individuals who immediately prior to the
Effective Date were employed by NSI and who, after giving effect to the
Contribution, Assumption and Distribution, are intended to remain employed by
NSI or in the NSI Continuing Business.
"NSI Retained Assets" shall mean, collectively, all assets of NSI,
other than the NUSA Acquired Assets.
"NSI Retained Liabilities" shall mean each of the Liabilities of NSI,
other than the NUSA Assumed Liabilities, all as further described in the
Assumption of Liabilities and Indemnification Agreement.
"NSI Stockholders" shall mean Blake M. Roney, Nedra Dee Roney, Sandie
N. Tillotson, R. Craig Bryson, Craig S. Tillotson, Kirk V. Roney, Brooke R.
Roney, Steven J. Lund and Keith R. Halls.
"NUSA Acquired Assets" shall mean, collectively, those assets of NSI
which are to be transferred to and acquired by NUSA pursuant to the terms of
this Agreement, as identified in Exhibit E attached hereto.
"NUSA Acquired Business" shall mean the business to be conducted by
NUSA immediately after giving effect to the Contribution, Assumption and
Distribution, utilizing the NUSA Acquired Assets, including the marketing and
distribution of Nu Skin products in the United States as permitted by the
Intercompany Agreements.
"NUSA Assumed Liabilities" shall mean each of the Liabilities of NSI
that are to be assumed by NUSA as of the Effective Date, including NUSA's
portion of Liabilities that will be jointly assumed by NSI and NUSA, all as
provided in the Assumption of Liabilities and Indemnification Agreement.
"NUSA Board" shall mean the Board of Directors of NUSA.
"NUSA Common Stock" or "NUSA Shares" shall mean the ten (10) currently
outstanding shares of NUSA Common Stock, $100 par value per share. Upon the
filing of the NUSA Restated Certificate with the Delaware Secretary of State, a
100,000 for 1 stock split will be implemented, thereby increasing the number of
NUSA Shares outstanding to 1,000,000.
"NUSA Employees" shall mean all individuals who immediately prior to
the Effective Date were employed by NSI and who, after giving effect to the
Contribution, Assumption and Distribution, are intended to be employed by NUSA,
as referenced in the Benefits Agreement.
"NUSA Restated Certificate" shall mean the Restated Certificate of
Incorporation of NUSA, in the form attached hereto as Exhibit F.
"NUSA Stockholders" shall, immediately after giving effect to the
Distribution, mean Blake M. Roney, Nedra Dee Roney, Sandie N. Tillotson, R.
Craig Bryson, Craig S. Tillotson, Kirk V. Roney, Brooke B. Roney, Steven J. Lund
and Keith R. Halls, and any permitted designees thereof.
"Stock Acquisitions" has the meaning set forth in the Recitals to this
Agreement.
"Tax Sharing and Indemnification Agreement" shall mean the Tax Sharing
and Indemnification Agreement to be executed by NSI and NUSA concurrently with
the execution of this Agreement, in the form attached hereto as Exhibit G.
"Transaction Documents" shall mean this Agreement, the Benefits
Agreement, the Conveyancing and Assumption Instruments, the Assumption of
Liabilities and Indemnification Agreement, the Intercompany Agreements, the
Lease Agreement and the Tax Sharing and Indemnification Agreement.
Section 1.2 Exhibits, Etc. References to an "Exhibit" or to a
"Schedule" are, unless otherwise specified, to one of the Exhibits or Schedules
attached to this Agreement, and references to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement.
ARTICLE II.
CONTRIBUTION, ASSUMPTION, DISTRIBUTION AND RELATED TRANSACTIONS
Section 2.1 General Description of Transactions.
(a) Pursuant to the terms of this Agreement, the Contribution,
Assumption and Distribution will be consummated as of the Effective
Date, subject to such actions as are to be taken after the Effective
Date, as provided herein. Pursuant to the terms and conditions of this
Agreement, NSI's entire right, title and interest in and to the NUSA
Acquired Assets will be transferred to NUSA, NUSA will assume the NUSA
Assumed Liabilities and will indemnify NSI from such Liabilities, and
the NUSA Shares will be distributed to the NSI Stockholders. These
transactions will result in the separation of NSI's current assets and
business into two entities, with NSI continuing to hold the NSI
Retained Assets and to conduct the NSI Continuing Business, and with
NUSA acquiring the NUSA Acquired Assets, assuming the NUSA Assumed
Liabilities, and being entitled to conduct the NUSA Acquired Business.
The reorganization and separation contemplated by this Agreement as
described above (the "Reorganization") are being effected to facilitate
the potential Stock Acquisitions, in a transaction intended to qualify,
in part, for United States federal income tax purposes as a tax-free
exchange under Section 351 of the Code, while retaining the NUSA
Acquired Business for the benefit of the NSI Stockholders. The
Reorganization is intended to qualify as a reorganization and
disposition within the meaning of Sections 368(a)(1)(D) and 355 of the
Code.
(b) To facilitate the transactions described above, each of
NSI and NUSA will, concurrently with the execution of this Agreement
(or promptly thereafter, as requested by the other party), execute and
deliver all of the other Transaction Documents (and/or, where
applicable, cause its respective subsidiaries or affiliates to do so).
Section 2.2 The Contribution.
(a) Concurrently with the execution of this Agreement, NSI
agrees to, and does hereby, transfer, assign, and contribute to the
capital of NUSA, NSI's entire right, title and interest in and to all
of the NUSA Acquired Assets, subject to the NUSA Assumed Liabilities.
(b) Concurrently with the execution of this Agreement, NSI
shall deliver, or undertake to deliver, to NUSA possession of all of
the NUSA Acquired Assets.
(c) To the extent that NSI has established and maintains
separate cash management systems, and maintains separate bank accounts,
lock boxes, cash balances and other investments with respect to the NSI
Continuing Business and the NUSA Acquired Business, from and after the
date hereof, NSI shall be entitled to all such accounts, lock boxes,
balances and investments related to the NSI Continuing Business and
NUSA shall be entitled to all such accounts, lock boxes, balances and
investments related to the NUSA Acquired Business. Following the date
hereof, (i) NSI shall, and shall cause its affiliates to, remit to
NUSA, no less frequently than weekly, any amounts (net of returned
checks and similar items) received by any of them on or after the
Distribution which constitute NUSA Acquired Assets and (ii) NUSA shall,
and shall cause its affiliates to, remit to NSI, no less frequently
than weekly, any amounts (net of returned checks and similar items)
received by any of them on or after the date hereof which constitute
NSI Retained Assets.
Section 2.3 The Assumption and Related Matters.
(a) In consideration for the transfer to NUSA of the NUSA
Acquired Assets, NUSA agrees to, and does hereby, assume the NUSA
Assumed Liabilities and indemnify NSI from obligations relating
thereto, in accordance with the terms of this Agreement and the
Assumption of Liabilities and Indemnification Agreement.
(b) NSI and NUSA shall use their reasonable best efforts to
cause all rights and obligations of NSI in respect of the NUSA Assumed
Liabilities to be assigned to and assumed by NUSA effective as of the
Effective Date.
(c) From and after the Effective Date, NSI and NUSA shall use
their reasonable best efforts to obtain from each holder or obligee of
such NUSA Assumed Liabilities a full release of NSI from any liability
or obligation in respect of such NUSA Assumed Liabilities, effective as
of the date hereof or as of the earliest possible date.
(d) Each of NSI and NUSA shall cooperate with the other and
execute such instruments and documents as may be necessary or
reasonably requested by the other party in connection with the
assignment, assumption and release of any NUSA Assumed liabilities
contemplated by this Section 2.3.
(e) If and to the extent that NSI and NUSA are unable to
obtain the assignment, assumption and release of any NUSA Assumed
Liabilities as contemplated by this Section 2.3, as between NSI and
NUSA, effective as of the Effectuve Date, NUSA agrees to pay and
perform as and when due all liabilities and obligations of NSI in
respect of such NUSA Assumed Liabilities, whether arising prior to, on
or after the date hereof, and, in the event that for any reason NUSA
does not make any such payment or perform any such obligation as and
when due or NSI makes any such payment or performs any such obligation,
NUSA shall promptly reimburse NSI for all costs and expenses incurred
by NSI in connection therewith.
(f) Concurrently with the execution of this Agreement, the Tax
Sharing and Indemnification Agreement will be executed by the parties
named therein in order to implement an allocation of Liabilities for
Taxes as provided therein.
Section 2.4 Distribution of NUSA Shares. Upon the Effective Date, and
concurrently with the Contribution and Assumption, the NSI Stockholders shall be
entitled to a pro-rata distribution of the NUSA Shares, in accordance with the
number of NSI Shares held by each of them. On the Effective Date, NSI shall
deliver to Steven J. Lund or Keith R. Halls, as the representative of the NSI
Stockholders, the certificate representing the NUSA Shares. NUSA agrees to
promptly file the NUSA Restated Certificate with the Delaware Secretary of
State. The filing of the NUSA Restated Certificate will effect a 100,000 for 1
split of the outstanding NUSA Shares. Promptly upon such filing, and against the
surrender and cancellation of the originally issued certificate representing the
pre-split NUSA Shares, NUSA will deliver to each of the NSI Stockholders a
certificate representing such NSI Stockholder's proportionate share of the
post-split NUSA Common Stock, based on the number of NSI Shares held by such NSI
Stockholder. This Distribution will result in one (1) post-split share of NUSA
Common Stock being distributed with respect to each outstanding share of NSI
Common Stock, as reflected on Exhibit H. As a condition to the delivery of
certificates to the NSI Stockholders representing the NUSA Common Stock to which
they are entitled as a result of the Distribution, NUSA may require that the NSI
Stockholders execute representations regarding the restricted status of the
shares being distributed, their investment intent, and otherwise as reasonably
requested to establish that the Distribution is conducted in compliance with
applicable state and federal securities laws.
Section 2.5 Businesses to be Conducted.
(a) From and after the Effective Date, and after giving effect
to the Contribution, Assumption and Distribution, NUSA shall be
authorized to carry out and conduct the NUSA Acquired Business, in
accordance with the terms of the Intercompany Agreements and the Lease
Agreement.
(b) From and after the Effective Date, NSI shall continue to
conduct the NSI Continuing Business.
(c) Except as otherwise specifically provided herein or in any
of the Transaction Documents, neither party hereto shall be required to
conduct any particular business for any particular period of time, or
be restricted from engaging in any line of business in the future.
(d) As described in the Benefits Agreement, upon the Effective
Date the NUSA Employees shall become employees of NUSA, and NUSA will
assume all obligations arising from such employment relationship.
Section 2.6 Transfers Not Effectuated on Effective Date; Transfers
Deemed Effective as of the Effective Date. To the extent that any transfers
contemplated by this Article II shall not have been consummated on the Effective
Date, the parties shall cooperate to effectuate such transfers as promptly
following the Effective Date as shall be practicable. Nothing herein shall be
deemed to require the transfer of any assets which by their terms or operation
of law cannot be transferred; provided, however, that NSI shall cooperate with
NUSA to seek to obtain any necessary consents or approvals for the transfer of
all NUSA Acquired Assets contemplated to be transferred pursuant to this Article
II. In the event that the transfer of any NUSA Acquired Assets has not been
consummated, from and after the Effective Date, NSI, as the party retaining such
NUSA Acquired Assets shall hold such assets in trust for the use and benefit of
NUSA (at the expense of NUSA), and take such other action as may be reasonably
requested by NUSA, in order to place NUSA, insofar as is reasonably possible, in
the same position as would have existed had NSI's interests in such assets been
transferred to NUSA as contemplated hereby. As and when any such asset becomes
transferable, such transfer shall be effectuated forthwith. The parties agree
that, as of the Effective Date, NUSA shall be deemed to have acquired NSI's
entire rights, title and interests in and to all of the NUSA Acquired Assets,
together with all powers and privileges incident thereto and all duties,
obligations and responsibilities incident thereto, which NUSA is entitled to
acquire or required to assume pursuant to the terms of this Agreement.
Section 2.7 Further Actions to Facilitate Transactions.
(a) From and after the date hereof, each party hereto shall
execute all other documents and take all other actions as may be
reasonably requested by the other party to fully effect and confirm the
transfer and assignment of NSI's rights, title and interests in and to
the NUSA Acquired Assets to NUSA, to carry out and perform their
respective obligations under the Transaction Documents, and to effect
the transactions contemplated by the Transaction Documents. All such
actions shall be at the expense of the requesting party. As provided
elsewhere herein, the parties understand and acknowledge that the NUSA
Acquired Assets are being transferred to NUSA "as is, where is,"
without representation or warranty. Furthermore, NUSA shall bear the
economic and legal risk that any conveyances of such assets shall prove
to be insufficient or that NUSA's title to any such assets shall be
other than good and marketable and free from encumbrances.
(b) NUSA will promptly file the NUSA Restated Certificate with
the Delaware Secretary of State, to effect the change of NUSA's name to
NU Skin USA, Inc., to increase the number of shares NUSA is authorized
to issue, to include language limiting the liability of NUSA directors,
and to provide for a 100,000 for 1 stock split, all as reflected in
Exhibit F. As a result of such stock split, which will be implemented
effective upon the filing of the NUSA Restated Certificate, the number
of NUSA Shares outstanding will be increased to a total of 1,000,000,
thereby facilitating the pro-rata Distribution to NSI Stockholders as
described in Section 2.4 above. As a result of the Distribution, the
post-split NUSA Shares will be held by the NSI Stockholders as set
forth in Exhibit H.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations of NSI. NSI hereby represents and warrants
to NUSA as follows:
(a) NSI has all requisite corporate power and authority to
execute and deliver this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement
and the other Transaction Documents by NSI have been or will be duly
and validly approved or ratified by the requisite vote of the NSI Board
and NSI Shareholders, and authorized by all other necessary action on
the part of NSI. This Agreement has been duly and validly executed and
delivered by NSI, and is the valid and binding obligation of NSI,
enforceable against NSI in accordance with its terms, except as
enforceability may be affected by bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance and other laws affecting the
rights of creditors generally, and by general equitable principles,
whether enforcement is sought in an action at law or in equity.
(b) No consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
governmental authority or person is required on the part of NSI in
connection with the valid execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except as
otherwise specifically referenced herein.
(c) The execution and delivery of this Agreement by NSI and
the performance by NSI of its obligations hereunder do not and will
not: (i) conflict with, violate, result in a breach of, or default
under NSI's Certificate of Incorporation or Bylaws; (ii) violate any
provision of any applicable laws, rules, regulations, or orders
applicable to NSI, the violation of which would be reasonably likely to
result in a material adverse effect on the business or financial
condition of NUSA, or (iii) conflict with, violate, result in a breach
of, constitute a default under (without regard to requirements of
notice, lapse of time or elections of any third parties, or any
combination thereof), or accelerate or permit the acceleration of a
material performance required by, any order, instrument or agreement to
which NSI is a party, the conflict, violation, breach, default or
acceleration of which would be reasonably likely to result in a
material adverse effect on the business or financial condition of NUSA.
(d) The NSI Shares constitute all of the issued and
outstanding securities of NSI, and the NSI Shares are held by the NSI
Stockholders in the amounts indicated on Exhibit H attached hereto.
(e) EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN ANY
TRANSACTION DOCUMENT, NSI'S RIGHT, TITLE AND INTEREST IN AND TO THE
NUSA ACQUIRED ASSETS ARE BEING TRANSFERRED TO NUSA HEREUNDER "AS IS,
WHERE IS," WITHOUT REPRESENTATION OR WARRANTY AS TO CONDITION,
MERCHANTABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE. EXCEPT AS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANY OTHER TRANSACTION DOCUMENT,
NSI IS NOT REPRESENTING OR WARRANTING IN ANY WAY (A) AS TO THE VALUE OR
FREEDOM FROM ENCUMBRANCE OF, OR ANY OTHER MATTER CONCERNING, ANY OF THE
NUSA ACQUIRED ASSETS, OR (B) AS TO THE LEGAL SUFFICIENCY OF THE
EXECUTION, DELIVERY AND FILING OF THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT TO CONVEY TITLE TO ANY PARTICULAR ASSET,
INCLUDING, WITHOUT LIMITATION, ANY CONVEYANCING AND ASSUMPTION
INSTRUMENTS.
Section 3.2 Representations of NUSA. NUSA hereby represents and
warrants to NSI as follows:
(a) NUSA has all requisite corporate power and authority to
execute and deliver this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement
and the other Transaction Documents by NUSA have been or will be duly
and validly approved or authorized by the NUSA Board and authorized by
all other necessary action on the part of NUSA. This Agreement has been
duly and validly executed and delivered by NUSA, and is the valid and
binding obligation of NUSA, enforceable against NUSA in accordance with
its terms, except as enforceability may be affected by bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance and other
laws affecting the rights of creditors generally, and by general
equitable principles, whether enforcement is sought in an action at law
or in equity.
(b) No consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
governmental authority or person is required on the part of NUSA in
connection with the valid execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except as
otherwise specifically referenced herein.
(c) The execution and delivery of this Agreement by NUSA and
the performance by NUSA of its obligations hereunder do not and will
not: (i) conflict with, violate, result in a breach of, or default
under NUSA's Certificate of Incorporation or Bylaws; (ii) violate any
provision of any applicable laws, rules, regulations, or orders
applicable to NUSA, the violation of which would be reasonably likely
to result in a material adverse effect on the business or financial
condition of NSI, or (iii) conflict with, violate, result in a breach
of, constitute a default under (without regard to requirements of
notice, lapse of time or elections of any third parties, or any
combination thereof), or accelerate or permit the acceleration of a
material performance required by, any order, instrument or agreement to
which NUSA is a party, the conflict, violation, breach, default or
acceleration of which would be reasonably likely to result in a
material adverse effect on the business or financial condition of NSI.
(d) The NUSA Shares constitute all of the issued and
outstanding securities of NUSA. Immediately prior to the Effective
Date, all of the NUSA Shares were held by NSI. Upon the filing of the
NUSA Restated Certificate, 1,000,000 NUSA shares will be issued and
outstanding.
ARTICLE IV
ACCESS TO INFORMATION AND SERVICES
Section 4.1 Provision of Corporate Records.
(a) As soon as practicable following the Effective Date, NSI
shall arrange for the delivery, at NUSA's cost, to NUSA of existing
corporate records in NSI's possession relating to the NUSA Acquired
Business, including all licenses, leases, agreements, litigation files
and filings with federal, state, local or foreign governments or
governmental or regulatory agencies or authorities, except to the
extent such items are already in the possession of NUSA or on premises
included in the NUSA Acquired Assets. Such records shall be the
property of NUSA, but shall be available to NSI for review and
duplication until NSI shall notify NUSA in writing that such records
are no longer of use to NSI. NSI may also retain copies of any of such
records relating to actions commenced against NSI. To the extent such
documents relate both to the NUSA Acquired Business and the NSI
Continuing Business, NSI shall deliver, at NUSA's cost, copies of such
documents to NUSA.
(b) The originals of any other documents containing
information with respect to NSI (including accounting, tax and
financial records) shall be retained by NSI. Copies of any such
documents shall be delivered to NUSA, at NUSA's request, in accordance
with paragraph (a) hereof. Costs of duplicating such documents shall be
allocated 50% to NUSA and 50% to NSI.
Section 4.2 Access to Information. From and after the Effective Date,
NSI shall afford to NUSA and its authorized accountants, counsel and other
designated representatives reasonable access and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
data and other data and information (collectively, `Information') within NSI's
possession and shall use reasonable efforts to give to NUSA and its authorized
accountants, counsel and other designated representatives access to persons or
firms possessing Information, insofar as such access is reasonably required by
NUSA and subject to appropriate restrictions for confidential Information.
Similarly, NUSA shall afford to NSI and its authorized accountants, counsel and
other designated representatives reasonable access and duplicating rights during
normal business hours to Information within NUSA's possession and shall use
reasonable efforts to give to NSI and its authorized accountants, counsel and
other designated representatives access to persons or firms possessing
Information, insofar as such access is reasonably required by NSI and subject to
appropriate restrictions for confidential Information. Information may be
requested under this Article IV for, without limitation, audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing this Agreement and the
transactions contemplated hereby.
Section 4.3 Reimbursement. Except to the extent otherwise contemplated
herein or by any other Transaction Agreement, a party providing Information to
the other party under this Article IV shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other direct out-of-pocket
expenses as may be reasonably incurred in providing such Information.
Section 4.4 Retention of Records. Except as otherwise required by law
or agreed to in writing, each of NSI and NUSA may destroy or otherwise dispose
of any of the Information at any time after the tenth anniversary of this
Agreement, provided that, prior to such destruction or disposal, (a) it shall
provide no less than 90 days' prior written notice to the other, specifying in
reasonable detail the Information proposed to be destroyed or disposed of, and
(b) if a recipient of such notice shall request in writing prior to the
scheduled date for such destruction or disposal that any of the requesting
party, the party proposing the destruction or disposal shall promptly arrange
for the delivery of such of the Information as was requested at the expense of
the party requesting such Information.
Section 4.5 Confidentiality. Each of NSI and NUSA shall hold, and shall
cause its directors, employees, agents, consultants and advisors to hold, in
strict confidence, all Information concerning the other in its possession or
furnished by the other or the other's representatives pursuant to this Agreement
(except to the extent that such Information has been (a) in the public domain
through no fault of such party or (b) lawfully acquired from other sources by
such party), and each party shall not release or disclose such Information to
any other person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law.
ARTICLE V
MISCELLANEOUS
Section 5.1 Complete Agreement; Construction. This Agreement, including
the Schedules and Exhibits and the other Transaction Documents and other
agreements and documents referred to herein, shall constitute the entire
agreement between the parties with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter.
Section 5.2 Survival of Agreements. Except as otherwise contemplated by
this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Effective Date.
Section 5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, without regard to
the principles of conflicts of law thereof.
Section 5.4 Dispute Resolution. In the event of any controversy or
dispute between the parties hereto arising out of or in connection with this
Agreement, the parties shall attempt, promptly and in good faith, to resolve any
such dispute. If the parties are unable to resolve any such dispute within a
reasonable time (not to exceed 90 days), all unresolved disputes arising under
this Agreement shall be submitted to mandatory and binding arbitration in Provo,
Utah under the then applicable rules of the America Arbitration Association or
any successor organization.
Section 5.5 Attorneys' Fees. The prevailing party in any arbitral
proceeding brought by one party against the other(s) and arising out of this
Agreement shall be entitled, in addition to any other rights and remedies it may
have, to reimbursement for its expenses, including its costs and attorneys' fees
and arbitral costs.
Section 5.6 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which such notice is received:
To NSI:
Nu Skin International, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. M. Truman Hunt
To NUSA:
Nu Skin USA, Inc.
One Nu Skin Plaza
75 West Center Street
Provo, UT 84601
Attention: Mr. Richard M. Hartvigsen
With a copy to:
Holland & Hart LLP
215 South State Street
Suite 500
Salt Lake City, UT 84111-2346
Attention: David R. Rudd, Esq.
Section 5.7 Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
Section 5.8 Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 5.9 No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, right of reimbursement or other right.
Section 5.10 Titles and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 5.11 Exhibits and Schedules. The Exhibits and Schedules shall
be construed with and as an integral part of this Agreement to the same extent
as if the same had been set forth verbatim herein.
Section 5.12 Legal Enforceability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without prejudice
to any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
Section 5.13 Counterparts. This Agreement may be executed in
counterparts and each taken together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
NU SKIN INTERNATIONAL, INC.
By:
Its:
NU SKIN USA, INC.
By:
Its:
EXHIBIT A
ASSUMPTION OF LIABILITIES AND INDEMNIFICATION AGREEMENT
EXHIBIT B
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
EXHIBIT C
INTERCOMPANY AGREEMENTS
EXHIBIT D
LEASE AGREEMENT
EXHIBIT E
ASSETS TO BE ACQUIRED BY NUSA FROM NSI
Estimated
Amount
----------
1. All cash, except $2,750,000 which will be retained
to pay interest on the S-Notes 38,518,015
2. Related party receivables 1,381,054
3. Amounts due from employees 377,206
4. Interest receivable 119,689
5. Other receivables 84,911
6. Inventory 2,042,251
7. Investment in Aspen partnership 540,921
8. Investment in Scrub Oak partnership 344,514
9. 679,000 shares of NSAP Stock valued at $18.25 per share
as of 12/31/97 12,391,872
10. Investment in Mountain Pictures venture
(Martin Anderson) 75,000
11. Investment in Global Airwaves venture
(Kevin Doman and Nathan Ricks) 275,000
12. Note receivable from Scrub Oak 5,128,666
13. Note receivable from Kevin Doman 100,000
14. Other Notes 159,523
----------
Total Assets to be transferred to Nu Skin USA 61,538,622
==========
Note: This list reflects assets recorded in the financial records at historical
cost. A copy of the financial statements reflecting these assets is attached
hereto as Schedule E-1. NUSA will also obtain the rights and licenses required
to carry out the NUSA Acquired Business, pursuant to the terms of the
Intercompany Agreements.
EXHIBIT F
NUSA RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT G
TAX SHARING AND INDEMNIFICATION AGREEMENT
EXHIBIT H
NSI SHAREHOLDER LISTING
NAME NUMBER OF NSI PERCENTAGE NUMBER OF POST-SPLIT
SHARES HELD INTEREST NUSA SHARES TO BE ISSUED
IN DISTRIBUTION
------------- ---------- -------------------------
Blake M. Roney 303,334 30.3334 303,334
Nedra Dee Roney 253,333 25.3333 253,333
Sandie N. Tillotson 141,667 14.1667 141,667
Craig Bryson 70,833 7.0833 70,833
Craig S. Tillotson 70,833 7.0833 70,833
Steven J. Lund 50,000 5.0000 50,000
Brooke R. Roney 50,000 5.0000 50,000
Kirk V. Roney 50,000 5.0000 50,000
Keith R. Halls 10,000 1.0000 10,000
------------- ---------- -------------------------
TOTALS 1,000,000 100% 1,000,000
EX-10.47
Nu Skin Enterprises, Nu Skin International and Nu Skin USA
Employee Incentive Bonus Plan (the "Plan")
Effective July 1, 1998
Introduction:
A performance based incentive plan was introduced to Nu Skin Employees
at the beginning of 1998. The employees of Nu Skin International
("NSI") and Nu Skin USA ("NSUSA") were participants in that plan. The
acquisition of NSI by Nu Skin Asia Pacific (name changed to Nu Skin
Enterprises ("NSE") led to the termination of that plan and the
adoption of the Plan which is described below.
Purpose:
The purpose of the Plan is to focus employees on excellent, sustained
performance that leads to long-term growth, profitability and
stability.
Objectives:
- To increase revenue and profit and to improve the efficiency and
effectiveness of operations
- To maintain steady long-term growth
- To create a performance based incentive program
- To motivate employees
Employee Incentive Bonus Plan Summary:
The Plan includes a base portion and a stretch portion. The base and
stretch format provides increased incentive for superior performance.
The incentive bonus that can be earned under the Plan is determined by
how well the company, departments and employees perform relative to
earnings targets, revenue targets, department goals and individual
goals. Under the Plan, failure to achieve at least 90% of the earnings
target disqualifies employees from receiving an incentive bonus in any
area of the four areas noted. Earnings are 40%, revenue 20%, department
goals 20% and individual goals 20% of the base portion bonus. The
stretch bonus is 60% based on earnings performance and 40% based on
revenue performance.
The base portion applies when actual performance is greater than 90% of
the target but does not exceed the target. The stretch portion relates
only to revenue and earnings goals and applies when actual performance
exceeds the target. If the earnings performance does not exceed the
target no stretch incentive can be earned for exceeding the revenue
target. Individual and department goals are not applicable to the
stretch portion as achievement of more than 100% of those goals is not
possible. If the actual performance for earnings exceed 120% of the
target a portion of the bonus will be deferred for those with a grade
of 20 or higher.
The earnings and revenue performance targets are established
semi-annually. Department and individual goals are also established
every six months. Employees will be able to track progress toward
achieving the targets by receiving on a quarterly basis, a percentage
number that indicates actual performance compared to the targets.
The maximum bonus, expressed as a percentage of base salary, that can
be earned under the Plan is based on the position held by the employee
and the grade associated with the position. The following table
contains the maximum percentage for the indicated grade categories.
(Less than (Less than (Greater than
100%) 120%) 120%)
Grade Base % Stretch % Double Stretch % Maximum %
- --------- ---------- ----------- ---------------- ---------
1-18 5.0% + 7.5% + 7.5% = 20.0%
19-22 10.0% + 15.0% + 15.0% = 40.0%
23-24, SC 15.0% + 22.5% + 22.5% = 60.0%
25-26, MC 20.0% + 30.0% + 30.0% = 80.0%
VP's, LC 30.0% + 50.0% + 50.0% = 130.0%
CFO, LC 35.0% + 60.0% + 60.0% = 155.0%
COO 40.0% + 75.0% + 75.0% = 190.0%
Deferred Bonuses:
Stretch incentives earned when earnings and revenue performances exceed
120% of the target will be deferred, in part, for employees with grades
of 20 or higher. 1/3rd of the additional incentive is paid currently on
March 15 along with any amounts due for the stretch and base portions
and 1/3rd is paid in each of the two following calendar years as long
as 90% of the earnings target is achieved during the following year(s)
and the employee is employed by the company at the time the payment is
made; otherwise the deferred portion is forfeited.
Employment Requirements:
Employees must be currently employed at the time the incentive is paid
in order to receive the incentive bonus. The incentive plan was created
to encourage employees to be committed to Nu Skin's long-term success
and should function as an incentive for the employee to remain a
contributor. Therefore, an employee is not eligible to receive an
incentive bonus if the employee terminates employment, for any reason,
prior to the date the incentive bonus is paid.
Individual and Department Goals:
Employees must achieve at least 80 percent of each individual goal in
order for that goal to count toward their incentive bonus. Since goals
are set at the distinguished level, 80 percent achievement reflects
that the employee has performed at a "competent" level. If an employee
gets below 80 percent achievement on a particular goal, that goal is
not considered achieved and counts for zero. It is averaged in with the
rest of the goals to determine the total amount of incentive bonus an
employee receives. At least 80% of all individual and department goals
must be achieved to receive any incentive related to those areas. In
addition, if employees don't go through the process of setting goals
and having those goals approved by their managers, they will be
ineligible for any kind of incentive bonus.
Eligible Participants:
All employees of NSE, NSI and NSUSA who are employed prior to the
beginning of the incentive period are eligible to participate.
Timing of bonus payments:
The Plan includes two six-month periods, one ending June 30 and one
ending December 31.
Incentive bonuses earned under the Plan, if any, will be paid
semi-annually on or near March 15 and September 15.
Other Compensation Issues:
When appropriate and as approved by the Board of Directors annual merit
increases will be granted effective the first pay period which starts
in July (generally the second paycheck received in July). The amount of
the merit increase will vary from year to year and will be based on
various relevant factors, as determined by management, including
company performance, market conditions and employee performance.
In the past Executive Management has generally provided a non-cash gift
to employees in December. The value and nature of this gift can change.
This practice is expected to continue but could be discontinued or
altered at anytime at the discretion of Executive Management.
EX-10.48
AMENDMENT IN TOTAL AND COMPLETE RESTATEMENT OF THE
DEFERRED COMPENSATION PLAN
THIS AMENDMENT IN TOTAL AND COMPLETE RESTATEMENT OF THE DEFERRED
COMPENSATION PLAN (hereinafter referred to as the "Amended Agreement") is
entered into effective the ___ day of ___, 1998, by and between NU SKIN
INTERNATIONAL, INC., a Utah Corporation, hereinafter called "Company," and by
__________, hereinafter called "Employee."
WITNESSETH:
WHEREAS, the Company and the Employee entered into a Deferred
Compensation Plan effective as of September 25, 1992 (the "Plan"), and an
Amendment No. 1 to Plan effective as of April 4, 1997 and an Amendment No. 2 to
Plan effective as of April 4, 1997 and the Company and the Employee desire to
amend and restate the Plan in total to incorporate all amendments and to include
affiliates of the Company within the terms of the Plan.
THEREFORE AND IN CONSIDERATION of the premises, and the mutual
covenants, promises and conditions herein contained, the parties agree that the
Plan as previously amended shall be amended in total and restated to become
effective as of the date first written above to read as follows:
1. TERM OF PLAN. This Plan shall become effective as of the above
date and shall remain in effect until the entire amount of the
Deferred Compensation Trust (hereinafter referred to as
"Compensation Trust") has been distributed to the Employee or
his designated beneficiary. Employee hereby accepts this Plan
and agrees to serve at the discretion of the Company and to
devote his full time and talents to the business conducted by
the Company.
2. OTHER AGREEMENTS. This Plan shall not supersede any other
contract of employment, whether written or oral, between the
Company and Employee. However, any article or clause of any
other contract which may be in conflict with this Plan shall be
deemed amended by this Plan as herein provided.
3. COMPENSATION ACCOUNTS AND TRUST. Upon the execution of this
Plan, the Company will establish an Account on the Company's
books for the benefit of Employee (the "Compensation Account").
The Compensation Account will contain two sub-accounts; the
"Employee Compensation Sub-Account" and the "Company
Compensation Sub-Account." In addition, the Company shall
establish a Trust to support its deferred compensation
obligation ("Compensation Trust").
4. EMPLOYEE CONTRIBUTIONS. Prior to the beginning of each fiscal
year of the Company during which the Employee is employed, the
Employee may elect to defer a portion of the compensation to be
paid to the Employee for the coming year ("Employee
Contribution"). The Employee Contribution shall be credited by
the Company to the Employee Compensation Sub-Account at the
times at which the compensation would have been paid except for
the deferral election (i.e., if the Employee elects to defer a
portion of his normal bi-weekly compensation then the deferred
portion shall be credited to the Employee Compensation
Sub-Account on a bi-weekly basis). For purposes of the fiscal
year in which this Plan is first implemented, the election by
the Employee shall be made within thirty (30) days after this
Plan is effective.
5. COMPANY CONTRIBUTIONS. Until this Plan is terminated as provided
for herein, the Company will make a contribution ("Company
Contributions") to the Company Compensation Sub-Account, subject
to and based upon the continued profitability of the Company and
the continued employment and performance of the Employee. On or
before the end of each fiscal year of the Company during which
the Employee works, the Board of Directors of the Company shall
determine in their sole discretion an amount to be credited to
the Company Compensation Sub-Account for the fiscal year, which
amount shall not be less than $1,000.00 per month during the
term of this Plan. Upon execution of this Plan, the Company will
initially contribute to the Company Compensation Sub-Account the
sum of $10,000.00.
6. CONTRIBUTIONS TO COMPENSATION TRUST. On at least a annual basis,
the amount in the Compensation Account shall be contributed to
the Compensation Trust.
7. ACCOUNTING. At the end of each fiscal year the Company shall
notify the Employee in writing as to the amount, if any, that
has been credited to the Employee Compensation Sub-Account, the
Company Compensation Sub- Account and contributed to the
Compensation Trust for the past fiscal year and the total amount
held in the Compensation Trust for the benefit of the Employee
with the earnings thereon. The accounting shall specify the
vested portion of amounts held pursuant to the Plan.
8. NATURE OF EMPLOYER'S OBLIGATION. The Company's obligations under
this Plan shall be an unfunded and
unsecured promise to pay. The Company shall not be obligated
under any circumstances to fund its financial obligations under
this Plan. Any assets which the Company may acquire to help
cover its financial liabilities are and remain general assets of
the Company subject to the claims of its creditors. Neither the
Company nor the plan created by this Plan gives the Employee any
beneficial ownership interest in any asset of the Company. All
rights of ownership in any such assets are and remain in the
Company. All assets in the Compensation Account and in the
Compensation Trust shall always be deemed to be assets of the
Company subject to corporate general creditors. The Employee
shall have no vested right in the Compensation Account or the
Compensation Trust. The assets in the Compensation Account and
Compensation Trust shall be held pursuant to this Plan and shall
remain the sole and exclusive property of the Company and shall
be subject to corporate general creditors.
9. EMPLOYEE RIGHT TO ASSETS.
9.1. The rights of the Employee, any Designated Beneficiary
of the Employee, or any other person claiming through
the Employee under this Plan, shall be solely those of
an unsecured general creditor of the Company. The
Employee, the Designated Beneficiary of the Employee, or
any other person claiming through the Employee, shall
have the right to receive those payments specified under
this Plan only from the Company, and has no right to
look to any specific or special property separate from
the Company to satisfy a claim for benefit payments,
including but not limited to the Compensation Trust.
9.2. The Employee agrees that he, his Designated Beneficiary,
or any other person claiming through him shall have no
rights or beneficial ownership interest whatsoever in
any general asset that the Company may acquire or use to
help support its financial obligations under this Plan,
including but not limited to the Compensation Trust. Any
such general asset used or acquired by the Company in
connection with the liabilities it has assumed under
this Plan, shall not be deemed to be held under any
trust for the benefit of the Employee or his Designated
Beneficiary. Nor shall any such general asset be
considered security for the performance of the
obligations of the Company. Any such asset shall remain
a general, unpledged, and unrestricted asset of the
Company.
9.3. The Employee also understands and agrees that his
participation in the acquisition of any such general
asset for the Company shall not constitute a
representation to the Employee, his Designated
Beneficiary, or any person claiming through the Employee
that any of them has a special or beneficial interest in
such general asset.
10. RETIREMENT BENEFITS. At such time as Employee terminates
employment with the Company (which time shall hereafter be
referred to as "Retirement Date") the Company will pay a
deferred compensation benefit ("Retirement Benefit") to
Employee. The amount of the Retirement Benefit shall be equal to
the vested portion of the amount contributed to the Compensation
Trust from the Compensation Account together with any earnings
thereon as of the Retirement Date of the Employee. The
Retirement Benefit shall be paid to Employee in 60 equal monthly
installments, with the first payment commencing 30 days after
the Employee reaches his Retirement Date. The Company may, in
its discretion, accelerate any payments to the Employee and may
accelerate vesting of the benefits under the plan. In addition,
the Company in its discretion may pay the Retirement Benefit
prior to termination of Employee's employment with the Company.
The Company may, in its discretion, accelerate any payments to
the Employee and may accelerate vesting of the benefits under
the plan.
11. DISABILITY BENEFITS. If it is determined using social security
standards that the Employee is permanently and totally disabled
and unable to continue to perform his duties in the Company, and
on the express condition that the Employee has satisfied all of
the covenants, conditions and promises contained in this Plan
(to the extent applicable) the Company shall pay to the Employee
the vested portion of the amount contributed to the Compensation
Trust from the Compensation Account together with any earnings
thereon as of the date that disability is determined
("Disability Benefit"). The Disability Benefit shall be paid to
the Employee in 60 equal monthly installments to commence 30
days after disability is established to the satisfaction of the
Company. The Company may, in its discretion, accelerate any
payments to the Employee and may accelerate vesting of the
benefits under the plan.
12. DEATH BENEFITS.
12.1. Pre-retirement death benefit. Upon the death of Employee
prior to his Retirement Date, a Death Benefit shall be
paid to Employee's estate (or his
designated beneficiary) in an amount equal to sum of the
following ("Death Benefit"):
12.1.1. The amount contributed to the Compensation Trust
from the Employee Compensation Sub-Account
together with any earnings thereon as of the
date of the Employee's death; and
12.1.2. the greater of (a) the vested portion of the
amount contributed to the Compensation Trust
from the Compensation Account together with any
earnings thereon as of the date of the
Employee's death; or (b) an amount equal to five
times the average of the Employee's Base Salary
for the three most recent years.
The Death Benefit shall be paid in 60 equal monthly installments
to commence 30 days after the death of Employee. The Company may, in its
discretion, accelerate any payments due and may accelerate vesting of
the benefits under the plan.
12.2. Post-retirement death benefit. If Employee dies after
his Retirement Date, the Employee's estate (or his
designated beneficiary) shall be entitled to receive the
remaining unpaid vested portion of the Retirement
Benefit. The remaining Retirement Benefit shall be paid
to the Employee's estate (or his Designated Beneficiary)
on the same basis as it was being paid to the Employee
as of Employee's Retirement Date. The Company may, in
its discretion, accelerate any payments due and may
accelerate vesting of the benefits under the plan.
13. VESTING. Employee's right to receive the Benefits hereunder shall
vest as follows:
13.1. The Employee shall be 100% vested in all amounts
contributed to the Employee Compensation Sub-Account.
13.2. The Employee shall vest 100% in amounts contributed to
the Company Compensation Sub-Account if the Employee has
been continuously employed with the Company from the
date of the Plan until the earlier of the following
events:
13.2.1 The Employee attains 60 years of age; or
13.2.2 The Employee has been continuously employed by
the Company for a period of ten (10) years.
13.2.3 The Employee's death or disability as defined in
the Plan.
13.3. No amounts contributed to the Company Compensation
Sub-Account shall vest unless the employee has been
continuously employed by the Company from the date of
the Plan until the events specified in paragraph 13.2
above.
13.4. Notwithstanding paragraphs 13.1, 13.2 and 13.3 above,
Employee shall forfeit all benefits accruing under this
Plan if at any time during his employment with the
Company, Employee (a) directly or indirectly enters into
the employment of or owns any interest in any other
company, business or corporation which competes directly
or indirectly with the business of the Company, or (b)
the Employee allows the association of his name with or
renders any service or assistance or advice, whether or
not for consideration, to any other corporation, company
or business which company, business or corporation is in
competition with the Company.
14. NATURE OF BENEFITS. It is expressly understood that when
Benefits provided for herein are payable, they are payable on
account of the past services of Employee and are not payable on
account of services to be rendered after the date the Employee
retires or terminates. Further, all amounts to be paid hereunder
do not depend on Employee serving as a consultant or the
Employee serving in any capacity for the Company after the
Employee's Retirement. Benefits payable hereunder are
specifically meant to be paid upon the termination, retirement,
death or disability of the Employee as deferred compensation.
15. NONASSIGNABILITY. It is expressly understood and agreed
hereunder that the Benefits derived from this Plan are not
subject to attachment for payment of any debts or judgments of
Employee and neither Employee nor the Employee's spouse or heirs
shall have any right to transfer, modify, anticipate, encumber,
or assign any of the Benefits or rights hereunder. None of the
payments which may be due to the Employee shall be transferrable
by operation of law in the event the Employee becomes insolvent
or bankrupt.
16. MERGER OR CONSOLIDATION. In the event the Company shall
reorganize, consolidate or merge with any other company this
Plan shall become an obligation of the new company or of any
company taking over the duties and responsibilities of the
Company. The Company agrees that if any of these events occur,
Employee may request that a Rabbi trust be established to hold
the Benefits.
17. LIQUIDATION AND INSOLVENCY. In the event the Company must
liquidate due to insolvency or events resulting in an act of
bankruptcy, or in the event the Company becomes insolvent and is
incapable of paying its bills and obligations, then this Amended
Agreement shall terminate and shall be considered as fully and
completely discharged.
18. PAYMENTS TO OTHER PERSONS. If the Company shall find that any
person to whom any payment is to be made under this Plan is
unable to care for his affairs because of illness or accident,
or is a minor, any Benefit due (unless a prior claim therefor
shall have been made by a duly appointed guardian, committee or
other legal representative) may be paid to the spouse, a child,
a parent, or a brother or sister, or to any person deemed by the
Company to have incurred expenses for such person otherwise
entitled to payment, in such manner and proportions as the
Company may determine. Any such payment shall be a complete
discharge of the liabilities of the Company under this Plan.
19. LIMITATIONS OF THIS PLAN. Nothing contained herein shall be
construed as conferring upon the Employee the right to continue
in the employ of the Company in any capacity.
20. OTHER BENEFITS DETERMINED BY COMPENSATION. All amounts credited
to the Account under this Plan shall not be deemed to be part of
the Employee's regular annual compensation for the purpose of
computing benefits to which he may be entitled under any
pension, profit sharing, 401(k) plan or other arrangement of the
Company for the benefit of its employees.
21. BOARD OF DIRECTORS AUTHORITY. The Board of Directors of the
Company shall have full power and authority to interpret,
construe and administer and amend prospectively this Plan and
the Board's interpretations and construction hereof and actions
hereunder shall be binding and conclusive on all persons for all
purposes. No Employee, representative or agent of the Company
shall be liable to any person for any action taken or omitted in
connection with the
interpretation and administration of this Plan unless
attributable to his own willful misconduct or lack of good
faith.
22. AMENDMENT. During the lifetime of the employee, this Plan may be
amended or revoked at any time, in whole or part, by the mutual
written agreement of the parties.
23. BINDING EFFECT. This Plan shall be binding upon the parties
hereto, their heirs, assigns, successors, executors,
administrators and they shall agree to execute any and all
instruments necessary for the fulfillment of the terms of this
Plan.
24. APPLICABLE LAW. This Plan shall be construed in accordance with
and governed by the laws of the State of Utah.
25. COMPENSATION TRUST. The Company may effect such amendments to
the Compensation Trust Agreement dated September 23, 1993 as
convenient or required to be consistent with this Amended
Agreement and/or is required to make or continue to make the
Compensation Trust Agreement in compliance with Internal Revenue
Service Revenue Procedure 92-64 or any amendments or
replacements thereto.
26. LEAVE OF ABSENCE. For all purposes of this Amended Agreement,
there shall be included as a year in which the Employee works,
any year in which the Employee is on leave of absence from the
Company and is serving as a full-time missionary for any legally
recognized ecclesiastical organization. Further, for all
purposes of this Amended Agreement, there shall be included in
the time the Employee is deemed continuously employed by the
Company any time in which the Employee is on leave of absence
from the Company and is serving as a full-time missionary for
any legally recognized ecclesiastical organization. For all
purposes of this Amended Agreement, whenever the Employee is
deemed employed by the Company while the Employee is on leave of
absence from the Company and is serving as a full- time
missionary for any legally recognized ecclesiastical
organization, the Base Salary of the Employee shall be the Base
Salary in effect immediately prior to the commencement of such
leave of absence.
27. AFFILIATES. For all purposes of this Amended Agreement, the term
"Company Contributions" will include all contributions to the
Company Compensation Sub-Account by the Company or by any
Affiliate of the
Company. Further, the term "Base Salary" shall include the Base
Salary received by Employee from the Company or by an Affiliate
of the Company. An Affiliate of the Company is a company that
directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with
the Company.
IN WITNESS WHEREOF the parties hereto have set their hands the day and
year first above written.
COMPANY:
NU SKIN INTERNATIONAL, INC.,
By ___________________________
Its___________________________
EMPLOYEE:
___________________________
BENEFICIARY DESIGNATION
ENDORSEMENT:
The Employee pursuant to that certain Deferred Compensation Plan entered
into on the 25th day of September, 1992, by NU SKIN INTERNATIONAL, INC. and
Employee does hereby elect the following beneficiary: _________________________.
EMPLOYEE:
___________________________
DEFERRED COMPENSATION CONTRIBUTION RECONCILIATION
TO: __________________(Employee)
DATE: September 25, 1992
The amounts which have been credited pursuant to the Deferred
Compensation Plan for your benefit are as follows:
DEFERRED COMPENSATION PLAN CONTRIBUTION RECONCILIATION
================================================================================
NAME OF ACCOUNT AMOUNT ACCUMULATED VESTED
CONTRIBUTED VALUE PERCENTAGE
TO DATE
======================== ====================== ==================== ===========
Employee 100%
Compensation Sub
Account
Company
Compensation Sub
Account 1992
Company
Compensation Sub
Account 1993
Company
Compensation Sub
Account 1994
Company
Compensation Sub
Account 1995
Company
Compensation Sub
Account 1996
Company
Compensation Sub
Account 1997
Company
Compensation Sub
Account 1998
DEFERRED COMPENSATION PLAN CONTRIBUTION RECONCILIATION (Cont.)
Company
Compensation Sub
Account 1999
Company
Compensation Sub
Account 2000
Company
Compensation Sub
Account 2001
Company
Compensation Sub
Account 2002
Company
Compensation Sub
Account 2003
This reconciliation reflects the amounts as set forth on the books and
records of the Company as of the date set forth above and does not guarantee the
amount or availability of any benefit under the Plan. The amount or availability
of any benefit under the Plan must be determined by reference to the terms and
conditions of the Plan.
EX-10.49
DEFERRED COMPENSATION PLAN
(New Participant Form)
THIS DEFERRED COMPENSATION PLAN (hereinafter referred to as "Plan") is
entered into effective this ____ day of ____, 19__ , by and between NU SKIN
INTERNATIONAL, INC., a Utah corporation, hereinafter called "Company" and by
[Name of Employee], hereinafter called "Employee".
WITNESSETH:
FOR AND IN CONSIDERATION of the mutual covenants, promises and
conditions herein contained, the parties agree as follows:
1. TERM OF PLAN. This Plan shall become effective as of the above date
and shall remain in effect until the entire amount of the Deferred Compensation
Trust (hereinafter referred to as "Compensation Trust") has been distributed to
the Employee or his designated beneficiary, or forfeited to the Company pursuant
to the terms of this Plan. Employee hereby accepts this Plan and agrees to serve
at the discretion of the Company and to devote his full time and talents to the
business conducted by the Company.
2. OTHER AGREEMENTS, SUPERSEDURE. This Plan shall not supersede any
other contract of employment, whether written or oral, between the Company and
Employee. However, any article or clause of any other contract which may be in
conflict with this Plan shall be deemed amended by this Plan as herein provided.
3. COMPENSATION ACCOUNTS AND TRUST. Upon the execution of this Plan, the
Company will establish an Account on the Company's books for the benefit of
Employee (the "Compensation Account"). The Compensation Account will contain two
sub-accounts; the "Employee Compensation Sub-Account" and the "Company
Compensation Sub-Account." In addition, the Company shall establish the
Compensation Trust to facilitate the performance of its deferred compensation
obligation. The Compensation Trust may be amended as convenient or required to
permit the inclusion therein of plans similar to the Plan as a "Plan" as defined
in the Compensation Trust agreement.
4. EMPLOYEE CONTRIBUTIONS. Prior to the beginning of each fiscal year of
the Company during which the Employee is employed, the Employee may elect to
defer a portion of the compensation to be paid to the Employee for the coming
year ("Employee Contribution"). The Employee Contribution shall be credited by
the Company to the Employee Compensation Sub-Account at the times at which the
compensation would have been paid except for the deferral election (i.e., if the
Employee elects to defer a
portion of his normal bi-weekly compensation then the deferred portion shall be
credited to the Employee Compensation Sub-Account on a bi-weekly basis). For
purposes of the fiscal year in which this Plan is first implemented, the
election by the Employee shall be made within thirty (30) days after this Plan
is effective.
5. COMPANY CONTRIBUTIONS. Until this Plan is terminated as provided for
herein, the Company will make a contribution ("Company Contributions") to the
Company Compensation Sub-Account, subject to and based upon the continued
profitability of the Company and the continued employment and performance of the
Employee, which Company Contributions shall be as follows: On or before the end
of each fiscal year of the Company during which the Employee works, the Board of
Directors of the Company shall determine in their sole discretion an amount to
be credited to the Company Compensation Sub-Account for the fiscal year, which
amount shall not be less than ten percent (10%) of the Base Salary of the
Employee for the fiscal year, determined prior to the deferral of any
compensation pursuant to this Plan, and exclusive of all bonuses, commissions
and other compensation paid to the Employee. For purposes of this paragraph 5,
there shall be included as a year in which the Employee works, any year in which
the Employee is on leave of absence from the Company and is serving as a
full-time missionary for any legally recognized ecclesiastical organization, and
there shall be credited to the Company Compensation Sub-Account for any such
year an amount not less than ten percent (10%) of the Base Salary of the
Employee for the most recent preceding fiscal year in which the Employee was
employed throughout the year by the Company.
For all purposes of this Agreement, the term Company Contributions will
include all contributions to the Company Compensation Sub-Account by the Company
or by any Affiliate of the Company. Further, the term Base Salary shall include
the Base Salary received by Employee from the Company or by an Affiliate of the
Company. An Affiliate of the Company is a company that directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control with the Company.
6. CONTRIBUTIONS TO COMPENSATION TRUST. On at least a
annual basis, the amount in the Compensation Account shall be
contributed to the Compensation Trust.
7. ACCOUNTING. At the end of each fiscal year the Company shall notify
the Employee in writing as to the amount, if any, that has been credited to the
Employee Compensation Sub-Account, the Company Compensation Sub-Account and
contributed to the Compensation Trust for the past fiscal year and the total
amount held in the Compensation Trust for the benefit of the Employee with the
earnings thereon. The accounting shall specify the vested portion of amounts
held pursuant to the Plan.
8. NATURE OF COMPANY'S OBLIGATION. The Company's obligations under this
Plan shall be an unfunded and unsecured promise to pay. The Company shall not be
obligated under any circumstances to fund its financial obligations under this
Plan. Any assets which the Company may acquire to help cover its financial
liabilities are and remain general assets of the Company subject to the claims
of its creditors. Neither the Company nor the Plan created hereby gives the
Employee any beneficial ownership interest in any asset of the Company. All
rights of ownership in any such assets are and remain in the Company. All assets
in the Compensation Account and in the Compensation Trust shall always be deemed
to be assets of the Company subject to the general creditors of the Company. The
Employee shall have no vested right in the Compensation Account or the
Compensation Trust. The assets in the Compensation Account and Compensation
Trust shall be held pursuant to this Plan and shall remain the sole and
exclusive property of the Company and shall be subject to corporate general
creditors.
9. EMPLOYEE RIGHT TO ASSETS.
a. The rights of the Employee, any Designated Beneficiary of the
Employee, or any other person claiming through the Employee under this
Plan, shall be solely those of an unsecured general creditor of the
Company. The Employee, the Designated Beneficiary of the Employee, or
any other person claiming through the Employee, shall have the right to
receive those payments specified under this Plan only from the Company,
and has no right to look to any specific or special property separate
from the Company to satisfy a claim for benefit payments, including but
not limited to the Compensation Trust.
b. The Employee agrees that he, his Designated Beneficiary, or
any other person claiming through him shall have no rights or beneficial
ownership interest whatsoever in any general asset that the Company may
acquire or use to help support its financial obligations under this
Plan, including but not limited to the Compensation Trust. Any such
general asset used or acquired by the Company in connection with the
liabilities it has assumed under this Plan, shall not be deemed to be
held under any trust for the benefit of the Employee or his Designated
Beneficiary. Nor shall any such general asset be considered security for
the performance of the obligations of the Company. Any such asset shall
remain a general, unpledged, and unrestricted asset of the Company.
c. The Employee also understands and agrees that his
participation in the acquisition of any such general asset for the
Company shall not constitute a representation to the Employee, his
Designated Beneficiary, or any person claiming through the Employee that
any of them has a special or
beneficial interest in such general asset.
10. RETIREMENT BENEFITS. At such time as Employee terminates employment
with the Company (which time shall hereafter be referred to as "Retirement
Date") the Company will pay a deferred compensation benefit ("Retirement
Benefit") to Employee. The amount of the Retirement Benefit shall be equal to
the vested portion of the amount contributed to the Compensation Trust from the
Compensation Account together with any earnings thereon as of the Retirement
Date of the Employee. The Retirement Benefit shall be paid to Employee in 60
equal monthly installments, with the first payment commencing 30 days after the
Employee reaches his Retirement Date. The Company may, in its discretion,
accelerate any payments to the Employee and may accelerate vesting of the
benefits under the plan. In addition, the Company in its discretion may pay the
Retirement Benefit prior to termination of Employee's employment with the
Company. The Company may, in its discretion, accelerate any payments to the
Employee and may accelerate vesting of the benefits under the plan.
11. DISABILITY BENEFITS. If it is determined using social security
standards that the Employee is permanently and totally disabled and unable to
continue to perform his duties in the Company, and on the express condition that
the Employee has satisfied all of the covenants, conditions and promises
contained in this Plan (to the extent applicable) the Company shall pay to the
Employee the vested portion of the amount contributed to the Compensation Trust
from the Compensation Account together with any earnings thereon as of the date
that disability is determined ("Disability Benefit"). The Disability Benefit
shall be paid to the Employee in 60 equal monthly installments to commence 30
days after disability is established to the satisfaction of the Company. The
Company may, in its discretion, accelerate any payments to the Employee and may
accelerate vesting of the benefits under the plan.
12. DEATH BENEFITS.
a. Pre-retirement death benefit. Upon the death of Employee prior
to his Retirement Date, a Death Benefit shall be paid to Employee's
estate (or his designated beneficiary) in an amount equal to sum of the
following ("Death Benefit"):
(i) The amount contributed to the Compensation Trust from
the Employee Compensation Sub-Account together with any
earnings thereon as of the date of the Employee's death;
and
(ii) the greater of (a) the vested portion of the amount
contributed to the Compensation Trust from the
Compensation Account together with any
earnings thereon as of the date of the Employee's death;
or (b) an amount equal to five times the average of the
Employee's Base Salary for the three most recent years.
The Death Benefit shall be paid in 60 equal monthly installments
to commence 30 days after the death of Employee. The Company may, in its
discretion, accelerate any payments due and may accelerate vesting of
the benefits under the plan.
b. Post-retirement death benefit. If Employee dies after his
Retirement Date, the Employee's estate (or his designated beneficiary)
shall be entitled to receive the remaining unpaid vested portion of the
Retirement Benefit. The remaining Retirement Benefit shall be paid to
the Employee's estate (or his Designated Beneficiary) on the same basis
as it was being paid to the Employee as of Employee's Retirement Date.
The Company may, in its discretion, accelerate any payments due and may
accelerate vesting of the benefits under the plan.
c. For the purposes of this Section 12, the Employee shall be
deemed employed by the Company at any time during which the Employee is
on leave of absence from the Company and is serving as a full-time
missionary for any legally recognized ecclesiastical organization, at
the Base Salary of the employee in effect immediately prior to the
commencement of such leave of absence.
13. VESTING. Employee's right to receive the Benefits hereunder shall
vest as follows:
1. The Employee shall be 100% vested in all amounts contributed
to the Employee Compensation Sub-Account.
2. The Employee shall vest 100% in amounts contributed to the
Company Compensation Sub-Account if the Employee has been continuously
employed with the Company from the date of the Plan until the earlier of
the following events:
(a) The Employee attains 60 years of age; or
(b) The Employee has been continuously employed by the
Company for a period of twenty (20) years.
(c) The Employee's death or disability as defined in the
Plan.
3. No amounts contributed to the Company Compensation Sub-Account
shall vest unless the employee has been continuously employed by the
Company from the date of the
Plan until the events specified in paragraph 13.2 above.
4. Notwithstanding paragraphs 13.1, 13.2 and 13.3 above, Employee
shall forfeit all benefits accruing under this Plan if at any time
during his employment with the Company, Employee (1) directly or
indirectly enters into the employment of or owns any interest in any
other company, business or corporation which competes directly or
indirectly with the business of the Company, or (2) the Employee allows
the association of his name with or renders any service or assistance or
advice, whether or not for consideration, to any other corporation,
company or business which company, business or corporation is in
competition with the Company.
5. For purposes of this paragraph 13, there shall be included in
the time the Employee is deemed continuously employed by the Company any
time in which the Employee is on leave of absence from the Company and
is serving as a full-time missionary for any legally recognized
ecclesiastical organization.
14. NATURE OF BENEFITS. It is expressly understood that when Benefits
provided for herein are payable, they are payable on account of the past
services of Employee and are not payable on account of services to be rendered
after the date the Employee retires or terminates. Further, all amounts to be
paid hereunder do not depend on Employee serving as a consultant or the Employee
serving in any capacity for the Company after the Employee's Retirement.
Benefits payable hereunder are specifically meant to be paid upon the
termination, retirement, death or disability of the Employee as deferred
compensation.
15. INVESTMENT DISCRETION. All amounts contributed to the Contribution
Account under this Plan, and any and all earnings thereon may be invested or
utilized by the Company as the Company, in its sole and absolute discretion, may
determine, including, without limitation, in any aspect of the business or
operations of the Company. The Company may exercise this discretion to determine
the amount of earnings on any amounts contributed to the Contribution Account
for any period.
16. NONASSIGNABILITY. It is expressly understood and agreed hereunder
that the Benefits derived from this Plan are not subject to attachment for
payment of any debts or judgments of Employee and neither Employee nor the
Employee's spouse or heirs shall have any right to transfer, modify, anticipate,
encumber, or assign any of the Benefits or rights hereunder. None of the
payments which may be due to the Employee shall be transferrable by operation of
law in the event the Employee becomes insolvent or bankrupt.
17. MERGER OR CONSOLIDATION. In the event the Company shall reorganize,
consolidate or merge with any other company this Plan shall become an obligation
of the new company or of any company taking over the duties and responsibilities
of the Company. The Company agrees that if any of these events occur, Employee
may request that a Rabbi trust be established to hold the Benefits.
18. LIQUIDATION AND INSOLVENCY. In the event the Company must liquidate
due to insolvency or events resulting in an act of bankruptcy, or in the event
the Company becomes insolvent and is incapable of paying its bills and
obligations, then this Agreement shall terminate and shall be considered as
fully and completely discharged.
19. PAYMENTS TO OTHER PERSONS. If the Company shall find that any person
to whom any payment is to be made under this Plan is unable to care for his
affairs because of illness or accident, or is a minor, any Benefit due (unless a
prior claim therefor shall have been made by a duly appointed guardian,
committee or other legal representative) may be paid to the spouse, a child, a
parent, or a brother or sister, or to any person deemed by the Company to have
incurred expenses for such person otherwise entitled to payment, in such manner
and proportions as the Company may determine. Any such payment shall be a
complete discharge of the liabilities of the Company under this Plan.
20. LIMITATIONS OF THIS PLAN. Nothing contained herein shall be
construed as conferring upon the Employee the right to continue in the employ of
the Company in any capacity.
21. OTHER BENEFITS DETERMINED BY COMPENSATION. All amounts credited to
the Account under this Plan shall not be deemed to be part of the Employee's
regular annual compensation for the purpose of computing benefits to which he
may be entitled under any pension, profit sharing, 401(k) plan or other
arrangement of the Company for the benefit of its employees.
22. BOARD OF DIRECTORS AUTHORITY. The Board of Directors of the Company
shall have full power and authority to interpret, construe and administer and
amend prospectively this Plan and the Board's interpretations and construction
hereof and actions hereunder shall be binding and conclusive on all persons for
all purposes. No Employee, representative or agent of the Company shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Plan unless attributable to his own
willful misconduct or lack of good faith.
23. AMENDMENT. During the lifetime of the employee, this Plan may be
amended or revoked at any time, in whole or part, by the mutual written
agreement of the parties.
24. BINDING EFFECT. This Plan shall be binding upon the parties hereto,
their heirs, assigns, successors, executors, administrators and they shall agree
to execute any and all instruments necessary for the fulfillment of the terms of
this Plan.
25. APPLICABLE LAW. This Plan shall be construed in accordance with and
governed by the laws of the State of Utah.
26. COMPENSATION TRUST. The Company may effect such amendments to the
Compensation Trust Agreement dated September 23, 1993 as convenient or required
to be consistent with this Amended Agreement and/or is required to make or
continue to make the Compensation Trust Agreement in compliance with Internal
Revenue Service Revenue Procedure 92-64 or any amendments or replacements
thereto.
IN WITNESS WHEREOF the parties hereto have set their hands the day and
year first above written.
COMPANY:
NU SKIN INTERNATIONAL, INC.
By ______________________________
Its___________________________
EMPLOYEE:
______________________________
[Name of Employee]
BENEFICIARY DESIGNATION
ENDORSEMENT:
The Employee pursuant to that certain Deferred Compensation Plan entered
into on the day of , 19 , by and between NU SKIN INTERNATIONAL, INC. and
Employee, does hereby designate the following beneficiary:
EMPLOYEE:
______________________________
[Name of Employee]
DEFERRED COMPENSATION CONTRIBUTION RECONCILIATION
TO: [Name of Employee]
DATE:
The amounts which have been credited pursuant to the Deferred
Compensation Plan for your benefit are as follows:
DEFERRED COMPENSATION PLAN CONTRIBUTION RECONCILIATION
================================================================================
NAME OF ACCOUNT AMOUNT ACCUMULATED VESTED
CONTRIBUTED VALUE PERCENTAGE
TO DATE
========================= ==================== ================== ==============
Employee 100%
Compensation Sub
Account
Company
Compensation Sub
Account 1998
Company
Compensation Sub
Account 1999
Company
Compensation Sub
Account 2000
Company
Compensation Sub
Account 2001
This reconciliation reflects the amounts as set forth on the books and
records of the Company as of the date set forth above and does not guarantee the
amount or availability of any benefit under the Plan. The amount or availability
of any benefit under the Plan must be determined by reference to the terms and
conditions of the Plan.
EX-10.50
AMENDMENT IN TOTAL AND COMPLETE RESTATEMENT OF
NU SKIN INTERNATIONAL, INC.
COMPENSATION TRUST
This Amendment in Total and Complete Restatement of the Nu Skin
International, Inc. Compensation Trust is made as of this ____ day of
_____________, 1998, by and between Nu Skin International, Inc. (hereinafter
called the "Company"), whose address is 75 West Center Street, Provo, Utah
84606, and Blake M. Roney, Steven J. Lund and Keith R. Halls (hereinafter called
the "Trustee").
The Company created the Nu Skin International, Inc. Compensation Trust
on the 23rd day of September, 1993 (hereinafter called the "Trust"), and desires
to amend the Trust, in total, as follows:
RECITALS:
WHEREAS the Company has adopted non-qualified deferred compensation
plans (copies of which are attached hereto) for some of the highly compensated
employees or a select management group of the Company (hereinafter referred to
as the "Plans"). The Company may hereafter adopt additional non-qualified
deferred compensation plans which may participate in this Trust upon receipt by
the Trustees of a copy of the Plan from the Company and the approval of the
Trustees without additional action by the Company.
WHEREAS the Company has incurred or expects to incur liability under the
terms of such Plans with respect to the individual participating in such Plans.
WHEREAS the Company wishes to establish the Trust and to contribute to
the Trust assets that shall be held herein subject to the claims of the
Company's creditors in the event of the Company's insolvency, as herein defined,
until paid to Plan participants and their beneficiaries in such manner and at
such times as specified in the Plans.
WHEREAS it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as unfunded plans maintained for the purpose of providing deferred compensation
for a select group of management or highly compensated employees for purposes of
Title I of the Employee Retirement Income Security Act of 1974.
WHEREAS it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist in the meeting of its
liabilities under the Plans.
NOW THEREFORE the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee and Trust the sum of
$10.00, which will become the principal of the trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by the Company, it shall
become irrevocable upon a Change of Control as defined herein.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Plan participants and general creditors as
hereinafter set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership in, any assets of the Trust. Any
rights created under the Plans and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under Federal and State law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in Trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any plan
participant or beneficiary shall have any right to compel such additional
deposits.
Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR
BENEFICIARIES.
(a) The Company shall deliver to the Trustee a copy of the Deferred
Compensation Plan for each Plan participant that indicates the amounts payable
in respect to each Plan participant (and his or her beneficiaries), the form in
which such amount is to be paid as provided for or available under the Plan(s),
and the time of commencement for payment of such amounts. Except as otherwise
provided herein, the Trustee shall make payments to the Plan participants and
their beneficiaries in accordance with the Plans. The Trustee shall make
provisions for the reporting and withholding of any Federal, State and local
taxes that may be required to be withheld with respect to the payment of
benefits
pursuant to the terms of the Plans and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
(b) Entitlement of the Plan participant or his or her beneficiaries to
benefits under the Plans shall be determined by the Company or such party as it
shall designate under the Plans, and any claim for such benefits shall be
considered and reviewed under the procedure set out in the Plans.
(c) The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plans. The Company shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plans, the Company shall make the balance of each such payment as
it falls due. The Trustee shall notify the Company where principal and earnings
are not sufficient.
Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY WHEN
THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
the claims of general creditors of the Company under Federal and State laws set
forth below.
(1) The Board of Directors and the President of the Company shall
have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges
in writing to the Trustee that the Company has become Insolvent, the
Trustee shall determine whether the Company is Insolvent and, pending
such determination, the Trustee shall discontinue payment of benefits to
Plan participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming
to be a creditor alleging that the Company is Insolvent, the Trustee
shall have no duty of inquiry whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning solvency as
may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's
solvency.
(3) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants
or their beneficiaries and shall hold the assets of the Trust for the
benefit of the Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants or
their beneficiaries to pursue their rights as general creditors of the
Company with respect to benefits due under the Plans or otherwise.
(4) The Trustee shall resume the payments of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Company
is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, the Company shall have no right or power to direct the Trustee to
return to the Company or divert to others any of the Trust assets before all
payment of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plans.
Section 5. INVESTMENT AUTHORITY.
(a) The Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by the Company. All rights associated with
assets of the Trust shall be exercised by the Trustee of the person designated
by the Trustee, and shall in no event be exercisable by or rest with Plan
participants.
(b) The Company shall have the right at any time, and from time to time
in its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Company in a
non-fiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
Section 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 60 days following the close of each calendar
year and within 60 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other actions affected by it, including
the description of all securities and investments purchased and sold with the
cost or net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities and other
property held in the Trust at the end of such year or as of the date of such
removal or resignation, as the case may be.
Section 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plans or this Trust and is given in
writing by the Company. In the event of a dispute between the Company and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's cost, expenses and liabilities (including, without limitation,
attorneys fees and expenses) relating thereto and be primarily liable for such
payments. If the Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accounts, actuaries, investment
advisers, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
the Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) However, notwithstanding the provisions of Section 8(e) above, the
Trustee may loan to the Company the proceeds of any borrowings against an
insurance policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and the Trustee's fees and
expenses. If no so paid, the fees and expenses shall be paid from the Trust.
Section 10. RESIGNATION OR REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the Company
which shall be effective twenty (20) days after receiving such notice unless the
Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on twenty (20) days notice
or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the Trustee may not be
removed by the Company for 5 years.
(d) If the Trustee resigns within 5 years of a Change of Control, as
defined herein, the Trustee shall select a successor Trustee in accordance with
the provisions of Section 11(b) hereof prior to the effective day of the
Trustee's resignation or removal.
(e) Upon resignation or removal of the Trustee and appointment of the
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within thirty (30) days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limits.
(f) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of the
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
the Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or 10(b) hereof, the Company may appoint a third party as a successor to
replace the Trustee upon resignation or removal. The appointment shall be
effective when accepted in writing by the new Trustee, who shall have all the
rights and powers of the former Trustee, including ownership rights in the Trust
assets. The former Trustee shall execute every instrument necessary or
reasonably requested by the Company or the successor Trustee to evidence the
transfer.
(b) If the Trustee resigns or is removed pursuant to the
provisions of Section 10(e) hereof and selects a successor Trustee, the Trustee
may appoint any third party as successor Trustee. The appointment of a successor
Trustee shall be effective when accepted in writing by the new Trustee. The new
Trustee shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the successor Trustee to
evidence the transfer.
(c) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Section 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
past event, or any condition existing at the time he becomes successor Trustee.
Section 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument executed
by Trustee and the Company. Notwithstanding the foregoing comment, no such
amendment shall conflict with the terms of the Plans or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which the Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plans unless sooner revoked in accordance with Section 1(b)
hereof. Upon termination of the Trust, any assets remaining in the Trust shall
be returned to the Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plans, the Company may
terminate this Trust prior to the time all benefits payable under the Plans have
been made. All assets in the Trust at termination shall be returned to the
Company.
Section 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
(d) For purposes of this Trust, Change of Control shall mean the
purchase or other acquisition by any person, entity or group of persons, within
the meaning of Section 13(b) or 14(d) of the Securities Exchange Act of 1934
(the "Act"), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 50 percent or
more of the outstanding shares of common stock or the combined voting power of
the Company's then outstanding voting securities entitled to vote generally, or
the approval by the stockholders of the Company or a reorganization, merger, or
consolidation, in each case, with respect to which persons who are stockholders
of the Company immediately prior to such reorganization, merger or consolidation
do not, immediately thereafter, own more than 50 percent of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding securities, or a
liquidation or dissolution of the Company or the sale of all or substantially
all of the Company's assets.
Section 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be the 23rd day of
September 1993.
Section 15. AFFILIATES.
For purposes of paragraphs 1(c), 1(d), 1(e), 2, 3, 4, 5, 7, 8, 9, 11(c),
12(b), and 12(c), the term "Company" shall include Nu Skin International, Inc.
("NSI") and any Affiliate of NSI. An Affiliate of NSI is a company that directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with NSI.
However, whenever the term "Company" refers to an Affiliate, an
allocation of amounts (based on contributions from the Affiliate) between NSI
and the Affiliate shall be required so that each company shall only have
responsibility or authority relating to those amounts related to that company.
Allocations of income and principal shall be made and the Trustees shall charge
income of the Trust to the company to which that income relates and each company
shall be responsible to report its share of such income. Further,
indemnification and similar provisions shall require apportionment between the
companies. Each Affiliate which contributes to the Trust shall be deemed a
grantor of the Trust and the owner as to that proportionate share of the Trust
based on its percentage of contributions.
Responsibilities, including, but not limited to, the obligation to
deliver copies of Deferred Compensation Plans, shall relate to those Plans to
which the Affiliate contributes. However, an action taken previously by NSI or
an Affiliate need not be duplicated by a succeeding Affiliate.
Insolvency of an Affiliate shall only affect that Affiliate
and the percentage of the Trust owned by that Affiliate.
IN WITNESS WHEREOF the Company and the Trustee have executed this
Agreement as of the date first above written.
NU SKIN INTERNATIONAL, INC.
By __________________________
Its _________________________
Attest:
_________________________
Secretary
Trustee:
_________________________
Blake M. Roney, Trustee
_________________________
Steven J. Lund, Trustee
_________________________
Keith R. Halls, Trustee
EX-10.51
WILLIAM MCGLASHAN, JR.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of October 5, 1998, between PHARMANEX,
INC., a Delaware corporation ("Company"), and WILLIAM MCGLASHAN, JR.
("Executive").
WHEREAS, the Company is a wholly owned subsidiary of Generation Health
Holdings, Inc.;
WHEREAS, in connection with the transactions contemplated by that
certain Agreement and Plan of Merger and Reorganization between Generation
Health Acquisitions, Corp., Nu Skin Enterprises, Inc. ("Parent") and Generation
Health Holdings, Inc., dated as of October 5, 1998 ("Merger Agreement"), the
Company will become an indirect wholly owned subsidiary of the Parent;
WHEREAS, following the transactions contemplated by the Merger
Agreement, the Company wishes to have the Executive continue to provide services
for the period provided in this Agreement and Executive wishes to remain in the
employ of the Company for such period; and
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EFFECTIVENESS OF AGREEMENT
1.1. General. This Agreement shall become effective as of the
Effective Time (as defined in the Merger Agreement).
2. EMPLOYMENT AND DUTIES
2.1. General. The Company hereby employs the Executive, and
the Executive agrees to serve, as President of the Company, upon the
terms and conditions herein contained. In such capacity, Executive
shall report directly to the Chief Executive Officer of the Parent. The
Executive shall perform such other duties and services for the Company
and the Parent as may be reasonably designated from time to time by the
Parent and as are consistent with Executive's title. The Executive
agrees to serve the Company faithfully and to the best of his ability
under the direction of the Parent.
2.2. Exclusive Services. Except as may otherwise be approved
in advance by the Board of Directors of the Company ("Board"), and
except during vacation periods and reasonable periods of absence due to
sickness, personal injury or other disability, the Executive shall
devote his full working time throughout the Employment Term (as defined
below) to the services required of him hereunder. The Executive shall
render his services exclusively to the Company during the Employment
Term, and shall use his best efforts, judgment and energy to improve
and advance the business and interests of the Company in a manner
consistent with the duties of his position. Executive may participate
in charitable and philanthropic activities so long as they don't
interfere with his duties hereunder.
2.3. Term of Employment. The Executive's employment under this
Agreement shall commence as of the Effective Time and shall terminate
on the earlier of (a) December 31, 2001, or (b) the termination of the
Executive's employment pursuant to this Agreement. The period
commencing as of the Effective Time and ending on December 31, 2001 or
such earlier date on which Executive's employment with the Company
terminates, is hereinafter referred to as the "Employment Term".
Executive may terminate his employment with the Company at any time and
for any reason upon twelve (12) months prior written notice to the
Company.
2.4. Reimbursement of Expenses. The Company shall reimburse
the Executive for reasonable travel and other business expenses
incurred by him in the fulfillment of his duties hereunder upon
presentation by the Executive of an itemized account of such
expenditures, in accordance with the Parent's policies and procedures.
2.5. Termination of Prior Agreements. Executive agrees and
acknowledges that, upon the Effective Time, all prior employment
agreement, compensation and incentive arrangements and rights to
acquire equity of the Company (except as provided expressly herein and
except for options expressly assumed by Parent in the Merger Agreement
and except for the Indemnity Agreement between Executive and Generation
Health Holdings, Inc. (unless Executive and the Company enter into a
replacement Indemnification Agreement in form and substance
satisfactory to Executive)) are cancelled in their entirety and are of
no further force or effect.
3. SALARY
3.1. Base Salary. From the Effective Time, the Executive shall
be entitled to receive a base salary ("Base Salary") at a rate of
$230,000 per annum, payable twice monthly in arrears in equal
installments in accordance with the Parent's payroll practices.
3.2. Annual Review. The Executive's Base Salary shall be
reviewed for potential increase by the Parent, based upon the
Executive's performance, not less often than annually. Any positive
adjustments in Base Salary effected as a result of such review shall be
made by the Parent in its sole discretion; provided, however, that
during the three year period of the Employment Term only, the Executive
shall receive a minimum increase of ten percent (10%) per annum.
3.3. Bonus. During his employment under this Agreement, the
Executive shall be entitled to participate in Parent's Cash Incentive
Plan ("Bonus Plan"), under which the Executive shall be entitled to
participate as a "Large Country Manager" (as such term is defined in
the Bonus Plan) and to receive an annual bonus of up to 130% of his
Base Salary, based on his level of achievement of the applicable
performance criteria. Any bonus will be paid in cash in accordance with
of the terms and conditions of the Bonus Plan. If Executive would have
been entitled to a bonus under this Section for any bonus period
(January 1 to June 30, and July 1 to December 31) but for the fact that
he is no longer employed by the Company on a bonus payment date (March
15 or September 15), as opposed to during a bonus period, other than as
a result of a termination for Cause or Executive's resignation, then
Executive shall nonetheless be entitled to and be paid the applicable
bonus.
4. LONG-TERM INCENTIVE COMPENSATION.
The Company will provide the Executive with the following long-term
incentive compensation arrangement in accordance with the terms of Parent's 1996
Incentive Stock Option Plan ("Stock Option Plan").
(a) As soon as practicable after the Effective Time,
Parent will grant the Executive nonqualified stock options
("Options") to acquire 450,000 shares of Parent common stock
("Shares"); 120,000 of the Options will be designated Series A
Options ("Series A Options"), 150,000 of the Options will be
designated Series B Options ("Series B Options") and 180,000
of the Options will be designated Series C Options ("Series C
Options"), in each case with an exercise price equal to $17.00
per share.
(b) For each of the three fiscal years of the Company
beginning with fiscal year 1999 ("Performance Period"),
one-third of each of the Series A, Series B and Series C
Options will vest (and become exercisable) at the end of each
fiscal year if the following conditions are satisfied: (i) the
Pharmanex/IDN Gross Profit objectives for such fiscal year for
such series and set forth on Appendix A (which may be
equitably adjusted from time to time, in the sole
determination of Parent's Board of Directors acting reasonably
and in good faith, to reflect significant changes and
developments in the Company's operations resulting from
acquisitions or dispositions of other companies or business)
("Gross Profit") are met or exceeded, (ii) the Parent=s
Consolidated Revenue objectives for such fiscal year for such
series and set forth in Appendix B (which may be equitably
adjusted from time to time, in the sole determination of the
Parent's Board of Directors acting reasonably and in good
faith, to reflect significant changes and developments in
Company and Parent operations resulting from acquisitions or
dispositions of other companies or businesses) ("Consolidated
Revenue") are met or exceeded, and (iii) the Executive is
employed by the Company or an affiliate continuously until the
last day of such fiscal year. For purposes of this Agreement,
Gross Profit of the Company and Consolidated Revenue of the
Parent shall be calculated by the Parent=s independent
certified public accountants in accordance with generally
accepted accounting principles. In the event that Parent's
Board of Directors determines that an increase in the Gross
Profit or Consolidated Revenue objectives is warranted in
accordance with the foregoing, such objectives shall be
adjusted upward by an amount equal to the annualized gross
profit (for the Gross Profit objectives) or revenue (for the
Consolidated Revenue objectives) results for the acquired
company in the year of acquisition, plus the lesser of (i) 10%
ten percent per annum to reflect a modest anticipated growth
rate, or (ii) the average historical growth rate in gross
profit (for the Gross Profit objectives) or revenue (for the
Consolidated Revenue objectives) of the acquired company
during the acquired company's prior three fiscal years.
Moreover, if any one-third installment of such Options have not become
exercisable in accordance with the immediately preceding paragraph, such Options
shall become vested and exercisable at the earlier to occur, if any, of the
following dates or events:
(i) the end of any subsequent fiscal year in the
Performance Period if the cumulative Gross Profit objectives
and the cumulative Consolidated Revenue objectives for the
period ending with the end of such fiscal year as set forth on
Appendix A and Appendix B are met or exceeded; provided that
the Executive is employed by the Company continuously until
the last day of such fiscal year; or
(ii) the date which is seven years after the
Effective Time; provided the Executive is employed by the
Company continuously until such date.
Notwithstanding the foregoing, upon the occurrence of a change of
control of the Parent (as defined in the Stock Option Plan), all unvested
Options will become immediately vested and exercisable; provided the Executive
is employed by the Company or an affiliate on such date.
(c ) Unless the Company determines otherwise, the
Executive shall forfeit all Options, whether or not vested, if
the Executive's employment with the Company or any of its
affiliates is terminated for Cause or, if following
termination of the Executive's employment with the Company or
any of its affiliates for any other reason, the Company
determines that, during the period of the Executive's
employment, circumstances existed which would have entitled
the Company or any such affiliate to terminate the Executive's
employment for Cause and the Company notifies Executive of
such determination in writing no later than ninety (90) days
after termination of Executive's employment with the Company.
(d ) In connection with the grant of the Options, the
Company and the Executive shall enter into an award document
which shall set forth the term of the Options, the procedures
for exercising the Options and such other terms as the Company
may determine, in its reasonable discretion, are necessary and
appropriate; provided, however, that notwithstanding the
foregoing the Options shall have the longest term permissible
under the Stock Option Plan.
5. EMPLOYEE BENEFITS
The Executive shall, during his employment under this Agreement, be
included to the extent eligible thereunder in all employee benefit plans,
programs or arrangements (including, without limitation, any plans, programs or
arrangements providing for retirement benefits, profit sharing, disability
benefits, health and life insurance, or vacation and paid holidays) that shall
be established or adopted by the Company or the Parent for, or made available
to, the Company's or the Parent's senior executives. In addition, the Company
shall furnish the Executive with the following benefits during his employment
under this Agreement:
(a) at the Company's expense, maintain an executive
quality apartment or condominium in Provo, Utah for use in
connection with Company business; and
(b) reimburse up to $6,500 per annum for expenses
with respect to his participation in the Young President=s
Organization ("YPO"). In addition, every year Executive shall
be entitled to attend one YPO University one week session and
receive reimbursement therefor; and
(c) the payment of Executive's reasonable relocation
expenses incurred in connection with any move of the Company's
principal headquarters at any time during the term of this
Agreement in accordance with the policies of the Parent; and
(d) Four (4) weeks vacation per annum.
6. TERMINATION OF EMPLOYMENT
6.1. Termination Without Cause.
6.1.1. General. Subject to the provisions of Sections
6.1.3 and 6.1.4, if, prior to the expiration of the Employment
Term, the Executive's employment is terminated by the Company
without Cause (as defined below), the Company shall continue
to pay the Executive the Base Salary (at the rate in effect on
the date of such termination) for twelve (12) months (such
period being referred to hereinafter as the "Severance
Period"), at such intervals as the same would have been paid
had the Executive remained in the active service of the
Company. The Executive shall have no further right to receive
any other compensation or benefits after such termination or
resignation of employment, except as determined in accordance
with the terms of the employee benefit plans or programs of
the Company or as provided in this Agreement. In addition, the
Executive may, but only within twelve (12) months after he
ceases to be an employee, exercise his Options to the extent
they have vested. To the extent that the Executive is not
otherwise entitled to exercise the Options at the date of such
termination, or if he fails to exercise the Options within the
time specified in the preceding sentence, such Options will
terminate.
6.1.2 To the extent that any of the Options would
have vested at the end of the fiscal year in which Executive
is terminated under Section 4 of this Agreement but for the
termination of the Executive without Cause, then
notwithstanding Section 6.1.1 hereof, such Options shall vest
when the necessary calculations under Section 4 have been
completed, and Executive shall have twelve (12) months from
such determination date to exercise the Options. The Company
shall notify Executive within ten days after the necessary
calculations under Section 4 have been completed (which
calculations shall be made no later than ninety (90) days
after the fiscal year in question) as to whether any of the
Options have vested. This provision shall survive termination
of the Agreement.
6.1.3. Conditions Applicable to the Severance Period.
If, during the Severance Period, the Executive breaches any of
his obligations under Section 8, the Company may, upon written
notice to the Executive, terminate the Severance Period and
cease to make any further payments or provide any benefits
described in Section 6.1.1.
6.1.4. Death During Severance Period. In the event of
the Executive's death during the Severance Period, payments of
Base Salary under Section 6.1.1 shall continue to be made
during the remainder of the Severance Period to the
beneficiary designated in writing for this purpose by the
Executive or, if no such beneficiary is specifically
designated, to the Executive's estate.
6.1.5. Date of Termination. The date of termination
of employment without Cause shall be the date specified in a
written notice of termination to the Executive as the last day
of the Executive's employment.
6.1.6. Constructive Termination. The term
"Constructive Termination" means:
(a) the continued assignment to Executive of any
duties or the continued material reduction in Executive's
duties, either of which is materially inconsistent with
Executive's position with the Company, for thirty (30)
calendar days after Executive's delivery of written notice to
the Company objecting to such assignment or reduction; or
(b) the relocation of the principal place for the
rendering of Executive's services hereunder to a location more
than twenty (20) miles from Los Angeles or the Company's
initial business offices in the San Francisco Area; or
(c) a material reduction in compensation and benefits
under this Agreement, which remains in effect for thirty (30)
calendar days after Executive delivers written notice to the
company of such material reduction.
None of the foregoing will constitute a Constructive Termination to the
extent mutually agreed upon in advance of the occurrence thereof by the
Executive and the Company. A Constructive Termination will be treated as a
termination of the Executive by the Company without Cause.
6.2. Termination for Cause; Resignation.
6.2.1. General. If, prior to the expiration of the
Employment Term, the Executive's employment is terminated by
the Company for Cause, or the Executive resigns from his
employment hereunder, the Executive shall be entitled only to
payment of his Base Salary as then in effect through and
including the date of termination or resignation. In the event
the Executive resigns Executive may, but only within twelve
(12) months after he ceases to be an employee, exercise his
Options to the extent they have vested. The Executive shall
have no further right to receive any other compensation or
benefits after such termination or resignation of employment,
except as determined in accordance with the terms of the
employee benefit plans or programs of the Company or as
provided in this Agreement.
6.2.2. Date of Termination. The date of termination
for Cause shall be the date specified in a written notice of
termination to the Executive as the last day of the
Executive's employment. The date of resignation shall be the
date specified in the written notice of resignation from the
Executive to the Company as the last day of the Executive's
employment, or if no date is specified therein, twelve (12)
months after receipt by the Company of written notice of
resignation from the Executive.
6.3. Cause. Termination for "Cause" shall mean termination of
the Executive's employment because of:
(a) any act or omission that constitutes a material
breach by the Executive of any of his obligations under this
Agreement, which breach is materially injurious to the
Company;
(b) the willful and continued failure or refusal of
the Executive to substantially perform the duties required of
him in his position with the Company, which failure is not
cured within twenty (20) days following written notice of such
failure;
(c) any willful violation by the Executive of any
material law or regulation applicable to the business of the
Company or any of its subsidiaries or affiliates, or the
Executive's conviction of, or a plea of nolo contendre to, a
felony, or any willful perpetration by the Executive of a
common law fraud; or
(d) any other willful misconduct by the Executive
that is materially injurious to the financial condition or
business reputation of, or is otherwise materially injurious
to, the Company or any of its subsidiaries or affiliates.
7. DEATH OR DISABILITY
In the event of termination of employment by reason of death or
Disability (as hereinafter defined), the Executive (or his estate, as
applicable) shall be entitled to Base Salary through the date of termination.
Other benefits shall be determined in accordance with the terms of the benefit
plans maintained by the Company, and the Company shall have no further
obligation hereunder. In addition, the Executive (or his estate or the person or
persons to whom the Options may have been transferred by will or by the laws of
decent and distribution, as applicable) may, but only within twelve months after
Executive ceases to be an employee, exercise Executive's Options to the extent
Executive was entitled to exercise such Options on the date of his death or on
the date he is terminated by the Company by reason of Disability (all of which
shall be terminations without Cause). To the extent that the Executive was not
otherwise entitled to exercise the Options on such date, or if he (or his estate
or the person or persons to whom the Options may have been transferred by will
or by the laws of decent and distribution, as applicable) fails to exercise the
Options within the time specified in the preceding sentence, such Options will
terminate. For purposes of this Agreement, "Disability" means a physical or
mental disability or infirmity of the Executive, as determined by a physician of
recognized standing selected by the Company, that prevents (or, in the opinion
of such physician, is reasonably expected to prevent) the normal performance of
his duties as an employee of the Company for any continuous period of 180 days,
or for 180 days during any one 12-month period.
8. CONFIDENTIALITY; NONCOMPETITION; NONSOLICITATION
8.1. Key-Employee Covenants. The Executive agrees to perform
his obligations and duties and to be bound by the terms of the
Key-Employee Covenants attached hereto as Appendix C which are
incorporated by reference and which shall be in force unless otherwise
expressly modified by this Agreement.
(a) Executive agrees that the period of
non-competition set forth in Section 8 of the Key-Employee
Covenants is lengthened from six months to one year. The
Company, or the Parent may extend the period of
non-competition set forth in Section 8 of the Key-Employee
Covenants for up to an additional two (2) years thereafter,
provided that (i) where Executive has either voluntarily
resigned his employment with the Company or his employment is
terminated for Cause, within thirty (30) days of the
termination of the applicable non-competition period the
Company or the Parent notifies the Executive in writing that
it wishes to so extend the period of non-competition for an
additional one-year period, (ii) where Executive's employment
with the Company is terminated without Cause or as a result of
the expiration of the term of this Agreement (where Executive
does not continue in the employ of the Company), the Company
notifies the Executive in writing within sixty (60) days of
the termination of Executive's employment hereunder, that it
wishes to so extend the period of non-competition and
specifies therein whether such extension shall be for a one
(1) or two (2) year period, and (iii) the Company pays
Executive for each year that it decides to extend the period
of non-competition an amount equal to fifty percent (50%) of
Executive's most recent Base Salary, which amount shall be
payable by the Company twice monthly over the period in
question.
8.2. Certain Remedies. Without intending to limit the remedies
available to the Company, the Executive agrees that a breach of any of
the covenants contained in the Key-Employee Covenants may result in
material and irreparable injury to the Company or its subsidiaries or
affiliates for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and
that, in the event of such a breach or threat thereof, the Company
shall be entitled to seek a temporary restraining order or a
preliminary or permanent injunction, or both, without bond or other
security, restraining the Executive from engaging in activities
prohibited by the Key-Employee Covenants or such other relief as may be
required specifically to enforce any of the covenants in the
Key-Employee Covenants. Such injunctive relief in any court shall be
available to the Company in lieu of, or prior to or pending
determination in, any arbitration proceeding.
9. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement that cannot be mutually resolved by the parties hereto shall be
settled exclusively by arbitration pursuant to the rules of the American
Arbitration Association in Salt Lake City, Utah before three arbitrators of
exemplary qualifications and stature. Each party hereto shall choose an
independent arbitrator meeting such qualifications within ten (10) business days
after demand for arbitration is made and such independent arbitrators shall
mutually agree as to the third arbitrator meeting such qualifications within
twenty (20) business days after demand for arbitration is made. If such
arbitrators cannot come to an agreement as to the third arbitrator by such date,
the American Arbitration Association shall appoint the third arbitrator in
accordance with its rules and the qualification requirements set forth in this
section. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The parties hereby agree that the arbitrators shall be empowered
to enter an equitable decree mandating specific enforcement of the terms of this
Agreement. The party that prevails in any arbitration hereunder shall be
reimbursed by the other party hereto for any reasonable legal fees and
out-of-pocket expenses directly attributable to such arbitration, and such other
party shall bear all expenses of the arbitrators. Upon the request of a party,
the arbitration award shall specify the factual and legal basis for the award.
10. MISCELLANEOUS
10.1. Communications. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed
to have been duly given or made as of the date delivered or on the
fifth business day after mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt
requested) to the party at the following addresses (or at such other
address for a party as shall be specified by like notice, except that
notices of changes of address shall be effective upon receipt):
(a) if to the Company:
c/o Nu Skin Enterprises, Inc.
75 West Center Street
Provo, Utah 84601
Tel: (801) 345-6100
Fax: (801) 345-3099
Attention: Truman Hunt, Esq.
with copies to:
Shearman & Sterling
555 California Street, Suite 2000
San Francisco, CA 94104
Attention: Kevin Kennedy, Esq.
Telephone: (415) 616-1100
Facsimile: (415) 616-1199
(b) if to the Executive:
2238 Hyde Street
Apartment 9
San Francisco, CA 94109
Tel: (415) 931-8836
Fax: (415) 931-8839
10.2. Waiver of Breach; Severability. (a) The waiver by the
Executive or the Company of a breach of any provision of this Agreement
by the other party hereto shall not operate or be construed as a waiver
or any subsequent breach by either party.
(b) The parties hereto recognize that the laws and
public policies of various jurisdictions may differ as to the
validity and enforceability of covenants similar to those set
forth herein. It is the intention of the parties that the
provisions hereof be enforced to the fullest extent
permissible under the laws and policies of each jurisdiction
in which enforcement may be sought, and that the
unenforceability (or the modification to conform to such laws
or policies) of any provisions hereof shall not render
unenforceable, or impair, the remainder of the provisions
hereof. Accordingly, if at the time of enforcement of any
provision hereof, a court of competent jurisdiction holds that
the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the
maximum period, scope, or geographic area reasonable under
such circumstances will be substituted for the stated period,
scope or geographical area and that such court shall be
allowed to revise the restrictions contained herein to cover
the maximum period, scope and geographical area permitted by
law.
10.3. Assignment; Successors. No right, benefit or interest
hereunder shall be assigned, encumbered, charged, pledged, hypothecated
or be subject to any setoff or recoupment by the Executive. This
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company; provided, however that the
Company may not assign this Agreement without Executive's consent.
10.4. Entire Agreement. This Agreement and the Appendices
attached hereto, which are incorporated herein by this reference,
contain the entire agreement of the parties with respect to the subject
matter hereof, and on and after the Effective Time, and except as
otherwise set forth herein, supersedes all prior agreements, promises,
covenants, arrangements, communications, representations and warranties
between them, whether written or oral, with respect to the subject
matter hereof.
10.5. Cancellation of Options. As consideration with for
entering into this Agreement, the Executive agrees to cancel and waive
all rights and interest that he may have to the options described in
Appendix D effective as of the Effective Time.
10.6. Withholding. The payment of any amount pursuant to this
Agreement shall be subject to applicable withholding and payroll taxes,
and such other deductions as may be required under the Company's
employee benefit plans, if any.
10.7. Governing Law. This Agreement shall be governed by, and
construed with, the law of the State of Utah.
10.8. Headings. The headings in this Agreement are for
convenience only and shall not be used to interpret or construe any of
its provisions.
10.9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed, the Parent has agreed and accepted terms hereof, and the Executive has
hereunto set his hand, as of the day and year first above written.
PHARMANEX, INC.
By: /s/ Scott Farquhar
Name: Scott Farquhar
Title: Chief Financial Officer
Agreed and accepted as to its
duties pursuant to this Agreement:
NU SKIN ENTERPRISES, INC.
By: /s/ Truman Hunt
Name: Truman Hunt
Title: Vice President
EX-10.52
ASSET PURCHASE AGREEMENT
BY AND AMONG
NU SKIN ENTERPRISES, INC.,
NU SKIN UNITED STATES, INC.,
AND
NU SKIN USA, INC.
March 8, 1999
TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
2. Basic Transaction................................................... 5
2.1 Purchase of the Acquired Assets............................ 5
2.2 Purchase Price Determination............................... 5
3. The Escrow Amount; Purchase Price Adjustments; Net Liabilities ..... 6
3.1 Draft Closing Date Balance Sheet........................... 7
3.2 Objections to Draft Closing Date Balance Sheet;
Appointment of "Big 5" Accounting Firm................ 7
3.3 Work Papers................................................ 7
3.4 Adjustment to Escrow Amount................................ 7
4. Closing; Closing Deliveries......................................... 8
4.1 Nu Skin USA Deliveries..................................... 8
4.2 Nu Skin Enterprises Deliveries............................. 8
4.3 Nu Skin United States Deliveries........................... 9
5. Representations and Warranties of Nu Skin USA....................... 9
5.1 Organization of Nu Skin USA................................ 9
5.2 Authorization of Transaction............................... 9
5.3 Non-contravention.......................................... 9
5.4 Brokers' Fees.............................................. 9
5.5 Title to Acquired Assets...................................10
5.6 Undisclosed Liabilities; Subsequent Events.................10
5.7 Legal Compliance...........................................10
5.8 Intellectual Property......................................11
5.9 Tangible Assets............................................12
5.10 Inventory..................................................12
5.11 Acquired Contracts.........................................12
5.12 Insurance..................................................12
5.13 Litigation.................................................13
5.14 Product Warranty...........................................13
5.15 Product Liability..........................................13
5.16 Employees..................................................13
5.17 Employee Benefits..........................................13
5.18 Environment, Health, and Safety Matters....................14
5.19 Disclosure.................................................15
6. Representations and Warranties of the Nu Skin Entities..............15
6.1 Organization of the Nu Skin Entities.......................15
6.2 Authorization of Transaction...............................15
6.3 Non-contravention..........................................15
6.4 Brokers' Fees..............................................15
6.5 Disclosure.................................................15
TABLE OF CONTENTS cont'd
Page
7. Indemnification.....................................................15
7.1 Nu Skin USA's Indemnification Obligation;
Indemnification Limitation Agreement..............15
7.2 Nu Skin Entities' Indemnification Obligation;..............16
7.3 Damages....................................................16
7.4 Notice of Claim............................................16
8. Miscellaneous.......................................................17
8.1 Survival of Representations and Warranties.................17
8.2 Press Releases and Public Announcements....................17
8.3 No Third-Party Beneficiaries...............................17
8.4 Entire Agreement...........................................17
8.5 Assignment.................................................17
8.6 Counterparts...............................................17
8.7 Headings...................................................17
8.8 Notices....................................................18
8.9 Governing Law..............................................18
8.10 Amendments and Waivers.....................................18
8.11 Severability...............................................19
8.12 Expenses...................................................19
8.13 Construction...............................................19
8.14 Incorporation of Recitals, Exhibits, and Schedules.........19
8.15 Specific Performance.......................................19
8.16 Submission to Jurisdiction.................................19
8.17 Bulk Sales and Transfer Laws...............................20
ATTACHED EXHIBITS AND SCHEDULES:
EXHIBIT "A" -- EXCLUDED ASSETS
EXHIBIT "B" -- ACQUIRED CONTRACTS
EXHIBIT "C" -- ASSUMED LIABILITIES
EXHIBIT "D" -- FORM OF BILL OF SALE AND ASSIGNMENT EXHIBIT
EXHIBIT "E" -- FORM OF INSTRUMENT OF ASSUMPTION OF LIABILITIES
EXHIBIT "F" -- FORM OF INDEMNIFICATION LIMITATION AGREEMENT
EXHIBIT "G" -- FORM OF LEGAL OPINION OF HOLLAND & HART, L.L.P.
EXHIBIT "H" -- ALLOCATION OF PURCHASE PRICE
DISCLOSURE SCHEDULE
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into
effective as of March 8, 1999, by and among Nu Skin Enterprises, Inc., a
Delaware corporation ("Nu Skin Enterprises"), Nu Skin United States, Inc., a
Delaware corporation ("Nu Skin United States"), and Nu Skin USA, Inc., a
Delaware corporation ("Nu Skin USA"). Nu Skin Enterprises and Nu Skin United
States are sometimes referred to herein, collectively, as the "Nu Skin
Entities." Nu Skin Enterprises, Nu Skin United States, and Nu Skin USA are
referred to herein, collectively, as the "Parties" and, individually, as a
"Party."
RECITALS
WHEREAS, this Agreement contemplates a transaction in which (i) Nu Skin
United States will purchase from Nu Skin USA certain of its assets (defined in
this Agreement as the "Non-Securities Acquired Assets") in exchange for the
assumption by Nu Skin United States of certain of Nu Skin USA's liabilities
(defined in this Agreement, collectively, as the "Assumed Liabilities," as set
forth in Section 2.2.1 below), and (ii) Nu Skin Enterprises will purchase for
cash from Nu Skin USA certain shares of Nu Skin Enterprises' Class A Common
Stock (defined in this Agreement as the "Class A Shares," as set forth in
Section 2.1.2 below) owned by Nu Skin USA.
NOW THEREFORE, in consideration of the mutual premises and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows.
1. Definitions.
"Acquired Assets" has the meaning set forth in Section 2.1.3 below.
"Acquired Contracts" has the meaning set forth in Section 2.1.1 below.
"Affiliates" means (a) Merasoft LLC, a Utah limited liability company;
(b) Scrub Oak Ltd., a Utah limited partnership; (c) Aspen Investments Ltd., a
Utah limited partnership, and (d) any other affiliated entity other than Nu Skin
Enterprises and its subsidiaries.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a).
"Assumed Liabilities" has the meaning set forth in Section 2.2.1 below.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Bill of Sale and Assignment" means the Bill of Sale and Assignment in
the form attached hereto as Exhibit "D".
"Cash" means cash and cash equivalents (including marketable securities
and short -term investments) calculated in accordance with generally accepted
accounting principles applied on a consistent basis.
"Class A Common Stock" has the meaning set forth in Section 2.1.2
below.
"Class A Purchase Price" has the meaning set forth in Section 2.2.2
below.
"Class A Shares" has the meaning set forth in Section 2.1.2 below.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date Balance Sheet" has the meaning set forth in Section 3.2
below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Damages" has the meaning set forth in Section 5.1 below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plan" means any (a) non-qualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement that is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement that is an
Employee Pension Benefit Plan (including any Multi-employer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local, and foreign statutes, regulations, ordinances, and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity that is treated as a single
employer with Nu Skin USA for purposes of Code Section 414.
"Escrow" has the meaning set forth in Section 3.2 below.
"Escrow Agent" means U.S. Bank National Association, a national banking
association.
"Escrow Agreement" means the Escrow Agreement dated of even date
herewith entered into by an among Nu Skin Enterprises, Nu Skin USA, the
stockholders who executed the signature page thereto, and the Escrow Agent.
"Escrow Amount" has the meaning set forth in Section 3 below.
"Excluded Assets" has the meaning set forth in Section 2.1.1 below.
"Existing Agreements" has the meaning set forth in Section 2.2.1 below.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Indemnification Limitation Agreement" means the Indemnification
Limitation Agreement entered into by and among Nu Skin Enterprises, Nu Skin
United States, Nu Skin USA, Big Planet, Inc., a Utah corporation, and the
individuals indicated therein, the form of which is attached hereto as Exhibit
"F".
"Indemnitees" has the meaning set forth in Section 5.1 below.
"Instrument of Assumption" means the Instrument of Assumption in the
form attached hereto as Exhibit "E".
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (e) all computer software (including data and related
documentation), (f) all other proprietary rights, and (g) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Multi-employer Plan" has the meaning set forth in ERISA Section 3(37).
"NSE Indemnitees" has the meaning set forth in Section 7.1 below.
"NSUSA Indemnitees" has the meaning set forth in Section 7.2 below.
"Net Liabilities" means the excess of the Assumed Liabilities over the
book value of the Non-Securities Acquired Assets, as determined from Nu Skin
USA's Closing Date Balance Sheet.
"Non-Securities Acquired Assets" has the meaning set forth in Section
2.1.1 below.
"Nu Skin Enterprises" has the meaning set forth in the preface above.
"Nu Skin Entities" has the meaning set forth in the preface above.
"Nu Skin USA Intellectual Property" has the meaning set forth in
Section 5.8.1 below.
"Nu Skin International" means Nu Skin International, Inc., a Utah
corporation.
"Nu Skin United States" has the meaning set forth in the preface above.
"Nu Skin USA" has the meaning set forth in the preface above.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parties" and "Party" have the meanings set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2.2.3 below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Basic Transaction.
2.1 Purchase of the Acquired Assets.
2.1.1 Purchase of the Non-Securities Acquired Assets. In
exchange for the assignment and assumption by Nu Skin United States of the
Assumed Liabilities, on and subject to the terms and conditions of this
Agreement, Nu Skin United States agrees to purchase and acquire from Nu Skin
USA, and Nu Skin USA agrees to sell, transfer, convey, assign, and deliver to Nu
Skin United States, all of its right, title and interest in and to all of the
assets of Nu Skin USA (except for the excluded assets listed on Exhibit "A"
attached hereto and the contracts not expressly assumed (collectively, the
"Excluded Assets" and except for the Class A Shares, which are addressed in
Section 2.1.2 below), of whatever kind or nature whatsoever, including, but not
limited to, (a) all leasehold improvements, (b) all equipment, (c) all
inventory, (d) the name "Nu Skin USA" and all derivations thereof, (e) all
intellectual property used by Nu Skin USA in its business that is not licensed
to it by Nu Skin International, (f) all promotional and marketing materials
related to Nu Skin USA's business, and (g) the contracts and agreements
specifically listed on Exhibit "B" attached hereto, each of which is directly
related to Nu Skin USA's business of network marketing Nu Skin International's
personal care and nutritional products (collectively, the "Acquired Contracts").
No other contracts or agreements of Nu Skin USA other than the Acquired
Contracts are being acquired by Nu Skin United States (nor is Nu Skin
Enterprises acquiring any of Nu Skin USA's contracts or agreements pursuant to
this Agreement). Furthermore, the Parties understand and agree that neither Nu
Skin Enterprises nor Nu Skin United States is hereby acquiring any liability to,
for, or in connection with Big Planet, Inc. The Parties specifically understand
and agree that all of Nu Skin USA's operating assets are being acquired by Nu
Skin United States pursuant to this Agreement, except for the Excluded Assets.
The assets being purchased and acquired by Nu Skin United States, as identified
in this Section 2.1.1, are referred to herein, collectively, as the
"Non-Securities Acquired Assets."
2.1.2 Purchase of the Class A Shares. On and subject to the
terms and conditions of this Agreement, Nu Skin Enterprises agrees to purchase
at the Closing from Nu Skin USA, and Nu Skin USA agrees to sell, transfer,
convey, assign, and deliver to Nu Skin Enterprises, in exchange for the Class A
Purchase Price (as that term is defined in Section 2.2.2 below), all of Nu Skin
USA's right, title, and interest in and to the six hundred twenty thousand one
hundred fifty-eight (620,158) shares of Nu Skin Enterprises Class A Common
Stock, $0.001 par value per share ("Class A Common Stock"), owned by Nu Skin USA
(the "Class A Shares").
2.1.3 Acquired Assets. The Non-Securities Acquired Assets and
the Class A Shares are referred to herein, collectively, as the "Acquired
Assets."
2.2 Purchase Price Determination.
2.2.1 Purchase Price for the Non-Securities Acquired Assets.
On and subject to the terms and conditions of this Agreement and in exchange for
the Non-Securities Acquired Assets, at the Closing Nu Skin United States agrees
to assume and become solely responsible for the categories of liabilities and
the contractual obligations of Nu Skin USA specifically set forth on Exhibit "C"
attached hereto (collectively, the "Assumed Liabilities"). Under the heading
"Contractual Obligations Assumed by Nu Skin United States" in Exhibit "C"
attached hereto, the Parties have specifically listed each contract and
agreement that is being assumed by Nu Skin United States pursuant to this
Agreement (which contractual obligations are deemed to be part of the Assumed
Liabilities), and no other contractual obligation of Nu Skin USA of any type
whatsoever is being assumed by Nu Skin United States except as so listed in
Exhibit "C" attached hereto. Notwithstanding the provisions of this Agreement,
the Parties hereby acknowledge and reaffirm (a) the Tax Sharing and
Indemnification Agreement dated December 31, 1997 and entered into by and among
Nu Skin International, Nu Skin USA, and their respective shareholders, (b) the
Assumption of Liabilities and Indemnification Agreement dated effective as of
December 31, 1997 and entered into by and between Nu Skin International and
252nd Shelf Corporation, a Delaware corporation (now known as "Nu Skin USA,
Inc."), and (c) the Employee Benefits Allocation Agreement (undated) entered
into by and between Nu Skin International and Nu Skin USA (collectively, the
"Existing Agreements"), and specifically acknowledge and agree that the Existing
Agreements are not included within the Assumed Liabilities. The Existing
Agreements shall remain in full force and effect as originally executed and are
not being terminated, modified, or amended by this Agreement. The Parties
understand and agree that, except for the Assumed Liabilities, neither Nu Skin
United States nor Nu Skin Enterprises (or any of their respective affiliates) is
or will become liable or responsible for any other Liabilities or obligations of
Nu Skin USA pursuant to this Agreement. As set forth above, the purchase price
for the Non-Securities Acquired Assets shall be the assumption by Nu Skin United
States of the Assumed Liabilities. The aggregate purchase price for all of the
Non-Securities Acquired Assets is referred to herein as the "Non-Securities
Purchase Price."
2.2.2 Purchase Price for the Class A Shares. The purchase
price for the Class A Shares shall be Eight Million Six Hundred Eighty-Two
Thousand Two Hundred Twelve Dollars ($8,682,212) (the "Class A Purchase Price").
The Class A Purchase Price will be paid by Nu Skin Enterprises by wire transfer
or delivery of other immediately available funds to Nu Skin USA at the Closing
as follows: (a) Five Million Six Hundred Eighty-Two Thousand Two Hundred Twelve
($5,682,212) to Nu Skin USA and (b) Three Million Dollars ($3,000,000) (which
amount is defined in Section 3 below as the "Escrow Amount") to the Escrow Agent
pursuant to the Escrow Agreement.
2.2.3 Purchase Price. The Non-Securities Purchase Price and
the Class A Purchase Price are referred to herein, collectively, as the
"Purchase Price."
2.2.4 Allocation of Purchase Price. The Purchase Price shall
be allocated among the Acquired Assets as of the date of the Closing in
accordance with Exhibit "H" attached hereto. Any subsequent adjustments to the
sum of the Purchase Price shall be reflected in the allocation hereunder in a
manner consistent with Treasury Regulation Section 1.1060-1T(f). For all Tax
purposes, the Parties agree to report the transactions contemplated in this
Agreement in a manner consistent with the terms of this Agreement, including the
allocation set forth in Exhibit "H" attached hereto, and that none of them will
take any position inconsistent therewith in any Tax return, Tax refund claim,
litigation, or otherwise.
3. The Escrow Amount; Purchase Price Adjustments; Net Liabilities. As set forth
in Section 2.2.2 above, upon the execution of this Agreement by each of the
Parties, Nu Skin Enterprises will deliver Three Million Dollars ($3,000,000) of
the Class A Purchase Price (the "Escrow Amount") to the Escrow Agent for deposit
into the Escrow pursuant to the terms of the Escrow Agreement. As set forth
below in this Section 3 and in the Escrow Agreement, the Purchase Price shall be
subject to downward adjustment on a dollar for dollar basis to the extent the
Net Liabilities of Nu Skin USA, as indicated in the Closing Date Balance Sheet
(as that term is defined in Section 3.2 below) exceeded One Million Dollars
($1,000,000). Such downward adjustment shall be effected by disbursements of
funds from the Escrow Amount in accordance with the Escrow Agreement. As further
provided in the Escrow Agreement, the Purchase Price may further be adjusted by
the amount of any adjustments provided for in the Foreign Entity Stock Purchase
Agreement(s) (as such term is defined in the Escrow Agreement). If any conflict
exists between this Agreement and the Escrow Agreement regarding the adjustment
of the Purchase Price by disbursements from the Escrow Amount or other
disbursements from the Escrow, the Escrow Agreement shall govern and control.
3.1 Draft Closing Date Balance Sheet. Within sixty (60) days after the
date of the Closing, Nu Skin USA will prepare and deliver to Nu Skin Enterprises
and the Escrow Agent a draft unaudited consolidated balance sheet (the "Draft
Closing Date Balance Sheet") of Nu Skin USA as of the date of the Closing
(determined on a pro forma basis as though the Parties had not consummated the
transactions contemplated by this Agreement). Nu Skin USA will prepare the Draft
Closing Date Balance Sheet in accordance with generally accepted accounting
principles applied on a basis consistent with the preparation of Nu Skin USA's
December 31, 1998 balance sheet; provided, however, that assets, liabilities,
gains, losses, revenues, and expenses in interim periods or as of dates other
than year-end (which normally are determined through the application of
so-called interim accounting conventions or procedures) will be determined, for
purposes of the Draft Closing Date Balance Sheet, through full application of
the procedures used in preparing Nu Skin USA's December 31, 1998 balance sheet.
3.2 Objections to Draft Closing Date Balance Sheet; Appointment of "Big
5" Accounting Firm. If Nu Skin Enterprises has any objections to the Draft
Closing Date Balance Sheet, it shall deliver a detailed statement describing its
objections to Nu Skin USA and the Escrow Agent within thirty (30) days after
receiving the Draft Closing Date Balance Sheet. Nu Skin Enterprises and Nu Skin
USA will then use reasonable efforts to resolve any such objections themselves.
If Nu Skin Enterprises and Nu Skin USA do not agree on a final resolution of
such objections within thirty (30) days after Nu Skin USA receives Nu Skin
Enterprises's statement describing its objections, Nu Skin Enterprises shall
appoint one of the so-called "Big 5" national accounting firms to resolve any
remaining objections to the Draft Closing Date Balance Sheet; provided, however,
that the "Big 5" accounting firm so appointed shall not at that time be engaged
by Nu Skin Enterprises to provide it with auditing services (the "'Big 5'
Accountant"). The appointment of the "Big 5" Accountant by Nu Skin Enterprises,
as provided by this Section 3.2, and the determinations and conclusions of the
"Big 5" Accountant pursuant hereto, shall be conclusive and binding upon the
Parties. Nu Skin USA will revise the Draft Closing Date Balance Sheet, as
appropriate, to reflect the resolution of any objections thereto pursuant to
this Section 3.2. For purposes of this Agreement, the term "Closing Date Balance
Sheet" shall mean the Draft Closing Date Balance Sheet together with any
revisions made thereto by Nu Skin USA pursuant to this Section 3.2. In the event
Nu Skin Enterprises and Nu Skin USA submit any unresolved objections to the
Draft Closing Balance Sheet to the "Big 5" Accountant for resolution as provided
above in this Section 3.2, Nu Skin Enterprises and Nu Skin USA will share
equally the fees and expenses of the "Big 5" Accountant.
3.3 Work Papers. Nu Skin USA will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance Sheet available to Nu
Skin Enterprises and its representatives and to the "Big 5" Accountant at
reasonable times and upon reasonable notice at any time during (i) the
preparation by Nu Skin USA of the Draft Closing Date Balance Sheet, (ii) the
review by Nu Skin Enterprises and its representatives of the Draft Closing Date
Balance Sheet, (iii) the discussion by Nu Skin Enterprises and Nu Skin USA of
any objections Nu Skin Enterprises may have thereto, and (iv) the resolution by
the "Big 5" Accountant of any unresolved objections to the Draft Closing Date
Balance Sheet as set forth in Section 3.2 above.
3.4 Adjustment to Escrow Amount. As set forth in the Escrow Agreement,
if the Net Liabilities are more than One Million Dollars ($1,000,000), the
Escrow Agent will promptly return to Nu Skin Enterprises the amount by which the
Net Liabilities exceeded One Million Dollars ($1,000,000) in accordance with the
provisions of the Escrow Agreement. Any such amount payable by the Escrow Agent
to Nu Skin Enterprises pursuant to this Section 3.4 shall be paid by the Escrow
Agent pursuant to the terms of the Escrow Agreement. There shall be no
adjustment to the Escrow Amount for any amount by which the Net Liabilities are
less than One Million Dollars ($1,000,000).
4. Closing; Closing Deliveries. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place effective as set forth in the
preface above. At the Closing, each Party shall make the following deliveries:
4.1 Nu Skin USA Deliveries.
4.1.1 At the Closing, Nu Skin USA will deliver to Nu Skin
Enterprises the following certificates, instruments, and documents:
4.1.1.1 the original certificate(s) evidencing the
Class A Shares properly endorsed for transfer or accompanied by a stock power(s)
executed in blank and properly guaranteed with a Medallion guarantee;
4.1.1.2 an originally executed copy of the
Indemnification Limitation Agreement;
4.1.1.3 a legal opinion of Holland & Hart, L.L.P.,
counsel to Nu Skin USA, substantially in the form of Exhibit "G" attached
hereto; and
4.1.1.5 such other documents and instruments as Nu
Skin Enterprises or its counsel reasonably may request.
4.1.2 At the Closing, Nu Skin USA will deliver to Nu Skin
United States the following certificates, instruments, and documents:
4.1.2.1 a Bill of Sale and Assignment substantially
in the form of Exhibit "D" attached hereto; and
4.1.2.2 such other documents and instruments as Nu
Skin Enterprises or its counsel reasonably may request.
4.2 Nu Skin Enterprises Deliveries.
4.2.1 At the Closing, Nu Skin Enterprises will deliver to Nu
Skin USA the following certificates, instruments, and documents:
4.2.1.1 Five Million Six Hundred Eighty-Two Thouand
One Hundred Ninety-Eight Million Dollars ($5,682,198) of the Class A Purchase
Price, as indicated in Section 2.2.2 above; and
4.2.1.2 such other documents and instruments as Nu
Skin USA or its counsel reasonably may request.
4.2.1 At the Closing, Nu Skin Enterprises will deliver to the
Escrow Agent the following certificates, instruments, and documents:
4.2.1.1 Three Million Dollars ($3,000,000) of the
Class A Purchase Price, as indicated in Section 2.2.2 above; and
4.2.1.2 such other documents and instruments as Nu
Skin USA or its counsel reasonably may request.
4.3 Nu Skin United States Deliveries.
4.3.1 At the Closing, Nu Skin United States will deliver to Nu
Skin USA the following certificates, instruments, and documents:
4.3.1.1 an originally executed copy of the
Instrument of Assumption substantially in the form of Exhibit "E" attached
hereto; and
4.3.1.2 such other documents and instruments as Nu
Skin USA or its counsel reasonably may request.
5. Representations and Warranties of Nu Skin USA. Nu Skin USA represents and
warrants to each of the Nu Skin Entities that the statements contained in this
Section 5 are correct and complete as of the effective date of this Agreement,
except as set forth in Nu Skin USA's disclosure schedule attached to this
Agreement and initialed by the Parties (the "Disclosure Schedule"). The
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
paragraphs contained in this Section 5.
5.1 Organization of Nu Skin USA. Nu Skin USA is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, and to our knowledge, is duly qualified to do business in all states
where its activities or assets would require such qualification.
5.2 Authorization of Transaction. Nu Skin USA has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the Board of Directors of Nu Skin USA, and, if
required, Nu Skin USA's stockholders, have duly authorized the execution,
delivery, and performance of this Agreement by Nu Skin USA. This Agreement
constitutes the valid and legally binding obligation of Nu Skin USA, enforceable
in accordance with its terms and conditions.
5.3 Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Nu Skin USA is subject or any provision
of the charter or bylaws of Nu Skin USA or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Nu Skin USA is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Nu Skin USA is not required to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments and
assumptions referred to in Section 2 above).
5.4 Brokers' Fees. Nu Skin USA has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which either of the Nu Skin
Entities could become liable or obligated.
5.5 Title to Acquired Assets. Nu Skin USA has good and marketable title
to, or a valid leasehold interest in, the Acquired Assets, free and clear of all
Security Interests or restrictions on transfer, except restrictions under
applicable federal and state securities laws, rules, and regulations.
5.6 Undisclosed Liabilities; Subsequent Events. Nu Skin USA does not
have any Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i) Liabilities
set forth on the face of Nu Skin USA's December 31, 1998 balance sheet (rather
than in any notes thereto) and (ii) Liabilities that have arisen after December
31, 1998 in the Ordinary Course of Business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law). Since
December 31, 1998, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of Nu Skin USA. Without limiting the generality of the foregoing,
since that date:
5.6.1 Nu Skin USA has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
5.6.2 Nu Skin USA has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligations either involving more than Ten
Thousand Dollars ($10,000) singly or Ten Thousand Dollars ($10,000) in the
aggregate;
5.6.3 Nu Skin USA has not delayed or postponed the payment of
accounts payable and other liabilities or incurred any accounts payable or other
liabilities outside the Ordinary Course of Business;
5.6.4 Nu Skin USA has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property or the Nu Skin USA
Intellectual Property;
5.6.5 Nu Skin USA has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its property;
5.6.6 Nu Skin USA has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
5.6.7 Nu Skin USA has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
5.6.8 there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving Nu Skin USA; and
5.6.9 Nu Skin USA has not committed to any of the foregoing.
5.7 Legal Compliance. Except for any failures to comply that would not
have a material adverse effect on the business of the Nu Skin Entities, taken as
a whole, Nu Skin USA and its predecessors have complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
5.8 Intellectual Property.
5.8.1 Nu Skin USA Intellectual Property. Nu Skin USA owns or
has the right to use pursuant to license, sublicense, agreement, or permission
all Intellectual Property not owned or licensed to it by Nu Skin International
that is necessary or desirable for the operation of its business as presently
conducted and as presently proposed to be conducted (collectively, the "Nu Skin
USA Intellectual Property"). Each such item of Intellectual Property owned or
used by Nu Skin USA immediately prior to the Closing will be owned or available
for use by the Nu Skin Entities on identical terms and conditions immediately
subsequent to the Closing. Nu Skin USA has taken all necessary and desirable
action to maintain and protect each such item of Intellectual Property that it
owns or uses.
5.8.2 No Interference. None of the Nu Skin USA Intellectual
Property has interfered with, infringed upon, or misappropriated, and currently
does not interfere with, infringe upon, misappropriate, or otherwise conflict
with any Intellectual Property rights of any third parties, and none of the
directors and officers (and employees with responsibility for Intellectual
Property matters) of Nu Skin USA have ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Nu Skin USA must
license or refrain from using any Intellectual Property rights of any third
party). In addition, to the Knowledge of any of the directors and officers (and
employees with responsibility for Intellectual Property matters) of Nu Skin USA,
(a) no third party has ever interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of Nu Skin
USA, including, but not limited to, the Intellectual Property rights licenced to
it by Nu Skin International, (b) no third party is currently interfering with,
infringing upon, misappropriating, or otherwise conflicting with any
Intellectual Property rights of Nu Skin USA, including, but not limited to, the
Intellectual Property rights licenced to it by Nu Skin International, and (c)
none of the Intellectual Property owned by or licensed to Nu Skin USA by Nu Skin
International infringes the Intellectual Property rights of any third-party or
any of the Nu Skin Intellectual Property.
5.8.3 Intellectual Property Owned or Licensed from
Third-Parties. Section 5.8.3 of the Disclosure Schedule identifies each item of
Intellectual Property (other than Intellectual Property that is or previously
was licensed from Nu Skin International) owned by, licensed to, or used by Nu
Skin USA in its business and, except as identified on Section 5.8.3 of the
Disclosure Schedule, Nu Skin USA does not own, license, or use any other
Intellectual Property in its business. Section 5.8.3 of the Disclosure Schedule
also identifies each pending application or registration with respect to any of
the Intellectual Property identified on Section 5.8.3 of the Disclosure Schedule
and identifies each license, agreement, or other permission that has been
granted to Nu Skin USA with respect to any of its Intellectual Property (other
than Intellectual Property that is or previously was licenced from Nu Skin
International). Nu Skin USA has delivered to the Nu Skin Entities correct and
complete copies of all documentation evidencing all such Intellectual Property
and all such applications, registrations, licenses, agreements, and permissions
(as amended to date) and has made available to the Nu Skin Entities correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Section 5.8.3 of the Disclosure
Schedule also identifies each trade name or unregistered trademark used by Nu
Skin USA in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 5.8.3 of the
Disclosure Schedule:
5.8.3.1 Nu Skin USA possesses all right, title, and
interest in and to the item, free and clear of any Security Interest or other
restriction (other than any license regarding such Intellectual Property from a
third-party);
5.8.3.2 the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
5.8.3.3 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of any of the directors and officers (and employees with
responsibility for Intellectual Property matters) of Nu Skin USA, is threatened
that challenges the legality, validity, enforceability, use, or ownership of the
item; and
5.8.3.4 Nu Skin USA has never agreed to indemnify
any Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
5.8.4 No Intellectual Property Licensed to Third-Parties. Nu
Skin USA does not license or sublicense any Intellectual Property to any
third-party.
5.8.5 No Knowledge of Obsolescence. None of the directors and
officers (and employees with responsibility for Intellectual Property matters)
of Nu Skin USA has any Knowledge of any new products, inventions, procedures, or
methods of manufacturing or processing that any competitors or other third
parties have developed that reasonably could be expected to supersede or make
obsolete any product or process of Nu Skin USA.
5.9 Tangible Assets. Nu Skin USA owns or leases all of the tangible
assets used in its business. Each such tangible asset is free from defects
(patent and latent), has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
5.10 Inventory. All of the inventory is merchantable and fit for the
purpose for which it was procured or manufactured, and none of the inventory is
slow-moving, obsolete, damaged, or defective.
5.11 Acquired Contracts. Nu Skin USA has delivered to Nu Skin United
States a correct and complete copy of each of the Acquired Contracts. With
respect to each Acquired Contract: (i) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (ii) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above);
(iii) no party is in breach or default, and no event has occurred that with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under any of the Acquired Contracts;
and (iv) no party has repudiated any provision of any of the Acquired Contracts.
5.12 Insurance. Each of Nu Skin USA's insurance policies: (i) is legal,
valid, binding, enforceable, and in full force and effect; (ii) will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above);
(iii) is not in default, nor is any party thereto in breach thereof (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred that, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; and (iv) has never been repudiated by any party thereto. Nu Skin USA
has been covered during the past one (1) year by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period.
5.13 Litigation. Section 5.13 of the Disclosure Schedule sets forth
each instance in which Nu Skin USA (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to the
Knowledge of any of the directors and officers (and employees with
responsibility for litigation matters) of Nu Skin USA, is threatened to be made
a party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. None of the
actions, suits, proceedings, hearings, and investigations set forth in Section
5.13 of the Disclosure Schedule could result in any material adverse change in
the business, financial condition, operations, results of operations, or future
prospects of Nu Skin USA. None of the directors and officers (and employees with
responsibility for litigation matters) of Nu Skin USA has any reason to believe
that any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against Nu Skin USA.
5.14 Product Warranty. Nu Skin USA has not made any warranties with
respect to any product sold or distributed by it other than the warranties, if
any, allowed under the applicable license agreement with Nu Skin International.
Nu Skin USA does not have any Liability (and there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against it giving rise to any Liability) for damages in
connection with any products it has sold or distributed that were not acquired
from Nu Skin International. In addition, as to products acquired by Nu Skin USA
from Nu Skin International, to the Knowledge of any of the directors and
officers (and employees with responsibility for product warranty matters) of Nu
Skin USA, Nu Skin USA does not have any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability) for damages
in connection with any such Nu Skin International product. No product sold or
distributed by Nu Skin USA is subject to any guaranty or other indemnity.
5.15 Product Liability. Other than products sold to Nu Skin USA by Nu
Skin International, to the Knowledge of any of the directors or officers of Nu
Skin USA, Nu Skin USA does not have any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against it giving rise to any Liability) arising out
of any injury to individuals or property as a result of the ownership,
possession, or use of any product sold or distributed by Nu Skin USA.
5.16 Employees. To the Knowledge of any of the directors or officers
(and employees with responsibility for employment matters) of Nu Skin USA, no
executive, key employee, or group of employees has any plans to terminate
employment with Nu Skin USA. Nu Skin USA is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. Nu
Skin USA has not committed any unfair labor practice. None of the directors or
officers (and employees with responsibility for employment matters) of Nu Skin
USA have any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of Nu
Skin USA or of any violation of any anti-discrimination or harassment laws.
5.17 Employee Benefits.
5.17.1 Section 5.17 of the Disclosure Schedule lists each
Employee Benefit Plan that Nu Skin USA maintains or to which it contributes or
has any obligation to contribute.
5.17.2 Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
5.17.3 All required reports and descriptions (including Form
5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed and distributed appropriately with respect
to each such Employee Benefit Plan. The requirements of COBRA have been met with
respect to each such Employee Benefit Plan that is an Employee Welfare Benefit
Plan.
5.17.4 All contributions (including all employer contributions
and employee salary reduction contributions) that are due have been paid to each
such Employee Benefit Plan that is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the date of the Closing that
are not yet due have been paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and practice of Nu Skin USA. All
premiums or other payments for all periods ending on or before the date of the
Closing have been paid with respect to each such Employee Benefit Plan that is
an Employee Welfare Benefit Plan.
5.17.5 With respect to each Employee Benefit Plan that Nu Skin
USA or any ERISA Affiliate maintains or ever has maintained or to which any of
them contributes, ever has contributed, or ever has been required to contribute:
5.17.5.1 There have been no Prohibited Transactions
with respect to any such Employee Benefit Plan. No Fiduciary has any Liability
for breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee Benefit
Plan. No action, suit, proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee Benefit Plan
(other than routine claims for benefits) is pending or, to the Knowledge of any
of the directors and officers (and employees with responsibility for employee
benefits matters) of Nu Skin USA, threatened. None of the directors and officers
(and employees with responsibility for employee benefits matters) of Nu Skin USA
has any Knowledge of any Basis for any such action, suit, proceeding, hearing,
or investigation.
5.17.6 Nu Skin USA does not maintain and does not contribute
to, nor has it ever maintained or contributed to, or ever has been required to
contribute to, any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).
5.18 Environmental, Health, and Safety Matters.
5.18.1 Nu Skin USA and its predecessors have complied and are
in compliance with all Environmental, Health, and Safety Requirements.
5.18.2 Without limiting the generality of the foregoing, each
of Nu Skin USA and its predecessors have obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business.
5.18.3 Neither Nu Skin USA nor any of its predecessors have
received any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any Liability or potential Liability (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
5.18.4 Neither Nu Skin USA nor any of its predecessors have
either expressly or by operation of law, assumed or undertaken any liability,
including, without limitation, any obligation for corrective or remedial action,
of any other Person relating to Environmental, Health, and Safety Requirements.
5.19 Disclosure. The representations and warranties contained in this
Section 5 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 5 not misleading.
6. Representations and Warranties of the Nu Skin Entities. Each of the Nu Skin
Entities represents and warrants to Nu Skin USA that the statements contained in
this Section 6 are correct and complete as of the effective date of this
Agreement.
6.1 Organization of the Nu Skin Entities. Each of the Nu Skin Entities
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation.
6.2 Authorization of Transaction. Both of the Nu Skin Entities have
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its respective obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of each of the Nu Skin Entities, enforceable in accordance with its terms and
conditions.
6.3 Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which either of the Nu Skin Entities is subject
or any provision of its charter or bylaws, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which either of the Nu Skin Entities is a party or by which
either of them is bound or to which any of their respective assets is subject.
Neither of the Nu Skin Entities needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Section 2 above).
6.4 Brokers' Fees. Neither of the Nu Skin Entities has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Nu Skin USA
could become liable or obligated.
6.5 Disclosure. The representations and warranties contained in this
Section 6 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 6 not misleading.
7. Indemnification.
7.1 Nu Skin USA's Indemnification Obligation; Indemnification
Limitation Agreement. Nu Skin USA hereby agrees to indemnify and hold harmless
each of the Nu Skin Entities and their respective shareholders, officers,
directors, employees, agents, representatives, successors, and assigns
(collectively, the "NSE Indemnitees") at all times from and after the date of
the Closing against and in respect of any and all Damages (as that term is
defined in Section 7.3 below), subject, however, to the limitations and
restrictions set forth in the Indemnification Limitation Agreement.
Notwithstanding the foregoing, the obligation of Nu Skin USA to indemnify the
NSE Indemnitees for breaches of its representations and warranties set forth in
Section 5 hereof, shall terminate on the second anniversary of the date of this
Agreement unless a claim for indemnification has been brought within such time
by any of the NSE Indemnitees.
7.2 Nu Skin Entities' Indemnification Obligations. The Skin Entities
hereby agree to indemnify and hold harmless Nu Skin USA and its shareholders,
officers, directors, employees, agents, representatives, successors, and assigns
(collectively, the "NSUSA Indemnitees") at all times from and after the date of
the Closing against and in respect of any and all Damages (as that term is
defined in Section 7.3 below); provided, however, the Nu Skin Entities'
obligation to indemnify the NSUSA Indemnitees for breaches of the Nu Skin
Entities' representations and warranties set forth in Section 6 shall terminate
on the second anniversary of the date of this Agreement unless a claim for
indemnification has been brought within such time by any of the NSUSA
Indemnitees.
7.3 Damages. "Damages" shall include any claims, actions, demands,
losses, costs, expenses, liabilities (whether joint or several), penalties, and
damages, including counsel fees and expenses, incurred in investigating or in
attempting to avoid the same or oppose the imposition thereof resulting to any
of the NSE Indemnitees or the NSUSA Indemnitees, as applicable, from any of the
following: (i) any misrepresentation or breach of any representation or warranty
made by Nu Skin USA or the Nu Skin Entities, as applicable, in or under this
Agreement or any other agreement executed in connection with the transactions
contemplated hereby; (ii) any breach or default in the performance by Nu Skin
USA or the Nu Skin Entities, as applicable, of any of their respective covenants
to be performed by them under this Agreement or any agreement executed in
connection with the transactions contemplated hereby; (iii) with respect to the
NSE Indemnitees, any debts, liabilities, or obligations of Nu Skin USA, whether
accrued, absolute, contingent, or otherwise, due or to become due, except for
the Assumed Liabilities; (iv) with respect to the NSE Indemnitees, any claim
affecting the Acquired Assets or any Liability of Nu Skin USA, other than the
Assumed Liabilities, or any expense that is allowable against or incurred by any
NSE Indemnitee because of Nu Skin USA's non-compliance with any applicable bulk
sales or transfer law; or (v) with respect to the NSUSA Indemnitees, any
liability accruing to any NSUSA Indemnitees relating to any Assumed Liabilities.
In addition, Damages shall also include any amount by which the Net Liabilities
of Nu Skin USA are in excess of One Million Dollars ($1,000,000), to the extent
the Purchase Price has not been adjusted by the amount of such excess pursuant
to Section 3 above.
7.3.1 Tax Indemnification. In addition to the provisions of
Section 7.3 above, Nu Skin USA specifically agrees to indemnify each of the NSE
Indemnitees from and against the entirety of any Damages that any of the NSE
Indemnitees may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any Liability of Nu Skin USA for any Tax or any Tax
Liability of Nu Skin USA that is not specifically included within the Assumed
Liabilities.
7.4 Notice of Claim. Promptly upon receipt of notice of any demand,
assertion, claim, action, or proceeding (whether judicial or otherwise), with
respect to any matter as to which Nu Skin USA has agreed to indemnify the NSE
Indemnitees under the provisions of this Section 7 or the Nu Skin Entities have
agreed to indemnify the NSUSA Indemnitees under this Section 7, the party
entitled to indemnification will give prompt written notice thereof to the party
owing the indemnification, together with the statement of such information
respecting such demand, assertion, claim, action, or proceeding as such entitled
to indemnification shall then have; provided, however, that neither party shall
be relieved of liability hereunder for failure by the other party to promptly
give such written notice, unless the party entitled to notice is materially
prejudiced by such failure, in which case the party entitled to notice shall not
be liable for any indemnification obligation under this Section 7 to the extent
so prejudiced. If either party acknowledges any liability under this Section 7,
that party shall contest and defend by all appropriate legal or other
proceedings any demand, assertion, claim, action, or proceeding with respect to
which it has been called upon to indemnify any persons under the provisions of
this Section 7; provided, however, that: (i) notice of intention so to contest
shall be delivered to the appropriate party within twenty (20) calendar days
after the receipt by the indemnifying party of notice of the assertion of such
demand, assertion, claim, action, or proceeding; (ii) the indemnifying party
will pay all costs and expenses of such contest, including, without limitation,
all attorneys' and accountants' fees, and the cost of any bond required by
applicable law to be posted in connection with such contest; (iii) such contest
shall be conducted by reputable attorneys employed by the indemnifying party
(with the reasonable approval of the appropriate persons being indemnified at
the indemnifying party's sole cost and expense, but the persons being
indemnified shall have the right to participate in such proceedings and to be
represented by attorneys of such person's own choosing, at its or their own cost
and expense; (iv) if after such opportunity, the indemnifying party does not
elect to assume the defense of any such proceeding, the indemnifying party shall
be bound by the results obtained by the indemnified party, including, without
limitation, any out-of-court settlement or compromise; and (v) the indemnifying
party will not settle any claim without the prior written consent of the persons
being indemnified, unless the settlement contains a complete and unconditional
release of such persons being indemnified, and the settlement does not involve
the imposition of any non-monetary relief on such persons.
8. Miscellaneous.
8.1 Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing.
8.2 Press Releases and Public Announcements. Either Nu Skin Enterprises
or Nu Skin United States may issue press releases or make any public
announcements relating to the subject matter of this Agreement after the Closing
without the prior written approval of the other Parties. Nu Skin USA shall not
issue any press releases or make any public announcements relating to the
subject matter of this Agreement without the prior written approval of the other
Parties.
8.3 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
8.4 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between and among the Parties and
supersedes any prior understandings, agreements, or representations by, between,
or among the Parties, whether written or oral, to the extent they related in any
way to the subject matter hereof.
8.5 Assignment. Except as provided below, no Party may assign (by
operation of law, merger, or otherwise), license, sublicense, or otherwise
transfer any of its rights or obligations under this Agreement to any other
Person without obtaining the prior written consent of the other Parties;
provided, however, that Nu Skin Enterprise and Nu Skin United States shall each
be allowed to assign this Agreement or its rights and obligations hereunder
without any prior consent of the other Parties.
8.6 Counterparts. This Agreement may be executed by facsimile and in
one or more counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument.
8.7 Headings. The Section and subsection headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.8 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if given (i)
personally, (ii) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below, (iii) telecopied to the intended recipient at the
telecopy set forth below, or (iv) one business day after being sent by overnight
courier and addressed to the intended recipient as set forth below:
If to Nu Skin USA, to: with a copy to:
Nu Skin USA, Inc. Holland & Hart, L.L.P.
75 West Center Street 215 South State Street, Suite 500
Provo, Utah 84601 Salt Lake City, Utah 84111
Attention: Keith R. Halls Attention: David R. Rudd, Esq.
Fax No.: (801) 345-5999 Fax No.: (801) 364-9124
If to Nu Skin Enterprises, to: with a copy to:
Nu Skin Enterprises, Inc. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
75 West Center Street 1000 Kearns Building
Provo, Utah 84601 136 South Main Street
Attention: M. Truman Hunt, Esq. Salt Lake City, Utah 84101
Fax No.: (801) 345-3099 Attention: Nolan S. Taylor, Esq.
Fax No.: (801) 359-8256
If to Nu Skin United States, to: with a copy to:
Nu Skin United States, Inc. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
75 West Center Street 1000 Kearns Building
Provo, Utah 84601 136 South Main Street
Attention: M. Truman Hunt, Esq. Salt Lake City, Utah 84101
Fax No.: (801) 345-3099 Attention: Nolan S. Taylor, Esq.
Fax No.: (801) 359-8256
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including messenger service, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect to
any choice or conflict of law provision or rule (whether of the State of Utah or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah.
8.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by each
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
8.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.12 Expenses. Each of the Nu Skin Entities and Nu Skin USA will bear
its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
8.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
8.14 Incorporation of Recitals, Exhibits, and Schedules. The above
Recitals and all Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
8.15 Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 8.16
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
8.16 Submission to Jurisdiction. Each of the Parties submits to the
exclusive jurisdiction of any state or federal court sitting in Salt Lake City
or Provo, Utah, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
shall be heard and determined only in any such court. Each Party also agrees not
to bring any action or proceeding arising out of or relating to this Agreement
in any other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with respect
thereto. Any Party may make service on the other Parties by sending or
delivering a copy of the process to the Party or Parties to be served at the
address and in the manner provided for the giving of notices in Section 8.8
above. Nothing in this Section 8.16, however, shall affect the right of any
Party to serve legal process in any other manner permitted by law or in equity.
Each Party agrees that a final judgment in any action or proceeding so brought
shall be conclusive and may be enforced by suit on the judgment or in any other
manner provided by law or in equity.
8.17 Bulk Sales and Transfer Laws. Nu Skin United States acknowledges
that Nu Skin USA will not comply with the provisions of any bulk sales or
transfer laws of any state or jurisdiction in connection with the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Asset Purchase
Agreement effective as of the date first above written.
NU SKIN ENTERPRISES, INC.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Its: Vice President
NU SKIN UNITED STATES, INC.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Its: Vice President
NU SKIN USA, INC.
By: /s/ Keith Halls
Name: Keith Halls
Its: Vice President
EXHIBIT "A"
EXCLUDED ASSETS
1. All of Nu Skin USA's accounts receivable from any of the
Affiliates, as indicated on the face of its January 31, 1999
balance sheet.
2. All of Nu Skin USA's investments in any of the Affiliates, as
indicated on the face of its January 31, 1999 balance sheet.
3. All of Nu Skin USA's cash as indicated on the face of its
January 31, 1999 balance sheet in excess of $3,129,500.
4. All contracts or agreements with, and all loans made to or
guaranteed by, Nu Skin USA and any of its subsidiaries or any
of the Affiliates.
5. All tangible personal property of Nu Skin USA that is to be
retained for personal use by the stockholders of Nu Skin USA
as determined in good faith by Nu Skin United States, Nu Skin
Enterprises and Nu Skin USA following the Closing.
6. Leasehold improvements relating to an operations center of Big
Planet, Inc.
EXHIBIT "B"
ACQUIRED CONTRACTS
ACQUIRED CONTRACTS
1. Personal Services Agreement dated November 1, 1998 by and
between Nu Skin USA and Final Kick Marketing Group. Expires
November 1, 2000. Total contract amount is $220,000, plus
travel expenses.
2. Personal Services Agreement dated December 1, 1998 by and
between Nu Skin USA and Carmen Dominicci. Expires November 30,
2000. Total contact amount is $95,000, plus expenses
3. Personal Services Agreement dated August 25, 1998 by and
between Nu Skin USA and Isaac Wilson (Stray Dogs). Expires
August 9, 1999. Total contract amount is $11,000, plus
expenses.
4. Consulting Agreement (undated) by and between Nu Skin USA and
Gibb Dyer. Contract amount is $4,000 per month through 1999.
5. Consulting Agreement (undated) by and between Nu Skin USA and
Suzanne Barnes. Contract amount is $500 per day in Utah, $750
per day outside of Utah , for Demonstrations at Nu Colour
Application Workshops.
6. Consulting Agreement dated November 29, 1998 by and between Nu
Skin USA and Sherry Drabner. Contract amount is $500 per day
for Demonstrations at NU COLOUR Application Workshops.
7. Consulting Agreement dated November 27, 1998 by and between Nu
Skin USA and Susan Markey. Contract amount is $500 per day for
Demonstrations at NU COLOUR Application Workshops.
8. Consulting Agreement dated December 3, 1998 by and between Nu
Skin USA and Marianne Thompson. Contract amount is $500 per
day for Demonstrations at NU COLOUR Application Workshops.
9. Consulting Agreement dated November 28, 1998 by and between Nu
Skin USA and Kathy Eckenbrecht. Contract amount is $500 per
day for Demonstrations at NU COLOUR Application Workshops.
10. Waiver of Objection to Use Material (undated) granted by Nu
Skin USA, Inc. in favor of Lifetime Productions, Inc. Grants
Lifetime Productions, Inc. rights to use Nu Skin USA footage
of Christie Brinkley.
11. Sub Lease Agreement dated November 1, 1998 by and between Nu
Skin USA and Franklin Covey Co. Expires December 31, 1999.
Monthly payments are $7,661.
EXHIBIT "C"
ASSUMED LIABILITIES
ASSUMED LIABILITIES
In connection with the transactions contemplated by this Agreement, Nu
Skin United States will assume the following categories of Nu Skin USA's
liabilities:
Trade A/R1*
A/P Trade*
Accrued Payables to Vendors*
Accrued Payables - Consigned*
Accrued Commissions
Accrued Gallery of Gifts Liability
Wages/Payroll Taxes Payable*
Accrued Sales Tax*
Other Accrued Liabilities*
Deferred Shipping*
Independent Warehouses*
Attached hereto is a balance sheet of Nu Skin USA as of January 31,
1999 showing the Nu Skin USA liabilities being assumed by Nu Skin United States.
* Specifically excluding all amounts that relate to the Affiliates.
CONTRACTUAL OBLIGATIONS ASSUMED BY NU SKIN UNITED STATES
1. Personal Services Agreement dated November 1, 1998 by and
between Nu Skin USA and Final Kick Marketing Group. Expires
November 1, 2000. Total contract amount is $220,000, plus
travel expenses.
2. Personal Services Agreement dated December 1, 1998 by and
between Nu Skin USA and Carmen Dominicci. Expires November 30,
2000. Total contact amount is $95,000, plus expenses
3. Personal Services Agreement dated August 25, 1998 by and
between Nu Skin USA and Isaac Wilson (Stray Dogs). Expires
August 9, 1999. Total contract amount is $11,000, plus
expenses.
4. Consulting Agreement (undated) by and between Nu Skin USA and
Gibb Dyer. Contract amount is $4,000 per month through 1999.
5. Consulting Agreement (undated) by and between Nu Skin USA and
Suzanne Barnes. Contract amount is $500 per day in Utah, $750
per day outside of Utah , for Demonstrations at Nu Colour
Application Workshops.
6. Consulting Agreement dated November 29, 1998 by and between Nu
Skin USA and Sherry Drabner. Contract amount is $500 per day
for Demonstrations at NU COLOUR Application Workshops.
7. Consulting Agreement dated November 27, 1998 by and between Nu
Skin USA and Susan Markey. Contract amount is $500 per day for
Demonstrations at NU COLOUR Application Workshops.
8. Consulting Agreement dated December 3, 1998 by and between Nu
Skin USA and Marianne Thompson. Contract amount is $500 per
day for Demonstrations at NU COLOUR Application Workshops.
9. Consulting Agreement dated November 28, 1998 by and between Nu
Skin USA and Kathy Eckenbrecht. Contract amount is $500 per
day for Demonstrations at NU COLOUR Application Workshops.
10. Waiver of Objection to Use Material (undated) granted by Nu
Skin USA, Inc. in favor of Lifetime Productions, Inc. Grants
Lifetime Productions, Inc. rights to use Nu Skin USA footage
of Christie Brinkley.
11. Sub Lease Agreement dated November 1, 1998 by and between Nu
Skin USA and Franklin Covey Co. Expires December 31, 1999.
Monthly payments are $7,661.
EXHIBIT "D"
FORM OF BILL OF SALE AND ASSIGNMENT
EXHIBIT "E"
FORM OF INSTRUMENT OF ASSUMPTION OF LIABILITIES
EXHIBIT "F"
FORM OR INDEMNIFICATION LIMITATION AGREEMENT
EXHIBIT "G"
FORM OF LEGAL OPINION OF HOLLAND & HART, L.L.P.
EXHIBIT "H"
ALLOCATION OF PURCHASE PRICE
The Allocation of the Purchase Price shall be agreed upon, in good
faith, by Nu Skin Enterprises, Nu Skin United States, and Nu Skin USA within
thirty (30) days after the Closing.
- --------
1 To the extent any such trade account receivable reflects a credit
balance resulting from the issuance by Nu Skin USA of credit vouchers to its
customers.
EX-10.53
TERMINATION AGREEMENT
BY AND BETWEEN
NU SKIN INTERNATIONAL, INC.
AND
NU SKIN USA, INC.
March 8, 1999
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is entered into effective
as of March 8, 1999 by and between Nu Skin International, Inc., a Utah
corporation ("Nu Skin International"), and Nu Skin USA, Inc., a Delaware
corporation ("Nu Skin USA"). Nu Skin International and Nu Skin USA are referred
to herein, collectively, as the "Parties" and, individually, as a "Party."
RECITALS
A. WHEREAS, Nu Skin International previously entered into certain
licenses and agreements with Nu Skin USA (which agreements are referred to
herein, collectively, as the Terminated Agreements (as that term is defined in
Section 1.5 below)), which Terminated Agreements are each identified in Section
1 below;
B. WHEREAS, the respective parties to each of the Terminated Agreements
now desire to terminate each of the Terminated Agreements, as set forth herein
and in exchange for the Termination Fee (as that term is defined in Section 2.1
below); and
C. WHEREAS, in connection with this Agreement and the termination of
the Terminated Agreements as set forth in and contemplated by this Agreement,
simultaneously with the execution of this Agreement Nu Skin International will
pay the Termination Fee to Nu Skin USA in exchange for the termination of the
Terminated Agreements, as set forth in and contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
1. Terminated Agreements. The following licenses and agreements have
previously been entered into by and between the respective Parties thereto, as
indicated below:
1.1 Sublease Agreement. A Sublease Agreement dated effective as of
January 1, 1998 entered into by and between Nu Skin International and Nu Skin
USA (the "Sublease Agreement"), a copy of which is attached as Exhibit "A"
hereto.
1.2 Licensing and Sales Agreement. A Licensing and Sales Agreement
dated effective as of December 31, 1997 entered into by and between Nu Skin
International and Nu Skin USA (the "Licensing and Sales Agreement"), a copy of
which is attached as Exhibit "B" hereto.
1.3 Trademark/Tradename Agreement. A Trademark/Tradename Licensing
Agreement dated effective as of December 31, 1997 entered into by and between Nu
Skin International and Nu Skin USA (the "Trademark/Tradename Agreement"), a copy
of which is attached as Exhibit "C" hereto.
1.4 Distribution Agreement. A Wholesale Distribution Agreement dated
effective as of December 31, 1997 entered into by and between Nu Skin
International and Nu Skin USA (the "Distribution Agreement"), a copy of which is
attached as Exhibit "D" hereto.
1.5 The Terminated Agreements; Termination. The Sublease Agreement, the
Licensing and Sales Agreement, the Trademark/Tradename Agreement, and the
Distribution Agreement are, collectively, referred to herein as the "Terminated
Agreements" and, individually, as a "Terminated Agreement." The respective
parties to each of the Terminated Agreements hereby terminate each of the
Terminated Agreements to which they are a party effective as of the effective
date of this Agreement (as first above written), and in so doing agree to cause
each of the respective parties to each of the Terminated Agreements to become
subject to any and all rights and obligations provided under each of the
respective Terminated Agreements upon the termination thereof, if any. The
rights and obligations of each of the parties under each Terminated Agreement
following the termination thereof shall be governed by the terms of the
respective Terminated Agreement as if such Terminated Agreement had been
terminated in accordance with its terms. This Agreement shall in no way limit
any rights or obligations, if any, that any Terminated Agreement provides or
contemplates shall continue following the termination of such Terminated
Agreement, except as otherwise expressly set forth herein.
1.5.1 Reaffirmation of Existing Agreements. Notwithstanding
the provisions of Section 1.5 above, the Parties hereby acknowledge and
reaffirm (a) the Tax Sharing and Indemnification Agreement dated
December 31, 1997 entered into by and among Nu Skin International, Nu
Skin USA, and their respective shareholders, (b) the Assumption of
Liabilities and Indemnification Agreement dated effective as of
December 31, 1997 entered into by and between Nu Skin International and
252nd Shelf Corporation, a Delaware corporation (now known as "Nu Skin
USA, Inc."), and (c) the Employee Benefits Allocation Agreement
(undated) entered into by and between Nu Skin International and Nu Skin
USA (collectively, the "Existing Agreements"). The Existing Agreements
shall remain in full force and effect as originally executed and are
not being terminated, modified, or amended in any manner or respect by
this Agreement or any of the transactions contemplated hereby.
2. Termination Fee; Payment of Termination Fee.
2.1 Termination Fee; Payment of Termination Fee. Upon the execution of
this Agreement by each of the Parties, and in exchange for the termination of
the Terminated Agreements as set forth in and contemplated by this Agreement, Nu
Skin International will pay to Nu Skin USA Ten Million Dollars ($10,000,000)
(the "Termination Fee"). The Termination Fee shall be paid by Nu Skin
International on the date this Agreement becomes effective (the "Closing Date")
in cash by wire transfer or delivery of other immediately available funds.
2.1.1 Tax Consequences. The Parties agree that the Termination
Fee is income to Nu Skin USA and is amortizable by Nu Skin
International. The Parties also agree not to take any position contrary
to or inconsistent with the treatment of the Termination Fee as set
forth in the immediately preceding sentence.
3. Representations and Warranties of Nu Skin USA. Nu Skin USA represents and
warrants to Nu Skin International that the statements contained in this Section
3 are correct and complete as of the Closing Date.
3.1 Organization. Nu Skin USA is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
3.2 Authorization of Transaction. Nu Skin USA has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, the Board of Directors of Nu Skin USA, and, if
required, Nu Skin USA's stockholders, have duly authorized the execution,
delivery, and performance of this Agreement by Nu Skin USA. This Agreement
constitutes the valid and legally binding obligation of Nu Skin USA, enforceable
in accordance with its terms and conditions.
3.3 Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Nu Skin USA is subject or any provision
of the charter or bylaws of Nu Skin USA or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Nu Skin USA is a party or by which it is bound or to which
any of its assets is subject. Nu Skin USA is not required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
3.4 Financial Statements. Attached hereto as Exhibit "E" are the
following financial statements of Nu Skin USA (collectively the "Financial
Statements"): (i) the unaudited balance sheet and statements of income as of and
for the fiscal year ended December 31, 1998 (the "Most Recent Fiscal Year End").
The Financial Statements (including the notes thereto) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the period covered thereby, present fairly the financial
condition of Nu Skin USA as of the Most Recent Fiscal Year End and the results
of operations of Nu Skin USA for the fiscal year ended December 31, 1998, are
correct and complete, and are consistent with the books and records of Nu Skin
USA (which books and records are correct and complete).
4. Representations and Warranties of Nu Skin International. Nu Skin
International represents and warrants to Nu Skin USA that the statements
contained in this Section 4 are correct and complete as of the Closing Date.
4.1 Organization. Nu Skin International is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
4.2 Authorization of Transaction. Nu Skin International has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. Without
limiting the generality of the foregoing, the Board of Directors of Nu Skin
International, and, if required, Nu Skin International's stockholders, have duly
authorized the execution, delivery, and performance of this Agreement by Nu Skin
International. This Agreement constitutes the valid and legally binding
obligation of Nu Skin International, enforceable in accordance with its terms
and conditions.
4.3 Non-contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Nu Skin International is subject or any
provision of the charter or bylaws of Nu Skin International or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Nu Skin International is a party or by
which it is bound or to which any of its assets is subject. Nu Skin
International is not required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement.
5. Indemnification.
5.1 Indemnification Obligation; Indemnification Limitation Agreement.
Nu Skin USA hereby agrees to indemnify and hold harmless Nu Skin International
and its affiliated (other than Nu Skin USA), shareholders, officers, directors,
employees, agents, heirs, representatives, successors, and assigns
(collectively, the "Indemnitees") at all times from and after the Closing Date
against and in respect of any and all Damages (as that term is defined in
Section 5.2 below), subject, however, to the limitations and restrictions set
forth in the Indemnification Limitation Agreement (a copy of which is attached
hereto as Exhibit "F".).
5.2 Damages. "Damages" shall include any claims, actions, demands,
losses, costs, expenses, liabilities (whether joint or several), penalties, and
damages, including counsel fees and expenses, incurred in investigating or in
attempting to avoid the same or oppose the imposition thereof resulting to any
of the Indemnitees from any of the following: (i) any misrepresentation or
breach of any representation or warranty made by Nu Skin USA in or under this
Agreement or any other agreement executed in connection with the transactions
contemplated hereby; (ii) any breach or default in the performance by Nu Skin
USA of any of the covenants to be performed by it under this Agreement or any
agreement executed in connection with the transactions contemplated hereby;
(iii) any debts, liabilities, or obligations of Nu Skin USA, whether accrued,
absolute, contingent, or otherwise, due or to become due; or (iv) any claim
involving any of the Terminated Agreements or any expense that is allowable
against or incurred by any Indemnitee because of Nu Skin USA's non-compliance
with any provision of any of the Terminated Agreements.
6. Miscellaneous.
6.1 Press Releases and Public Announcements. Nu Skin International may
issue any press releases or make any public announcements relating to the
subject matter of this Agreement after the Closing without the prior written
approval of the other Parties. Nu Skin USA shall not issue any press releases or
make any public announcements relating to the subject matter of this Agreement
without the prior written approval of the other Parties.
6.2 Entire Agreement. Subject to Section 1.5 above, which provides that
the terms of the Terminated Agreements shall govern the rights and obligations
of the respective parties thereto following the termination of the Terminated
Agreements, this Agreement (including the documents referred to herein)
constitutes the entire agreement between the Parties and supersedes any prior
understandings, agreements, or representations by or between the Parties,
whether written or oral, to the extent they related in any way to the subject
matter hereof.
6.3 Counterparts. This Agreement may be executed by facsimile and in
one or more counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument.
6.4 Headings. The Section and subsection headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect to
any choice or conflict of law provision or rule (whether of the State of Utah or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah.
6.6 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
6.7 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" shall mean including
without limitation.
6.8 Incorporation of Recitals and Exhibits. The above Recitals and all
Exhibits attached to this Agreement are deemed to be incorporated herein by
reference and made a part hereof.
6.9 Submission to Jurisdiction. Each of the Parties submits to the
exclusive jurisdiction of any state or federal court sitting in Salt Lake City
or Provo, Utah, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
shall be heard and determined only in any such court. Each Party also agrees not
to bring any action or proceeding arising out of or relating to this Agreement
in any other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with respect
thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or in equity.
6.10 Assignment. Except as provided below, no Party may assign (by
operation of law, merger, or otherwise), license, sublicense, or otherwise
transfer any of its rights or obligations under this Agreement to any other
person or entity without obtaining the prior written consent of the other
Parties; provided, however, that either Nu Skin Enterprise or Nu Skin
International shall be allowed to assign this Agreement or its rights and
obligations hereunder without any prior consent of the other Parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have caused this Termination Agreement
to be duly executed as of the day and year first above written.
NU SKIN INTERNATIONAL, INC.
By: /s/ Corey B. Lindley
Its Vice President
NU SKIN USA, INC.
By: /s/ Steve J. Lund
Its President
ATTACHED EXHIBITS:
EXHIBIT "A" -- SUBLEASE AGREEMENT
EXHIBIT "B" -- LICENSING AND SALES AGREEMENT
EXHIBIT "C" -- TRADEMARK/TRADENAME AGREEMENT
EXHIBIT "D" -- DISTRIBUTION AGREEMENT
EXHIBIT "E" -- FINANCIAL STATEMENTS
EXHIBIT "F" -- INDEMNIFICATION LIMITATION AGREEMENT
- --- Agreements provided upon request ---
EX-10.54
INDEMNIFICATION LIMITATION AGREEMENT
BY AND AMONG
NU SKIN ENTERPRISES, INC.,
NU SKIN UNITED STATES, INC.,
NU SKIN INTERNATIONAL, INC.,
BIG PLANET HOLDINGS, INC.,
NU SKIN USA, INC.,
THE MANAGERS,
AND
THE STOCKHOLDERS WHO EXECUTE THE SIGNATURE PAGE HERETO
March 8, 1999
INDEMNIFICATION LIMITATION AGREEMENT
This Indemnification Limitation Agreement (this "Agreement") is made
and entered into effective as of March 8, 1999 by and among Nu Skin Enterprises,
Inc., a Delaware corporation ("Nu Skin Enterprises"), Nu Skin United States,
Inc., a Delaware corporation ("Nu Skin United States"), Nu Skin International,
Inc. a Utah corporation ("Nu Skin International"), Big Planet Holdings, Inc., a
Delaware corporation ("Big Planet Holdings"), Nu Skin USA, Inc., a Delaware
corporation ("Nu Skin USA"), Nathan W. Ricks ("Ricks"), Kevin V. Doman
("Doman"), Richard W. King ("King"), and each of the stockholders who elects to
become a party to this Agreement by executing the signature page hereto (each a
"Stockholder" and together the "Stockholders"). Ricks, Doman, and King are
collectively referred to as the "Managers" and, individually, a "Manager." Each
of Nu Skin Enterprises, Nu Skin United States, Big Planet Holdings, Nu Skin USA,
Big Planet, the Managers, and the Stockholders is individually referred to
herein as a "Party" and together as the "Parties."
RECITALS
A. WHEREAS, Nu Skin Enterprises, Nu Skin United States, and Nu Skin USA
have entered into that certain Asset Purchase Agreement of even date herewith
and attached hereto as Exhibit "A" (the "Asset Purchase Agreement") providing
for the purchase by Nu Skin Enterprises and Nu Skin United States of certain
assets of Nu Skin USA, with a portion of the purchase price for certain of such
assets to be deposited into an escrow account (the "Escrow") pursuant to the
terms of the Escrow Agreement dated of even date herewith and in the form
attached hereto as Exhibit "B" (the "Escrow Agreement"), which Asset Purchase
Agreement further provides for the indemnification of Nu Skin Enterprises and Nu
Skin United States in connection with the transactions described therein;
B. WHEREAS, Nu Skin International and Nu Skin USA have entered into
that certain Termination Agreement of even date herewith and attached hereto as
Exhibit "C" (the "Termination Agreement") providing for the termination of
certain licenses and agreements previously entered into by and between Nu Skin
USA and various other parties in consideration for the payment of a termination
fee;
C. WHEREAS, Nu Skin Enterprises and the Stockholders contemplate
entering into a stock purchase, merger, or similar agreement related to Nu Skin
Canada, Inc. (the "Canada Stock Purchase Agreement"), providing for the purchase
by Nu Skin Enterprises of the issued and outstanding shares of capital stock of
Nu Skin Canada, Inc. or for the merger of Nu Skin Canada, Inc. with Nu Skin
Enterprises (or a newly-organized subsidiary of Nu Skin Enterprises), and
further providing for the indemnification of Nu Skin Enterprises in connection
with the transactions contemplated in the Canada Stock Purchase Agreement;
D. WHEREAS, Nu Skin Enterprises and the Stockholders contemplate
entering into a stock purchase, merger, or similar agreement related to Nu Skin
Mexico S.A. de C.V., a Mexico corporation domesticated in Delaware under the
name Nu Skin Mexico, Inc. (the "Mexico Stock Purchase Agreement"), providing for
the purchase by Nu Skin Enterprises of the issued and outstanding shares of
capital stock of Nu Skin Mexico, Inc. or for the merger of Nu Skin Mexico, Inc.
with Nu Skin Enterprises (or a newly-organized subsidiary of Nu Skin
Enterprises), and further providing for the indemnification of Nu Skin
Enterprises in connection with the transactions contemplated in the Mexico Stock
Purchase Agreement;
E. WHEREAS, Nu Skin Enterprises and the Stockholders contemplate
entering into a stock purchase, merger, or similar agreement related to Nu Skin
Guatemala S.A., a Guatemala corporation domesticated in Delaware under the name
Nu Skin Guatemala, Inc. (the "Guatemala Stock Purchase Agreement"), providing
for the purchase by Nu Skin Enterprises of the issued and outstanding shares of
capital stock of Nu Skin Guatemala, Inc. or for the merger of Nu Skin Guatemala,
Inc. with Nu Skin Enterprises (or a newly-organized subsidiary of Nu Skin
Enterprises), and further providing for the indemnification of Nu Skin
Enterprises in connection with the transactions contemplated in the Guatemala
Stock Purchase Agreement;
F. WHEREAS, Nu Skin Enterprises and a subsidiary to be formed by Nu
Skin Enterprises are currently negotiating and intend, following the date
hereof, to enter into an Agreement and Plan of Merger with Big Planet (the
"Merger Agreement") providing for the merger of Big Planet with and into Big
Planet Holdings, Inc., a subsidiary of Nu Skin Enterprises ("Big Planet
Holdings") in exchange for merger consideration that in part will consist of
cash in the amount of approximately $14,500,000 and a promissory note (the "Nu
Skin Enterprises Note") in the original principal amount of approximately
$14,500,000 payable to Nu Skin USA as the holder of the Preferred Stock of Big
Planet;
G. WHEREAS, the Asset Purchase Agreement, the Termination Agreement,
the Canada Stock Purchase Agreement, the Mexico Stock Purchase Agreement, and
the Guatemala Stock Purchase Agreement (collectively, the "Transaction
Agreements") each contain certain indemnification obligations in favor of Nu
Skin Enterprises, Nu Skin United States, or their respective affiliates who are
parties to the respective Transaction Agreements including Nu Skin International
(the "Affiliate Parties"), and the Parties now desire to agree to certain
restrictions and limitations on such indemnification obligations;
H. WHEREAS, Nu Skin International, Inc., a Utah corporation and
subsidiary of Nu Skin Enterprises ("Nu Skin International"), is liable for any
judgment that may be entered against the Nu Skin party defendants named in the
lawsuit captioned Capone v. Nu Skin Canada, Inc, et al., Civil No. 93-C-2855,
pending in the United States District Court, District of Utah, Central Division
(the "Capone Lawsuit"), but, pursuant to an Assumption of Liabilities and
Indemnification Agreement dated effective December 31, 1997, (the "Assumption
Agreement"), entered into by and between Nu Skin International, Inc. and 252nd
Shelf Corporation (now known as Nu Skin USA), Nu Skin USA has agreed to
indemnify and reimburse Nu Skin International for fifty percent (50%) of any
amount that Nu Skin International may become liable for in the Capone Lawsuit;
and
I. WHEREAS, Nu Skin Enterprises, Nu Skin International, and Nu Skin USA
intend that Nu Skin International can be reimbursed out of the Escrow pursuant
to the Escrow Agreement and may set off against the Nu Skin Enterprises Note and
seek indemnification from Nu Skin USA and the Stockholders to the extent Nu Skin
International is entitled to reimbursement pursuant to the Assumption Agreement,
for Nu Skin USA's fifty percent (50%) of any amount Nu Skin International may
become liable for in connection with the Capone Lawsuit.
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual covenants and obligations set forth below, and as an inducement for Nu
Skin Enterprises and the Affiliate Parties to enter into the Transaction
Agreements, the Parties agree as follows:
1. Limits on Indemnification Claims.
1.1 Limits on Indemnification Claims Brought Against Nu Skin USA Under
the Transaction Agreements and the Merger Agreement. Except for claims brought
by Nu Skin Enterprises, Nu Skin United States, Big Planet Holdings, or the
Affiliate Parties relating to (i) the Stockholders' title to and right to
transfer their respective shares of capital stock of Nu Skin Canada, Inc., Nu
Skin Mexico, Inc., Nu Skin Guatemala, Inc., and Big Planet, Inc. and Nu Skin
USA's title to and right to transfer the assets to be transferred to Nu Skin
Enterprises, Nu Skin United States, or their respective affiliates pursuant to
the Asset Purchase Agreement or Big Planet's title to its assets, (ii) claims
for indemnification based on fraud, or (iii) any indemnification claim for the
individual tax liabilities or obligations of any stockholder of Nu Skin USA, Nu
Skin Canada, Inc., Nu Skin Mexico S.A. de C.V., (Nu Skin Mexico, Inc.), or Nu
Skin Guatemala S.A., (Nu Skin Guatemala, Inc.), no claim for indemnification may
be made against the entities referred to in clause 1.1 (iii) above or the
Stockholders under the Transaction Agreements or the Merger Agreement by Nu Skin
Enterprises, Nu Skin International, Nu Skin United States, Big Planet Holdings,
or the Affiliate Parties with respect to an individual claim of liability or
damage, unless, and then only to the extent that, the aggregate of all amounts
claimed under the Transaction Agreements and the Merger Agreement exceeds the
greater of (a) $100,000 or (b) $1,000,000 minus Nu Skin USA's Net Liabilities
(as that term is defined in the Asset Purchase Agreement). The indemnification
obligations owing to Nu Skin Enterprises, Nu Skin International, Big Planet
Holdings, Nu Skin United States, and the Affiliate Parties under the Transaction
Agreements and the Merger Agreement (except for those specifically excluded
above in this Section 1.1) shall be effective only until the dollar amount paid
in respect of indemnification claims brought under and pursuant to any of the
Transaction Agreements and/or the Merger Agreement aggregates to an amount equal
to $17,500,000; provided, however, that notwithstanding the above provisions of
this Section 1.1, (a) all corporate tax liabilities or tax obligations of Nu
Skin USA, Big Planet, Inc., Nu Skin Canada, Inc., Nu Skin Mexico S.A. de C.V.
(Nu Skin Mexico, Inc.), or Nu Skin Guatemala S.A. (Nu Skin Guatemala, Inc.)
(each, a "Corporate Tax Liability") and (b) all liability of Nu Skin USA related
to the Capone Lawsuit, are excluded from said $17,500,000 cap; provided further,
however, that each Stockholder hereby agrees, in the event Nu Skin USA
distributes the Termination Fee (as such term is defined in the Termination
Agreement) and the Class A Purchase Price (as such term is defined in the Asset
Purchase Agreement), including any remaining portion of the Escrow Amount (as
that term is defined in the Escrow Agreement) to the Stockholders or makes any
other distributions to the Stockholders, including liquidating distributions,
that each Stockholder will severally indemnify Nu Skin Enterprises, Nu Skin
International, Nu Skin United States, Big Planet Holdings, and the Affiliate
Parties for all of Nu Skin USA's Corporate Tax Liability and liability related
to the Capone Lawsuit proportionately based on their relative share ownership of
Nu Skin USA. The liability of such Stockholders under the immediately preceding
sentence shall be limited to the amount of the distributions of cash and/or
property (including any merger consideration received by Nu Skin USA under the
Merger Agreement) received by or paid on behalf of such Stockholder from Nu Skin
USA following March 1, 1999. Notwithstanding the foregoing, neither Nu Skin
Enterprises, Nu Skin International, Nu Skin United States, Big Planet Holdings
nor the Affiliate Parties will pursue any claim against the Stockholders for any
Corporate Tax Liability or any liability related to the Capone Lawsuit until the
Nu Skin Enterprises Note shall have been set off in full and the Escrow Amount
shall have been disbursed in full to Nu Skin Enterprises, Nu Skin United States
or Nu Skin International. Nothing herein shall release or discharge the
Stockholders or Nu Skin USA for any Corporate Tax Liability or liability related
to the Capone Lawsuit. Any Corporate Tax Liability or any liability related to
the Capone Lawsuit may be paid by delivery of shares of Nu Skin Enterprises
Class A Common Stock or Class B Common Stock to Nu Skin Enterprises in an amount
equal to the Corporate Tax Liability or the aggregate liability under the Capone
Lawsuit, divided by the average closing price of Nu Skin Enterprise's Class A
Common Stock on the New York Stock Exchange for the twenty (20) trading days
immediately prior to the date on which Nu Skin Enterprises gives notice of such
Corporate Tax Liability or liability related to the Capone Lawsuit to the entity
responsible for the same. To the extent that indemnification obligations in
favor of Nu Skin Enterprises, Nu Skin United States, Nu Skin International, Big
Planet Holdings, or the Affiliate Parties under the Transaction Agreements or
the Merger Agreement may be unenforceable, Nu Skin USA and the Stockholders
shall contribute the maximum amount that they are permitted to contribute under
applicable law to the payment and satisfaction of all indemnification claims
brought under and pursuant to the Transaction Agreements or the Merger Agreement
by Nu Skin Enterprises, Nu Skin International, Big Planet Holdings, Nu Skin
United States, or the Affiliate Parties. Amounts owing to Nu Skin Enterprises,
Nu Skin International, Big Planet Holdings, Nu Skin United States, or the
Affiliate Parties under the Transaction Agreements or the Merger Agreement shall
not be reduced or off set by the value of any tax benefits accruing to Nu Skin
Enterprises, Nu Skin International, Big Planet Holdings, Nu Skin United States,
or the Affiliate Parties as a result of any claim for indemnification or by the
amount of any insurance proceeds received by Nu Skin Enterprises, Nu Skin
International, Big Planet Holdings, Nu Skin United States, or the Affiliate
Parties in connection with any claim for indemnification.
1.2 Limits on Indemnification Claims Brought Against the Managers Under
the Merger Agreement.
1.2.1 Relevant Merger Agreement Provisions. As set forth in the
Merger Agreement, (a) certain options held by Ricks to acquire 3,806,147 shares
of the Big Planet Common will be converted into or exchanged for options to
purchase shares of Nu Skin Enterprises Class A Common (the "New Ricks Options"),
(b) a total of 815,604 unvested shares of Big Planet Common underlying King's
current restricted stock award will be exchanged or converted into restricted
stock awards of Nu Skin Enterprises Class A Common (the "New King Restricted
Stock Award"), and (c) a total of 305,910 unvested shares of Big Planet Common
underlying Doman's current restricted stock award will be exchanged or converted
into restricted stock awards of Nu Skin Enterprises Class A Common (the "New
Doman Restricted Stock Award"). As set forth in the Merger Agreement and in
Section 1.2.2 below (subject to the limitations set forth in Section 1.2.2
below), each of the Managers is jointly and severally liable to Big Planet
Holdings and Nu Skin Enterprises and has agreed to indemnify Big Planet Holdings
and Nu Skin Enterprises for any such indemnification claims for which they may
become liable by forfeiting shares of Nu Skin Enterprises Class A Common
issuable pursuant to the New Ricks Options, the New King Restricted Stock Award,
and the New Doman Restricted Stock Award, as applicable. The Parties hereby
acknowledge that, pursuant to the respective grant agreements for the New Ricks
Options, the New King Restricted Stock Award, and the New Doman Stock Award to
be entered into by them and Nu Skin Enterprises following the date hereof,
shares of Nu Skin Enterprises Class A Common issuable thereunder can be
forfeited in satisfaction of indemnification obligations of the Managers, as
described in Section 1.2.2 below.
1.2.2 Indemnification; Calculation of Forfeited Shares. Except for
indemnification claims brought by Big Planet Holdings or Nu Skin Enterprises
relating to or based on (i) fraud, or (ii) the Managers' title to and right to
transfer their respective shares of capital stock or options of Big Planet, Inc.
pursuant to the Merger Agreement, no claim for indemnification may be made
against any Manager under the Merger Agreement by Big Planet Holdings or Nu Skin
Enterprises with respect to an individual claim of liability or damage, unless,
and then only to the extent that, the aggregate of all amounts claimed under the
Merger Agreement exceeds $100,000 (the "Big Planet Indemnification Amount");
provided, however, that in the event the Big Planet Indemnification Amount
exceeds $100,000, each of the Managers shall share in such excess pro rata in
accordance with their respective Member Allocation Percentage (set forth on
Exhibit "D" attached hereto). The number of shares of Nu Skin Enterprises Class
A Common that each Manager shall forfeit in the event the Big Planet
Indemnification Amount exceeds $100,000 shall be determined as follows: (i) such
Manager's Allocation Percentage shall be multiplied by the amount by which the
Big Planet Indemnification Amount exceeds $100,000, and that amount shall be
divided by (ii) the average closing price of Nu Skin Enterprise's Class A Common
Stock on the New York Stock Exchange for the twenty (20) trading days ending
February 3, 1999. The result of such calculation is the number of shares of Nu
Skin Enterprises Class A Common that each Manager shall forfeit in settlement of
the amount by which the Big Planet Indemnification Amount exceeds $100,000. The
remaining portion of the Big Planet Indemnification Amount shall be concurrently
allocated to and paid by Nu Skin USA pursuant to and in accordance with Section
1.2.1 above. The indemnification obligations of the Managers to Big Planet
Holdings and Nu Skin Enterprises under the Merger Agreement and this Section
1.2.2 shall be effective only until the first to occur of (A) the shares of Nu
Skin Enterprises Class A Common vest in each Manager (which, as stated in the
Merger Agreement, will be in a single installment one (1) year after the Closing
Date (as that term is defined in the Merger Agreement)) or (B)(I) in the case of
Ricks, fifty percent (50%) of the shares of Nu Skin Enterprises Class A Common
underlying the New Ricks Options, and (II) in the case of either King or Doman,
one hundred percent (100%) of the shares of Nu Skin Enterprises Class A Common
underlying the New King Restricted Stock Award or the New Doman Restricted Stock
Award, as applicable, have been forfeited pursuant to this Section 1.2.2. To the
extent that indemnification obligations in favor of Big Planet Holdings or Nu
Skin Enterprises under the Merger Agreement may be unenforceable, each of the
Managers shall contribute and forfeit the maximum number of shares of Nu Skin
Enterprises Class A Common (determined as set forth above) as they are permitted
to contribute and forfeit under applicable law to the payment and satisfaction
of all indemnification claims brought under and pursuant to the Merger Agreement
by Big Planet Holdings or Nu Skin Enterprise. Amounts owing to Big Planet
Holdings or Nu Skin Enterprises under the Merger Agreement shall not be reduced
or off-set by the value of any tax benefits accruing to Big Planet Holdings or
Nu Skin Enterprises as a result of any claim for indemnification or by the
amount of any insurance proceeds received by Big Planet Holdings or Nu Skin
Enterprises in connection with any claim for indemnification.
2. Pursuit of Indemnification Claims. Claims for indemnification brought by Nu
Skin Enterprises, Nu Skin United States, Big Planet Holdings or the Affiliate
Parties shall be brought in accordance with the terms and conditions of the
Transaction Agreements or the Merger Agreement, as applicable. Except as
expressly provided in Section 1 above, nothing in this Agreement is intended to
limit the scope of the indemnification claims that can be brought under the
Transaction Agreements or the Merger Agreement or the manner in which such
claims are to be brought under the Transaction Agreements or Merger Agreement by
Nu Skin Enterprises, Nu Skin United States, Big Planet Holdings or the Affiliate
Parties.
3. Indemnification Assets. To the extent permitted by Section 1 above, Nu Skin
Enterprises, Nu Skin United States, Big Planet Holdings and the Affiliate
Parties shall have the right to make a claim under the Escrow Agreement against
the Escrow Amount for any amounts owing to Nu Skin Enterprises, Big Planet
Holdings, Nu Skin United States, or the Affiliate Parties under the Transaction
Agreements or the Merger Agreement. Claims for indemnification hereunder that
are brought against the Escrow Amount under the Escrow Agreement shall be
brought in accordance with the terms and conditions of the Escrow Agreement. In
addition, Nu Skin Enterprises for itself or on behalf of Nu Skin United States,
Big Planet Holdings or the Affiliate Parties shall be entitled to set-off or
recover against any principal or interest payable by it under the Nu Skin
Enterprises Note, all amounts owing to Nu Skin Enterprises, Big Planet Holdings,
Nu Skin United States, or the Affiliate Parties under the Transaction Agreements
or the Merger Agreement. Amounts payable by Nu Skin Enterprises under the Nu
Skin Enterprises Note and all amounts (or shares of Nu Skin Enterprises Class A
Common Stock or Class B Common Stock substituted at any time for a Stockholder's
Allocation Amount (as that term is defined in the Escrow Agreement) held in the
Escrow and all interest and earnings on such amounts shall together constitute
the "Indemnification Assets." Except for the claims set forth in clauses (i),
(ii), and (iii) of Section 1.1 above and claims for Corporate Tax Liability or
liability related to the Capone Lawsuit (which claims are excluded from the
effects of the basket and cap provided in Section 1.1 above), the sole remedy of
Nu Skin Enterprises, Nu Skin United States, and the Affiliate Parties shall be
limited to claims for indemnification pursuant to the Transaction Agreements. In
addition, except for claims set forth in clauses (i), (ii), and (iii) of Section
1.1 above and claims for Corporate Tax Liability or liability related to the
Capone lawsuit, claims brought by Nu Skin Enterprises, Nu Skin United States, or
the Affiliate Parties pursuant to the Transaction Agreements shall be satisfied
only from the Indemnification Assets. Except for claims set forth above in
clauses (i) and (ii) of Section 1.2.2 (which claims are excluded from the
effects of the basket and cap provided in Section 1.2 above), the sole remedy of
Nu Skin Enterprises and Big Planet Holdings against the Managers shall be
limited to claims for indemnification pursuant to the Merger Agreement. In
addition, except for the claims excluded in Section 1.2.2 above, claims brought
by Nu Skin Enterprises and Big Planet Holdings against the Managers pursuant to
the Merger Agreement shall be satisfied only from those portions of the New
Ricks Options, the New King Restricted Stock Award and the New Doman Restricted
Stock Award that are forfeitable as provided in Section 1.2.2 above.
4. Joint and Several Obligations. Subject to the limitations set forth in
Section 1 above, the obligations of Nu Skin USA and the Stockholders shall be
joint and several. Nu Skin Enterprises, Nu Skin United States, Big Planet
Holdings and the Affiliate Parties shall be entitled to bring claims for
indemnification and assert rights against the Indemnification Assets regardless
of which Transaction Agreement or Merger Agreement allows for such claims and
regardless of the consideration received by either Nu Skin USA or the
Stockholders under such Transaction Agreement or Merger Agreement. Nu Skin
Enterprises, Nu Skin United States, Big Planet Holdings, and the Affiliate
Parties may pursue their rights against the Indemnification Assets by bringing
claims against the Escrow or by Nu Skin Enterprises setting-off amounts owing by
it under the Nu Skin Enterprises Note concurrently or sequentially, in any order
it desires.
5. Waiver of Subrogation. Nu Skin USA and the Stockholders each hereby waive any
right of subrogation they may have with respect to any amounts paid to Nu Skin
Enterprises, Nu Skin United States, Big Planet Holdings, or the Affiliate
Parties pursuant to the provisions of the Transaction Agreements or the Merger
Agreement.
6. Designated Representative of Nu Skin USA and the Stockholders. Each of Nu
Skin USA and the Stockholders hereby appoints Keith R. Halls and Steven J. Lund
(each such person, whether acting singly or in concert, and any successor or
successors being referred to herein as a "Designated Representative") as their
legal representative and attorneys-in-fact to do any and all things and execute
all documents, instruments, and papers, in NSUSA's and each Stockholder's name,
place, and stead, and in any way Nu Skin USA or such Stockholder could do if
personally present, in connection with this Agreement and the transactions
contemplated hereby, including, without limitation, to (a) amend, cancel,
extend, or waive the terms of this Agreement, or any other ancillary documents,
instruments, or agreements prepared and entered into in connection with this
Agreement; (b) provide any notices required pursuant to this Agreement or any
ancillary documents, instruments, or agreements related hereto; (c) act for and
on behalf of Nu Skin USA and the Stockholders with respect to claims (including
the settlement thereof) arising under this Agreement or any ancillary documents,
instruments, or agreements related thereto); and (d) accept, for and on behalf
of the Nu Skin USA and the Stockholders, all notices required to be delivered to
Nu Skin USA and the Stockholders under this Agreement. In the event that one or
both of the Designated Representatives becomes unable or unwilling to continue
in his capacity as the Designated Representative Nu Skin USA and the
Stockholders, Nu Skin USA and the Stockholders shall appoint a successor
designated representative by written notice to Nu Skin Enterprises. Any such
successor designated representative shall become and be deemed to be a
Designated Representative for purposes of this Agreement. Nu Skin USA and the
Stockholders shall be bound by any action taken by either of the Designated
Representatives in their capacity thereof. Nu Skin Enterprises, Nu Skin United
States, and the Affiliate Parties shall be entitled to rely on, as being binding
upon each of Nu Skin USA and the Stockholders, any document, instrument,
agreement, or any other paper believed by him, her, or it to be genuine and
correct and to have been signed or sent by either of the Designated
Representatives. Nu Skin Enterprises, Nu Skin United States, and the Affiliate
Parties shall not be liable to Nu Skin USA and the Stockholders for any action
taken or omitted to be taken by him, her, or it in such reliance. Copies of any
notice given by Nu Skin Enterprises to the Designated Representatives shall be
provided to each of the Designated Representatives at the address specified in
Section 7.1 below.
7. Miscellaneous Provisions.
7.1 Notice. All notices, requests, demands, and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given (i) on the date of personal
delivery or, (ii) provided such notice, request, demand, or communication is
actually received by the Party to which it is addressed in the ordinary course
of delivery, on the date of (a) deposit in the United States mail, postage
prepaid, by registered or certified mail, return receipt requested, (b) delivery
by facsimile transmission, or (c) delivery to a nationally-recognized overnight
courier service, in each case, addressed as follows, or to such other person or
entity as any Party shall designate by written notice to the other in accordance
herewith:
If to Nu Skin Enterprises,
Nu Skin United States, or
the Affiliate Parties: With a copy to:
Nu Skin Enterprises, Inc. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
One Nu Skin Plaza 1000 Kearns Building
75 West Center Street 136 South Main Street
Provo, Utah 84601 Salt Lake City, Utah 84101
Attention: M. Truman Hunt, Esq. Attention: Nolan S. Taylor, Esq.
Fax No.: (801) 345-3099 Fax No.: (801) 359-8256
If to Nu Skin USA or the Stockholders: With a copy to:
Nu Skin USA, Inc. Holland & Hart, L.L.P.
c/o Nu Skin Enterprises, Inc. 215 South State Street, Suite 500
75 West Center Street Salt Lake City, Utah 84111
Provo, UT 84601 Attention: David R. Rudd, Esq.
Attention: Keith R. Halls Fax No.: (801) 364-9124
Fax No.: (801) 345-5999
7.2 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Utah applicable to
contracts entered into and to be performed entirely within such State. With
respect to any dispute arising under this Agreement, the Parties consent to the
exclusive jurisdiction and venue of the federal and state courts residing in
Salt Lake City or Provo, Utah and waive any objection to such venue on the basis
of forum non conveniens.
7.3 Severability. The Parties agree that each provision to this
Agreement shall be construed independent of any other provision hereof. The
invalidity or unenforceability of any particular provision of this Agreement
shall not affect the other provisions hereof. This Agreement shall be construed
in all respects as if such invalid or unenforceable provision were omitted
herefrom.
7.4 Entire Agreement. This Agreement, together with the Transaction
Agreements and all Exhibits and Schedules thereto and hereto, constitutes the
entire agreement between the Parties with respect to the subject matter hereof.
This Agreement, together with the Transaction Agreements and all Exhibits and
Schedules thereto and hereto, supersedes all prior written or contemporaneous
oral agreements related to the subject matter hereof.
7.5 Amendment and Modifications. No amendment or other modification to
this Agreement shall be binding upon any Party unless executed in writing by all
of the Parties.
7.6 Waiver. No waiver by any Party of any of the provisions of this
Agreement will be deemed, or will constitute, a waiver of any other provision
hereof, whether similar, nor will any waiver constitute a continuing waiver
hereunder. No waiver will be binding unless executed in writing by the Party
making the waiver.
7.7 Assignment. Except as provided below, no Party may assign (by
operation of law, merger, or otherwise), license, sublicense, or otherwise
transfer any of his, her, or its rights or obligations under this Agreement to
any other person or entity without obtaining the prior written consent of the
other Parties; provided, however, that Nu Skin Enterprise and Nu Skin United
States shall each be allowed to assign this Agreement or its rights and
obligations hereunder without any prior consent of the other Parties.
7.8 Captions. All captions in this Agreement are intended solely for
the convenience of the Parties and none shall be deemed to affect the meaning
and construction of any provision hereof.
7.9 Cumulative Remedies. No right or remedy conferred upon or reserved
to any of the Parties under the terms of this Agreement is intended to be, nor
shall it be deemed, exclusive of any other right or remedy provided herein or by
law or equity, but each shall be cumulative of every other right or remedy.
7.10 Binding Effect of Agreement. Except as otherwise specifically
provided herein, this Agreement shall be binding upon, and shall inure to the
benefit of and be enforceable by, the Parties, and their respective affiliates,
successors, and assigns.
7.11 No Third-Party Beneficiaries. Nothing in this Agreement, express
or implied, shall confer on any person other than the Parties any rights or
remedies under or by virtue of this Agreement except that the Affiliate Parties
shall be entitled to the benefits of this Agreement.
7.12 Counterparts; Enforceability. This Agreement may be executed by
facsimile and in counterparts and each taken together shall constitute one and
all the same document. Provided that this Agreement has been executed by Nu Skin
Enterprises, Nu Skin United States, and Big Planet Holdings, Big Planet, each of
the Managers, and each Stockholder who has executed this Agreement is and will
be bound by the terms and conditions hereof, and Big Planet, each of the
Managers, and each such Stockholder specifically acknowledges and agrees that
the failure by Big Planet, any Manager, or any Stockholder to execute this
Agreement shall not invalidate or otherwise undermine the enforceability of this
Agreement as to each Party who has become a signatory hereto. The Parties also
acknowledge and agree that Big Planet and the Managers may not execute this
Agreement and become a Party hereto until sometime after the execution hereof by
all of the other Parties to this Agreement.
7.13 No Impact on Transaction Agreements. Except as specifically
provided in this Agreement, nothing herein undermines or detracts in any way
from any of the respective indemnification provisions contained in any of the
Transaction Agreements.
7.14 Set-Off Rights. Subject to Section 1 above, Nu Skin Enterprises
and its affiliates (excluding Nu Skin USA and Big Planet) shall be entitled to
set off any amounts due to it or them, as the case may be, under the Transaction
Agreements against amounts owing under the Nu skin Enterprises Note (as that
term is defined in the Merger Agreement) and against the then current Escrow
Amount (as that term is defined in the Escrow Agreement) .
7.15 Press Releases and Public Announcements. Either Nu Skin
Enterprises or Nu Skin United States may issue any press releases or make any
public announcements relating to the subject matter of this Agreement after the
effective date hereof without the prior written approval of the other Parties.
Neither Nu Skin USA nor Big Planet shall issue any press releases or make any
public announcements relating to the subject matter of this Agreement without
the prior written approval of the other Parties.
IN WITNESS WHEREOF, the Parties have executed and delivered this
Indemnification Limitation Agreement on the date first written above.
NU SKIN ENTERPRISES, INC. STOCKHOLDERS:
By: /s/ Corey B Lindley /s/ Blake M. Roney
Name: Corey B. Lindley Blake M. Roney
Its: Vice President
NU SKIN USA, INC. /s/ Nedra Dee Roney
Nedra Dee Roney
By: /s/ Steven J. Lund
Name: Steven J. Lund /s/ Sandra N. Tillotson
Its: Sandra N. Tillotson
BIG PLANET HOLDINGS, INC.
/s/ R. Craig Bryson
R. Craig Bryson
By: /s/ Corey B Lindley
Name: Corey B. Lindley
Its: Vice President /s/ Craig S. Tillotson
Craig S. Tillotson
NU SKIN INTERNATIONAL, INC.
By: /s/ Corey B Lindley /s/ Steven J. Lund
Name: Corey B. Lindley Steven J. Lund
Its: Vice President
/s/ Keith R. Halls
THE MANAGERS: Keith R. Halls
/s/ Richard W. King
Richard W. King /s/ Anna Lisa Massaro Halls
Anna Lisa Massaro Halls
/s/ Nathan W. Ricks
Nathan W. Ricks /s/ Brooke B. Roney
Brooke B. Roney
/s/ Kevin V. Doman
Kevin V. Doman ---------------------------
Kirk V. Roney
/s/ Rick A. Roney
Rick A. Roney
ATTACHED EXHIBITS:
EXHIBIT "A" -- ASSET PURCHASE AGREEMENT
EXHIBIT "B" -- FORM OF ESCROW AGREEMENT
EXHIBIT "C" -- TERMINATION AGREEMENT
EXHIBIT "D" -- MEMBER'S OWNERSHIP PERCENTAGES
- --- Exhibits will be provide upon request ---
EX-10.55
AMENDMENT NO. 1 TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This Amendment No. 1 to the Amended and Restated Stockholders Agreement
(this "Amendment Agreement") is entered into as of March 8, 1999 by and among
the Stockholders who have executed the signature pages of this Agreement and Nu
Skin Enterprises, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"). This Amendment Agreement shall be binding upon each
person who executes this Amendment Agreement notwithstanding the fact that any
other Stockholders fail or refuse to execute this Amendment Agreement. The
capitalized terms used in this Amendment Agreement and not otherwise defined
herein shall have the meanings given such terms in the Amended and Restated
Stockholders Agreement dated November 28, 1997 (the "Amended and Restated
Stockholders Agreement").
RECITALS
A. WHEREAS, the Company has entered into a letter of intent with Nu Skin
USA, Inc., Big Planet, Inc., certain shareholders of Big Planet, Inc. and
certain of the Initial Stockholders with respect to the potential acquisition by
the Company or its affiliates of Big Planet, Inc., Nu Skin Canada, Inc., Nu Skin
Mexico S.A. de C.V., a Mexico corporation domesticated in the State of Delaware
under the name Nu Skin Mexico, Inc., and Nu Skin Guatemala, S.A., a Guatemala
corporation domesticated in the State of Delaware under the name Nu Skin
Guatemala, Inc. and further regarding the termination of various agreements
between Nu Skin International, Inc., a subsidiary of the Company, and Nu Skin
USA, Inc. in consideration for the payment to Nu Skin USA, Inc. of certain
consideration and the acquisition of certain assets by the Company from Nu Skin
USA, Inc. (all of the foregoing proposed transactions being referred to herein
collectively as the "Proposed Transactions"); and
B. WHEREAS, in connection with the Proposed Transactions and the
Company's efforts to pursue certain liquidity events for those Stockholders
executing this Amendment Agreement, the Company has requested that the
Stockholders execute this Amendment Agreement and extend certain resale
restrictions set forth therein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereto
irrevocably agree as follows:
1. Section 2.2 Lock-up Agreement is hereby amended to provide that the
Extended Lock-up Period for all Stockholders who execute this Agreement (other
than the trusts identified on Schedule B to the Amended and Restated
Stockholders Agreement) is extended until and shall terminate on December 31,
1999. All other terms and conditions of Section 2.2 of the Amended and Restated
Stockholders Agreement shall remain in full force and effect. The trusts
identified on Schedule B to the Amended and Restated Stockholders Agreement and
those Stockholders who elect not to execute this Amendment Agreement shall
remain subject to the original Extended Lock-up Period, and following the
expiration of such original Extended Lock-up Period shall remain subject to the
limitations on resale as set forth in the Amended and Restated Stockholders
Agreement during the Restricted Resale Period.
2. Section 2.3 Post Lock-up Selling Restrictions is hereby amended to
provide that the Restricted Resale Period for all Stockholders (including the
trusts identified on Schedule B to the Amended
-1-
and Restated Stockholders Agreement and those Stockholders who do not execute
this Agreement) shall expire on March 26, 2000. All other terms and conditions
of Section 2.3 of the Amended and Restated Stockholders Agreement shall remain
in full force and effect.
3. Section 3.4 Application of Agreement to Transfers in Private Resale
Transactions is hereby amended by adding the following sentence at the end of
such Section:
"Notwithstanding the foregoing, upon request to the Company, the Company
may authorize, which authorization may be granted or withheld in its
sole discretion exercised in good faith, a donee that is a non-profit
entity that is qualified under Section 501(c)(3) of the Internal Revenue
Code and is unaffiliated with any Stockholder to sell shares and not
have such shares aggregated with any shares transferred by the
Transferring Stockholder for purposes of the Rule 144 Allotment provided
that such donee sells the shares in accordance with the requirements
specified by the Company such as selling such shares through Merrill
Lynch's Provo office, over such time period as may be required by the
Company, and in such manner and during such time period as will not
adversely affect the price or market of the Company's Class A Common
Stock.
4. Limited Resales. Each of Keith R. Halls, or affiliates he designates,
Anna Massaro Halls, or affiliates she designates, Rick A. Roney, Burke F. Roney,
Park R. Roney, and the MAR Trust, if they execute this Amendment Agreement, may
(A) sell to the Company in 1999 20,000 shares of their Class A or Class B Common
Stock at a purchase price equal to 80% of the fair market value of such shares
based on the lower of the closing price of the Company's Class A Common Stock on
the New York Stock Exchange on the date prior to the announcement of the
execution of the letter of intent regarding the Proposed Transactions or the day
immediately prior to the date of the purchase of such shares by the Company, and
(B) notwithstanding their agreement to extend the Extended Lock-Up Period, sell
20,000 shares between September 1, 1999 and December 31, 1999 if such
Stockholder does not (i) sell any shares to the Company during 1999, and (ii)
does not sell any shares in a private placement or a secondary offering prior to
September 1, 1999. Any such sales shall be made through Merrill Lynch in
accordance with the provisions of 2.3.2 and 2.3.3, and for purposes of Section
2.3.3, the Stockholder's Rule 144 Allotment for the period from September 1,
1999 through December 31, 1999 shall be deemed to be 20,000 shares.
5. Liquidity Events. As additional consideration to the Stockholders
who, together with all of their Stockholder Controlled Entities, execute this
Amendment Agreement and agree to the extension of the Extended Lock-up Period
prior to March 15, 1999, the Company will endeavor to pursue other liquidity
alternatives for such Stockholders, market conditions permitting. Any of the
Stockholders who elect not to execute this Amendment Agreement prior to March
15, 1999 shall not have any right to participate in any such liquidity
alternative or event except for such limited rights that they may have with
respect to any registered, underwritten offering commenced by the Company under
the piggy-back registration rights provisions of the Amended and Restated
Stockholders Agreement.
6. Counterparts. This Agreement may be executed by facsimile and by any
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one agreement. Each counterpart may consist
of a number of copies each signed by less than all, but together signed by all
of the Parties hereto.
7. Effect of Amendment. This Amendment Agreement amends the Amended and
Restated Stockholders Agreement only to the extent expressly provided herein.
Pursuant to Section 12.5 of the Amended and Restated Stockholders Agreement,
this Amendment Agreement shall be binding upon each
-2-
of the Stockholders who elect to execute this Amendment Agreement even if one or
more of the Stockholders fail or refuse to execute this Amendment Agreement. To
the extent provisions of the Amended and Restated Stockholders Agreement are not
expressly modified or amended by this Agreement, such unamended provisions shall
continue in full force and effect and shall be construed together with the
amendments set forth herein as the entire agreement of the parties hereto. The
Amendment Agreement shall not apply to any Stockholder who does not execute this
Amendment Agreement, but such Stockholder shall remain subject to and obligated
under the terms of the Amended and Restated Stockholders Agreement, without
giving effect to this Amendment, and this Amendment shall in no way be
interpreted as limiting the obligations or restrictions in the Amended and
Restated Stockholders Agreement with respect to any Stockholder who does not
execute this Amendment Agreement. In the event the Company or one of its
subsidiaries has not entered into a definitive agreement with respect to the
Proposed Transactions by May 15 1999, the amendments referred to in Sections 1,
2 and 4 hereof shall expire and no longer be of any force or effect from the
date of such written notice.
[SIGNATURE PAGES BEGIN ON NEXT PAGE]
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SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
IN WITNESS WHEREOF, this Agreement has been signed by duly authorized
signatories of the Parties hereto and is binding upon the Parties hereto as of
the date first above written.
NU SKIN ENTERPRISES, INC.,
a Delaware Corporation
By: /s/ Truman Hunt
Its: Vice President
By: /s/ Blake M. Roney
Blake M. Roney, individually
By: /s/ Nancy l. Roney
Nancy L. Roney, individually
THE ALL R'S TRUST
By: /s/ L. S. McCullough
L. S. McCullough
Its: Trustee
THE B & N RONEY TRUST
By: /s/ L. S. McCullough
L. S. McCullough
Its: Trustee
THE WFA TRUST
By: /s/ L. S. McCullough
L. S. McCullough
Its: Trustee
S-1
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
BNASIA, LTD.
By: /s/ Blake M. Roney
Blake M. Roney
Its: General Partner
By: /s/ Nancy L. Roney
Nancy L. Roney
Its: General Partner
THE BLAKE M. AND NANCY L. RONEY
FOUNDATION
By: /s/ Blake M. Roney
Blake M. Roney
Its: Trustee
By: /s/ Nancy L. Roney
Nancy L. Roney
Its: Trustee
THE ONE FOUNDATION
By: /s/ Blake M. Roney
Blake M. Roney
Its: Trustee
By: /s/ Nancy L. Roney
Nancy L. Roney
Its: Trustee
By: /s/ Keith R. Halls
Keith R. Halls
Its: Trustee
S-2
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
B & N RHINO COMPANY, L.C.
By: /s/ Craig F. McCullough
Craig F. McCullough
Its: Manager
/s/ Nedra D. Roney
Nedra D. Roney, individually
Rick A. Roney, individually
/s/ Burke F. Roney
Burke F. Roney, individually
/s/ Park R. Roney
Park R. Roney, individually
THE MAR TRUST
By: /s/ Tom D. Branch
Tom D. Branch
Its: Trustee
THE NR TRUST
By: /s/ Tom D. Branch
Tom D. Branch
Its: Trustee
S-3
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THE ROSE FOUNDATION
By: /s/ Nedra D. Roney
Nedra D. Roney
Its: Trustee
By: /s/ Tom D. Branch
Tom D. Branch
Its: Trustee
THE NEDRA RONEY FIXED CHARITABLE TRUST
By: /s/ Tom D. Branch
Tom D. Branch
Its: Trustee
NR RHINO COMPANY, L.C.
By: /s/ Craig F. McCullough
Craig F. McCullough
Its: Manager
/s/ Sandra N. Tillotson
Sandra N. Tillotson, individually
THE SNT TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE DVNM TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
S-4
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THE CWN TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE DPN TRUST
By: /s/ Craig S. Tillotson
Craig S. Tillotson
Its: Trustee
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE GNT TRUST
By: /s/ Craig S. Tillotson
Craig S. Tillotson
Its: Trustee
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE LMB TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
S-5
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THE SANDRA N. TILLOTSON FOUNDATION
By: /s/ Sandra N. Tillotson
Sandra N. Tillotson
Its: Trustee
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE SANDRA N. TILLOTSON FIXED
CHARITABLE TRUST
By: /s/ Sandra N. Tillotson
Sandra N. Tillotson
Its: Trustee
By: /s/ L. S. McCullough
L. S. McCullough
Its: Independent Trustee
SNT RHINO COMPANY, L.C.
By: /s/ Craig S. Tillotson
Craig S. Tillotson
Its: Manager
/s/ Steven J. Lund
Steven J. Lund, individually
/s/ Kalleen Lund
Kalleen Lund, individually
SKASIA, LTD.
By: /s/ Steven J. Lund
Steven J. Lund
Its: General Partner
S-6
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
By: /s/ Kalleen Lund
Kalleen Lund
Its: General Partner
THE S AND K LUND TRUST
By: /s/ Blake M. Roney
Blake M. Roney
Its: Trustee
THE STEVEN J. AND KALLEEN LUND
FOUNDATION
By: /s/ Steven J. Lund
Steven J. Lund
Its: Trustee
By: /s/ Kalleen Lund
Kalleen Lund
Its: Trustee
THE STEVEN AND KALLEEN LUND FIXED
CHARITABLE TRUST
By: /s/ Steven J. Lund
Steven J. Lund
Its: Trustee
By: /s/ Steven J. Lund
Kalleen Lund
Its: Trustee
By: /s/ L. S. McCullough
L. S. McCullough
Its: Independent Trustee
S & K RHINO COMPANY, L.C.
By: /s/ Craig F. McCullough
Craig F. McCullough
Its: Manager
S-7
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
/s/ Brooke B. Roney
Brooke B. Roney, individually
/s/ Denice R. Roney
Denice R. Roney, individually
BDASIA, LTD.
By: /s/ Brooke B. Roney
Brooke B. Roney
Its: General Partner
By: /ss Denice R. Roney
Denice R. Roney
Its: General Partner
THE B AND D RONEY TRUST
By: /s/ Blake M. Roney
Blake M. Roney
Its: Trustee
THE BROOKE BRENNAN AND DENICE RENEE
RONEY FOUNDATION
By: /s/ Brooke B. Roney
Brooke B. Roney
Its: Trustee
By: /s/ Denice R. Roney
Denice R. Roney
Its: Trustee
Kirk V. Roney, individually
S-8
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Melanie K. Roney, individually
KMASIA, LTD.
By:
Kirk V. Roney
Its: General Partner
By:
Melanie K. Roney
Its: General Partner
THE K AND M RONEY TRUST
By:
Rick A. Roney
Its: Trustee
THE KIRK V. AND MELANIE K. RONEY
FOUNDATION
By:
Kirk V. Roney
Its: Trustee
By:
Melanie K. Roney
Its: Trustee
THE KIRK AND MELANIE RONEY FIXED
CHARITABLE TRUST
By:
Kirk V. Roney
Its: Trustee
S-9
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
By:
Melanie K. Roney
Its: Trustee
By:
L. S. McCullough
Its: Trustee
K & M RHINO COMPANY, L.C.
By:
Craig F. McCullough
Its: Manager
/s/ Keith R. Halls
Keith R. Halls, individually
/s/ Anna Lisa Massaro Halls
Anna Lisa Massaro Halls, individually
KAASIA, LTD.
By: /s/ Keith R. Halls
Keith R. Halls
Its: General Partner
By: /s/ Anna Lisa Halls
Anna Lisa Halls
Its: General Partner
THE K AND A HALLS TRUST
By: /s/ Michael Lee Halls
Michael Lee Halls
Its: Trustee
S-10
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
By: /s/ Dennis Morgan
Dennis Morgan
Its: Trustee
THE HALLS FAMILY TRUST
By: /s/ Michael Lee Halls
Michael Lee Halls
Its: Trustee
By: /s/ Dennis Morgan
Dennis Morgan
Its: Trustee
THE KEITH AND ANNA LISA HALLS FIXED
CHARITABLE TRUST
By: /s/ Keith R. Halls
Keith R. Halls
Its: Trustee
By: /s/ Anna Lisa Halls
Anna Lisa Halls
Its: Trustee
By: /s/ L. S. McCullough
L. S. McCullough
Its: Independent Trustee
THE KEITH RAY AND ANNA LISA MASSARO
HALLS FOUNDATION
By: /s/ Keith R. Halls
Keith R. Halls
Its: Trustee
By: /s/ Anna Lisa Halls
Anna Lisa Halls
Its: Trustee
S-11
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
K & A RHINO COMPANY, L.C.
By: /s/ Craig F McCullough
Craig F. McCullough
Its: Manager
/s/ Craig S. Tillotson
Craig S. Tillotson, individually
THE CST TRUST
By: /s/ Robert L. Stayner
Robert L. Stayner
Its: Trustee
THE JS TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE JT TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE CB TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
S-12
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THE CM TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE BCT TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE ST TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE NJR TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE RLS TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE RBZ TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
S-13
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THE LB TRUST
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE CRAIG S. TILLOTSON FOUNDATION
By: /s/ Craig S. Tilotson
Craig S. Tillotson
Its: Trustee
By: /s/ Lee M. Brower
Lee M. Brower
Its: Trustee
THE CRAIG S. TILLOTSON FIXED CHARITABLE
TRUST
By: /s/ Craig S. Tillotson
Craig S. Tillotson
Its: Trustee
By: /s/ Lee M. Brower
Lee M. Brower
Its: Independent Trustee
CST RHINO COMPANY, L.C.
By: /s/ Sandra N. Tillotson
Sandra N. Tillotson
Its: Manager
/s/ R. Craig Bryson
R. Craig Bryson, individually
/s/ Kathleen D. Bryson
Kathleen D. Bryson, individually
S-14
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
RCKASIA, LTD.
By: /s/ R. Craig Bryson
R. Craig Bryson
Its: General Partner
By: /s/ Kathleen D. Bryson
Kathleen D. Bryson
Its: General Partner
THE C AND K TRUST
By: /s/ Steven J. Lund
Steven J. Lund
Its: Trustee
THE BRYSON FOUNDATION
By: /s/ R. Craig Bryson
R. Craig Bryson
Its: Trustee
By: /s/ Kathleen D. Bryson
Kathleen D. Bryson
Its: Trustee
THE BRYSON FIXED CHARITABLE TRUST
By: /s/ R. Craig Bryson
R. Craig Bryson
Its: Trustee
By: /s/ Kathleen D. Bryson
Kathleen D. Bryson
Its: Trustee
By: /s/ Robert L. Stayner
Robert L. Stayner
Its: Independent Trustee
S-15
SIGNATURE PAGE OF AMENDMENT NO. 1
TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
CKB RHINO COMPANY, L.C.
By: /s/ Keith R. Halls
Keith R. Halls
Its: Manager
THE RICK AND KIMBERLY RONEY VARIABLE
CHARITABLE REMAINDER UNITRUST
By:
James Blaylock
Its: Trustee
THE RICK AND KIMBERLY RONEY FIXED
CHARITABLE UNITRUST
By:
Rick A. Roney
Its: Trustee
By:
Kimberly Roney
Its: Trustee
By:
L.S. McCullough
Its: Independent Trustee
S-16
EX-13
SELECTED FINANCIAL DATA
Year Ended December 31,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Income Statement Data:
Revenue............................................ $ 330,680 $ 435,855 $ 761,638 $ 953,422 $ 913,494
Cost of sales...................................... 76,012 101,474 171,187 191,218 188,457
Cost of sales - amortization of inventory step-up.. -- -- -- -- 21,600
---------- ---------- ---------- ---------- ----------
Gross profit....................................... 254,668 334,381 590,451 762,204 703,437
---------- ---------- ---------- ---------- ----------
Operating expenses:
Distributor incentives......................... 104,994 139,495 282,588 362,195 331,448
Selling, general and administrative 86,931 115,950 168,706 201,880 202,150
Distributor stock expense...................... -- -- 1,990 17,909 --
In-process research and development -- -- -- -- 13,600
---------- ---------- ---------- ---------- ----------
Total operating expenses........................... 191,925 255,445 453,284 581,984 547,198
---------- ---------- ---------- ---------- ----------
Operating income................................... 62,743 78,936 137,167 180,220 156,239
Other income (expense), net........................ (394) 650 10,771 8,973 13,599
---------- ---------- ---------- ---------- ----------
Income before provision for income
taxes and minority interest.................... 62,349 79,586 147,938 189,193 169,838
Provision for income taxes......................... 10,071 19,141 49,526 55,707 62,840
Minority interest 7,561 10,498 13,700 14,993 3,081
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 44,717 $ 49,947 $ 84,712 $ 118,493 $ 103,917
========== ========== ========== ========== ==========
Net income per share:
Basic................................................................ $ 1.07 $ 1.42 $ 1.22
Diluted.............................................................. $ 1.02 $ 1.36 $ 1.19
Weighted average common shares outstanding:
Basic.................................................................... 79,194 83,331 84,894
Diluted.................................................................. 83,001 87,312 87,018
As of December 31,
--------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents....................... $ 63,550 $ 84,000 $ 214,823 $ 174,300 $ 188,827
Working capital................................. 65,446 56,801 143,308 123,220 164,597
Total assets.................................... 119,908 182,154 380,482 405,004 606,433
Short term notes payable to stockholders........ -- -- 71,487 19,457 --
Long term notes payable to stockholders......... -- -- -- 116,743 --
Short term debt................................. -- -- -- -- 14,545
Long term debt.................................. -- -- -- -- 138,734
Stockholders' equity............................ 63,849 68,363 113,495 94,892 254,642
As of December 31,
--------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
Other Information(1):
Number of active distributors................... 182,000 260,000 397,000 448,000 470,000
Number of executive distributors................ 6,391 8,173 21,479 22,689 22,781
- ---------------------
(1) Active distributors are those distributors who are resident in the countries
in which the Company operates and who have purchased products during the
three months ended as of the date indicated, rounded to the nearest
thousand. An executive distributor is an active distributor who has
submitted a qualifying letter of intent to become an executive distributor,
achieved specified personal and group sales volumes for a four month period
and maintained such specified personal and group sales volumes thereafter.
-1-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto, which are included in this
report.
General
Nu Skin Enterprises, Inc. (the "Company"), is a network marketing
company involved in the distribution and sale of premium quality, innovative
personal care and nutritional products and, following the planned acquisition of
Big Planet, Inc. discussed below, Internet and telecommunication products and
services. The Company distributes Nu Skin-branded products in markets throughout
the world. The Company's operations throughout the world are divided into three
regions: North Asia, which consists of Japan and South Korea; Southeast Asia,
which consists of Taiwan, Thailand, Hong Kong (including Macau), the
Philippines, Australia, and New Zealand; and Other Markets, which consists of
the United Kingdom, Austria, Belgium, Denmark, France, Germany, Italy, Ireland,
Poland, Portugal, Spain, Sweden, the Netherlands, Brazil (the Company's
subsidiaries operating in these countries are collectively referred to as the
"Subsidiaries") and sales to and license fees from the Company's North American
private affiliates. In 1998, the Company acquired Generation Health Holdings,
Inc., the parent of Pharmanex, Inc. (the "Pharmanex Acquisition"). With the
Pharmanex Acquisition, the Company increased its nutritional product development
and formulation capabilities. In February 1999, the Company announced its intent
to acquire certain assets of its North American private affiliates as well as to
acquire Big Planet, Inc., an Internet-based affiliate of the Company.
The Company's revenue is primarily dependent upon the efforts of a
network of independent distributors who purchase products and sales materials
from the Company in their local currency and who constitute and/or sell to the
Company's customers. The Company recognizes revenue when products are shipped
and title passes to these independent distributors. Revenue is net of returns,
which have historically been less than 3.5% of gross sales. Distributor
incentives are paid to several levels of distributors on each product sale. The
amount and recipient of the incentive varies depending on the purchaser's
position within the Global Compensation Plan. These incentives are classified as
operating expenses. The following table sets forth revenue information for the
time periods indicated. This table should be reviewed in connection with the
tables presented under "Results of Operations" which disclose distributor
incentives and other costs associated with generating the aggregate revenue
presented.
Year Ended December 31,
Region 1996 1997 1998
------ ------------ ------------ ------------
(in millions)
North Asia $ 502.4 $ 673.6 $ 665.5
Southeast Asia 183.7 225.3 159.7
Other Markets 75.5 54.5 88.3
------------ ------------ ------------
$ 761.6 $ 953.4 $ 913.5
============ ============ ============
Revenue generated in North Asia represented 73% of total revenue
generated during 1998. The Company's operations in Japan generated 98% of the
North Asia revenue. Revenue from the Southeast Asia operations generated 17% of
total revenue generated in 1998. The Company's operations in Taiwan generated
75% of the Southeast Asia revenue. Revenue generated in Other Markets
represented the remaining 10% of total revenue generated in 1998. The majority
of the Other Market revenue in 1998 is generated from sales to and license fees
from the Company's North American private affiliates.
[GRAPHIC OMITTED] - Pie chart showing 1998 revenue by region
Cost of sales primarily consists of the cost of products purchased from
third-party vendors (generally in U.S. dollars), the freight cost of shipping
these products to distributors as well as duties related to the importation of
such products. Additionally, cost of sales includes the cost of sales materials
sold to distributors at or near cost. Sales
-2-
materials are generally purchased in local currencies. As the sales mix changes
between product categories and sales materials, cost of sales and gross profit
may fluctuate to some degree due primarily to the margin on each product line as
well as varying import duty rates levied on imported product lines. In each of
the Company's current markets, duties are generally higher on nutritional
products than on personal care products. Also, as currency exchange rates
fluctuate, the Company's gross margin will fluctuate. In general, however, costs
of sales move proportionate to revenue.
Distributor incentives are the Company's most significant expense.
Distributor incentives are paid to distributors on a monthly basis based upon
their personal and group sales volume as well as the group sales volume of up to
six levels of executive distributors in their downline sales organization. These
incentives are computed each month based on the sales volume and network of the
Company's global distributor force. Small fluctuations occur in the amount of
incentives paid as the network of distributors actively purchasing products
changes from month to month. However, due to the size of the Company's
distributor force, with nearly 500,000 active distributors, the fluctuation in
the overall payout is relatively small. The overall payout averages from 39% to
41% of global product sales. Pursuant to the agreements between the Company and
its North American affiliates, the North American affiliated entities are
contractually obligated to pay a distributor commission expense of 42.0% of
commissionable product sales to the Company each month to cover the commission
obligation from the sales of Nu Skin products in North America. Additionally,
distributor incentives include the cost of computing and paying commissions as
well as the cost of various incentive programs for distributors including an
annual trip to Hawaii for the Company's leading distributors. These additional
costs average approximately 1% of revenue and are included in distributor
incentives. Because the Company's revenue includes sales of both commissionable
and non-commissionable items, distributor incentives as a percentage of total
revenue have ranged from approximately 36.8% to 38.9% since December 31, 1994.
Non-commissionable items consist of sales materials and starter kits as well as
sales to the Company's North American private affiliates.
In the fourth quarter of 1996, the Company implemented a one-time
distributor equity incentive program. This global program provided for the
granting of options to distributors to purchase 1.6 million shares of the
Company's Class A Common Stock. The number of options each distributor received
was based on his or her performance and productivity through August 31, 1997.
The options are exercisable at a price of $5.75 per share and vested on December
31, 1997. The Company recorded a $2.0 million charge in 1996 and recorded
additional charges in 1997 of $17.9 million for the non-cash and non-recurring
expenses associated with this program. There are currently no plans to repeat
this or similar distributor stock incentive programs.
Selling, general and administrative expenses include wages and benefits,
rents and utilities, travel and entertainment, promotion and advertising,
research and development and professional fees.
Provision for income taxes is dependent on the statutory tax rates in
each of the countries in which the Company operates. For example, statutory tax
rates are 16.0% in Hong Kong, 25.0% in Taiwan, 30.0% in Thailand, 30.1% in South
Korea, 35.0% in the Philippines and 57.9% in Japan. However, the statutory tax
rate in Japan is scheduled to be reduced to 54.3% for fiscal years beginning in
1999 and in the Philippines the rate is scheduled to be reduced to 33% and 32%
in 1999 and 2000, respectively. The Company operates a regional business center
in Hong Kong, which bears inventory obsolescence and currency exchange risks.
Any income or loss incurred by the regional business center is not subject to
taxation in Hong Kong. In addition, since the incorporation of the Company in
1996, the Company has been subject to taxation in the United States, where it is
incorporated, at a statutory corporate federal tax rate of 35.0%. However, the
Company receives foreign tax credits in the U.S. for the amount of foreign taxes
actually paid in a given period, which are utilized to reduce taxes payable in
the United States.
In March 1998, the Company completed the acquisition (the "NSI
Acquisition") of the capital stock of Nu Skin International, Inc. ("NSI"), NSI
affiliates in Europe, South America, Australia and New Zealand and certain other
NSI affiliates (the "Acquired Entities"). Inasmuch as a portion of the Acquired
Entities were under common control, the Company's consolidated financial
statements have been combined and restated as if the Company and the Acquired
Entities had been combined during all periods presented.
-3-
Minority interest represents the earnings of the Acquired Entities which
are not under common control. The minority interest at March 26, 1998 was
purchased as part of the NSI Acquisition.
In connection with the Pharmanex Acquisition, the Company allocated
$13.6 million to purchased in-process research and development. During 1998, the
in-process research and development amount was fully written off.
In February 1999, the Company announced its intent to acquire Big
Planet, Inc., certain assets of Nu Skin USA, Inc. and the Company's remaining
affiliates in Canada, Mexico and Guatemala for approximately $40.0 million in
cash, $14.5 million in a three-year note and the assumption of certain
liabilities. In connection with the Nu Skin USA acquisition which was concluded
in March 1999, the Company, through a newly formed wholly owned subsidiary,
acquired certain assets of Nu Skin USA, including equipment, inventory,
intellectual property, marketing materials, contracts related to the network
marketing of NSI's personal care and nutritional products, and approximately
620,000 shares of Class A Common Stock of the Company, in exchange for cash in
the amount of approximately $8.7 million and the assumption of approximately
$8.0 million of Nu Skin USA liabilities. NSI, a subsidiary of the Company,
terminated various license agreements and other intercompany agreements with Nu
Skin USA and paid Nu Skin USA a $10.0 million termination fee.
The Company is currently pursuing the proposed acquisitions of Big
Planet, Inc., and the Company's remaining private affiliates in Canada, Mexico
and Guatemala.
Results of Operations
The following tables set forth operating results and operating results
as a percentage of revenue, respectively, for the periods indicated.
Year Ended December 31,
(in millions)
1996 1997 1998
-------- -------- --------
Revenue .......................................................... $ 761.6 $ 953.4 $ 913.5
Cost of sales .................................................... 171.2 191.2 188.5
Cost of sales - amortization of inventory step-up ................ -- -- 21.6
-------- -------- --------
Gross profit ..................................................... 590.4 762.2 703.4
Operating expenses:
Distributor incentives ....................................... 282.6 362.2 331.4
Selling, general and administrative .......................... 168.7 201.9 202.2
Distributor stock expense .................................... 2.0 17.9 --
In-process research and development .......................... -- -- 13.6
-------- -------- --------
Total operating expenses ......................................... 453.3 582.0 547.2
-------- -------- --------
Operating income ................................................. 137.1 180.2 156.2
Other income (expense), net ...................................... 10.8 9.0 13.6
-------- -------- --------
Income before provision for income taxes and minority interest ... 147.9 189.2 169.8
Provision for income taxes ....................................... 49.5 55.7 62.8
Minority interest ................................................ 13.7 15.0 3.1
-------- -------- --------
Net income ....................................................... $ 84.7 $ 118.5 $ 103.9
======== ======== ========
Unaudited supplemental data(1):
Income before pro forma provision for income taxes and
minority interst.......................................... $ 147.9 $ 189.2 $ 169.8
Pro forma provision for income taxes.......................... 54.7 71.9 66.0
Pro forma minority interest................................... 8.6 9.3 1.9
-------- -------- --------
Pro forma net income.......................................... $ 84.6 $ 108.0 $ 101.9
======== ======== ========
-4-
Year Ended December 31,
1996 1997 1998
-------- -------- --------
Revenue......................................................... 100.0% 100.0% 100.0%
Cost of sales................................................... 22.5 20.1 20.6
Cost of sales - amortization of inventory step-up............... -- -- 2.4
-------- -------- --------
Gross profit.................................................... 77.5 79.9 77.0
Operating expenses:
Distributor incentives...................................... 37.1 38.0 36.3
Selling, general and administrative......................... 22.1 21.2 22.1
Distributor stock expense................................... .3 1.9 --
In-process research and development......................... -- -- 1.5
-------- -------- --------
Total operating expenses........................................ 59.5 61.1 59.9
-------- -------- --------
Operating income................................................ 18.0 18.8 17.1
Other income (expense), net..................................... 1.4 .9 1.5
-------- -------- --------
Income before provision for income taxes and minority interest.. 19.4 19.7 18.6
Provision for income taxes...................................... 6.5 5.8 6.9
Minority interest............................................... 1.8 1.5 .3
-------- -------- --------
Net income...................................................... 11.1% 12.4% 11.4%
======== ======== ========
Unaudited supplemental data(1):
Income before pro forma provision for income taxes and
minority interest....................................... 19.4% 19.7% 18.6%
Pro forma provision for income taxes........................ 7.2 7.5 7.2
Pro forma minority interest................................. 1.1 .9 .2
-------- -------- --------
Pro forma net income........................................ 11.1% 11.3% 11.2%
======== ======== ========
- -------------------
(1) Reflects adjustment for Federal and state income taxes as if the Company's
subsidiaries had been taxed as C corporations rather than as S corporations
for the years ended December 31, 1996, 1997 and 1998.
1998 Compared to 1997
Revenue decreased 4.2% to $913.5 million from $953.4 million for the
years ended December 31, 1998 and 1997, respectively. The decrease in revenue
resulted primarily from significant weakening of the Japanese yen and other
Asian currencies relative to the U.S. dollar, an increasing competitive
environment in Taiwan and the economic downturn in Asia, particularly in South
Korea and Thailand. These issues more than offset the increase in revenue from
the Company's other markets including license fees from and product sales to the
Company's private North American affiliated entities.
Revenue in North Asia, which consists of Japan and South Korea,
decreased to $665.5 million from $673.6 million for the years ended December 31,
1998 and 1997, respectively. Economic challenges and a weakened currency in
South Korea resulted in a significant decline in South Korean revenue from $74.2
million for the year ended December 31, 1997 to $11.4 million in 1998. This
revenue decline was offset by revenue in Japan which increased from $599.4
million for the year ended December 31, 1997 to $654.2 million in 1998. In spite
of challenging economic conditions in Japan, the Company recorded increases in
revenue in Japan of 9.1% in U.S. dollar terms and 17.6% in local currency terms
from 1997 to 1998. This increase is attributed to continued growth of the
personal care and nutritional product lines and a strong Japanese distributor
force.
Revenue in Southeast Asia, which consists of Taiwan, Thailand, Hong
Kong, the Philippines, Australia and New Zealand, totaled $159.7 million for the
year ended December 31, 1998, down from revenue of $225.3 million for the year
ended December 31, 1997, a decrease of 29.1%. The Company's operations in Taiwan
have continued to suffer the impact of increased competition and currency
devaluation which resulted in a decline in revenue from $168.6 million in 1997
to $119.5 million in 1998. In addition, the Company's operations in Thailand
have been impacted negatively by Thailand's economic challenges and currency
devaluation resulting in a revenue decrease to $8.3 million in 1998 from $22.8
million in 1997.
-5-
The declines in North and Southeast Asia were partially offset by
aggregate revenue increases in the Company's other markets, which include the
United Kingdom, Germany, Italy, the Netherlands, France, Belgium, Spain,
Portugal, Ireland, Austria, Poland, Denmark, Sweden, Brazil and product sales to
and license fees from the Company's North American private affiliates. Aggregate
revenue in these markets increased to $88.3 million for the year ended December
31, 1998 from $54.5 million for the year ended December 31, 1997, an increase of
62.0%. These increases were primarily due to increased revenue from the
Company's North American private affiliates following a successful global
convention held in the first quarter of 1998, as well as increased sales from
the openings of the Company's operations in Poland, Denmark, Sweden and Brazil
in 1998 and the introduction of nutritional products in several European markets
in 1998.
Gross profit as a percentage of revenue was 77.0% for the year ended
December 31, 1998 compared to 79.9% for the year ended December 31, 1997. The
amortization of the step-up of inventory from the NSI Acquisition increased cost
of sales by $21.6 million for the year ended December 31, 1998. Without this
non-recurring charge, gross profit as a percentage of revenue would have been
79.4% for the year ended December 31, 1998. The Company purchases goods in U.S.
dollars and recognizes revenue in local currency and is consequently subjected
to exchange rate risks in its gross margins. The negative pressure on gross
margins, due primarily to weakened currencies throughout the Company's Asian
markets, was somewhat offset by gross margin improvement as a result of price
increases in certain markets in 1998. In addition, increased local
manufacturing, including the local manufacturing in Taiwan of LIFEPAK, the
Company's leading nutritional product, improved and stabilized gross margins.
Distributor incentives as a percentage of revenue decreased to 36.3% for
the year ended December 31, 1998 from 38.0% for the year ended December 31,
1997. The primary reason for this decrease was increased revenue in 1998 from
product sales to and license fees from the Company's North American private
affiliates which is not subject to incentives being paid by the Company.
Selling, general and administrative expenses as a percentage of revenue
increased to 22.1% for the year ended December 31, 1998 from 21.2% for the year
ended December 31, 1997. This increase was primarily due to the revenue declines
in 1998 and increases in U.S. dollar-based selling, general and administrative
expenses, resulting from the NSI Acquisition. In dollar terms, selling, general
and administrative expenses increased slightly from $201.9 million in 1997 to
$202.2 million in 1998. In spite of the increases in selling, general and
administrative expenses from the NSI Acquisition, the selling, general and
administrative expenses in the local markets decreased in U.S.
dollar terms due to weakened local currencies.
Distributor stock expense of $17.9 million for the year ended December
31, 1997 reflects a one-time grant of distributor stock options at an exercise
price of $5.75 per share, 25% of the per share offering price in the Company's
initial public offering completed in November 1996. This non-cash expense is
non-recurring and was only recorded in the fourth quarter of 1996 and in each of
the four quarters of 1997. There are currently no plans to repeat this or other
similar distributor stock incentive programs.
In-process research and development expense of $13.6 million for the
year ended December 31, 1998 reflects a one-time expense for research and
development intangible assets purchased in the Pharmanex Acquisition during the
fourth quarter of 1998. This non-cash expense is non-recurring and was only
recorded in the fourth quarter of 1998.
Operating income decreased 13.3% to $156.2 million for the year ended
December 31, 1998 from $180.2 million in 1997. Operating margin decreased to
17.1% in 1998 from 18.8% in 1997. The operating income and margin decreases
resulted from declines in U.S. dollar revenue in North and Southeast Asia, lower
gross margins as a result of significant weakening in foreign currencies in
North and Southeast Asia and by the non-recurring amortization of inventory
step-up and in-process research and development expenses recorded in the
Company's other markets in 1998, and was partially offset by the distributor
stock expense recorded in 1997.
-6-
Other income increased from $9.0 million for the year ended December 31,
1997 to $13.6 million for the year ended December 31, 1998. The increase was
primarily caused by yen-based hedging gains from forward contracts and
intercompany loans during 1998.
Provision for income taxes increased to $62.8 million for the year ended
December 31, 1998 from $55.7 million for the year ended December 31, 1997 due to
an increase in the effective tax rate from 29.4% to 37.0% for the same periods,
which more than offset the decreased operating income in 1998 compared to 1997.
The increase in the effective tax rate is due to the Acquired Entities being
taxed as C corporations rather than as S corporations during most of 1998. The
pro forma provision for income taxes decreased to $66.0 million for the year
ended December 31, 1998 from $71.9 million for the year ended December 31, 1997
due to decreased income in 1998. The pro forma provision for income taxes
presents income taxes as if the Acquired Entities had been taxed as C
corporations rather than as S corporations for the years ended December 31, 1998
and 1997.
Minority interest relates to the earnings of the Acquired Entities which
are not under common control. The minority interest at March 26, 1998 was
purchased as part of the NSI Acquisition. Accordingly, minority interest does
not continue after the NSI Acquisition.
Net income decreased by $14.6 million to $103.9 million for the year
ended December 31, 1998 compared with the same period in 1997 due primarily to
the amortization of inventory step-up and in-process research and development
expense recorded in 1998 partially offset by distributor stock expense recorded
in 1997. Net income as a percentage of revenue decreased to 11.4% for the year
ended December 31, 1998 as compared to 12.4% for the same period in 1997.
1997 Compared to 1996
Revenue increased 25.2% to $953.4 million from $761.6 million for the
years ended December 31, 1997 and 1996, respectively. The increase in revenue
resulted primarily from continued revenue growth in North and Southeast Asia
related to the personal care and nutritional product lines.
Revenue in North Asia, which consists of Japan and South Korea,
increased to $673.6 million from $502.4 million for the years ended December 31,
1997 and 1996, respectively. Revenue in Japan increased from $380.0 million for
the year ended December 31, 1996 to $599.4 million in 1997. This increase in
revenue was primarily a result of continued growth of the personal care and
nutritional product lines, which grew 43.8% and 94.9%, respectively, in 1997 and
1996. Additionally, revenue in Japan increased following a distributor
convention held in the first quarter of 1997 and the sponsorship of the Japan
Supergames featuring National Basketball Association stars in the third quarter
of 1997. Offsetting revenue growth in North Asia was the decrease in revenue in
South Korea from $122.3 million in 1996 to $74.2 million in 1997, which was
primarily due to economic challenges and a weakened currency in South Korea.
Revenue in Southeast Asia, which consists of Taiwan, Thailand, Hong
Kong, Australia and New Zealand, totaled $225.3 million for the year ended
December 31, 1997 from revenue of $183.7 million for the year ended December 31,
1996, an increase of 22.6%. Revenue in Taiwan increased to $168.6 million in
1997 from $154.5 million in 1996, an increase of 9.1%, primarily as a result of
growth in nutritional product sales following the late 1996 introduction of
LIFEPAK, the Company's leading nutritional supplement. In addition, the
Company's operations in Thailand commenced in March 1997 and generated revenue
of $22.8 million in 1997. Revenue in Hong Kong increased to $21.3 million in
1997 from $17.0 million in 1996 as a result of growth in nutritional product
sales following the introduction of LIFEPAK in the first quarter of 1997.
The increases in North and Southeast Asia were partially offset by an
aggregate revenue decrease in the Company's other markets, which include the
United Kingdom, Germany, Italy, the Netherlands, France, Belgium, Spain,
Portugal, Ireland, Austria and product sales to and license fees from the
Company's North American private
-7-
affiliates. Aggregate revenue in these markets decreased to $54.5 million for
the year ended December 31, 1997 from $75.5 million for the year ended December
31, 1996, a decrease of 27.8%. These decreases were primarily due to higher
revenue recorded in 1996 as a result of a successful global convention held in
1996 by the Company's North American private affiliates.
Gross profit as a percentage of revenue was 79.9% for the year ended
December 31, 1997 compared to 77.5% for the year ended December 31, 1996. Gross
margin improvement resulted from price increases throughout North and Southeast
Asia which occurred during the second quarter of 1997. In addition, increased
local manufacturing efforts were designed to improve and stabilize gross
margins.
Distributor incentives as a percentage of revenue increased to 38.0% for
the year ended December 31, 1997 from 37.1% for the year ended December 31,
1996. The primary reason for this increase was decreased revenue in 1997 from
product sales to and license fees from the Company's North American private
affiliates which is not subject to incentives being paid by the Company.
Selling, general and administrative expenses as a percentage of revenue
decreased to 21.2% for the year ended December 31, 1997 from 22.1% for the year
ended December 31, 1996. In dollar terms, selling, general and administrative
expenses increased from $168.7 million in 1996 to $201.9 million in 1997. This
increase, in dollar terms, was primarily due to increased promotion expenses of
approximately $4.0 million resulting from the expense of sponsoring the Japan
Supergames and approximately $2.0 million resulting from distributor conventions
held during the first quarter of 1997. In addition, other general and
administrative expenses were higher in 1997 as a result of expenses of operating
as a public company and as a result of increased spending in each of the
Company's markets to support current operations. These increased costs were
offset as a percentage of revenue by increased operating efficiencies as the
Company's revenue increased.
Distributor stock expense of $17.9 million and $2.0 million for the
years ended December 31, 1997 and 1996, respectively, reflects a one-time grant
of distributor stock options at an exercise price of $5.75 per share, 25% of the
per share offering price in the Company's initial public offering completed in
November 1996. This non-cash expense is non-recurring and was only recorded in
the fourth quarter of 1996 and in each of the four quarters of 1997.
Operating income increased 31.3% to $180.2 million for the year ended
December 31, 1997 from $137.1 million in 1996. Operating margin increased to
18.8% in 1997 from 18.0% in 1996. The operating income and margin increases
resulted from increases in U.S. dollar revenue in North and Southeast Asia and
improved gross margins as a result of price changes during the second quarter of
1997 in North and Southeast Asia, which were partially offset by the $17.9
million distributor stock expense recorded in 1997.
Other income decreased from $10.8 million for the year ended December
31, 1996 to $9.0 million for the year ended December 31, 1997. The decrease was
primarily caused by the exchange losses relating to intercompany balances
denominated in foreign currencies offset by hedging gains from forward contracts
and intercompany loans.
Provision for income taxes increased to $55.7 million for the year ended
December 31, 1997 from $49.5 million for the year ended December 31, 1996 due to
increased income that was offset partially by the decrease in the effective tax
rate to 29.4% from 33.5% for the same periods. The decrease in the effective tax
rate is due to the Company's termination of its S corporation status during
1996. The pro forma provision for income taxes increased to $71.9 million for
the year ended December 31, 1997 from $54.7 million for the year ended December
31, 1996 due to increased income in 1997. The pro forma provision for income
taxes presents income taxes as if the Acquired Entities had been taxed as C
corporations rather than as S corporations for the years ended December 31, 1997
and 1996.
Minority interest relates to the earnings of the Acquired Entities which
are not under common control. The minority interest at March 26, 1998 was
purchased as part of the NSI Acquisition. Accordingly, minority interest does
not continue after the NSI Acquisition.
-8-
Net income increased by $33.8 million to $118.5 million for the year
ended December 31, 1997 compared with the same period in 1996 due primarily to
the increase in revenue and improvements in gross margins in 1997 partially
offset by distributor stock expense recorded in 1997. Net income as a percentage
of revenue increased to 12.4% for the year ended December 31, 1997 as compared
to 11.1% for the same period in 1996.
Liquidity and Capital Resources
Historically, the Company's principal needs for funds have been for
distributor incentives, working capital (principally inventory purchases),
operating expenses, capital expenditures and the development of new markets. The
Company has generally relied entirely on cash flow from operations to meet its
business objectives without incurring long-term debt to unrelated third parties
to fund operating activities.
The Company generates significant cash flow from operations due to
favorable gross margins and minimal capital requirements. Additionally, the
Company does not generally extend credit to distributors, but requires payment
prior to shipping products. This process eliminates the need for significant
accounts receivable from distributors. During the first quarter of each year,
the Company pays significant accrued income taxes in many foreign jurisdictions
including Japan. These large cash payments generally more than offset
significant cash generated in the first quarter. During the year ended December
31, 1998, the Company generated $118.6 million from operations compared to
$108.6 million generated during the year ended December 31, 1997. This increase
in cash generated from operations is primarily due to the repayment of
significant related party payables to the Company's North American private
affiliates in 1997 by NSI in connection with the spin-off of its U.S. operations
and reduced purchases of inventories and other assets in 1998.
As of December 31, 1998, working capital was $164.6 million compared to
$123.2 million as of December 31, 1997. This increase is largely due to
increased cash balances as well as increased inventory levels and other current
assets. Cash and cash equivalents at December 31, 1998 and 1997 were $188.8
million and $174.3 million, respectively.
Key Management Ratios
-----------------------------
Quick Ratio 1.1
Current Ratio 1.9
Debt/Equity .54
ROA 20.5%
ROE 56.9%
Capital expenditures, primarily for equipment, computer systems and
software, office furniture and leasehold improvements, were $18.3 million and
$14.4 million for the years ended December 31, 1998 and 1997, respectively. In
addition, the Company anticipates additional capital expenditures in 1999 of
$40.0 million to further enhance its infrastructure, including enhancements to
computer systems and software and call-center facilities in order to accommodate
anticipated future growth.
In March 1998, the Company completed its acquisition of the Acquired
Entities for $70.0 million in preferred stock and long-term notes payable to the
stockholders of the Acquired Entities (the"NSI Stockholders") totaling
approximately $6.2 million. Also, as part of the NSI Acquisition, the Company
assumed approximately $171.3 million in S distribution notes and incurred
acquisition costs totaling $3.0 million. During the second quarter of 1998, the
S distribution notes and long-term notes payable to the NSI Stockholders were
paid in full with proceeds from the credit facility described below. In
addition, NSI and the Company met certain earnings growth targets in 1998
resulting in a contingent payment payable to the NSI Stockholders of $25.0
million as of December 31, 1998. Contingent upon NSI and the Company meeting
certain earnings growth targets over the next three years, the Company may pay
up to $25.0 million in cash in each of the next three years to the NSI
Stockholders. The contingent consideration of $25.0 million earned in 1998 is to
be paid in the second quarter of 1999 and has been accounted for as an
adjustment to the purchase price and allocated to the Acquired Entities' assets
and liabilities. Any additional contingent consideration paid over the next
three years, if any, will be accounted for in a similar manner.
In May 1998, the Company and its Japanese subsidiary Nu Skin Japan Co.,
Ltd. entered into a $180.0 million credit facility with a syndicate of financial
institutions for which ABN-AMRO, N.V. acted as agent. This credit facility was
used to satisfy Company liabilities which were assumed as part of the NSI
Acquisition. The Company borrowed $110.0 million and Nu Skin Japan Co., Ltd.
borrowed the Japanese yen equivalent of $70.0
-9-
million denominated in local currency. Payments totaling $41.6 million were made
during the second quarter of 1998 relating to the $180.0 million credit
facility. As of December 31, 1998, the balance relating to the $180.0 million
credit facility totaled $153.3 million. The U.S. portion of the credit facility
bears interest at either a base rate as specified in the credit facility or the
London Inter-Bank Offer Rate plus an applicable margin, in the borrower's
discretion. The Japanese portion of the credit facility bears interest at either
a base rate as specified in the credit facility or the Tokyo Inter-Bank Offer
Rate plus an applicable margin, in the borrower's discretion. The maturity date
for the credit facility is three years from the borrowing date, with a possible
extension of the maturity date upon approval of the then outstanding lenders.
The credit facility provides that the amounts borrowed are to be used for
general corporate purposes. The credit facility also contains other terms and
conditions and affirmative and negative financial covenants customary for credit
facilities of this type. As of December 31, 1998, the Company has continued to
comply with all financial and other covenants under the credit facility.
During 1998, the Board of Directors authorized the Company to repurchase
up to $20.0 million of the Company's outstanding shares of Class A Common Stock.
As of December 31, 1998, the Company had repurchased 917,254 shares for an
aggregate price of approximately $10.5 million.
In October 1998, the Company completed the Pharmanex Acquisition for
$77.6 million, which consisted of approximately 4.0 million shares of the
Company's Class A Common Stock, including 261,008 shares issuable upon exercise
of options assumed by the Company. Contingent upon Pharmanex meeting specific
revenue and other requirements, approximately 565,000 of the 4.0 million shares
are being held in escrow and will be returned to the Company if such
requirements are not met within one year from the date of the Pharmanex
Acquisition. The contingent shares issued, if any, will be accounted for as an
adjustment to the purchase price and allocated to the acquired assets and
liabilities. Also, as part of the Pharmanex Acquisition, the Company assumed
approximately $34.0 million in liabilities and incurred acquisition costs
totaling $1.3 million. The net assets acquired totaling $3.6 million include net
deferred tax assets totaling $0.8 million. In connection with the closing of the
Pharmanex Acquisition, the Company paid approximately $29.0 million relating to
the assumed liabilities. Under the terms of the Pharmanex Acquisition, the
Company was required to pay up to an additional $32.0 million in consideration
if the Company's stock price failed to trade at certain agreed upon levels.
Based on the Company's stock price performance following the Pharmanex
Acquisition, the Company is no longer obligated to make any further payments.
Under its operating agreements with other Nu Skin affiliated companies,
the Company incurs related party payables and receivables. The Company had
related party payables of $25.0 million and $10.0 million at December 31, 1998
and 1997, respectively. In addition, the Company had related party receivables
of $22.3 million and $23.0 million, respectively, at those dates. Related party
balances outstanding in excess of 60 days bear interest at a rate of 2% above
the U.S. prime rate. As of December 31, 1998, no material related party payables
or receivables had been outstanding for more than 60 days.
Management considers the Company to be liquid and able to meet its
obligations on both a short and long-term basis. Management currently believes
existing cash balances together with future cash flows from operations will be
adequate to fund cash needs relating to the implementation of the Company's
strategic plans.
Year 2000
The Company has developed a comprehensive plan to address Year 2000
issues. In connection with this plan, the Company has established a committee
that is responsible for assessing and testing the Company's systems to identify
Year 2000 issues, and overseeing the upgrade or remediation of non-compliant
Year 2000 systems. This committee reports on a regular basis to the executive
management team of the Company and the Audit Committee of the Board of Directors
on the progress and status of the plan and the Year 2000 issues affecting the
Company.
To date, the Company has completed a broad scope assessment and audit of
its information technology systems and non-information technology systems to
identify and prioritize potential Year 2000 issues and is currently
-10-
performing a micro-based assessment designed to identify specific Year 2000
issues at the hardware, software, and processing levels. Through this process
the Company has identified potential Year 2000 issues in its information systems
and is in the process of addressing these issues through upgrades and other
remediation. The Company currently estimates that the cost of all upgrades
related to Year 2000 issues, including scheduled upgrades intended primarily to
increase efficiencies within the Company and also address Year 2000 issues, is
anticipated to be approximately $10.0 million through 1999, which the Company
anticipates will be funded by cash from operations. The Company currently
anticipates that it will complete the micro-based analysis and remediation on
all of its significant in-house systems by the second quarter of 1999. In 1999,
the Company will continue to run broad scope tests of its in-house systems to
confirm that it has adequately addressed all Year 2000 issues and continue its
work on the systems of its foreign offices.
As part of the Year 2000 plan, the Company is also assessing and
monitoring the Company's vendors and suppliers and other third parties for Year
2000 readiness. To date the committee has sent questionnaires to these third
parties seeking their assessment and evaluation of their own Year 2000 readiness
and has received responses back from a substantial majority of these third
parties. Members of the committee have already begun follow-up calls to the top
fifty vendors of the Company and plan to visit the Company's significant
suppliers and vendors in person for purposes of evaluating their Year 2000
readiness and sharing Year 2000 information. The Company will continue the
follow-up with third party vendors throughout 1999.
Based on the Company's evaluation of the Year 2000 issues affecting the
Company, the Company believes that Year 2000 readiness of its vendors and
suppliers, which is beyond the control of the Company, is currently the most
significant area of risk, particularly in its foreign markets. The Company does
not believe it is possible at this time to quantify or estimate the most
reasonable worst case Year 2000 scenario. However, the Company is beginning to
formulate contingency plans to limit, to the extent possible, interruption of
the Company's operations arising from the failure of third parties to be Year
2000 compliant as it moves forward in the implementation of its Year 2000 plan.
The Company will continue to work with third parties as indicated above to
further evaluate and quantify this risk and will continue the development of
contingency plans throughout 1999 as this process moves forward. There can be no
assurance, however, that the Company will be able to successfully identify and
develop contingency plans for all Year 2000 issues that could, directly or
indirectly, adversely affect the Company's operations, some of which are beyond
the control of the Company. In particular, the Company cannot predict or
evaluate domestic and foreign governments' and utility companies' preparation
for the Year 2000 or the readiness of other third parties (domestic and foreign)
that do not have relationships with the Company, and the resulting impact that
the failure of such parties to be Year 2000 compliant may have on the economy in
general and on the Company's business.
The foregoing discussion of the Year 2000 issues contains
forward-looking statements that represent the Company's current expectations or
beliefs. These forward-looking statements are subject to various risks and
uncertainties that could cause outcomes to be different from those currently
anticipated including those risks identified under the heading "Note Regarding
Forward-looking Statements."
Seasonality and Cyclicality
The direct selling industry is impacted by certain seasonal trends such
as major cultural events and vacation patterns. For example, Japan, Taiwan, Hong
Kong, South Korea and Thailand celebrate their respective local New Year in the
Company's first quarter. Management believes that direct selling in Japan and
Europe is also generally negatively impacted during the month of August which is
in the Company's third quarter, when many individuals traditionally take
vacations.
The Company has experienced rapid revenue growth in certain new markets
from the commencement of operations. In Japan, Taiwan and Hong Kong, the initial
rapid growth was followed by a short period of stable or declining revenue
followed by renewed growth fueled by new product introductions, an increase in
the number of active distributors and increased distributor productivity. In
South Korea, the Company experienced a significant
-11-
decline in its 1997 revenue from revenue in 1996 and experienced additional
quarterly sequential declines in 1998. Revenue in Thailand also decreased
significantly after the commencement of operations in March 1997. Management
believes that the revenue declines in South Korea and Thailand were partly due
to normal business cycles in new markets, but were primarily due to volatile
economic conditions in those markets. In addition, the Company may experience
variations on a quarterly basis in its results of operations, as new products
are introduced and new markets are opened. No assurance can be given that the
Company's revenue growth rate in new markets where Nu Skin operations have not
commenced will follow this pattern.
Quarterly Results
The following table sets forth certain unaudited quarterly data for the
periods shown, restated for the NSI Acquisition.
1997 1998
---------------------------------------- ----------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(in millions, except per share amounts)
Revenue............... $ 224.2 $ 245.9 $ 243.1 $ 240.2 $ 227.9 $ 209.1 $ 217.9 $ 258.7
Gross profit.......... 179.0 195.3 194.4 193.5 182.2 151.5 164.9 204.9
Operating income...... 38.3 46.7 45.7 49.6 51.0 29.6 37.4 38.3
Net income............ 25.7 30.0 30.7 32.0 33.7 22.0 25.5 22.8
Net income per share:
Basic........... 0.31 0.36 0.37 0.39 0.41 0.26 0.30 0.26
Diluted......... 0.29 0.34 0.35 0.37 0.39 0.25 0.30 0.26
Currency Risk and Exchange Rate Information
A majority of the Company's revenue and many of its expenses are
recognized primarily outside of the United States except for inventory purchases
which are primarily transacted in U.S. dollars from vendors in the United
States. Each entity's local currency is considered the functional currency. All
revenue and expenses are translated at weighted average exchange rates for the
periods reported. Therefore, the Company's reported sales and earnings will be
positively impacted by a weakening of the U.S. dollar and will be negatively
impacted by a strengthening of the U.S. dollar.
[GRAPHIC OMITTED] Bar chart showing yen to the dollar - yen devaluation for 1997
and 1998
Given the uncertainty of exchange rate fluctuations, the Company cannot
estimate the effect of these fluctuations on its future business, product
pricing, results of operations or financial condition. However, because a
majority of the Company's revenue is realized in local currencies and the
majority of its cost of sales is denominated in U.S. dollars, the Company's
gross profits will be positively affected by a weakening in the U.S. dollar and
will be negatively affected by a strengthening in the U.S. dollar. The Company
seeks to reduce its exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of foreign currency exchange
contracts and through certain intercompany loans of foreign currency. The
Company does not use such derivative financial instruments for trading or
speculative purposes. The Company regularly monitors its foreign currency risks
and periodically takes measures to reduce the impact of foreign exchange
fluctuations on the Company's operating results.
The Company's foreign currency derivatives are comprised of
over-the-counter forward contracts with major international financial
institutions. As of December 31, 1998, the primary currency for which the
Company has net underlying foreign currency exchange rate exposure is the
Japanese yen. Based on the Company's foreign exchange contracts at December 31,
1998 as discussed in Note 14 of the notes to Consolidated Financial Statements,
the impact of a 10% appreciation or 10% depreciation of the U.S. dollar against
the Japanese yen would not result in significant other income or expense
recorded in the Consolidated Statements of Income.
Following are the weighted average currency exchange rates of $1 into
local currency for each of the Company's markets in which revenue exceeded $5.0
million for at least one of the quarters listed:
-12-
1996 1997 1998
---------------------------------- ---------------------------------- ----------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Japan(1) 105.8 107.5 109.0 112.9 121.4 119.1 118.1 125.6 128.2 135.9 139.5 119.3
Taiwan 27.4 27.4 27.5 27.5 27.5 27.7 28.4 31.0 32.8 33.6 34.5 32.6
Hong Kong 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.7 7.8 7.8 7.8
South Korea 782.6 786.5 815.5 829.4 863.9 889.6 894.8 1,097.0 1,585.7 1,392.6 1,327.0 1,278.9
Thailand 25.2 25.3 25.3 25.5 26.0 25.4 31.5 40.3 45.1 40.3 40.9 37.1
- ------------------
(1) Since January 1, 1992, the highest and lowest exchange rates for the
Japanese yen have been 147.3 and 80.6, respectively.
Outlook
Management currently anticipates revenue and earnings growth during
calendar 1999. This growth is expected to result in part from continued growth
in Japan, improved margins resulting from the NSI Acquisition, the strengthening
of local currencies against the U.S. dollar and the addition of recent, and
anticipated acquisitions as discussed below. Further, markets where the Company
recently commenced operations, specifically Brazil, which began operations in
the fourth quarter of 1998, are expected to contribute to revenue growth. The
Company's anticipated revenue and earnings growth, however, could be adversely
affected by fluctuations in Asian currencies, particularly the yen, and a
renewed weakening of Asian economies.
The Company anticipates that its growth in local currencies will be
largely attributed to the introduction of new products, including nutritional
supplements provided to the Company as part of the Pharmanex Acquisition.
Currently, the Company's intent is to begin introducing some of these products
in Japan, Taiwan and South Korea by the third quarter of 1999. Also, these
Pharmanex nutritional supplements are intended to be introduced in other markets
throughout 1999 and into the year 2000. Also, in Japan, the Company's leading
market, a repositioned and locally manufactured color cosmetic line of products,
including shades more suited to Japanese preferences, is scheduled to be
launched in the second quarter of 1999.
The Company acquired certain assets of Nu Skin USA and began
distributing nutritional and personal care products in the United States in
March 1999. The Company expects increases in annual revenue and earnings in 1999
as a result of sales of the Company's existing products and Pharmanex
nutritional products in the United States market. Additionally, the Company
recently announced its intent to acquire Big Planet, Inc., Nu Skin Canada, Nu
Skin Mexico and Nu Skin Guatemala. The acquisition of assets from Nu Skin USA
and the proposed acquisitions of Big Planet, Inc., Nu Skin Canada, Nu Skin
Mexico and Nu Skin Guatemala are anticipated to increase revenue and gross
margins, but reduce operating margins due to the absorption of their operating
expense structures as these acquisitions are concluded. Management believes that
the Company's proposed acquisition of Big Planet, Inc. presents a significant
revenue growth opportunity in the United States as well as potential growth in
many international markets, including Japan and Europe. During 1998, Big Planet,
Inc. generated significant operating losses and the Company anticipates further
operating losses in 1999. In Japan, the Company has already invested more than
$5.0 million in Internet-based initiatives designed to prepare distributors in
that market for the eventual launch of Big Planet products and services.
Currently, it is anticipated that these services will begin to be offered to
Japanese distributors in late 1999 or in the year 2000.
Note Regarding Forward-looking Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations, particularly the "Liquidity and Capital Resources", "Year
2000" and "Outlook" sections, contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
concerning, among other things, the adequacy of current cash and future cash
flows to meet the required cash needs of the Company, the Company's anticipated
revenue and earnings growth in 1999, planned product introductions in the
Company's markets,
-13-
the effect of the recent and planned acquisitions of the Company's private
affiliates on the financial and operating results of the Company, the Company's
expectation that it will be able to successfully address any Year 2000 related
issues, including with third parties, and develop contingency plans as more
fully described under the Year 2000 section above, and the Company's plan to
implement forward contracts and other hedging strategies to manage foreign
currency risks. These forward-looking statements represent the Company's
expectations and/or beliefs concerning future events. The Company wishes to
caution readers that these forward-looking statements are subject to numerous
risks and uncertainties that could cause actual results and outcomes to differ
materially from any forward-looking statement views expressed herein. These
risks and uncertainties include, but are not limited to: (A) any weakening of
Asian currencies, particularly the yen, from their current levels; (B) renewed
and/or sustained weakness of the Asian economies, particularly Japan, or such
weakness adversely affecting the Company's operations more than in the past; (C)
lower than expected revenue, revenue growth and cash flow from operations
because of adverse economic, business or political conditions, increased
competition, adverse publicity in the Company's markets, particularly Japan and
Taiwan, adverse developments or changes in regulatory or legal requirements
applicable to the Company or its business, or the Company's inability, for any
reason, to open new markets, introduce new products, implement its marketing and
local sourcing initiatives and other strategic plans as well as the potential
negative effect of distributor actions such as decreased selling efforts or
increased turnover; (D) the inability of the Company to consummate the
acquisition of Big Planet, Inc. and the Company's other North American private
affiliates; (E) the inability of the Company to gain market acceptance of new
products, including the Pharmanex products and Big Planet products and services
if the Big Planet acquisition is consummated; (F) increased expenditures
required to address the Year 2000 issue if the Company's technology requirements
change or unforseen problems are discovered; (G) risks that the Company's and
its vendors' plans to remedy Year 2000 issues may be inadequate which could
result in disruptions of the Company's business; (H) the significant regulatory
and legal requirements in the Company's markets applicable to nutritional
products and telecommunication products which could delay or inhibit the ability
of the Company to introduce and market certain products, including certain
Pharmanex and Big Planet products, into its markets;(I) the risk that the
Company could incur difficulties and undue expense in integrating the business
of Pharmanex and Big Planet into the Company's operations, distribution channel
and markets. These forward-looking statements are further qualified by a more
detailed discussion of risks and uncertainties related to the Company's business
contained in the Company's Form 10-K for the year ended December 31, 1998, and
any amendments thereto, and other documents filed by the Company with the
Securities and Exchange Commission.
-14-
Nu Skin Enterprises, Inc.
- --------------------------------------------------------------------------------
Index to Consolidated Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1997 and 1998
Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998
Notes to Consolidated Financial Statements
Report of Independent Accountants
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
-15-
Nu Skin Enterprises, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
- --------------------------------------------------------------------------------
December 31,
----------------
1997 1998
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 174,300 $ 188,827
Accounts receivable 11,074 13,777
Related parties receivable 23,008 22,255
Inventories, net 69,491 79,463
Prepaid expenses and other 38,716 50,475
--------- ---------
316,589 354,797
Property and equipment, net 27,146 42,218
Other assets, net 61,269 209,418
--------- ---------
Total assets $ 405,004 $ 606,433
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 23,259 $ 17,903
Accrued expenses 140,615 132,723
Related parties payable 10,038 25,029
Current portion of long-term debt -- 14,545
Current portion of notes payable to stockholders 19,457 --
--------- ---------
193,369 190,200
Long-term debt, less current portion -- 138,734
Other liabilities -- 22,857
Notes payable to stockholders, less current portion 116,743 --
Minority interest -- --
Commitments and contingencies (Notes 10 and 17)
Stockholders' equity
Preferred stock - 25,000,000 shares authorized, $.001 par value, 2 --
1,941,331 and no shares issued and outstanding
Class A common stock - 500,000,000 shares authorized, $.001 par value, 12 34
11,758,011 and 33,709,251 shares issued and outstanding
Class B common stock - 100,000,000 shares authorized, $.001 par value, 70 55
70,280,759 and 54,606,905 shares issued and outstanding
Additional paid-in capital 115,053 146,781
Accumulated other comprehensive income (28,578) (43,604)
Retained earnings 17,788 158,064
Deferred compensation (9,455) (6,688)
--------- ---------
94,892 254,642
--------- ---------
Total liabilities and stockholders' equity $ 405,004 $ 606,433
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-16-
Nu Skin Enterprises, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------
1996 1997 1998
--------- --------- ---------
Revenue $ 761,638 $ 953,422 $ 913,494
Cost of sales 171,187 191,218 188,457
Cost of sales - amortization of inventory step-up -- -- 21,600
--------- --------- ---------
Gross profit 590,451 762,204 703,437
--------- --------- ---------
Operating expenses:
Distributor incentives 282,588 362,195 331,448
Selling, general and administrative 168,706 201,880 202,150
Distributor stock expense 1,990 17,909 --
In-process research and development (Note 4) -- -- 13,600
--------- --------- ---------
Total operating expenses 453,284 581,984 547,198
--------- --------- ---------
Operating income 137,167 180,220 156,239
Other income (expense), net 10,771 8,973 13,599
--------- --------- ---------
Income before provision for income taxes
and minority interest 147,938 189,193 169,838
Provision for income taxes (Note 12) 49,526 55,707 62,840
Minority interest 13,700 14,993 3,081
--------- --------- ---------
Net income $ 84,712 $ 118,493 $ 103,917
========= ========= =========
Net income per share (Note 2):
Basic $ 1.07 $ 1.42 $ 1.22
Diluted $ 1.02 $ 1.36 $ 1.19
Weighted average common shares outstanding:
outstanding
Basic 79,194 83,331 84,894
Diluted 83,001 87,312 87,018
Unaudited pro forma data (Note 12):
Income before pro forma provision for
income taxes and minority interest $ 147,938 $ 189,193 $ 169,838
Pro forma provision for income taxes 54,752 71,856 65,998
Pro forma minority interest 8,630 9,299 1,947
--------- --------- ---------
Pro forma net income $ 84,556 $ 108,038 $ 101,893
========= ========= =========
Pro forma net income per share:
Basic $ 1.07 $ 1.30 $ 1.20
Diluted $ 1.02 $ 1.24 $ 1.17
The accompanying notes are an integral part of these consolidated financial
statements.
-17-
Nu Skin Enterprises, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
- --------------------------------------------------------------------------------
Accumulated
Class A Class B Additional Other Total
Capital Preferred Common Common Paid-In Comprehensive Retained Deferred Stockholders'
Stock Stock Stock Stock Capital Income Earnings Compensation Equity
------- --------- ------- ------- ---------- ------------- -------- ------------ -------------
Balance at January 1, 1996 $ 5,595 $ (2,858)$ 65,626 $ 68,363
Net income -- -- 84,712 84,712
Foreign currency translation
adjustments -- (3,196) -- (3,196)
------------
Total comprehensive income 81,516
Reorganization and termination of S
corporation status (Note 1) (4,550) $ 80 $ 1,209 -- 3,261 --
Net proceeds from the Offerings and
conversion of shares by
stockholders (Notes 1 and 11) -- $ 12 (8) 98,829 -- -- 98,833
Contributed capital 1,570 -- -- -- -- -- 1,570
Purchase of Acquired Entities (Note 3) (2,615) $ 2 -- -- 2,613 -- -- --
Dividends -- -- -- -- -- -- (65,139) (65,139)
Issuance of notes payable to
stockholders -- -- -- -- -- -- (86,487) (86,487)
Issuance of distributor stock options -- -- -- -- 33,039 -- -- $ (20,688) 12,351
Issuance of employee stock awards -- -- -- -- 13,280 -- -- (13,280) --
Amortization of deferred compensation -- -- -- -- -- -- -- 2,488 2,488
------- --------- ------- ------- ---------- ------------- -------- ------------ ------------
Balance at December 31, 1996 -- 2 12 72 148,970 (6,054) 1,973 (31,480) 113,495
Net income -- -- -- -- -- -- 118,493 -- 118,493
Foreign currency translation
adjustments -- -- -- -- -- (22,524) -- -- (22,524)
------------
Total comprehensive income 95,969
Conversion of shares from Class B to
Class A -- -- 2 (2) -- -- -- -- --
Repurchase of 1,416 shares of Class A
common stock (Note 11) -- -- (2) (20,260) -- -- -- (20,262)
Adjustment to distributor stock
options (Note 11) -- -- -- -- (2,546) -- -- (690) (3,236)
Forfeitures of employee stock awards -- -- -- -- (1,181) -- -- 1,181 --
Amortization of deferred compensation -- -- -- -- -- -- -- 23,247 23,247
Contributed capital -- -- -- -- 7,383 -- -- -- 7,383
Dividends -- -- -- -- (19,026) -- (46,054) -- (65,080)
Issuance of employee stock awards and
options -- -- -- -- 1,713 -- -- (1,713) --
Issuance of notes payable to
stockholders -- -- -- -- -- -- (56,624) -- (56,624)
------- --------- ------- ------- ---------- ------------- -------- ------------ ------------
Balance at December 31, 1997 -- 2 12 70 115,053 (28,578) 17,788 (9,455) 94,892
Net income -- -- -- -- -- -- 103,917 -- 103,917
Foreign currency translation
adjustments -- -- -- -- -- (15,026) -- -- (15,026)
------------
Total comprehensive income 88,891
Amortization of deferred compensation -- -- -- -- -- -- -- 3,626 3,626
Issuance of notes payable to
stockholders -- -- -- -- -- -- (24,413) -- (24,413)
Purchase of Acquired Entities and
termination of S corporation
status -- 1 -- -- (22,144) -- 60,772 -- 38,629
Purchase of Pharmanex (Note 4) -- -- 4 -- 78,710 -- -- (859) 77,855
Repurchase of 917 shares of Class A
common stock (Note 11) -- -- -- -- (10,549) -- -- -- (10,549)
Exercise of distributor and employee
stock options -- -- -- -- 1,961 -- -- -- 1,961
Conversion of preferred stock (Note 3) -- (3) 3 -- -- -- -- -- --
Conversion of shares from Class B to
Class A -- -- 15 (15) -- -- -- -- --
Contingent payments to stockholders
(Note 5) -- -- -- -- (16,250) -- -- -- (16,250)
------- --------- ------- ------- ---------- ------------- -------- ------------ ------------
Balance at December 31, 1998 $ -- $ -- $ 34 $ 55 $ 146,781 $ (43,604) $158,064 $ (6,688) $ 254,642
======= ========= ======= ======= ========== ============= ======== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-18-
Nu Skin Enterprises, Inc.
Consolidated Statements of Cash Flows
(in thousands)
- --------------------------------------------------------------------------------
Year Ended December 31,
1996 1997 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 84,712 $ 118,493 $ 103,917
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,615 8,809 15,768
Amortization of deferred compensation 2,488 23,247 3,626
Amortization of inventory step-up -- -- 21,600
Write-off of in-process research and development -- -- 13,600
Income applicable to minority interest 13,700 14,993 3,081
Changes in operating assets and liabilities:
Accounts receivable (5,939) (614) (900)
Related parties receivable (4,097) (2,726) 1,215
Inventories, net (6,060) (10,206) (3,556)
Prepaid expenses and other (10,132) (24,641) (7,248)
Other assets (24,814) (23,161) (4,100)
Accounts payable (1,682) 3,336 (8,767)
Accrued expenses and other liabilities 82,844 31,058 (8,973)
Related parties payable 1,733 (29,986) (10,703)
---------- ---------- ----------
Net cash provided by operating activities 142,368 108,602 118,560
---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (9,172) (14,389) (18,320)
Purchase of Pharmanex, net of cash acquired -- -- (28,750)
Payments for lease deposits (562) (3,457) (633)
Receipt of refundable lease deposits 98 120 1,650
---------- ---------- ----------
Net cash used in investing activities (9,636) (17,726) (46,053)
---------- ---------- ----------
Cash flows from financing activities:
Payments on long-term debt -- -- (41,634)
Proceeds from capital contributions 1,570 11,358 --
Proceeds from long-term debt -- -- 181,538
Net proceeds from the Offerings (Note 1) 98,833 -- --
Dividends paid (80,025) (30,468) --
Repurchase of shares of common stock -- (20,262) (10,549)
Exercise of distributor and employee stock options -- -- 1,961
Payment to stockholders for notes payable (Note 5) (15,000) (71,487) (180,000)
---------- ---------- ----------
Net cash provided by (used in) financing activities 5,378 (110,859) (48,684)
---------- ---------- ----------
Effect of exchange rate changes on cash (7,287) (20,540) (9,296)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 130,823 (40,523) 14,527
Cash and cash equivalents, beginning of period 84,000 214,823 174,300
---------- ---------- ----------
Cash and cash equivalents, end of period $ 214,823 $ 174,300 $ 188,827
========== ========== ==========
-19-
1. THE COMPANY
Nu Skin Enterprises, Inc. (the "Company"), is a network marketing
company involved in the distribution and sale of premium quality,
innovative personal care and nutritional products. The Company
distributes Nu Skin brand products in markets throughout the world. The
Company's operations are divided into three segments: North Asia, which
consists of Japan and South Korea; Southeast Asia, which consists of
Taiwan, Thailand, Hong Kong (including Macau), the Philippines,
Australia, and New Zealand; and Other Markets, which consists of the
United Kingdom, Austria, Belgium, Denmark, France, Germany, Italy,
Ireland, Poland, Portugal, Spain, Sweden, the Netherlands, Brazil (the
Company's subsidiaries operating in these countries are collectively
referred to as the "Subsidiaries") and product sales to and license fees
from the Company's North American private affiliates.
The Company was incorporated on September 4, 1996 as a holding company
and acquired certain of the Subsidiaries (the "Initial Subsidiaries")
through a reorganization (the "Reorganization") which occurred November
20, 1996. On November 27, 1996, the Company completed its initial public
offerings of 4,750,000 shares of Class A Common Stock and received net
proceeds of $98.8 million (the "Offerings").
As discussed in Note 3, the Company completed the NSI Acquisition on
March 27, 1998. Prior to the Reorganization and the NSI Acquisition,
each of the Subsidiaries elected to be treated as an S corporation. In
connection with the Reorganization, the Initial Subsidiaries' S
corporation status was terminated on November 19, 1996, and the Company
declared a distribution to the stockholders that included all of the
Initial Subsidiaries' previously earned and undistributed taxable S
corporation earnings totaling $86.5 million. In connection with the NSI
Acquisition, the Acquired Entities' S corporation status was terminated,
and the Acquired Entities declared distributions to the stockholders
that included all of the Acquired Entities' previously earned and
undistributed taxable S corporation earnings totaling $87.1 million in
1997 and $37.6 million in 1998 (the "S Distribution Notes").
Inasmuch as a portion of the Acquired Entities were under common control
(Note 3), the Company's consolidated financial statements for 1996 and
1997 have been combined and restated as if the Company and the Acquired
Entities had been combined during all periods presented.
Also in connection with the NSI Acquisition, on December 31, 1997, NSI
carved-out and distributed the net assets of its USA division ("Nu Skin
USA") to the NSI Stockholders. Immediately prior to this distribution,
NSI declared a distribution to the NSI Stockholders that included all of
Nu Skin USA's previously earned and undistributed taxable S corporation
earnings totaling $49.1 million. This distribution and all other
historical transactions of Nu Skin USA are excluded from the restatement
of the Company's consolidated financial statements for 1996 and 1997.
As discussed in Note 4, the Company completed the Pharmanex Acquisition
on October 16, 1998, which enhanced the Company's involvement with the
distribution and sale of nutritional products.
As discussed in Note 18, in February 1999, the Company announced its
intent to acquire Big Planet, Inc., an Internet-based company that
offers Internet connectivity, e-commerce, telecommunications and other
technology products and services to consumers in North America. The
Company also announced its intent to acquire certain assets of Nu Skin
USA, Inc. and to acquire the Company's remaining affiliates in Canada,
Mexico and Guatemala.
-20-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company and the Subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Use of estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles required management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Significant estimates include
reserves for product returns, obsolete inventory and taxes. Actual
results could differ from these estimates.
Cash and cash equivalents
Cash equivalents are short-term, highly liquid instruments with original
maturities of 90 days or less.
Inventories
Inventories consist primarily of merchandise purchased for resale and
are stated at the lower of cost, using the first-in, first-out method,
or market. The Company had reserves for obsolete inventory totaling
$11,000,000, $13,500,000 and $13,600,000 as of December 31, 1996, 1997
and 1998, respectively.
Property and equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
Furniture and fixtures 5 - 7 years
Computers and equipment 3 - 5 years
Leasehold improvements Shorter of estimated useful
life or lease term
Vehicles 3 - 5 years
Expenditures for maintenance and repairs are charged to expense as
incurred.
Other assets
Other assets consist primarily of deferred tax assets, deposits for
noncancelable operating leases, distribution rights, goodwill and
long-term intangibles acquired in the NSI Acquisition (Note 3) and the
Pharmanex Acquisition (Note 4). These intangibles are amortized on the
straight-line basis over the estimated useful lives of the assets. The
Company assesses the recoverability of long-lived assets by determining
whether the amortization of the balance over its remaining life can be
recovered through undiscounted future operating cash flows attributable
to the assets.
Revenue recognition
Revenue is recognized when products are shipped and title passes to
independent distributors who are the Company's customers. A reserve for
product returns is accrued based on historical experience. The Company
generally requires cash or credit card payment at the point of sale. The
Company has determined that no allowance for doubtful accounts is
necessary. Amounts received prior to shipment and title passage to
distributors are recorded as deferred revenue.
Research and development
The Company's research and development activities are conducted
primarily out of its research and development facility located in
Shanghai, China. Research and development costs are expensed as
incurred.
-21-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Income taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the
liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Net income per share
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), Earnings per Share. SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per
share data, and requires the restatement of earnings per share data in
prior periods. SFAS 128 also requires the presentation of both basic and
diluted earnings per share data for entities with complex capital
structures. Diluted earnings per share data gives effect to all dilutive
potential common shares that were outstanding during the periods
presented. Net income per share for the year ended December 31, 1996 is
computed assuming that the Company's Reorganization and the resultant
issuance of Class B Common Stock occurred as of January 1, 1996.
Foreign currency translation
Most of the Company's business operations occur outside of the United
States. Each Subsidiary's local currency is considered the functional
currency. Since a substantial portion of the Company's inventories are
purchased with U.S. dollars in the United States and since the Company
is incorporated in the United States, all assets and liabilities are
translated into U.S. dollars at exchange rates existing at the balance
sheet dates, revenues and expenses are translated at weighted average
exchange rates, and stockholders' equity is recorded at historical
exchange rates. The resulting foreign currency translation adjustments
are recorded as a separate component of stockholders' equity in the
consolidated balance sheets, and transaction gains and losses are
included in other income and expense in the consolidated financial
statements.
Fair value of financial instruments
The fair value of financial instruments including cash and cash
equivalents, accounts receivable, related parties receivable, accounts
payable, related parties payable and notes payable approximate book
values. The carrying amount of long-term debt approximates fair value
because the applicable interest rates approximate current market rates.
Fair value estimates are made at a specific point of time, based on
relevant market information.
Stock-based compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for
Stock Issued to Employees, and provides pro forma disclosures of net
income and net income per share as if the fair value based method
prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS
123"), Accounting for Stock-Based Compensation, had been applied in
measuring compensation expense (Note 11).
Reporting Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting
Comprehensive Income. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources, and it includes
all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
-22-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use. The statement is effective for fiscal years beginning after
December 15, 1998. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued. The statement
defines which costs of computer software developed or obtained for
internal use are capital and which costs are expensed. The Company
adopted SOP 98-1 effective January 1998. The adoption of SOP 98-1 does
not materially affect the Company's consolidated financial statements.
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs
of Start-Up Activities. The statement is effective for fiscal years
beginning after December 15, 1998. The statement requires costs of
start-up activities and organization costs to be expensed as incurred.
The Company will adopt SOP 98-5 for calendar year 1999. The adoption of
SOP 98-5 will not materially affect the Company's consolidated financial
statements.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. The statement requires
companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on the intended use of the derivative
and its resulting designation. The statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company will
adopt SFAS 133 by January 1, 2000. The Company is currently evaluating
the impact the adoption of SFAS 133 will have on its consolidated
financial statements.
3. ACQUISITION OF NU SKIN INTERNATIONAL, INC.("NSI") AND CERTAIN AFFILIATES
On March 27, 1998, the Company completed the acquisition (the "NSI
Acquisition") of the capital stock of NSI, NSI affiliates in Europe,
South America, Australia and New Zealand and certain other NSI
affiliates (the "Acquired Entities") for $70.0 million in preferred
stock and long-term notes payable to the stockholders of the Acquired
Entities (the "NSI Stockholders") totaling approximately $6.2 million.
In addition, contingent upon NSI and the Company meeting specific
earnings growth targets, the Company may pay up to $25.0 million in cash
per year over a four year period to the NSI Stockholders. Also, as part
of the NSI Acquisition, the Company assumed approximately $171.3 million
in S Distribution Notes and incurred acquisition costs totaling $3.0
million. The net assets acquired totaling $90.4 million include net
deferred tax liabilities totaling $7.4 million recorded upon the
conversion of the Acquired Entities from S to C corporations. All
contingent consideration paid will be accounted for as an adjustment to
the purchase price and allocated to the Acquired Entities' assets and
liabilities.
The NSI Acquisition was accounted for by the purchase method of
accounting, except for that portion of the Acquired Entities under
common control of a group of stockholders, which portion was accounted
for in a manner similar to a pooling of interests. The common control
group is comprised of the NSI Stockholders who are immediate family
members. The minority interest, which represents the ownership interests
of the NSI Stockholders who are not immediate family members, was
acquired during the NSI Acquisition. Prior to the NSI Acquisition, a
portion of the Acquired Entities' net income, capital contributions and
distributions (including cash dividends and S Distribution Notes) had
been allocated to the minority interest.
-23-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
For the portion of the NSI Acquisition accounted for by the purchase
method, the Company recorded inventory step-up of $21.6 million and
intangible assets of $34.8 million. During 1998, the inventory step-up
was fully amortized and the Company recorded amortization of intangible
assets totaling $1.6 million.
For the portion of the NSI Acquisition accounted for in a manner similar
to a pooling of interests, the excess of purchase price paid over the
book value of the net assets acquired was recorded as a reduction of
stockholders' equity.
In connection with the restatement of the Company's consolidated
financial statements for 1996 and 1997, the portion of the NSI
Acquisition and the resulting Preferred Stock issued to the common
control group is reflected as if such stock had been issued on the date
of the Company's incorporation on September 4, 1996. On May 5, 1998, the
stockholders of the Company approved the automatic conversion of the
Preferred Stock issued in the NSI Acquisition into 2,986,663 shares of
Class A Common Stock. Under the terms of the NSI Acquisition, the
2,986,663 shares of Class A Common Stock were adjusted down by 8,504
shares in June 1998.
4. ACQUISITION OF PHARMANEX, INC.
On October 16, 1998, the Company completed the acquisition of
privately-held Generation Health Holdings, Inc., the parent company of
Pharmanex, Inc. (the "Pharmanex Acquisition"), for $77.6 million, which
consisted of approximately 4.0 million shares of the Company's Class A
Common Stock, including 261,008 shares issuable upon exercise of options
assumed by the Company (Note 11). Contingent upon Pharmanex meeting
specific revenue and other requirements, approximately 565,000 of the
4.0 million shares are being held in escrow and will be returned to the
Company if such requirements are not met within one year from the date
of the Pharmanex Acquisition. The contingent shares issued, if any, will
be accounted for as an adjustment to the purchase price and allocated to
the acquired assets and liabilities. Also, as part of the Pharmanex
Acquisition, the Company assumed approximately $34.0 million in
liabilities and incurred acquisition costs totaling $1.3 million. The
net assets acquired totaling $3.6 million include net deferred tax
assets totaling $0.8 million. In connection with the closing of the
Pharmanex Acquisition, the Company paid approximately $29.0 million
relating to the assumed liabilities.
The Pharmanex Acquisition was accounted for by the purchase method of
accounting. The Company recorded inventory step-up of $3.7 million and
intangible assets of $92.4 million. In addition, the Company allocated
$13.6 million to purchased in-process research and development based on
a discounted cash-flow method reflecting the stage of completion of the
related projects. During 1998, the in-process research and development
amount was fully written off and the Company recorded amortization of
intangible assets totaling $1.3 million.
Pro forma results as if the Pharmanex Acquisition had occurred at
January 1,1998 have not been presented because the results are not
considered material.
5. RELATED PARTY TRANSACTIONS
Scope of related party activity
The Company has transactions with affiliated entities that are under
common control. The entities are Nu Skin USA, Nu Skin Canada, Nu Skin
Mexico and Nu Skin Guatemala. The transactions with these entities are
as follows: (1) In addition to selling products to consumers in its
geographic territories, the Company sells products and marketing
materials to affiliated entities in geographic areas outside those held
by the Company (primarily the USA, Canada, Mexico and Guatemala). (2)
The Company collects trademark
-24-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
royalty fees on products bearing NSI trademarks and marketed outside the
Company's geographic areas that are not purchased from NSI. (3) The
Company enters into a distribution agreement with each independent
distributor. (4) The Company collects license fees from affiliated
entities outside its geographical regions for the right to use the
distributors, and for the right to use the Company's distribution system
and other related intangibles. (5) The Company operates a global
commission plan whereby distributors' commissions are determined by
aggregate worldwide purchases made by down-line distributors. Thus,
commissions on purchases from the Company earned by distributors located
in geographic areas outside those held by the Company are remitted to
the Company, which then forwards these commissions to the distributors.
(6) The Company collects fees for management and support services
provided to affiliated entities outside its geographic areas.
The purchase prices paid by the affiliated entities for the purchase of
product and marketing materials are determined pursuant to the
Distribution Agreement between the Company and the affiliated entities.
The selling prices to these affiliated entities of products and
marketing materials are determined pursuant to the Wholesale
Distribution Agreements between the Company and these affiliated
entities. Trademark royalty fees and license fees are charged pursuant
to the Trademark/Tradename License Agreement between the Company and
these affiliated entities and the Licensing and Sales Agreement between
the Company and these affiliated entities, respectively. The independent
distributor commission program is managed by the Company. Charges to the
affiliated entities are based on a worldwide commission fee of 42% of
product revenue which covers commissions paid to distributors on a
worldwide basis and the direct costs of administering the global
compensation plan. Management and support services fees are billed to
the affiliated entities pursuant to the Management Services Agreement
between the Company and the affiliated entities and consist of all
direct expenses incurred by the Company and indirect expenses allocated
to the affiliated entities based on its net sales. The sales revenue,
royalties, licenses and management fees charged to the affiliated
entities are recorded as revenue in the consolidated statements of
income and totaled $68,556,000, $53,135,000 and $72,691,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
Notes payable to stockholders
In connection with the Reorganization described in Note 1, the aggregate
undistributed taxable S corporation earnings of the Initial Subsidiaries
were $86.5 million. These earnings were distributed in the form of
promissory notes bearing interest at 6.0% per annum. From proceeds from
the Offerings, $15.0 million was used to pay a portion of the notes, and
the remaining balance of $71.5 million with the related accrued interest
of $1.6 million was paid on April 4, 1997.
In connection with the NSI Acquisition described in Notes 1 and 3, the
Company assumed S Distribution Notes totaling $171.3 million and
long-term notes payable to the NSI Stockholders totaling $6.2 million,
both bearing interest at 6.0% per annum. These amounts were paid in
full, including accrued interest of $3.3 million, during the second
quarter of 1998. Prior to the NSI Acquisition, the Acquired Entities
paid $2.5 million of the S Distribution Notes, plus accrued interest of
$1.8 million.
Certain relationships with stockholder distributors
Two major stockholders of the Company have been independent distributors
for the Company since 1984. These stockholders are partners in an entity
which receives substantial commissions from the Company, including
commissions relating to sales within the countries in which the Company
operates. By agreement, the Company pays commissions to this partnership
at the highest level of distributor compensation to allow the
stockholders to use their expertise and reputations in network marketing
to further develop the Company's distributor force, rather than focusing
solely on their own distributor organizations. The commissions paid
-25-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
to this partnership relating to sales within the countries in which the
Company operates were $1,200,000, $1,100,000 and $800,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Loan to stockholder
In December 1997, the Company loaned $5.0 million to a non-management
stockholder. The loan is secured by 349,406 shares of Class B Common
Stock, and matures in December 2000. Interest accrues at a rate of 6.0%
per annum on this loan. The loan may be repaid by transferring to the
Company the shares pledged to secure the loan. The loan balance,
including accrued interest, totaled $5.0 million and $5.3 million at
December 31, 1997 and 1998, respectively.
Contingent payments to stockholders under the NSI Acquisition
The Company and NSI met specific earnings growth targets for the year
ended December 31, 1998 that resulted in $25.0 million of contingent
consideration payable to the NSI Stockholders. The contingent
consideration is payable in April 1999. In addition, contingent upon NSI
and the Company meeting specific earnings growth targets, the Company
may pay up to $25.0 million in cash per year over the next three years
to the NSI Stockholders.
Lease agreements
The Company leases corporate office and warehouse space from two
affiliated entities. The Company then sub-leases a portion of the
corporate office and warehouse space to Nu Skin USA, Inc. and Big
Planet, Inc. These lease transactions between the Company and affiliated
entities approximate fair market value.
6. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (in thousands):
December 31,
1997 1998
------------ ------------
Furniture and fixtures $ 25,587 $ 30,997
Computers and equipment 36,836 44,267
Leasehold improvements 8,068 13,874
Vehicles 745 1,153
------------ ------------
71,236 90,291
Less: accumulated depreciation (44,090) (48,073)
------------ ------------
$ 27,146 $ 42,218
============ ============
Depreciation of property and equipment totaled $8,733,000, $8,060,000
and $11,543,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
7. OTHER ASSETS
Other assets consist of the following (in thousands):
December 31,
1997 1998
----------- -----------
Goodwill and intangibles $ 7,563 $ 147,246
Deposits for noncancelable operating leases 9,127 10,282
Distribution rights 8,750 8,750
Deferred taxes 30,399 42,747
Other 7,815 6,023
----------- -----------
63,654 215,048
Less: accumulated amortization (2,385) (5,630)
----------- -----------
$ 61,269 $ 209,418
=========== ===========
The goodwill and intangible assets are being amortized on a
straight-line basis over their estimated useful lives ranging from 4 to
20 years. Amortization of goodwill and intangible assets totaled
$726,000, $311,000 and $3,248,000 for the years ended December 31, 1996,
1997 and 1998, respectively. The distribution rights asset is being
amortized on a straight-line basis over its estimated useful life of 20
years. Amortization of the distribution rights asset totaled $156,000,
$438,000 and $438,000 for the years ended December 31, 1996, 1997 and
1998, respectively.
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31,
1997 1998
----------- -----------
Income taxes payable $ 53,079 $ 40,726
Accrued commission payments to distributors 36,289 36,431
Other taxes payable 16,496 11,646
Other accruals 34,751 43,920
----------- -----------
$ 140,615 $ 132,723
=========== ===========
9. LONG-TERM DEBT
On May 8, 1998, the Company and its Japanese subsidiary Nu Skin Japan
Co., Ltd. entered into a $180.0 million credit facility with a syndicate
of financial institutions for which ABN-AMRO, N.V. acted as agent. This
unsecured credit facility was used to satisfy Company liabilities which
were assumed as part of the NSI Acquisition. The Company borrowed $110.0
million and Nu Skin Japan Co., Ltd. borrowed the Japanese yen equivalent
of $70.0 million denominated in local currency. The outstanding balance
on the credit facility was $153.3 million at December 31, 1998.
The U.S. portion of the credit facility bears interest at either a base
rate as specified in the credit facility or the London Inter-Bank Offer
Rate plus an applicable margin, in the borrower's discretion. The
Japanese portion of the credit facility bears interest at either a base
rate as specified in the credit facility or the Tokyo Inter-Bank Offer
Rate plus an applicable margin, in the borrower's discretion. The
maturity date for the credit facility is three years from the borrowing
date, with a possible extension of the maturity date upon approval of
the then outstanding lenders. Interest expense on the credit facility
totaled $4.7 million for the year ended December 31,1998.
The credit facility contains other terms and conditions and affirmative
and negative financial covenants customary for credit facilities of this
type. As of December 31, 1998, the Company has continued to comply with
all financial covenants under the credit facility.
During 1998, the Company entered into a $10.0 million revolving credit
agreement with ABN-AMRO, N.V. Advances are available under the agreement
through May 18, 1999. There were no outstanding balances under the
credit facility at December 31, 1998.
-26-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Maturities of long-term debt at December 31, 1998 are as follows (in
thousands):
Year Ending December 31,
1999 $ 14,545
2000 53,359
2001 85,375
------------
Total $ 153,279
============
10. LEASE OBLIGATIONS
The Company leases office space and computer hardware under
noncancelable long-term operating leases. Most leases include renewal
options of up to three years. Minimum future operating lease obligations
at December 31, 1998 are as follows (in thousands):
Year Ending December 31,
1999 $ 8,882
2000 6,821
2001 5,185
2002 5,017
2003 3,685
------------
Total minimum lease payments $ 29,590
============
Rental expense for operating leases totaled $12,558,000, $15,518,000 and
$15,969,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
11. STOCKHOLDERS' EQUITY
The Company's capital stock consists of Preferred Stock, Class A Common
Stock and Class B Common Stock. The shares of Class A Common Stock and
Class B Common Stock are identical in all respects, except for voting
rights and certain conversion rights and transfer restrictions, as
follows: (1) each share of Class A Common Stock entitles the holder to
one vote on matters submitted to a vote of the Company's stockholders
and each share of Class B Common Stock entitles the holder to ten votes
on each such matter; (2) stock dividends of Class A Common Stock may be
paid only to holders of Class A Common Stock and stock dividends of
Class B Common Stock may be paid only to holders of Class B Common
Stock; (3) if a holder of Class B Common Stock transfers such shares to
a person other than a permitted transferee, as defined in the Company's
Certificate of Incorporation, such shares will be converted
automatically into shares of Class A Common Stock; and (4) Class A
Common Stock has no conversion rights; however, each share of Class B
Common Stock is convertible into one share of Class A Common Stock, in
whole or in part, at any time at the option of the holder.
Equity incentive plans
Effective November 21, 1996, the Company implemented a one-time
distributor equity incentive program. This program provided for grants
of options to selected distributors for the purchase of 1,605,000 shares
of the Company's previously issued Class A Common Stock. The number of
options each distributor ultimately received was based on their
performance and productivity through August 31, 1997. The options are
exercisable at a price of $5.75 per share and vested on December 31,
1997. The related compensation expense was deferred in the Company's
financial statements and was expensed to the statement of income as
distributor stock expense ratably through December 31, 1997. As of
December 31, 1998, 392,417 of the 1,605,000 stock options had been
exercised.
-27-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company recorded compensation expense using the fair value method
prescribed by SFAS 123 based upon the best available estimate of the
number of shares that were expected to be issued to each distributor at
the measurement date, revised as necessary if subsequent information
indicated that actual forfeitures were likely to differ from initial
estimates. Any options forfeited were reallocated and resulted in an
additional compensation charge.
As a part of this program, 600,000 options were sold to affiliated
entities at fair value in exchange for notes receivable totaling
$12,351,000. As the number of distributor stock options to be issued to
each distributor was revised through August 31, 1997, the options
allocated to the affiliated entities were adjusted to 480,000 and the
notes receivable were adjusted to $9,115,000. The affiliated entities
are repaying these notes as distributors exercise their options. The
notes receivable balance totaled $9,115,000 and $6,251,000 as of
December 31, 1997 and 1998, respectively.
Prior to the Offerings, the Company's stockholders contributed 1,250,000
shares of the Company's Class A Common Stock to the Company and other
affiliated entities held by them for issuance to employees of the
Company and other affiliated entities as a part of an employee equity
incentive plan. Equity incentives granted or awarded under this plan
will vest over four years. Compensation expense related to equity
incentives granted to employees of the Company and other Nu Skin
entities who perform services on behalf of the Company will be
recognized by the Company ratably over the vesting period.
Approximately 743,000 of the 1,250,000 shares were contributed to
affiliated entities and the remaining 507,000 shares were contributed to
the Company. In November 1996, the Company granted 462,791 shares to
certain employees. The Company has recorded deferred compensation
expense of $10,773,000 related to these stock awards and is recognizing
such expense ratably over the vesting period. As of December 31, 1998,
217,606 of the stock awards had vested and 16,970 of the stock awards
had been forfeited.
1996 Stock Incentive Plan
During the year ended December 31, 1996, the Company's Board of
Directors adopted the Nu Skin Enterprises, Inc. 1996 Stock Incentive
Plan (the "1996 Stock Incentive Plan"). The 1996 Stock Incentive Plan
provides for granting of stock awards and options to purchase common
stock to executives, other employees, independent consultants and
directors of the Company and its Subsidiaries. A total of 7,500,000
shares of Class A Common Stock have been reserved for issuance under the
1996 Stock Incentive Plan.
In 1996, the Company granted stock awards to certain employees for an
aggregate of 109,000 shares of Class A Common Stock and in 1997 the
Company granted additional stock awards to certain employees and
directors in the amount of 55,459 shares of Class A Common Stock. The
Company has recorded deferred compensation expense of $3,780,000 related
to these stock awards and is recognizing such expense ratably over the
vesting period. As of December 31, 1998, 83,463 of the stock awards had
vested and 34,378 of the stock awards had been forfeited.
In 1997, the Company granted options to purchase 298,500 shares of Class
A Common Stock to certain employees and directors pursuant to the 1996
Stock Incentive Plan. Of the 298,500 options granted, 30,000 options
vested in May 1997 and 265,500 options vest ratably over a period of
four years. All options granted in 1997 will expire ten years from the
date of grant. The exercise price of the options was set at $20.88 per
share. The Company has recorded deferred compensation expense of
$578,000 related to the options and is recognizing such expense ratably
over the vesting periods. As of December 31, 1998, none of these 298,500
stock options had been exercised.
During 1998, the Company granted options to purchase 507,500 shares of
Class A Common Stock to certain employees and directors of the Company
pursuant to the 1996 Stock Incentive Plan. Of the 507,500 options
granted, 500,000 options vest ratably over a period of four years and
expire ten years from the date of grant
-28-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
and 7,500 vest in one year from the date of grant and expire in ten
years or six months after termination from service as a director. The
exercise price of the 500,000 options was set at $13.91 per share and
the exercise price of the 7,500 options was set at $28.50 per share. No
compensation expense has been recorded related to these options. As of
December 31, 1998, none of these 507,500 stock options had been
exercised.
Additionally in 1998, the Company granted options to purchase 1,080,000
shares of Class A Common Stock to certain employees pursuant to the 1996
Stock Incentive Plan. All of the 1,080,000 options vest seven years from
the date of grant and expire ten years from the date of grant. Subject
to the Company meeting certain revenue and profitability benchmarks, the
vesting of these options may be accelerated over the three-year period
ended December 31, 2001. The exercise price of the options was set at
$17.00 per share. No compensation expense has been recorded related to
these options. As of December 31, 1998, none of these 1,080,000 stock
options had been exercised.
Generation Health Holdings, Inc. 1996 Stock Option Plan
In connection with the Pharmanex Acquisition (Note 4), the Company
assumed the Generation Health Holdings, Inc. 1996 Stock Option Plan.
Under this plan, the Company assumed options to purchase 261,008 shares
of Class A Common Stock granted to certain employees of Pharmanex. In
accordance with the terms of the plan, 173,785 of these options vested
immediately due to the involuntary termination of certain employees. The
value of these vested options was included as an acquisition cost in the
Pharmanex Acquisition. The remaining 87,223 options vest ratably over
periods ranging from 1 to 5 years. The exercise prices of the options
range from $.92 to $10.03 per share. The Company has recorded deferred
compensation expense of $859,000 related to the 87,223 unvested options
and is recognizing such expense ratably over the vesting periods. As of
December 31, 1998, 1,863 of these 261,008 stock options had been
exercised.
SFAS 123 pro forma disclosures
The Company's pro forma net income would have been $118,413,000 and
$103,023,000 for the years ended December 31, 1997 and 1998,
respectively, if compensation expense had been measured under the fair
value method prescribed by SFAS 123. The Company's pro forma basic and
diluted net income per share for the year ended December 31, 1997 would
not have changed had compensation expense been measured under the fair
value method. The Company's pro forma basic and diluted net income per
share for the year ended December 31, 1998 would have been $1.21 and
$1.18, respectively, had compensation expense been measured under the
fair value method.
The fair value of the options granted during 1997 was estimated at
$10.55 per share as of the date of grant using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate of
6%; expected life of 4 years; expected volatility of 46%; and expected
dividend yield of 0%.
The fair values of the options granted during 1998 ranged from $13.51 to
$22.16 per share, and were estimated as of the dates of grant using the
Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 4.5%; expected life of 2 to 4 years; expected
volatility of 48%; and expected dividend yield of 0%.
-29-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Weighted average common shares outstanding
The following is a reconciliation of the weighted average common shares
outstanding for purposes of computing basic and diluted net income per
share (in thousands):
Year Ended December 31,
1996 1997 1998
-------- -------- --------
Basic weighted average common
shares outstanding 79,194 83,331 84,894
Effect of dilutive securities:
Stock awards and options 3,807 3,981 2,124
-------- -------- --------
Diluted weighted average common
shares outstanding 83,001 87,312 87,018
======== ======== ========
Repurchase of common stock
In December 1997, the Company repurchased 1,415,916 shares of Class A
Common Stock from certain original stockholders for an aggregate price
of approximately $20.3 million. Such shares were converted from Class B
Common Stock to Class A Common Stock prior to or upon purchase, and were
repurchased in connection with the entering into of an amended and
restated stockholders agreement by the original stockholders providing
for, among other things, a one-year extension of the original lock-up
provisions applicable to such original stockholders.
During 1998, the Board of Directors authorized the Company to repurchase
up to $20.0 million of the Company's outstanding shares of Class A
Common Stock. As of December 31, 1998, the Company had repurchased
917,254 shares for an aggregate price of approximately $10.5 million.
Conversion of common stock
In December 1998, the holders of the Class B Common Stock converted 15.0
million shares of Class B Common Stock to Class A Common Stock.
12. INCOME TAXES
Consolidated income before provision for income taxes consists of income
earned primarily from international operations. The provision for
current and deferred taxes for the years ended December 31, 1996, 1997
and 1998 consists of the following (in thousands):
1996 1997 1998
-------- -------- --------
Current
Federal $ 331 $ 3,332 $ 3,695
State 32 124 3,580
Foreign 56,929 76,553 72,317
-------- -------- --------
57,292 80,009 79,592
Deferred
Federal (1,929) (24,317) (10,712)
State -- (30) (48)
Foreign (2,398) 45 947
Change in tax status (3,439) -- (6,939)
-------- -------- --------
Provision for income taxes $ 49,526 $ 55,707 $ 62,840
======== ======== ========
Prior to the Company's Reorganization and the NSI Acquisition described
in Note 1, the Subsidiaries elected to be taxed as S corporations
whereby the income tax effects of the Subsidiaries' activities accrued
directly to their stockholders; therefore, adoption of SFAS 109 required
no establishment of deferred income taxes since no material differences
between financial reporting and tax bases of assets and liabilities
existed. Concurrent with the Company's Reorganization and the NSI
Acquisition, the Company terminated the S corporation elections of its
Subsidiaries. As a result, deferred income taxes under the provisions of
SFAS 109 were established.
The principal components of deferred tax assets are as follows (in
thousands):
December 31, December 31,
1997 1998
------------ ------------
Deferred tax assets:
Inventory reserve $ 1,773 $ 5,195
Foreign tax credit 19,268 33,969
Distributor stock options and employee stock awards 6,992 6,020
Capitalized legal and professional -- 5,990
Accrued expenses not deductible until paid 7,002 10,144
Withholding tax 5,692 7,291
Minimum tax credit 3,555 869
Net operating losses -- 12,621
------------ ------------
Total deferred tax assets 44,282 82,099
------------ ------------
Deferred tax liabilities:
Withholding tax 5,692 8,871
Exchange gains and losses 1,679 3,032
NSI inventory step-up -- 11,176
Pharmanex intangibles step-up -- 11,445
Other 143 1,520
------------ ------------
Total deferred tax liabilities 7,514 36,044
------------ ------------
Valuation allowance (4,700) (12,166)
------------ ------------
Deferred taxes, net $ 32,068 $ 33,889
============ ============
The valuation allowance primarily represents a reserve against a portion
of the deferred tax asset related to foreign tax credits.
The consolidated statements of income include a pro forma presentation
for income taxes, including the effect on minority interest, which would
have been recorded if the Company's Subsidiaries had been taxed as C
corporations for all periods presented. A reconciliation of the
Company's pro forma effective tax rate for the years ended December 31,
1996, 1997 and 1998 compared to the statutory U.S. Federal tax rate is
as follows:
-30-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Year Ended December 31,
1996 1997 1998
-------- ------- -------
Income taxes at statutory rate 35.00% 35.00% 35.00%
Foreign tax credit limitation (benefit) -- 2.41 4.40
Cumulative effect of change in tax status -- -- (4.09)
Pharmanex in-process research and development -- -- 2.80
Non-deductible expenses .75 .15 .83
Other 1.26 .42 (1.94)
-------- ------- -------
37.01% 37.98% 37.00%
======== ======= =======
13. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan which permits
participating employees to defer up to a maximum of 15% of their
compensation, subject to limitations established by the Internal Revenue
Code. Employees who work a minimum of 1,000 hours per year, who have
completed at least one year of service and who are 21 years of age or
older are qualified to participate in the plan. The Company matches 100%
of the first 2% and 50% of the next 2% of each participant's
contributions to the plan. Participant contributions are immediately
vested. Company contributions vest based on the participant's years of
service at 25% per year over four years. The Company's contribution
totaled $454,000, $647,000 and $829,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's Subsidiaries enter into significant transactions with each
other and third parties which may not be denominated in the respective
Subsidiaries' functional currencies. The Company seeks to reduce its
exposure to fluctuations in foreign exchange rates by creating
offsetting positions through the use of foreign currency exchange
contracts and through certain intercompany loans of foreign currency.
The Company does not use such derivative financial instruments for
trading or speculative purposes. The Company regularly monitors its
foreign currency risks and periodically takes measures to reduce the
impact of foreign exchange fluctuations on the Company's operating
results. Gains and losses on foreign currency forward contracts and
certain intercompany loans of foreign currency are recorded as other
income and expense in the consolidated statements of income.
At December 31, 1997 and 1998, the Company held foreign currency forward
contracts with notional amounts totaling approximately $51.0 million and
$46.3 million, respectively, to hedge foreign currency items. These
contracts do not qualify as hedging transactions and, accordingly, have
been marked to market. The net gains on foreign currency forward
contracts were $5.6 million and $2.6 million for the years ended
December 31, 1997 and 1998, respectively. There were no significant
gains or losses on foreign currency forward contracts for the year ended
December 31, 1996. These contracts at December 31, 1998 have maturities
through July 1999.
At December 31, 1997 and 1998, the intercompany loan from Nu Skin Japan
to Nu Skin Hong Kong totaled approximately $92.5 million and $57.3
million, respectively. The Company recorded exchange gains totaling $7.8
million and $2.2 million resulting from this intercompany loan for the
years ended December 31, 1997 and 1998, respectively.
-31-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1998, the intercompany loan from Nu Skin Japan to the
Company totaled approximately $82.0 million. The Company recorded
exchange gains totaling $2.8 million resulting from this intercompany
loan for the year ended December 31, 1998. There was no loan at December
31, 1997 from Nu Skin Japan to the Company.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest totaled $84,000, $251,000 and $3,731,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. Cash paid
for income taxes totaled $18,133,000, $73,905,000 and $77,271,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
Noncash investing and financing activities
For the year ended December 31, 1996, noncash investing and financing
activities were as follows: (1) $86.5 million distribution to the
stockholders of the Initial Subsidiaries (Note 1). (2) $1.2 million of
additional paid-in capital contributed by the stockholders of the
Initial Subsidiaries in exchange for shares of Class B Common Stock in
connection with the termination of the Initial Subsidiaries' S
corporation status. (3) $33.0 million of additional paid-in capital and
$20.7 million of deferred compensation recorded related to the issuance
of 1,605,000 options to distributors to purchase shares of Class A
Common Stock. 600,000 of these options were sold to affiliated entities
in exchange for notes receivable totaling $12.4 million (Note 11).
For the year ended December 31, 1997, noncash investing and financing
activities were as follows: (1) $87.1 million distribution to the
stockholders of the Acquired Entities (Note 1). (2) Adjustment to the
distributor stock options to reallocate 120,000 options initially
allocated to affiliated entities and a related reduction in the notes
receivable of $3.2 million (Note 11).
For the year ended December 31, 1998, noncash investing and financing
activities were as follows: (1) $37.6 million distribution to the
stockholders of the Acquired Entities (Note 1). (2) Purchase of Acquired
Entities for $70.0 million in Preferred Stock and $6.2 million in
long-term notes payable. Net assets acquired totaled $90.4 million and
assumed liabilities totaled $171.3 (Note 3). (3) $25.0 million in
contingent consideration issued to the NSI Stockholders. $8.8 million of
the contingent payment was recorded as an increase in intangible assets
and $16.2 million of the contingent payment was recorded as a reduction
of stockholders' equity (Notes 3 and 5). (4) Purchase of Pharmanex for
$77.6 million in Class A Common Stock and $0.2 million in cash. Net
assets acquired totaled $3.6 million and assumed liabilities totaled
$34.0 million (Note 4).
16. SEGMENT INFORMATION
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. As described in Note 1, the
Company's operations throughout the world are divided into three
reportable segments: North Asia, Southeast Asia and Other Markets.
Segment data includes intersegment revenue, intersegment profit and
operating expenses and intersegment receivables and payables. The
Company evaluates the performance of its segments based on operating
income. Information as to the operations of the Company in each of the
three segments is set forth below (in thousands):
-32-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Year Ended December 31,
1996 1997 1998
------------ ------------ ------------
Revenue
North Asia $ 502,381 $ 673,582 $ 665,523
Southeast Asia 336,783 412,524 320,606
Other Markets 266,368 314,048 294,947
Eliminations (343,894) (446,732) (367,582)
------------ ------------ ------------
Totals $ 761,638 $ 953,422 $ 913,494
============ ============ ============
Year Ended December 31,
1996 1997 1998
------------ ------------ ------------
Operating Income
North Asia $ 88,347 $ 117,302 $ 89,075
Southeast Asia 52,224 46,195 19,385
Other Markets 4,134 19,684 46,994
Eliminations (7,538) (2,961) 785
------------ ------------ ------------
Totals $ 137,167 $ 180,220 $ 156,239
============ ============ ============
December 31,
1997 1998
------------ ------------
Total Assets
North Asia $ 104,488 $ 167,867
Southeast Asia 176,570 110,518
Other Markets 211,663 500,299
Eliminations (87,717) (172,251)
------------ ------------
Totals $ 405,004 $ 606,433
============ ============
Information as to the Company's operation in different geographical
areas is set forth below (in thousands):
Revenue
Revenue from the Company's operations in Japan totaled $380,044,
$599,375 and $654,168 for the years ended December 31, 1996, 1997 and
1998, respectively. Revenue from the Company's operations in Taiwan
totaled $154,564, $168,568 and $119,511 for the years ended December 31,
1996, 1997 and 1998, respectively. Revenue from the Company's operations
in the United States (which includes intercompany revenue) totaled
$252,111, $301,217 and $280,115 for the years ended December 31, 1996,
1997 and 1998, respectively.
Long-lived assets
Long-lived assets in Japan were $11,001 and $20,242 as of December 31,
1997 and 1998, respectively. Long-lived assets in Taiwan were $3,087 and
$2,466 as of December 31, 1997 and 1998, respectively. Long-lived assets
in the United States were $55,557 and $213,856 as of December 31, 1997
and 1998, respectively.
-33-
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
17. COMMITMENTS AND CONTINGENCIES
The Company is subject to governmental regulations pertaining to product
formulation, labeling and packaging, product claims and advertising and
to the Company's direct selling system. The Company is also subject to
the jurisdiction of numerous foreign tax authorities. These tax
authorities regulate and restrict various corporate transactions,
including intercompany transfers. The Company believes that the tax
authorities in Japan and South Korea are particularly active in
challenging the tax structures and intercompany transfers of foreign
corporations. Any assertions or determination that either the Company,
or the Company's distributors is not in compliance with existing
statutes, laws, rules or regulations could potentially have a material
adverse effect on the Company's operations. In addition, in any country
or jurisdiction, the adoption of new statutes, laws, rules or
regulations or changes in the interpretation of existing statutes, laws,
rules or regulations could have a material adverse effect on the Company
and its operations. Although management believes that the Company is in
compliance, in all material respects, with the statutes, laws, rules and
regulations of every jurisdiction in which it operates, no assurance can
be given that the Company's compliance with applicable statutes, laws,
rules and regulations will not be challenged by foreign authorities or
that such challenges will not have a material adverse effect on the
Company's financial position or results of operations or cash flows.
18. SUBSEQUENT EVENTS
In February 1999, the Company announced its intent to acquire Big
Planet, Inc., certain assets of Nu Skin USA, Inc. and the Company's
remaining affiliates in Canada, Mexico and Guatemala for approximately
$40.0 million in cash, $14.5 million in a three-year note and the
assumption of certain liabilities. The assets to be acquired from Nu
Skin USA, Inc. include approximately 620,000 shares of the Company's
Class A Common Stock (Note 11). The Company concluded the Nu Skin USA,
Inc. transaction in March 1999 and anticipates closing the remaining
transactions within 90 days.
The acquisition of Big Planet, Inc. is expected to be accounted for by
the purchase method of accounting. The acquisition of Nu Skin USA, Inc.
and the Company's remaining affiliates in Canada, Mexico and Guatemala
is expected to be accounted for by the purchase method of accounting,
except for that portion of these affiliated entities under common
control of a group of stockholders, which portion will be accounted for
in a manner similar to a pooling of interests.
-34-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Nu Skin Enterprises, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Nu Skin Enterprises, Inc. and its
subsidiaries at December 31, 1997 and 1998, and the results of their operations
and their cash flows for the years ended December 31, 1996, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of the Acquired Entities
(Note 3), which statements reflect total assets of $127.0 million at December
31, 1997, and total revenue of $265.0 million and $308.9 million for the years
ended December 31, 1996 and 1997, respectively. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the Acquired
Entities, is based solely on the report of the other auditors. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Salt Lake City, Utah
February 17, 1999
-35-
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
The Company's Class A Common Stock is listed on the New York Stock
Exchange ("NYSE") and trades under the symbol "NUS." The following table is
based upon information available to the Company and sets forth the range of the
high and low sales prices for the Company's Class A Common Stock for the
quarterly periods during 1997 and 1998 based upon quotations on the NYSE.
1997
--------------------------
Quarter Ending High Low
-------------- ------ ------
March 31, 1997 $30.88 $23.00
June 30, 1997 $28.25 $23.63
September 30, 1997 $27.19 $19.31
December 31, 1997 $24.44 $16.00
1998
--------------------------
Quarter Ending
--------------
March 31, 1998 $25.75 $15.75
June 30, 1998 $28.69 $15.50
September 30, 1998 $19.25 $10.19
December 31, 1998 $25.63 $10.31
The market price of the Company's Class A Common Stock is subject to
significant fluctuations in response to variations in the Company's quarterly
operating results, general trends in the market for the Company's products and
product candidates, economic and currency exchange issues in the foreign markets
in which the Company operates and other factors, many of which are not within
the control of the Company. In addition, broad market fluctuations, as well as
general economic, business and political conditions, may adversely affect the
market for the Company's Class A Common Stock, regardless of the Company's
actual or projected performance.
The closing price of the Company's Class A Common Stock on March 5, 1999
was $18.50. The approximate number of holders of record of the Company's Class A
Common Stock and Class B Common Stock as of March 5, 1999 was 949. This number
does not represent the actual number of beneficial owners of shares of the
Company's Class A Common Stock because shares are frequently held in "street
name" by securities dealers and others for the benefit of individual owners who
have the right to vote their shares.
The Company has not paid or declared any cash dividends on its Class A
Common Stock and does not anticipate doing so in the foreseeable future. The
Company currently anticipates that all of its earnings, if any, will be retained
for use in the operation and expansion of its business. Any future determination
as to cash dividends will depend upon the earnings and financial position of the
Company and such other factors as the Company's Board of Directors may deem
appropriate.
-36-
EX-21.1
SUBSIDIARIES OF
NU SKIN ENTERPRISES, INC.
Nu Skin Argentina, Inc. - Utah Corporation with an Argentine branch
Nu Skin Personal Care Australia, Inc. - Utah Corporation
Nu Skin Belgium, N.V. - Belgium Corporation
Big Planet Holdings, Inc. - Delaware Corporation
Nu Skin Brazil, Ltda. - Brazilian Corporation
Cedar Meadows LLC- Utah Limited Liability Company
Nu Skin Chile, S.A. - Chilean Corporation
Nu Skin Europe, Inc. - Utah Corporation
Nu Skin France, SARL - France Corporation
Nu Skin Germany, GmbH - German Corporation
Nu Skin Hong Kong, Inc. - Utah Corporation
Nu Skin International, Inc. - Utah Corporation
Nu Skin International Management Group, Inc. - Utah Corporation
Nu Skin Italy, SRL - Italy Corporation
Nu Skin Japan Company, Ltd. - Japan Corporation domesticated in the State of
Delaware
Nu Skin Korea, Ltd. - Korea Corporation domesticated in the State of Delaware
N International, Inc. - Delaware Corporation
Nu Skin Netherlands, B.V. - Netherlands Corporation
Nu Skin New Zealand, Inc. - Utah Corporation
Pharmanex, Inc. - Delaware Corporation
Nu Skin Philippines, Inc. - Delaware Corporation with a Philippines branch
Nu Skin Poland Sp. z o.o. - Poland Corporation
Sage Acquisition Corporation - Delaware Corporation
Shanghi Harmony, Daily Use and Health Products Co., Ltd. - Chinese Corporation
Nu Skin Spain, S.L. - Spain Corporation
Nu Skin Taiwan, Inc. - Utah Corporation
Nu Skin Personal Care (Thailand), Ltd. - Thailand Corporation domesticated in
the State of Delaware
Nu Skin United States - Delaware Cooperation
Nu Skin U.K., Ltd. - United Kingdom Corporation
Zhejiang Cinogen Pharmaceutical Co., Ltd. - Sino-American Joint Venture
EX-23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorportaion by reference in the prospectus
consituting part of the Registration Statement on Form S-3 (No. 333-12073) and
in the Registration Statements on Form S-8 (Nos. 333-48611 and 333-68407) of our
report dated February 17, 1999, which appears in the 1998 Annual Report to
Stockholders of Nu Skin Enterprises, Inc., which is incorporated by reference in
this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 24, 1999
EX-23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting part
of the Registration Statement on Form S-3 (No. 333-12073) and in the
Registration Statements on Form S-8 (Nos. 333-48611 and 333-68407) of our report
dated April 1, 1998, which appears in the 1998 Annual Report on Form 10-K.
/s/ GRANT THORNTON LLP
Provo, Utah
March 24, 1999
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Boards of Directors
Nu Skin Acquired Entities
We have audited the accompanying combined balance sheet of Nu Skin Acquired
Entities (collectively, the Entities) as of December 31, 1997, and the related
combined statements of earnings, shareholders' equity (deficit), and cash flows
for the years ended December 31, 1997 and 1996. These financial statements are
the responsibility of the Entities' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Nu Skin Acquired
Entities as of December 31, 1997, and the combined results of their operations
and their combined cash flows for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Provo, Utah
April 1, 1998
EX-27
This schedule contains summary financial information extracted from the
financial statements as of and for the year ended December 31, 1998 and is
qualified in its entirety by reference to such financial statements.
MULTIPLIER> 1000
PERIOD-TYPE 12-Mos
FISCAL-YEAR-END Dec-31-1998
PERIOD-END Dec-31-1998
CASH 188,827
SECURITIES 0
RECEIVABLES 13,777
ALLOWANCES 0
INVENTORY 79,463
CURRENT-ASSETS 354,797
PP&E 90,291
DEPRECIATION 48,073
TOTAL-ASSETS 606,433
CURRENT-LIABILITIES 190,200
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 89
OTHER-SE 254,553
TOTAL-LIABILITY-AND-EQUITY 606,433
SALES 913,494
TOTAL-REVENUES 913,494
CGS 210,057
TOTAL-COSTS 757,255
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 0
INCOME-PRETAX 169,838
INCOME-TAX 62,840
INCOME-CONTINUING 103,917
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 103,917
EPS-PRIMARY 1.22
EPS-DILUTED 1.19
