UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2022
or
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ________ to ________
Commission file number: 001-12421
|
|
||
|
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer Identification No.)
|
|
|
||
|
(Address of principal executive offices, including zip code)
|
Registrant’s telephone number, including area code: (801 ) 345-1000
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
Accelerated filer ☐
|
|
|
Non-accelerated filer ☐
|
Smaller reporting company
|
|
|
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
Based on the closing sales price of the Class A common stock on the New York Stock Exchange on June 30, 2022, the last business day of the Registrant’s second fiscal
quarter, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $2.17 billion. All
executive officers and directors of the Registrant, and all stockholders holding more than 10% of the Registrant’s outstanding voting stock (other than institutional investors, such as registered investment companies, eligible to file beneficial
ownership reports on Schedule 13G), have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the Registrant.
As of January 31, 2023, 49,460,121 shares of the
Registrant’s Class A common stock, $.001 par value per share, and no shares of the Registrant’s Class B common stock, $.001 par value per share, were outstanding.
Documents incorporated by reference. Portions of the Registrant’s Definitive Proxy
Statement for the Registrant’s 2023 Annual Meeting of Stockholders are incorporated by reference in Part III of this report. The Definitive Proxy Statement or an amendment to this Form 10-K will be filed with the Securities and Exchange Commission
within 120 days after the Registrant’s fiscal year end.
|
Page
|
|||
|
1
|
|||
|
ITEM 1.
|
1
|
||
|
1
|
|||
|
3
|
|||
|
8
|
|||
|
8
|
|||
|
14
|
|||
|
15
|
|||
|
16
|
|||
|
16
|
|||
|
ITEM 1A.
|
18
|
||
|
ITEM 1B.
|
40
|
||
|
ITEM 2.
|
40
|
||
|
ITEM 3.
|
41
|
||
|
ITEM 4.
|
41
|
||
|
42
|
|||
|
ITEM 5.
|
42
|
||
|
ITEM 6.
|
43
|
||
|
ITEM 7.
|
44
|
||
|
ITEM 7A.
|
56
|
||
|
ITEM 8.
|
58
|
||
|
ITEM 9.
|
91
|
||
|
ITEM 9A.
|
91
|
||
|
ITEM 9B.
|
91
|
||
|
ITEM 9C.
|
91
|
||
|
92
|
|||
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
92
|
|
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
92
|
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
92
|
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
92
|
|
|
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
92
|
|
|
92
|
|||
|
ITEM 15.
|
92
|
||
|
ITEM 16.
|
94
|
||
|
95
|
|||
THIS ANNUAL REPORT ON FORM 10-K, IN PARTICULAR “ITEM 1. BUSINESS” AND “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT REPRESENT OUR CURRENT EXPECTATIONS AND BELIEFS. ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACT ARE “FORWARD-LOOKING STATEMENTS” FOR PURPOSES OF FEDERAL AND STATE SECURITIES LAWS AND INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS OF MANAGEMENT’S EXPECTATIONS REGARDING OUR PERFORMANCE, INITIATIVES, STRATEGIES, PRODUCTS,
INGREDIENTS, PRODUCT INTRODUCTIONS AND OFFERINGS, PRODUCT SOURCING, GROWTH, ACQUISITIONS AND ACQUIRED COMPANIES’ PERFORMANCE, GLOBAL ECONOMIC CONDITIONS, OPPORTUNITIES AND RISKS; STATEMENTS OF PROJECTIONS REGARDING FUTURE SALES, EXPENSES, OPERATING
RESULTS, TAXES AND DUTIES, CAPITAL EXPENDITURES, SOURCES AND USES OF CASH, FOREIGN-CURRENCY FLUCTUATIONS OR DEVALUATIONS, REPATRIATION OF UNDISTRIBUTED EARNINGS, AND OTHER FINANCIAL ITEMS; STATEMENTS OF MANAGEMENT’S EXPECTATIONS, PLANS AND BELIEFS
REGARDING OUR MARKETS, SALES FORCE, SALES COMPENSATION PLAN AND CUSTOMER BASE; STATEMENTS REGARDING THE PAYMENT OF FUTURE DIVIDENDS AND STOCK REPURCHASES; STATEMENTS REGARDING THE OUTCOME OF LITIGATION, AUDITS, INVESTIGATIONS AND OTHER LEGAL
MATTERS, INCLUDING GOVERNMENT POLICIES AND REGULATIONS IN MAINLAND CHINA; ACCOUNTING ESTIMATES AND ASSUMPTIONS; STATEMENTS OF BELIEF; AND STATEMENTS OF ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. IN SOME CASES, YOU CAN IDENTIFY THESE STATEMENTS BY
FORWARD-LOOKING WORDS SUCH AS “BELIEVE,” “EXPECT,” “PROJECT,” “ANTICIPATE,” “ESTIMATE,” “COMMIT,” “INTEND,” “PLAN,” “TARGETS,” “LIKELY,” “WILL,” “WOULD,” “COULD,” “MAY,” “MIGHT,” THE NEGATIVE OF THESE WORDS AND OTHER SIMILAR WORDS. WE UNDERTAKE NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW. WE CAUTION AND ADVISE READERS THAT THESE STATEMENTS ARE BASED ON ASSUMPTIONS THAT
MAY NOT BE REALIZED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS AND BELIEFS CONTAINED HEREIN. FOR A SUMMARY OF THESE RISKS, SEE ITEM 1A. RISK FACTORS.
In this Annual Report on Form 10-K, references to “dollars” and “$” are to U.S. dollars.
Nu Skin, Pharmanex and ageLOC are our trademarks. The italicized product names used in this Annual Report on Form 10-K are product names and also, in certain cases, our
trademarks.
Nu Skin Enterprises, Inc. develops and distributes a comprehensive line of premium-quality beauty and wellness solutions in approximately 50 markets worldwide. In 2022, our revenue of
$2.2 billion was primarily generated by our three primary brands: our beauty brand, Nu Skin; our wellness brand, Pharmanex; and our anti-aging brand, ageLOC. We operate in the direct selling channel,
primarily utilizing person-to-person marketing to promote and sell our products, including through the use of social and digital platforms.
In addition to our core Nu Skin business, we also explore new areas of growth and opportunity through our strategic investment arm known as Rhyz Inc. Rhyz investments include beauty and wellness
product manufacturing companies and other investments. In 2022, the Rhyz companies generated $153.3 million, or 7%, of our 2022 reported revenue (excluding sales to our core Nu Skin business).
In 2022, we generated approximately 24% of our revenue from the United States and approximately 16% from Mainland China. Given the size of our international operations, our results, as reported in
U.S. dollars, are often impacted by foreign-currency fluctuations; in 2022, our revenue was negatively impacted 5% from foreign-currency fluctuations compared to 2021. Our results also can be impacted by global economic, political, demographic
and business trends and conditions.
Our operations are subject to various laws and regulations globally, particularly with respect to our product categories and our distribution channel. See Item 1A. Risk Factors for a more detailed
description of the risks associated with our business.
We offer a branded, differentiated product portfolio. We believe our innovative approach to product development and distribution provides us with a competitive advantage in beauty and wellness
products and direct selling. We believe that our acquired and licensed technologies, manufacturing and innovation facilities, research collaborations and in-house research expertise enable us to introduce innovative, proprietary products. We seek
to offer products that are demonstrable and well suited for social sharing. Sustainability is also an important part of our product strategy; we take sustainability into account as we formulate our products, and we have an ongoing initiative to
transition to packaging that is recycled, recyclable, reusable, reduced or renewable.
Beginning in the second half of 2021 and continuing into 2022, we launched our Beauty Focus Collagen+ skin care supplement and our ageLOC Meta nutritional supplement that helps support metabolic health.
During the past several years, we have generated success in our business with innovative beauty devices. Devices are an important part of our strategy. In the second half of 2022, we began launching
our first connected beauty device, ageLOC LumiSpa iO. We plan to launch additional connected devices in the coming years, including a new connected body device in most of our markets during 2023. These
devices will gather data to provide insights into consumer behavior, with the goal of enabling us to provide more personalized experiences for our consumers. Please refer to “Distribution Channel” below for additional information about our
connected devices and our business strategy that they fit into.
Product Categories
We have two primary product categories: beauty products and wellness products. We develop and distribute innovative, premium-quality products in these two categories under our Nu Skin and Pharmanex
brands, respectively. We also develop and distribute products under our ageLOC brand, which features innovative, premium-quality anti-aging products in both the beauty and wellness categories and in many cases is co-branded with our Nu Skin and
Pharmanex products. Our innovative beauty devices are among our ageLOC beauty products.
Presented below are the U.S. dollar amounts and associated revenue percentages from the sale of beauty and wellness products, as well as our Rhyz companies, for the last three years. This table
should be read in conjunction with the information presented in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, which discusses the factors impacting revenue trends and the costs associated with
generating the aggregate revenue presented.
Revenue by Product Category
(U.S. dollars in millions)
|
Year Ended December 31,
|
||||||||||||||||||||||||
|
Product Category
|
2022
|
2021
|
2020
|
|||||||||||||||||||||
|
Beauty(1)
|
$
|
1,069.7
|
48.1
|
%
|
$
|
1,442.7
|
53.5
|
%
|
$
|
1,491.8
|
57.8
|
%
|
||||||||||||
|
Wellness(1)
|
992.3
|
44.6
|
%
|
1,062.5
|
39.4
|
%
|
922.6
|
35.7
|
%
|
|||||||||||||||
|
Other(2)
|
163.7
|
7.3
|
%
|
190.5
|
7.1
|
%
|
167.5
|
6.5
|
%
|
|||||||||||||||
|
$
|
2,225.7
|
100.0
|
%
|
$
|
2,695.7
|
100.0
|
%
|
$
|
2,581.9
|
100.0
|
%
|
|||||||||||||
| (1) |
Includes sales of beauty and wellness products in our core Nu Skin business. The beauty category includes $440 million, $658 million and $712 million in sales of devices and related consumables for the years ended
December 31, 2022, 2021 and 2020, respectively.
|
| (2) |
Other includes the external revenue from our Rhyz companies along with a limited number of other products and services, including household products and technology services.
|
Beauty Products. Our strategy for our beauty products category is to leverage our distribution channel to strengthen Nu Skin’s position as
an innovative leader in the masstige and premium beauty markets. Our products in this category include our innovative skin care devices, cosmetics and other personal care products. We are committed to continuously improving and evolving our product
formulations to develop and incorporate innovative and proven ingredients. We formulate many of the products in our beauty category with ingredients that are scientifically proven to provide visible results. In 2022, our top-selling product lines
by revenue in this category were our ageLOC LumiSpa devices (consisting of both ageLOC LumiSpa and the recently launched ageLOC
LumiSpa iO), ageLOC Body Spa and our Nutricentials skin care products. Our ageLOC beauty products accounted for 44% of our beauty product category revenue
and 21% of our total revenue in 2022.
Wellness Products. Our strategy for our wellness category is to continue to introduce innovative, substantiated nutritional supplements
based on research and development and quality manufacturing. Direct selling has proven to be an effective method of marketing our high-quality wellness products because our sales force can personally educate consumers on the quality and benefits
of our products, differentiating them from our competitors’ offerings. In 2022, our top-selling products by revenue in this category were ageLOC Meta, our LifePak
nutritional supplements, our ageLOC TR90 weight management system, and Beauty Focus Collagen+. Our ageLOC wellness products accounted for 42% of our wellness
product category revenue and 19% of our total revenue in 2022.
Product Development
We are committed to developing and marketing innovative products. We have several products in development, including next-generation skin care products and nutritional supplements. In
our research and product development, we leverage the three disciplines of science, technology and sourcing to create innovative products that address consumer needs.
Our research and product development activities include:
| ● |
Global consumer research to identify needs and insights and refine product concepts;
|
| ● |
Internal research, product development and quality testing;
|
| ● |
Joint research projects, collaborations and clinical studies;
|
| ● |
Identification and assessment of technologies for potential licensing arrangements; and
|
| ● |
Acquisition of technologies.
|
We maintain research and product development facilities in the United States and Mainland China. We also contract with third parties for clinical studies and collaborate on basic research projects
with researchers from universities and other research institutions in the United States and Asia, whose staffs include scientists with basic research expertise in, among others, natural product chemistry, biochemistry, dermatology, nutrition,
pharmacology and clinical studies.
We also work to identify and assess innovative technologies developed by third parties for potential licensing, supply or acquisition arrangements. Because of the nature of our distribution channel,
which allows us to provide a high level of product information on a person-to-person basis, we often have third parties who are interested in licensing innovative technologies to us to incorporate into our products and commercialize through our
distribution channel. Licensing arrangements allow us to leverage the research activities of third parties that have provided demonstrated technologies, clinical support and/or proprietary innovation, without all of the upfront costs and
uncertainty associated with internal development. We have also invested in acquisitions to supplement our research capabilities and to acquire technologies.
Intellectual Property
Our trademarks are registered in the United States and in markets where we operate or have plans to operate, and we consider trademark protection to be very important to our business. Our major
trademarks include Nu Skin®, our fountain logos, Pharmanex®, ageLOC®, LifePak®, Galvanic Spa®, TR90®, Epoch®, ageLOC Me®, LumiSpa® and ageLOC Boost®. In addition, a number of our products, including our facial spas, ageLOC Body Spa, LumiSpa, ageLOC Boost, TR90 and Pharmanex
BioPhotonic Scanner, are based on proprietary technologies and designs, some of which utilize patented technologies and/or technologies licensed from third parties. We also rely on patent and trade secret protection to protect our
proprietary technology and other proprietary information for some of our ageLOC products and other products.
Sourcing and Production
For markets other than Mainland China, in 2022, we sourced most of our beauty and wellness products from trusted third-party suppliers and manufacturers, and approximately 23% from our manufacturing
subsidiaries. Our manufacturing entities also provide a cost of goods sold benefit and help us to maintain a more consistent supply source. In Mainland China, we operate manufacturing facilities where we produce the majority of our beauty and
wellness products sold in Mainland China. We also produce some products at these facilities that are exported to other markets.
In 2022, one of our manufacturing subsidiaries, but no third-party suppliers, accounted for more than 10% of our product purchases. We procure our ageLOC Galvanic
Facial Spa, ageLOC Body Spa, and Nu Skin Facial Spa devices and some other products or ingredients from single vendors that may own or control the product formulations, ingredients, or other
intellectual property rights associated with the products or ingredients. While we generally maintain good relationships with our suppliers, in the event we become unable to source any products or ingredients from our current suppliers, we believe
that we would be able to locate alternative vendors, use substitute ingredients, or develop and manufacture alternative products and source them from other suppliers, as applicable. Please refer to Item 1A. Risk Factors for a discussion of risks
and uncertainties associated with our supplier relationships and with the sourcing of raw materials and ingredients.
Our manufacturing subsidiaries are owned by our Rhyz strategic investment arm. We plan to continue making strategic acquisitions going forward, as we believe these acquired companies allow us to
vertically integrate our business and leverage their expertise to enhance our innovation, sustainability, speed to market and supply chain capabilities. In addition to the products and services provided to our core Nu Skin business, our Rhyz
companies continue to operate outside of our core Nu Skin business, generating $153.3 million in revenue from sales to external customers in 2022.
We operate in the direct selling channel, primarily utilizing person-to-person marketing to promote and sell our products. We believe that direct selling, which has traditionally relied
on face-to-face, word-of-mouth marketing, is currently being impacted by the convergence of social commerce, influencer and affiliate marketing, and the growing gig economy. These macroeconomic shifts have also disrupted traditional advertising
and retail business practices, as well as e-commerce generally, in favor of socially enabled and direct-to-consumer models. The COVID-19 pandemic further accelerated disruption across many industries by
causing migration to remote work and online shopping.
We endeavor to transform and adapt our business to these trends by helping our sales force to become more socially enabled and to grow their businesses online. We are currently working through a significant digital
transformation in our business to achieve widespread adoption of social commerce in all of our markets. This transformation involves the development of new and enhanced digital tools for our Sales Leaders and consumers, including new digital apps
and an improved website design and functionality. Our products also have served an important role in our social commerce strategy as we have developed products that are shareable and demonstrable on social media platforms. Products continue to play
an important role as we transform to a more digital and socially enabled business; in particular, we believe that connected devices will provide data on consumer behaviors and needs that will engender a more personalized experience for our
consumers and improved brand loyalty.
Our digital transformation will require significant expenditures over the next several years. It and social sharing also present certain risks and challenges to our business, and some social media platforms impose
restrictions or prohibitions on content related to multi-level marketing. For further information, see Item 1A. Risk Factors.
We believe our direct selling distribution channel is an effective vehicle to distribute our products because:
| ● |
our sales force has rapid reach to potential customers through their social networks and the social networks of those to whom they are connected;
|
| ● |
our sales force can personally educate and share company content with consumers about our products, which we believe is more effective for differentiating our products than using traditional mass-media
advertising;
|
| ● |
our distribution channel allows for personalized product demonstrations and trial by potential consumers;
|
| ● |
our distribution channel allows our sales force to provide personal testimonials of product efficacy;
|
| ● |
as compared to other distribution methods, our sales force has the opportunity to provide consumers higher levels of personalized service based on consumers’ needs, including through providing
personalized purchasing offers, discounts and regimens; and
|
| ● |
as compared to other distribution methods, our sales force knows their customers and can foster loyalty through data-driven customer-relationship management and our subscription program.
|
While our person-to-person marketing philosophy remains consistent globally, various aspects of our business may differ from market to market, including product mix and pricing, customer type mix, the
manner and tools used to engage potential customers, social media and third-party platforms, compensation structure, the manner and tools used to engage potential affiliates (including programs and incentives), access to distribution outlets or
product stores, the manner of getting products to consumers, product claims, branding and product formulations. In addition, in Mainland China we have implemented a business model that, unlike the business model we use in our other markets,
utilizes retail stores, sales employees, independent direct sellers and independent marketers to market our products.
Given that members of our sales force are independent contractors in most markets, we do not control or direct their promotional efforts. We do, however, require that our sales force abide by policies
and procedures that require them to act in an ethical and consumer-protective manner and in compliance with applicable laws and regulations. As a member of direct selling associations globally, we promote and abide by the industry’s codes of ethics
and consumer-protective standards to support and protect those who sell and purchase our products through the direct selling channel.
In all of our markets besides Mainland China, we refer to members of our independent sales force as “Brand Affiliates” because their primary role is to promote our brand and products through their
personal and social networks.
Consumer Group and Sales Network
Our distribution channel is composed of two primary groups: our consumer group—individuals who buy our products primarily for personal or family consumption and share products with friends and family;
and our sales network—individuals who personally buy, use and resell products, and who also attract new consumers, and recruit, train and develop new sellers. We strive to develop both our consumer group and our sales network. Our strategy for
growing our consumer group is to offer high-quality, personalized, innovative products that provide demonstrable benefits. Our strategy for growing our sales network is to provide a business opportunity for those persons who demonstrate the desire
and ability to develop both a consumer group and a team of sellers, including through sales compensation, incentives and recognition.
To monitor the growth trends in our consumer group, we track the number of persons who purchased directly from the company during the previous three months (“Customers”). Our Customer numbers include
members of our sales force who made such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force. We believe a significant majority of
Customers purchase our products primarily for personal or family consumption but are not actively pursuing the opportunity we offer to generate supplemental income by actively and consistently marketing and reselling products.
To monitor the growth in our sales network, we track the number of Paid Affiliates and Sales Leaders, which are defined as follows:
| ● |
“Paid Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the previous three months. As we continue to focus on customer
acquisition, our Paid Affiliates, who primarily share products, are a bridge to attracting new customers and nurturing relationships and community. Paid Affiliates power our social commerce model and are an important indicator of consumer
purchasing activity in our business.
|
| ● |
“Sales Leaders” are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end
of each month of the quarter.
|
The following chart sets forth information concerning our Customers, Paid Affiliates and Sales Leaders for the last three years. During the first quarter of 2022, in connection with the introduction
of the new metric Paid Affiliates, we reviewed how we define Sales Leaders and adjusted this metric’s definition to what we believe provides a better insight into the trends of our business. We have recast the 2020 and 2021 Sales Leaders to the new
definition. The definition of our Customer metric remained unchanged.
Total Number of Customers, Paid Affiliates and Sales Leaders by Region
|
Three Months Ended
December 31,
|
||||||||||||
|
Customers
|
2022
|
2021
|
2020
|
|||||||||
|
Americas
|
299,287
|
336,564
|
366,688
|
|||||||||
|
Mainland China
|
202,933
|
315,418
|
381,460
|
|||||||||
|
Southeast Asia/Pacific
|
141,183
|
169,601
|
192,622
|
|||||||||
|
South Korea
|
123,749
|
146,354
|
158,953
|
|||||||||
|
Japan
|
119,152
|
122,813
|
128,400
|
|||||||||
|
EMEA
|
197,917
|
210,414
|
258,587
|
|||||||||
|
Hong Kong/Taiwan
|
62,903
|
66,395
|
70,592
|
|||||||||
|
Total
|
1,147,124
|
1,367,559
|
1,557,302
|
|||||||||
|
Three Months Ended
December 31,
|
||||||||||||
|
Paid Affiliates
|
2022
|
2021
|
2020
|
|||||||||
|
Americas
|
42,633
|
49,328
|
52,821
|
|||||||||
|
Mainland China
|
23,436
|
30,546
|
48,266
|
|||||||||
|
Southeast Asia/Pacific
|
38,653
|
44,050
|
48,756
|
|||||||||
|
South Korea
|
45,058
|
52,036
|
52,526
|
|||||||||
|
Japan
|
38,021
|
38,428
|
38,973
|
|||||||||
|
EMEA
|
31,869
|
36,482
|
40,553
|
|||||||||
|
Hong Kong/Taiwan
|
17,286
|
20,155
|
18,861
|
|||||||||
|
Total
|
236,956
|
271,025
|
300,756
|
|||||||||
|
Three Months Ended
December 31,
|
||||||||||||
|
Sales Leaders
|
2022
|
2021
|
2020
|
|||||||||
|
Americas
|
9,594
|
10,879
|
13,252
|
|||||||||
|
Mainland China(1)
|
12,359
|
18,207
|
24,560
|
|||||||||
|
Southeast Asia/Pacific
|
6,999
|
8,800
|
10,167
|
|||||||||
|
South Korea
|
6,094
|
8,224
|
7,358
|
|||||||||
|
Japan
|
5,936
|
5,864
|
6,373
|
|||||||||
|
EMEA
|
4,740
|
5,743
|
6,650
|
|||||||||
|
Hong Kong/Taiwan
|
3,015
|
3,666
|
4,165
|
|||||||||
|
Total
|
48,737
|
61,383
|
72,525
|
|||||||||
| (1) |
The December 31, 2022 number reflects a modified Sales Leader definition. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—“Mainland China” for more information.
|
Global Direct Selling Channel
Outside of Mainland China, individuals can elect to participate in our business as follows:
| ● |
“Brand Affiliate-Direct Consumers”—Individuals who purchase products directly from a Brand Affiliate at a price established by the Brand Affiliate.
|
| ● |
“Company-Direct Consumers”—Individuals who purchase products directly from the company. These consumers are typically referred by a Brand Affiliate and may purchase at retail price or at a discount.
These individuals do not have the right to build a Nu Skin business by reselling product or by recruiting others.
|
| ● |
“Basic Brand Affiliates”—Brand Affiliates who purchase products for personal or family use or for resale to other consumers. These individuals are not eligible to receive compensation on a multi-level basis unless they elect to qualify as a Sales Leader under our global sales compensation plan. We consider these individuals to be part of our consumer group, as we believe a significant majority of these Brand
Affiliates are purchasing products for personal use and not actively recruiting others.
|
| ● |
“Sales Leaders and Qualifiers”—Brand Affiliates who have qualified or are trying to qualify as a Sales Leader. These Brand Affiliates have elected to pursue the business opportunity as a Sales Leader and are
actively attracting consumers, recruiting Brand Affiliates and building a sales network under our global sales compensation plan and constitute our sales network.
|
To become a Brand Affiliate, an individual signs a Brand Affiliate agreement and receives a business portfolio, which is free in most markets. In some markets, we charge a small fee for the business
portfolio, which is limited to our costs. The business portfolio generally consists of documentation concerning the business, including copies of the sales compensation plan, Brand Affiliate policies and procedures, product catalog and other
documentation, but does not include products. There are no requirements to purchase products or other materials to become a Brand Affiliate, and no commissions are paid on any purchase of a business portfolio.
We offer a generous product return policy, which also includes returns of business support materials. In most markets, we offer a return policy that allows our Brand Affiliates to return
unopened and unused items for up to 30 days for a full refund, or 12 months subject to a 10% restocking fee. Brand Affiliates are not required to terminate their accounts to return product. Actual returns have historically been less than
5% of annual revenue. We believe our generous return policy minimizes the financial risks associated with being a Brand Affiliate.
In addition to our product return policy, we strive to be as customer protective as possible. We seek to ensure that those who use our products or participate in our business opportunity are treated fairly and are
not misled by inappropriate product or earnings claims.
There are two fundamental ways in which our Brand Affiliates can earn money:
| ● |
through retail markups on resales of products purchased from the company; and
|
| ● |
through sales compensation earned on the sale of products under our global sales compensation plan.
|
We believe that our global sales compensation plan is among the most generous in the direct selling industry and is one of our competitive advantages. Our Brand Affiliates can receive
sales compensation for product sales from the company to their own consumer groups. Likewise, our Sales Leaders can receive sales compensation under our global sales compensation plan for product sales from
the company to their own network of consumers as well as for product sales from the company to other Sales Leaders and their consumer groups. This type of sales compensation is often referred to as “multi-level” compensation. Our sales force is
not required to recruit or sponsor others, and we do not pay any sales compensation for recruiting or sponsoring. While all of our Brand Affiliates can sponsor others at any time, our Sales Leaders and those
in qualification to become Sales Leaders are those who generally are the most active in sponsoring others. Pursuant to our global sales compensation plan, we pay consolidated sales compensation in a Sales
Leader’s home market, in local currency, for product sales in the Sales Leader’s own consumer group and for product sales in the Sales Leader’s team of Sales Leaders across all geographic markets.
Mainland China Business Model
Because of restrictions on direct selling and multi-level commissions in Mainland China, we have implemented a business model for that market that is different from the business model we use in our
other markets. We have structured our business model in Mainland China based on several factors: the guidance we have received from government officials, our interpretation of applicable regulations, our understanding of the practices of other
international direct selling companies operating in Mainland China, and our understanding as to how regulators are interpreting and enforcing the regulations.
In Mainland China, we utilize sales employees to sell products through our retail stores, website and digital platforms; independent direct sellers, who can sell away from our stores where we have a
direct selling license and a service center and can also sell through our website and digital platforms; and independent marketers, who are licensed business owners authorized to sell our products at their own approved premises or through our
stores, website and digital platforms. We rely on our sales employees, independent direct sellers and independent marketers to attract new consumers, promote repeat purchases, and educate our sales force about our products, culture and policies
through training meetings.
Our sales employees, independent direct sellers and independent marketers in Mainland China do not participate in our global sales compensation plan but are instead compensated according to a separate
compensation model established for Mainland China, which is separate and different from our global compensation plan. Independent direct sellers and sales employees who have not achieved certain qualification requirements receive monthly bonuses
based on their monthly product sales. Sales employees who achieve qualification requirements and independent marketers earn (1) monthly bonuses based on their monthly product sales and other bonuses based on various performance metrics; and (2) a
salary (for sales employees, consisting of position pay and performance pay) or service fee (for independent marketers). The salary or service fee and position/title are reviewed and adjusted quarterly based on their performance relative to other
sales leaders, taking into account such factors as the sales productivity of the Sales Leader him/herself and of the sales force that such Sales Leader trains, collaborates with, supports and services. We utilize our global system to track and
assess the sales productivity of each Sales Leader him/herself and the sales force that such Sales Leader trains, collaborates with, supports and services in setting his/her salary or service fee and in connection with the evaluation of their
position/title. We generally compensate our Mainland China Sales Leaders at a level that is competitive with other direct selling companies in the market and comparable to the compensation of our Sales Leaders globally.
Operating in Mainland China entails certain risks and uncertainties to our business, as discussed further in Item 1. Business—“Regulation” and Item 1A. Risk Factors. We endeavor
to mitigate these risks and uncertainties through various measures, including by seeking to understand and obey laws and regulations, training our employees and sales force, engaging in dialogue with government officials to better understand their
goals and explain our plans, and cooperating in inquiries and other matters of interest to regulators. However, these efforts do not eliminate the significant risks associated with operating in Mainland China. Furthermore,
we believe the regulatory environment in Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms. We currently plan to implement certain changes to the structure of our sales
compensation in Mainland China due to the evolving commercial and regulatory environment. These changes could have a negative impact on our sales in that market.
Our global sales compensation plan and our Mainland China business model, including our related know-how, processes and systems, play a significant role in helping us to attract and incentivize our
sales force. We have strategically developed and refined our global sales compensation plan and our Mainland China business model to distinguish the business opportunity that we offer from those of other companies and to seek to provide us with a
competitive advantage.
Sales Incentives, Meetings, Recognition and Training
An important part of our distribution channel is motivating our Sales Leaders and recognizing their achievements. We hold regular meetings and events globally to recognize Sales Leaders who have
achieved various levels of success in our business. These meetings, which may be held either virtually or in-person, also allow the company and key Sales Leaders to provide training to other Sales Leaders. We utilize a variety of sales incentives
such as incentive trips to motivate Sales Leaders. In addition to rewarding performance, incentive trips provide Sales Leaders and the company opportunities to share best practices, set goals, generate alignment of Sales Leaders around key
initiatives, and provide a high level of motivation and team building.
Product Launch Process
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product
introduction or promotion. We refer to the entire process, beginning with the introductory offering through general availability of the product, as a product launch or our product launch process. The timing of the launch of a particular product
often varies from market to market depending on such factors as customer demand, product registration or other local legal requirements, and product availability in our supply chain.
Sales Leader previews and other product introductions and promotions sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the
quarter and can skew year-over-year and sequential comparisons. We believe our product launch process attracts new Customers, Paid Affiliates and Sales Leaders to our business, increases consumer trial and provides us with important marketing and
forecasting information about our products. Please refer to Item 1A. Risk Factors for more information on risks related to our product launch process.
We currently sell and distribute our Nu Skin business’s products in approximately 50 markets. We have divided our markets into seven segments: Mainland China; South Korea;
Southeast Asia/Pacific, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Australia, New Zealand and other markets; Americas, which includes Canada, Latin America and the United States; Japan; Hong Kong/Taiwan,
which also includes Macau; and Europe, Middle East and Africa (“EMEA”), which includes markets in Europe as well as Israel and South Africa. Our Rhyz strategic investment arm also includes two additional segments:
Manufacturing and Rhyz other. The following table sets forth the revenue for each of the segments and the Other category for the last three years.
|
Year Ended December 31,
|
||||||||||||||||||||||||
|
(U.S. dollars in millions)
|
2022
|
2021
|
2020
|
|||||||||||||||||||||
|
Nu Skin
|
||||||||||||||||||||||||
|
Americas
|
$
|
508.5
|
23
|
%
|
$
|
547.8
|
20
|
%
|
$
|
453.0
|
18
|
%
|
||||||||||||
|
Mainland China
|
360.4
|
16
|
568.8
|
21
|
625.5
|
24
|
||||||||||||||||||
|
Southeast Asia/Pacific
|
344.4
|
16
|
336.7
|
13
|
361.6
|
14
|
||||||||||||||||||
|
South Korea
|
268.7
|
12
|
354.3
|
13
|
326.5
|
13
|
||||||||||||||||||
|
Japan
|
224.9
|
10
|
266.2
|
10
|
273.7
|
10
|
||||||||||||||||||
|
EMEA
|
204.3
|
9
|
283.2
|
11
|
230.2
|
9
|
||||||||||||||||||
|
Hong Kong/Taiwan
|
157.2
|
7
|
162.6
|
6
|
161.1
|
6
|
||||||||||||||||||
|
Other
|
4.0
|
—
|
3.5
|
—
|
1.0
|
—
|
||||||||||||||||||
|
Total Nu Skin
|
2,072.4
|
93
|
2,523.1
|
94
|
2,432.6
|
94
|
||||||||||||||||||
|
Manufacturing
|
149.5
|
7
|
172.1
|
6
|
149.3
|
6
|
||||||||||||||||||
|
Rhyz other
|
3.8
|
—
|
0.5
|
—
|
—
|
—
|
||||||||||||||||||
|
Total Rhyz Investments
|
153.3
|
7
|
172.6
|
6
|
149.3
|
6
|
||||||||||||||||||
|
Total
|
$
|
2,225.7
|
100
|
%
|
$
|
2,695.7
|
100
|
%
|
$
|
2,581.9
|
100
|
%
|
||||||||||||
Additional comparative revenue and related financial information is presented in Note 15 to the consolidated financial statements contained in this report.
Our business is subject to various laws and regulations globally, particularly with respect to our direct selling business models and our product categories. In addition, as a United States entity
operating through subsidiaries in foreign jurisdictions, we are subject to foreign exchange control, transfer pricing and customs laws that regulate the flow of funds between us and our subsidiaries and for product purchases, management services
and contractual obligations, such as the payment of sales commissions. As is the case with most companies in our industry, we receive inquiries from time to time from government regulatory authorities regarding the nature of our business and other
issues, such as compliance with local direct selling, transfer pricing, customs, taxation, foreign exchange control, securities and other laws.
Direct Selling Regulations
Direct selling is regulated by various national, state and local government agencies in the United States and foreign markets. These laws and regulations are generally intended to
prevent fraudulent or deceptive schemes, including “pyramid” schemes, which compensate participants primarily for recruiting additional participants without significant emphasis on product sales to
consumers. The laws and regulations in our current markets generally:
| ● |
impose requirements related to order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers;
|
| ● |
require us, or our sales force, to register with government agencies;
|
| ● |
impose limits on the amount of sales compensation we can pay;
|
| ● |
impose reporting requirements; and
|
| ● |
require that our sales force is compensated for sales of products and not for recruiting others.
|
The laws and regulations governing direct selling may be modified or reinterpreted from time to time, which may cause us to modify our sales compensation and business models. In almost all of our markets, regulations are subject to discretionary interpretation by regulators and judicial authorities. There is often ambiguity and uncertainty with respect to the state of direct selling and
anti-pyramiding laws and regulations. In the United States, for example, federal law provides law enforcement agencies, such as the Federal Trade Commission (“FTC”), broad latitude in policing unfair or deceptive trade practices, but does not
provide a bright-line test for identifying a pyramid scheme. A number of states have passed legislation that more clearly distinguishes between illegal pyramid schemes and legitimate multi-level marketing business models. Recent settlements between
the FTC and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims, problematic compensation structures and the importance of focusing on consumers. In addition, during 2021 the FTC
announced that it is initiating a review of its Business Opportunity Rule, which imposes certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in
November 2022. Currently, multi-level marketing companies are exempted from this rule. If this exemption is eliminated or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force
and our revenue. Also during 2021, the FTC sent a notice to more than 1,100 companies, including us and two of our subsidiaries (Pharmanex, LLC and Big Planet, Inc.), that outlined several practices that the FTC determined to be unfair or deceptive
in prior administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected
to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so. The penalties could be up to $46,517 per violation, and there is some ambiguity in how a
“violation” would be defined for these purposes. In addition, during 2022, the FTC issued an Advanced Notice of Proposed Rulemaking (“ANPR”) indicating that it is considering proposing a rule regarding earnings claims. The ANPR also suggested,
among other things, that the FTC might not consider a disclaimer (such as “results not typical”) to be sufficient to correct a misleading impression from an atypical earnings claim. For more information about these matters, other regulatory
actions, and their potential impact on our business, see Item 1A. Risk Factors—“Challenges to the form of our network marketing system or to our business practices could harm our business” and “Laws and
regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business.”
The regulatory environment in Mainland China is particularly complex and continues to evolve. Mainland China’s direct selling and anti-pyramiding regulations contain various
restrictions, including a prohibition on the payment of multi-level compensation. The regulations are subject to discretionary interpretation by state, provincial and local regulators as well as local customs and practices. Regulators continue to
act cautiously as they monitor the development of direct selling in Mainland China. To expand our direct selling model into additional provinces in Mainland China, we currently must obtain a series of approvals from the local Department of
Commerce in such provinces, the Shanghai Municipal Commission of Commerce (our supervisory authority), as well as the Ministry of Commerce, PRC (“MOFCOM”), which is the national governmental authority overseeing direct selling. In the course of
obtaining these approvals, the respective authorities under MOFCOM must also consult and seek opinions on our business operations from the Ministry of Public Security and the Administration for Market Regulation at both provincial and state
levels. Government authorities have not been issuing new licenses for direct selling since the beginning of the 100-day action in early 2019.
Our operations in Mainland China are subject to significant government and media scrutiny and investigations. At times, investigations and other regulatory actions have limited our ability to conduct business in
Mainland China. For example, the government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, following negative media coverage about the healthcare-related product claims made
by another direct selling company in Mainland China. During this time, we have been receiving and addressing an increased number of government reviews, inspections, and inquiries and consumer complaints in Mainland China; our ability to hold
certain business meetings has been limited; and negative media coverage has spread to include additional companies, including ours. Another example occurred in 2014. In response to media and government scrutiny of our Mainland China business in
2014, we voluntarily took a number of actions in Mainland China, including temporarily suspending our business meetings, temporarily suspending acceptance of applications for any new sales representatives, and extending our product refund and
return policies. These voluntary measures and the adverse publicity had a significant negative impact on our business. We face a risk that future investigations and other regulatory actions may result in fines, revocation of licenses or other
significant sanctions.
Several markets, including Mainland China, South Korea, Indonesia and Vietnam, impose limits on the amount of sales compensation we can pay to our sales force. For example, under regulations in Mainland China, direct
selling companies may pay independent direct sellers in Mainland China up to a maximum 30% of the revenue they generate through their own sales of products to consumers. Additionally, in South Korea, local regulations limit sales compensation to
35% of the total price of goods or services supplied in South Korea. We have implemented various measures to comply with these limits.
In some markets, regulations applicable to the activities of our Sales Leaders may affect our business because we are, or regulators may assert that we are, responsible for our Sales Leaders’ conduct. In these
markets, regulators may request or require that we take steps to ensure that our Sales Leaders comply with local regulations. For example, in Japan, we have taken steps to comply with strict requirements regarding how Brand Affiliates approach
prospective customers. From time to time, we receive information from consumer centers in certain prefectures about the number of general inquiries and complaints about us and our Brand Affiliates, and we also sometimes receive warnings to reduce
such complaints. Based on this information, we continually evaluate and enhance our Brand Affiliate compliance, education and training efforts in Japan.
Our sales force is required to comply with work authorization and other local legal requirements prior to working in a market. Some markets, including Mainland China and Vietnam, also prohibit or restrict
participation of overseas personnel or foreigners in direct selling activities. We have implemented policies that are designed to comply with these regulations and inform our sales force regarding the types of activities that are not permitted.
However, we cannot assure that actions of our sales force will not violate local laws or regulations or our policies.
Please refer to Item 1A. Risk Factors for more information on regulatory and other risks associated with our business.
Product Regulations
Our beauty and wellness products and related promotional and marketing activities are subject to extensive government regulation by numerous federal, state and local government agencies and
authorities, including the United States Food and Drug Administration (the “FDA”), the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the Department of Agriculture, United States and State Attorneys General and other
state regulatory agencies in the United States, as well as the State Administration for Market Regulation in Mainland China, the Food and Drug Administration in Taiwan, the Ministry of Food and Drug Safety in South Korea, the Ministry of Health,
Labour and Welfare in Japan and similar government agencies in all other markets in which we operate. In the United States, the FDA, in particular, regulates the formulation, manufacture and labeling of over-the-counter (“OTC”) drugs, cosmetics,
dietary supplements, foods and medical devices such as those that we distribute.
Regulation of Beauty Products in the United States. Our beauty products are subject to various laws and regulations that regulate cosmetic
and personal care products and set forth regulations that, among other things, determine whether a product can be marketed as a “cosmetic” or requires further approval as an OTC drug. In the United States, the regulation of cosmetic content and
labeling is under the primary jurisdiction of the FDA. Cosmetics are not subject to pre-market approval by the FDA, but their ingredients and their label and labeling content are regulated by the FDA, and those who sell cosmetics have the burden to
ensure that they are safe for use as directed and not adulterated or misbranded. The labeling of cosmetic products is subject to the requirements of the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Fair Packaging and Labeling Act and other
FDA regulations.
The FDCA defines cosmetics by their intended use, as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body . . . for cleansing,
beautifying, promoting attractiveness, or altering the appearance . . . .” Among the products included in this definition are skin moisturizers, perfumes, lipsticks, fingernail polishes, eye and facial makeup preparations, shampoos, permanent
waves, hair colors, toothpastes and deodorants, as well as material intended for use as a component of a cosmetic product. A product may be considered a drug if it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of
disease, or is intended to affect the structure or any function of the body (“structure/function claims”). A product’s intended use can be inferred from marketing or product claims, and regulators may consider the marketing claims of our sales
force. Structure/function claims are generally prohibited for cosmetic products as are disease prevention and treatment claims. The FDA prohibits certain ingredients from being included in cosmetic products. It is possible that cosmetic product
ingredients now commonly in use that are the product of certain scientific advancements or production processes may be restricted or prohibited in the future as more is learned about such ingredients.
In recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims
regarding gene activity, cellular rejuvenation, and rebuilding collagen. Cosmetic companies confront difficulty in determining whether a claim would be considered by the FDA to be an improper structure/function claim. Given this difficulty, and our
research and product development focus on the sources of aging and the influence of certain ingredients on gene expression, there is a risk that we could receive a warning letter, be required to modify our product claims, or take other actions to
satisfy the FDA if the FDA determines any of our marketing materials contain improper structure/function claims for our cosmetic products. In addition, plaintiffs’ lawyers have filed class action lawsuits against some of our competitors after our
competitors received these FDA warning letters. There can be no assurance that we will not be subject to government actions or lawsuits, which could harm our business.
Certain products, such as sunscreens and acne treatments, are classified as over-the-counter (“OTC”) drugs (and cosmetics, depending on claims) and have specific ingredient, labeling and manufacturing
requirements. OTC drug products may be marketed if they conform to the requirements of an FDA-established OTC drug monograph that is applicable to that drug. Drug products not conforming to monograph requirements require an approved New Drug
Application (“NDA”) before marketing may begin. Under these provisions, if the agency were to find that a product or ingredient of one of our OTC drug products is not generally recognized as safe and effective or is not included in a final
monograph that is applicable to one of our OTC drug products, we may be required to reformulate or cease marketing that product until it is the subject of an approved NDA or until the time, if ever, that the monograph is amended to include such
product. The labeling of these products is subject to the requirements of the FDCA and the Fair Packaging and Labeling Act and other FDA regulations.
Regulation of Beauty Products in Other Markets. The other markets in which we operate have similar regulations. In Mainland China, beauty
products, other than devices, are placed into one of two categories, “special-purpose cosmetics” and “general cosmetics.” Products in both categories require adequate substantiation of efficacy, which must be made available to authorities prior to
marketing a product and which can be reviewed and enforced upon at any time thereafter. The product registration process for some categories of beauty products in Mainland China takes from three to six months to complete under the latest
regulations governing cosmetics. Certain cosmetics are categorized as “special cosmetics” and carry a more unpredictable process and timing frequently in excess of two years. In Japan, the Ministry of Health, Labour and Welfare regulates the sale
and distribution of cosmetics and requires us to have an import business license and to register each beauty product imported into Japan. In Taiwan, all “medicated” cosmetic products require registration. In South Korea, all “functional” cosmetics
are required to either undergo examination by or be reported to the Ministry of Food and Drug Safety. The sale of cosmetic products is regulated in the European Union (the “EU”) under the EU Cosmetics Directive, which requires a uniform application
for foreign companies making beauty product sales. Similar regulations in any of our markets may limit our ability to import products or utilize key ingredients or technologies globally and may delay product launches while the registration and
approval process is pending. Changing regulations may require us to stop selling, discontinue, or reformulate and re-register products in order to sell those products.
Regulation of Wellness Products in the United States. Our wellness products are also subject to applicable regulations of government
agencies in the markets in which we operate. In the United States, we generally market our wellness products as conventional foods or dietary supplements. The FDA has jurisdiction over this regulatory area. The FDA imposes specific requirements for
the labels and labeling of food and dietary supplements, including the requirements of the Food Allergen Labeling and Consumer Protection Act of 2004, which mandates declaration of the presence of major food allergens. In addition, the Public
Health Security and Bioterrorism Preparedness and Response Act of 2002 contains requirements with regard to the sale and importation of food products in the United States.
The FDA Food Safety Modernization Act (“FSMA”), which was signed into law in 2011, also increased the FDA’s authority with respect to food safety and made significant changes to the FDCA
with respect to strengthening the U.S. food safety system. It enables the FDA to focus more on preventing food safety problems rather than primarily reacting to problems after they occur. The law also provides the FDA with enforcement authorities
designed to achieve higher rates of compliance with prevention- and risk-based food safety standards and to better respond to and contain problems when they do occur. The law also gives the FDA important tools to hold imported foods to the same
standards as domestic foods and directs the FDA to build an integrated national food safety system in partnership with state and local authorities. The FDA is actively enforcing FSMA requirements, subjecting
food and nutritional supplements to increased regulatory scrutiny. Pursuant to FSMA, the FDA is authorized, among other things, to order mandatory recalls, issue “administrative detention” orders, and revoke manufacturing facility registrations
(effectively preventing the operation of a food or dietary supplement manufacturing facility), and importers of foods and nutritional supplements are subject to Foreign Supplier Verification Program requirements.
The FDA regulates dietary supplements principally under the Dietary Supplement Health and Education Act of 1994 (“DSHEA”). DSHEA formally defines what may be sold as a dietary supplement, defines
statements of nutritional support and the conditions under which they may lawfully be used, and includes provisions that permit the FDA to regulate manufacturing practices and labeling claims applicable to dietary supplements. Because the majority
of our wellness products are regulated under DSHEA, we are generally not required to obtain regulatory approval prior to introducing a dietary supplement into the United States market. Prior to marketing a product, we are obligated to notify the
FDA of any structure/function claims that we intend to make about the product in any product-related materials.
Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a “new” dietary ingredient (i.e., a
dietary ingredient that was not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used
for food” without having been “chemically altered.” The enforcement of the term “chemically altered” has and continues to evolve within the FDA. As such, an ingredient that is deemed today not to be “chemically altered” may be viewed otherwise in
the future, which could lead to our being required to reformulate or cease marketing the product until such time that we can find a suitable replacement. A new dietary ingredient notification must provide the FDA with evidence of a “history of use
or other evidence of safety” which establishes that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to the FDA at least 75 days before the new dietary ingredient can be
marketed. Under DSHEA, the FDA may seek to remove from the market any new dietary ingredient that the FDA determines to be unsafe. In addition, the FDA may also deem a dietary supplement an unapproved drug where the marketing claims made in
connection with the sale or promotion of the product effectively place it in the drug category.
From time to time, efforts are made by some individuals or groups to repeal DSHEA. If this were to happen, significant burdens would be imposed on our product development, and the costs of running our
business would increase significantly.
Regulation of Wellness Products Globally. In our foreign markets, nutritional supplements are generally regulated by similar government
agencies, such as the Mainland China State Administration for Market Regulation, the South Korea Ministry of Food and Drug Safety; the Japan Ministry of Health, Labour and Welfare and the Taiwan Department of Health. We typically market our
wellness products in international markets as foods, health foods, dietary supplements, food supplements or other similar categorizations under applicable regulatory regimes. With few exceptions, in the event a product or ingredient is classified
as a drug or pharmaceutical product in any market, we will generally not be able to distribute that product in that market through our distribution channel because of pre-market approvals and strict regulations applicable to drug and pharmaceutical
products. Mainland China also has highly restrictive nutritional supplement product regulations. A vast majority of products marketed as “health foods” are subject to extensive laboratory and clinical analysis by government authorities, and the
product registration process in Mainland China takes a minimum of two years and may be substantially longer. In some cases it has taken us four years or longer to obtain product registrations. A pre-market process has been established for a
minority of “health foods,” which allows products with only basic nutritional ingredients (some vitamins and minerals) to be notified rather than registered. We market both “health foods” and “general foods” in Mainland China. There is some risk
associated with the common practice in Mainland China of marketing a product as a “general food” while seeking “health food” classification. If government officials feel the categorization of our products is inconsistent with product claims, form
of delivery, ingredients or function, this could end or limit our ability to market such products in Mainland China in their current form. In addition, we are not permitted to market or sell “general foods” through our direct sales channel in
Mainland China and any efforts by our independent direct sellers to do so could result in negative publicity, fines and other government sanctions being imposed against us.
The markets in which we operate all have varied regulations that distinguish foods and nutritional supplements from “pharmaceutical products.” Because of the varied regulations, some products or
ingredients that are recognized as a “food” in certain markets may be treated as a “pharmaceutical” in other markets. In Japan, for example, if a specified ingredient is not listed as a “food” by the Ministry of Health and Welfare, we must either
modify the product to eliminate or substitute that ingredient, or petition the government to treat such ingredient as a food. We experience similar issues in our other markets. This is particularly a challenge in Europe, where regulations often
still differ from member state to member state, despite EU regulations designed to harmonize the laws of EU member states. With markets in the Association of Southeast Asian Nations (“ASEAN”), certain member states have amended some of their
requirements in anticipation of the harmonization of ASEAN supplement regulations, even though these changes may not be identical to the eventual ASEAN requirements nor consistent with other member states. As a result, we often must modify the
ingredients and/or the levels of ingredients in our products for certain markets or create unique formulations for multiple markets. In some circumstances, the regulations in foreign markets may require us to obtain regulatory approval prior to
introduction of a new product or limit our use of certain ingredients altogether.
Because of negative publicity associated with some adulterated or misbranded supplements, including pharmaceutical drugs marketed as dietary supplements, there has been an increased movement in the
United States and other markets to expand the regulation of dietary supplements, which could lead to additional restrictions or requirements in the future. In general, the regulatory environment is becoming more complex with increasingly stricter
regulations each year.
Manufacturing Process. In 2008, and as subsequently updated under the regulations implementing the FSMA, the FDA established regulations
to require current “good manufacturing practices” for dietary supplements and food products in the United States. The regulations ensure that dietary supplements and food products are produced in a quality manner, do not contain contaminants or
impurities above pre-established levels, and are accurately labeled. The regulations include requirements for establishing quality control procedures for us and our vendors and suppliers, designing and constructing manufacturing plants, and
testing ingredients and finished products throughout our supply chain. The regulations also include requirements for record keeping and handling consumer product complaints. If dietary supplements or food products contain contaminants or
allergens or do not contain the type or quantity of dietary ingredient they are represented to contain, the FDA would consider those products to be adulterated or misbranded. Our business is subject to additional FDA regulations, such as new
dietary ingredient regulations and adverse event reporting regulations that require us to document and track adverse events and report serious adverse events that involve hospitalization, permanent impairment or death associated with consumers’
use of certain of our products. Compliance with these regulations has increased, and may further increase, the cost of manufacturing and selling certain of our products as we incur internal costs, oversee and inspect more aspects of third-party
manufacturing and work with our vendors to assure they are in compliance and maintain accurate recordkeeping to establish controls. Failure to comply with good manufacturing practices could also result in product recalls.
Advertising and Product Claims. Most of our major markets also regulate advertising and product claims regarding the efficacy and quality of
products and require adequate and reliable scientific substantiation of all claims. In most of our foreign markets, we are typically not able to make any “medicinal” claims with respect to our wellness products. In some cases, such regulations may
limit our ability to inform consumers of some of the benefits our products offer.
In the United States, the FDA generally prohibits disease diagnosis, prevention and treatment claims when made for a dietary supplement. DSHEA, however, permits substantiated, truthful
and non-misleading “statements of nutritional support” to be included in labeling for dietary supplements without FDA pre-approval. Such statements may describe how a particular dietary ingredient affects the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient may affect the structure, function or well-being of the body, but such statements may not state that a dietary supplement will reduce the risk or incidence of a
disease unless such claim has been reviewed and approved by the FDA. In addition, the FDA permits companies to use FDA-approved full and qualified health claims for products containing specific ingredients that meet stated requirements.
A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. The FDA has issued guidance defining a manufacturer’s
obligations to substantiate structure/function claims. Such statements, when used in labeling, must also be submitted to the FDA no later than 30 days after first marketing the product with the statement that they possess the necessary evidence and
must be accompanied by an FDA mandated label disclaimer that “This statement has not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease.” There can be no assurance, however, that the FDA or FTC
will not determine that a particular statement of nutritional support that we want to use is an unacceptable disease claim or an unauthorized nutrient-disease relationship claim otherwise permitted with FDA approval as a “health claim” or that such
claims have competent and reliable scientific evidence. Such a determination might prevent the use of such a claim or result in additional FDA enforcement.
We are aware of media reports regarding dietary supplements, which call for the repeal or amendment of DSHEA. Individuals or groups that are opposed to supplements or question their safety or efficacy attempt, from
time to time, to use these media reports to propose legislation intended to amend or repeal DSHEA. Some of the legislative proposals may include variations on premarket approval, enhanced premarket safety or substantiation required and changing the
definition of a “dietary ingredient” to remove either botanicals or selected classes of ingredients now treated as dietary ingredients.
Most of the other markets in which we operate have not adopted legislation like DSHEA, and we may be subject to more restrictive limitations on the claims we can make about our products in these
markets. For example, in Japan, our nutritional supplements are marketed as food products, which significantly limits our ability to make claims regarding these products. If marketing materials produced or used by us or our sales force globally
make claims that exceed the scope of allowed claims for nutritional supplements, the FDA or other regulatory authorities could deem our products to be unapproved drugs. In Mainland China, we also face significant restrictions on our ability to make
product claims regarding the efficacy of our products. Violations, alleged violations, or negative media attention related to our compliance with these restrictions could harm consumers’ perception of our business and products and could negatively
impact the registration, licensing status and sales of our products.
The FTC, which exercises primary jurisdiction over the advertising of all of our products in the United States, has instituted enforcement actions against dietary supplement, food, and cosmetic
companies for, among other things, deceptive advertising and lack of adequate scientific substantiation for claims. We also face limitations on our use of the scientific experts who have helped us develop and test some of our products. In the
United States, for example, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising may restrict marketing to those results obtained by a “typical” consumer and require disclosure of any material connections between an
endorser and the company or products they are endorsing. In Mainland China, some media outlets have questioned the nature and extent of our connections with our Scientific Advisory Board and others who have helped in developing our scientific
approach or testing our products. This negative publicity could harm consumers’ perception of our business and our products, which could negatively impact our revenue. We cannot be sure that the FTC, or comparable foreign agencies, will not
question our advertising or other operations in the future.
In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplements and cosmetic products. The FTC may enforce compliance with
the law in a variety of ways, both administratively and judicially, using compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in consent decrees or orders requiring, among other things, injunctive provisions,
corrective advertising, consumer redress, and such other relief as the agency deems necessary to protect the public. Violation of these consent decrees or orders could result in substantial financial or other penalties. The FTC also sends warning
letters as it monitors companies’ activities. For example, during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about
their products’ ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make. No assurance can be given that the FTC will not question our advertising or other
operations in the United States in the future. Any action in the future by the FTC could materially and adversely affect our ability to successfully market our products in the United States.
In connection with investigations that occurred in the 1990s of certain alleged unsubstantiated product and earnings claims made by our Brand Affiliates, we entered into two consent
decrees with the FTC and various agreements with state regulatory agencies. The consent decrees require us to, among other things, supplement our procedures to enforce our policies, not allow our Brand Affiliates to make earnings representations
without making certain average earnings disclosures and not allow our Brand Affiliates to make unsubstantiated product claims. The FTC could initiate an enforcement action to the extent the FTC determines that
our advertising or promotional practices are deceptive or contrary to the requirements of the consent decrees.
Regulation of Medical Devices. In 2014, our Nu Skin Facial Spa was cleared for marketing through the 510(k) process with the FDA as a
medical device with cosmetic benefit. Medical devices are highly regulated by the FDA. Manufacturers of medical devices must register and list their products with the FDA annually, whether they are located domestically or overseas. Foreign
jurisdictions may take note of the fact that we have registered a medical device in the United States and require us to register in their market as well. The FDA has broad regulatory powers in the areas of clinical testing, manufacturing and
labeling of medical devices. Medical devices must be labeled in accordance with the FDA’s general device labeling requirements and whatever particular label requirements the FDA may designate for that type of device.
In addition, medical device manufacturers must adhere to certain “good manufacturing practices” in accordance with the FDA’s Quality System Regulation, which regulates the manufacture of medical
devices, prescribes record-keeping procedures and provides for the routine inspection of facilities for compliance with such regulations. If in connection with these inspections, the FDA believes the manufacturer has failed to comply with
applicable regulations and/or procedures, it may issue observations that would necessitate prompt corrective action. If the FDA inspection observations are not addressed and/or corrective action taken in a timely manner and to the FDA’s
satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action. Failure to respond timely to FDA inspection observations, a warning letter
or other notice of noncompliance and to promptly come into compliance could result in the FDA bringing enforcement action against us, which could include the shutdown of our production facilities, denial of importation rights to the United States
for products manufactured in overseas locations and criminal and civil fines.
Our Pharmanex BioPhotonic Scanner and our current and future device products may be subject to the regulations of
various health, consumer-protection and other government authorities around the world. These regulations vary from market to market and affect whether our products are required to be registered as medical devices, the claims that can be made with
respect to these products, who can use them, and where they can be used. Our connected devices are subject to specific testing, certification, and/or registration governing the connectivity to mobile devices. We have been required to register our ageLOC Galvanic Facial Spa and ageLOC Body Spa systems as medical devices in a few markets, and we also have received clearance
from the FDA to market our Nu Skin Facial Spa for over-the-counter use. We have registered ageLOC Boost as a medical device in Thailand, and we are seeking medical device registration in the United States
and Thailand for the new connected body device that we plan to begin launching during 2023. We have been subject to regulatory inquiries in the United States, Japan and other markets with respect to the status of the Pharmanex BioPhotonic Scanner as a non-medical device. Any determination that medical device clearance is required for one of our products, in a market where we currently market and sell such product as a cosmetic or non-medical
device, could require us to expend significant time and resources in order to meet the additional stringent standards imposed on medical device companies or prevent us from marketing the product.
Under applicable direct selling regulations in Mainland China, our Pharmanex BioPhotonic Scanner, ageLOC LumiSpa, ageLOC Galvanic Facial Spa
and ageLOC Body Spa systems are registered as “health care equipment” or “household appliances,” which enables us to market and sell them through our
direct sales channel in that market. The process for registering products for the direct sales channel in Mainland China is subject to delays. However, this process and registration requirement do not apply to all of our sales channels in
Mainland China; although our independent direct sellers are prohibited from earning commissions by selling products that are not so registered, sales by our sales employees or independent marketers are not subject to this requirement. Please
refer to Item 1A. Risk Factors for more information on the regulatory risks associated with our device products.
The markets for our products are highly competitive. Our competitors include a broad array of marketers of beauty and wellness products and pharmaceutical companies, such as L’Oréal, Clinique, Estée
Lauder, Nature’s Way, Avon Products and Mary Kay, many of which have longer operating histories and greater name recognition and financial resources than we do. We compete in these markets by emphasizing the innovation, value and premium quality of
our products and the reach, convenience and customer servicing of our distribution system.
Direct Selling
We compete with other direct selling companies, some of which have a longer operating history, and greater visibility, name recognition and financial resources than we do. Leading global direct
selling companies include Amway, Natura Cosmeticos and Herbalife. We also compete with local direct selling companies in the markets in which we operate. We compete with these companies to attract and retain our sales force and consumers based on
the strength of our product offerings, sales compensation, multiple business opportunities, management and international operations.
As of December 31, 2022, we had approximately 3,800 full- and part-time employees worldwide. This does not include approximately 9,600 sales employees in our Mainland China operations. Although we
have statutory employee representation obligations in certain markets, our employees are generally not represented by labor unions except where expressly required by law. We believe that our relationship with our employees is good, and we do not
foresee a shortage in qualified personnel necessary to operate our business.
Our human capital objectives include the following:
Culture. All of our full- and part-time employees are responsible for upholding the Nu Skin Code of Conduct and for striving to perpetuate
the Nu Skin Way, our global culture aspiration, which includes the following principles:
|
●
|
A force for good |
●
|
Direct and decisive | |
|
●
|
Accountable and empowered |
●
|
Exceptional | |
|
●
|
Bold innovators |
●
|
Fast speed | |
|
●
|
Customer obsessed |
●
|
One global team |
Hiring, Engagement, Development and Retention. We seek to hire and retain employees with the talents and capabilities to succeed at our
company. The level of competition for qualified employees is high, owing to employment market trends both internationally and in Utah, where our corporate headquarters are located and which has one of the lowest unemployment rates in the United
States. These conditions have made it more difficult for us to fill some job positions and retain employees. We address this issue by building a strong employer brand, allowing remote work options to reach potential employees in other locations,
and providing competitive compensation and benefits.
Developing our employees and keeping them engaged is crucial. We pursue these objectives by providing leadership training, encouraging managers to conduct one-on-one meetings with employees, holding
town hall meetings to promote dialogue between management and employees, and reinforcing the Nu Skin Way to maintain an invigorating and attractive culture. We conduct a global employee experience survey every six months to obtain our employees’
feedback, which helps to guide our human capital initiatives and to maintain robust employee engagement.
Diversity, Equity and Inclusion. We believe a diverse, equitable and inclusive work environment allows us to benefit from unique
perspectives and provides vitality, creativity, new ideas and growth. We are committed to our Diversity, Equity and Inclusion vision statement: “We believe we are a force for good as we seek, develop and empower diverse individuals and
perspectives. We aspire to be a global community where every employee, entrepreneur and consumer knows and feels they belong.”
We have established employee resource groups to help ensure that under-represented populations feel welcome at Nu Skin, including people of color, LGBTQIA+ individuals and women. Our Healthy Workplace
Policy also aims to cultivate a culture of mutual respect and to provide all employees a work environment free from harassment, discrimination and unprofessional behavior. Our employees receive training on their responsibility in this important
area, and we make a Healthy Workplace Hotline available for employees to report concerns anonymously.
We also incorporate DEI practices into our hiring process. We conduct training to create awareness of unintentional biases that may be present in the hiring process. We have partnered with
universities and other institutions of higher learning to expand our talent pool, all while being cognizant of the wording of our job postings to be inclusive and utilizing multiple broad-based candidate search engines to increase our access to
diverse candidates.
Employee Health and Well-Being. Our employees’ health and well-being is an essential component of our human capital management strategy. We
established “The Best You” wellness program in the United States to improve the quality of each employee’s physical, emotional, intellectual and financial wellness by encouraging and incentivizing healthy lifestyle practices through health
screenings, prevention programs and education. Our employees also receive free product benefits, including our wellness products. Employees at our corporate headquarters also have access to an on-site gym, as well as our employee assistance
program, which includes free counseling services.
Our Board’s committees engage with our senior management and head of Human Resources regarding human capital management on a regular basis. Working with management, our Board’s committees oversee and
receive reports on matters including culture, compensation, benefits, key talent succession planning, employee engagement, and DEI. In addition, each year, our management reports to the Compensation and Human Capital Committee on management’s
annual assessment of risks related to our compensation policies and practices.
Evidencing the success of our human capital management initiatives, Nu Skin was certified in 2022 as a Most Loved Workplace®, based on research from the Best Practice Institute on
companies where employees are the happiest and most satisfied. Nu Skin also made the Forbes magazine list of America’s Best Employers for 2022.
In addition to our employees, our human capital resources also include our sales force. For information about our sales force, see Item 1. Business—“Distribution Channel.”
Our website address is www.nuskin.com. We make available, free of charge on our Investor Relations website, ir.nuskin.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and
Exchange Commission.
We also use our Investor Relations website, ir.nuskin.com, as a channel of distribution of additional Company information that may be deemed material. Accordingly, investors should monitor this channel, in addition
to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts. The contents of our website shall not be deemed to be incorporated herein by reference.
We have adopted a Code of Conduct that applies to all of our employees, officers and directors, including those of our subsidiaries. Our Code of Conduct is available in the “Corporate Governance” section of our
Investor Relations website at ir.nuskin.com. In addition, stockholders may obtain a copy, free of charge, by making a written request to Investor Relations, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, Utah 84601. Any amendments or
waivers (including implicit waivers) regarding the Code of Conduct requiring disclosure under applicable SEC rules or NYSE listing standards will be disclosed in the same section of our website.
Our executive officers as of February 14, 2023 are as follows:
|
Name
|
Age
|
Position
|
||
|
Steven J. Lund
|
69
|
Executive Chairman of the Board
|
||
|
Ryan S. Napierski
|
49
|
President and Chief Executive Officer
|
||
|
Connie Tang
|
52
|
Executive Vice President, Chief Global Growth and Customer Experience Officer
|
||
|
Mark H. Lawrence
|
53
|
Executive Vice President and Chief Financial Officer
|
||
|
Joseph Y. Chang
|
70
|
Executive Vice President and Chief Scientific Officer
|
||
|
Chayce D. Clark
|
40
|
Executive Vice President and General Counsel
|
||
|
Steven K. Hatchett
|
51
|
Executive Vice President and Chief Product Officer
|
Steven J. Lund has served as Executive Chairman of our board of directors since 2012. Mr. Lund previously served as Vice Chairman of our board of directors from 2006 to 2012
and as President, Chief Executive Officer and a member of our board of directors from 1996, when we went public, until 2003. Mr. Lund is a trustee of the Nu Skin Force for Good Foundation, a charitable organization established in 1996 by our
company to help encourage and drive the philanthropic efforts of our company and its sales force and employees to enrich the lives of others. Mr. Lund worked as an attorney in private practice prior to joining our company as Vice President and
General Counsel. He received a B.A. degree from Brigham Young University and a J.D. degree from Brigham Young University’s J. Reuben Clark Law School.
Ryan S. Napierski has served as our Company’s President since 2017 and as our CEO since September 2021. Previously, he served as President of Global Sales and Operations from
2015 to 2017. Prior to serving in that position, he served as both President of our North Asia region since 2014 and President of Nu Skin Japan since 2010. Mr. Napierski has fulfilled multiple leadership positions for Nu Skin since joining our
company in 1995, including Vice President of Business Development for Nu Skin EMEA and General Manager of the United Kingdom. Mr. Napierski has a Bachelor’s degree in business, a Master of Business Administration degree from Duke University and a
Master’s degree in international business from Goethe Universitat in Germany.
Connie Tang has served as our Executive Vice President, Chief Global Growth and Customer Experience Officer since April 2021. From 2012 to 2019, she served as president and
CEO of Princess House, a kitchen products company that markets and sells its products through the direct selling channel, and she founded Gritty Executive Consulting, LLC in 2020. Previously, she served as president of the U.S. division of JAFRA
Cosmetics and in management roles at BeautiControl. Ms. Tang received a B.A. degree from City University of New York – Brooklyn College.
Mark H. Lawrence has served as our Chief Financial Officer since 2017. From 2016 to 2017, Mr. Lawrence served as vice president of finance for the Innovation Center at Vivint
Smart Home, a home automation company. From 2013 to 2016, Mr. Lawrence was head of finance at Amazon Lab126, a consumer electronics research and development company that is a subsidiary of Amazon.com. During 2013, he served as senior vice president
of worldwide finance at Polycom, a voice and video communications company, and from 2002 to 2013 he served in various financial positions at Brocade Communications Systems, a networking hardware, software and services company. Mr. Lawrence holds a
Bachelor’s degree from Brigham Young University and a Master of Business Administration degree from the University of California, Davis.
Joseph Y. Chang has served as our Executive Vice President and Chief Scientific Officer since 2006. Dr. Chang served as President of our Pharmanex division from 2000 to 2006.
From 1997 to 2000, he served as Vice President of Clinical Studies and Pharmacology of Pharmanex. Dr. Chang has approximately 40 years of experience in the pharmaceutical and/or dietary supplement industries. He received a B.S. degree from
Portsmouth University and a Ph.D. degree from the University of London.
Chayce D. Clark has served as our Executive Vice President and General Counsel since August 2021. Mr. Clark joined our company in 2015 as Assistant General Counsel and later
served as Vice President and Deputy General Counsel before beginning his current role. Prior to joining our company, he was a litigation attorney in private practice in Salt Lake City, Utah. He received a B.S. degree from Southern Utah University
and a J.D. degree from the University of Utah.
Steven K. Hatchett joined our company in 2018 and served as Senior Vice President of Global Manufacturing until January 2021, when he began serving as Senior Vice President of
Global Products. He became Executive Vice President and Chief Product Officer in January 2022. From 2015 to 2018, he served as CEO of a nutritional supplement manufacturer that our company acquired in 2018, at which time he began serving as
president until December 2020. Previously, he served as vice president of manufacturing and product innovation at Forever Living Products, and as CEO and president at Cornerstone Research and Development.
Risk Factor Summary
We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor
disclosures. We encourage you to carefully review the full risk factors contained after this summary for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks include the
following:
Risks Associated with Direct Selling and Our Sales Force
| ● |
Challenges to the form of our network marketing system or to our business practices could harm our business.
|
| ● |
Laws and regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business.
|
| ● |
Improper sales force actions could harm our business.
|
| ● |
Social media platforms’ decisions to prohibit, block or decrease the prominence of our sales force’s content could harm our business.
|
| ● |
If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable local regulations regarding foreigners, then we could be sanctioned and/or required to change
our business model, which could significantly harm our business.
|
| ● |
Our sales compensation plans or other incentives could be viewed negatively by some of our sales force, could be restricted by government regulators, and could fail to achieve desired long-term results and have
a negative impact on revenue.
|
| ● |
Limits on the amount of sales compensation we pay could inhibit our ability to attract and retain our sales force, negatively impact our revenue and cause regulatory risks.
|
| ● |
We may be held responsible for certain taxes, assessments and other requirements relating to the activities of our sales force, which could harm our financial condition and operating results.
|
Risks Associated with Our Operations in Mainland China
| ● |
Our operations in Mainland China are subject to significant government scrutiny, and we could be subject to fines or other penalties.
|
| ● |
If direct selling regulations in Mainland China are modified, interpreted or enforced in a manner that results in negative changes to our business model or the imposition of a range of potential penalties, our
business could be significantly negatively impacted.
|
| ● |
Our ability to expand our business in Mainland China could be negatively impacted if we are unable to obtain additional necessary national and local government approvals in Mainland China.
|
| ● |
If we are not able to register products for sale in Mainland China, our business could be harmed.
|
Risks Associated with Market Conditions and Competition
| ● |
Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business.
|
| ● |
Adverse publicity concerning our business, marketing plan, products or people could harm our business and reputation.
|
| ● |
Inability of products, platforms, business opportunities and other initiatives to gain or maintain sales force and market acceptance could harm our business.
|
| ● |
Product diversion may have a negative impact on our business.
|
Risks Associated with COVID-19
| ● |
Epidemics, including COVID-19, and other crises have and may continue to negatively impact our business.
|
International Risks
| ● |
Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks.
|
| ● |
We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign markets, all of which could impact
our financial position and results of operations.
|
| ● |
Potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business,
financial results and financial condition.
|
Human Capital Risks
| ● |
If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline.
|
| ● |
We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our business and results of
operations.
|
Risks Associated with Our Manufacturing and Operations
| ● |
Production difficulties, quality control problems, inaccurate forecasting, shortages in ingredients, and reliance on our suppliers could harm our business.
|
| ● |
The loss of or a disruption in our manufacturing, supply chain and distribution operations, or significant expenses or violations incurred by such operations, could adversely affect our business.
|
| ● |
Our business could be negatively impacted if we fail to execute our product launch process or ongoing product sales due to difficulty in forecasting or increased pressure on our supply chain, information systems
and management.
|
| ● |
If we are unable to effectively manage our growth in certain markets, our operations could be harmed.
|
| ● |
System failures, capacity constraints and other information technology difficulties could harm our business.
|
| ● |
Any acquired companies or future acquisitions may expose us to additional risks.
|
Product Legal and Regulatory Risks
| ● |
Regulations governing our products, including the formulation, registration, pre-approval, marketing and sale of our products, could harm our business.
|
| ● |
Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell our products and harm our business.
|
| ● |
Our operations could be harmed if we fail to comply with Good Manufacturing Practices.
|
| ● |
If our current or any future device products are determined to be medical devices in a particular geographic market, or if our sales force uses these products for medical purposes or makes improper medical
claims, our ability to continue to market and distribute such devices could be harmed, and we could face legal or regulatory actions.
|
| ● |
We may incur product liability claims that could harm our business.
|
Legal, Regulatory and Compliance Risks
| ● |
We may become involved in legal proceedings and other matters that could adversely affect our operations or financial results.
|
| ● |
Non-compliance with anti-corruption laws could harm our business.
|
| ● |
A failure of our internal controls over financial reporting or our regulatory compliance efforts could harm our stock price and our financial and operating results or could result in fines or penalties.
|
Risks Associated with Taxes, Customs and Debt
| ● |
We are subject to changes in tax and customs laws, changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, which could have a material and
adverse impact on our effective tax rate, operating results, cash flows and financial condition.
|
| ● |
Government authorities may question our tax or customs positions or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.
|
| ● |
A decline in our business could adversely affect our financial position and liquidity.
|
Intellectual Property Risks
| ● |
We may be subject to claims of infringement on the intellectual property rights or trade secrets of others, resulting in costly litigation.
|
| ● |
If we are unable to protect our intellectual property rights or our proprietary information and know-how, our ability to compete could be negatively impacted and the value of our products could be adversely
affected.
|
Data Security and Privacy Risks
| ● |
Cyber security risks and the failure to maintain the integrity of company, employee, sales force or guest data could expose us to data loss, litigation, liability and harm to our reputation.
|
Sustainability Risks
| ● |
Our business could be negatively impacted by corporate citizenship and sustainability matters.
|
Risks Related to Our Common Stock
| ● |
The market price of our Class A common stock is subject to significant fluctuations due to a number of factors that are beyond our control.
|
General Risk Factors
| ● |
Difficult economic conditions could harm our business.
|
Risk Factors
We face a number of substantial risks. Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our common stock could decline due to
any of these risks, which should be considered together with the other items in this Annual Report on Form 10-K, including Item 1. Business and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Risks Associated with Direct Selling and Our Sales Force
Challenges to the form of our network marketing system or to our business practices could harm our business.
We may be subject to challenges by government regulators regarding the form of our network marketing system. Legal and regulatory requirements concerning the direct selling industry generally do not include “bright
line” rules and are inherently fact-based and subject to interpretation. As a result, regulators and courts have discretion in their application of these laws and regulations, and the enforcement or interpretation of these laws and regulations by
government agencies or courts can change.
Recent settlements between the U.S. Federal Trade Commission (“FTC”) and other direct selling companies and guidance from the FTC have addressed inappropriate earnings and lifestyle claims, problematic compensation
structures and the importance of focusing on consumers. These developments have created ambiguity as to the proper interpretation of the law and related court decisions. The FTC has been active in its enforcement activities, and any adverse rulings
or legal actions could impact our business if direct selling laws or anti-pyramid laws are interpreted more narrowly or in a manner that results in additional burdens or restrictions on direct selling companies. For example:
| ● |
In 2015, the FTC took aggressive actions against a multi-level marketing company, alleging an illegal business model and inappropriate earnings claims.
|
| ● |
In 2016, the FTC entered into a settlement with a multi-level marketing company, requiring the company to modify its business model, including basing sales compensation and qualification only on sales to retail and preferred customers
and on purchases by a distributor for personal consumption within allowable limits. Although this settlement does not represent judicial precedent or a new FTC rule, the FTC has indicated that the industry should look at this settlement,
and the principles underlying its specific measures, for guidance.
|
| ● |
In 2019, the FTC entered into a settlement with a multi-level marketing company, alleging an illegal business model and compensation structure and inappropriate earnings claims. The company agreed to a prohibition from engaging in
multi-level marketing. The FTC and another multi-level marketing company are currently in litigation, and that company had indicated the FTC was seeking to limit the levels of payment in its compensation structure as a condition to
settlement.
|
| ● |
During 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19
and/or about the earnings that people who have recently lost income could make.
|
| ● |
In 2021, the FTC sent a notice to more than 1,100 companies, including us and two of our subsidiaries (Pharmanex, LLC and Big Planet, Inc.), that outlined several practices that the FTC determined to be unfair or deceptive in prior
administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected
to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so. The penalties could be up to $46,517 per violation, and there is some ambiguity
in how a “violation” would be defined for these purposes.
|
| ● |
In 2022, the FTC issued an Advanced Notice of Proposed Rulemaking (“ANPR”) indicating that it is considering proposing a rule regarding earnings claims. The ANPR also suggested, among other things, that the FTC might not consider a
disclaimer (such as “results not typical”) to be sufficient to correct a misleading impression from an atypical earnings claim.
|
Although we take steps to educate our sales force on proper claims, if members of our sales force make improper claims, or if regulators determine we are making any improper claims, this could lead to an FTC
investigation and could harm our business. In this regard, FTC’s increased scrutiny of disclaimers, as discussed in the ANPR, could lead to more FTC actions regarding improper claims.
In addition, if the requirements related to compensation structures in the actions listed above lead to new industry standards or new rules, or if they limit the levels in the network for which payments can be made,
our business could be impacted and we may need to amend our global sales compensation plan. With a majority of our revenue in the United States coming from sales to retail customers and preferred customers, we believe that we can demonstrate
consumer demand for our products, but we continue to monitor developments to assess whether we should make any changes to our business or global sales compensation plan. If we are required to make changes or if the FTC seeks to enforce similar
measures in the industry, either through rulemaking or an enforcement action against our company, our business could be harmed.
We could also be subject to challenges by private parties in civil actions. We are aware of civil actions against other direct-selling companies in the United States that have resulted, and may in the future result,
in significant settlements. Allegations directed at us and our competitors regarding the legality of multi-level marketing in various markets and adverse media reports have also created intense public scrutiny of us and our industry. Our business
has also been subject to formal and informal inquiries from various government regulatory authorities in the past regarding our business and our compliance with local laws and regulations. Consumer protection groups also generate media and
regulatory scrutiny of companies in our industry through regulatory referrals and other channels of publicity. All of these actions and any future scrutiny of us or our industry could generate negative publicity or further regulatory actions that
could result in fines, restrict our ability to conduct our business in our various markets, enter into new markets, motivate our sales force and attract consumers.
Laws and regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business.
Various government agencies throughout the world regulate direct sales practices. Laws and regulations in the United States, Japan, South Korea and Mainland China are particularly stringent and subject to broad
discretion in enforcement by regulators. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid schemes,” that compensate participants primarily for recruiting additional
participants without significant emphasis on product sales to consumers. The laws and regulations in our current markets often:
| ● |
impose requirements related to sign-up, order cancellations, product returns, inventory buy-backs and cooling-off periods for our sales force and consumers;
|
| ● |
require us, or our sales force, to register with government agencies;
|
| ● |
impose limits on the amount of sales compensation we can pay;
|
| ● |
impose reporting requirements; and
|
| ● |
require that our sales force is compensated for selling products and not for recruiting others.
|
Complying with these widely varying and sometimes inconsistent rules and regulations can be difficult, time-consuming and expensive, and requires significant resources. The laws and regulations governing direct
selling are modified from time to time, and like other direct selling companies, we are subject from time to time to government inquiries and investigations in our various markets related to our direct selling activities. This can require us to
make changes to our business model and aspects of our sales compensation plan in the markets impacted by such changes and investigations. During 2021, the FTC announced that it is initiating a review of its Business Opportunity Rule, which imposes
certain obligations on business opportunity sellers in their dealings with prospective buyers; the FTC issued a request for public comment on this rule in November 2022. Currently, multi-level marketing companies are exempted from this rule. If
this exemption is eliminated or if new regulations are adopted for multi-level marketing companies, it could negatively impact the growth of our sales force and our revenue. In addition, markets where we currently do business could change their
laws or regulations to prohibit direct selling. If we are unable to obtain necessary licenses and certifications within required deadlines or continue business in existing markets or commence operations in new markets because of these laws, our
revenue and profitability may decline. Any delay could negatively impact our revenue.
Improper sales force actions could harm our business.
Sales force activities that violate applicable laws, regulations or policies, or that are alleged to do so, have, and could in the future, harmed our business and reputation and resulted in government or third-party
actions against us.
For example, in 2014, allegations were made by various media outlets that certain of our sales representatives in Mainland China failed to adequately follow and enforce our policies and regulations. This adverse
publicity, as well as a government review and actions that we voluntarily took to address the situation, resulted in a significant negative impact on our revenue and the number of Sales Leaders and Customers in the region. Similar or more extreme
actions by government agencies in Mainland China or other markets in the future could have a significant adverse impact on our business and results of operations.
The direct selling industry in Japan continues to experience regulatory and media scrutiny, and other direct selling companies have been suspended from sponsoring activities. Japan imposes strict requirements
regarding how Brand Affiliates approach prospective customers. From time to time, we receive information from consumer centers in certain prefectures about the number of general inquiries and complaints about us and our Brand Affiliates, and we
also sometimes receive warnings to reduce such complaints. Based on this information, we continually evaluate and enhance our Brand Affiliate compliance, education and training efforts in Japan. However, we cannot be certain that our efforts will
successfully prevent regulatory actions against us, including fines, suspensions or other sanctions, or that the company and the direct selling industry will not receive further negative media attention, all of which could harm our business.
Except in Mainland China, members of our sales force are not employees and act independently of us. The most significant area of risk for such activities relates to improper product claims and claims regarding the
business opportunity of joining our sales force. For example:
| ● |
During 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’
ability to treat or prevent COVID-19 and/or about the earnings that people who have recently lost income could make.
|
| ● |
In 2021, the FTC sent a notice to more than 1,100 companies, including us and two of our subsidiaries (Pharmanex, LLC and Big Planet, Inc.), that outlined several practices that the FTC determined to be unfair or deceptive in prior
administrative cases. These practices relate to earnings claims, other money-making opportunity claims, and endorsements and testimonials. Pursuant to the FTC’s “penalty offense authority,” companies that received the notice are expected to comply with the standards set in the prior administrative cases and could incur significant civil penalties if they or their representatives fail to do so. The penalties could be up to $46,517
per violation, and there is some ambiguity in how a “violation” would be defined for these purposes.
|
We implement strict policies and procedures to ensure our sales force complies with legal requirements. However, given the size of our sales force, we experience problems from time to time. For example, product
claims made by some of our sales force in 1990 and 1991 led to a FTC investigation that resulted in our entering into two consent agreements with the FTC and various agreements with state regulatory agencies. In addition, rulings by the South
Korean Fair Trade Commission and by judicial authorities against us and other companies in South Korea indicate that, if our sales force engages in criminal activity, we may be held liable or penalized for failure to supervise them adequately. Our
sales force may attempt to anticipate which markets we will open in the future and begin marketing and sponsoring activities in markets where we are not qualified to conduct business. We could face fines, suspensions or other legal action if our
sales force violates applicable laws and regulations, and our reputation and brand could be negatively impacted.
In addition, as our sales force increasingly uses social media to promote our business opportunity and products, this increases the burden on us to monitor compliance of such activities and increases the risk that
such social media content could contain problematic claims in violation of our policies and applicable regulations. For example, due to the borderless nature of social media, a claim that is allowed in one market may ultimately reach another market
where it is not allowed.
Social media platforms’ decisions to prohibit, block or decrease the prominence of our sales force’s content could harm our business.
Social media platforms have, and could in the future, decided to prohibit, block or decrease the prominence of our sales force’s content for any reason. For example, due to concerns with multi-level marketing, the
TikTok and WhatsApp Business platforms’ policies prohibit content related to multi-level marketing. In addition, Pinterest and Facebook prohibit ads that promote multi-level marketing opportunities, and Pinterest has also imposed restrictions on
weight loss products, claims and photos. Our business is becoming increasingly dependent on social commerce. Additional social media platforms’ adoption of similar or stricter policies could significantly hamper our sales force’s ability to promote
our products and attract consumers, which could cause our revenue to decline. Our reputation could also be harmed if our sales force violates any social media platform’s policies.
If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable local regulations regarding foreigners, then we could be
sanctioned and/or required to change our business model, which could significantly harm our business.
Our sales force is required to comply with work authorization and other local legal requirements prior to working in a market. Some markets, including Mainland China and Vietnam, also prohibit or restrict
participation of foreigners in direct selling activities. We have implemented policies that are designed to comply with these regulations and inform our sales force regarding the types of activities that are not permitted. However, we cannot assure
that actions of our sales force will not violate local laws or regulations or our policies. If our business practices or policies or the actions of our sales force are deemed to be in violation of applicable regulations as they may be interpreted
or enforced, then we could be sanctioned and/or required to change our business model, which could result in adverse publicity and significantly harm our business.
Our sales compensation plans or other incentives could be viewed negatively by some of our sales force, could be restricted by government regulators, and could fail to achieve
desired long-term results and have a negative impact on revenue.
Our sales compensation includes some components that differ from market to market. We modify components of our sales compensation from time to time to keep our sales compensation plans and business models competitive
and attractive to our existing sales force and people interested in joining our sales force, to address changing market dynamics, to provide incentives to our sales force that we believe will help grow our business, to conform to local regulations
and to address other business needs. Because of the size of our sales force and the complexity of our sales compensation plans, it is difficult to predict how such changes will be viewed by our sales force and whether such changes will achieve
their desired results. It also is difficult to predict how such changes may impact our ability to attract a larger potential target market of opportunity seekers. Certain changes we have made to our global sales compensation plan in the past, which
were successful in several markets, did not achieve anticipated results in certain other markets, were not viewed positively by some segments of our sales force, and negatively impacted our business. Similarly, we face the risk that we could fail
to make changes to our compensation plans that would be necessary to keep our compensation competitive with the market and allow us to attract new opportunity seekers or segments of opportunity seekers, which could have a negative impact on our
sales force.
In addition, we have been required to modify our sales compensation plan in certain markets, including South Korea and Vietnam, from time to time to remain in compliance with applicable sales compensation limits.
Changes to reduce sales compensation have had a negative impact on the sales force in the past and could in the future.
We have announced that we will be making some changes to our compensation plan in the United States to limit the amount of volume from internal sales to our sales force that can be used in the calculation of their
compensation and performance measurements. To facilitate these changes, we are working to implement digital tools to allow our sales force to more easily document resales and also to encourage a shift in behavior through incentives and recognition.
To the extent these proposed changes are more difficult to implement and transition than anticipated, our sales force could be distracted or have their commission impacted, all of which could negatively impact our business.
Limits on the amount of sales compensation we pay could inhibit our ability to attract and retain our sales force, negatively impact our revenue and cause regulatory risks.
Several markets, including Mainland China, South Korea, Indonesia and Vietnam, impose limits on the amount of sales compensation we can pay to our sales force. For example, under regulations in Mainland China, direct
selling companies may pay independent direct sellers in Mainland China up to a maximum 30% of the revenue they generate through their own sales of products to consumers. Additionally, in South Korea, local regulations limit sales compensation to
35% of the total price of goods or services supplied in South Korea. These regulations may limit the incentive for people to join our sales force and may reduce our ability to differentiate ourselves from our competitors in attracting and retaining
our sales force.
In addition, we have been required to modify our sales compensation plan in certain markets, including South Korea and Vietnam, from time to time to remain in compliance with applicable sales compensation limits.
Because sales compensation, as a percentage of revenue, can fluctuate as sales force productivity fluctuates, we may be required to make further changes to stay within applicable sales compensation limits or may be at risk of exceeding them. In
addition, which revenues and expenses are within the scope of these regulations is not always clear, and interpretation and enforcement of these laws are subject to change, which could require us to make further changes or result in non-compliance
with these regulations. Any failure to keep sales compensation within legal limits in Mainland China, South Korea, Indonesia, Vietnam or any other market that imposes a sales compensation limit could result in fines or other sanctions, including
suspensions.
We may be held responsible for certain taxes, assessments and other requirements relating to the activities of our sales force, which could harm our financial condition and
operating results.
We are subject to the risk in some jurisdictions of being responsible for social security taxes, withholding or other taxes, minimum wage laws, and related assessments and penalties with respect to our sales force.
This would occur if a jurisdiction classifies our sales force as our employees rather than as independent contractors, or if a jurisdiction expands the categories of personnel to whom these tax obligations apply.
| ● |
The laws and interpretations regarding “independent contractor” status in certain jurisdictions, including the United States, continue to evolve, and in some cases, authorities have sought to apply
these laws unfavorably against gig economy, platform and direct selling companies. For example, in October 2022, the U.S. Department of Labor proposed a regulation that, if adopted, would alter the employee vs. independent contractor
analysis in a way that could potentially cause more workers to be classified as employees.
|
| ● |
In addition, some jurisdictions have, without challenging the “independent contractor” status, taken the position that direct sellers must nonetheless pay certain taxes with respect to payments to their sales force.
|
In the event that local laws and regulations, or the interpretation of local laws and regulations, require us to treat members of our sales force as employees rather than independent contractors (or to comply with
similar requirements regardless of whether our sales force is classified as employees), this could harm our financial condition and operating results. This risk increases as our sales force increases its use of social sharing, as several
jurisdictions’ regulations protect in-person or in-home sales demonstrations from creating an employment relationship but are less protective of online demonstrations. If our Brand Affiliates were deemed to be employees rather than independent
contractors, we would also face the risk of increased liability for their actions.
Our Sales Leaders could also face similar risks with respect to the Brand Affiliates in their sales organizations who may claim they are employees of the Sales Leader rather than independent contractors or
independent business owners, which could impact their sales operations or lead them to cease their participation in our business.
Risks Associated with Our Operations in Mainland China
Our operations in Mainland China are subject to significant government scrutiny, and we could be subject to fines or other penalties.
Our operations in Mainland China are subject to significant regulatory scrutiny. The legal system in Mainland China provides government authorities broad latitude to conduct investigations, and many Chinese
regulations, including those governing our business, are subject to significant interpretation, which may vary from jurisdiction to jurisdiction. Because of significant government concerns in Mainland China regarding improper direct selling
activities, government regulators closely scrutinize activities of direct selling companies and activities that resemble direct selling. The government in Mainland China continues to inspect and review companies in the direct selling industry on a
regular basis. We believe the regulatory environment in Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms.
The government’s scrutiny of activities within the health products and direct selling industries has been at higher levels since 2019, when the government conducted a 100-day campaign
to review and inspect the health products and direct selling industries following negative media coverage generated by the healthcare-related product claims made by another direct selling company in Mainland China. Since 2019, we have been
receiving and addressing an increased number of government reviews, inspections, and inquiries and consumer complaints in Mainland China; our ability to hold certain business meetings has been limited; and negative media coverage has spread to
include additional companies, including ours.
Government regulators frequently make inquiries into our business activities and investigate complaints from consumers and others regarding our business. Some of these inquiries and investigations in the past have
resulted in the payment of fines by us or members of our sales force, interruption of sales activities and warnings. Any determination by government regulators in these inquiries or investigations that our operations or activities, or the
activities of our sales force, are not in compliance with applicable regulations could result in substantial fines, extended interruptions of business, and termination of necessary licenses and permits, including our direct selling and other
licenses, all of which could harm our business.
We train our sales force in Mainland China on how our Mainland China business model differs from our global business model. However, Sales Leaders in Mainland China may attend regional and global events or interact
with Sales Leaders from other markets. Although our global model and Mainland China business model differ, mistakes may be made as to how those working in Mainland China should promote the business in Mainland China. These mistakes by our sales
force, or allegations of such mistakes, have, and may in the future, led to government reviews and investigations of our operations in Mainland China, as well as adverse publicity, reputational harm and adjustments or interruptions to our
operations, all of which has and could in the future have a significant negative impact on our revenue and the number of Sales Leaders and Customers in the region.
If direct selling regulations in Mainland China are modified, interpreted or enforced in a manner that results in negative changes to our business model or the imposition of a
range of potential penalties, our business could be significantly negatively impacted.
The government of Mainland China has adopted direct selling and anti-pyramiding regulations that impose significant restrictions and limitations on businesses in our industry. Most notably, the regulations prohibit
multi-level compensation, which is the basis of how we compensate our sales force outside of Mainland China. The regulations also prohibit overseas personnel from participating in direct selling in Mainland China. We have structured our business
model in Mainland China based on several factors: the guidance we have received from government officials, our interpretation of applicable regulations, our understanding of the practices of other international direct selling companies operating in
Mainland China, and our understanding as to how regulators are interpreting and enforcing the regulations. Members of our sales force in Mainland China do not participate in our global sales compensation plan but are instead compensated according
to a separate compensation model. We generally compensate our Sales Leaders in Mainland China at a level that is competitive with other direct selling companies in the market and comparable to the compensation of our Sales Leaders globally.
Other than our direct selling subsidiary, we also have a separate subsidiary in Mainland China that is a registered independent entity that engages in cross-border e-commerce, through which one of our U.S.
subsidiaries can sell a limited selection of products to consumers in Mainland China for their personal consumption. Cross-border e-commerce is separated from the direct selling sales channel in Mainland China. Our Sales Leaders can contract with
the China entity, promote this cross-border e-commerce platform to introduce consumers to place orders on this platform, and receive compensation in return. Through this entity, the U.S. subsidiary sells our ageLOC Meta product, which is neither registered for retail sale in Mainland China nor registered specifically as a direct selling product and, therefore, can only be sold to local consumers for their personal
consumption and cannot be sold through the direct selling channel. We also plan to begin selling additional products through this channel. Although we take measures (1) to maintain legal separation between our cross-border e-commerce entity and
our direct selling entity; and (2) to ensure the products sold on our cross-border e-commerce platform are for consumers’ personal consumption only, our business in Mainland China could be negatively impacted if regulatory authorities elect to
attribute these cross-border e-commerce sales activities and related product claims, or the accompanying actions of our sales force, to our direct selling business, and make a determination they are in violation of direct selling or other
applicable laws.
Our Mainland China business also has an e-commerce platform in which it sells products directly to customers. The products we sell on this platform are registered for retail sale in Mainland China, but they are not
registered for the direct selling channel. We permit members of our sales force, as non-direct sellers, to promote this platform and refer customers to it, in addition to their participation in our direct selling business. They receive a promotion
bonus based on our sales on this platform to customers they have referred. Although the promotion bonus is calculated separately from our sales force’s compensation for direct selling, it is possible that our business in Mainland China could be
negatively impacted if regulatory authorities elect to attribute these e-commerce sales activities and the promotion bonus to our direct selling business.
The nature of the political, regulatory and legal systems in Mainland China gives regulatory agencies at both the local and central levels of government broad discretion to interpret and enforce regulations as they
deem appropriate to promote social stability. We face a risk that regulators may change the way in which they currently interpret and enforce the direct selling regulations, or that such regulations may be modified. If our business practices are
deemed to be in violation of applicable regulations as they may be interpreted or enforced, in particular our use of the sales productivity of a Sales Leader him/herself and of the sales force that such Sales Leader trains, collaborates with,
supports and services in setting his/her salary or service fee and determining their position/title on a quarterly basis, then we could be sanctioned, required to change our business model, and/or have our direct selling license revoked, any of
which could significantly harm our business. We believe the regulatory environment in Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms. We currently
plan to implement certain changes to the structure of our sales compensation in Mainland China due to the evolving commercial and regulatory environment. These changes could have a negative impact on our sales in that market.
In January 2019, the Mainland China government announced a 100-day campaign to review and inspect the health products and direct selling industries. This campaign involved a number of regulatory agencies. Since the
100-day period ended, there has continued to be a heightened level of regulatory scrutiny of these industries and of our business and products. For example, government authorities have not been issuing new licenses for direct selling since the
beginning of the 100-day action in early 2019. There is also uncertainty whether any changes to the regulations that apply to these industries will be made based on the review. If changes are made to any of the regulations that apply to our
business model, products or operations, our business could be harmed.
Our ability to expand our business in Mainland China could be negatively impacted if we are unable to obtain additional necessary national and local government approvals in
Mainland China.
To expand our direct selling model into additional provinces in Mainland China, we currently must obtain a series of approvals from district, city, provincial and national government agencies with respect to each
province in which we wish to expand. Government authorities have not been issuing new licenses since the beginning of the 100-day action in early 2019. When the process for obtaining government approvals to conduct direct selling is operational, it
often evolves and is lengthy, as we are required to work with a large number of provincial, city, district and national government authorities. The complexity of the approval process as well as the government’s continued cautious approach as direct
selling develops in Mainland China makes it difficult to predict the timeline for obtaining these approvals. Furthermore, any media or regulatory scrutiny of our business in Mainland China could increase the time and difficulty we may face in
obtaining additional licenses. If media or regulatory scrutiny of our business in Mainland China results in significant delays in obtaining licenses elsewhere in Mainland China, or if the current processes for obtaining approvals are delayed
further for any reason or are changed or interpreted differently than currently understood, our ability to receive direct selling licenses in Mainland China and our growth prospects in this market could be negatively impacted.
If we are not able to register products for sale in Mainland China, our business could be harmed.
We face lengthy timelines with respect to product registrations in Mainland China. The process for obtaining product permits and licenses may require extended periods of time that may prevent us from launching new
product initiatives in Mainland China on the same timelines as other markets around the world. For example, a vast majority of products marketed in Mainland China as “health foods” are subject to extensive laboratory and clinical analysis by
government authorities, and with a few exceptions, the product registration process in Mainland China takes a minimum of two years and may be substantially longer. We market both “health foods” and “general foods” in Mainland China. There is some
risk associated with the common practice in Mainland China of marketing a product as a “general food” while seeking “health food” classification. If government officials feel the categorization of our products is inconsistent with product claims,
form of delivery, ingredients or function, we could be prohibited or limited in marketing such products in Mainland China in their current form.
As we expand our direct selling channel, we face additional product marketing restrictions compared to our retail store channel. Under applicable direct selling regulations in Mainland China, we can only register
products for direct selling if we manufacture them and if they fall within categories that are authorized for direct selling, such as cosmetics, cleaning supplies, health foods, healthcare devices, small kitchen utensils and household appliances.
Products that are not registered for direct selling are prohibited from being marketed or sold through our direct sales channel. The process for registering products for the direct sales channel in Mainland China is
subject to delays; in fact, government authorities have not been processing new registrations for direct selling since the beginning of the 100-day action in early 2019. Any marketing or sale of
non-direct selling products by our independent direct sellers could result in negative publicity, fines and other government sanctions being imposed against us, including if a product is initially classified as a direct selling product but is later
re-classified.
Risks Associated with Market Conditions and Competition
Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business.
The markets for our products are intensely competitive. The success of our products is dependent on our ability to anticipate and respond to market trends and changes in consumer preferences and to maintain a product
offering and pipeline that is relevant and priced accessibly to consumers. Our products compete directly with branded, premium retail products and with the products of other direct selling companies, and many of our competitors have much greater
name recognition and financial resources than we have, which may give them a competitive advantage. Because of regulatory restrictions concerning claims about the efficacy of beauty and wellness products, we may have difficulty differentiating our
products from our competitors’ products, and competing products entering the beauty and wellness market could harm our revenue. In addition, our business may be negatively impacted if we fail to adequately adapt to trends in consumer behavior and
technologies to meet consumers’ needs and demands and reach a wider audience.
We also compete with other direct selling companies and gig economy companies to attract and retain our sales force and consumers. Some of these competitors have longer operating
histories and greater visibility, name recognition and financial resources than we do. Some of our competitors have also adopted and could continue to adopt some of our successful business strategies, including our global sales compensation plan. Consequently, to successfully compete in this industry, and attract and retain our sales force and consumers, we must ensure that our business opportunities and sales compensation plans are financially rewarding and innovative. Successfully marketing our sales compensation plan in a way that differentiates it from our competitors could become more difficult as the FTC
increases its scrutiny of earnings claims and also of disclaimers regarding atypical earnings claims. Although we believe we have significant competitive advantages, we cannot assure that we will be able to continue to successfully compete in this
industry.
Adverse publicity concerning our business, marketing plan, products or people could harm our business and reputation.
Growth in our sales force and consumers and our results of operations can be particularly impacted by adverse publicity. Given the nature of our operations, lack of clarity on applicable legal requirements and
standards, and our continuous need to recruit and retain consumers and members of our sales force, we are particularly vulnerable to adverse publicity. Specifically, we are susceptible to adverse publicity concerning:
| ● |
suspicions about the legality and ethics of network marketing;
|
| ● |
media or regulatory scrutiny regarding our business and our business models, including in Mainland China;
|
| ● |
the safety or effectiveness of our or our competitors’ products or the ingredients in such products;
|
| ● |
inquiries, investigations, fines, legal actions, or mandatory or voluntary product recalls involving us, our competitors, our business models or our respective products;
|
| ● |
the actions of our current or former sales force and employees, including any allegations that our sales force or employees have overstated or made false product claims or earnings representations, or engaged in
unethical or illegal activity;
|
| ● |
misperceptions about the types and magnitude of economic benefits offered at different levels of sales engagement in our business; and
|
| ● |
public, governmental or media perceptions of the direct selling, beauty product, or wellness product industries generally.
|
These issues have previously resulted in negative publicity and have harmed our business.
Critics of our industry, consumer protection groups, short sellers and other individuals have in the past and may in the future utilize the internet, the press and other means to publish criticisms of the industry,
our company and our competitors, or make allegations regarding our business and operations, or the business and operations of our competitors. In some cases, such adverse publicity or allegations can lead to government and regulatory scrutiny. We
continue to see adverse publicity regarding our company and the direct selling and healthcare products industries. We or others in our industry may receive similar negative publicity or allegations in the future, and it may harm our business and
reputation. Furthermore, the availability of social media channels can increase the likelihood of negative publicity because these channels are an easily accessible public forum. For example, if a member of our sales force makes an improper claim
about our products or business opportunity on social media, or if a critic of our company posts negative information about our company on social media, it is more likely to be disseminated widely and potentially noticed by the media or regulators.
Inability of products, platforms, business opportunities and other initiatives to gain or maintain sales force and market acceptance could harm our business.
Our ability to improve our financial performance depends on our ability to proactively anticipate, gauge and react in a timely and effective manner to changes in consumer spending
patterns and preferences regarding products, platforms and business opportunities. Our operating results have been and could be adversely affected if our products, platforms, business opportunities and other initiatives do not generate
sufficient enthusiasm and economic benefit to retain our existing consumers and sales force or to attract new consumers and sales force members. For example, during 2022, sales of our ageLOC LumiSpa iO
device were below our expectations. Potential factors affecting the attractiveness of our products, platforms, business opportunities and other initiatives include, among other things, shifting consumer demands, perceived product quality and value,
similarities to other products, product exclusivity or effectiveness, growth of the gig economy, disruption of retail commerce and e-commerce by social commerce, demographic trends, the strength of our brand and public image, growth of connected
commerce, sustainability factors, DEI initiatives, economic success in our business opportunity, the quality and accuracy of the data we use in running our business, our technology infrastructure and capabilities, restrictions in social or digital
media for sharing products and attracting consumers, adverse media attention and regulatory restrictions on claims. If we are unable to anticipate changes in consumer preferences and trends, our business, financial
condition and operating results could be materially adversely affected. Likewise, if we are unable to anticipate changes in the gig and sharing economies and adapt our business opportunity accordingly, our ability to capture growth trends in the
social commerce marketplace could be materially adversely affected.
In addition, our ability to develop and introduce new products could be impacted by, among other things, government regulations, changing policies in social media and other communications platforms, the inability to
attract and retain qualified staff, the termination of third-party research and collaborative arrangements, intellectual property of competitors that may limit our ability to offer innovative products or that challenge our own intellectual
property, problems related to manufacturing or quality control, and difficulties in anticipating changes in consumer tastes and buying preferences. Our operating results could be adversely impacted if our products fail to gain or maintain sales
force and market acceptance or if our successful new products undercut the sales of our other products.
To adapt our business to current macroeconomic trends, we are currently working through a significant digital transformation in our business to achieve widespread adoption of social commerce in all of our markets.
This transformation involves the development of new and enhanced digital tools for our Sales Leaders and consumers, including new digital apps and an improved website design and functionality, as well as new products, including connected devices.
Our digital transformation will require significant expenditures over the next several years. We face the risk that we will ultimately be unable to develop these items, that their development will be more costly than anticipated, or that the
applications and platforms we have and will develop will not meet the expectations of our sales force and/or consumers. Any of these eventualities could have a material negative impact on our business, sales force, consumer development and revenue.
In addition, in our more mature markets, one of the challenges we face is keeping Sales Leaders with established businesses and high-income levels motivated and actively engaged in business building activities and in
developing new Sales Leaders. We may also face challenges retaining our sales force as the population of our markets transitions to a younger, millennial/Gen Z demographic, with its associated new and different dynamics of connection through social
media platforms, gratification and loyalty behaviors, particularly as this segment becomes a greater share of our revenue. Moreover, if sales through social sharing do not generate repeat purchases or subscriptions at the same rate as other sales,
this could create revenue volatility. Many in the younger demographic are particularly savvy with social sharing across multiple business opportunity platforms. There can be no assurance that our initiatives will generate lasting excitement and
engagement among our sales force in the long term or that planned initiatives will be successful in maintaining sales force activity and productivity or in motivating Sales
Leaders to remain engaged in business building and developing new Sales Leaders. Some initiatives may have unanticipated negative impacts on our sales force, particularly changes to our sales compensation plans, incentive rewards, and recognition practices. The introduction of a new product or key initiative can also negatively impact other product lines to the extent our Sales Leaders focus their efforts on
the new product or initiative. In addition, if any of our products fails to deliver on consumer or sales force expectations, we could see an increase in product returns.
Product diversion may have a negative impact on our business.
We see our products being sold through online marketplace sites and other distribution channels in certain markets. Although we continually take steps to control product diversion, this activity continues to be a
challenge, and we believe that changes to our global sales compensation plan or increased use of online channels for conducting sales transactions have and may continue to lead to increased product diversion. Product diversion causes confusion
regarding our distribution channels and negatively impacts the ability of our sales force to sell our products. It also creates a negative impression regarding the viability of the business opportunity for our
sales force, which can harm our ability to recruit new people to join our sales force. Product diversion may also cause brand erosion and negatively impact the brand value
perception. Product diversion schemes may also involve illegal importation, investment or other activities and harm our brand if gray market or counterfeit goods are passed off as our own. If we are unable to effectively address this issue or if
diversion increases, our business could be harmed.
Risks Associated with COVID-19
Epidemics, including COVID-19, and other crises have and may continue to negatively impact our business.
Due to the person-to-person nature of direct selling, our results of operations have been, and will likely continue to be, harmed if the fear of a communicable and rapidly spreading disease or other crises such as
natural disasters result in travel restrictions or cause people to avoid group meetings or gatherings or interaction with other people. It is difficult to predict the impact on our business, if any, of the emergence of new epidemics or other
crises. The outbreak of COVID-19 in 2020 and ensuing pandemic resulted in significant contraction of economies around the world and interrupted global supply chains as many governments issued stay-at-home orders to combat COVID-19.
Government-imposed restrictions and public hesitance regarding in-person gatherings, travel and visiting public places have reduced our sales force’s ability to hold sales meetings, resulted in cancellations of key sales leader events and incentive
trips, and required us to temporarily close our walk-in and fulfillment locations in some markets where we have such properties. The outbreak has also impacted our ability to obtain some ingredients and packaging as well as ship products in some
markets. Our supply chain and logistics have incurred some interruptions and cost impacts, and we could experience more significant interruptions and cost impacts or face more significant closures in the future, whether due to COVID-19 directly,
workforce (including the workforce of our supply chain) resistance to vaccination requirements, or other related factors. These factors and other events related to COVID-19 have negatively impacted our sales and operations and will likely continue
to negatively affect our business and our financial results. Although some of the negative impacts of COVID-19 have recently improved, this situation continues to be fluid and there is uncertainty regarding its duration and future impacts. For
example, COVID-19 variants have caused some of the pandemic’s negative impacts to worsen or return, and COVID-related factors continue to impact our business in Mainland China. In addition, the productivity of our sales force has been, and could
continue to be, negatively impacted as restrictions are lifted and our sales force is able to more freely travel and take vacations.
In addition, regulatory authorities closely scrutinize the product- and earnings-related claims made by direct-selling companies and their sales force, including claims related to the COVID-19 pandemic. For example,
during 2020 to 2022, the FTC issued letters that warned several direct-selling companies to remove and address claims that they or members of their sales force were making about their products’ ability to treat or prevent COVID-19 and/or about the
earnings that people who have lost income could make. Although we take steps to educate our sales force on proper claims, if members of our sales force make improper claims, or if regulators determine we are making any improper claims, it could
lead to an FTC investigation and could harm our business and reputation.
International Risks
Our ability to conduct business in international markets may be affected by political, legal, tax and regulatory risks.
Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with our international operations,
including:
| ● |
the possibility that a government might ban or severely restrict our sales compensation and business models;
|
| ● |
the possibility that local civil unrest, political instability, or changes in diplomatic or trade relationships might disrupt our supply chain or other operations in one or more markets—for example, the ongoing
conflict in Russia and Ukraine has caused distraction to our sales force;
|
| ● |
the lack of well-established or reliable legal systems in certain areas where we operate;
|
| ● |
the presence of high inflation in the economies of international markets in which we operate;
|
| ● |
the possibility that a government authority might impose legal, tax, customs, or other financial burdens on us or our sales force, due, for example, to the structure of our operations in various markets;
|
| ● |
the possibility that a government authority might challenge the status of our sales force as independent contractors or impose employment or social taxes on our sales force; and
|
| ● |
the possibility that governments may impose currency remittance restrictions limiting our ability to repatriate cash.
|
There has been an increasing level of tension in U.S.-China relations over the last several years. Given the significant size of our China business, our business could be harmed if relations continue to deteriorate
or additional sanctions or restrictions are imposed by either government. In addition, there have been adverse public reaction and media attention to statements made by representatives of other businesses related to these issues that have adversely
affected business. We could similarly face adverse public or media attention, and potentially increased regulatory scrutiny, as a result of increased trade or political tensions or any statements or actions by employees or our sales force that
generate publicity with respect to these issues.
We are subject to financial risks as a result of our international operations, including exposure to foreign-currency fluctuations, currency controls and inflation in foreign
markets, all of which could impact our financial position and results of operations.
In 2022, approximately 76% of our sales occurred in markets outside of the United States in each market’s respective local currency. Foreign-currency fluctuations affect our
financial position and results of operations. We purchase inventory primarily in the United States in U.S. dollars. In preparing our financial statements, we translate revenue and expenses in our markets outside the United States from their local
currencies into U.S. dollars using weighted-average exchange rates. If the U.S. dollar strengthens relative to local currencies, our reported revenue, gross profit and net income will likely be reduced. Foreign-currency fluctuations also cause
losses and gains resulting from translation of foreign-currency-denominated balances on our balance sheet.
We also face the risk of currency controls. If foreign governments restrict transfers of cash out of their country and control exchange rates, we may be limited as to the timing and amount of cash we can repatriate
and may not be able to repatriate cash at beneficial exchange rates, which could have a material adverse effect on our financial position, results of operations or cash flows. We typically fund the cash requirements of our operations in the United
States through intercompany dividends, intercompany loans and intercompany charges for products, use of intangible property, and corporate services. However, some markets impose government-approval or other requirements for the repatriation of
dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in the form of dividends until we file the necessary statutory financial statements for the relevant period. We also have experienced delays in
repatriating cash from Argentina. As of December 31, 2022, we had $33.4 million in cash denominated in Chinese RMB, and our intercompany receivable with our Argentina subsidiary was $14.9 million.
In addition, high levels of inflation and currency devaluations in any of our markets could negatively impact our balance sheet and results of operations. Gains and losses resulting from the remeasurement of non-U.S.
dollar monetary assets and liabilities of our subsidiaries operating in highly inflationary economies are recorded in our net earnings. For example, during 2018, Argentina was designated as a highly inflationary economy under U.S. generally
accepted accounting principles; accordingly, beginning with the third quarter of 2018, we began to apply highly inflationary accounting for our Argentina operations, which has resulted in additional foreign-currency charges. Other markets may be
designated as highly inflationary economies in the future, which could result in further foreign-currency charges.
Although we may engage in transactions intended to reduce our exposure to foreign-currency fluctuations, there can be no assurance that these transactions will be effective. Complex global political and economic
dynamics can affect exchange rate fluctuations. For example, the implementation of tariffs, border taxes or other measures related to the level of trade between the United States and other markets could impact the value of the U.S. dollar. It is
difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition.
Potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions may have a negative effect on global
economic conditions and our business, financial results and financial condition.
The United States and other foreign jurisdictions may change customs regulations or tariff rates that are applied to our imports or exports at any time. Tariff changes are difficult to predict and may cause us
material short-term or long-term cost fluctuations. We rely on the use of Free Trade Agreements, where available, that may experience alterations, suspensions or cancellations, which could increase our customs expense or otherwise harm our
business. In addition to tariffs, any actions taken by the United States or by foreign countries to further implement trade policy changes, including limiting foreign investment or trade, increasing regulatory scrutiny, or other actions that impact
our ability to obtain necessary licenses or approvals could negatively impact our business. These actions are unpredictable, and any of them could also have a material adverse effect on global economic conditions and the stability of global
financial markets, significantly reduce global trade, restrict our access to suppliers or customers, and have a material adverse effect on our business, financial condition and results of operations.
Human Capital Risks
If we are unable to retain our existing sales force and recruit additional people to join our sales force, our revenue may not increase and may even decline.
Our products are primarily marketed by our sales force, and we depend on them to generate virtually all of our revenue. Our sales force may terminate their services at any time, and like most direct selling companies, we experience high turnover
among our sales force from year to year. People who join our company to purchase our products for personal consumption or for short-term income goals frequently only stay with us for a short time or are less consistent in their participation. Sales
Leaders who have committed time and effort to build a sales organization will generally stay for longer periods. To increase our revenue, we must increase the number of and/or the productivity of our sales force. We must also expand our outreach
and outbound efforts to attract, connect and nurture new customers for a wider consumer base who purchase products and whom we can foster along a consumer journey to promote retention and higher lifetime value.
We have experienced periodic fluctuations in Sales Leaders, Paid Affiliates and Customers in the past and could experience such fluctuations again in the future. For example, our Sales Leaders in Mainland China declined 46% from December 31,
2018 to December 31, 2019 due to such factors as meeting restrictions and negative media scrutiny, and also declined 32% from December 31, 2021 to December 31, 2022 due to pressures from COVID-related factors. If our business, products and
initiatives do not drive growth and/our productivity in Sales Leaders, Paid Affiliates and Customers, our operating results could be further harmed.
The number and productivity of our sales force is negatively impacted by several additional factors, including:
| ● |
any adverse publicity or negative public perception regarding us, our products or ingredients, our distribution channel, or our industry or competitors;
|
| ● |
lack of interest in, dissatisfaction with, or the technical failure of, our products or digital tools;
|
| ● |
lack of compelling products or income opportunities, including through our sales compensation plans and incentive trips and other offerings;
|
| ● |
negative sales force reaction to changes in our sales compensation plans or to our failure to make changes that would be necessary to keep our compensation competitive with the market;
|
| ● |
interactions with our company, including our actions to enforce our policies and procedures and the quality of our customer service;
|
| ● |
any regulatory actions or charges against us or others in our industry, as well as regulatory changes that impact product formulations and sales viability;
|
| ● |
general economic, business, public health and geopolitical conditions, including employment levels, employment trends such as the gig and sharing economies, pandemics or other conditions that curtail
person-to-person interactions, and the ongoing conflict in Russia and Ukraine which has caused distraction to our sales force;
|
| ● |
changes in the policies of social media platforms used to prospect or recruit potential consumers and sales force participants;
|
| ● |
recruiting efforts of our competitors and changes in consumer-loyalty trends;
|
| ● |
potential saturation or maturity levels in a given market, which could negatively impact our ability to attract and retain our sales force in such market;
|
| ● |
growing gig economy competition which may draw away potential product sellers, affiliates, and influencers;
|
| ● |
our sales force’s increased use of social sharing channels, which may enable them to more easily engage their consumers and sales network in other opportunities;
|
| ● |
lack of sufficient tools to create customer interest in our products and to manage and build a personalized business; and
|
| ● |
our and our sales force’s ability to implement social commerce and other selling platforms that appeal to consumers.
|
We depend on our key personnel and Sales Leaders, and the loss of the services provided by any of our executive officers, other key employees or key Sales Leaders could harm our
business and results of operations.
Our success depends to a significant degree upon the continued contributions of our senior and regional management, many of whom would be difficult to replace. Our senior and regional management employees may
voluntarily terminate their employment with us at any time, and it is not uncommon for employees of direct-selling companies, including employees of our company, to terminate their employment and begin working for another direct-selling company. In
addition, we need to continue to attract and develop qualified management personnel to sustain growth in our markets. Attracting and retaining qualified personnel has been an increased challenge during the current competitive employment
environment. If we are not able to successfully retain existing personnel and identify, hire and integrate new personnel, our business and growth prospects could be harmed.
The success of our business also depends on our key Sales Leaders. For the three months ended December 31, 2022, we had approximately 48,737 Sales Leaders. As of December 31, 2022,
approximately 356 Sales Leaders occupied the highest levels under our global sales compensation plan, and in Mainland China approximately 103 key Sales Leaders were playing a significant role in managing, training and servicing our sales force in
that market and driving sales. We rely on these Sales Leaders (or other sales force members that they train, collaborate with, support and service) for a substantial majority of our revenue. As a result, the loss of a high-level or key
Sales Leader or a group of leading Sales Leaders, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures, could negatively impact our growth and our revenue.
Risks Associated with Our Manufacturing and Operations
Production difficulties, quality control problems, inaccurate forecasting, shortages in ingredients, and reliance on our suppliers could harm our business.
Production difficulties, quality control problems, inaccurate forecasting and our reliance on third-party suppliers to manufacture and deliver products that meet our specifications in a timely manner could harm our
business. Occasionally, we have experienced production difficulties with respect to our products, including the availability of labor, raw materials, components, packaging and products that do not meet our specifications and quality control
standards. These production difficulties and quality problems have in the past, and could in the future, result in stock outages or shortages in our markets with respect to such products, harm our sales, or create inventory write-downs for unusable
products.
In addition, we and manufacturers in our supply chain acquire ingredients, components, products and packaging from third-party suppliers and manufacturers. A loss of any of these suppliers and any difficulties in
finding or transitioning to alternative suppliers could harm our business. In addition, we obtain our ageLOC Galvanic Facial Spa, ageLOC Body Spa, and Nu Skin Facial Spa devices and some other products and ingredients from sole suppliers that own or control the product formulations,
ingredients or other intellectual property rights associated with such products. We also license the right to distribute some of our products from third parties. In the event we are unable to maintain or renew our contracts with any of these
suppliers, manufacturers or other third parties, we may need to discontinue some products or develop substitute products, which could harm our revenue. In addition, if we experience supply shortages, price increases or regulatory impediments with
respect to the raw materials, ingredients, components or packaging we use for our products, we may need to seek alternative supplies or suppliers and may experience difficulties in finding replacements that are comparable in quality and price. For
example, some of our products, including ageLOC Meta and ageLOC Youth (Youthspan or Y-Span
in some markets), incorporate unique natural ingredients that are only harvested once per year and/or may have limited global supplies. If demand exceeds forecasts, we may have difficulties in obtaining additional supplies to meet the excess demand
until the next growing season. If we are unable to successfully respond to such issues, our business could be harmed.
The loss of or a disruption in our manufacturing, supply chain and distribution operations, or significant expenses or violations incurred by such operations, could adversely
affect our business.
As a company engaged in manufacturing, distribution, and research and development on a global scale, we are subject to the risks inherent in such activities, including industrial accidents, climate or environmental
events, fires, floods, earthquakes, labor shortages, strikes and other labor or industrial disputes, disruptions in logistics or information systems, loss or impairment of key manufacturing or distribution sites, import and export restrictions or
delays, product quality control, safety, licensing requirements and other regulatory or government issues, as well as natural disasters, pandemics, border disputes, global uncertainties, acts of terrorism and other external or macroeconomic factors
over which we have no control. For example, the long-term impacts of climate change, whether involving physical risks (such as extreme weather conditions, drought, or rising sea levels) or transition risks (such as regulatory or technology changes)
may be widespread and unpredictable. Certain impacts of physical risk may include temperature changes that increase the heating and cooling costs at our facilities; extreme weather patterns that affect the production or sourcing of certain
components; flooding and storms that damage or destroy our buildings and inventory; and heat and extreme weather events that cause long-term disruption or threats to the habitability of our customers’ communities. These risks may be heightened if
we consolidate certain of our manufacturing, distribution or supply facilities or if we are unable to successfully enhance our disaster recovery planning. These risks also increase as we pursue our current strategy of acquiring manufacturing
companies and thereby conducting more of our manufacturing in-house. The loss of, or disruption or damage to, any of our facilities or centers or those of our third-party manufacturers could have a material adverse effect on our business,
reputation, results of operations and financial condition.
We have experienced, and may continue to experience, disruptions to the transportation channels used in our supply chain and distribution operations, including increased airport and shipping port congestion, a lack
of transportation capacity, increased fuel expenses, import or export controls or delays, and labor disputes or shortages. Disruptions in our container shipments may result in increased costs, including the additional use of air freight to meet
demand. Congestion to ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs and reduction in our profitability. For example, the COVID-19 pandemic has continued to result in
several disruptions and delays, as well as quantity limits and price increases, in our global transportation channels.
In addition, our manufacturing facilities are subject to numerous regulations, including labor regulations and environmental regulations that govern the storage, discharge, handling, emission, generation,
manufacture, use and disposal of chemicals and other materials. We will also likely become subject to new regulations in these areas, which could require substantial expenditures. Violations of existing or new requirements could result in financial
penalties and other enforcement actions and could require us to halt one or more portions of our operations until a violation is cured. The costs of curing incidents of non-compliance, resolving enforcement actions or private-party actions that
might be initiated against us, or of satisfying new legal requirements could have a material adverse effect on our business, financial condition, or results of operations.
Our business could be negatively impacted if we fail to execute our product launch process or ongoing product sales due to difficulty in forecasting or increased pressure on our
supply chain, information systems and management.
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product
introduction or promotion. These offerings sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the quarter and skew year-over-year and sequential comparisons.
These offerings may also increase our product return rate. We have, and may in the future, experienced difficulty effectively managing growth associated with these offerings and may face increased risk of improper sales force activities and related government scrutiny.
In addition, the size and condensed schedule of these product offerings increase pressure on our supply chain and order processing systems. We have, and may in the future, failed to appropriately
scale our system capacity and operations in response to unanticipated changes in demand for our existing products or to the demand for new products, which reduces our sales force’s confidence in our business and could harm our reputation and
profitability.
As our sales force increases its use of social platforms to interact with customers, our business results could be adversely affected if our implementation of new platforms and processes to support
our sales force is delayed. In addition, we are dependent on third parties for testing and delivery of portions of these and other of our information system platforms. Unanticipated changes or system failures by third parties could harm our ability
to meet the expectations of our sales force, thus resulting in harm to our revenue, reputation and sales force confidence in our systems.
If we do not accurately forecast sales levels in each market for product launches or ongoing product sales, obtain sufficient ingredients, components or packaging, or produce a sufficient supply to
meet demand, we may incur higher expedited shipping costs and we may temporarily run out of stock of certain products, which could negatively impact the enthusiasm of our sales force and consumers. Conversely, if demand does not meet our
expectations for a product launch or ongoing product sales or if we change our planned launch strategies or initiatives, we could incur inventory write-downs. Each of these issues has impacted us in the past, and they could again occur with our
ongoing product launches. If we fail to effectively forecast product demand in the product launch process or for ongoing product sales, our reputation and profitability could be negatively impacted.
If we are unable to effectively manage our growth in certain markets, our operations could be harmed.
At times, we can experience significant growth in one or more of our markets. For example, during 2020 we experienced significant growth in some of the markets in our Americas and EMEA segments.
Growth can strain our ability to effectively manage our operations, as it requires us to expand our management team, labor force, technology bandwidth and capabilities, and manufacturing operations. Insufficient management execution to support
growth could result in, among other things, product delays or shortages, decreases in product quality, service level challenges, operating mistakes and errors, inadequate customer service, inappropriate claims or promotions by our sales force,
and governmental inquires and investigations, all of which could harm our revenue and ability to generate sustained growth and result in unanticipated expenses. In addition, we need to continue to attract and develop qualified management
personnel to sustain growth. If we are not able to successfully retain existing personnel and identify, hire and integrate new personnel, our business and growth prospects could be harmed.
System failures, capacity constraints and other information technology difficulties could harm our business.
With global operations and a complex sales compensation plan, our business is highly dependent on efficiently functioning information technology systems, including websites, mobile applications, third-party cloud
providers, data centers, databases, networks and other systems. We rely on these systems for accepting and processing sales orders, operating our sales force and customer support operations, tracking and compensating our sales force, conducting our
corporate and regional operations, preparing our financial statements, and other aspects of our business. Accordingly, the performance, reliability and availability of our systems are critical to our business, reputation, financial reporting, and
ability to attract and retain our sales force and customers.
Our or our third-party providers’ systems may be damaged or disrupted by fires, floods, earthquakes or other natural disasters, human error, telecommunications failures, power loss, physical or electronic break-ins,
computer viruses, cyber attacks, changes in our information technology systems or organization, and other events. We have, and may in the future, experienced system failures and outages. We cannot guarantee that the preventive measures we take,
including redundancies, security protocols, network protection mechanisms and other procedures, will be adequate to prevent or remedy system failure or interruption, data loss, security breaches or other data security incidents. Furthermore, any
mitigation process could take several days or more, thus resulting in a loss of revenue, loss of confidence of our sales force and harm to our reputation.
In addition, we make significant expenditures on our information technology infrastructure and other technology initiatives, and these items could become obsolete or impaired, which has and may in the future cause us
to incur significant expenses to address. For example, in 2018, following an evaluation of our information technology infrastructure and organization and our social sharing and digital initiatives, we determined to alter our strategic direction
with respect to some of our systems and tools, resulting in impairment charges of approximately $49 million. We also incurred approximately $22 million in severance payments and other expenses related to the reorganization of our Information
Technology Department and other corporate and regional offices. Additional cash outlay and new personnel were also necessary for execution of new plans and strategy. In this strategic shift in direction, we continue to identify and re-architect
additional legacy systems to help mitigate the risk and exposure these systems introduce to our business. We also continue to allocate resources to new technology and digital initiatives. There can be no assurance that we will be able to build and
roll-out our new technology and digital tools on a global scale or that they will function as intended, and these initiatives may entail significant expenses and could cause disruptions in our business.
Our systems could also be strained by growth in our business. Although we work to expand and enhance our e-commerce features, network infrastructure and other technologies to accommodate increases in the volume of
traffic to our ecommerce channels, we may be unsuccessful in these efforts. Our failure, or our third-party providers’ failure, to achieve or maintain system capacity could significantly reduce our ability to fulfill orders and could harm our
business, reputation, revenue and financial condition.
Any acquired companies or future acquisitions may expose us to additional risks.
We have acquired certain businesses, and we plan to continue to do so in the future as we encounter acquisition prospects that would complement our current product offerings, increase the size and geographic scope of
our operations or otherwise offer growth and operating efficiency opportunities. At any particular time, we may be in various stages of assessment, discussion and/or negotiation with regard to one or more potential acquisitions or investments, not
all of which will be consummated. Acquisitions involve numerous risks and uncertainties and may be of businesses in which we lack operational or market experience. The financing for any of these acquisitions could dilute the interests of our
stockholders, result in an increase in our indebtedness or both. Our past acquisitions have, and future acquisitions could, entailed numerous risks, including:
| ● |
difficulties in integrating acquired operations or products;
|
| ● |
the difficulties of imposing financial and operating controls on the acquired companies and their management and the potential costs of doing so;
|
| ● |
the potential loss of key employees, customers, suppliers or distributors from acquired businesses and disruption to our direct selling channel;
|
| ● |
diversion of management’s attention from our core business;
|
| ● |
the failure to achieve the strategic objectives of these acquisitions;
|
| ● |
increased fixed costs;
|
| ● |
the failure of the acquired businesses to achieve the results we have projected in either the near or long term;
|
| ● |
the assumption of unexpected liabilities, including litigation risks;
|
| ● |
adverse effects on existing business relationships with our suppliers, sales force or consumers; and
|
| ● |
risks associated with entering markets or industries in which we have limited or no prior experience, including limited expertise in running the business, developing the technology, and selling and servicing the
products.
|
Our failure to successfully complete the integration of any acquired business, or a failure to adjust our fixed costs quickly enough or sufficiently to adapt to rapidly changing market conditions, could have a
material adverse effect on our business, financial condition and operating results. In addition, there can be no assurance that we will be able to identify suitable acquisition candidates, consummate acquisitions on favorable terms or realize the
anticipated benefits of an acquisition. It is also possible that our acquired companies could sell products or utilize a business model similar to that of our Nu Skin business, which could be viewed negatively by our sales force and result in a
reduction in our revenue.
Product Legal and Regulatory Risks
Regulations governing our products, including the formulation, registration, pre-approval, marketing and sale of our products, could harm our business.
Our products are subject to extensive government regulation by numerous federal, state and local government agencies and authorities. Many of these laws and regulations involve a high level of subjectivity, are
subject to interpretation, and vary significantly from market to market. These laws and regulations can, and often do, have several impacts on our business, including but not limited to:
| ● |
delays, or altogether prohibitions, in introducing or selling a product or ingredient in one or more markets;
|
| ● |
delays and expenses associated with the registration and approval process for a product;
|
| ● |
limitations on our ability to import products into a market;
|
| ● |
delays and expenses associated with compliance, such as record keeping, documentation of the properties of certain products, labeling, and scientific substantiation;
|
| ● |
limitations on the claims we can make regarding our products; and
|
| ● |
product reformulations, or the recall or discontinuation of certain products that cannot be reformulated to comply with new regulations.
|
We have observed a general increase in regulatory activity and activism in the United States and across many markets globally where we operate, and the regulatory landscape is becoming more complex with increasingly
strict requirements. In particular, the requirements are impacting the ingredients we can include in our products, the accepted quantities of those ingredients, and the quality and characterization of the ingredients. Global regulators have in
recent years become overall more restrictive on the accepted levels of active ingredients that we can use in our product, in some cases banning them outright. They have also become more restrictive on permitted contaminant levels in ingredients
and, in many cases, have forced complete removal of such contaminants. In certain cases, such as regarding some pesticides which are virtually ubiquitous in nature, it has proven difficult to comply with the requirements. Further, many of the
restrictions regarding ingredient quality are not directly applicable to our products, leaving the possibility that our interpretation of compliance may not match that of the enforcing authorities. Often there is a lack of an equivalent active
ingredient present in the marketplace. In other cases, the removal or reduction of a technical ingredient, such as various types of parabens, leads to a significant change to the character of the product that may make it no longer desirable or safe
to the consumer. If this trend in new regulations continues, we may find it necessary to alter some of the ways we have traditionally marketed our products in order to stay in compliance with a changing regulatory landscape and this could add to
the costs of our operations and/or have an adverse impact on our business.
Many laws and regulations govern the registration, pre-market approval or other aspects of regulatory oversight of our products. For example, in the United States, some legislators and industry critics have pushed
for years to increase regulatory authority by the FDA over nutritional supplements. In 2011, the FDA proposed draft guidance to clarify the FDA’s interpretation of the dietary ingredient notification requirements, and in 2016, the FDA issued a
revised draft guidance that superseded the 2011 version. This draft guidance is not yet final but appears to indicate that the FDA is expanding its definition of what is considered a “new dietary ingredient” in the United States. The industry has
worked with the FDA for several years, providing comments to the FDA to modify this guidance. While still in flux, if enacted in final form as proposed, this guidance could impose new and significant regulatory barriers for our nutritional
supplement products or unique ingredients, which could delay or inhibit our ability to formulate, introduce and sell nutritional supplements as we have in the past. Similarly, from time to time, efforts are made by
some individuals or groups to repeal the Dietary Supplement Health and Education Act of 1994 (“DSHEA”), the U.S. law that provides a separate body of regulations for dietary supplements as compared to drugs. Such a repeal would result in
significant burdens to our product development, and the costs of running our business would increase significantly. We face similar pressures in our other markets, which continue to set restrictions on ingredients and their acceptable
maximum levels, as well as on ingredient characterization, quality and levels. In Europe, for example, we are unable to market supplements that contain ingredients that were not marketed in Europe prior to May 1997 (“novel foods”) without going
through an extensive registration and pre-market approval process.
The FDA currently does not have a pre-market approval system for cosmetics. However, cosmetic products may become subject to more extensive regulation in the future. These events could interrupt the marketing and
sale of our products, severely damage our brand reputation and image in the marketplace, increase the cost of our products, cause us to fail to meet customer expectations or cause us to be unable to deliver merchandise in sufficient quantities or
of sufficient quality to our stores, any of which could result in lost sales.
Our operations could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our products or impose additional burdens or requirements on us in order to continue selling our
products. In addition, the adoption of new regulations or changes in the interpretations and enforcement of existing regulations may result in significant compliance costs or discontinuation of product sales and may impair the marketability of our
products, resulting in significant loss of net sales. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders,
when and if promulgated, would have on our business. If new or existing laws and regulations restrict, inhibit or delay our ability to introduce or market our products or limit the claims we are able to make regarding our products, this could have
a material adverse effect on our business, financial condition, and operating results. If we fail to comply with the laws and regulations governing our products, we could face enforcement action, and we could be fined or forced to alter or stop
selling our products.
Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell our
products and harm our business.
Government authorities regulate advertising and product claims regarding the efficacy and benefits of our products. These regulatory authorities typically require adequate and reliable scientific substantiation to
support any marketing claims. What constitutes such reliable scientific substantiation can vary widely from market to market and there is no assurance that the research and development efforts that we undertake to support our claims will be deemed
adequate for any particular product or claim. If we are unable to show adequate and reliable scientific substantiation for our product claims, or if our marketing materials or the marketing materials of our sales
force make claims that exceed the scope of allowed claims for dietary supplements, cosmetics or devices that we offer, the FDA or other regulatory authorities could take enforcement action requiring us to revise our marketing materials,
amend our claims or stop selling certain products, which could harm our business.
For example, in recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims
regarding gene activity, cellular rejuvenation, and rebuilding collagen. There is a degree of subjectivity in determining whether a claim is an improper structure/function claim. Given this subjectivity and our research and development focus on the
sources of aging and the influence of certain ingredients on gene expression, there is a risk that we could receive a warning letter, be required to modify our product claims or take other actions to satisfy the FDA if the FDA determines any of our
marketing materials include improper structure/function claims for our cosmetic products. In addition, plaintiffs’ lawyers have filed class action lawsuits against some of our competitors after our competitors received these FDA warning letters.
There can be no assurance that we will not be subject to government actions or class action lawsuits, which could harm our business.
In the United States, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) require disclosure of material connections between an endorser and the company they are endorsing,
and they generally do not allow marketing using atypical results. Our sales force has historically used testimonials and “before and after” photos to market and sell some of our popular products such as our spa devices and ageLOC Transformation anti-aging skin care system. We intend to continue to use testimonials for our popular products, including weight management products and beauty products. In highly regulated and scrutinized product categories such as weight
management, if we or our sales force fails to comply with the Guides or makes improper product claims, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter
our marketing materials.
Our operations could be harmed if we fail to comply with Good Manufacturing Practices.
Across our markets, there are regulations on a diverse range of Good Manufacturing Practices that apply to us and to our vendors covering product categories such as dietary supplements, cosmetics, foods,
over-the-counter drugs and medical devices. The Good Manufacturing Practices impose stringent requirements on a variety of topics, including vendor qualifications, ingredient identification, manufacturing controls and record keeping. Ingredient
identification requirements, which often require us to confirm the levels, identity and potency of ingredients listed on our product labels within a narrow range, are particularly burdensome and difficult for us because our products contain many
different ingredients. Additionally, certain Good Manufacturing Practices obligate us to track and periodically report adverse events to government agencies. Compliance with these increasing regulations may further increase the cost of
manufacturing certain of our products as we work with our vendors to assure they are qualified and in compliance. In addition, our operations could be harmed if regulatory authorities determine that we or our vendors are not in compliance with
these regulations or if public reporting of adverse events harms our reputation for quality and safety. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain
products, including public withdrawals, seizures and recalls. For example, we have had product recalls in the United States based on labeling issues. Problems associated with product recalls could be exacerbated due
to the global nature of our business because a recall in one jurisdiction could lead to recalls in other jurisdictions. In addition, these risks associated with noncompliance could increase as we acquire businesses, including the businesses that
we have already acquired in our Rhyz strategic investment arm and any businesses we may acquire in the future.
If our current or any future device products are determined to be medical devices in a particular geographic market, or if our sales force uses these products for medical purposes
or makes improper medical claims, our ability to continue to market and distribute such devices could be harmed, and we could face legal or regulatory actions.
One of our strategies is to market unique and innovative products that allow our sales force to distinguish our products. As we pursue this strategy with our current and future device products, there
is a risk that regulatory authorities in our markets could determine that these products must receive clearance or be registered as medical devices. Such a determination could restrict our ability to import or sell the product in such market until
registration or clearance is obtained. The process for obtaining such registrations and clearances could require us to provide documentation concerning product manufacturing and clinical utility; to make design, specification and manufacturing
process modifications to meet standards imposed on medical device companies; and to modify our marketing claims regarding the registered product.
While we have not been required to register our device products as medical devices in most markets, we have registered some of them in some markets, including ageLOC
Boost in Thailand and our ageLOC Galvanic Facial Spa and ageLOC Body Spa systems in Indonesia, Thailand, Peru and Colombia. We also sought and received
clearance from the United States Food and Drug Administration to market our Nu Skin Facial Spa for over-the-counter use. We are currently pursuing medical device registration of our new connected body device, which we plan to begin launching during
2023, in the United States and Thailand. The registration process could delay the launch of this product in these markets.
In some cases, challenges can arise even after we have completed the required registration/clearance process or determined that a product does not need registration/clearance. This could occur if a
jurisdiction changes its laws or interpretations thereof, for example. In addition, if our sales force attempts to import or export products from one market to another in violation of our policy, makes medical claims regarding our products, or uses
our products to perform medical diagnoses or other activities limited to licensed professionals or approved medical devices (in markets where the product is not approved), it could negatively impact our ability to market or sell these products and
subject us to legal or regulatory actions.
Because medical device regulations vary widely from market to market, registration or clearance in one market does not preclude challenges or delays in obtaining registration or clearance in other
markets, nor does it preclude other markets from requiring us to make additional modifications or provide additional documentation as conditions to granting clearance. Furthermore, in some cases, registration or clearance to sell a product in one
market may be used as precedent for requiring similar approval for the product in another market, or for similar products in the same market. These additional requirements could increase the cost associated with manufacturing and selling these
products as non-medical devices in such markets.
Any of the above factors could have a material negative impact on our ability to sell products and could negatively affect our financial results.
We may incur product liability claims that could harm our business.
We sell a variety of different products for human consumption and use, including cosmetics, dietary supplements, conventional foods, OTC drugs and devices. Our cosmetics and conventional foods, as well as some of our
dietary supplements, are not generally subject to pre-market approval or registration processes so we cannot rely upon a government safety panel to qualify or approve our products for use, and some ingredients may not have long histories of human
consumption or use. We rely upon published and unpublished safety information including clinical studies on ingredients used in our products and conduct our own clinical and safety studies on some key ingredients and products, but not all products.
A product may be safe for the general population when consumed or used as directed but could cause an adverse reaction for some individuals, such as a person who has a health condition or allergies or who is taking a prescription medication. While
we include what we believe are adequate instructions and warnings and we have historically had low numbers of reported reactions, previously unknown adverse reactions could occur. If we discover that our products are causing adverse reactions, or
if we determine that any of our employees have not properly handled reports of adverse reactions, we could suffer further adverse publicity or government sanctions.
As a result of the type of products that we sell, we may be subject to various product liability claims, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include
inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects. Consumer
protection laws and regulations governing our business continue to expand, and in some states such as California, class-action lawsuits based on increasingly novel theories of liability are expanding. Product liability claims could increase our
costs, cause negative publicity, and adversely affect our business and financial results. As we continue to offer an increasing number of new products through large product offerings our product liability risk may increase.
If our sales force or employees provide improper advice regarding our products or our products’ use or safety, we may be subject to additional product liability.
We have generally elected to self-insure our product liability risks. We periodically evaluate whether we can and should obtain product liability insurance. Based upon our current approach to product liability risk
management, if any of our products are found to cause any injury or damage or we become subject to product liability claims, we will be subject to the full amount of liability associated with any injuries or damages. This liability could be
substantial and may exceed our existing reserves and harm our business.
Legal, Regulatory and Compliance Risks
We may become involved in legal proceedings and other matters that could adversely affect our operations or financial results.
We have been, and regularly are, a party to litigation, government inquiries or investigations, audits or other legal matters. These legal proceedings may include, among other things, claims alleging violation of the
federal securities laws or state corporate laws, or claims related to employment matters, intellectual property, fair-competition/anti-trust laws, our products, business opportunity or advertising, or other matters. Claims may be brought by a
regulator, investor, member of our sales force, consumer, employee or other private parties and in some cases may be brought as class action lawsuits.
Our increased activity during the past several years with acquisitions, divestments and other investment-related activities introduces an additional area of litigation risk, and we have had litigation and threats of
litigation related to these matters. Other parties in the transactions or potential transactions, or other parties involved in the businesses themselves, could bring claims against us. For example, from 2019 until January 2023, we were in litigation with a dairy farmer who claimed he was a general partner in our former indoor-growing business and related businesses. He also sought damages exceeding $250 million. Although we ultimately reached a settlement
agreement with him in January 2023, there can be no assurance that the resolution of future cases will be favorable to us.
In general, litigation claims, regulatory actions or other legal matters are expensive and time consuming and can result in settlements, adverse rulings or damages that could significantly affect financial results
and the conduct of our business. It is not possible to predict the final resolution of any legal proceeding to which we may become party, and the impact of these matters on our business, results of operations and financial condition could be
material.
Non-compliance with anti-corruption laws could harm our business.
Our international operations are subject to various anti-corruption laws, including principally the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA and the anti-corruption laws of other jurisdictions where
we operate generally prohibit companies and their agents or intermediaries from making improper payments for the purpose of obtaining or retaining business, and they require companies to maintain accurate books and records and internal accounting
controls. We dedicate time and resources to internal investigations of any allegation that we are not or may not be in compliance with anti-corruption laws. Such allegations, even if untrue, may result in a government investigation by a foreign or
U.S. regulator, including the U.S. Department of Justice and the Securities and Exchange Commission (“SEC”). Our corporate policies require all employees to comply with the FCPA and other applicable anti-corruption laws, including the FCPA’s
books-and-records and internal-accounting-controls requirements. Any regulatory determination, however, that our operations or activities are not in compliance with existing anti-corruption laws or regulations could result in the imposition of
substantial fines and other penalties from U.S. or other regulatory entities.
In 2016, we reached a resolution with the SEC to pay $765,688 to settle the SEC’s allegations that our books and records and internal controls related to a charitable contribution in Mainland China in 2013 were
insufficient. In agreeing to this settlement, we neither admitted nor denied the SEC’s findings. Although we have implemented additional anti-corruption policies, controls and training globally to prevent similar situations from arising in the
future, we cannot be certain that these efforts will be effective or prevent future fines or penalties under the FCPA or other anti-corruption laws. Our competitors operating in Mainland China have also faced allegations from U.S. regulators and
been fined accordingly in some circumstances. For example, in 2020, one of our competitors entered into a large settlement with U.S. regulators related to allegations that its employees violated the FCPA in Mainland China.
Additionally, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing or new laws might be administered
or interpreted. Alleged or actual violations of any such existing or future laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others) may result in criminal or civil sanctions or reputational harm, which
could have a material adverse effect on our business, financial condition and results of operations.
A failure of our internal controls over financial reporting or our regulatory compliance efforts could harm our stock price and our financial and operating results or could result
in fines or penalties.
We have implemented internal controls to help ensure the completeness and accuracy of our financial reporting and to detect and prevent fraudulent actions within our financial and accounting processes. We have also
implemented compliance policies and programs to help ensure that our employees and sales force comply with applicable laws and regulations. Our internal audit team regularly audits our internal controls and
various aspects of our business and compliance program, and we regularly assess the effectiveness of our internal controls. There can be no assurance, however, that our internal or external assessments and audits will identify all fraud,
misstatements in our financial reporting, and significant deficiencies or material weaknesses in our internal controls. Material weaknesses have in the past, and may in the future, resulted in a material misstatement of our financial results,
requiring us to restate our financial statements.
From time to time, we initiate further investigations into our business operations to further bolster our regulatory compliance efforts or based on the results of our internal and external audits or on complaints,
questions or allegations made by employees or other parties regarding our business practices and operations. In addition, our business and operations may be investigated by applicable government authorities. In the event any of these investigations
identify material violations of applicable laws by our employees, sales force or affiliates, we could be subject to adverse publicity, fines, penalties or loss of licenses or permits.
Risks Associated with Taxes, Customs and Debt
We are subject to changes in tax and customs laws, changes in our tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities,
which could have a material and adverse impact on our effective tax rate, operating results, cash flows and financial condition.
As a U.S. company doing business globally, we are subject to applicable tax and customs laws, including those relating to intercompany pricing regulations and transactions between our corporate entities in the
jurisdictions in which we do business, as well as customs valuation and classification, income taxes, value-added taxes, withholding taxes, payroll taxes, and other applicable taxes. Tax and customs laws, regulations, administrative practices and
interpretations in each jurisdiction are subject to change, with or without notice, due to economic, political or other conditions. For example, the United States recently enacted the Inflation Reduction Act, which imposes a 1% excise tax on stock
repurchases, subject to certain adjustments or exceptions that might not apply to some of our stock repurchases. Changes in the law or in authorities’ interpretation of the law can materially increase our tax or customs expense and our effective
tax rate.
Due to the numerous jurisdictions in which our subsidiaries are organized and changes in laws and their interpretations, significant judgment is required in evaluating and estimating our provision for income taxes.
Our future effective tax rates could be affected by numerous factors, such as intercompany transactions, changes in our business operations, acquisitions and dispositions, entry into new markets, the amount of our earnings and where earned, losses
incurred, the inability to realize tax benefits, changes in foreign currency exchange rates, changes in our stock price, uncertain tax positions, allocation and apportionment of state taxes, changes in our deferred tax assets and liabilities and
changes in their valuation. In addition, U.S. and foreign governments may enact tax laws or enter into tax treaties that could result in further changes to global taxation and may materially affect our operating results and financial condition.
Government authorities may question our tax or customs positions or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.
Despite our best efforts to be aware of and comply with tax and customs laws, including changes to and interpretations thereof, local authorities can and sometimes do question our tax and customs positions. We are
regularly subject to tax and customs audits, investigations, inquiries or other tax controversies by tax and customs authorities around the world regarding income taxes, customs valuation and classification, transfer pricing, value-added taxes,
withholding taxes, payroll taxes, and other applicable taxes. The ultimate resolution of these matters can take several years, and the outcome is uncertain and can include additional taxes/customs duties, the payment of back taxes/customs duties,
interest and penalties. We reserve in our consolidated financial statements amounts that we believe are in accordance with U.S. GAAP, and we regularly assess the likelihood of an adverse outcome in these matters to determine the adequacy of our
accruals and adjust them as appropriate. However, developments in these matters could warrant an additional accrual and expense, and the ultimate outcome could be materially different from our accruals, which could materially impact our effective
tax rate or our overall tax or customs expense.
A decline in our business could adversely affect our financial position and liquidity.
Any significant decline in our operating results could adversely affect our financial position and liquidity. Under the terms of our credit facility, we are required to maintain certain interest coverage and leverage
ratios. In addition, our outstanding borrowings under our credit facility and related term loan impose debt service and amortization requirements. A significant deterioration in our results of operations, whether as a result of prevailing economic,
financial and industry conditions, COVID-19, or other causes, could impact our ability to comply with our financial covenants and debt service and amortization obligations, which could result in an event of default under the terms of our credit
facility. An event of default under our credit facility could result in an inability to access funding under the agreement and cause all outstanding amounts to become immediately due and payable, which would have a material adverse effect on our
financial condition and liquidity.
Intellectual Property Risks
We may be subject to claims of infringement on the intellectual property rights or trade secrets of others, resulting in costly litigation.
In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. In particular, there has been an increase in the filing of suits alleging
infringement of intellectual property rights, which pressure defendants into entering into settlement arrangements quickly to dispose of such suits, regardless of their merit. Other companies or individuals may allege that we, or our sales force, consumers, licensees or other parties indemnified by us, infringe on their intellectual property rights. Even if we believe that such claims are without merit, defending such intellectual property
litigation can be costly, distract management’s attention and resources, and the outcome is inherently uncertain. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or
license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Any of these results may adversely affect our financial condition.
We employ individuals who were previously employed at other beauty or wellness product companies, including our competitors or potential competitors. To the extent that our employees are involved in research areas
that are similar to those in which they were involved with their former employers, we may be subject to claims that such employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the
former employers. Litigation may be necessary to defend against such claims.
If we are unable to protect our intellectual property rights or our proprietary information and know-how, our ability to compete could be negatively impacted and the value of our
products could be adversely affected.
The market for our products depends to a significant extent upon the value associated with our product innovations and our brand equity. We rely upon patent, copyright, trademark and trade secret laws in the United
States and other markets, and non-disclosure, confidentiality and other types of agreements with our employees, sales force, customers, suppliers and other parties, to establish, maintain and enforce our
intellectual property rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property rights may not be sufficient to permit us to provide
competitive advantages, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. In addition, the laws of certain foreign markets where we have significant business, including
markets such as Mainland China, do not protect our intellectual property rights to the same extent as the laws of the United States.
The costs required to protect our patents and trademarks may be substantial or even not practical. We have filed patent and trademark applications globally to protect our intellectual property rights in our new
technologies; however, there can be no assurance that our patent and trademark applications will be approved and issue, that any patents and trademarks issued will adequately protect our intellectual property, or that such patents and trademarks
will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable. Moreover, many of our products rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to
obtain licenses and technologies from these third parties on reasonable terms or at all.
From time to time, we become aware of potential violations of our intellectual property rights. For example, we are aware of some products that may infringe on our intellectual property related to the ageLOC LumiSpa device. To enforce and protect our intellectual property rights, we may initiate litigation against third parties, such as patent, copyright and trademark infringement suits or interference
proceedings, and seek indemnification by contract or otherwise. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns, and we may ultimately fail to prevail or recover
on any indemnification claim. Litigation also puts our patents and trademarks at risk of being invalidated or interpreted narrowly and our patent and trademark applications at risk of not issuing. Additionally, we may provoke third parties to
assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may adversely affect our financial condition or
diminish our investments in this area.
In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. We generally seek to protect this information by confidentiality, non-disclosure and
assignment of invention agreements with our employees, consultants, scientific advisors and third parties. Our employees may leave to work for competitors. Our sales force members may seek other opportunities. These agreements may be breached, and
we may not have adequate remedies for any such breach. In addition, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our current or former employees, sales force,
consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed
or misappropriated, it would harm our ability to protect our rights and adversely affect our financial condition.
Data Security and Privacy Risks
Cyber security risks and the failure to maintain the integrity of company, employee, sales force or guest data could expose us to data loss, litigation, liability and harm to our
reputation.
We collect, transmit and/or store large volumes of company, employee, sales force and guest data, including payment card information, personally identifiable information and other personal
information, for business purposes, including for transactional and promotional purposes, and our various information technology systems enter, process, summarize and report such data. The connected devices that we have developed or are
developing also collect consumer data. The integrity and protection of this data is critical to our business.
We are subject to significant security and privacy regulations, as well as requirements imposed by the payment card industry. For example, during 2018, the General Data Protection Regulation went
into effect in the European Union, imposing increased data protection regulations, the violation of which could result in fines of up to 4% of our annual consolidated revenue. Many other jurisdictions have similarly enacted security and privacy
regulations, including California and Mainland China, and we believe this trend will continue. In the United States, congressional committees have held preliminary hearings about the advisability of a federal data privacy law, but it is uncertain
whether the federal government will adopt such a law and whether it would preempt state data privacy laws. The prospect of new data privacy laws and ambiguity regarding the interpretation of existing laws has resulted in significant uncertainty
and compliance costs. In addition to laws specifically governing privacy and data security, in some cases, federal and state regulators and state attorneys general and administrative agencies have interpreted more general consumer protection laws
to impose standards for the online collection, use, dissemination and security of data. Although we monitor regulatory developments in this area, any actual or perceived failure by us to comply with these requirements could subject us to
significant penalties, lawsuits and negative publicity and require changes to our business practices. In particular, maintaining compliance with these and other evolving regulations and requirements around the world often requires changes to our
information system architecture and data storage processes. Making these changes is, and will likely continue to be, difficult and expensive. Investigations by the regulators of data security laws could also result in the payment of fines and
harm our reputation. Private actions by affected individuals could also result in significant monetary or reputational damage.
We also share certain data with our sales force. We could face fines, investigations, lawsuits or other legal action if our sales force violates, or is perceived to violate,
applicable laws and regulations, and our reputation and brand could be negatively impacted.
Similarly, a failure to adhere to the payment card industry’s data security standards could cause us to incur penalties from payment card associations, termination of our ability to accept credit or
debit card payments, litigation and adverse publicity, any of which could have a material adverse effect on our business and financial condition.
In addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release, misuse or disclosure of data could result in theft, loss, or fraudulent or unlawful use of
company, employee, sales force or guest data. Although we take measures to protect the security, integrity and confidentiality of our data systems, we experience cyber attacks of varying degrees and types on a regular basis. Our infrastructure may
be vulnerable to these attacks, and in some cases it could take time to discover them. Our security measures may also be breached due to employee error or malfeasance, system errors or otherwise. This risk is heightened as a result of changes due
to the COVID-19 pandemic as many of our employees are working remotely. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information to gain access to our data or our users’ or
customers’ data. Any such breach or unauthorized access could result in the unauthorized disclosure, misuse or loss of sensitive information and lead to significant legal and financial exposure, regulatory inquiries or investigations, loss of
confidence by our sales force and customers, disruption of our operations, damage to our reputation, and costs associated with remediating the incident. These risks are heightened as we work with third-party providers, including providers of mobile
and cloud technologies, and as our sales force uses social media, as the providers and social media platforms could be vulnerable to the same types of breaches and other risks. Acquisition activity, which we have engaged in and which we may
continue to engage in, may also heighten these risks, as the systems of the companies we acquire are not under our control prior to the acquisitions and it may take time to evaluate these systems and implement appropriate modifications to them.
Sustainability Risks
Our business could be negatively impacted by corporate citizenship and sustainability matters.
There are increased and increasing expectations and focus from certain investors, Brand Affiliates, consumers, employees, regulators and other stakeholders concerning corporate citizenship and sustainability matters,
including environmental, social and governance matters; packaging; responsible sourcing; and diversity, equity and inclusion matters. From time to time, we announce certain initiatives and goals in these areas. We could fail, or be perceived to
fail, in our achievement of such initiatives or goals or in meeting stakeholders’ expectations, or we could fail in accurately reporting our progress on such initiatives, goals and expectations. Moreover, the standards by which corporate
citizenship and sustainability efforts and related matters are measured are developing and evolving, and certain areas are subject to assumptions. The standards or assumptions could change over time. In addition, we could be criticized for the
scope of our initiatives or goals or perceived as not acting responsibly in connection with these matters, such as with our carbon footprint, recyclability of our packaging, ingredients used in our products or the sourcing of such ingredients. Any
such matters, or related corporate citizenship and sustainability matters, could have a material adverse effect on our business.
Risks Related to Our Common Stock
The market price of our Class A common stock is subject to significant fluctuations due to a number of factors that are beyond our control.
Our Class A common stock closed at $57.87 per share on January 29, 2021 and closed at $42.88 per share on January 31, 2023. During this two-year period, our common stock traded as low as $29.96 per share and as high
as $63.85 per share. Many factors, including some we may be unable to control, could cause the market price of our Class A common stock to fall. Some of these factors include:
| ● |
fluctuations in our operating results;
|
| ● |
government investigations of our business;
|
| ● |
trends or adverse publicity related to our business, products, industry or competitors;
|
| ● |
the sale of shares of Class A common stock by significant stockholders;
|
| ● |
demand, and general trends in the market, for our products;
|
| ● |
acquisitions by us or our competitors;
|
| ● |
economic or currency exchange issues in markets in which we operate;
|
| ● |
changes in estimates of our operating performance or changes in recommendations by securities analysts;
|
| ● |
speculative trading, including short selling and options trading; and
|
| ● |
general economic, business, regulatory and political conditions.
|
Broad market fluctuations could also lower the market price of our Class A common stock regardless of our actual operating performance.
General Risk Factors
Difficult economic conditions could harm our business.
Difficult economic conditions, such as high unemployment levels, inflation, or recession, have in the past, and could continue to, adversely affect our business by causing a decline in demand for our products,
particularly if the economic conditions are prolonged or worsen. In addition, economic conditions may adversely impact access to capital for us and our suppliers, may decrease the ability of our sales force and consumers to obtain or maintain
credit cards, and may otherwise adversely impact our operations and overall financial condition. For example, we believe inflation had a negative impact on our 2022 sales by curbing the discretionary spending of our consumers. Inflation also has
increased the cost of our inventory and shipping expenses. Higher interest rates have increased our interest expense, as our credit facility entails variable-rate interest. We believe these conditions could continue in 2023. Current recessionary
conditions also cause further uncertainty regarding the potential for growth in our business during 2023.
None.
Our principal properties consist of the following:
Offices
Our principal administrative offices are our corporate headquarters in Provo, Utah and our offices in Shanghai, China.
Distribution Centers
We distribute our products through distribution centers and warehouses in many of our markets, with our principal facilities being in Provo, Utah and Mainland China.
Research and Development Centers
We operate research and development centers in Provo, Utah and Shanghai, China.
Manufacturing Facilities
We operate manufacturing facilities in Mainland China, and two of the companies in our Rhyz strategic investment arm (Manufacturing segment) operate manufacturing facilities in Provo, Utah, Draper,
Utah and West Valley City, Utah.
We own the above properties, except we lease the manufacturing facilities in Provo, Utah and West Valley City, Utah, certain of the manufacturing facilities in China, and the land for our facilities
in Shanghai, China.
In January 2023, we settled litigation with Don Roberts, a dairy farmer. Mr. Roberts claimed he was a general partner in our former indoor-growing business and related businesses. He also claimed he
was instrumental in developing some of the business’s intellectual property. In May 2019, we filed a lawsuit in the U.S. District Court for the District of Utah, seeking a declaratory judgment that Mr. Roberts was not an inventor of any of the
business’s intellectual property and was not a partner in the business. This lawsuit was dismissed on jurisdictional grounds in December 2019. We appealed that dismissal to the U.S. Court of Appeals for the Tenth Circuit. While the appeal was
pending, Mr. Roberts filed an irrevocable covenant not to sue on the claims that gave rise to federal jurisdiction. We therefore informed the court that our appeal was moot, and the court dismissed our appeal in November 2020. In addition to
these proceedings in the federal courts, this matter also involved proceedings in Utah state courts. In November 2019, Mr. Roberts filed suit in Utah’s Fifth Judicial District Court, seeking a declaratory judgment that he was a general partner in
the business. Mr. Roberts also sought damages exceeding $250 million. We filed a motion to dismiss this action in state court or, in the alternative, to transfer venue to Utah’s Fourth Judicial District Court. The court denied our motion, and we
were unable to have the denial reversed on appeal. In December 2021, we determined to wind down this business’s operations. In January 2023, we reached a settlement agreement with Mr. Roberts, in which we agreed to pay an immaterial amount to Mr.
Roberts.
From time to time, we are involved in other legal proceedings arising in the ordinary course of business.
Not applicable.
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information and Holders
Our Class A common stock is listed on the New York Stock Exchange and trades under the symbol “NUS.” The approximate number of holders of record of our Class A common stock as of January 31, 2023
was 221. This number of holders of record does not represent the actual number of beneficial owners of shares of our 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.
Purchases of Equity Securities by the Issuer
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||||||
|
Period
|
Total
Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
(in millions)(1)
|
||||||||||||
|
October 1 – 31, 2022
|
283,592
|
$
|
35.28
|
283,592
|
$
|
175.4
|
||||||||||
|
November 1 – 30, 2022
|
—
|
—
|
—
|
$
|
175.4
|
|||||||||||
|
December 1 – 31, 2022
|
—
|
—
|
—
|
$
|
175.4
|
|||||||||||
|
Total
|
283,592
|
$
|
35.28
|
283,592
|
||||||||||||
| (1) |
In August 2018, we announced that our board of directors approved a stock repurchase plan. Under this plan, our board of directors authorized the repurchase of up to $500 million of our outstanding Class A
common stock on the open market or in privately negotiated transactions.
|
Recent Sales of Unregistered Securities
None.
Stock Performance Graph
The following graph shows the changes in value over the five-year period ended December 31, 2022 of an assumed $100 investment in our Class A common stock, the S&P MidCap 400 Consumer Staples Index and the S&P 500
Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Nu Skin Enterprises, Inc., the S&P 500 Index, and the S&P MidCap 400 Consumer Staples Index
|
Measured Period
|
Nu Skin
|
S&P 500 Index
|
S&P MidCap 400
Consumer Staples Index
|
|||
|
December 31, 2017
|
100.00
|
100.00
|
100.00
|
|||
|
December 31, 2018
|
91.68
|
95.62
|
92.85
|
|||
|
December 31, 2019
|
63.25
|
125.72
|
102.93
|
|||
|
December 31, 2020
|
87.78
|
148.85
|
125.81
|
|||
|
December 31, 2021
|
83.97
|
191.58
|
138.49
|
|||
|
December 31, 2022
|
72.27
|
156.88
|
137.43
|
The stock performance graph above shall not be deemed to be “soliciting material” or to be “filed” with the U.S. Securities and Exchange Commission or subject to the liabilities of Section 18 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, it shall not be deemed incorporated by reference by any statement that incorporates this Annual Report on Form 10-K by reference into any filing under the
Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that we specifically incorporate this information by reference.
Not applicable.
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes, which are included in this
Annual Report on Form 10-K.
Business Overview
Our Products
Nu Skin Enterprises, Inc. develops and distributes a comprehensive line of premium-quality beauty and wellness solutions in approximately 50 markets worldwide. In 2022, our revenue of
$2.2 billion was primarily generated by our three primary brands: our beauty products brand, Nu Skin; our wellness products brand, Pharmanex; and our anti-aging brand, ageLOC. We operate in the direct
selling channel, primarily utilizing person-to-person marketing to promote and sell our products, including through the use of social and digital platforms. In all of our markets besides Mainland China, we refer to members of our independent
sales force as “Brand Affiliates” because their primary role is to promote our brand and products through their personal and social networks.
In addition to our core Nu Skin business, we also explore new areas of growth and opportunity through our strategic investment arm known as Rhyz Inc. Rhyz investments include beauty and wellness
product manufacturing companies and other investments. In 2022, the Rhyz companies generated $153.3 million, or 7%, of our 2022 reported revenue (excluding sales to our core Nu Skin business).
Our Global Operations
In 2022, we generated approximately 24% of our revenue from the United States and approximately 16% from Mainland China. Given the size of our international operations, our results, as reported in
U.S. dollars, are often impacted by foreign-currency fluctuations; in 2022, our revenue was negatively impacted 5% from foreign-currency fluctuations compared to 2021. In addition, our results can be impacted by global economic, political,
demographic and business trends and conditions.
A Global Network of Customers, Paid Affiliates and Sales Leaders
As of December 31, 2022, we had 1,147,124 persons who purchased directly from the company during the previous three months (“Customers”). Our Customer numbers include members of our sales force who
made such a purchase, including Paid Affiliates and those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force. We believe a significant majority of Customers purchase our products
primarily for personal or family consumption but are not actively pursuing the opportunity to generate supplemental income by actively and consistently marketing and reselling products.
Our revenue is highly influenced by the number and productivity of our Sales Leaders. “Sales Leaders” are our Brand Affiliates, and sales employees and independent marketers in Mainland China, who
achieve certain qualification requirements. Our reported Sales Leaders number is the three-month average of our monthly Sales Leaders as of the end of each month of the quarter.
As we continue to focus on customer acquisition and social commerce, we believe our number of Paid Affiliates is an important indicator of consumer purchasing activity in our business. “Paid
Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the previous three months. Paid Affiliates power our social commerce model and are a bridge to attracting new
customers and nurturing relationships and community.
We have been successful in attracting and motivating our sales force by:
| ● |
developing and marketing innovative, technologically and scientifically advanced products;
|
| ● |
providing compelling initiatives and strong support; and
|
| ● |
offering an attractive sales compensation structure.
|
Our global sales force helps us to rapidly introduce products and penetrate our markets with modest up-front promotional expense. We rely on our sales force to create consumer demand for our
products, as opposed to a traditional approach of advertising-generated consumer awareness. Our approach is particularly effective with products that benefit from personal education and demonstration. Similar to other companies in our industry,
we experience relatively high turnover among our sales force.
To enhance customer retention, we have developed product subscription and loyalty programs that provide incentives for consumers to commit to purchase a specific amount of product on a monthly
basis. All purchases under these programs are subject to our standard product payment and return policies. We believe these subscription and loyalty programs have improved consumer retention, have had a stabilizing impact on revenue and have
helped generate recurring sales.
Product Innovation
Our sales force markets and sells our products, and attracts others to the opportunity, based on the distinguishing benefits and innovative characteristics of our products. As a result, we leverage
our scientific expertise and product development resources to introduce innovative beauty, wellness and anti-aging products. Our sales force is increasingly using social media to market and sell our products. To continue to leverage social media,
it is imperative that we develop demonstrable products that are unique and engaging to younger consumers.
Any delays or difficulties in introducing compelling products or attractive initiatives or tools into our markets may have a negative impact on our revenue and our number of Customers, Paid
Affiliates and Sales Leaders.
Our Product Launch Process
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other product
introduction or promotion. We refer to the entire process, beginning with the introductory offering through general availability of the product, as a product launch or our product launch process. The timing of the launch of a particular product
often varies from market to market depending on such factors as customer demand, product registration or other local legal requirements, and product availability in our supply chain.
Sales Leader previews and other product introductions and promotions sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue during the
quarter and can skew year-over-year and sequential comparisons. We believe our product launch process attracts new Customers, Paid Affiliates and Sales Leaders to our business, increases consumer trial and provides us with important marketing and
forecasting information about our products. Please refer to Item 1A. Risk Factors for more information on risks related to our product launch process.
Income Statement Presentation
We report revenue in nine segments, and we translate revenue from each market’s local currency into U.S. dollars using weighted-average exchange rates. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised products to the customer, with
revenue recognized at shipping point, the point in time the customer obtains control of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. In most markets,
we offer a return policy that allows our sales force to return unopened and unused product for up to 12 months subject to a 10% restocking fee. Reported revenue is net of returns, which have historically been less than 5% of annual revenue. Sales
taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Cost of sales primarily consists of:
| ● |
cost of products purchased from third-party vendors;
|
| ● |
cost of self-manufactured products;
|
| ● |
cost of adjustments to inventory carrying value;
|
| ● |
freight cost of shipping products to our sales force and import duties for the products; and
|
| ● |
royalties and related expenses for licensed technologies.
|
For markets other than Mainland China, in 2022, we sourced most of our beauty products and wellness products from trusted third-party suppliers and manufacturers. In Mainland China, we operate
manufacturing facilities where we produce the majority of our beauty and wellness products sold in Mainland China. We also produce some products at these facilities that are exported to other markets. In 2018 and 2020 we acquired a total of four
companies in the United States that are producing some of our products. Cost of sales and gross profit, on a consolidated basis, may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from
third-party vendors. In addition, because we purchase a significant amount of our goods in U.S. dollars and recognize revenue in local currencies, our gross margin is subject to exchange rate risks. Because our gross margins vary from product to
product and due to higher pricing in some markets, changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis.
Selling expenses are our most significant expense and are classified as operating expenses. Selling expenses include sales commissions paid to our sales force, special incentives, costs for
incentive trips, cost of sales force conventions and other rewards, as well as salaries, service fees, benefits, bonuses and other labor and unemployment expenses we pay to our sales force in Mainland China. The sales force conventions are held
in various markets worldwide, which we generally expense in the period in which they are incurred. Because our various sales force conventions are not held during each fiscal year, or in the same period each year, their impact on our general and
administrative expenses may vary from year to year and from quarter to quarter. For example, we held our global convention in October 2019 and will have another global convention in the fall of 2024, as we currently plan to hold a global
convention approximately every other year. Our 2021 global convention was held virtually due to the ongoing pandemic. In addition, we hold regional conventions and conventions in our major markets at different times during the year. These
conventions have significant expenses associated with them. Because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods, year-over-year comparisons have been impacted accordingly. Selling
expenses do not include amounts we pay to our sales force based on their personal purchases; rather, such amounts are reflected as reductions to revenue. Our global sales compensation plan, which we employ in all our markets except Mainland
China, is an important factor in our ability to attract and retain our Sales Leaders. Under our global sales compensation plan, Sales Leaders can earn “multi-level” compensation, where they earn commissions for product sales to their consumer
groups as well as the product sales made through the sales network they have developed and trained. We do not pay commissions on sales materials. Fluctuations occur in the amount of commissions paid as our numbers of Customers and Sales Leaders
change from month to month, but the fluctuation in the overall payout as a percentage of revenue tends to be relatively small. Selling expenses as a percentage of revenue typically increase in connection with a significant product offering, due
to growth in the number of Sales Leaders qualifying for increased sales compensation and promotional incentives. From time to time, we make modifications and enhancements to our global sales compensation plan in an effort to help motivate our
sales force and develop leadership characteristics, which can have an impact on selling expenses. For example, in the fourth quarter of 2017, we began to implement significant enhancements to our global sales compensation plan, which we have now
rolled out across all markets other than Mainland China. One of the changes is a new bonus program for our sales force, which has an increasing effect on our selling expenses as a percentage of revenue.
Outside of Mainland China, Brand Affiliates also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up. We do not account
for, nor pay, additional commissions on these mark-ups received by Brand Affiliates. In many markets, we also allow individuals who are not part of our sales force, whom we refer to as “preferred customers,” to buy products directly from us at a
discount. We pay commissions on preferred customer purchases to the referring member of our sales force.
General and administrative expenses include:
| ● |
wages and benefits;
|
| ● |
rents and utilities;
|
| ● |
depreciation and amortization;
|
| ● |
promotion and advertising;
|
| ● |
professional fees;
|
| ● |
travel;
|
| ● |
research and development; and
|
| ● |
other operating expenses.
|
Labor expenses are the most significant portion of our general and administrative expenses.
Provision for income taxes depends on the statutory tax rates and the withholding taxes in each of the jurisdictions in which we operate. For example, statutory tax rates in 2022 were approximately
17% in Hong Kong, 20% in Taiwan, 25% in South Korea, 32% in Japan and 25% in Mainland China. We are subject to taxation in the United States at the statutory corporate federal tax rate of 21% in 2022, and we pay taxes in multiple states within
the United States at various tax rates. Our overall effective tax rate was (17.8)% for the year ended December 31, 2022.
Critical Accounting Policies and Estimates
The following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto. Management considers our critical
accounting policies to be accounting for income taxes and accounting for intangible assets. In each of these areas, management makes estimates based on historical results, current trends and future projections.
Income Taxes. We account for income taxes in accordance with the Income Taxes Topic of the Financial Accounting Standards Codification. This Topic
establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. We take an asset and liability approach for financial accounting and
reporting of income taxes. We pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between Nu Skin affiliates around the
world. Deferred tax assets and liabilities are created in this process. As of December 31, 2022, we had net deferred tax assets of $89.3 million. We net these deferred tax assets and deferred tax liabilities by jurisdiction. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized. These deferred tax assets assume sufficient future earnings will exist for their realization, and are calculated using anticipated tax
rates. In certain jurisdictions, valuation allowances have been recorded against the deferred tax assets specifically related to use of foreign tax credits, research and development credits and net operating losses. The valuation allowance
assessment requires estimates as to future operating results. These estimates are made on an ongoing basis based upon the Company’s business plans and growth strategies in each market and consequently, future material changes in the valuation
allowance are possible. The valuation allowance reduces the deferred tax assets to an amount that management determined is more-likely-than-not to be realized. When we determine that there is sufficient taxable income to utilize the foreign tax
credits, the research and development credits, or the net operating losses, the valuation allowances will be released. In the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to earnings in the period such determination was made.
We evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period. Other than earnings we intend to reinvest indefinitely, we accrue for the U.S. federal and state
income taxes applicable to the earnings. For all foreign earnings, we accrue the applicable foreign income taxes. We intend to utilize the offshore earnings to fund foreign investments, specifically capital expenditures. Undistributed earnings
that we have indefinitely reinvested aggregate to $60.0 million as of December 31, 2022. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.
The company operates in and files income tax returns in the U.S. and numerous foreign jurisdictions, which are subject to examination by tax authorities. Years open to examination contain matters
that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions, and tax credits. We account for uncertain tax positions in accordance with Accounting Standards
Codification (“ASC”) 740, Income Taxes. This guidance prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more
likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured
as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. In 2009, we entered into a voluntary program with the IRS called Compliance Assurance Process (“CAP”). Under the CAP program, the
IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year. As of December 31, 2022, tax years through 2020 have been audited and are effectively closed to further examination. For
tax years 2021 and 2022, the Company is in the Bridge phase of the CAP program, pursuant to which the IRS will not accept disclosures, will not conduct reviews and will not provide letters of assurance for the Bridge years. There are limited
circumstances that tax years in the Bridge phase will be opened for examination. We have applied for the CAP program for tax year 2023 and are currently waiting on approval from the IRS. With a few exceptions, we are no longer subject to state
and local income tax examination by tax authorities for the years before 2019. Foreign jurisdictions, have varying lengths of statutes of limitations for income tax examinations. Some statutes are as short as three years and in certain markets
may be as long as ten years. We are currently under examination in certain foreign jurisdictions; however, the outcomes of those reviews are not yet determinable.
Our unrecognized tax benefits are related to multiple foreign and domestic jurisdictions. Due to potential changes in unrecognized tax benefits from the multiple jurisdictions in which we operate,
as well as the expiration of various statutes of limitation, it is reasonably possible that our gross unrecognized tax benefits, net of foreign currency adjustments, may increase within the next 12 months by a range of approximately $2.0 to $3.0
million.
At December 31, 2022, we had $23.1 million in unrecognized tax benefits of which $23.1 million, if recognized, would affect the effective tax rate. In comparison, at December 31, 2021, we had $15.1
million in unrecognized tax benefits of which $15.1 million, if recognized, would affect the effective tax rate. We recognized an increase of approximately $5.7 million in interest and penalties expense during the year ended December 31, 2022 and
$1.6 million in interest and penalties during the year ended December 31, 2021. We had approximately $12.4 million, $6.7 million and $5.1 million of accrued interest and penalties related to uncertain tax positions at December 31, 2022, 2021 and
2020, respectively. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.
We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We account for such contingent liabilities in accordance with
relevant accounting standards and believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of
limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial
results.
Intangible Assets. Acquired intangible assets may represent indefinite-lived assets, determinable-lived intangibles or goodwill. Of these, only the costs of determinable-lived intangibles are
amortized to expense over their estimated life. The value of indefinite-lived intangible assets and residual goodwill is not amortized, but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately
from our impairment testing of indefinite-lived intangibles. We test goodwill for impairment, at least annually, by reviewing the book value compared to the fair value at the reportable unit level. We have the option to perform a qualitative
assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an
entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative assessment the fair value of a
reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured. We elected to perform the quantitative assessment for fiscal years 2022 and 2020 and we used the qualitative assessment for fiscal
years 2021. Considerable management judgment is necessary to measure fair value.
We completed the annual goodwill and indefinite-lived intangible asset impairment testing as of October 1, 2022, and concluded that the fair
value of the reporting units were determined to be in excess of its carrying amounts and no goodwill impairment charge was required. As of the October 1, 2022 testing date, the fair value of the Manufacturing reporting unit was estimated to
be approximately 8% in excess of its carrying amount, and therefore the reporting unit is considered to be at risk of future impairment. The Manufacturing reporting unit’s fair value remains sensitive to significant unfavorable changes in
revenue, gross margin and discount rates that could negatively impact future analyses.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there
can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment tests will prove to be an accurate prediction of the future. Although the Manufacturing reporting unit showed strong revenue growth in fiscal
year 2020 and 2021, the fair value of the reporting unit in the current year was negatively impacted by an increase in the discount rate due to the current interest rate
environment, and lower near-term revenue projections. Current projections used for the Manufacturing reporting unit reflect revenue growth attributable to the continued expansion of capacity, continued intercompany sales to Nu Skin,
and the recent acquisition of new customers. While historical performance and current expectations have resulted in fair values of the Manufacturing reporting unit in excess of carrying values, if the assumptions are not realized an
impairment charge may be recorded in the future.
During 2022, we recognized an impairment charge of $1.7 million associated with determinable-lived intangibles. During 2021, we recognized an
impairment charge associated with our exit of the Grow Tech segment. We did not recognize any impairment charges for goodwill or intangible assets during 2020.
Results of Operations
The following table sets forth our operating results as a percentage of revenue for the periods indicated:
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Revenue
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||
|
Cost of sales
|
28.3
|
25.0
|
25.5
|
|||||||||
|
Gross profit
|
71.7
|
75.0
|
74.5
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Selling expenses
|
39.5
|
40.1
|
39.8
|
|||||||||
|
General and administrative expenses
|
25.0
|
24.3
|
24.7
|
|||||||||
|
Restructuring and impairment expenses
|
2.2
|
2.0
|
—
|
|||||||||
|
Total operating expenses
|
66.7
|
66.3
|
64.5
|
|||||||||
|
Operating income
|
5.0
|
8.7
|
10.0
|
|||||||||
|
Other income (expense), net
|
(1.0
|
)
|
(0.1
|
)
|
(0.1
|
)
|
||||||
|
Income before provision for income taxes
|
4.0
|
8.6
|
9.9
|
|||||||||
|
Provision (benefit) for income taxes
|
(0.7
|
)
|
3.1
|
2.5
|
||||||||
|
Net income
|
4.7
|
%
|
5.5
|
%
|
7.4
|
%
|
||||||
2022 Compared to 2021
Overview
Revenue in 2022 decreased 17% to $2.23 billion from $2.70 billion in 2021. Our 2022 revenue was negatively impacted 5% from foreign-currency fluctuations. As of the end of the fourth quarter of
2022, Customers decreased 16%, Paid Affiliates decreased 13% and Sales Leaders decreased 21% compared to the prior year.
Our 2022 revenue was softer than anticipated primarily driven by continuation of COVID-related factors in Mainland China, South Korea and Hong Kong; distractions in EMEA related to the ongoing conflict in Russia
and Ukraine; and the general global economic downturn pressures and associated inflation being felt in our global markets. In the second half of 2022, we began launching our first connected beauty device, ageLOC
LumiSpa iO, which generated approximately $42.1 million in revenue.
Earnings per share in 2022 decreased 28% to $2.07 from $2.86 in 2021. The decrease in earnings per share was primarily attributable to our decline in revenue and an increase in the costs associated with our
restructuring plans in 2022 as compared to 2021, partially offset by benefits from a tax method change, which enabled the utilization of foreign tax credits.
Segment Results
We report our business in nine segments to reflect our current management approach. These segments consist of our seven geographic Nu Skin segments—Americas, Mainland China, Southeast Asia/Pacific, South Korea,
Japan, EMEA and Hong Kong/Taiwan—and our two Rhyz Investment segments—Manufacturing and Rhyz other. The Nu Skin Other category includes miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other investments by
our Rhyz strategic investment arm, which were entered into during 2021.
The following table sets forth revenue for the years ended December 31, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands):
|
Constant
|
||||||||||||||||
|
Year Ended December 31,
|
Currency
|
|||||||||||||||
|
2022
|
2021
|
Change
|
Change(1)
|
|||||||||||||
|
Nu Skin
|
||||||||||||||||
|
Americas
|
$
|
508,537
|
$
|
547,755
|
(7
|
)%
|
(5
|
)%
|
||||||||
|
Mainland China
|
360,389
|
568,774
|
(37
|
)%
|
(35
|
)%
|
||||||||||
|
Southeast Asia/Pacific
|
344,411
|
336,651
|
2
|
%
|
7
|
%
|
||||||||||
|
South Korea
|
268,707
|
354,252
|
(24
|
)%
|
(15
|
)%
|
||||||||||
|
Japan
|
224,896
|
266,216
|
(16
|
)%
|
—
|
|||||||||||
|
EMEA
|
204,275
|
283,200
|
(28
|
)%
|
(19
|
)%
|
||||||||||
|
Hong Kong/ Taiwan
|
157,197
|
162,611
|
(3
|
)%
|
1
|
%
|
||||||||||
|
Other
|
3,959
|
3,653
|
8
|
%
|
8
|
%
|
||||||||||
|
Total Nu Skin
|
2,072,371
|
2,523,112
|
(18
|
)%
|
(12
|
)%
|
||||||||||
|
Rhyz Investments
|
||||||||||||||||
|
Manufacturing
|
149,458
|
172,120
|
(13
|
)%
|
(13
|
)%
|
||||||||||
|
Rhyz Other
|
3,830
|
437
|
776
|
%
|
776
|
%
|
||||||||||
|
Total Rhyz Investments
|
153,288
|
172,557
|
(11
|
)%
|
(11
|
)%
|
||||||||||
|
Total
|
$
|
2,225,659
|
$
|
2,695,669
|
(17
|
)%
|
(12
|
)%
|
||||||||
| (1) |
Constant-currency revenue change is a non-GAAP financial measure. See “Non-GAAP Financial Measures,” below.
|
The table below sets forth segment contribution for the years ended December 31, 2022 and 2021 for each of our reportable segments (U.S. dollars in thousands). Segment contribution excludes certain
intercompany charges, specifically royalties, license fees, transfer pricing and other miscellaneous items. We use segment contribution to measure the portion of profitability that the segment managers have the ability to control for their
respective segments. For additional information regarding our segments and the calculation of segment contribution, see Note 15 to the consolidated financial statements contained in this report.
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
Change
|
||||||||||
|
Nu Skin
|
||||||||||||
|
Americas
|
$
|
110,522
|
$
|
116,265
|
(5
|
)%
|
||||||
|
Mainland China
|
72,362
|
151,645
|
(52
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
85,827
|
81,779
|
5
|
%
|
||||||||
|
South Korea
|
81,804
|
114,034
|
(28
|
)%
|
||||||||
|
Japan
|
54,976
|
67,511
|
(19
|
)%
|
||||||||
|
EMEA
|
21,446
|
41,988
|
(49
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
35,253
|
37,330
|
(6
|
)%
|
||||||||
|
Total Nu Skin
|
462,190
|
610,552
|
(24
|
)%
|
||||||||
|
Rhyz Investments
|
||||||||||||
|
Manufacturing
|
3,570
|
18,346
|
(81
|
)%
|
||||||||
|
Rhyz Other
|
(6,180
|
)
|
(1,813
|
)
|
(241
|
)%
|
||||||
|
Total Rhyz Investments
|
(2,610
|
)
|
16,533
|
(116
|
)%
|
|||||||
The following tables provide information concerning the number of Customers, Paid Affiliates and Sales Leaders in our core Nu Skin business as of December 31, 2022 and 2021. During the first quarter of 2022, in
connection with the introduction of the new metric Paid Affiliates, we reviewed how we currently present Sales Leaders and adjusted that metric’s definition to what we believe provides a better insight into the trends of our business. The
definition of our Customer metric remained unchanged. We have recast the 2021 Sales Leaders to the new definition.
| ● |
“Customers” are persons who have purchased directly from the Company during the three months ended as of the date indicated. Our Customer numbers include members of our sales force who made such a purchase, including Paid Affiliates and
those who qualify as Sales Leaders, but they do not include consumers who purchase directly from members of our sales force.
|
| ● |
“Paid Affiliates” are any Brand Affiliates, as well as members of our sales force in Mainland China, who earned sales compensation during the three-month period. In all of our markets besides Mainland China, we refer to members of our
independent sales force as “Brand Affiliates” because their primary role is to promote our brand and products through their personal social networks.
|
| ● |
“Sales Leaders” are the three-month average of our monthly Brand Affiliates, as well as sales employees and independent marketers in Mainland China, who achieved certain qualification requirements as of the end of each month of the
quarter.
|
|
Three Months Ended
December 31,
|
||||||||||||
|
Customers
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
299,287
|
336,564
|
(11
|
)%
|
||||||||
|
Mainland China
|
202,933
|
315,418
|
(36
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
141,183
|
169,601
|
(17
|
)%
|
||||||||
|
South Korea
|
123,749
|
146,354
|
(15
|
)%
|
||||||||
|
Japan
|
119,152
|
122,813
|
(3
|
)%
|
||||||||
|
EMEA
|
197,917
|
210,414
|
(6
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
62,903
|
66,395
|
(5
|
)%
|
||||||||
|
Total
|
1,147,124
|
1,367,559
|
(16
|
)%
|
||||||||
|
Three Months Ended
December 31,
|
||||||||||||
|
Paid Affiliates
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
42,633
|
49,328
|
(14
|
)%
|
||||||||
|
Mainland China
|
23,436
|
30,546
|
(23
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
38,653
|
44,050
|
(12
|
)%
|
||||||||
|
South Korea
|
45,058
|
52,036
|
(13
|
)%
|
||||||||
|
Japan
|
38,021
|
38,428
|
(1
|
)%
|
||||||||
|
EMEA
|
31,869
|
36,482
|
(13
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
17,286
|
20,155
|
(14
|
)%
|
||||||||
|
Total
|
236,956
|
271,025
|
(13
|
)%
|
||||||||
|
Three Months Ended
December 31,
|
||||||||||||
|
Sales Leaders
|
2022
|
2021
|
Change
|
|||||||||
|
Americas
|
9,594
|
10,879
|
(12
|
)%
|
||||||||
|
Mainland China(1)
|
12,359
|
18,207
|
(32
|
)%
|
||||||||
|
Southeast Asia/Pacific
|
6,999
|
8,800
|
(20
|
)%
|
||||||||
|
South Korea
|
6,094
|
8,224
|
(26
|
)%
|
||||||||
|
Japan
|
5,936
|
5,864
|
1
|
%
|
||||||||
|
EMEA
|
4,740
|
5,743
|
(17
|
)%
|
||||||||
|
Hong Kong/Taiwan
|
3,015
|
3,666
|
(18
|
)%
|
||||||||
|
Total
|
48,737
|
61,383
|
(21
|
)%
|
||||||||
| (1) |
The December 31, 2022 number reflects a modified Sales Leader definition. See “Mainland China,” below.
|
Following is a narrative discussion of our results in each segment, which supplements the tables above.
Americas. Our Americas segment continued to be challenged by macroeconomic issues in our Latin America markets, which drove the decline in revenue, Customers, Paid
Affiliates and Sales Leaders for fiscal year 2022. Our U.S. market revenue increased 4% for the year, on top of 32% revenue growth in 2021, due to continued social selling momentum and subscription enrollment. During the back half of 2022, we
launched ageLOC LumiSpa iO, which generated approximately $20.8 million of revenue.
The year-over-year decline in segment contribution primarily reflects the decline in revenue, along with a 1.3 percentage point decrease in gross margin, from increased sales discounts and
promotions during the year, partially offset by a 2.0 percentage point decrease in selling expenses from sales mix, as our products have differing commission percentages assigned to them.
Mainland China. Our Mainland China market continued to be challenged during 2022, with continued pressures from COVID-related lockdowns and other factors, which negatively
impacted our selling and promotional activities. We anticipate the constraints will continue throughout the first half of 2023. As a result of the economic headwinds in the market we made some modifications to the compensation plan during the
third quarter of 2022, which provides leaders more flexible requirements to maintain their business. Our Mainland China Sales Leaders number as of December 31, 2022 reflects these modified requirements. We believe the regulatory environment in
Mainland China is becoming increasingly challenging and will continue to be so over the medium and long terms. We currently plan to implement certain changes to the structure of our sales compensation in Mainland China due to the evolving
commercial and regulatory environment. These changes could have a negative impact on our sales in that market.
The year-over-year decrease in segment contribution primarily reflects lower revenue in 2022, a 2.7 percentage point decrease in gross margin from increased product promotions and
discounts during the year, and an increase in general and administrative expenses as a percentage of revenue due to the fixed nature of these expenses on lower revenue.
Southeast Asia/Pacific. Our Southeast Asia/Pacific segment revenue increased 2% for 2022, including a 5% negative impact from unfavorable foreign-currency fluctuations. Our revenue benefited from the launch of ageLOC Meta (locally referred to as ageLOC Reset in the Southeast Asia markets), which generated $48.1 million in revenue for 2022, compared to $15.6 million during the fourth quarter of 2021 launch. Our decline in Sales Leaders was
partially driven by our fourth quarter 2021 launch of ageLOC Meta, which led to higher Sales Leaders for 2021. Our product promotions and launches
were focused on re-energizing our existing Sales Leaders, which led to a decline in our Customers and Paid Affiliates.
The year-over-year increase in segment contribution for 2022 primarily reflects the increase in revenue
South Korea. Our South Korea market was challenged from a 2022 price increase to address the inflationary pressures, along with continued COVID-related disruptions during the first half of
2022, resulting in a decline of revenue, Customers, Paid Affiliates, and Sales Leaders. Our 2021 results also benefited from the fourth quarter launch of ageLOC Meta, which contributed $29 million in
revenue compared to $19.7 million for the full year 2022. Our 2022 revenue declined 24%, including a 9% negative impact from unfavorable foreign-currency fluctuations.
The year-over-year decrease in segment contribution primarily reflects the decline in revenue, along with a 1.0 percentage point increase in selling expenses as a percent of revenue primarily
attributable to a regional sales force convention that was held in 2022.
Japan. The decline in revenue is primarily attributable to a 16% negative impact from unfavorable foreign-currency fluctuations. On a local currency basis, revenue increased less than 1%.
The year-over-year decrease in segment contribution is primarily attributable to the decline in reported revenue, along with a decline in gross margin from product mix.
EMEA. The continued softening of momentum in our EMEA segment was driven by distractions to our sales force from the ongoing geopolitical Russia/Ukraine conflict, along with inflationary
pressures driven by the sharp increase in energy cost in EMEA, which led to a decline in revenue, Customers, Paid Affiliates and Sales Leaders. Our reported revenue was also negatively impacted 9% by unfavorable foreign-currency fluctuations.
During 2022, we suspended business operations in Ukraine and closed our market in Russia. The Russia and Ukraine markets have historically accounted for less than 1% of our consolidated revenue.
The year-over-year decline in segment contribution primarily reflects the decreased revenue for 2022, along with a 2.5 percentage point decrease in gross margin, attributable to a more unfavorable
product mix and increased air freight expense in 2022, associated with our launch of Beauty Focus Collagen +.
Hong Kong/Taiwan. Our Hong Kong/Taiwan segment reported a 3% decline in revenue for 2022, with a 4% negative impact from unfavorable foreign-currency fluctuations. The increase in
constant-currency revenue is primarily attributable to growth in our Taiwan market from social selling.
The year-over-year decrease in segment contribution is primarily attributable to the decline in reported revenue, along with a 1.6 percentage point decrease in gross margin.
Manufacturing. Our Manufacturing segment revenue declined 13% for 2022, primarily due to our customers rebalancing their inventory from higher levels in 2021, reducing demand in 2022.
The decline in segment contribution is attributable to lower revenue, the mix of revenue between our manufacturing entities with differing profitability levels and increases in obsolete inventory.
Consolidated Results
Revenue
Revenue for the year ended December 31, 2022 decreased 17% to $2.23 billion, compared to $2.70 billion in the prior-year period. For a discussion and analysis of this increase in revenue, see
“Overview” and “Segment Results,” above.
Gross profit
Gross profit as a percentage of revenue decreased to 71.7% in 2022, compared to 75.0% in 2021. Gross profit as a percentage of revenue for core Nu Skin decreased 2.8 percentage points to
75.4%, primarily driven by our strategic decision to align our inventory on hand with our future sales and promotional plans, which resulted in an incremental $26.9 million write-off, and is recorded in our Corporate and other category.
Our Nu Skin gross margin was also negatively impacted by increased sales promotion and a shift in our geographical revenue mix, as our markets have differing gross margins.
Selling expenses
Selling expenses as a percentage of revenue decreased to 39.5% in 2022, compared to 40.1% for 2021. Our core Nu Skin business’s selling expense as a percentage of revenue decreased 0.5 percentage
points to 42.3% for 2022, compared to 42.8% for 2021. Selling expenses for our core Nu Skin business are driven by the specific performance of our individual Sales Leaders. Given the size of our sales force and the various components of our
compensation and incentive programs, selling expenses as a percentage of revenue typically fluctuate plus or minus approximately 100 basis points from period to period.
General and administrative expenses
General and administrative expenses decreased to $555.8 million in 2022, compared to $654.4 million in 2021. The $98.6 million decrease primarily reflects an approximately
$50.0 million decrease to labor expenses from lower employee performance incentive compensation and savings realized from our 2022 restructuring plan, as well as the impact from the fourth quarter 2021 exit of the Grow Tech segment, which
incurred $25.3 million in general and administrative expenses in 2021. As a percentage of revenue, general and administrative increased 0.7 percentage points to 25.0% for 2022,
compared to 24.3% for 2021.
Restructuring and impairment expenses
In the fourth quarter of 2021, we adopted a restructuring program. We determined to exit our Grow Tech segment, as a strategic shift to better align our resources on key strategic initiatives to
achieve the future growth objectives and priorities of the core Nu Skin business. As a result of the restructuring program, we recorded $51.9 million in restructuring and impairment charges in 2021, consisting primarily of a non-cash charge of
$38.5 million for impairment of goodwill, intangibles and fixed assets, and $20.0 million of cash charges, including $6.5 million for employee severance and $13.5 million for other related cash charges associated with our restructuring. During
2022, we incurred $5 million in incremental cash charges associated with the exit activities and legal settlements. The restructuring charges were recorded in our previous Grow Tech segment, which has been recast to Corporate & Other.
In the third quarter of 2022, we adopted a strategic plan to focus resources on our strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint
optimization. We estimate total charges under the program will approximate $50–$55 million, with $40–$45 million in cash charges of severance and lease termination cost and approximately $10 million of non-cash charges of impairment of fixed assets
and other intangibles related to the footprint optimization. We expect to substantially complete the program during the first half of 2023. During 2022, we incurred charges to be settled in cash of $20.1 million in severance charges, $7.4 million
in lease termination cost, and $5.2 million in other associated cost, and non-cash charges of $8.2 million in fixed asset impairments, $0.9 million in accelerated depreciation and $1.7 million in impairment of other intangibles.
Other income (expense), net
Other income (expense), net for 2022 was $(21.9) million of expense, compared to $(1.5) million of expense in 2021. The increase in other expense for 2022 is attributable to a $9.3 million unrealized investment loss
for 2022 related to a controlled environment agriculture company we invested in as part of our previous Grow Tech segment, a $1.8 million increase in interest expense from the higher interest rates during the back half of 2022, and a $1.2 million
increase in foreign currency losses from the strengthening of the U.S. dollar. The increase in expense also reflects a $18.1 million unrealized investment gain in 2021, which was partially offset by a $10.7 million loss on asset disposal in 2021.
Provision for income taxes
Provision (benefit) for income taxes decreased to $(15.8) million in 2022 from $85.2 million in 2021. Our effective tax rate decreased to (17.8)% of pre-tax income in 2022 from 36.6%
in 2021. The decrease in the effective tax rate for 2022 is primarily due to the release of valuation allowance on foreign tax credits.
For 2023, we currently anticipate that our effective tax rate will be approximately 18-26%. Our actual 2023 effective tax rate could differ materially from this estimate. Our future effective tax
rates could fluctuate significantly, being affected by numerous factors, such as intercompany transactions, changes in our business operations, foreign audits, increases in uncertain tax positions, acquisitions, entry into new markets, the amount
of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have a lower statutory rate and higher than anticipated in jurisdictions where we have a higher statutory rate, losses incurred in jurisdictions,
the inability to realize tax benefits, withholding taxes, changes in foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation.
Net income
As a result of the foregoing factors, net income in 2022 decreased to $104.8 million, compared to $147.3 million in 2021.
2021 Compared to 2020
For a comparison of our operating results for 2021 compared to 2020, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 46 of our Annual Report on Form
10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 16, 2022.
Liquidity and Capital Resources
Historically, our principal uses of cash have included operating expenses (particularly selling expenses) and working capital (principally inventory purchases), as well as capital
expenditures, stock repurchases, dividends, debt repayment and the development of operations in new markets. We have at times incurred long-term debt, or drawn on our revolving line of credit, to fund strategic transactions, stock repurchases,
capital investments and short-term operating needs. We typically generate positive cash flow from operations due to favorable margins and have generally relied on cash from operations to fund operating activities. We generated $108.1 million in
cash from operations during 2022, compared to $141.6 million in cash from operations during 2021. The decrease in cash flow from operations primarily reflects higher payout of expenses associated with our 2021 and 2022 restructuring
programs, partially offset by an approximate $40.3 million decline in inventory during 2022, compared to an increase in the prior year, as we continue to optimize inventory levels.
As of December 31, 2022, cash and cash equivalents, including current investments, were $278.5 million compared to $354.8 million as of December 31, 2021. The decrease in cash and cash equivalents
during the year primarily reflects our quarterly dividend payments, repurchases of our stock, the purchases of property and equipment, and payment on liabilities associated with our 2021 and 2022 restructuring programs. Working capital as of
December 31, 2022 was $400.6 million compared to $343.3 million as of December 31, 2021. The increase in working capital is attributable to our second quarter debt modification, which for 2022 resulted in a net $27.5 million of incremental
borrowings, while shifting $82.5 million from current to long-term debt.
Cash requirements. For 2023, we currently expect that our material cash requirements will include the following:
| ● |
Cash requirements for operating activities. Our operating expenses typically total approximately 85%-90% of our revenue, with compensation to our sales force constituting 40%-43% of our core Nu Skin revenue.
These compensation expenses consist primarily of commission payments, which we generally pay to our sales force within approximately one to two months of the sale. Inventory purchases have historically constituted approximately 15%-20% of
our revenue. On average, we purchase our inventory approximately three to six months prior to sale. While our actual cash usage may vary based on the timing of payments, we currently expect these approximate percentages and payment
practices to continue in 2023. In addition, we expect our 2023 lease payments will be approximately $29.9 million.
|
| ● |
Cash requirements for investing activities. As discussed in more detail below, our capital expenditures are expected to be $75-95 million for 2023.
|
| ● |
Cash requirements for financing activities. In 2023 we are obligated to make a total of $15.0 million in quarterly principal payments plus the associated interest on our term loan. We also anticipate paying
quarterly cash dividends throughout 2023, approximating $19-20 million per quarter depending on the number of shares outstanding as of record date. Additional details about our dividends and term loan are provided below.
|
For 2024 and onward, we currently expect the above material cash requirements will remain. See Note 6 and Note 7 to the consolidated financial statements contained in this report for our future
cash requirements related to our debt principal repayment and our maturities of lease liabilities.
We intend to fund the aforementioned cash requirements with our cash from operations and draw on our revolving credit facility, as needed, to address any short-term funding requirements.
Capital expenditures. Capital expenditures in 2022 totaled $59.1 million. As with 2022, we expect that the capital expenditures in 2023 will be primarily related to:
| ● |
the expansion and upgrade of facilities in our various markets;
|
| ● |
purchases and expenditures for computer systems and equipment, software, and application development; and
|
| ● |
a new manufacturing plant in Mainland China.
|
We estimate that capital expenditures for the uses listed above will total approximately $75–95 million for 2023. We are currently expecting to complete construction of our new manufacturing plant
in Mainland China in the first half of 2023. As of December 31, 2022, we have spent approximately $50.7 million on this project, including $13.4 million in 2022, and expect that our expenditures for this project will total approximately $54-56
million, including approximately $3-5 million during 2023.
Credit Agreement. On June 14, 2022, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with various financial institutions as lenders and Bank of America, N.A., as administrative
agent. The Credit Agreement provides for a $400.0 million term loan facility and a $500.0 million revolving credit facility, each with a term of five years. We used the proceeds of the term loan and the draw on the revolving facility to pay off the
previous credit agreement. Both facilities bear interest at the Secured Overnight Financing Rate (“SOFR”), plus a margin based on our consolidated leverage ratio. The term loan facility amortizes in quarterly
installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the subsequent years after the closing date of the Credit Agreement, with the remainder payable at final maturity. As of December 31, 2022, we
had $10.0 million of outstanding borrowings under our revolving credit facility, and $395.0 million on our term loan facility. The carrying value of the debt also reflects debt issuance costs of $2.5 million as of December 31, 2022, related to the
Credit Agreement. The Credit Agreement requires us to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of December 31, 2022, we were in compliance with all
debt covenants under the Credit Agreement.
Modification of previous credit agreement. On June 14, 2022, we repaid our outstanding debt under our previous credit agreement, dated as of April 18, 2018, with several financial institutions as lenders and
Bank of America, N.A., as administrative agent. We had indebtedness of $70.0 million on our revolver as of December 31, 2021, and $307.5 million on our term loan as of December 31, 2021.
Derivative instruments. As of December 31, 2022, we had four interest rate swaps, with a total notional principal amount of $200 million and a maturity date of July 31, 2025. We entered into these interest
rate swap arrangements during the third quarter of 2020 to hedge the variable cash flows associated with our variable-rate debt under the Credit Agreement.
Stock repurchase plan. In 2018, our board of directors approved a stock repurchase plan authorizing us to repurchase up to $500.0 million of our outstanding shares of Class A common stock on
the open market or in private transactions. During 2022, we repurchased approximately 1.7 million shares of our Class A common stock under the plan for $70.0 million. As of December 31, 2022, $175.4 million was available for repurchases under the
plan. Our stock repurchases are used primarily to offset dilution from our equity incentive plans and for strategic initiatives.
Dividends. We paid quarterly cash dividends of $0.385 per share in March, June, September and December of 2022, for a total of $19.3 million, $19.4 million, $19.3 million
and $19.0 million, respectively. In February 2023, our board of directors declared a quarterly cash dividend of $0.39 per share to be paid on March 8, 2023 to stockholders of record on February 27, 2023. Currently, we anticipate that our board of
directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments. However, the continued declaration of dividends is subject to the discretion of our board
of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other relevant factors.
Cash from foreign subsidiaries. As of December 31, 2022 and 2021, we held $278.5 million and $354.8 million, respectively, in cash and cash equivalents, including current investments. These
amounts include $223.0 million and $274.9 million as of December 31, 2022 and 2021, respectively, held in our operations outside of the United States. Substantially all of our non-U.S. cash and cash equivalents are readily convertible into U.S.
dollars or other currencies, subject to procedural or other requirements in certain markets, as well as an indefinite-reinvestment designation, as described below.
We typically fund the cash requirements of our operations in the United States through intercompany dividends, intercompany loans and intercompany charges for products, use of
intangible property, and corporate services. However, some markets impose government-approval or other requirements for the repatriation of dividends. For example, in Mainland China, we are unable to repatriate cash from current operations in
the form of dividends until we file the necessary statutory financial statements for the relevant period. As of December 31, 2022 and 2021, we had $33.4 million and $50.3 million, respectively, in cash denominated in Chinese RMB. We
also have experienced delays in repatriating cash from Argentina. As of December 31, 2022 and 2021, we had $14.9 million and $11.3 million, respectively, in intercompany receivable with our Argentina subsidiary. We
also have intercompany loan arrangements with some of our markets, including Mainland China, that allow us to access available cash, subject to certain limits in Mainland China and other jurisdictions. We also have drawn on our revolving line
of credit to address cash needs until we can repatriate cash from Mainland China or other markets, and we may continue to do so. Except for $60 million of earnings in Mainland China that we designated as indefinitely reinvested during the
second quarter of 2018, we currently plan to repatriate undistributed earnings from our non-U.S. operations as necessary, considering the cash needs of our non-U.S. operations and the cash needs of our U.S. operations for dividends, stock
repurchases, capital investments, debt repayment and strategic transactions. Repatriation of non-U.S. earnings is subject to withholding taxes in certain foreign jurisdictions. Accordingly, we have accrued the necessary withholding taxes
related to the non-U.S. earnings.
We currently believe that existing cash balances, future cash flows from operations and existing lines of credit will be adequate to fund our cash needs on both a short- and long-term basis. The
majority of our historical expenses have been variable in nature and as such, a potential reduction in the level of revenue would reduce our cash flow needs. In the event that our current cash balances, future cash flow from operations and
current lines of credit are not sufficient to meet our obligations or strategic needs, we would consider raising additional funds in the debt or equity markets or restructuring our current debt obligations. Additionally, we would consider
realigning our strategic plans, including a reduction in capital spending, stock repurchases or dividend payments.
Non-GAAP Financial Measures
Constant-currency revenue change is a non-GAAP financial measure that removes the impact of fluctuations in foreign-currency exchange rates, thereby facilitating period-to-period comparisons of the Company’s
performance. It is calculated by translating the current period’s revenue at the same average exchange rates in effect during the applicable prior-year period and then comparing that amount to the prior-year period’s revenue. We believe that
constant-currency revenue change is useful to investors, lenders, and analysts because such information enables them to gauge the impact of foreign-currency fluctuations on our revenue from period to period.
Contingent Liabilities
Please refer to Note 16 to the consolidated financial statements contained in this report for information regarding our contingent liabilities.
Seasonality and Cyclicality
In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and vacation patterns. For example, most Asian markets celebrate their
respective local New Year in the first quarter, which generally has a negative impact on that quarter. We believe that direct selling is also generally negatively impacted during the third quarter, when many individuals, including our sales
force, traditionally take vacations.
Prior to making a product generally available for purchase in a market, we often do one or more introductory offerings of the product, such as a preview of the product to our Sales Leaders or other
product introduction or promotion. These offerings sometimes generate significant activity and a high level of purchasing, which can result in a higher-than-normal increase in revenue, Sales Leaders, Paid Affiliates and/or Customers during the
quarter and can skew year-over-year and sequential comparisons.
Recent Accounting Pronouncements
A description of new accounting pronouncements is contained in Note 2 to consolidated financial statements contained in this report.
Currency Risk and Exchange Rate Information
A majority of our revenue and many of our expenses are recognized outside of the United States, except for inventory purchases, a significant portion of which are primarily transacted in U.S.
dollars from vendors in the United States. The local currency of each of our Subsidiaries’ primary markets is considered the functional currency with the exception of our Asia product-distribution subsidiary in Singapore and, as discussed below,
our subsidiary in Argentina. All revenue and expenses are translated at weighted-average exchange rates for the periods reported. Therefore, our reported revenue 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. These impacts may be significant because a large portion of our business is derived from outside of the United States. Given the uncertainty of exchange rate fluctuations, it is
difficult to predict the effect of these fluctuations on our future business, product pricing and results of operations or financial condition.
In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100%, and as of July 1, 2018, we elected to adopt highly
inflationary accounting for our subsidiary in Argentina. Under highly inflationary accounting, Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet have been measured in U.S. dollars using both
current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other income (expense), net and was not material. As of December 31, 2022, our
Argentina subsidiary had a small net peso monetary position. Net sales of Argentina were less than 2% of our consolidated net sales for 2022, 2021 and 2020.
We may seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts and through intercompany loans of foreign currency. We do
not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results. As of
December 31, 2022, and 2021, we did not hold non-designated mark-to-market forward derivative contracts to hedge foreign-denominated intercompany positions or third-party foreign debt. As of December 31, 2022 and 2021, we did not hold any forward
contracts designated as foreign-currency cash flow hedges. We continue to evaluate our foreign currency hedging policy.
Following are the weighted-average currency exchange rates of U.S. $1 into local currency for each of our international or foreign markets in which revenue exceeded U.S. $5.0 million for at least
one of the quarters listed:
|
2022
|
2021
|
|||||||||||||||||||||||||||||||
|
4th Quarter
|
3rd Quarter
|
2nd Quarter
|
1st Quarter
|
4th Quarter
|
3rd Quarter
|
2nd Quarter
|
1st Quarter
|
|||||||||||||||||||||||||
|
Argentina
|
162.6
|
136.8
|
118.6
|
107.0
|
100.5
|
97.4
|
93.9
|
88.8
|
||||||||||||||||||||||||
|
Australia
|
1.5
|
1.5
|
1.4
|
1.4
|
1.4
|
1.4
|
1.3
|
1.3
|
||||||||||||||||||||||||
|
Canada
|
1.4
|
1.3
|
1.3
|
1.3
|
1.3
|
1.3
|
1.2
|
1.3
|
||||||||||||||||||||||||
|
Colombia
|
4,826.4
|
4,379.4
|
3,929.8
|
3,891.6
|
3,882.7
|
3,840.4
|
3,690.7
|
3,560.4
|
||||||||||||||||||||||||
|
Chile
|
915.8
|
930.6
|
840.9
|
809.1
|
827.4
|
773.6
|
716.8
|
724.0
|
||||||||||||||||||||||||
|
Eurozone countries
|
1.0
|
1.0
|
0.9
|
0.9
|
0.9
|
0.8
|
0.8
|
0.8
|
||||||||||||||||||||||||
|
Hong Kong
|
7.8
|
7.8
|
7.8
|
7.8
|
7.8
|
7.8
|
7.8
|
7.8
|
||||||||||||||||||||||||
|
Indonesia
|
15,553
|
14,933
|
14,536
|
14,344
|
14,274
|
14,373
|
14,393
|
14,202
|
||||||||||||||||||||||||
|
Japan
|
140.8
|
138.1
|
129.5
|
116.2
|
113.6
|
110.1
|
109.5
|
106.0
|
||||||||||||||||||||||||
|
Mainland China
|
7.1
|
6.8
|
6.6
|
6.3
|
6.4
|
6.5
|
6.5
|
6.5
|
||||||||||||||||||||||||
|
Malaysia
|
4.6
|
4.5
|
4.3
|
4.2
|
4.2
|
4.2
|
4.1
|
4.1
|
||||||||||||||||||||||||
|
Mexico
|
19.7
|
20.2
|
20.0
|
20.5
|
20.7
|
20.0
|
20.0
|
20.4
|
||||||||||||||||||||||||
|
Philippines
|
57.2
|
56.3
|
52.7
|
51.6
|
50.4
|
50.2
|
48.2
|
48.3
|
||||||||||||||||||||||||
|
Singapore
|
1.4
|
1.4
|
1.4
|
1.4
|
1.4
|
1.4
|
1.3
|
1.3
|
||||||||||||||||||||||||
|
South Africa
|
17.6
|
17.0
|
15.5
|
15.2
|
15.4
|
14.6
|
14.1
|
15.0
|
||||||||||||||||||||||||
|
South Korea
|
1,358.2
|
1,342.2
|
1,262.1
|
1,206.2
|
1,183.8
|
1,159.7
|
1,121.2
|
1,115.3
|
||||||||||||||||||||||||
|
Taiwan
|
31.1
|
30.4
|
29.4
|
28.0
|
27.8
|
27.9
|
28.0
|
28.1
|
||||||||||||||||||||||||
|
Thailand
|
36.2
|
36.4
|
34.5
|
33.0
|
33.3
|
32.9
|
31.4
|
30.3
|
||||||||||||||||||||||||
|
Vietnam
|
24,303
|
23,463
|
23,081
|
22,770
|
22,780
|
22,889
|
23,041
|
23,052
|
||||||||||||||||||||||||
Interest Rate Risk
We are exposed to risks related to fluctuations in interest rates on our outstanding variable rate debt. As of December 31, 2022, we had $402.5 million outstanding on the term loan, net of unamortized debt issuance
cost and outstanding borrowings on our revolving credit facility. Our four interest rate swaps reduce our exposure to interest rate risk on our term loan by $200.0 million as of December 31, 2022. As a result, the total variable debt of $202.5
million was exposed to market risks as of December 31, 2022. A hypothetical one percentage point increase (decrease) in interest rates on our variable rate debt would increase (decrease) our annual interest expense by approximately $2.0 million.
For variable rate debt, interest rate changes generally do not affect the fair value of the debt instrument, but do impact future earnings and cash flows, assuming other factors are held constant. We
have not entered into and currently do not hold derivatives for trading or speculative purposes.
For additional information about our market risk see Note 14 to the consolidated financial statements contained in this report.
| 1. |
Financial Statements. Set forth below is the index to the Financial Statements included in this Item 8:
|
|
Page
|
|
|
Consolidated Balance Sheets at December 31, 2022 and 2021
|
59
|
|
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
|
60
|
|
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022,
2021 and 2020
|
61
|
|
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022,
2021 and 2020
|
62
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2022,
2021 and 2020
|
63
|
|
64
|
|
| 89 |
|
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.
|
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
ASSETS
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Current investments
|
|
|
||||||
|
Accounts receivable, net
|
|
|
||||||
|
Inventories, net
|
|
|
||||||
|
Prepaid expenses and other
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property and equipment, net
|
|
|
||||||
|
Operating lease right-of-use assets
|
|
|
||||||
|
Goodwill
|
|
|
||||||
|
Other intangible assets, net
|
|
|
||||||
|
Other assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current liabilities
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued expenses
|
|
|
||||||
|
Current portion of long-term debt
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Long-term debt
|
|
|
||||||
|
Other liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (Notes 7 and 16)
|
|
|
||||||
|
Stockholders’ equity
|
||||||||
|
Class A common stock –
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Treasury stock, at cost –
|
(
|
)
|
(
|
)
|
||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Retained earnings
|
|
|
||||||
|
Total stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands, except per share amounts)
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Revenue
|
$
|
|
$
|
|
$
|
|
||||||
|
Cost of sales
|
|
|
|
|||||||||
|
Gross profit
|
|
|
|
|||||||||
|
Operating expenses:
|
||||||||||||
|
Selling expenses
|
|
|
|
|||||||||
|
General and administrative expenses
|
|
|
|
|||||||||
|
Restructuring and impairment expenses
|
|
|
|
|||||||||
|
Total operating expenses
|
|
|
|
|||||||||
|
Operating income
|
|
|
|
|||||||||
|
Other income (expense), net (Note 17)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Income before provision for income taxes
|
|
|
|
|||||||||
|
Provision (benefit) for income taxes
|
(
|
)
|
|
|
||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Net income per share:
|
||||||||||||
|
Basic
|
$
|
|
$
|
|
$
|
|
||||||
|
Diluted
|
$
|
|
$
|
|
$
|
|
||||||
|
Weighted-average common shares outstanding (000s):
|
||||||||||||
|
Basic
|
|
|
|
|||||||||
|
Diluted
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustment, net of taxes of $
|
(
|
)
|
(
|
)
|
|
|||||||
|
Net unrealized gains/(losses) on cash flow hedges, net of taxes of $(
|
|
|
|
|||||||||
|
Less: Reclassification adjustment for realized losses/(gains) in current earnings on cash flow hedges, net of taxes of $
|
(
|
)
|
|
|
||||||||
|
(
|
)
|
(
|
)
|
|
||||||||
|
Comprehensive income
|
$
|
|
$
|
|
$
|
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
|
Class A
Common
Stock
|
Additional
Paid-in
Capital
|
Treasury
Stock, at
cost
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Total
|
|||||||||||||||||||
|
Balance at January 1, 2020
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
||||||||||||||||||
|
Repurchase of Class A common stock (Note 8)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Exercise of employee stock options (
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Balance at December 31, 2020
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive loss, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Repurchase of Class A common stock (Note 8)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Exercise of employee stock options (
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Balance at December 31, 2021
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
||||||||||||||||||
|
Other comprehensive loss, net of tax
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||
|
Repurchase of Class A common stock (Note 8)
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||
|
Exercise of employee stock options (
|
|
(
|
)
|
|
|
|
|
|||||||||||||||||
|
Stock-based compensation
|
|
|
|
|
|
|
||||||||||||||||||
|
Cash dividends
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
|
Balance at December 31, 2022
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
(U.S. dollars in thousands)
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$
|
|
$
|
|
$
|
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
|
|
|
|||||||||
|
Non-cash lease expense
|
|
|
|
|||||||||
|
Stock-based compensation
|
|
|
|
|||||||||
|
Foreign currency (gains)/losses
|
|
|
(
|
)
|
||||||||
|
Loss on disposal of assets
|
|
|
|
|||||||||
|
Impairment of fixed assets and other intangibles
|
|
|
|
|||||||||
|
Unrealized (gain)/losses on equity investments
|
( |
) | ||||||||||
|
Deferred taxes
|
(
|
)
|
|
(
|
)
|
|||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accounts receivable, net
|
(
|
)
|
|
(
|
)
|
|||||||
|
Inventories, net
|
|
(
|
)
|
(
|
)
|
|||||||
|
Prepaid expenses and other
|
|
|
(
|
)
|
||||||||
|
Other assets
|
|
(
|
)
|
(
|
)
|
|||||||
|
Accounts payable
|
|
(
|
)
|
|
||||||||
|
Accrued expenses
|
(
|
)
|
(
|
)
|
|
|||||||
|
Other liabilities
|
(
|
)
|
|
|
||||||||
|
Net cash provided by operating activities
|
|
|
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchases of property and equipment
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds on investment sales
|
|
|
|
|||||||||
|
Purchases of investments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Acquisitions (net of cash acquired)
|
|
(
|
)
|
(
|
)
|
|||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Exercise of employee stock options and taxes paid related to the net shares settlement of stock awards
|
||||||||||||
|
Payment of cash dividends
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Repurchase of shares of common stock
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Finance lease principal payments
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Payment of debt issuance cost
|
( |
) | ||||||||||
|
Payments on debt
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Proceeds from debt
|
|
|
|
|||||||||
|
Net cash used in financing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
|
|||||||
|
Net increase (decrease) in cash and cash equivalents
|
(
|
)
|
(
|
)
|
|
|||||||
|
Cash and cash equivalents, beginning of period
|
|
|
|
|||||||||
|
Cash and cash equivalents, end of period
|
$
|
|
$
|
|
$
|
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
NU SKIN ENTERPRISES, INC.
| 1. |
The Company
|
Nu Skin Enterprises, Inc. (the “Company”) is a holding company, with Nu Skin being the primary operating
unit. Nu Skin develops and distributes premium-quality, innovative beauty and wellness products that are sold worldwide under the Nu Skin, Pharmanex and ageLOC brands and a small number of other products and services. The Company reports
revenue from nine segments, consisting of its seven geographic Nu Skin segments—Americas, which includes Canada, Latin America and the United States; Mainland
China; Southeast Asia/Pacific, which includes Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Australia, New Zealand, and other markets; South Korea; Japan; Europe, Middle East and Africa (“EMEA”), which includes markets in
Europe as well as Israel and South Africa; and Hong Kong/Taiwan, which also includes Macau—and two Rhyz Investments
segments—Manufacturing, which includes manufacturing and packaging subsidiaries it has acquired; and Rhyz other, which includes other investments by its Rhyz strategic investment arm (the Company’s subsidiaries operating within each segment are
collectively referred to as the “Subsidiaries”).
| 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 accounting principles generally accepted
in the United States of America (“U.S. GAAP”), required management to make estimates and assumptions that affected 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 revenue and expenses during the reporting period. Actual results may differ from these estimates.
Reclassifications
Certain prior period
amounts have been reclassified to conform to the current presentation. The Company reclassified $12.0 million and $10.4 million of events and other miscellaneous selling costs from the general and administration expenses line to the line on the
consolidated statement of income for the years ended December 31, 2021 and 2020, respectively. The Company believes these costs are better reflected in selling expenses. The reclassification had no impact on operating income for the years ended
December 31, 2021 and 2020.
Cash and cash equivalents
Cash equivalents are short-term, highly liquid instruments with original maturities of 90 days or less.
Accounts receivable
Accounts receivable
represents amounts owed to us through our operating activities and are presented net of allowance for doubtful accounts. Accounts receivable for core Nu Skin consists primarily of credit card receivables, while accounts receivable for our Rhyz
investments consists primarily of trade receivables from customer sales. For the Company’s trade receivables from its Rhyz investment customers, the Company performs ongoing credit evaluations of its customers and maintains an allowance for
expected credit losses. The allowance for expected credit losses represents the Company’s best estimate based on current and historical information, and reasonable and supportable forecasts of future events and circumstances.
Inventories
Inventories consist primarily of merchandise purchased for resale and are stated at the lower of standard cost or net realizable value, using a standard cost method
which approximates the first-in, first-out method. The Company had reserves of its inventory carrying value totaling $37.3 million and $18.6 million as of December 31, 2022 and 2021, respectively.
Inventories consist of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Raw materials
|
$
|
|
$
|
|
||||
|
Finished goods
|
|
|
||||||
|
Total inventory, net
|
$
|
|
$
|
|
||||
Reserves of inventories consist of the following (U.S. dollars in thousands):
|
2022
|
2021
|
2020
|
||||||||||
|
Beginning balance
|
$
|
|
$
|
|
$
|
|
||||||
|
Additions
|
|
|
|
|||||||||
|
Write-offs
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Ending balance
|
$
|
|
$
|
|
$
|
|
||||||
Prepaid expense and other
Prepaid expenses and other consist of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Deferred charges
|
$
|
|
$
|
|
||||
|
Prepaid income tax
|
|
|
||||||
|
Prepaid inventory and import costs
|
|
|
||||||
|
Prepaid rent, insurance and other occupancy costs
|
|
|
||||||
|
Prepaid promotion and event cost
|
|
|
||||||
|
Prepaid other taxes
|
|
|
||||||
|
Derivative financial instruments
|
||||||||
|
Prepaid software license
|
|
|
||||||
|
Deposits
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total prepaid expense and other
|
$
|
|
$
|
|
||||
Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the following estimated useful
lives:
|
Buildings
|
|
|
Furniture and fixtures
|
|
|
Computers and equipment
|
|
|
Leasehold improvements
|
|
|
Scanners
|
|
|
Vehicles
|
|
Expenditures for maintenance and repairs are charged to expense as incurred. When an asset is sold or otherwise disposed of, the cost and associated accumulated
depreciation are removed from the accounts and the resulting gain or loss is recognized in the statement of income. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, accrued expenses and
operating lease liabilities on the consolidated balance sheets. Finance leases are included in other assets, accrued expenses and other liabilities on the consolidated balance sheets.
Operating lease ROU assets represent the Company’s right to
use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the
estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating
lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will
exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain
any residual value guarantees.
The Company has lease agreements with lease and non-lease components. The Company accounts for the lease and non-lease components as a single lease component.
Goodwill and other intangible assets
Goodwill is recorded
when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Goodwill and intangible assets with indefinite useful lives are not amortized, but are assessed for impairment annually on October 1. In addition,
impairment testing is conducted when events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill and intangible assets with indefinite useful lives would be
written down to fair value if considered impaired. Guidance under Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”), requires an entity to test goodwill for impairment on at least an annual basis. The Company had the option
to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the
qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If under the quantitative
assessment the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured. In fiscal years 2022 and 2020, a quantitative assessment was performed. The Company elected to perform
the qualitative assessment during fiscal year 2021, and determined that it is not more likely than not the carrying value exceeds the fair value of the reporting units. Intangible assets with finite useful lives are amortized to their estimated
residual values over such finite lives using the straight-line method and reviewed for impairment whenever events or circumstances warrant such a review.
The
Company has historically evaluated its goodwill for impairment annually as of June 30 or more frequently if impairment indicators arose in accordance with ASC 350, “Intangibles - Goodwill and Other.” In the fourth quarter of 2021, the Company
changed the date of its annual assessment of goodwill to October 1 for all reporting units. The change in testing date for goodwill is a change in accounting principle, which management believes is preferable as the new date of the assessment
better aligns with the Company’s budgeting process and will create a more efficient and timely process surrounding the impairment tests. The change in the assessment date does not delay, accelerate or avoid a potential impairment charge. The
Company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such, the
Company prospectively applied the change in annual goodwill impairment testing date from October 1, 2021. No
As
discussed further in Note 20 of the Notes to Consolidated Financial Statements, during the fourth quarter of fiscal year 2021, the Company recognized an $18.2
million goodwill and intangibles impairment charge related to the Grow Tech segment, which was included in
in the consolidated statement of income. During fiscal year 2022, the Company recorded a $1.7 million impairment of other intangibles.
The Company completed the annual goodwill and indefinite-lived intangible asset impairment testing as of October 1, 2022, and concluded that the
fair value of the reporting units were determined to be in excess of its carrying amounts and no goodwill impairment charge was
required. As of the October 1, 2022 testing date, the fair value of the Manufacturing reporting unit was estimated to be approximately 8 %
in excess of its carrying amount, and therefore the reporting unit is considered to be at risk of future impairment. The Manufacturing reporting unit’s fair value remains sensitive to significant unfavorable changes in revenue, gross margin
and discount rates that could negatively impact future analyses.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there
can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment tests will prove to be an accurate prediction of the future. Although the Manufacturing reporting unit showed strong revenue growth in fiscal
year 2020 and 2021, the fair value of the reporting unit in the current year was negatively impacted by an increase in the discount rate due to the current interest rate
environment, and lower near-term revenue projections. Current projections used for the Manufacturing reporting unit reflect revenue growth attributable to the continued expansion of capacity, continued intercompany sales to Nu Skin,
and the recent acquisition of new customers. While historical performance and current expectations have resulted in fair values of the Manufacturing reporting unit in excess of carrying values, if the assumptions are not realized an
impairment charge may be recorded in the future.
Equity investments
The Company holds strategic investments in other companies.
These investments are accounted for under the measurement alternative described in ASC 321, Investments - Equity Securities (“ASC 321”) for equity investments that do not have readily determinable fair values. These investments are measured at cost, less impairment, if any, plus or minus changes resulting
from observable price changes in orderly transactions for identical or similar investments of the same issuer. The Company does not exercise significant influence over these companies. These investments are carried on the consolidated balance
sheets within Other Assets. Changes in fair value based on impairments or resulting from observable price changes are recorded in Other Income (expense), net on the consolidated statements of income. See Note 10 – Fair Value and Equity
Investments, for further details around the Company’s equity investments.
Other assets
Other assets consist of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Deferred taxes
|
$
|
|
$
|
|
||||
|
Deposits for noncancelable operating leases
|
|
|
||||||
|
Cash surrender value for life insurance policies
|
|
|
||||||
|
|
|
|
||||||
|
Derivative financial instruments
|
||||||||
| Long-term investments | ||||||||
|
Other
|
|
|
||||||
|
Total other assets
|
$
|
|
$
|
|
||||
Accrued expenses
Accrued expenses consist of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Accrued sales force commissions and other payments
|
$
|
|
$
|
|
||||
|
Accrued other taxes
|
|
|
||||||
|
Accrued payroll and other employee expenses
|
|
|
||||||
|
Accrued payable to vendors
|
|
|
||||||
|
|
|
|
||||||
|
Accrued royalties
|
|
|
||||||
|
Sales return reserve
|
|
|
||||||
|
Deferred revenue
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total accrued expenses
|
$
|
|
$
|
|
||||
Other liabilities
Other liabilities consist of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Deferred tax liabilities
|
$
|
|
$
|
|
||||
|
Reserve for other tax liabilities
|
|
|
||||||
|
Liability for deferred compensation plan
|
|
|
||||||
|
Contingent consideration
|
|
|
||||||
|
|
|
|
||||||
|
Asset retirement obligation
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total other liabilities
|
$
|
|
$
|
|
||||
Revenue recognition
Net sales include products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. The Company recognizes revenue by transferring the promised products to the customer,
with revenue recognized at shipping point, the point in time the customer obtains control of the products. The Company recognizes revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. A
reserve for product returns is accrued based on historical experience totaling $3.4 million and $3.5 million as of December 31, 2022 and 2021, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company recorded sales returns of $31.6 million, $52.1 million and $49.5 million, respectively. The majority of the Company’s contracts have a single performance obligation and are short term in nature. Sales taxes and
value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Contract Liabilities – Customer Loyalty Programs
Contract liabilities, recorded as deferred revenue within the accrued expenses line in the consolidated balance sheets, include loyalty point program deferrals with
certain customers which are accounted for as a reduction in the transaction price and are generally recognized as points are redeemed for additional products.
The balance of deferred revenue related to contract liabilities was $18.7 million and $22.0 million as of December 31, 2022, and 2021, respectively.
The contract liabilities impact to revenue for the years ended December 31, 2022, 2021 and 2020 was an increase of $3.3 million, decrease
of $3.8 million and a decrease of $5.7
million, respectively.
Disaggregation of Revenue
Please refer to Note 15 - Segment Information for revenue by segment and product line.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenues to each performance obligation
based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers for individual products sales to customers.
Shipping and handling costs
Shipping and handling costs are recorded as cost of sales and are expensed as incurred.
Advertising expenses
Advertising costs are
expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of income. Advertising expense incurred for the years ended December 31, 2022, 2021 and 2020 totaled $14.5 million, $15.5 million and $14.7 million, respectively.
Selling expenses
Selling expenses are the Company’s most significant expense and are classified as
operating expenses. Selling expenses include commissions the Company pays to its Brand Affiliates, as well as salaries, service fees, benefits, bonuses and other labor and unemployment expenses the Company pays to its sales force in Mainland
China. Selling expenses do not include amounts the Company pays to its sales force based on their personal purchases; rather, such amounts are reflected as reductions to revenue. The term “Brand Affiliates” refers to members of the Company’s independent sales force in all of the Company’s markets besides Mainland China. In each of the Company’s markets, except Mainland China, Sales Leaders can
earn “multi-level” compensation under the Company’s global sales compensation plan, including commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained.
The Company does not pay commissions on sales materials.
Outside of Mainland China, the Company’s Brand Affiliates may
make profits by purchasing the products from the Company at a discount and selling them to consumers with a mark-up. The Company does not account for nor pay additional commissions on these mark-ups received by Brand Affiliates. In many markets,
the Company also allows individuals who are not members of its sales force, referred to as “preferred customers,” to buy products directly from the Company at a discount. The Company pays commissions on preferred customer purchases to the referring
member of its sales force.
Research and development
Research and
development costs are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of income and totaled $23.3 million, $27.2 million and $23.3 million in 2022, 2021 and 2020, respectively.
Deferred tax assets and liabilities
The Company accounts for income taxes in accordance with the
Income Taxes Topic of the Financial Accounting Standards Codification. These standards establish financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and
preceding years. The Company takes an asset and liability approach for financial accounting and reporting of income taxes. The Company pays income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can
be significantly impacted by terms of intercompany transactions between the Company and its foreign affiliates. Deferred tax assets and liabilities are created in this process. The Company has netted these deferred tax assets and deferred tax
liabilities by jurisdiction. These deferred tax assets assume sufficient future earnings will exist for their realization, and are calculated using anticipated tax rates. Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be ultimately realized.
Uncertain tax positions
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. In 2009, we entered
into a voluntary program with the IRS called Compliance Assurance Process (“CAP”). Under the CAP program, the IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year. As of
December 31, 2022, tax years through 2020 have been audited and are effectively closed to further examination. For tax years 2021 and 2022, the Company is in the Bridge phase of the CAP program, pursuant to which the IRS will not accept
disclosures, will not conduct reviews and will not provide letters of assurance for the year. There are limited circumstances that tax years in the Bridge phase will be opened for examination. The company has applied for the CAP program for
tax year 2023 and is currently waiting on approval from the IRS. With a few exceptions, we are no longer subject to state and local income tax examination by tax authorities for the years before 2019. Foreign jurisdictions have varying lengths
of statutes of limitations for income tax examinations. Some statutes are as short as three years and in certain markets may be as
long as ten years . The Company is currently under examination in certain foreign jurisdictions; however, the outcomes of those
reviews are not yet determinable.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits included in other liabilities is as follows (U.S. dollars in thousands):
|
2022
|
2021
|
2020
|
||||||||||
|
Gross balance at January 1
|
$
|
|
$
|
|
$
|
|
||||||
|
Increases related to prior year tax positions
|
|
|
|
|||||||||
|
Increases related to current year tax positions
|
|
|
|
|||||||||
|
Settlements
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Decreases due to lapse of statutes of limitations
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Currency adjustments
|
(
|
)
|
(
|
)
|
|
|||||||
|
Gross balance at December 31
|
$
|
|
$
|
|
$
|
|
||||||
At December 31, 2022, the Company had $23.1 million in
unrecognized tax benefits of which $23.1 million, if recognized, would affect the effective tax rate. In comparison, at December 31, 2021,
the Company had $15.1 million in unrecognized tax benefits of which $15.1 million, if recognized, would affect the effective tax rate. The Company’s unrecognized tax benefits relate to multiple foreign and domestic jurisdictions. Due to potential changes in
unrecognized tax benefits from the multiple jurisdictions in which the Company operates, as well as the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits, net of foreign
currency adjustments, may increase within the next 12 months by a range of approximately $2.0 to $3.0 million.
During the years ended
December 31, 2022, 2021 and 2020 the Company recognized $5.7 million, $1.6 million and $1.5 million, respectively in interest and penalties expenses
related to uncertain tax positions. The Company had $12.4 million, $6.7 million and $5.1 million of accrued interest and penalties related to
uncertain tax positions at December 31, 2022, 2021 and 2020, respectively. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.
Net income per share
Net income per share is computed based on the weighted-average number of common shares outstanding during the periods presented. Additionally, diluted earnings per share
data gives effect to all potentially dilutive common shares that were outstanding during the periods presented (Note 8).
Foreign currency translation
A significant portion
of the Company’s business operations occurs outside of the United States. The local currency of each of the Company’s Subsidiaries is considered its functional currency, except for the Company’s subsidiaries in Singapore and countries deemed highly
inflationary where the U.S. dollar is used. All assets and liabilities are translated into U.S. dollars at exchange rates existing at the balance sheet dates, revenue 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 (expense) in the consolidated statements of income. Net of tax, the accumulated other comprehensive loss related to the foreign currency translation adjustments are $102.0 million (net of tax of $8.1 million), $79.1 million (net of tax of $7.5
million), and $65.6 million (net of tax of $7.1
million), at December 31, 2022, 2021 and 2020, respectively.
Classification of a highly inflationary economy
A market is considered to have a highly inflationary economy if it has a cumulative inflation rate of approximately 100% or more
over a three-year period as well as other qualitative factors including historic inflation rate trends (increasing and decreasing), the capital intensiveness of the operation and other pertinent economic factors. The functional currency in highly
inflationary economies is required to be the functional currency of the entity’s parent company, and transactions denominated in the local currency are remeasured to the functional currency. The remeasurement of local currency into U.S. dollars
creates foreign currency transaction gains or losses, which the Company includes in its consolidated statements of income.
In the second quarter of 2018, published inflation indices indicated that the three-year cumulative inflation in Argentina exceeded 100 percent, and as of July 1, 2018,
we elected to adopt highly inflationary accounting for our subsidiary in Argentina. Under highly inflationary accounting, Argentina’s functional currency became the U.S. dollar, and its income statement and balance sheet have been measured in U.S.
dollars using both current and historical rates of exchange. The effect of changes in exchange rates on peso-denominated monetary assets and liabilities has been reflected in earnings in Other income (expense), net and was not material. As of December 31, 2022, and 2021, Argentina had a small net peso monetary position. Net sales of Argentina were less than 2
Fair value of financial instruments
The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term
nature of these instruments. The Company’s current investments as of December 31, 2022 include certificates of deposits and pre-refunded municipal bonds that are classified by management as held-to-maturity as the Company had the positive intent and
ability to hold to maturity. The carrying value of these current investments approximate fair values due to the short-term nature of these instruments. As of December 31, 2022 and 2021, the fair value of debt was $405.0 million and $377.5 million,
respectively. The estimated fair value of the Company’s debt is based on interest rates available for debt with similar terms and remaining maturities.
The FASB Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. On a quarterly basis, the Company measures at fair value certain financial assets, including cash equivalents. Accounting standards
specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s
market assumptions. These two types of inputs have created the following fair-value hierarchy:
| ● |
Level 1 – quoted prices in active markets for identical assets or liabilities;
|
| ● |
Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
|
| ● |
Level 3 – unobservable inputs based on the Company’s own assumptions.
|
Accounting standards permit companies, at their option, to measure many financial instruments and certain other items at fair value. The Company has elected not to
apply the fair value option to existing eligible items.
Stock-based compensation
All share-based
payments, including grants of stock options and restricted stock units, are required to be recognized in the Company’s financial statements based upon their respective grant date fair values. The Black-Scholes option-pricing model is used to
estimate the fair value of stock options. The determination of the fair value of stock options is affected by the Company’s stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected
dividends. The Company uses historical volatility as the expected volatility assumption required in the Black-Scholes model. The expected life of the stock options is based on historical data trended into the future. The risk-free interest rate
assumption is based on observed interest rates appropriate for the expected terms of the Company’s stock options. The fair value of the Company’s restricted stock units is based on the closing market price of its stock on the date of grant less the
Company’s expected dividend yield. The Company recognizes stock-based compensation net of actual forfeitures over the requisite service period of the award.
The total compensation expense related to equity compensation plans was $12.4
million, $23.2 million and $24.1
million for the years ended December 31,
2022, 2021 and 2020, respectively. In 2022, 2021 and 2020, these amounts reflect the reversal of $1.3 , none , and none , respectively, for
certain performance-based awards that were no longer expected to vest. For the years ended December 31, 2022, 2021 and 2020, all stock-based compensation expense was recorded within general and administrative expenses.
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 non-owner sources, and it includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Derivative instruments and hedging activities
FASB ASC 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a)
how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815,
the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching
of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the
hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge
accounting.
In accordance with the
FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty
portfolio.
Recent accounting pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional
guidance for a limited time to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging
relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference
rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024. The
amendments in ASU 2020-04 are elective and are effective upon issuance for all entities. The Company had previously elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future
LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. In the second quarter of 2022, the Company elected the hedge accounting expedient that
allows an update to the hedged risk in active hedging relationships without de-designation as the Company’s debt transitioned to SOFR. In the fourth quarter of 2022, the Company elected the hedge accounting expedient that allows an amendment to
existing hedges without de-designation as the Company’s hedges transitioned to SOFR. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the
guidance and may apply other elections as applicable as additional changes in the market occur.
| 3. |
Property and Equipment
|
Property and equipment are comprised of the following (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Land
|
$
|
|
$
|
|
||||
|
Buildings
|
|
|
||||||
|
Construction in progress(1)
|
|
|
||||||
|
Furniture and fixtures
|
|
|
||||||
|
Computers and equipment
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Scanners
|
|
|
||||||
|
Vehicles
|
|
|
||||||
|
|
|
|||||||
|
Less: accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
$
|
|
$
|
|
|||||
| (1) |
|
Depreciation of property and equipment totaled $61.0
million, $62.9 million and $62.5
million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company recorded impairments of $8.2 million and $13.7 million for the years ended December 31, 2022 and 2021, respectively, in connection with our fiscal year 2022 and 2021 restructuring plans, see Note
20 – Restructuring and Severance Charges.
| 4. |
Goodwill
|
The following table
presents goodwill allocated to the Company’s reportable segments for the periods ended December 31, 2022 and 2021 (U.S. dollars in thousands):
|
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Nu Skin
|
||||||||
|
Americas
|
$
|
|
$
|
|
||||
|
Mainland China
|
|
|
||||||
|
Southeast Asia/Pacific
|
|
|
||||||
|
South Korea
|
|
|
||||||
|
Japan
|
|
|
||||||
|
EMEA
|
|
|
||||||
|
Hong Kong/Taiwan
|
|
|
||||||
|
Rhyz Investments
|
||||||||
|
Manufacturing
|
|
|
||||||
|
Rhyz Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
All of the Company’s
goodwill is recorded in U.S. dollar functional currency and allocated to the respective segments. Goodwill is not amortized; rather, it is subject to annual impairment tests. In connection with the Company’s decision to exit the Grow Tech segment, a
$9.2 million impairment charge was recorded in the year ended December 31, 2021, see Note 20 for further discussion regarding the
restructuring and impairment of the Grow Tech segment.
| 5. |
Other Intangible Assets
|
Other intangible assets consist of the following (U.S. dollars in thousands):
|
Carrying Amount at December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Indefinite life intangible assets:
|
||||||||
|
Trademarks and trade names
|
$
|
|
$
|
|
||||
|
December 31, 2022
|
December 31, 2021
|
||||||||||||||||
|
Finite life intangible assets:
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Weighted-
average
Amortization
Period
|
||||||||||||
|
Scanner technology
|
$
|
|
$
|
|
$
|
|
$
|
|
|
||||||||
|
Developed technology
|
|
|
|
|
|
||||||||||||
|
Sales force network
|
|
|
|
|
|
||||||||||||
|
Trademarks
|
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
|
||||||||||||
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||||
Amortization of finite-life intangible assets totaled $9.7
million, $11.7 million and $9.8
million for the years ended December 31, 2022, 2021 and 2020, respectively.
The estimated annual amortization expense for each of the five succeeding fiscal years are as follows (U.S. dollars in thousands):
|
Year Ending December 31,
|
||||
|
2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
Indefinite life intangible assets are not amortized, rather they are
subject to annual impairment tests. Finite life intangibles are amortized over their useful lives unless circumstances occur that cause the Company to revise such lives or review
such assets for impairment. In connection with the Company’s decision to exit the Grow Tech segment, a $3.8 million impairment
charge related to other indefinite lived intangibles and a $5.2 million
impairment charge related to other finite lived intangibles was recorded in the year ended December 31, 2021, see Note 20 for further discussion restructuring and impairment of the Grow Tech segment. During 2022, the Company recorded a
$1.7 million impairment charge for other intangibles associated with our 2022 restructuring, see Note 20 for further discussion.
| 6. |
Long-Term Debt
|
2018 Credit Agreement
On April 18, 2018, the Company entered into a Credit Agreement (the “2018 Credit
Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent. The 2018 Credit Agreement provided for a $400 million term loan facility and a $350 million revolving credit facility, each
with a term of five years 5.0 7.5 10.0 % during the fifth year after the closing date of the 2018 Credit Agreement, with the remainder payable at final maturity.
The 2018 Credit Agreement required the Company to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated
interest coverage ratio of no less than 3.00 to 1.00.
Credit Agreement
On June 14, 2022, the
Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent, which amended and restated the 2018 Credit Agreement. The
Credit Agreement provides for a $400 million term loan facility and a $500 million revolving credit facility, each with a term of five years 0.175 % to 0.30 %
on the unused portion of the total lender commitments then in effect. The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5 % during the first year and 5.0 65 % of the capital stock of certain foreign subsidiaries. The Credit Agreement requires the Company
to maintain a consolidated leverage ratio not exceeding 2.75 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of December 31, 2022, the Company was in compliance with all covenants under the Credit Agreement.
The following table summarizes the Company’s debt facilities as of December 31, 2022 and 2021:
|
Facility or
Arrangement
|
Original
Principal
Amount
|
Balance as of
December 31,
2022 (1)(2)
|
Balance as of
December 31,
2021 (1)(2)
|
Interest
Rate
|
Repayment
Terms
|
|||||
|
2018 Credit Agreement term loan facility
|
$ |
$ |
||||||||
|
2018 Credit Agreement revolving credit facility
|
$ |
|
||||||||
|
Credit Agreement term loan facility
|
$
|
$
|
|
|
|
|||||
|
Credit Agreement revolving credit facility
|
$
|
|
|
|
| (1) |
|
| (2) |
|
Maturities of all long-term debt at December 31, 2022, are as follows (U.S. dollars in thousands):
|
Year Ending December 31,
|
||||
|
2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total (1)
|
$
|
|
||
| (1) |
|
| 7. |
Leases
|
The Company has operating and finance leases for regional offices, manufacturing facilities, retail
centers, distribution centers and certain equipment. The Company’s leases have remaining lease terms of 1 year to 22 years, some of
which include options to extend the leases for up to 20 years, and
some of which include options to terminate the leases within 1
year.
As of December 31, 2022, the weighted average remaining lease term was 8.8
and 4.6 years for operating and finance leases, respectively. As of December 31, 2022, the weighted average discount rate was 3.3 % and 3.5 % for operating and finance
leases, respectively.
The components of lease expense were as follows (U.S. dollars in thousands):
| Year Ended December 31, | ||||||||||||
|
2022
|
2021 |
2020 |
||||||||||
|
Operating lease expense
|
||||||||||||
|
Operating lease cost
|
$ |
$
|
|
$
|
|
|||||||
|
Variable lease cost
|
|
|
||||||||||
|
Short-term lease cost
|
|
|
||||||||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||||||
|
Finance lease expense
|
||||||||||||
|
Amortization of right-of-use assets
|
|
|
||||||||||
|
Interest on lease liabilities
|
|
|
||||||||||
|
Total lease expense
|
$ |
$
|
|
$
|
|
|||||||
Supplemental cash flow information related to leases was as follows (U.S. dollars in thousands):
|
Year Ended December 31,
|
||||||||||||
| 2022 |
2021
|
2020
|
||||||||||
|
Operating cash outflow from operating leases
|
$ |
$
|
|
$
|
|
|||||||
|
Operating cash outflow from finance leases
|
$ |
$
|
|
$
|
|
|||||||
|
Financing cash outflow from finance leases
|
$ |
$
|
|
$
|
|
|||||||
|
Right-of-use assets obtained in exchange for operating lease obligations
|
$ |
$
|
|
$
|
|
|||||||
|
Right-of-use assets obtained in exchange for finance lease obligations
|
$ |
$
|
|
$
|
|
|||||||
Maturities of lease liabilities were as follows (U.S. dollars in thousands):
|
Year Ending December 31,
|
Operating
Leases
|
Finance Leases
|
||||||
|
2023
|
$
|
|
$
|
|
||||
|
2024
|
|
|
||||||
|
2025
|
|
|
||||||
|
2026
|
|
|
||||||
|
2027
|
|
|
||||||
|
Thereafter
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: Finance charges
|
|
|
||||||
|
Total principal liability
|
$
|
|
$
|
|
||||
The Company has additional lease liabilities of $5.5
million which have not yet commenced as of December 31, 2022, and as such, have not been recognized on the consolidated balance sheets.
| 8. |
Capital Stock
|
The Company’s authorized capital stock consists of 25
million shares of preferred stock, par value $0.001 per share, 500 million shares of Class A common stock, par value $0.001 per
share, and 100 million shares of Class B common stock, par value $0.001 per share. As of December 31, 2022 and 2021, there were no one vote on matters submitted to a vote of the Company’s stockholders. Stock dividends of Class A common stock may be paid
only to holders of Class A common stock. Class A common stock has no conversion rights.
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,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Basic weighted-average common shares outstanding
|
|
|
|
|||||||||
| Effect of dilutive securities: | ||||||||||||
|
Stock awards and options
|
||||||||||||
|
Diluted weighted-average common shares outstanding
|
|
|
|
|||||||||
For the years ended December 31, 2022, 2021 and 2020, other stock options totaling 0.1 million, 0.1 million and 0.4 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.
Dividends
Quarterly cash dividends for the years ended December 31, 2022 and 2021 totaled $77.0 million and $76.3 million or $0.385 0.38 0.39 per share of Class A common stock to be
paid on March 8, 2023 to stockholders of record on February 27, 2023 .
Repurchases of common stock
In July 2018, the Company’s board of directors approved a stock repurchase plan with an authorization amount of $500 million. The repurchases are used primarily for strategic initiatives and to offset dilution from the Company’s equity incentive plans. During the years ended December 31, 2022, 2021 and 2020, the Company
purchased 1.7 million, 1.6
million and 5.1 million shares under the 2018 plan for $70.0 million, $80.4 million and $144.3 million, respectively. At December 31, 2022, $175.4 million
was available for repurchases under the 2018 stock repurchase plan.
| 9. |
Stock–Based Compensation
|
At December 31, 2022, the Company had the following stock-based employee compensation plans:
Equity Incentive Plans
In April 2010, the Company’s board of directors approved the Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the “2010 Omnibus Incentive Plan”). This plan was
approved by the Company’s stockholders at the Company’s 2010 Annual Meeting of Stockholders held in May 2010. The 2010 Omnibus Incentive Plan provides for granting of a variety of equity-based awards including stock options, stock appreciation
rights, restricted stock, restricted stock units, other share-based awards, performance cash, performance shares and performance units to executives, other employees, independent consultants and directors of the Company and its subsidiaries. Options
granted under the 2010 Omnibus Incentive Plan are generally non-qualified stock options, but the 2010 Omnibus Incentive Plan permits some stock options granted to qualify as “incentive stock options” under the U.S. Internal Revenue Code. The exercise
price of a stock option generally is equal to the fair market value of the Company’s common stock on the stock option grant date. The contractual term of a stock option granted under the 2010 Omnibus Incentive Plan is seven years . Currently, all shares issued upon the exercise of stock options are from the Company’s treasury shares. Subject to certain adjustments, 7.0 million shares were authorized for issuance under the 2010 Omnibus Incentive Plan. On June 3, 2013, the Company’s stockholders approved an Amended and
Restated 2010 Omnibus Incentive Plan, which among other things increased the number of shares available for awards by 3.2 million shares.
On May 24, 2016, the Company’s stockholders approved a Second Amended and Restated 2010 Omnibus Incentive Plan, which among other things increased the number of shares available for awards by 3.8 million shares. On June 3, 2020, the Company’s stockholders approved a Third Amended and Restated 2010 Omnibus Incentive Plan, which among other things increased the number of shares available for awards by 5.9 million shares.
The fair value of stock option awards was estimated using the Black-Scholes option-pricing model with the following assumptions and weighted-average fair values as
follows:
|
December 31,
|
||||||||
|
Stock Options:
|
2021
|
2020
|
||||||
|
Weighted-average grant date fair value of grants
|
$
|
|
$
|
|
||||
|
Risk-free interest rate(1)
|
|
%
|
|
%
|
||||
|
Dividend yield(2)
|
|
%
|
|
%
|
||||
|
Expected volatility(3)
|
|
%
|
|
%
|
||||
|
Expected life in months(4)
|
|
|
||||||
| (1) |
|
| (2) |
|
| (3) |
|
| (4) |
|
Options under the plans as of December 31, 2022 and changes during the year ended December 31, 2022 were as follows:
|
Shares
(in thousands)
|
Weighted-
average
Exercise
Price
|
Weighted-
average
Remaining
Contractual
Term (in years)
|
Aggregate
Intrinsic
Value
(in thousands)
|
|||||||||||||
|
Options activity – service based
|
||||||||||||||||
|
Outstanding at December 31, 2021
|
|
$
|
|
|||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited/cancelled/expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2022
|
|
|
|
$
|
|
|||||||||||
|
Exercisable at December 31, 2022
|
|
|
|
|
||||||||||||
|
Options activity – performance based
|
||||||||||||||||
|
Outstanding at December 31, 2021
|
|
$
|
|
|||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited/cancelled/expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2022
|
|
|
|
$
|
|
|||||||||||
|
Exercisable at December 31, 2022
|
|
|
|
|
||||||||||||
|
Options activity – all options
|
||||||||||||||||
|
Outstanding at December 31, 2021
|
|
$
|
|
|||||||||||||
|
Granted
|
|
|
||||||||||||||
|
Exercised
|
(
|
)
|
|
|||||||||||||
|
Forfeited/cancelled/expired
|
(
|
)
|
|
|||||||||||||
|
Outstanding at December 31, 2022
|
|
|
|
$
|
|
|||||||||||
|
Exercisable at December 31, 2022
|
|
|
|
|
||||||||||||
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last
trading day of the respective years and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2022. This amount varies
based on the fair market value of the Company’s stock.
Cash proceeds, tax benefits and intrinsic value related to total stock options exercised during 2022, 2021 and 2020, were as follows (U.S. dollars in thousands):
|
December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Cash proceeds from stock options exercised
|
$
|
|
$
|
|
$
|
|
||||||
|
Tax benefit / (expense) realized for stock options exercised
|
|
|
(
|
)
|
||||||||
|
Intrinsic value of stock options exercised
|
|
|
|
|||||||||
Nonvested restricted stock awards as of December 31, 2022 and changes during the year ended December 31, 2022 were as follows:
|
Number
of Shares
(in thousands)
|
Weighted-
average
Grant Date
Fair Value
|
|||||||
|
Nonvested at December 31, 2021
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Nonvested at December 31, 2022
|
|
$
|
|
|||||
Nonvested performance share units as of December 31, 2022 and changes during the year ended December 31, 2022 were as follows:
|
Number
of Shares
(in thousands)
|
Weighted-
average
Grant Date
Fair Value
|
|||||||
|
Nonvested at December 31, 2021
|
|
$
|
|
|||||
|
Granted
|
|
|
||||||
|
Vested
|
|
|
||||||
|
Forfeited
|
(
|
)
|
|
|||||
|
Nonvested at December 31, 2022
|
|
$
|
|
|||||
Stock-based compensation expense is recognized on a straight-line basis, except for performance-based awards for which expense is recognized using a graded-attribution
method if the results are materially different than the straight-line method. The Company recognized none , none and $0.3 million of expense related to
service condition stock options in 2022, 2021 and 2020, respectively; and recognized $14.3 million, $15.4 million and $13.9 million of expense
related to service condition restricted stock units in 2022, 2021 and 2020, respectively. For performance stock options and performance stock units, an expense is recorded each period for the estimated expense associated with the projected
achievement of the performance-based targets. The Company recognized $2.0 million of income, $7.8 million of expense and $9.9 million of expense related to
performance stock options in 2022, 2021 and 2020, respectively; and no
As of December 31, 2022, there was $0.1 million of
unrecognized stock-based compensation expense related to nonvested stock option awards. That cost is expected to be recognized over a weighted-average period of 0.1 years. As of December 31, 2022, there was $29.6 million of unrecognized
stock-based compensation expense related to nonvested restricted stock awards. That cost is expected to be recognized over a weighted-average period of 2.6
years.
| 10. |
Fair Value and Equity Investments
|
Fair Value
The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term
nature of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (U.S. dollars in thousands):
|
Fair Value at December 31, 2022
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Financial assets (liabilities):
|
||||||||||||||||
|
Cash equivalents and current investments
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Derivative financial instruments asset
|
|
|
|
|
||||||||||||
|
Life insurance contracts
|
|
|
|
|
||||||||||||
|
Contingent consideration
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Total
|
$
|
|
$
|
|
|
|
$
|
|
||||||||
|
Fair Value at December 31, 2021
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Financial assets (liabilities):
|
||||||||||||||||
|
Cash equivalents and current investments
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Derivative financial instruments asset | ||||||||||||||||
|
Life insurance contracts
|
|
|
|
|
||||||||||||
| Contingent consideration | ( |
) | ( |
) | ||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The following methods and assumptions were used to determine the fair value of each class of assets and liabilities recorded at fair value in the consolidated balance
sheets:
Cash equivalents and current investments: Cash equivalents and current
investments primarily consist of highly rated money market funds with maturities of three months or less, and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, the Company
considers all cash equivalents and current investments as Level 1. Current investments include $4.9 million and $5.2 million as of December 31, 2022 and 2021, respectively, that is restricted for the Company’s voluntary participation in a consumer protection
cooperative in South Korea, along with investments in corporate securities.
Life insurance contracts: ASC 820 preserves practicability exceptions to fair
value measurements provided by other applicable provisions of U.S. GAAP. The guidance in ASC 715-30-35-60 allows a reporting entity, as a practical expedient, to use cash
surrender value or conversion value as an expedient for fair value when it is present. Accordingly, the Company determines the fair value of its life insurance contracts as the cash-surrender value of life insurance policies held in its Rabbi Trust
as disclosed in Note 13, “Deferred Compensation Plan.”
Derivative financial instruments asset and liability: Derivative financial instruments are measured at fair value based on observable market information and appropriate valuation methods. See Note 14, “Derivative Financial Instruments” for more information on derivative financial instruments.
Contingent consideration: Contingent consideration represents the obligations
incurred in connection with acquisitions. The estimate of fair value of the contingent consideration obligations requires subjective assumptions to be made regarding the future business results, discount rates, discount periods and probabilities
assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of reaching various targets or of achieving certain milestones. The fair value measurement is based on
significant inputs unobservable in the market and thus represents a level 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or
decrease in the fair value of the contingent consideration obligation.
The following table provides a summary of changes in fair value of the Company’s Level 3 life insurance contracts (U.S. dollars in thousands):
|
|
2022
|
2021
|
||||||
|
Beginning balance at January 1
|
$
|
|
$
|
|
||||
|
Actual return on plan assets
|
(
|
)
|
|
|||||
|
Purchases and issuances
|
|
|
||||||
|
Sales and settlements
|
(
|
)
|
(
|
)
|
||||
|
Ending balance at December 31
|
$
|
|
$
|
|
||||
The following table
provides a summary of changes in fair value of the Company’s Level 3 contingent consideration (U.S. dollars in thousands):
|
|
2022
|
2021
|
||||||
|
Beginning balance at January 1
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Additions from acquisitions
|
|
(
|
)
|
|||||
|
Changes in fair value of contingent consideration
|
|
|
||||||
|
Ending balance at December 31
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Equity Investments
The Company maintains equity investments in companies which are accounted for under
the measurement alternative described in ASC 321-10-35-2 for equity securities that lack readily determinable fair values. The carrying amount of equity securities held by the Company without readily determinable fair values was $28.1 5.0 million. During the year ended December 31, 2021, the Company recognized $18.1 million of upward fair value adjustments, based on the third quarter of 2021 valuation of additional equity issued by the investee which was deemed to be an observable
transaction of a similar investment under ASC 321. The gain was recorded within Other income (expense), net on the consolidated statement of income. The upward fair value adjustment represents a nonrecurring fair value measurement based on
observable price changes and is classified as a level 2 fair value measurement.
| 11. |
Income Taxes
|
Consolidated income before provision for income taxes consists of the following for the years ended December 31, 2022, 2021 and 2020 (U.S. dollars in thousands):
|
2022
|
2021
|
2020
|
||||||||||
|
U.S.
|
$
|
|
$
|
|
$
|
|
||||||
|
Foreign
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
The provision for current and deferred taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (U.S. dollars in thousands):
|
2022
|
2021
|
2020
|
||||||||||
|
Current
|
||||||||||||
|
Federal
|
$
|
|
$
|
|
$
|
|
||||||
|
State
|
|
|
|
|||||||||
|
Foreign
|
|
|
|
|||||||||
|
|
|
|
||||||||||
|
Deferred
|
||||||||||||
|
Federal
|
(
|
)
|
|
(
|
)
|
|||||||
|
State
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Foreign
|
|
|
|
|||||||||
|
(
|
)
|
|
(
|
)
|
||||||||
|
Provision for income taxes
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||
The principal components of deferred taxes are as follows (U.S. dollars in thousands):
|
Year Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Inventory differences
|
$
|
|
$
|
|
||||
|
Foreign tax credit and other foreign benefits
|
|
|
||||||
|
Stock-based compensation
|
|
|
||||||
|
Accrued expenses not deductible until paid
|
|
|
||||||
|
Foreign currency exchange
|
|
|
||||||
|
Net operating losses
|
|
|
||||||
|
Capitalized research and development
|
|
|
||||||
|
R&D credit carryforward
|
|
|
||||||
|
Other
|
|
|
||||||
|
Gross deferred tax assets
|
|
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Foreign currency exchange
|
||||||||
|
Foreign withholding taxes
|
|
|
||||||
|
Intangibles step-up
|
|
|
||||||
|
Overhead allocation to inventory
|
|
|
||||||
|
Amortization of intangibles
|
|
|
||||||
|
Other
|
|
|
||||||
|
Gross deferred tax liabilities
|
|
|
||||||
|
Valuation allowance
|
(
|
)
|
(
|
)
|
||||
|
Deferred taxes, net
|
$
|
|
$
|
|
||||
At December 31, 2022, the Company had foreign operating loss carryforwards of $35.4 million for tax purposes, which will be available to offset future taxable income. If not used, $18.6 million of carryforwards will expire between and , while $16.8 million do not expire. A
valuation allowance has been placed on foreign operating loss carryforwards of $34.8 million, tax effected the valuation on the net
operating loss is $12.7 million. In addition, a valuation allowance of $19.1 million has been recorded on a portion of the foreign tax credit carryforwards which will expire between and , and all of the R&D credit carryforward of $1.8 million which will expire between
and .
The Company uses the tax law ordering approach when determining when excess tax benefits have been realized.
Valuation allowances have been recognized for a portion of the foreign tax credit, the foreign net operating loss carryforwards, and the R&D
credit carryforward. During 2022, the Company made an election to change its capitalization policy for tax purposes related to certain direct and indirect costs for inventory and
self-constructed assets under Internal Revenue Code (“IRC”) Section 263A. This method change allows the Company to utilize a portion of its tax attributes related to foreign tax credits in the United States that were previously fully reserved.
The impact of the method change is approximately $51.3 million from the utilization of foreign tax credits and the release of
valuation allowances. This change only impacts a portion of the Company’s foreign tax credit carryforwards and the Company will maintain a valuation allowance against the remaining balance of foreign tax credit carryforwards. The remaining valuation allowances were recognized for assets which it is more likely than not some portion or all of the deferred tax asset will not be realized. In making
such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies and recent financial operations.
When the Company determines that there is sufficient positive evidence to utilize the remaining foreign tax credits, the foreign net operating losses, or the R&D credit carryforward, the valuation allowance will be released which would reduce
the provision for income taxes.
The deferred tax asset valuation adjustments for the years ended December 31, 2022, 2021 and 2020 are as follows (U.S. dollars in thousands):
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Balance at the beginning of period
|
$
|
|
$
|
|
$
|
|
||||||
|
Additions charged to cost and expenses
|
|
(1)
|
|
(4)
|
|
(6)
|
||||||
|
Decreases
|
(
|
)(2)
|
|
(5)
|
(
|
)(7)
|
||||||
|
Adjustments
|
|
(3)
|
|
(3)
|
|
(3)
|
||||||
|
Balance at the end of the period
|
$
|
|
$
|
|
$
|
|
||||||
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
(4)
|
|
|
(5)
|
|
|
(6)
|
|
|
(7)
|
|
The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):
|
Year Ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Net noncurrent deferred tax assets
|
$
|
|
$
|
|
||||
|
Net noncurrent deferred tax liabilities
|
|
|
||||||
|
Deferred taxes, net
|
$
|
|
$
|
|
||||
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments that may result in additional tax
liabilities.
The actual tax rate for the years ended December 31, 2022, 2021 and 2020 compared to the statutory U.S. Federal tax rate is as follows:
|
Year Ended December 31,
|
||||||||||||
|
2022
|
2021
|
2020
|
||||||||||
|
Income taxes at statutory rate
|
|
%
|
|
%
|
|
%
|
||||||
|
Excess tax benefit from equity award
|
(
|
)%
|
(
|
)%
|
|
%
|
||||||
| Deferred compensation |
% | ( |
)% | ( |
)% | |||||||
| Executive salary limitation |
% | % | % | |||||||||
|
Non-U.S. income taxed at different rates
|
|
%
|
|
%
|
|
%
|
||||||
|
Foreign withholding taxes
|
(
|
)%
|
|
%
|
|
%
|
||||||
|
Change in reserve for uncertain tax positions
|
|
%
|
(
|
)%
|
|
%
|
||||||
|
Valuation allowance recognized foreign tax credit & others
|
(
|
)%
|
|
%
|
(
|
)%
|
||||||
|
Foreign-Derived Intangible Income (FDII)
|
(
|
)%
|
(
|
)%
|
(
|
)%
|
||||||
|
Other
|
(
|
)%
|
|
%
|
|
%
|
||||||
|
(
|
)%
|
|
%
|
|
%
|
|||||||
The decrease in effective tax rate for the 2022 was primarily due to the Company
making an election to change its capitalization policy for tax purposes related to certain direct and indirect costs for inventory and self-constructed assets under Internal Revenue Code (“IRC”) Section 263A. This method change allows the
Company to utilize a portion of its tax attributes related to foreign tax credits in the United States that were previously fully reserved. The increase in the effective tax rate for 2021 was primarily caused by the disposal of the
Company’s Grow Tech segment which reduced the utilization of foreign tax credits and increased the Company’s valuation allowance.
The cumulative amount of undistributed earnings of the Company’s non-U.S. Subsidiaries held for indefinite reinvestment is approximately $60.0 million, at December 31, 2022. If this amount were repatriated to the United States, the amount of incremental taxes would be approximately $6.0 million.
| 12. |
Employee Benefit Plan
|
The Company has a 401(k) defined-contribution plan which permits participating employees to defer up to a maximum of 100 % of their compensation, subject to limitations established by the IRS. Employees age 18 and older are eligible to contribute to the plan starting the first day of employment. After completing at least one day of service, employees are eligible to receive matching contributions from the Company. In 2022, 2021, and 2020 the Company provided matching contributions of up to 4 two years of service. The Company recorded compensation expense of $3.8 million, $4.8 million and $4.4 million for the years
ended December 31, 2022, 2021 and 2020, respectively, related to its contributions to the plan. The Company may make additional discretionary contributions to the plan of up to 10 % of employees’ base pay. The Company’s discretionary contributions vest 20 %
per year for an employee’s first five years of service. For the years ended December 31, 2022, 2021 and 2020, the Company did not make any
additional discretionary contributions.
| 13. |
Deferred Compensation Plan
|
The Company has a deferred compensation plan for select management personnel, highly compensated employees, and members of the Company’s board of directors. Under this
plan, the Company may make discretionary contributions to participants’ deferred compensation accounts; prior to 2021, the Company historically contributed 10 % of base salary for
participants above a specified job level. In addition, each participant has the option to defer a portion of their compensation up to a maximum of 80 %
of their base salary and 100 % of their bonuses or director fees. Participant contributions are immediately vested. Company contributions
made on or prior to December 31, 2020 will vest 50 % after ten years of service and 5 % each year of
service thereafter. In addition, any unvested company contributions will fully vest on the earlier of: (a) the participant attaining 60 years
of age; and (b) death or disability.
Effective January 1, 2021, the Company amended its deferred compensation plan. Under the revision, the Company shall make matching contributions up to 5 % of base salary for participants above a specified job level. The revision continues to authorize the Company to make discretionary contributions to participants’ deferred compensation accounts. In view of the opportunity to receive a 5 % match, the Company reduced its discretionary contributions to 5 % of base salary each year, though the Company is not obligated to make these contributions. Under the revision, the amounts contributed by
the Company, adjusted for earnings and losses thereon, will vest 20 % per year over five years , subject to acceleration upon the occurrence of certain events, including the completion of at least ten years of employment above a specified job level. All amounts a participant elects to defer, adjusted for earnings and losses thereon, are 100 % vested at all times.
The Company recorded compensation expense of $2.3 million,
$4.0 million and $2.3
million for the years ended December 31, 2022, 2021 and 2020, respectively, related to its contributions to the plan. The total long-term deferred compensation liability under the deferred compensation plan was $44.4 million and $54.2 million for the
years ended December 31, 2022 and 2021, respectively, related to its contributions to the plan and is included in other long-term liabilities.
All benefits under the deferred compensation plan are unsecured obligations of the Company. The Company has contributed assets to a “rabbi trust” for the payment of
benefits under the deferred compensation plan. As the assets of the trust are available to satisfy the claims of general creditors if the Company becomes insolvent, the amounts held in the trust are accounted for as an investment on the Company’s
consolidated balance sheets of $40.1 million and $49.9 million for the years ended December 31, 2022 and 2021, respectively.
| 14. |
Derivative Financial Instruments
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide
variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its
assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future
known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts
and its known or expected cash payments principally related to the Company’s borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish
this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for
the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive
Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to
interest expense/income as interest payments are made/received on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $9.2 million will be reclassified as a reduction to interest expense.
As of December 31, 2022, the Company had four outstanding
interest rate derivatives that were designated as cash flow hedges of interest rate risk with a total notional amount of $200 million.
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet:
|
Fair Values of
Derivative Instruments
|
||||||||||
| December 31, |
||||||||||
|
Derivatives in Cash Flow Hedging Relationships:
|
Balance Sheet Location
|
2022
|
2021
|
|||||||
|
Interest Rate Swap - Asset
|
Prepaid expenses and other
|
$ | $ | |||||||
|
Interest Rate Swap - Asset
|
Other assets
|
$
|
|
$
|
|
|||||
Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
The tables below present the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income.
|
Amount of Gain (Loss)
Recognized in OCI on Derivatives
|
||||||||||||
|
|
Year Ended December 31,
|
|||||||||||
|
Derivatives in Cash Flow Hedging Relationships:
|
2022
|
2021
|
2020
|
|||||||||
|
Interest Rate Swaps
|
$
|
|
$
|
|
$
|
|
||||||
|
Amount of Gain (Loss)
Reclassified from Accumulated
Other Comprehensive Loss into Income
|
||||||||||||||
|
Year Ended December 31,
|
||||||||||||||
|
Derivatives in Cash Flow Hedging Relationships:
|
Income Statement Location
|
2022
|
2021
|
2020
|
||||||||||
|
Interest Rate Swaps
|
Other income (expense), net
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
| 15. |
Segment Information
|
The Company reports revenue from nine
segments, consisting of its seven geographic Nu Skin segments—Americas, Mainland China, Southeast Asia/Pacific, South Korea, Japan,
EMEA, and Hong Kong/Taiwan—and two Rhyz Investments segments—Manufacturing and Rhyz other. The Nu Skin other category includes
miscellaneous corporate revenue and related adjustments. The Rhyz other segment includes other investments by our Rhyz strategic investment arm. These segments reflect the way the chief operating decision maker evaluates the Company’s business
performance and allocates resources. Reported revenue includes only the revenue generated by sales to external customers.
Profitability by segment as determined under US GAAP is driven primarily by the
Company’s transfer pricing policies. Segment contribution, which is the Company’s segment profitability metric presented in the table below, excludes certain intercompany charges, specifically royalties, license fees, transfer pricing, discrete
charges and other miscellaneous items. These charges have been included in Corporate and other expenses. Corporate and other expenses also include costs related to the Company’s executive and administrative offices, information technology, research
and development, and marketing and supply chain functions not recorded at the segment level.
Prior year segment information has been recast to reflect the fourth quarter of 2021 exit of the Grow Tech segment, which has been recast to Corporate and other
expense. Prior year segment information has been recast to reflect the move of the Pacific components from the “America/Pacific” operating segments to the “Southeast Asia/Pacific” operating segment to comply with current segment presentation. Prior
year segment information has been recast for a first quarter of 2021 change in the Company’s transfer pricing policies in the Americas segment, the 2020 Americas and Corporate and other segment contribution has been recast to conform with the new
policy. Consolidated financial information is not affected.
The accounting policies of the segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” The Company
evaluates the performance of its segments based on revenue and segment contribution. Each segment records direct expenses related to its employees and its operations.
Summarized financial information for the Company’s reportable segments is shown in the following tables. Asset information is not reviewed or
included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.
Revenue by Segment
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
Nu Skin
|
||||||||||||
|
Americas
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
Southeast Asia/Pacific
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
EMEA
|
|
|
|
|||||||||
|
Hong Kong/Taiwan
|
|
|
|
|||||||||
|
Nu Skin Other
|
|
|
|
|||||||||
|
Total Nu Skin
|
|
|
|
|||||||||
|
Rhyz Investments
|
||||||||||||
|
Manufacturing (1)
|
|
|
|
|||||||||
|
Rhyz Other
|
|
|
|
|||||||||
|
Total Rhyz Investments
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
Segment Contribution
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
Nu Skin
|
||||||||||||
|
Americas
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
Southeast Asia/Pacific
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
EMEA
|
|
|
|
|||||||||
|
Hong Kong/Taiwan
|
|
|
|
|||||||||
|
Nu Skin contribution
|
|
|
|
|||||||||
|
Rhyz Investments
|
||||||||||||
|
Manufacturing
|
|
|
|
|||||||||
|
Rhyz Other
|
(
|
)
|
(
|
)
|
|
|||||||
|
Rhyz Investments contribution
|
(
|
)
|
|
|
||||||||
|
Total segment contribution
|
|
|
|
|||||||||
|
Corporate and other
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Operating income
|
|
|
|
|||||||||
|
Other income (expense)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Income before provision for income taxes
|
$
|
|
$
|
|
$
|
|
||||||
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
Nu Skin
|
||||||||||||
|
Americas
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
Southeast Asia/Pacific
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
EMEA
|
|
|
|
|||||||||
|
Hong Kong/Taiwan
|
|
|
|
|||||||||
|
Total Nu Skin
|
|
|
|
|||||||||
|
Rhyz Investments
|
||||||||||||
|
Manufacturing
|
|
|
|
|||||||||
|
Rhyz Other
|
|
|
|
|||||||||
|
Total Rhyz Investments
|
|
|
|
|||||||||
|
Corporate and other
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Capital Expenditures
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
Nu Skin
|
||||||||||||
|
Americas
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
Southeast Asia/Pacific
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
EMEA
|
|
|
|
|||||||||
|
Hong Kong/Taiwan
|
|
|
|
|||||||||
|
Total Nu Skin
|
|
|
|
|||||||||
|
Rhyz Investments
|
||||||||||||
|
Manufacturing
|
|
|
|
|||||||||
|
Rhyz Other
|
|
|
|
|||||||||
|
Total Rhyz Investments
|
|
|
|
|||||||||
|
Corporate and other
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Revenue by Major Market
A major market is defined as one with total revenue greater than 10% of consolidated total revenue. Based on this criteria, the Company has identified four major markets: Mainland China, South Korea, United States, and Japan. There are approximately 45 other markets, each of which individually is less than 10%. No single customer accounted for 10% or more of net sales
for the periods presented. Sales are recorded in the jurisdiction in which the transactions occurred:
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
All others
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Revenue by Product Line
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
Beauty
|
$
|
|
$
|
|
$
|
|
||||||
|
Wellness
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
Long-Lived Assets by Major Market
A major market is defined as a market with long-lived assets greater than 10% of consolidated long-lived assets and also includes the Company’s country of domicile (the
United States). Long-lived assets in Mainland China consist primarily of property, plant and equipment related to manufacturing, distribution facilities and the Mainland China headquarters. Long-lived assets in the United States consist primarily of
property, plant and equipment, including the Company’s corporate offices and distribution facilities. Long-lived assets by major market are set forth below for the periods ended December 31, 2022, 2021 and 2020:
|
Year Ended December 31,
|
||||||||||||
|
(U.S. dollars in thousands)
|
2022
|
2021
|
2020
|
|||||||||
|
United States
|
$
|
|
$
|
|
$
|
|
||||||
|
Mainland China
|
|
|
|
|||||||||
|
South Korea
|
|
|
|
|||||||||
|
Japan
|
|
|
|
|||||||||
|
All others
|
|
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
||||||
| 16. |
Commitments and Contingencies
|
The Company is subject to government regulations pertaining to product formulation, labeling and packaging, product claims and advertising, and the Company’s direct
selling system. The Company is also subject to the jurisdiction of numerous foreign tax and customs authorities. Any assertions or determination that either the Company or the Company’s sales force is not in compliance with existing statutes, laws,
rules or regulations could 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. 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, results of operations or cash flows. The Company and its Subsidiaries are defendants in litigation, investigations and other proceedings involving
various matters. The Company is subject to loss contingencies, including various legal and regulatory proceedings, asserted and potential claims that arise in the ordinary course of business. An estimated loss from such contingencies is recognized as
a charge to income if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company believes it
has appropriately provided for income taxes for all years. Several factors drive the calculation of its tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations;
(iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.
| 17. |
Other Income (Expense), Net
|
Other income (expense), net was $21.9 million, $1.5 million and $1.3 million of expense in 2022, 2021 and 2020, respectively. Other income (expense), net
includes $13.5 million, $11.0
million and $13.1 million in interest expense during 2022, 2021 and 2020,
respectively.
| 18. |
Supplemental Cash Flow Information
|
Cash paid for interest totaled $14.5 million, $8.6 million and $11.2 million for the
years ended December 31, 2022, 2021 and 2020, respectively. Cash paid for income taxes totaled $42.1 million, $96.0 million and $56.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
| 19. |
Acquisitions
|
In April 2021, the Company acquired 100 %
ownership in MyFavoriteThings, Inc. (“Mavely”) making Mavely a wholly owned subsidiary of the Company. The acquisition enables the Company to continue to expand its digital tools. The purchase price for Mavely was $16.8 million, net of cash acquired of $0.4
million and $0.9 million to be paid within six months, all payable in cash. In addition, there is potential for an incremental $24.0 million in contingent consideration, which becomes payable if certain revenue and profitability targets are reached in 2021, 2022 and 2023. The
fair value of the contingent consideration recorded on the acquisition date was $8.7 million. The Company allocated the gross purchase
price of $29.4 million to the assets acquired and liabilities assumed at estimated fair values. The estimated fair value of assets
acquired included $16.4 million of intangible assets, $0.4 million of cash, $0.1 million of accounts receivable, and also resulted in
a deferred tax liability of $3.5 million. The excess purchase price over the aggregate fair value of assets acquired less liabilities
assumed of $12.6 million was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies. None of the
goodwill is expected to be deductible for income tax purposes. The intangible assets acquired were comprised of $2.0 million for customer
relationships, $11.3 million for technology, $2.8 million for trademarks and $0.3 million for other intangibles. The
intangibles were assigned useful lives of 8 years 4 years for the customer relationships and 3 years
for the other intangibles. All the goodwill was assigned to our Rhyz other segment. The allocation of the fair value of assets acquired and liabilities assumed for the acquisition was finalized during the three months ended September 30, 2021.
| 20. |
Restructuring and Severance Charges
|
In 2021, the Company determined to exit the Grow Tech segment, to better align its resources on key strategic initiatives to achieve the future
growth objectives and priorities of the core Nu Skin business. The Grow Tech segment was pursuing the commercialization of controlled-environment agriculture for use in the agriculture feed industry. This segment has been operating as part of
the Company’s Rhyz strategic investment arm. As a result of the restructuring program, the Company recorded a non-cash charge of $38.5
million in 2021, including $9.2 million for impairment of
goodwill, $9.0 million for impairment of intangibles, $13.7 million of fixed asset impairments and $6.6 million for inventory write-off, and $20.0 million of cash charges, including $6.5
million for employee severance and $13.5 million for other related cash charges with our restructuring. The restructuring charges
were recorded in the Grow Tech segment. As of December 31, 2021, the $20.0 million liability related to cash charges was recorded
within Accrued expenses. During 2022, the Company incurred $5.0 million in incremental cash charges associated with the exit
activities and legal settlements. During 2022, the Company made cash payments of $20.0 million, leaving a restructuring accrual of
$5.0 million as of December 31, 2022.
In the third quarter of 2022, the Company adopted a strategic plan to focus resources
on the Company’s strategic priorities and optimize future growth and profitability. The global program includes workforce reductions and footprint optimization. The Company estimates total charges under the program will approximate $50 –$55 million, with $40 –$45 million in cash charges of severance and lease termination cost and approximately
$10 million of non-cash charges of
impairment of fixed assets, acceleration of depreciation and impairment of other intangibles related to the footprint optimization. The Company expects to substantially complete the program during the first half of 2023. During 2022, the Company incurred charges to be settled in cash of $20.1
million in severance charges, $7.4
million in lease termination cost, and $5.2
million in other associated cost, and non-cash charges of $8.2 million in fixed asset impairments, $0.9 million in accelerated depreciation and $1.7 million in impairment of other intangibles.
During 2022, the Company made cash payments of $21.0 million related to this global program, leaving an ending restructuring accrual of $11.7 million.
Restructuring expense by segment
|
(U.S. dollars in thousands)
|
Year Ended
December 31, 2022
|
|||
|
|
||||
|
Nu Skin
|
||||
|
Americas
|
$
|
|
||
|
Mainland China
|
|
|||
|
Southeast Asia/Pacific
|
|
|||
|
South Korea
|
|
|||
|
Japan
|
|
|||
|
EMEA
|
|
|||
|
Hong Kong/Taiwan
|
|
|||
|
Total Nu Skin
|
|
|||
|
Rhyz Investments
|
||||
|
Manufacturing
|
|
|||
|
Rhyz other
|
|
|||
|
Total Rhyz Investments
|
|
|||
|
Corporate and other
|
|
|||
|
Total
|
$
|
|
||
To the Board of Directors and Stockholders of Nu Skin Enterprises, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Nu Skin Enterprises, Inc. and its subsidiaries (the “Company”) as of December 31, 2022
and 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on
the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes
As described in Notes 2 and 11 to the consolidated financial statements, the Company recorded a benefit for income taxes of $16 million for the year ended December 31, 2022 and reported $89 million in deferred tax assets net of a valuation allowance of $34 million and $54 million in deferred tax liabilities. The Company also
reported uncertain tax positions of $23 million as of December 31, 2022. The Company pays income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany
transactions between the Company and its foreign affiliates. The Company takes an asset and liability approach for financial accounting and reporting of income taxes. Deferred tax assets and liabilities are created in this process and are
calculated using anticipated tax rates and are then netted by jurisdiction. Management establishes valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized. The Company has recorded
unrecognized tax benefits related to multiple foreign and domestic jurisdictions. As disclosed by management, potential changes in unrecognized tax benefits can arise from the multiple jurisdictions in which the Company operates, as well as the
expiration of various statutes of limitation and possible completion of tax examinations.
The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are (i) the significant judgment by
management when developing the provision for income taxes, deferred tax assets and the liability for unrecognized tax benefits, which in turn, led to significant auditor judgment, subjectivity and effort in performing audit procedures and
evaluating audit evidence relating to these account balances and tax positions; and (ii) the audit effort included the involvement of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to income taxes. These procedures also included, among others, (i) testing the accuracy of the global income tax provision, including the rate reconciliation,
return to provision adjustments, and permanent and temporary differences; (ii) evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional basis; (iii) evaluating the identification of reserves for uncertain tax positions and the reasonableness of the “more likely than not determination” in consideration of the expiration of various statutes of limitations, changes
in tax law and regulations, terms of intercompany agreements, and issuance of tax rulings and settlements with tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the reasonableness of
management’s estimates and application of local and international income tax law.
/s/ PricewaterhouseCoopers LLP
February 15, 2023
We have served as the Company’s auditor since 1994, which includes periods before the Company became subject to SEC reporting requirements.
None.
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the
information we must disclose in reports that we file with or submit to the Securities and Exchange Commission under the Exchange Act, and they include, without limitation, controls and procedures designed to ensure that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial
Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and procedures that:
| ● |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
|
| ● |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorization of management and directors; and
|
| ● |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed, as of December 31, 2022, the effectiveness of our
internal control over financial reporting. This assessment was based on criteria established in the framework Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
Changes in Internal Control over Financial Reporting. There was no change during the fiscal
quarter ended December 31, 2022 in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
The information required by Items 10, 11, 12, 13 and 14 of Part III will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference to our Definitive Proxy Statement
for our 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end, except for certain information required by Item 10 with respect to our executive officers which is set
forth under Item 1. Business of this Annual Report on Form 10-K.
Documents filed as part of this Form 10-K:
| 1. |
Financial Statements. See Index to Consolidated Financial Statements under Item 8 of Part II.
|
| 2. |
Financial Statement Schedules. N/A
|
| 3. |
Exhibits. References to the “Company” shall mean Nu Skin Enterprises, Inc. Unless otherwise noted, the SEC file number for exhibits incorporated by reference is 001-12421.
|
|
3.1
|
|
|
3.2
|
|
|
3.3
|
|
|
3.4
|
|
|
*4.1
|
|
|
4.2
|
|
|
10.1
|
|
|
#10.2
|
|
|
#10.3
|
|
|
#10.4
|
|
#10.5
|
|
|
#10.6
|
|
|
#10.7
|
|
|
#10.8
|
|
|
#10.9
|
|
|
#10.10
|
|
|
*#10.11
|
|
|
*#10.12
|
|
|
*#10.13
|
|
|
#10.14
|
|
|
#10.15
|
|
|
#10.16
|
|
|
#10.17
|
|
|
*#10.18
|
|
|
#10.19
|
|
*21.1
|
|
|
*23.1
|
|
|
*31.1
|
|
|
*31.2
|
|
|
*32.1
|
|
|
*32.2
|
|
|
*101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
|
*101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
*101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
*101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
*101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
*101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
*104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
| * |
Filed or furnished herewith.
|
| # |
Management contract or compensatory plan or arrangement.
|
None.
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 February 15, 2023.
|
NU SKIN ENTERPRISES, INC.
|
||
|
By:
|
/s/ Ryan. S. Napierski
|
|
|
Ryan S. Napierski
|
||
|
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
February 15, 2023.
|
Signatures
|
Capacity in Which Signed
|
|
|
/s/ Steven J. Lund
|
Executive Chairman of the Board
|
|
|
Steven J. Lund
|
||
|
/s/ Ryan S. Napierski
|
President, Chief Executive Officer and Director
|
|
|
Ryan S. Napierski
|
(Principal Executive Officer)
|
|
|
/s/ Mark H. Lawrence
|
Chief Financial Officer
|
|
|
Mark H. Lawrence
|
(Principal Financial Officer)
|
|
|
/s/ James D. Thomas
|
Chief Accounting Officer
|
|
|
James D. Thomas
|
(Principal Accounting Officer)
|
|
|
/s/ Emma S. Battle
|
Director
|
|
|
Emma S. Battle
|
||
|
/s/ Daniel W. Campbell
|
Director
|
|
|
Daniel W. Campbell
|
||
|
/s/ Andrew D. Lipman
|
Director
|
|
|
Andrew D. Lipman
|
||
|
/s/ Laura Nathanson
|
Director
|
|
|
Laura Nathanson
|
||
|
/s/ Thomas R. Pisano
|
Director
|
|
|
Thomas R. Pisano
|
||
|
/s/ Zheqing Shen
|
Director
|
|
|
Zheqing Shen
|
||
|
/s/ Edwina D. Woodbury
|
Director
|
|
|
Edwina D. Woodbury
|
95
Exhibit 4.1
|
CLASS A COMMMON STOCK
NUMBER
|
CLASS A COMMON STOCK
SHARES
|
||||
|
CUSIP 67018T 10 5
SEE REVERSE FOR CERTAIN DEFINITIONS
|
|||||
|
NU SKIN ENTERPRISES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
|
|||||
|
This Certifies That
|
|||||
|
is the owner of
|
|||||
|
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK OF THE PAR VALUE OF $.001 EACH OF
|
|||||
|
NU SKIN ENTERPRISES
|
|||||
|
transferable only on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the signatures of its duly authorized officers.
|
|||||
|
Dated:
|
|||||
|
[Seal]
|
|||||
|
PRESIDENT & CEO
|
CHAIRMAN OF THE BOARD
|
||||
|
COUNTERSIGNED AND REGISTERED:
EQUINITI TRUST COMPANY, LLC
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
|
|||||
NU SKIN ENTERPRISES, INC.
The record holder of this Certificate may obtain from the Secretary of the Corporation, upon request and without charge, a full statement of the designations, relative
rights, preferences and limitations of the shares of each class authorized to be issued; the designations, relative rights, preferences and limitations of each series of preferred shares authorized to be issued so far as the same have been
fixed; and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to
applicable laws or regulations:
|
TEN COM -
|
as tenants in common
|
UNIF GIFT MIN ACT- ________________Custodian __________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _______________________
(State)
|
||
|
TEN ENT -
|
as tenants by the entireties
|
|||
|
JT TEN -
|
as joint tenants with right of survivorship
and not as tenants in common
|
Additional abbreviations may also be used though not in the above list.
For value received, _______________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
|
|
|
|
|
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
|
|
|
|
|
Shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the promises.
| Dated, | X | ||||
|
X
|
|||||
| NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICAE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. |
SIGNATURE(S) GUARANTEED
|
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
|
|
Exhibit 10.11
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED 2010 OMNIBUS INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement, Participant’s award information (the “Award Summary”), which can be accessed on the Morgan Stanley stock plan website (currently www.stockplanconnect.com) or the website of any
other stock plan administrator selected by the Company in the future, and the Appendix for Participant’s country contained in this agreement, if any, (collectively, this “Agreement”) sets forth the terms and conditions of the Restricted Stock Units
granted to Participant under the Third Amended and Restated Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the “Plan”). In the event of a conflict between (i) the terms and conditions of the Plan; and (ii) the terms and conditions of this
Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the capitalized terms in this Agreement shall have the same defined meaning assigned to them in the Plan.
1. Grant of Restricted Stock Units.
1.1 Grant of Restricted Stock Units. Effective as of the date of grant specified in the Award Summary (the “Grant Date”), the
Company grants to Participant an award of the number of Restricted Stock Units as set forth in the Award Summary. Each Restricted Stock Unit is a bookkeeping entry representing the Company’s unfunded promise to deliver one Share on the terms
provided herein and in the Plan.
1.2 Vesting of Restricted Stock Units. The Restricted Stock Units shall vest on the dates (the “Vesting Dates”) and in the amounts determined by the Committee
and set forth in the Award Summary, except as otherwise provided in this Agreement, including pursuant to Sections 1.3 and 4.
1.3 Termination of Continuous Service. In the event Participant’s Continuous Service (as defined below) is terminated for any
reason prior to the full vesting of the Restricted Stock Units, the Restricted Stock Units granted hereunder shall terminate to the extent they are not vested as of the termination of Participant’s Continuous Service, as determined in accordance with
Section 9(h) below, and Participant shall not have any right to receive any Shares subject to such unvested Restricted Stock Units.
For purposes of this Agreement:
“Continuous Service” means that Participant’s service with the Company or a Subsidiary, whether as an Employee, Director, or Consultant, is not interrupted or terminated. Participant’s Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which Participant renders service to the Company or a Subsidiary as an Employee, Consultant, or Director, or a change in the entity for which Participant renders such service,
provided that there is no interruption or termination of Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of a Subsidiary or a Director will not constitute an interruption of
Continuous Service. Subject to the requirements of applicable law, the Committee, in its sole discretion, shall determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Company or a
Subsidiary, including sick leave, military leave or any other personal leave.
1
1.4 Settlement of Restricted Stock Units. Subject to the terms of the Plan and this Agreement, Restricted Stock Units shall be
settled in Shares, provided that Participant has satisfied any Tax-Related Items pursuant to Section 8 below. Shares will be issued to Participant within 70 days following the applicable Vesting Date unless subject to the terms of the Company’s
deferred compensation plan; provided, however, that if the Participant is subject to taxation in the U.S. (a “U.S. Taxpayer”), the Restricted Stock Units vest pursuant to Section 1.6 below and the Restricted Stock Units are considered “non-qualified
deferred compensation” subject to Section 409A of the Code (“Code Section 409A,” and such compensation, “Deferred Compensation”), the Shares will be issued in accordance with the following schedule: (i) if the termination event giving rise to the
vesting acceleration occurs prior to the Change in Control and the Change in Control constitutes a “change in control event” (within the meaning of U.S. Treasury Regulation 1.409A-3(i)(5)(i)) (a “409A CIC”), the Shares will be issued on the date of
the Change in Control, and if the Change in Control does not constitute a 409A CIC, the Shares will be issued on the date that is six months following the Participant’s “separation from service” (within the meaning of Code Section 409A) (a
“Separation from Service”); (ii) if the termination event giving rise to the vesting acceleration occurs on or following the Change in Control and the Change in Control constitutes a 409A CIC, then the Shares will be issued within 30 days following
the Participant’s Separation from Service, and if the Change in Control is not a 409A CIC, then the Shares will be issued on the date that is six months following the Participant’s Separation from Service.
Notwithstanding the foregoing, for purposes of complying with Code Section 409A, if the Participant is a U.S. Taxpayer, the Restricted Stock Units are considered Deferred Compensation and the Restricted Stock Units
are to be settled in connection with a termination contemplated under Section 1.6 below, the Company and the Participant shall take all steps necessary (including with regard to any post-termination services by the Participant) to ensure that a
termination contemplated under Section 1.6 constitutes a Separation from Service. In addition, if the Restricted Stock Units are Deferred Compensation, the Restricted Stock Units are settled upon the Participant’s Separation from Service and the
Participant is a “specified employee,” within the meaning of Code Section 409A, on the date the Participant experiences a Separation from Service, then the Shares will be issued on the first business day of the seventh month following the
Participant’s Separation from Service, or, if earlier, on the date of the Participant’s death, to the extent such delayed payment is required in order to avoid a prohibited distribution under Code Section 409A.
1.5 Stockholder Rights. Unless and until Shares are issued by the Company after the Vesting Date, Participant shall have none of
the rights or privileges of a shareholder of the Company (including voting, dividend and liquidation rights) with respect to the Shares covered by the Restricted Stock Units.
1.6 Change in Control. Notwithstanding any provision in this Agreement to the contrary, if, within six months prior to and in
connection with a Change in Control or within two years following such Change in Control, Participant’s employment is terminated (i) by the Company and its Subsidiaries without Cause, or (ii) by Participant for Good Reason, the vesting of the
Restricted Stock Units governed by this Agreement shall be accelerated such that all such Restricted Stock Units shall be deemed to be vested in full immediately prior to the termination of Participant’s employment.
2
For purposes of this Agreement:
“Cause” shall mean that Participant has engaged in any one of the following:
(a) a material breach by Participant of the Company’s Employee Covenants Agreement, other employee covenants or any employment agreement, which breach is not cured within any applicable cure
period set forth the respective document
(b) any willful violation by Participant of any material law or regulation applicable to the business of the Company or any of its Subsidiaries;
(c) Participant’s conviction of, or a plea of guilty or nolo contendere to, a felony or any willful perpetration of common law fraud (or analogous violation of law in a jurisdiction outside
the United States); or
(d) any other willful misconduct by Participant 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.
For purposes of the foregoing, in determining whether a “material breach” has occurred, or whether there has been a willful violation of a “material” law or regulation, the standard shall be a breach or violation that
is, or will reasonably likely be, materially injurious to the financial condition or business reputation of, or is, or will reasonably likely be, otherwise materially injurious to, the Company or any of its Subsidiaries.
“Good Reason” shall mean the occurrence any of the following events that result in a material negative change to Participant:
(a) without Participant’s consent, a material reduction in the scope of Participant’s duties and responsibilities or the level of management to which Participant reports;
(b) without Participant’s consent, a reduction in base salary (other than an across-the-board reduction of not more than 10% applicable to all similarly situated employees);
(c) without Participant’s consent, a material reduction in Participant’s benefits in the aggregate (in terms of benefit levels) from those provided to Participant under any employee benefit
plan, program and practice in which Participant participates;
(d) without Participant’s consent, a relocation of Participant’s principal place of employment of more than 50 miles from Participant’s primary residence;
(e) the failure of the Company to have a successor entity specifically assume this Agreement or any employment agreement within 10 business days after a Change in Control; or
3
(f) a material breach by the Company a successor entity of this Agreement or any employment agreement.
Notwithstanding the foregoing, Good Reason shall only be found to exist if Participant, not later than 90 days after the initial occurrence of an event deemed to give rise to a right to terminate for Good Reason, has
provided 30 days written notice to the Company prior to Participant’s resignation indicating and describing the event resulting in such Good Reason, and the Company does not cure such event (other than the event in clause vi), which shall not be
subject to cure) within 90 days following the receipt of such notice from Participant.
2. Securities Law Compliance. Participant represents that Participant has received and carefully read a
copy of the Prospectus for the Plan, together with the Company’s most recent Annual Report to Stockholders. Participant hereby acknowledges that Participant is aware of the risks associated with the Shares and that there can be no assurance the
price of the Shares will not decrease in the future. Participant hereby acknowledges no representations or statements have been made to Participant concerning the value or potential value of the Shares. Participant acknowledges that Participant has
relied only on information contained in the Prospectus and has received no representations, written or oral, from the Company or its employees, attorneys or agents, other than those contained in the Prospectus or this Agreement. Participant
acknowledges that the Company has made no representations or recommendations, and is not providing any tax, legal or financial advice, regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares.
Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
3. Transfer Restrictions. Participant shall not transfer, assign, sell, encumber, pledge, grant a security
interest in or otherwise dispose of the Restricted Stock Units subject to this Agreement in any manner other than by the laws of descent or distribution. Any such transfer, assignment, sale, encumbrance, pledge, security interest or disposition
shall be void.
4. Forfeiture. If, at any time during Participant’s Continuous Service or at any time during the 12-month
period following termination of Participant’s Continuous Service, Participant engages in conduct that constitutes Cause (as defined above), then at the election of the Committee, (a) this Agreement and all unvested Restricted Stock Units granted
hereunder shall terminate, and (b) Participant shall return to the Company for cancellation all Shares held by Participant plus pay the Company the amount of any proceeds received from the sale of any Shares, to the extent such Shares were issued
pursuant to Restricted Stock Units granted under this Agreement that vested (i) during the 12-month period immediately preceding the Cause, or (ii) on the date of or at any time after such Cause.
The forfeiture provisions of this Section 4 shall be applied by the Committee, at its discretion, to the maximum extent permitted under applicable laws. Further, these provisions are in addition to, and not in lieu
of, any recoupment requirements under the Sarbanes-Oxley Act or under other applicable laws, rules, regulations or stock exchange listing standards, including, without limitation, Section 954 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 or Section 10D of the U.S. Securities Exchange Act of 1934, as amended, and shall apply notwithstanding anything to the contrary in this Agreement or in the Plan. Participant expressly agrees that the Company may take such
actions as are necessary or appropriate to effectuate the foregoing (as applicable to Participant) or applicable law without further consent or action being required by Participant. For purposes of the foregoing and as a condition to the grant,
Participant expressly and explicitly authorizes the Company to issue instructions, on Participant’s behalf, to Morgan Stanley (or any other stock plan service provider engaged by the Company to administer awards granted under the Plan) to re-convey,
transfer or otherwise return such Shares and/or other amounts to the Company.
4
5. Governing Plan Document. This Agreement incorporates by reference all of the terms and conditions of the
Plan, as presently existing and as hereafter amended. Participant expressly acknowledges and agrees that the terms and provisions of this Agreement are subject in all respects to the provisions of the Plan. Participant also expressly:
(a) Acknowledges receipt of the Plan and represents that Participant is familiar with the provisions of the Plan, and that Participant enters into this Agreement subject to all of the
provisions of the Plan;
(b) Recognizes that the Committee has been granted complete authority to administer the Plan in its sole discretion, and agrees to accept all decisions related to the Plan and all
interpretations of the Plan made by the Committee as final and conclusive upon Participant and upon all persons at any time claiming any interest through Participant in the Restricted Stock Units or the Shares subject to this Agreement; and
(c) Acknowledges and understands that the establishment of the Plan and the existence of this Agreement are not sufficient, in and of themselves, to exempt Participant from the requirements
of Section 16(b) of the Exchange Act and any rules or regulations promulgated thereunder, and that Participant (to the extent Section 16(b) applies to Participant) shall not be exempt from such requirements pursuant to Rule 16b-3 unless and until
Participant shall comply with all applicable requirements of Rule 16b-3, including without limitation, the possible requirement that Participant must not sell or otherwise dispose of any Shares acquired pursuant to Restricted Stock Units unless and
until a period of at least six months shall have elapsed between the Grant Date and the date upon which Participant desires to sell or otherwise dispose of such Shares.
6. Representations and Warranties. As a condition to the receipt of any Shares upon vesting of the
Restricted Stock Units, the Company may require Participant to make any representations and warranties to the Company that legal counsel to the Company may determine to be required or advisable under any applicable law or regulation, including
without limitation, representations and warranties that the Shares are being acquired only for investment and without any present intention or view to sell or distribute any such Shares.
5
7. Compliance With Law and Regulations. Notwithstanding any other provision of the Plan or this Agreement,
unless there is an available exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon settlement of the Restricted Stock Units prior to
the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other
governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem
necessary or advisable. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for
the issuance or sale of the Shares. Further, Participant agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without Participant’s consent to the extent necessary to comply with securities or other laws
applicable to issuance of Shares.
8. Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company
or, if different, Participant’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan
and legally applicable to Participant or deemed by the Company or the Employer in its discretion to be an appropriate charge to Participant even if legally applicable to the Company or the Employer (“Tax-Related Items”), is and remains Participant’s
responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. Participant further acknowledges that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any
Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of any Shares acquired at settlement and the receipt of
any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax
result. Further, if Participant is subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related
Items in more than one jurisdiction.
In connection with any relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items.
Full payment of the Tax-Related Items shall be made by any of the following, or a combination thereof, subject to the Committee’s or Company’s right to eliminate, prior to vesting, any of the following as permissible
payment methods: (i) in cash or cash equivalents (including certified check, bank check or wire transfer of immediately available funds); (ii) by tendering previously acquired Shares (either actually or by attestation) valued at their then-Fair
Market Value; (iii) by withholding Shares otherwise issuable in connection with the vesting of the RSUs; (iv) through same-day voluntary or involuntary (on Participant’s behalf pursuant to this authorization) sales through a broker if permitted by
the Company’s Securities Trading Policy; (v) withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer; or (vi) any combination of any of the foregoing. In the absence of Participant’s
timely election or in the event Section 16(b) applies to Participant, the Company will withhold in Shares upon the relevant taxable or tax withholding event, as applicable. In the event that such withholding in Shares is problematic under applicable
tax or securities law or has materially adverse accounting consequences, the Participant authorizes and directs the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligation with
regard to all Tax-Related Items by one or a combination of the methods above.
6
Depending on the withholding method, the Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable withholding rates in Participant’s jurisdiction(s) (up to the rate that will
not cause an adverse accounting consequence or cost, including pursuant to ASC Topic 718, as applicable). If the Company and/or the Employer withhold more than the amount necessary to satisfy the liability for Tax-Related Items, Participant may
receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent Shares, or if not refunded, Participant may be able to seek a refund from the applicable tax authorities. If the Company and/or the Employer withhold
less than the amount necessary to satisfy the liability for Tax-Related Items, Participant may be required to pay additional Tax-Related Items directly to the applicable tax authorities or to the Company and/or the Employer. If the obligation for
Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units, notwithstanding that a number of the Shares are held back
solely for the purpose of paying the Tax-Related Items.
Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Participant’s participation in the
Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Participant fails to comply with Participant’s obligations in connection with the
Tax-Related Items.
9. Nature of Grant. In accepting the Restricted Stock Units, Participant acknowledges, understands and
agrees that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent
permitted by the Plan;
(b) the grant of Restricted Stock Units is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or
benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded in the past;
(c) nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in the employment or service of the Employer, the Company or any Subsidiary or be interpreted
as forming or amending an employment or services contract with the Employer, the Company or any Subsidiary and shall not interfere with or restrict any way the ability of the Employer, the Company or any Subsidiary, as applicable, to terminate
Participant’s employment or service relationship, if any;
(d) all decisions with respect to future grants of Restricted Stock Units or other grants, if any, will be at the sole discretion of the Committee and/or Company;
(e) Participant’s participation in the Plan is voluntary;
7
(f) the future value of the underlying Shares is unknown, indeterminable and unpredictable;
(g) unless otherwise agreed with the Company, the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not granted as
consideration for, or in connection with, the service Participant may provide as a director of any entity of the Company;
(h) in the event of the termination of Participant’s Continuous Service (as defined above) (for any reason whatsoever, whether or not later to be found invalid or in breach of employment
laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any), unless otherwise determined by the Company, Participant’s right to vest in the Restricted Stock Units under the Plan, if any, will
terminate as of the date Participant is no longer actively rendering services and will not be extended by any notice period (e.g., Participant’s period of service would not include any contractual notice
period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any); the Committee shall have the exclusive discretion
to determine when Participant is no longer providing Continuous Service for purposes of this Agreement, including whether Participant may still be considered to be providing active service while on a leave of absence; and
(i) Restricted Stock Units and the Shares subject to Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation or salary for any purpose,
including, but not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related pay, pension or retirement or welfare benefits or similar
mandatory payments;
(j) Restricted Stock Units and the Shares subject to Restricted Stock Units, and the income and value of same, are not intended to replace any pension rights or compensation;
(k) Restricted Stock Units are an extraordinary item that does not constitute compensation of any kind for service of any kind rendered to the Company or to the Employer, and Restricted
Stock Units are outside of the scope of Participant’s employment agreement, if any;
(l) no claim or entitlement to compensation or damages shall arise from forfeiture of Restricted Stock Units resulting from termination of
Participant’s Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any); and
(m) neither the Company, the Employer nor any Subsidiary of the Company shall be liable for any foreign exchange rate fluctuation between
Participant’s local currency and the United States Dollar that may affect the value of Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired
upon settlement.
8
10. Data Privacy Notice and Consent. Participant hereby explicitly and
unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data, as described in this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer,
the Company and Subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Employer, the Company and Subsidiaries may hold certain personal information about Participant, including, but not limited to, Participant’s name,
home address, email address, telephone number, date of birth, social security number, passport information, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company,
details of all Restricted Stock Units or any other entitlement to Shares or other equivalent benefits awarded, canceled, purchased, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing,
administering and managing the Plan.
Participant understands that Data will be transferred to Morgan Stanley, or such other stock plan service provider as may be selected by the Company in the future, which is
assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United
States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential
recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, Morgan Stanley and any other possible recipients which may assist the Company (presently or in the future) with implementing,
administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Participant’s participation in the Plan, including any transfer of
such Data as may be required to a broker, escrow agent or other third party with whom the Shares received upon vesting of Restricted Stock Units may be deposited. Participant understands that Data will be held only as long as is necessary to
implement, administer and manage his or her participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and
processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or
she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her employment status or service with the Employer will not be affected; the only
consequence of refusing or withdrawing Participant’s consent is that the Company may not be able to grant Restricted Stock Units or other equity awards to Participant or administer or maintain such awards. Therefore, Participant understands that
refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of his or her refusal to consent or withdrawal of consent, Participant understands that he or she may
contact his or her local human resources representative.
Upon request of the Company or the Employer, Participant agrees to provide an executed data privacy form (or any other agreements or consents) that the Company and/or the Employer
may deem necessary to obtain from Participant for the purpose of administering Participant’s participation in the Plan in compliance with the data privacy laws in Participant’s country, either now or in the future. Participant understands and agrees
that he or she will not be able to participate in the Plan if Participant fails to provide any such consent or agreement as requested by the Company and/or the Employer.
9
11. Miscellaneous Provisions.
11.1 Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the sender’s local mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the latest address on file or at such other address as such party may designate by ten days
advance written notice under this Section to all other parties to this Agreement.
11.2 Waiver. The failure of the Company in any instance to exercise any rights under this Agreement, including the forfeiture
rights under Section 4, shall not constitute a waiver of any other rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and Participant. Participant acknowledges that no waiver by the
Company of any breach of any provision of this Agreement shall operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Participant or any other Participant, whether of like or different nature.
11.3 Imposition of Other Requirements & Participant Undertaking. The Company reserves the right to impose other requirements
on Participant’s participation in the Plan, on the Restricted Stock Units and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. Participant hereby agrees to
take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out the foregoing or one or more of the obligations or restrictions imposed on either Participant or the Shares
pursuant to the provisions of this Agreement.
11.4 Entire Contract. This Agreement and the Plan constitute the entire understanding and agreement of the parties with respect to
the subject matter contained herein. This Agreement is made pursuant to, and incorporates by reference, the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.
11.5 Language. Participant acknowledges that he or she is sufficiently proficient in English, or, alternatively, Participant
acknowledges that he or she will seek appropriate assistance to understand the terms and conditions in this Agreement. Furthermore, if Participant has received this Agreement or any other document related to the Plan translated into a language other
than English and if the meaning of the translated version is different than the English version, the English version will control.
10
11.6 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to
current or future participation in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by
the Company or a third party designated by the Company.
11.7 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and
its successors and assigns and upon Participant, Participant’s permitted assigns and the legal representatives, heirs and legatees of Participant’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof. Participant may not assign this Agreement other than by the laws of descent and distribution.
11.8 Severability. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be
severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.
11.9 Governing Law and Choice of Venue. The Restricted Stock Units and the provisions of this Agreement shall be governed by, and
subject to, the laws of the State of Utah, United States, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Agreement or this grant of Restricted Stock Units, the
parties hereby submit to and consent to the jurisdiction of the State of Utah, agree that such litigation shall be conducted in the courts of Utah County, Utah, or the federal courts of the United States for
the District of Utah, where this grant is made and/or to be performed.
11.10 Appendix. Notwithstanding any provisions in this Agreement, the Restricted Stock Units shall be subject to any special terms
and conditions set forth in any Appendix to this Agreement for Participant’s country. Moreover, if Participant relocates to one of the countries included in the Appendix, the terms and conditions for such country will apply to Participant, to the
extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.
11.11 Insider Trading Restrictions/Market Abuse Laws. Participant acknowledges that, depending on Participant’s country, broker’s
country, or where Shares are listed, Participant may be subject to insider trading and/or market abuse laws which may affect Participant’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to such shares (e.g., Restricted Stock
Units) or rights linked to the value of Shares under the Plan during such times as Participant is considered to have “material nonpublic information” or “inside information” regarding the Company (as defined by the laws or regulations in the relevant
jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Participant places before Participant possessed inside information. Furthermore, Participant could be prohibited from (i) disclosing
inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Third parties include fellow employees. Any restrictions under these laws or
regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy, and the requirements of applicable laws may or may not be consistent with the terms of the Company’s insider trading
policy. Participant acknowledges that it is his or her responsibility to comply with any applicable restrictions, and that Participant should speak to his or her personal advisor on this matter.
11
11.12 Exchange Control Tax and Foreign Asset/Account Reporting Requirements.
Participant acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect Participant’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in
the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage, bank account or legal entity outside Participant’s country. Participant may be required to report such accounts, balances, assets and/or the related
transactions to the tax or other authorities in his or her country. Participant also may be required to repatriate sale proceeds or other funds received as a result of Participant’s participation in the Plan to his or her country through a
designated bank or broker within a certain time after receipt. Participant acknowledges that it is Participant’s responsibility to be compliant with such regulations and Participant should consult his or her personal legal advisor for any details.
Participant agrees to take any and all actions, and consents to any and all actions taken by the Company or the Employer as may be required to allow the Company or the Employer to comply with local laws, rules and regulations in Participant’s
country of residence (and country of employment, if different). Finally, Participant agrees to take any and all actions as may be required to comply with Participant’s personal legal and tax obligations under local laws, rules and regulations in
Participant’s country of residence (and country of employment, if different).
11.13 Section 409A. The Restricted Stock Units and issuance of Shares thereunder are intended to comply with Code Section 409A and
the U.S. Treasury Regulations relating thereto so as not to subject the Participant to the payment of additional taxes and interest under Code Section 409A or other adverse tax consequences. In furtherance of this intent, the provisions of this
Agreement will be interpreted, operated, and administered in a manner consistent with these intentions. The Committee may modify the terms of this Agreement, the Plan or both, without the consent of the Participant, in the manner that the Committee
may determine to be necessary or advisable in order to comply with Code Section 409A or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Code Section 409A if compliance is not
practical. This Section 11.12 does not create an obligation on the part of the Company to modify the terms of this Agreement or the Plan and does not guarantee that the Restricted Stock Units or the delivery of Shares upon vesting/settlement of the
Restricted Stock Units will not be subject to taxes, interest and penalties or any other adverse tax consequences under Code Section 409A. Nothing in this Agreement shall provide a basis for any person to take any action against the Company or any
of its Subsidiaries based on matters covered by Code Section 409A, including the tax treatment of any amounts paid under this Agreement, and neither the Company nor any of its Subsidiaries will have any liability under any circumstances to the
Participant or any other party if the Restricted Stock Units, the delivery of Shares upon vesting/settlement of the Restricted Stock Units or other payment or tax event hereunder that is intended to be exempt from, or compliant with, Code Section
409A, is not so exempt or compliant or for any action taken by the Committee with respect thereto. Further, settlement of any portion of the Restricted Stock Units that is Deferred Compensation may not be accelerated or postponed except to the
extent permitted by Code Section 409A.
By electronically accepting this Agreement and participating in the Plan, Participant agrees to be bound by the terms and conditions in the Plan and this Agreement, including the Appendix. Within
six months of the Grant Date, if Participant has not electronically accepted this Agreement on Morgan Stanley’s website, or the website of any other stock plan service provider appointed by the Company, and has not otherwise rejected the grant, then
this award shall automatically be deemed accepted, and Participant shall be bound by the terms and conditions in the Plan and this Agreement, including the Appendix.
12
APPENDIX
FOR PARTICIPANTS OUTSIDE THE U.S.
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED
2010 OMNIBUS INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
Unless otherwise defined herein, the capitalized terms in this Appendix shall have the same defined meaning assigned to them in the Plan and the Agreement.
This Appendix includes special country-specific terms and conditions that apply to Participants in the countries listed below. This Appendix is part of the Agreement. This Appendix also includes information of which
Participant should be aware with respect to his or her participation in the Plan. For example, certain individual exchange control reporting requirements may apply upon vesting of the Restricted Stock Units and/or sale of Shares. The information is
based on the securities, exchange control and other laws in effect in the respective countries as of January 2022 and is provided for informational purposes. Such laws are often complex and change frequently, and results may be different based on
the particular facts and circumstances. As a result, the Company recommends that Participant does not rely on the information noted herein as the only source of information relating to the consequences of Participant’s participation in the Plan
because the information may be out of date at the time the Restricted Stock Units vest or are settled, or Participant sells Shares acquired under the Plan.
In addition, the information is general in nature and may not apply to Participant’s particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant
should seek appropriate professional advice as to how the relevant laws in Participant’s country may apply to his or her situation.
Finally, if Participant is a citizen or resident of a country other than the one in which he or she currently is residing and/or working, transfers employment after the Restricted Stock Units are granted to him or her,
or is considered a resident of another country for local law purposes, the terms and conditions and/or notifications contained herein may not be applicable to him or her, and the Company shall, in its discretion, determine to what extent such terms
and conditions contained herein shall apply to him or her.
DATA PRIVACY PROVISIONS APPLICABLE TO GRANTEES IN THE EUROPEAN UNION/EUROPEAN ECONOMIC AREA
The following provision replaces Section 10 of the Agreement:
Data Collection and Usage. Pursuant to applicable data protection laws, Participant is hereby notified that the
Company collects, processes, uses and transfers certain personally-identifiable information about Participant for the exclusive legitimate purpose of granting Restricted Stock Units and implementing, administering and managing Participant’s
participation in the Plan. Specifics of the data processing are described below.
13
Controller, EU Representative and DPO. The Company is the controller responsible for the processing of
Participant’s personal data in connection with the Plan. The Company’s representative in the European Union is NSE Products Europe BVBA, Da Vincilaan 9, 1935 Zaventem, Belgium, telephone number +32 2 722 70 00. Participant can reach the data
protection officer (“DPO”) of the Company at +1 (801) 345-1505, 75 West Center Street, Provo, Utah 84601.
Personal Data Subject to Processing. The Company collects, processes and uses the following types of personal
data about Participant: Participant’s name, home address and telephone number, email address, date of birth, social insurance, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the
Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, settled, vested, unvested or outstanding in Participant’s favor, which the Company receives from Participant or the Employer, as well as
Participant’s hire date, term date, term reason code, status, and Company’s Division (“Personal Data”).
Purposes and Legal Bases of Processing. The Company processes the Personal Data for the purpose of granting
Restricted Stock Units, implementing, administering and managing Participant’s participation in the Plan. The legal basis for the processing of the Personal Data by the Company and the third‑party service providers described below is the necessity
of the data processing for the Company to perform its contractual obligations under the Agreement and generally administering employee equity awards.
Stock Plan Administration Service Providers. The Company transfers Personal Data to Morgan Stanley Smith Barney
LLC and its affiliated companies (collectively, “Morgan Stanley”), an independent stock plan administrator with operations, relevant to the Company, in the United
States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select different service providers and may share Personal Data with such service providers. As a data controller,
the Company’s stock plan administrator will open an account for Participant to receive and trade Shares. Participant will be asked to agree on separate terms and data processing practices with the service provider, which is a condition of
Participant’s ability to participate in the Plan. Participant’s Personal Data will only be accessible by those individuals requiring access to it for purposes of implementing, administering and operating Participant’s participation in the Plan.
Participant understands that Participant may request a list with the names and addresses of any potential recipients of Personal Data by contacting Participant’s local human resources representative.
International Data Transfers. The Company and its service providers, including, without limitation, Morgan
Stanley, operate, relevant to the Company, in the United States, which means that it will be necessary for Personal Data to be transferred to, and processed in, the United States. Participant understands and acknowledges that the United States is
not subject to an unlimited adequacy finding by the European Commission and that Participant’s Personal Data may not have an equivalent level of protection as compared to Participant’s country of residence.
The legal basis for the processing of the Personal Data by the Company and the third‑party service providers is the necessity of the data processing for the Company to perform its contractual obligations under the
Agreement and generally administering employee equity awards.
Data Retention. The Company will use the Personal Data only as long as necessary to implement, administer and
manage Participant’s participation in the Plan, or as required to comply with legal or regulatory obligations, including tax and securities laws. When the Company no longer needs the Personal Data, the Company will remove it from its systems. If
the Company keeps data longer, it would be to satisfy tax, legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulations.
14
Data Subject Rights. To the extent provided by law, Participant has the right to (i) inquire whether and what
kind of Personal Data the Company holds about Participant and how it is processed, and to access or request copies of such Personal Data, (ii) request the correction or supplementation of Personal Data that is inaccurate, incomplete or out-of-date
in light of the purposes underlying the processing, or (iii) obtain the erasure of Personal Data no longer necessary for the purposes underlying the processing or processed in non-compliance with applicable legal requirements. In addition,
Participant has, to the extent provided by law, the right to (iv) request the Company to restrict the processing of Personal Data in certain situations where Participant feels its processing is inappropriate, (v) object, in certain circumstances,
to the processing of Personal Data for legitimate interests, and to (vi) request portability of Personal Data that Participant has actively or passively provided to the Company, where the processing of such Personal Data is based on consent or a
contractual agreement with Participant and is carried out by automated means. In case of concerns, Participant also has the right to (vii) lodge a complaint with the competent local data protection authority. To receive additional information
regarding Participant’s rights, raise any other questions regarding the practices described in this Agreement or to exercise his or her rights, Participant should contact his or her local human resources representative.
Contractual Requirement. Participant’s provision of Personal Data and its processing as described above is
required for the performance of the Company’s obligations pursuant to the Plan and a condition to Participant’s ability to participate in the Plan. Participant understands that, as a consequence of Participant’s refusing to provide Personal Data,
the Company may not be able to allow Participant to participate in the Plan, grant Restricted Stock Units to Participant or administer or maintain such Restricted Stock Units. However, Participant’s participation in the Plan and his or her
acceptance of this Agreement are purely voluntary. While Participant will not receive Restricted Stock Units if he or she decides against participating in the Plan or providing Personal Data as described above, Participant’s career and salary will
not be affected in any way. For more information on the consequences of the refusal to provide Personal Data, Participant may contact his or her local human resources representative.
AUSTRALIA
Nature of Plan. The Plan and the Agreement is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) (the “Act”) applies (subject to the conditions in the Act).
Securities Law Information. The offer of the Performance Restricted Stock Units is being made under Division 1A Part 7.12 of the Corporations Act 2001 (Cth). If Participant offers Shares acquired under the
Plan for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. Participant should obtain legal advice on any disclosure obligations prior to making any such offer.
Exchange Control Information. Exchange control reporting is
required for cash transactions exceeding AUD10,000 and for international fund transfers. If an Australian bank is assisting with the transaction, the bank will file the report on the Participant’s behalf.
15
BELGIUM
Foreign Asset/Account Reporting Information. Participant is required to report any securities (e.g., Shares acquired under the Plan) or bank accounts established outside of Belgium on his or her annual tax
return. In a separate report, Belgium residents are also required to provide the National Bank of Belgium with the account details of any such foreign accounts (including the account number, bank name and country in which any such account was
opened). This report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium, www.nbb.be, under Kredietcentrales / Centrales des crédits caption. Participant should consult a personal
tax advisor with respect to the applicable reporting obligations.
Annual Securities Accounts Tax. If the value of securities held in a Belgian or foreign securities account exceeds EUR 1 million, a new “annual securities accounts tax” applies. Belgian residents should consult
with their personal tax advisor regarding the new tax.
CANADA
Restricted Stock Units Only Payable in Shares. Notwithstanding any discretion in the Plan, the Restricted Stock Units will be settled in Shares only. The grant of Restricted Stock Units does not provide any
right for Participant to receive a cash payment.
Securities Law Information. Participant acknowledges and agrees that he or she will sell Shares acquired through participation in the Plan only outside of Canada through the facilities of a stock exchange on
which the Shares are listed. The Shares are currently listed on the New York Stock Exchange in the United States.
Foreign Asset/Account Reporting Information. Participant is required to report any specified foreign property (including
Shares) annually on Form T1135 (Foreign Income Verification Statement) if the total cost of Participant’s specified foreign property exceeds C$100,000 at any time during the year. The form must be filed by April 30th of the following year.
Specified foreign property includes Shares acquired under the Plan and may include Restricted Stock Units. The Restricted Stock Units must be reported‒generally at a nil cost‒if the C$100,000 cost threshold is exceeded because of other foreign
property Participant holds. If Shares are acquired, their cost generally is the adjusted cost base (“ACB”) of the Shares. The ACB would normally equal the fair market value of the Shares at vesting for Restricted Stock Units, but if Participant
owns other Shares, this ACB may have to be averaged with the ACB of the other Shares. It is Participant’s responsibility to comply with applicable reporting obligations.
The following provisions apply if Participant is resident in Quebec:
Data Privacy. Participant hereby authorizes the Company, the Employer and their representatives, including any broker(s) designated by the Company to discuss with and obtain all relevant information from all
personnel, professional or not, involved in the administration and operation of the Plan. Participant further authorizes the Company and its Subsidiaries to disclose and discuss the Plan with their advisors. Participant further authorizes the
Company and its Subsidiaries to record such information and to keep such information in the his or her employee file.
Language Consent. The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating
directly or indirectly hereto, be drawn up in English.
16
Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procédures judiciaries intentées, directement ou
indirectement, relativement à ou suite à la présente convention.
CHINA
The following provisions apply only to Participants who are subject to exchange control restrictions imposed by the State Administration of Foreign Exchange ("SAFE"), as determined by the Company in its sole
discretion:
Settlement of Restricted Stock Units. This provision supplements Section 1.4 of the Agreement:
The Restricted Stock Units will only vest if and when the Company has completed the registration of the Plan with SAFE and provided such registration remains effective. If the Company is unable to complete the
registration or maintain the registration, the settlement of the Restricted Stock Units may be delayed. Shares issued to Participant under the Plan must be maintained in an account with Morgan Stanley or such other broker as may be designated by the
Company until the Shares are sold through that broker.
Furthermore, due to regulatory requirements, Participant acknowledges and agrees that Participant must sell any Shares issued to Participant upon vesting of the Restricted Stock Units as soon as practicable following
the termination of Participant’s Continuous Service and in no event later than six months following the termination of Participant’s Continuous Service, or within any other such time frame as may be required by SAFE. Participant agrees that if
Participant continues to hold any of such Shares after this time, the Shares will be sold by the Company’s designated broker on Participant’s behalf at the instruction of the Company. Therefore, by accepting the Restricted Stock Units, Participant
understands and agrees that the Company is authorized to, and may in its sole discretion, instruct its designated broker to assist with the mandatory sale of Shares (on Participant’s behalf pursuant to this authorization) and that Participant
expressly authorizes the Company’s designated broker to complete the sale of such Shares. Participant acknowledges that the Company’s designated broker is under no obligation to arrange for the sale of the Shares at any particular price. Upon the
sale of the Shares, the proceeds, less any Tax-Related Items and brokerage fees or commissions will be remitted to Participant pursuant to the procedures described in the “Exchange Control Information” section below.
Exchange Control Information. Participant understands and agrees that, to facilitate compliance with exchange control requirements, Participant will be required to immediately repatriate to China the cash
proceeds from the sale of the Shares issued upon the vesting of the Restricted Stock Units. Participant further understands that, under local law, such repatriation of the cash proceeds will be effectuated through a special exchange control account
established by the Company or its Subsidiary in China, and Participant hereby consents and agrees that the proceeds from the sale of Shares acquired under the Plan may be transferred to such special account prior to being delivered to Participant.
The Company may deliver the proceeds to Participant in U.S. dollars or local currency at the Company’s discretion. If the proceeds are paid in U.S. dollars, Participant understands that he or she will be required to set up a U.S. dollar bank account
in China so that the proceeds may be deposited into this account. If the proceeds are converted to local currency, there may be delays in delivering the proceeds to Participant. Participant agrees to bear the risk of any currency fluctuation between
the time the Shares are sold, either through voluntary sale or through a mandatory sale arranged by the Company, or proceeds are otherwise realized under the Plan and the time such proceeds are distributed to Participant through the special exchange
control account.
Participant further agrees to comply with any other requirements that may be imposed by the Company in the future to facilitate compliance with exchange control requirements in China.
17
DENMARK
Stock Option Act. Participant acknowledges that they have received an Employer Statement in Danish which sets forth additional terms of the Restricted Stock Units, to the extent that the Danish Stock Option Act
applies to the Restricted Stock Units.
Foreign Asset/Account Reporting Information. If Participant establishes an account holding Shares or an account holding cash outside Denmark, he or she must report the account to the Danish Tax Administration.
The form may be obtained from a local bank.
GERMANY
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. In case of payments in connection with securities (including payment of the Grant
Price and the proceeds realized upon the sale of Shares), the report must be made by the 5th day of the month following the month in which the payment was made/received. The report must be filed electronically. The form of report (“Allgemeine Meldeportal Statistik”) can be accessed via the Bundesbank’s website (www.bundesbank.de) and is available in both German and English. Participant is
responsible for satisfying the reporting obligation.
Foreign Asset/Account Reporting Information. German residents holding Shares must notify their local tax office if the acquisition of Shares under the Plan leads to a so-called qualified participation at any
point during the calendar year. A qualified participation is attained only in the unlikely event (i) Participant owns at least 1% of the Company and the value of the Shares acquired exceeds €150,000, or (ii) Participant holds Shares exceeding 10% of
the total capital of the Company.
HONG KONG
Restricted Stock Units Only Payable in Shares. Notwithstanding any discretion in the Plan, the Restricted Stock Units will be settled in Shares only. The grant of Restricted Stock Units does not provide any
right for Participant to receive a cash payment.
Restriction on Sale of Shares. Shares received under the Plan are accepted as a personal investment. Should any portion of the Restricted Stock Units vest within six months of the Grant Date, Participant
agrees that Participant will not dispose of the Shares acquired at vesting prior to the six-month anniversary of the Grant Date.
Securities Law Information. Warning: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. Participant is advised to exercise
caution in relation to the offer. If Participant is in any doubt about any of the contents of the Agreement, including this Appendix, or the Plan, Participant should obtain independent professional advice. The Restricted Stock Units and any
Shares issued pursuant to the grant do not constitute a public offering of securities under Hong Kong law and are available only to employees of the Company. The Agreement, including this Appendix, the Plan and other incidental communication
materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong. The Restricted Stock Units and any related
documentation are intended only for the personal use of each eligible employee of the Company and may not be distributed to any other person.
18
HUNGARY
There are no country-specific provisions.
INDIA
Exchange Control Information. Due to exchange control restrictions in India, Participant may be required to repatriate any proceeds from the sale of Shares acquired under the Plan to India and proceeds from the
receipt of any cash dividends within such time as prescribed under applicable Indian exchange control laws. Participant must obtain a foreign inward remittance certificate (“FIRC”) from the bank where Participant deposits the funds and must maintain
the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation.
Foreign Asset/Account Reporting Information. Participant is required to declare foreign bank accounts and any foreign financial assets (including Shares held outside India) in his or her annual tax return. It
is Participant's responsibility to comply with this reporting obligation and Participant should consult with his or her personal tax advisor in this regard.
INDONESIA
Language Consent and Notification. A translation of the documents related to this grant into Bahasa Indonesia can be provided to Participant upon request to hroperations@nuskin.com. By accepting the grant,
Participant (i) confirms having read and understood the documents relating to this grant (i.e., the Plan and the Agreement) which were provided in the English language, (ii) accepts the terms of those
documents accordingly, and (iii) agrees not to challenge the validity of this document based on Law No. 24 of 2009 on National Flag, Language, Coat of Arms and National Anthem or the implementing Presidential Regulation (when issued).
Language Consent and Notification. Terjemahan dari dokumen-dokumen terkait dengan pemberian ini ke Bahasa Indonesia dapat disediakan untuk anda berdasarkan permintaan kepada hroperations@nuskin.com. Dengan
menerima hibah, anda (i) anda mengkonfirmasi bahwa anda telah membaca dan mengerti isi dokumen yang terkait dengan pemberian ini yang disediakan untuk anda dalam bahasa Inggris, (ii) Anda menerima syarat dari dokumen-dokumen tersebut, dan (iii) anda
setuju bahwa anda tidak akan mengajukan keberatan atas keberlakuan dokumen ini berdasarkan Undang-Undang No. 24 tahun 2009 tentang Bendera, Bahasa dan Lambang Negara serta Lagu Kebangsaan atau Peraturan Presiden pelaksana (ketika diterbitkan).
19
Exchange Control Information. If Participant remits proceeds from the sale of Shares or the receipt of any dividends paid on such Shares into Indonesia, the Indonesian Bank through which the transaction is made
will submit a report on the transaction to the Bank of Indonesia for statistical reporting purposes. For transactions of US$10,000 or more, a description of the transaction must be included in the report. Although the bank through which the
transaction is made is required to make the report, Participant must complete a “Transfer Report Form.” The Transfer Report Form should be provided to Participant by the bank through which the transaction is made.
Foreign Asset/Account Reporting Information. Indonesian residents have the obligation to report worldwide assets (including foreign accounts and Shares acquired under the Plan) in their annual individual income
tax return.
JAPAN
Foreign Asset/Account Reporting Information. Participant will be required to report details of any assets (including any Shares acquired under the Plan) held outside of Japan as of December 31st of each year, to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be due by March 15th of the following year. Participant should consult with his or her personal tax advisor as to whether the reporting obligation applies to Participant and whether Participant will be required
to report details of any outstanding Restricted Stock Units or Shares held by Participant in the report.
KOREA
Foreign Asset/Account Reporting Information. Korean residents must declare all foreign financial accounts (e.g., non-Korean bank
accounts, brokerage accounts, etc.) to the Korean tax authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 500 million (or an equivalent amount in foreign currency). Participant should consult with his
or her personal tax advisor to determine how to value Participant’s foreign accounts for purposes of this reporting requirement and whether Participant is required to file a report with respect to such accounts.
MALAYSIA
Director Notification Information. If Participant is a director of a Malaysian Subsidiary, Participant is subject to certain notification requirements under the Malaysian Companies Act, 1965. Among these
requirements is an obligation to notify the Malaysian Subsidiary in writing when Participant receives an interest (e.g., Restricted Stock Units) in the Company or any related companies. In addition,
Participant must notify the Malaysian Subsidiary when Participant sells Shares of the Company or any related company (including when Participant sells Shares acquired under the Plan). These notifications must be made within fourteen days of
acquiring or disposing of any interest in the Company or any related company.
20
Data Privacy Notice and Consent. This provision replaces in its entirety Section 10 of the Agreement:
|
Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data, as described in
this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and Subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in
the Plan.
Participant understands that the Employer, the Company and Subsidiaries may hold certain personal information about Participant, including, but not limited to,
Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock
Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”). The Data is supplied by
the Employer and also by me through information collected in connection with the Agreement and the Plan.
Participant understands that Data will be transferred to Morgan Stanley, or such other stock plan service provider as may be selected by the Company in the future, which
is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g.,
the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any
potential recipients of the Data by contacting his or her local human resources representative at +60-03-2170-7700. Participant authorizes the Company, Morgan Stanley and any other possible recipients which may assist the Company (presently
or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Participant’s
participation in the Plan, including any transfer of such Data as may be required to a broker, escrow agent or other third party with whom the Shares received upon vesting of Restricted Stock Units may be deposited. Participant understands
that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data,
request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources
representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her
employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent is that the Company may not be able to grant Participant Restricted Stock
Units or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the
consequences of his or her refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
|
Peserta dengan ini secara eksplisit dan tanpa sebarang keraguan mengizinkan pengumpulan, penggunaan dan pemindahan, dalam bentuk elektronik atau lain-lain, data peribadi
Peserta seperti yang diterangkan dalam Perjanjian dan bahan-bahan geran Unit Saham Terbatas yang lain oleh dan di antara, seperti yang berkenaan, Majikan, Syarikat dan Anak-anak Syarikat untuk tujuan yang eksklusif bagi melaksanakan,
mentadbir dan menguruskan penyertaan Peserta di dalam Pelan.
Peserta memahami bahawa Majikan, Syarikat and Anak-anak Syarikat mungkin memegang maklumat peribadi tertentu tentang Peserta, termasuk, tetapi tidak terhad kepada, nama
Peserta, alamat rumah dan nombor telefon, tarikh lahir, nombor insurans sosial atau nombor pengenalan lain, gaji, kewarganegaraan, jawatan, apa-apa Syer atau jawatan pengarah yang dipegang dalam Syarikat, butir-butir semua Unit Saham
Terbatas, atau apa-apa hak lain atas Syer yang dianugerahkan, dibatalkan, dilaksanakan, terletak hak, tidak diletak hak ataupun yang belum dijelaskan bagi faedah Peserta, untuk tujuan eksklusif bagi melaksanakan, mentadbir dan menguruskan
Pelan tersebut ("Data"). Data tersebut dibekalkan oleh Majikan dan juga oleh saya berkenaan dengan Perjanjian dan Pelan.
Peserta memahami bahawa Data ini akan dipindahkan kepada Morgan Stanley, atau mana-mana pembekal perkhidmatan pelan saham lain sebagaimana yang dipilih oleh Syarikat pada
masa depan, yang membantu Syarikat dengan pelaksanaan, pentadbiran dan pengurusan Pelan. Peserta memahami bahawa penerima-penerima Data mungkin berada di Amerika Syarikat atau mana-mana tempat lain, dan bahawa negara penerima-penerima
(contohnya, Amerika Syarikat) mungkin mempunyai undang-undang privasi data dan perlindungan yang berbeza daripada negara Peserta. Peserta memahami bahawa sekiranya Peserta menetap di luar Amerika Syarikat, Peserta boleh meminta satu senarai
yang mengandungi nama-nama dan alamat-alamat penerima-penerima Data yang berpotensi dengan menghubungi wakil sumber manusia tempatan peserta di +60-03-2170-7700. Peserta memberi kuasa kepada Syarikat, Morgan Stanley dan mana-mana
penerima-penerima kemungkinan lain yang mungkin akan membantu Syarikat (pada masa sekarang atau pada masa depan) dengan melaksanakan, mentadbir dan menguruskan Pelan untuk menerima, memiliki, menggunakan, mengekalkan dan memindahkan Data,
dalam bentuk elektronik atau lain-lain, bagi tujuan-tujuan untuk melaksanakan, mentadbir dan menguruskan penyertaan Peserta di dalam Pelan, termasuk segala pemindahan Data tersebut sebagaimana yang dikehendaki kepada broker, egen eskrow atau
pihak ketiga dengan siapa Saham diterima semasa peletakhakan Unit Saham Terbatas mungkin didepositkan. Peserta memahami bahawa Data hanya akan disimpan selagi ia adalah diperlukan untuk melaksanakan, mentadbir, dan menguruskan penyertaan
peserta dalam Pelan. Peserta memahami bahawa sekiranya peserta menetap di luar Amerika Syarikat, peserta boleh, pada bila-bila masa, melihat Data, meminta maklumat tambahan mengenai penyimpanan dan pemprosesan Data, meminta bahawa
pindaan-pindaan dilaksanakan ke atas Data atau menolak atau menarik balik persetujuan dalam ini, dalam mana-mana kes, tanpa kos, dengan menghubungi secara bertulis wakil sumber manusia tempatan. Selanjutnya, Peserta memahami bahawa peserta
memberikan persetujuan di sini secara sukarela semata-mata. Sekiranya Peserta tidak bersetuju, atau sekiranya Peserta kemudian membatalkan persetujuannya, status pekerjaan atau perkhidmatan dan kerjaya Peserta dengan Majikan tidak akan
terjejas; satu-satunya akibat buruk sekiranya Peserta tidak bersetuju atau menarik balik persetujuan Peserta adalah bahawa Syarikat tidak akan dapat memberikan Unit Saham Terbatas atau anugerah ekuiti lain atau mentadbir atau mengekalkan
anugerah-anugerah tersebut kepada Peserta. Oleh itu, Peserta memahami bahawa keengganan atau penarikan balik persetujuan peserta boleh menjejaskan keupayaan Peserta untuk mengambil bahagian dalam Pelan. Untuk maklumat lebih lanjut mengenai
akibat-akibat keengganan Peserta untuk memberikan keizinan atau penarikan balik keizinan, Peserta memahami bahawa Peserta boleh menghubungi wakil sumber manusia tempatan.
|
21
NETHERLANDS
There are no country-specific provisions.
NEW ZEALAND
Securities Law Information. Participant is being offered Restricted Stock Units which, if vested, allows Participant to purchase Shares in accordance with the terms of this Agreement and the Plan. The Shares,
if issued, will give Participant a stake in the ownership of the Company. Participant may receive a return if dividends are paid.
If the Company runs into financial difficulties and is wound up, Participant will be paid only after all creditors have been paid. Participant may lose some or all of Participant’s investment, if any.
New Zealand law normally requires people who offer financial products to give information to investors before they invest. This information is designed to help investors to make an informed decision. The usual rules
do not apply to this offer because it is made under an employee share scheme. As a result, Participant may not be given all the information usually required. Participant will also have fewer other legal protections for this investment. Participant
should ask questions, read all documents carefully, and seek independent financial advice before committing.
The Shares are quoted on the New York Stock Exchange (“NYSE”). This means that if Participant acquires Shares under the Plan, Participant may be able to sell the Shares on the NYSE if there are interested buyers.
Participant may get less than Participant invested. The price will depend on the demand for the Shares.
For information on risk factors impacting the Company’s business that may affect the value of the Shares, Participant should refer to the risk factors discussion on the Company’s Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, which are filed with the U.S. Securities and Exchange Commission and are available online at www.sec.gov, as well as on the Company’s “Investor Relations” website at http://ir.nuskin.com.
22
PHILIPPINES
Securities Law Information. This offering is subject to exemption from the requirements of securities registration with the Philippines Securities and Exchange Commission, under Section 10.1(k) of the
Philippine Securities Regulation Code.
THE SECURITIES BEING OFFERED OR SOLD HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES REGULATION CODE. ANY FURTHER OFFER OR SALE THEREOF IS SUBJECT TO REGISTRATION REQUIREMENTS
UNDER THE CODE UNLESS SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION.
For further information on risk factors impacting the Company’s business that may affect the value of the Shares, Participant may refer to the risk factors discussion in the Company's Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, which are filed with the U.S. Securities and Exchange Commission and are available online at www.sec.gov, as well as on the Company's website at http://ir.nuskin.com. In addition, Participant may receive, free of
charge, a copy of the Company's Annual Report, Quarterly Reports or any other reports, proxy statements or communications distributed to the Company's stockholders by contacting Investor Relations Department at 75 W. Center Street, Provo, Utah 84601.
Participant acknowledges he or she is permitted to dispose or sell Shares acquired under the Plan provided the offer and resale of such shares takes place outside the Philippines through the facilities of a stock
exchange on which the Shares are listed. The Shares are currently listed on the New York Stock Exchange in the United States of America.
RUSSIA
Exchange Control Information. Participant acknowledges that he or she must repatriate the proceeds from the sale of Shares and any dividends received in relation to the Restricted Stock Units within a
reasonably short time of receipt. Such amounts must be initially credited to Participant through a foreign currency account opened in his or her name at an authorized bank in Russia. After the funds are initially received in Russia, they may be
further remitted to foreign banks, provided certain requirements are satisfied. Participant must notify the Russian tax authorities about the opening/closing of each foreign account within one month of the account opening/closing and provide account
balances in each foreign account as of the beginning of each calendar year. Participant is encouraged to contact his or her personal advisor with respect to satisfying the above-described
currency rules, as significant penalties may apply in the case of non-compliance with exchange control requirements and because such exchange control requirements may change.
U.S. Transaction. Participant understands that acceptance of the grant of the Restricted Stock Units results in a contract between Participant and the Company completed in the United States and that the
Agreement is governed by the laws of the State of Utah, without regard to choice of law principles thereof. Any Shares to be issued upon vesting of the Restricted Stock Units shall be delivered to Participant through a brokerage account in the U.S.
Participant may hold the Shares in his or her brokerage account in the U.S.; however, in no event will Shares issued to Participant under the Plan be delivered to Participant in Russia. Participant is not permitted to sell the Shares directly to
other Russian legal entities or individuals.
23
Securities Law Information. These materials do not constitute advertising or an offering of securities in Russia nor do they constitute placement of Shares in Russia. The issuance of Shares pursuant to the
Restricted Stock Units described herein has not and will not be registered in Russia and hence, the Shares described herein may not be admitted or used for offering, placement or public circulation in Russia. Participant acknowledges and agrees that
he or she will sell Shares acquired through participation in the Plan only outside of Russia through the facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the New York Stock Exchange in the United
States.
Data Privacy Notice and Consent. Participant hereby acknowledges that he or she has read and understood the terms regarding collection, processing and transfer of Data contained in Section 10 of the Agreement
and, by accepting the Restricted Stock Units, Participant agrees to such terms. In this regard, upon request of the Company or the Employer, Participant agrees to provide an executed data privacy consent form to the Employer or the Company, or any
other agreements or consents that the Company and/or the Employer may deem necessary to obtain Participant’s consent to collect, process or transfer Participant’s Data for purposes of administering his or her participation in the Plan under the data
privacy laws in Russia, either now or in the future. Participant understands that he or she will not be able to participate in the Plan if he or she fails to execute any such consent or agreement.
Foreign Asset/Account Reporting. Russian residents will be required to notify the Russian tax authorities within one month of opening or closing a foreign bank account or of changing any account details.
Russian residents are also required to file with the Russian tax authorities reports of the transactions in their foreign bank accounts. Russian residents should consult with their personal tax advisor for additional information about these
reporting obligations.
Labor Law Information. If Participant continues to hold Shares acquired under the Plan after an involuntary termination of employment, the Participant will not be eligible to receive unemployment benefits in
Russia.
Anti-Corruption Information. Anti-corruption laws prohibit certain public servants, their spouses, and their dependent children from owning any foreign source financial instruments (e.g., shares of foreign companies such as the Company).
SINGAPORE
Sale Restriction. Participant agrees that any Shares acquired pursuant to the Restricted Stock Units will not be offered for sale in Singapore prior to the six-month
anniversary of the Grant Date, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”) , or pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
Securities Law Information. The grant of the Restricted Stock Units is made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA and is not made to Participant
with a view of the Restricted Stock Units being subsequently offered for sale to any other party. The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore.
24
Director Notification Requirement. Directors, associate directors and shadow directors of a Singapore subsidiary or affiliate are subject to certain notification requirements under the Singapore Companies Act.
The directors, associate directors and shadow directors must notify the Singapore subsidiary or affiliate in writing of an interest (e.g., Performance Restricted Stock Units, Shares, etc.) in the Company or
any related companies within two business days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest (e.g., when the Shares are sold), or (iii) becoming a director, associate
director or shadow director.
SWEDEN
There are no country-specific provisions.
TAIWAN
Data Privacy Consent. Participant hereby acknowledges that he or she has read and understood the terms regarding collection, processing and transfer of Data contained in Section 10 of the Agreement and by
participating in the Plan, Participant agrees to such terms. In this regard, upon request of the Company or the Employer, Participant agrees to provide an executed data privacy consent form to the Employer or the Company (or any other agreements or
consents that may be required by the Employer or the Company) that the Company and/or the Employer may deem necessary to obtain under the data privacy laws in Participant’s country, either now or in the future. Participant understands he or she will
not be able to participate in the Plan if Participant fails to execute any such consent or agreement.
Securities Law Information. The Restricted Stock Units and the Shares to be issued pursuant to the Plan are available only to employees of the Company. The grant of the Restricted Stock Units does not
constitute a public offer of securities.
Exchange Control Information. Participant may remit foreign currency (including proceeds from the sale of Shares or the receipt of any dividends paid on such Shares) into or out of Taiwan up to US$5,000,000 per
year without special permission. If the transaction amount is TWD500,000 or more in a single transaction, Participant must submit a Foreign Exchange Transaction Form to the remitting bank and provide supporting documentation to the satisfaction of
the remitting bank.
THAILAND
Exchange Control Information. If the proceeds from the sale of Shares or the receipt of any dividends paid on such Shares are equal to or greater than US$1,000,000 or more in a single transaction, Participant
must repatriate the proceeds to Thailand immediately upon receipt and convert the funds to Thai Baht or deposit the proceeds in a foreign currency deposit account maintained by a bank in Thailand within 360 day of remitting the proceeds to Thailand.
In addition Participant must report the inward remittance to the Bank of Thailand on a foreign exchange transaction form. If Participant fails to comply with these obligations, Participant may be subject to penalties assessed by the Bank of
Thailand. Because exchange control regulations change frequently and without notice, Participant should consult his or her personal advisor before selling Shares to ensure compliance with current regulations. Participant is responsible for ensuring
compliance with all exchange control laws in Thailand, and neither the Company nor any of its Subsidiaries will be liable for any fines or penalties resulting from his or her failure to comply with applicable laws.
25
SCHEDULE A
DENMARK EMPLOYER STATEMENT
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold ("Aktieoptionsloven") er medarbejderen ("Medarbejderen") berettiget til i en særskilt skriftlig erklæring at modtage
følgende oplysninger vedrørende incitamentsordningen Third Amended and Restated 2010 Omnibus Incentive Plan ("Planen") hos Nu Skin Enterprises, Inc. ("Selskabet").
Denne erklæring indeholder kun de oplysninger, der er nævnt i Aktieoptionsloven, mens de øvrige vilkår og betingelser for Medarbejderens tildeling af " Restricted Stock Units" er nærmere beskrevet i Planen, "
Restricted Stock Unit Agreement" ("Aftalen") og det øvrige tildelingsmateriale, som er blevet udleveret. Begreber, der står med stort begyndelsesbogstav i denne Arbejdsgivererklæring, men som ikke er defineret heri, har samme betydning som de
begreber, der er defineret i Planen eller Aftalen.
1. Tidspunkt for tildeling af den vederlagsfri ret til at modtage aktier mod opfyldelse af visse betingelser
Tidspunktet for tildelingen af "Restricted Stock Units" er den dato, hvor Bestyrelsens Vederlagsudvalg ("Udvalget") godkendte tildelingen.
2. Kriterier og betingelser for tildeling af retten til senere at modtage aktier
Kun Selskabets Medarbejdere, bestyrelsesmedlemmer og konsulenter kan deltage i Planen. Tildeling af " Restricted Stock Units" i henhold til Planen sker efter Selskabets eget skøn og har til formål at give Selskabet og
dets datterselskaber mulighed for at tiltrække og fastholde udvalgte medarbejdere, som forventes at bidrage til Selskabets success og opnå langsigtede mål til gavn for Selskabets aktionærer. Medarbejderen har ikke nogen ret til eller noget krav på
fremover at få tildelt " Restricted Stock Units".
3. Modningstidspunkt eller -periode
Dine "Restricted Stock Units" optjenes over et antal år som fastsat i Aftalen. Dine "Restricted Stock Units"r vil ved optjeningen blive konverteret til et tilsvarende antal ordinære aktier i Selskabet. Optjeningen kan
accelerere under visse andre omstændigheder som beskrevet i Aftalen.
4. Udnyttelseskurs
Der betales ingen udnyttelseskurs ved modning af "Restricted Stock Units" eller udstedelse af aktier til Medarbejderen.
5. Medarbejderens retsstilling i forbindelse med fratræden
Såfremt du fratræder din stilling, vil dine "Restricted Stock Units" blive behandlet i overensstemmelse med ophørsbestemmelserne i Aftalen, der kan opsummeres til følgende: Undtagen i tilfælde af en "Change in Control"
(som beskrevet i Aftalen) hvis dit ansættelsesforhold bringes til ophør, bortfalder dine ikke-optjente "Restricted Stock Units".
6. Økonomiske aspekter ved at deltage i Planen
Tildelingen af "Restricted Stock Units" har ingen umiddelbare økonomiske konsekvenser for Medarbejderen. Værdien af "Restricted Stock Units" indgår ikke i beregningen af feriepenge, pensionsbidrag eller andre
lovpligtige, vederlagsafhængige ydelser.
Ordinære aktier er finansielle instrumenter. Den fremtidige værdi af de underliggende aktier i forbindelse med "Restricted Stock Units" kendes ikke og kan ikke forudsiges med sikkerhed.
26
Exhibit 10.12
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED 2010 OMNIBUS INCENTIVE PLAN
PERFORMANCE RESTRICTED STOCK UNIT AGREEMENT
This Performance Restricted Stock Unit Agreement, Participant’s award information (the “Award Summary”), which can be accessed on the Morgan Stanley stock plan
website (currently www.stockplanconnect.com) or the website of any other stock plan administrator selected by the Company in the future, and the Appendix for Participant’s country contained in this agreement, if any, (collectively, this “Agreement”)
set forth the terms and conditions of the Performance Restricted Stock Units granted to Participant under the Third Amended and Restated Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the “Plan”). In the event of a conflict between (i) the
terms and conditions of the Plan; and (ii) the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the capitalized terms in this Agreement shall have the same defined meaning
assigned to them in the Plan.
1. Grant of Performance Restricted Stock Units.
1.1 Grant of Performance Restricted Stock Units. Effective as of the date of grant specified in the Award Summary (the “Grant Date”), the Company grants to Participant an
award of [*]% of the number of Performance Restricted Stock Units specified in the Award Summary (i.e., [*]% of the number of Performance Restricted Stock Units that would vest upon achievement of [Performance Vesting Provisions], as set forth in
Schedule A below). Each Performance Restricted Stock Unit is a bookkeeping entry representing the Company’s unfunded promise to deliver one Share on the terms provided herein and in the Plan.
1.2 Vesting of Performance Restricted Stock Units. The Performance Restricted Stock Units shall be divided into tranches and vest as described in Schedule A below, except
as otherwise provided in this Agreement, including pursuant to Sections 1.3 and 4.
1.3 Termination of Continuous Service. In the event Participant’s Continuous Service (as defined below) is terminated for any reason prior to the full vesting of the
Performance Restricted Stock Units, the Performance Restricted Stock Units granted hereunder shall terminate to the extent they are not vested as of the termination of Participant’s Continuous Service, as determined in accordance with Section
9(h) below, and Participant shall not have any right to receive any Shares subject to such unvested Performance Restricted Stock Units.
For purposes of this Agreement:
“Continuous Service” means that Participant’s service with the Company or a Subsidiary, whether as an Employee, Director, or Consultant, is not interrupted or
terminated. Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which Participant renders service to the Company or a Subsidiary as an Employee, Consultant, or Director, or a change
in the entity for which Participant renders such service, provided that there is no interruption or termination of Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of a Subsidiary or a
Director will not constitute an interruption of Continuous Service. Subject to the requirements of applicable law, the Committee, in its sole discretion, shall determine whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by the Company or a Subsidiary, including sick leave, military leave or any other personal leave.
1
1.4 Settlement of Performance Restricted Stock Units. Subject to the terms of the Plan and this Agreement, Performance Restricted Stock Units shall be settled in Shares,
provided that Participant has satisfied any Tax-Related Items pursuant to Section 8 below. Shares will be issued to Participant within 70 days following the vesting of each tranche of Performance Restricted Stock Units unless subject to the
terms of the Company’s deferred compensation plan; provided, however, that if the Participant is subject to taxation in the U.S. (a “U.S. Taxpayer”), the Performance Restricted Stock Units vest pursuant to Section 1.6 below and the Performance
Restricted Stock Units are considered “non-qualified deferred compensation” subject to Section 409A of the Code (“Code Section 409A,” and such compensation, “Deferred Compensation”), the Shares will be issued in accordance with the following
schedule: (i) if the termination event giving rise to the vesting acceleration occurs prior to the Change in Control and the Change in Control constitutes a “change in control event” (within the meaning of U.S. Treasury Regulation
1.409A-3(i)(5)(i)) (a “409A CIC”), the Shares will be issued on the date of the Change in Control, and if the Change in Control does not constitute a 409A CIC, the Shares will be issued on the date that is six months following the Participant’s
“separation from service” (within the meaning of Code Section 409A) (a “Separation from Service”); (ii) if the termination event giving rise to the vesting acceleration occurs on or following the Change in Control and the Change in Control
constitutes a 409A CIC, then the Shares will be issued within 30 days following the Participant’s Separation from Service, and if the Change in Control is not a 409A CIC, then the Shares will be issued on the date that is six months following the
Participant’s Separation from Service.
Notwithstanding the foregoing, for purposes of complying with Code Section 409A, if the Participant is a U.S. Taxpayer, the Performance Restricted Stock Units
are considered Deferred Compensation and the Performance Restricted Stock Units are to be settled in connection with a termination contemplated under Section 1.6 below, the Company and the Participant shall take all steps necessary (including with
regard to any post-termination services by the Participant) to ensure that a termination contemplated under Section 1.6 constitutes a Separation from Service. In addition, if the Performance Restricted Stock Units are Deferred Compensation, the
Performance Restricted Stock Units are settled upon the Participant’s Separation from Service and the Participant is a “specified employee,” within the meaning of Code Section 409A, on the date the Participant experiences a Separation from Service,
then the Shares will be issued on the first business day of the seventh month following the Participant’s Separation from Service, or, if earlier, on the date of the Participant’s death, to the extent such delayed payment is required in order to
avoid a prohibited distribution under Code Section 409A.
1.5 Stockholder Rights. Unless and until Shares are issued by the Company after the vesting of Performance Restricted Stock Units, Participant shall have none of the
rights or privileges of a shareholder of the Company (including voting, dividend and liquidation rights) with respect to the Shares covered by the Performance Restricted Stock Units.
2
1.6 Change in Control. Notwithstanding any provision in this Agreement to the contrary, if, within six months prior to and in connection with a Change in Control or within
two years following such Change in Control, Participant’s employment is terminated (i) by the Company and its Subsidiaries without Cause, or (ii) by Participant for Good Reason, the vesting of outstanding Performance Restricted Stock Units
governed by this Agreement shall be accelerated such that the number of Performance Restricted Stock Units specified in the Award Summary (i.e., the number of Performance Restricted Stock Units that would vest upon achievement of [Performance
Vesting Provisions], as set forth in Schedule A) shall be deemed to be vested in full immediately prior to the termination of Participant’s employment.
For purposes of this Agreement:
“Cause” shall mean that Participant has engaged in any one of the following:
(a) a material breach
by Participant of the Company’s Employee Covenants Agreement, other employee covenants or any employment agreement, which breach is not cured within any applicable cure period set forth in the respective document;
(b) any willful
violation by Participant of any material law or regulation applicable to the business of the Company or any of its Subsidiaries;
(c) Participant’s
conviction of, or a plea of guilty or nolo contendere to, a felony or any willful perpetration of common law fraud (or analogous violation of law in a jurisdiction outside the United States); or
(d) any other willful
misconduct by Participant 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.
For purposes of the foregoing, in determining whether a “material breach” has occurred, or whether there has been a willful violation of a “material” law or
regulation, the standard shall be a breach or violation that is, or will reasonably likely be, materially injurious to the financial condition or business reputation of, or is, or will reasonably likely be, otherwise materially injurious to, the
Company or any of its Subsidiaries.
“Good Reason” shall mean the occurrence any of the following events that result in a material negative change to Participant:
(a) without
Participant’s consent, a material reduction in the scope of Participant’s duties and responsibilities or the level of management to which Participant reports;
(b) without
Participant’s consent, a reduction in base salary (other than an across-the-board reduction of not more than 10% applicable to all similarly situated employees);
(c) without
Participant’s consent, a material reduction in Participant’s benefits in the aggregate (in terms of benefit levels) from those provided to Participant under any employee benefit plan, program and practice in which Participant participates;
(d) without
Participant’s consent, a relocation of Participant’s principal place of employment of more than 50 miles from Participant’s primary residence;
3
(e) the failure of the
Company to have a successor entity specifically assume this Agreement or any employment agreement within 10 business days after a Change in Control; or
(f) a material breach
by the Company a successor entity of this Agreement or any employment agreement.
Notwithstanding the foregoing, Good Reason shall only be found to exist if Participant, not later than 90 days after the initial occurrence of an event deemed
to give rise to a right to terminate for Good Reason, has provided 30 days written notice to the Company prior to Participant’s resignation indicating and describing the event resulting in such Good Reason, and the Company does not cure such event
(other than the event in clause vi), which shall not be subject to cure) within 90 days following the receipt of such notice from Participant.
2. Securities Law Compliance. Participant represents that Participant has received and carefully read a copy of the Prospectus for the Plan, together
with the Company’s most recent Annual Report to Stockholders. Participant hereby acknowledges that Participant is aware of the risks associated with the Shares and that there can be no assurance the price of the Shares will not decrease in the
future. Participant hereby acknowledges no representations or statements have been made to Participant concerning the value or potential value of the Shares. Participant acknowledges that Participant has relied only on information contained in
the Prospectus and has received no representations, written or oral, from the Company or its employees, attorneys or agents, other than those contained in the Prospectus or this Agreement. Participant acknowledges that the Company has made no
representations or recommendations, and is not providing any tax, legal or financial advice, regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant is hereby advised to
consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
3. Transfer Restrictions. Participant shall not transfer, assign, sell, encumber, pledge, grant a security interest in or otherwise dispose of the
Performance Restricted Stock Units subject to this Agreement in any manner other than by the laws of descent or distribution. Any such transfer, assignment, sale, encumbrance, pledge, security interest or disposition shall be void.
4. Forfeiture. If, at any time during Participant’s Continuous Service or at any time during the 12-month period following termination of Participant’s Continuous
Service, Participant engages in conduct that constitutes Cause (as defined above), then at the election of the Committee, (a) this Agreement and all unvested Performance Restricted Stock Units granted hereunder shall terminate, and (b)
Participant shall return to the Company for cancellation all Shares held by Participant plus pay the Company the amount of any proceeds received from the sale of any Shares to the extent such Shares were issued pursuant to Performance Restricted
Stock Units granted under this Agreement that vested (i) during the 12-month period immediately preceding the Cause, or (ii) on the date of or at any time after such Cause.
If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under
the securities laws, the Committee may terminate any Performance Restricted Stock Units granted hereunder or require Participant to reimburse the Company the amount of any payment or benefit received with respect to any Performance Restricted Stock
Units granted hereunder to the extent the Performance Restricted Stock Units would not have been earned or accrued after giving effect to the accounting restatement.
4
The forfeiture and recoupment provisions of this Section 4 shall be applied by the Committee, at its discretion, to the maximum extent permitted under
applicable laws. Further, these provisions are in addition to, and not in lieu of, any recoupment requirements under the Sarbanes-Oxley Act or under other applicable laws, rules, regulations or stock exchange listing standards, including, without
limitation, Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or Section 10D of the U.S. Securities Exchange Act of 1934, as amended, and shall apply notwithstanding anything to the contrary in this Agreement or in
the Plan. Participant expressly agrees that the Company may take such actions as are necessary or appropriate to effectuate the foregoing (as applicable to Participant) or applicable law without further consent or action being required by
Participant. For purposes of the foregoing and as a condition to the grant, Participant expressly and explicitly authorizes the Company to issue instructions, on Participant’s behalf, to Morgan Stanley (or any other stock plan service provider
engaged by the Company to administer awards granted under the Plan) to re-convey, transfer or otherwise return such Shares and/or other amounts to the Company.
5. Governing Plan Document. This Agreement incorporates by reference all of the terms and conditions of the Plan, as presently existing and as
hereafter amended. Participant expressly acknowledges and agrees that the terms and provisions of this Agreement are subject in all respects to the provisions of the Plan. Participant also expressly:
(a) Acknowledges
receipt of the Plan and represents that Participant is familiar with the provisions of the Plan, and that Participant enters into this Agreement subject to all of the provisions of the Plan;
(b) Recognizes that the
Committee has been granted complete authority to administer the Plan in its sole discretion, and agrees to accept all decisions related to the Plan and all interpretations of the Plan made by the Committee as final and conclusive upon Participant
and upon all persons at any time claiming any interest through Participant in the Performance Restricted Stock Units or the Shares subject to this Agreement; and
(c) Acknowledges and
understands that the establishment of the Plan and the existence of this Agreement are not sufficient, in and of themselves, to exempt Participant from the requirements of Section 16(b) of the Exchange Act and any rules or regulations promulgated
thereunder, and that Participant (to the extent Section 16(b) applies to Participant) shall not be exempt from such requirements pursuant to Rule 16b-3 unless and until Participant shall comply with all applicable requirements of Rule 16b-3,
including without limitation, the possible requirement that Participant must not sell or otherwise dispose of any Shares acquired pursuant to Performance Restricted Stock Units unless and until a period of at least six months shall have elapsed
between the Grant Date and the date upon which Participant desires to sell or otherwise dispose of such Shares.
5
6. Representations and Warranties. As a condition to the receipt of any Shares upon vesting of the Performance Restricted Stock Units, the Company may
require Participant to make any representations and warranties to the Company that legal counsel to the Company may determine to be required or advisable under any applicable law or regulation, including without limitation, representations and
warranties that the Shares are being acquired only for investment and without any present intention or view to sell or distribute any such Shares.
7. Compliance With Law and Regulations. Notwithstanding any other provision of the Plan or this Agreement, unless there is an available exemption from
any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon settlement of the Performance Restricted Stock Units prior to the completion of any
registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental
regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or
advisable. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the
issuance or sale of the Shares. Further, Participant agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without Participant’s consent to the extent necessary to comply with securities or other laws
applicable to issuance of Shares.
8. Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company or, if different, Participant’s employer (the “Employer”), the
ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan and legally applicable to Participant or deemed by the
Company or the Employer in its discretion to be an appropriate charge to Participant even if legally applicable to the Company or the Employer (“Tax-Related Items”), is and remains Participant’s responsibility and may exceed the amount, if any,
actually withheld by the Company or the Employer. Participant further acknowledges that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of
the Performance Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Performance Restricted Stock Units, the subsequent sale of any Shares acquired at settlement and the receipt of any dividends; and (b)
do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Performance Restricted Stock Units to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result.
Further, if Participant is subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items
in more than one jurisdiction.
In connection with any relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company
and/or the Employer to satisfy all Tax-Related Items.
6
Full payment of the Tax-Related Items shall be made by any of the following, or a combination thereof, subject to the Company’s right to eliminate, prior to
vesting, any of the following as permissible payment methods: (i) in cash or cash equivalents (including certified check, bank check or wire transfer of immediately available funds); (ii) by tendering previously acquired Shares (either actually or by
attestation) valued at their then-Fair Market Value; (iii) by withholding Shares otherwise issuable in connection with the vesting of the Performance Restricted Stock Units; (iv) through same-day voluntary or involuntary (on Participant’s behalf
pursuant to this authorization) sales through a broker if permitted by the Company’s Securities Trading Policy; (v) withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer; or (vi) any
combination of any of the foregoing. In the absence of Participant’s timely election or in the event Section 16(b) applies to Participant, the Company will withhold in Shares upon the relevant taxable or tax withholding event, as applicable. In the
event that such withholding in Shares is problematic under applicable tax or securities law or has materially adverse accounting consequences, the Participant authorizes and directs the Company and/or Employer, or their respective agents, at their
discretion, to satisfy any applicable withholding obligation with regard to all Tax-Related Items by one or a combination of the methods above.
Depending on the withholding method, the Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable withholding rates
in Participant's jurisdiction(s) (up to the rate that will not cause an adverse accounting consequence or cost, including pursuant to ASC Topic 718, as applicable). If the Company and/or the Employer withhold more than the amount necessary to
satisfy the liability for Tax-Related Items, Participant may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent Shares or, if not refunded, Participant may be able to seek a refund from the applicable
tax authorities. If the Company and/or the Employer withhold less than the amount necessary to satisfy the liability for Tax-Related Items, Participant may be required to pay additional Tax-Related Items directly to the applicable tax authorities or
to the Company and/or the Employer. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the vested Performance Restricted
Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
Participant agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or
account for as a result of Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Participant fails to comply
with Participant’s obligations in connection with the Tax-Related Items.
9. Nature of Grant. In accepting the Performance Restricted Stock Units, Participant acknowledges, understands and agrees that:
(a) the Plan is
established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
7
(b) the grant of
Performance Restricted Stock Units is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards of Performance Restricted Stock Units, or benefits in lieu of Performance Restricted Stock
Units even if Performance Restricted Stock Units have been awarded in the past;
(c) nothing in this
Agreement or in the Plan shall confer upon Participant any right to continue in the employment or service of the Employer, the Company or any Subsidiary or be interpreted as forming or amending an employment or services contract with the
Employer, the Company or any Subsidiary and shall not interfere with or restrict any way the ability of the Employer, the Company or any Subsidiary, as applicable, to terminate Participant’s employment or service relationship, if any;
(d) all decisions with
respect to future grants of Performance Restricted Stock Units or other grants, if any, will be at the sole discretion of the Committee and/or Company;
(e) Participant’s
participation in the Plan is voluntary;
(f) the future value of
the underlying Shares is unknown, indeterminable and unpredictable;
(g) unless otherwise
agreed with the Company, the Performance Restricted Stock Units and the Shares subject to the Performance Restricted Stock Units, and the income and value of same, are not granted as consideration for, or in connection with, the service
Participant may provide as a director of any entity of the Company;
(h) in the event of the
termination of Participant’s Continuous Service (as defined above) (for any reason whatsoever, whether or not later to be found invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of
Participant’s employment agreement, if any), unless otherwise determined by the Company, Participant’s right to vest in the Performance Restricted Stock Units under the Plan, if any, will terminate as of the date Participant is no longer actively
rendering services and will not be extended by any notice period (e.g., Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the
jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any); the Committee shall have the exclusive discretion to determine when Participant is no longer providing Continuous Service for purposes of this
Agreement, including whether Participant may still be considered to be providing active service while on a leave of absence;
(i) Performance
Restricted Stock Units and the Shares subject to Performance Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation or salary for any purpose, including, but not limited to, calculation of any
severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, leave-related pay, pension or retirement or welfare benefits or similar mandatory payments;
8
(j) Performance
Restricted Stock Units and the Shares subject to Performance Restricted Stock Units, and the income and value of same, are not intended to replace any pension rights or compensation;
(k) Performance
Restricted Stock Units are an extraordinary item that does not constitute compensation of any kind for service of any kind rendered to the Company or to the Employer, and Performance Restricted Stock Units are outside of the scope of
Participant’s employment agreement, if any;
(l) no claim or
entitlement to compensation or damages shall arise from forfeiture of Performance Restricted Stock Units resulting from termination of Participant’s Continuous Service (for any reason whatsoever, whether or not later found to be invalid or in
breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any); and
(m) neither the
Company, the Employer nor any Subsidiary of the Company shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of Performance Restricted Stock Units or
of any amounts due to Participant pursuant to the settlement of the Performance Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.
10. Data Privacy Notice and Consent. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or
other form, of Participant’s personal data, as described in this Agreement and any other Performance Restricted Stock Unit grant materials by and among, as
applicable, the Employer, the Company and Subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Employer, the Company and Subsidiaries may hold certain personal information about
Participant, including, but not limited to, Participant’s name, home address, email address and telephone number, date of birth, social security number, passport information, social insurance number or other identification number, salary,
nationality, job title, any Shares or directorships held in the Company, details of all Performance Restricted Stock Units or any other entitlement to Shares or other equivalent benefits awarded, canceled, purchased, exercised, vested, unvested or
outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.
9
Participant understands that Data will be transferred to Morgan Stanley, or such other stock plan service provider as
may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or
elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request
a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Participant authorizes the Company, Morgan Stanley and any other possible recipients which may assist the
Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing
Participant’s participation in the Plan, including any transfer of such Data as may be required to a broker, escrow agent or other third party with whom the Shares received upon vesting of Performance Restricted Stock Units may be deposited.
Participant understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any
time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human
resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her
employment status or service with the Employer will not be affected; the only consequence of refusing or withdrawing Participant’s consent is that the Company may not be able to grant Performance Restricted Stock Units or other equity awards to
Participant or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of his or
her refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
Upon request of the Company or the Employer, Participant agrees to provide an executed data privacy form (or any other
agreements or consents) that the Company and/or the Employer may deem necessary to obtain from Participant for the purpose of administering Participant’s participation in the Plan in compliance with the data privacy laws in Participant’s country,
either now or in the future. Participant understands and agrees that he or she will not be able to participate in the Plan if Participant fails to provide any such consent or agreement as requested by the Company and/or the Employer.
11. Miscellaneous Provisions.
11.1 Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the sender’s
local mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the latest address on file or at such other address as such party may designate by ten days advance written notice under this
Section to all other parties to this Agreement.
11.2 Waiver. The failure of the Company in any instance to exercise any rights under this Agreement, including the forfeiture rights under Section 4, shall not constitute a
waiver of any other rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and Participant. Participant acknowledges that no waiver by the Company of any breach of any provision of
this Agreement shall operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Participant or any other Participant, whether of like or different nature.
10
11.3 Imposition of Other Requirements & Participant Undertaking. The Company reserves the right to impose other requirements on Participant’s participation in the Plan,
on the Performance Restricted Stock Units and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. Participant hereby agrees to take whatever additional
action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out the foregoing or one or more of the obligations or restrictions imposed on either Participant or the Shares pursuant to the
provisions of this Agreement.
11.4 Entire Contract. This Agreement and the Plan constitute the entire understanding and agreement of the parties with respect to the subject matter contained herein.
This Agreement is made pursuant to, and incorporates by reference, the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.
11.5 Language. Participant acknowledges that he or she is sufficiently proficient in English, or, alternatively, Participant acknowledges that he or she will seek
appropriate assistance to understand the terms and conditions in this Agreement. Furthermore, if Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning
of the translated version is different than the English version, the English version will control.
11.6 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by
electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by
the Company.
11.7 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon
Participant, Participant’s permitted assigns and the legal representatives, heirs and legatees of Participant’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be
bound by the terms hereof. Participant may not assign this Agreement other than by the laws of descent and distribution.
11.8 Severability. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or
unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.
11.9 Governing Law and Choice of Venue. The Performance Restricted Stock Units and the provisions of this Agreement shall be governed by, and subject to, the laws of the
State of Utah, United States, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Agreement or this grant of Performance Restricted Stock Units, the parties
hereby submit to and consent to the jurisdiction of the State of Utah, agree that such litigation shall be conducted in the courts of Utah County, Utah, or the
federal courts of the United States for the District of Utah, where this grant is made and/or to be performed.
11.10 Appendix. Notwithstanding any provisions in this Agreement, the Performance Restricted Stock Units shall be subject to any special terms and conditions set forth in
any Appendix to this Agreement for Participant’s country. Moreover, if Participant relocates to one of the countries included in the Appendix, the terms and conditions for such country will apply to Participant, to the extent the Company
determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.
11
11.11 Insider Trading Restrictions/Market Abuse Laws. Participant acknowledges that, depending on Participant’s country, broker’s country, or where Shares are listed,
Participant may be subject to insider trading and/or market abuse laws which may affect Participant’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to such shares (e.g., Performance Restricted Stock Units) or rights
linked to the value of Shares under the Plan during such times as Participant is considered to have “material nonpublic information” or “inside information” regarding the Company (as defined by the laws or regulations in the relevant
jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Participant places before Participant possessed inside information. Furthermore, Participant could be prohibited from (i) disclosing
inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Third parties include fellow employees. Any restrictions under these laws or
regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy, and the requirements of applicable laws may or may not be consistent with the terms of the Company’s insider trading
policy. Participant acknowledges that it is his or her responsibility to comply with any applicable restrictions, and that Participant should speak to his or her personal advisor on this matter.
11.12 Exchange Control Tax and Foreign Asset/Account Reporting Requirements. Participant
acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect Participant’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan
(including from any dividends paid on Shares acquired under the Plan) in a brokerage, bank account or legal entity outside Participant’s country. Participant may be required to report such accounts, balances, assets and/or the related transactions
to the tax or other authorities in his or her country. Participant also may be required to repatriate sale proceeds or other funds received as a result of Participant’s participation in the Plan to his or her country through a designated bank or
broker within a certain time after receipt. Participant acknowledges that it is Participant’s responsibility to be compliant with such regulations and Participant should consult his or her personal legal advisor for any details. Participant
agrees to take any and all actions, and consents to any and all actions taken by the Company or the Employer as may be required to allow the Company or the Employer to comply with local laws, rules and regulations in Participant’s country of
residence (and country of employment, if different). Finally, Participant agrees to take any and all actions as may be required to comply with Participant’s personal legal and tax obligations under local laws, rules and regulations in
Participant’s country of residence (and country of employment, if different).
12
11.13 Section 409A. The Performance Restricted Stock Units and issuance of Shares thereunder are intended to comply with Code Section 409A and the U.S. Treasury Regulations
relating thereto so as not to subject the Participant to the payment of additional taxes and interest under Code Section 409A or other adverse tax consequences. In furtherance of this intent, the provisions of this Agreement will be interpreted,
operated, and administered in a manner consistent with these intentions. The Committee may modify the terms of this Agreement, the Plan or both, without the consent of the Participant, in the manner that the Committee may determine to be
necessary or advisable in order to comply with Code Section 409A or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Code Section 409A if compliance is not practical. This Section
11.12 does not create an obligation on the part of the Company to modify the terms of this Agreement or the Plan and does not guarantee that the Performance Restricted Stock Units or the delivery of Shares upon vesting/settlement of the
Performance Restricted Stock Units will not be subject to taxes, interest and penalties or any other adverse tax consequences under Code Section 409A. Nothing in this Agreement shall provide a basis for any person to take any action against the
Company or any of its Subsidiaries based on matters covered by Code Section 409A, including the tax treatment of any amounts paid under this Agreement, and neither the Company nor any of its Subsidiaries will have any liability under any
circumstances to the Participant or any other party if the Performance Restricted Stock Units, the delivery of Shares upon vesting/settlement of the Performance Restricted Stock Units or other payment or tax event hereunder that is intended to be
exempt from, or compliant with, Code Section 409A, is not so exempt or compliant or for any action taken by the Committee with respect thereto. Further, settlement of any portion of the Performance Restricted Stock Units that is Deferred
Compensation may not be accelerated or postponed except to the extent permitted by Code Section 409A.
By electronically accepting this Agreement and participating in the Plan, Participant agrees to be bound by the terms and conditions in the
Plan and this Agreement, including the Appendix. Within six months of the Grant Date, if Participant has not electronically accepted this Agreement on Morgan Stanley’s website, or the website of any other stock plan service provider appointed by the
Company, and has not otherwise rejected the grant, then this award shall automatically be deemed accepted, and Participant shall be bound by the terms and conditions in the Plan and this Agreement, including the Appendix.
13
APPENDIX
FOR PARTICIPANTS OUTSIDE THE U.S.
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED 2010 OMNIBUS INCENTIVE PLAN
PERFORMANCE RESTRICTED STOCK UNIT AGREEMENT
Unless otherwise defined herein, the capitalized terms in this Appendix shall have the same defined meaning assigned to them in the Plan and the Agreement.
This Appendix includes special country-specific terms and conditions that apply to Participants in the countries listed below. This Appendix is part of the
Agreement. This Appendix also includes information of which Participant should be aware with respect to his or her participation in the Plan. For example, certain individual exchange control reporting requirements may apply upon vesting of the
Performance Restricted Stock Units and/or sale of Shares. The information is based on the securities, exchange control and other laws in effect in the respective countries as of January 2022 and is provided for informational purposes. Such laws are
often complex and change frequently, and results may be different based on the particular facts and circumstances. As a result, the Company recommends that Participant does not rely on the information noted herein as the only source of information
relating to the consequences of Participant’s participation in the Plan because the information may be out of date at the time the Performance Restricted Stock Units vest or are settled, or Participant sells Shares acquired under the Plan.
In addition, the information is general in nature and may not apply to Participant’s particular situation, and the Company is not in a position to assure
Participant of any particular result. Accordingly, Participant should seek appropriate professional advice as to how the relevant laws in Participant’s country may apply to his or her situation.
Finally, if Participant is a citizen or resident of a country other than the one in which he or she currently is residing and/or working, transfers employment
after the Performance Restricted Stock Units are granted to him or her, or is considered a resident of another country for local law purposes, the terms and conditions and/or notifications contained herein may not be applicable to him or her, and the
Company shall, in its discretion, determine to what extent such terms and conditions contained herein shall apply to him or her.
DATA PRIVACY PROVISIONS APPLICABLE TO GRANTEES IN THE EUROPEAN UNION/EUROPEAN ECONOMIC AREA
The following provision replaces Section 10 of the Agreement:
Data Collection and Usage. Pursuant to
applicable data protection laws, Participant is hereby notified that the Company collects, processes, uses and transfers certain personally-identifiable information about Participant for the exclusive legitimate purpose of granting Restricted Stock
Units and implementing, administering and managing Participant’s participation in the Plan. Specifics of the data processing are described below.
14
Controller, EU Representative and DPO.
The Company is the controller responsible for the processing of Participant’s personal data in connection with the Plan. The Company’s representative in the European Union is NSE Products Europe BVBA, Da Vincilaan 9, 1935 Zaventem, Belgium,
telephone number +32 2 722 70 00. Participant can reach the data protection officer (“DPO”) of the Company at +1 (801) 345-1505, 75 West Center Street, Provo, Utah 84601.
Personal Data Subject to Processing.
The Company collects, processes and uses the following types of personal data about Participant: Participant’s name, home address and telephone number, email address, date of birth, social insurance, passport number or other identification number,
salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Performance Restricted Stock Units or any other entitlement to Shares awarded, canceled, settled, vested, unvested or outstanding in
Participant’s favor, which the Company receives from Participant or the Employer, as well as Participant’s hire date, term date, term reason code, status, and Company’s Division (“Personal Data”).
Purposes and Legal Bases of Processing.
The Company processes the Personal Data for the purpose of granting Performance Restricted Stock Units, implementing, administering and managing Participant’s participation in the Plan. The legal basis for the processing of the Personal Data by
the Company and the third‑party service providers described below is the necessity of the data processing for the Company to perform its contractual obligations under the Agreement and generally administering employee equity awards.
Stock Plan Administration Service Providers. The Company transfers Personal Data to Morgan Stanley Smith Barney LLC and its affiliated companies (collectively, “Morgan Stanley”), an independent stock plan administrator with operations, relevant to the Company, in the
United States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select different service providers and may share Personal Data with such service providers. As a data
controller, the Company’s stock plan administrator will open an account for Participant to receive and trade Shares. Participant will be asked to agree on separate terms and data processing practices with the service provider, which is a condition
of Participant’s ability to participate in the Plan. Participant’s Personal Data will only be accessible by those individuals requiring access to it for purposes of implementing, administering and operating Participant’s participation in the
Plan. Participant understands that Participant may request a list with the names and addresses of any potential recipients of Personal Data by contacting Participant’s local human resources representative.
International Data Transfers. The
Company and its service providers, including, without limitation, Morgan Stanley, operate, relevant to the Company, in the United States, which means that it will be necessary for Personal Data to be transferred to, and processed in, the United
States. Participant understands and acknowledges that the United States is not subject to an unlimited adequacy finding by the European Commission and that Participant’s Personal Data may not have an equivalent level of protection as compared to
Participant’s country of residence.
The legal basis for the processing of the Personal Data by the Company and the third‑party service providers is the necessity of the data processing for the
Company to perform its contractual obligations under the Agreement and generally administering employee equity awards.
15
Data Retention. The Company will use
the Personal Data only as long as necessary to implement, administer and manage Participant’s participation in the Plan, or as required to comply with legal or regulatory obligations, including tax and securities laws. When the Company no longer
needs the Personal Data, the Company will remove it from its systems. If the Company keeps data longer, it would be to satisfy tax, legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulations.
Data Subject Rights. To the extent
provided by law, Participant has the right to (i) inquire whether and what kind of Personal Data the Company holds about Participant and how it is processed, and to access or request copies of such Personal Data, (ii) request the correction or
supplementation of Personal Data that is inaccurate, incomplete or out-of-date in light of the purposes underlying the processing, or (iii) obtain the erasure of Personal Data no longer necessary for the purposes underlying the processing or
processed in non-compliance with applicable legal requirements. In addition, Participant has, to the extent provided by law, the right to (iv) request the Company to restrict the processing of Personal Data in certain situations where Participant
feels its processing is inappropriate, (v) object, in certain circumstances, to the processing of Personal Data for legitimate interests, and to (vi) request portability of Personal Data that Participant has actively or passively provided to the
Company, where the processing of such Personal Data is based on consent or a contractual agreement with Participant and is carried out by automated means. In case of concerns, Participant also has the right to (vii) lodge a complaint with the
competent local data protection authority. To receive additional information regarding Participant’s rights, raise any other questions regarding the practices described in this Agreement or to exercise his or her rights, Participant should contact
his or her local human resources representative.
Contractual Requirement. Participant’s
provision of Personal Data and its processing as described above is required for the performance of the Company’s obligations pursuant to the Plan and a condition to Participant’s ability to participate in the Plan. Participant understands that,
as a consequence of Participant’s refusing to provide Personal Data, the Company may not be able to allow Participant to participate in the Plan, grant Performance Restricted Stock Units to Participant or administer or maintain such Performance
Restricted Stock Units. However, Participant’s participation in the Plan and his or her acceptance of this Agreement are purely voluntary. While Participant will not receive Performance Restricted Stock Units if he or she decides against
participating in the Plan or providing Personal Data as described above, Participant’s career and salary will not be affected in any way. For more information on the consequences of the refusal to provide Personal Data, Participant may contact his
or her local human resources representative.
AUSTRALIA
Nature of Plan. The Plan and the Agreement is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) (the “Act”) applies (subject to the conditions in the Act).
Securities Law Information. The offer of the
Performance Restricted Stock Units is intended to comply with the provisions of the Corporations Act 2001, Australian Securities & Investments Commission (“ASIC”) Regulatory Guide 49 and ASIC Class Order CO 14/1000. Additional details are set
forth in the Offer Document for the offer of Performance Restricted Stock Units to Australian Resident Participants, which will be provided to Participant with this Agreement.
16
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding AUD10,000 and for international fund transfers. If an Australian bank is assisting with the
transaction, the bank will file the report on the Participant’s behalf.
BELGIUM
Foreign Asset/Account Reporting Information.
Participant is required to report any securities (e.g., Shares acquired under the Plan) or bank accounts established outside of Belgium on his or her annual tax
return. In a separate report, Belgium residents are also required to provide the National Bank of Belgium with the account details of any such foreign accounts
(including the account number, bank name and country in which any such account was opened). This report, as well as additional information on how to complete it, can be found on the website of the National Bank of Belgium, www.nbb.be, under
Kredietcentrales / Centrales des crédits caption. Participant should consult a personal tax advisor with respect to the applicable reporting obligations.
Annual Securities Accounts Tax. If the value of
securities held in a Belgian or foreign securities account exceeds EUR 1 million, a new “annual securities accounts tax” applies. Belgian residents should consult with their personal tax advisor regarding the new tax.
CANADA
Performance Restricted Stock Units Only Payable in Shares. Notwithstanding any discretion in the Plan, the Performance Restricted Stock Units will be settled in Shares only. The grant of Performance Restricted Stock Units does not provide any right for Participant to receive a cash payment.
Securities Law Information. Participant
acknowledges and agrees that he or she will sell Shares acquired through participation in the Plan only outside of Canada through the facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the New York
Stock Exchange in the United States.
Foreign Asset/Account Reporting Information. Participant is required to report any specified foreign property (including Shares) annually on Form T1135 (Foreign Income Verification Statement) if the total cost
of Participant’s specified foreign property exceeds C$100,000 at any time during the year. The form must be filed by April 30th of the following year. Specified foreign property includes Shares acquired under the Plan and may include Performance
Restricted Stock Units. The Performance Restricted Stock Units must be reported‒generally at a nil cost‒if the $100,000 cost threshold is exceeded because of other foreign property Participant holds. If Shares are acquired, their cost generally
is the adjusted cost base (“ACB”) of the Shares. The ACB would normally equal the fair market value of the Shares at vesting for Performance Restricted Stock Units, but if Participant owns other shares, this ACB may have to be averaged with the
ACB of the other shares. It is Participant’s responsibility to comply with applicable reporting obligations.
17
The following provisions apply if Participant is resident in Quebec:
Data Privacy. Participant hereby authorizes the
Company, the Employer and their representatives, including any broker(s) designated by the Company to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the
Plan. Participant further authorizes the Company and its Subsidiaries to disclose and discuss the Plan with their advisors. Participant further authorizes the Company and its Subsidiaries to record such information and to keep such information in
the his or her employee file.
Language Consent. The parties acknowledge that it
is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et
procédures judiciaries intentées, directement ou indirectement, relativement à ou suite à la présente convention.
CHINA
The following provisions apply only to Participants who are subject to exchange control restrictions imposed by the State Administration of Foreign Exchange
("SAFE"), as determined by the Company in its sole discretion:
Settlement of Performance Restricted Stock Units.
This provision supplements Section 1.4 of the Agreement:
The Performance Restricted Stock Units will only vest if and when the Company has completed the registration of the Plan with SAFE and provided such
registration remains effective. If the Company is unable to complete the registration or maintain the registration, the settlement of the Performance Restricted Stock Units may be delayed. Shares issued to Participant under the Plan must be
maintained in an account with Morgan Stanley or such other broker as may be designated by the Company until the Shares are sold through that broker. Due to local regulatory requirements, Participant agrees that the Company may force the sale of any
Shares obtained at vesting. The sale may occur immediately upon vesting or within any other time frame as the Company determines to be necessary or advisable for legal or administrative reasons.
Furthermore, due to regulatory requirements, Participant acknowledges and agrees that Participant must sell any Shares issued to Participant upon vesting of
the Performance Restricted Stock Units as soon as practicable following the termination of Participant’s Continuous Service and in no event later than six months following the termination of Participant’s Continuous Service, or within any other such
time frame as may be required by SAFE. Participant agrees that if Participant continues to hold any of such Shares after this time, the Shares will be sold by the Company’s designated broker on Participant’s behalf at the instruction of the
Company. Therefore, by accepting the Performance Restricted Stock Units, Participant understands and agrees that the Company is authorized to, and may in its sole discretion, instruct its designated broker to assist with the mandatory sale of Shares
(on Participant’s behalf pursuant to this authorization) and that Participant expressly authorizes the Company’s designated broker to complete the sale of such Shares. Participant acknowledges that the Company’s designated broker is under no
obligation to arrange for the sale of the Shares at any particular price. Upon the sale of the Shares, the proceeds, less any Tax-Related Items and brokerage fees or commissions will be remitted to Participant pursuant to the procedures described in
the “Exchange Control Information” section below.
18
Exchange Control Information. Participant
understands and agrees that, to facilitate compliance with exchange control requirements, Participant will be required to immediately repatriate to China the cash proceeds from the sale of the Shares issued upon the vesting of the Performance
Restricted Stock Units. Participant further understands that, under local law, such repatriation of the cash proceeds will be effectuated through a special exchange control account established by the Company or its Subsidiary in China, and
Participant hereby consents and agrees that the proceeds from the sale of Shares acquired under the Plan may be transferred to such special account prior to being delivered to Participant. The Company may deliver the proceeds to Participant in
U.S. dollars or local currency at the Company’s discretion. If the proceeds are paid in U.S. dollars, Participant understands that he or she will be required to set up a U.S. dollar bank account in China so that the proceeds may be deposited into
this account. If the proceeds are converted to local currency, there may be delays in delivering the proceeds to Participant. Participant agrees to bear the risk of any currency fluctuation between the time the Shares are sold, either through
voluntary sale or through a mandatory sale arranged by the Company, or proceeds are otherwise realized under the Plan and the time such proceeds are distributed to Participant through the special exchange control account.
Participant further agrees to comply with any other requirements that may be imposed by the Company in the future to facilitate compliance with exchange
control requirements in China.
DENMARK
Danish Stock Option Act. Participant acknowledges that they have received an Employer Statement in Danish which sets forth additional terms of the Performance Restricted Stock Units, to the extent that
the Danish Stock Option Act applies to the Performance Restricted Stock Units.
Foreign Asset/Account Reporting Information. If
Participant establishes an account holding Shares or an account holding cash outside Denmark, he or she must report the account to the Danish Tax Administration. The form may be obtained from a local bank.
GERMANY
Exchange Control Information. Cross-border payments
in excess of €12,500 must be reported monthly to the German Federal Bank. In case of payments in connection with securities (including payment of the Grant Price and the proceeds realized upon the sale of Shares), the report must be made by the 5th
day of the month following the month in which the payment was made/received. The report must be filed electronically. The form of report (“Allgemeine Meldeportal Statistik”)
can be accessed via the Bundesbank’s website (www.bundesbank.de) and is available in both
German and English. Participant is responsible for satisfying the reporting obligation.
Foreign Asset/Account Reporting Information.
German residents holding Shares must notify their local tax office if the acquisition of Shares under the Plan leads to a so-called qualified participation at any point during the calendar year. A qualified participation is attained only in the
unlikely event (i) Participant owns at least 1% of the Company and the value of the Shares acquired exceeds €150,000, or (ii) Participant holds Shares exceeding 10% of the total capital of the Company.
19
HONG KONG
Performance Restricted Stock Units Only Payable in Shares. Notwithstanding any discretion in the Plan, the Performance Restricted Stock Units will be settled in Shares only. The grant of Performance Restricted Stock Units does not provide any right for Participant to receive a cash payment.
Restriction on Sale of Shares. Shares received
under the Plan are accepted as a personal investment. Should any portion of the Performance Restricted Stock Units vest within six months of the Grant Date, Participant agrees that Participant will not dispose of the Shares acquired at vesting
prior to the six-month anniversary of the Grant Date.
Securities Law Information. Warning: The contents
of this document have not been reviewed by any regulatory authority in Hong Kong. Participant is advised to exercise caution in relation to the offer. If Participant is in any doubt about any of the contents of the Agreement, including this
Appendix, or the Plan, Participant should obtain independent professional advice. The Performance Restricted Stock Units and any Shares issued pursuant to the grant do not constitute a public offering of securities under Hong Kong law and are
available only to employees of the Company . The Agreement, including this Appendix, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public
offering of securities under the applicable securities legislation in Hong Kong. The Performance Restricted Stock Units and any related documentation are intended only for the personal use of each eligible employee of the Company and may not be
distributed to any other person.
HUNGARY
There are no country-specific provisions.
INDONESIA
Language Consent and Notification. A translation
of the documents related to this grant into Bahasa Indonesia can be provided to Participant upon request to hroperations@nuskin.com. By accepting the grant, Participant (i) confirms having read and understood the documents relating to this grant
(i.e., the Plan and the Agreement) which were provided in the English language, (ii) accepts the terms of those documents accordingly, and (iii) agrees not to
challenge the validity of this document based on Law No. 24 of 2009 on National Flag, Language, Coat of Arms and National Anthem or the implementing Presidential Regulation (when issued).
Language Consent and Notification. Terjemahan dari
dokumen-dokumen terkait dengan pemberian ini ke Bahasa Indonesia dapat disediakan untuk anda berdasarkan permintaan kepada hroperations@nuskin.com. Dengan menerima hibah, anda (i) anda mengkonfirmasi bahwa anda telah membaca dan mengerti isi
dokumen yang terkait dengan pemberian ini yang disediakan untuk anda dalam bahasa Inggris, (ii) Anda menerima syarat dari dokumen-dokumen tersebut, dan (iii) anda setuju bahwa anda tidak akan mengajukan keberatan atas keberlakuan dokumen ini
berdasarkan Undang-Undang No. 24 tahun 2009 tentang Bendera, Bahasa dan Lambang Negara serta Lagu Kebangsaan atau Peraturan Presiden pelaksana (ketika diterbitkan).
20
Exchange Control Information. If Participant
remits proceeds from the sale of Shares or the receipt of any dividends paid on such Shares into Indonesia, the Indonesian Bank through which the transaction is made will submit a report on the transaction to the Bank of Indonesia for statistical
reporting purposes. For transactions of US$10,000 or more, a description of the transaction must be included in the report. Although the bank through which the transaction is made is required to make the report, Participant must complete a
“Transfer Report Form.” The Transfer Report Form should be provided to Participant by the bank through which the transaction is made.
Foreign Asset/Account Reporting Information.
Indonesian residents have the obligation to report worldwide assets (including foreign accounts and Shares acquired under the Plan) in their annual individual income tax return.
JAPAN
Foreign Asset/Account Reporting Information.
Participant will be required to report details of any assets (including any Shares acquired under the Plan) held outside of Japan as of December 31st of each year, to the extent such assets have a total net fair market value exceeding
¥50 million. Such report will be due by March 15th of the following year. Participant should consult with his or her personal tax advisor as to whether the reporting obligation applies to Participant and whether Participant will be
required to report details of any outstanding Performance Restricted Stock Units or Shares held by Participant in the report.
KOREA
Foreign Asset/Account Reporting Information. Korean residents must declare all foreign financial accounts (e.g., non-Korean bank
accounts, brokerage accounts, etc.) to the Korean tax authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 500 million (or an equivalent amount in foreign currency). Participant should consult with
his or her personal tax advisor to determine how to value Participant’s foreign accounts for purposes of this reporting requirement and whether Participant is required to file a report with respect to such accounts.
MALAYSIA
Director Notification Information. If Participant
is a director of a Malaysian Subsidiary, Participant is subject to certain notification requirements under the Malaysian Companies Act, 1965. Among these requirements is an obligation to notify the Malaysian Subsidiary in writing when Participant
receives an interest (e.g., Performance Restricted Stock Units) in the Company or any related companies. In addition, Participant must notify the Malaysian
Subsidiary when Participant sells Shares of the Company or any related company (including when Participant sells Shares acquired under the Plan). These notifications must be made within fourteen days of acquiring or disposing of any interest in
the Company or any related company.
21
Data Privacy Notice and Consent. This provision
replaces in its entirety Section 10 of the Agreement:
|
Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or
other form, of Participant’s personal data, as described in this Agreement and any other Performance Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and Subsidiaries for the exclusive purpose of
implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Employer, the Company and Subsidiaries may hold certain personal information
about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held
in the Company, details of all Performance Restricted Stock Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor, for the exclusive purpose of implementing,
administering and managing the Plan (“Data”). The Data is supplied by the Employer and also by me through information collected in connection with the Agreement and the Plan.
Participant understands that Data will be transferred to Morgan Stanley, or such other stock plan service
provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the
United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United
States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative at +60-03-2170-7700. Participant authorizes the Company, Morgan Stanley
and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the
purposes of implementing, administering and managing Participant’s participation in the Plan, including any transfer of such Data as may be required to a broker, escrow agent or other third party with whom the Shares received upon vesting
of Performance Restricted Stock Units may be deposited. Participant understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. Participant understands that if
he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein,
in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not
consent, or if Participant later seeks to revoke his or her consent, his or her employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s
consent is that the Company may not be able to grant Participant Performance Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her
consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of his or her refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local
human resources representative.
|
Peserta dengan ini secara eksplisit dan tanpa sebarang keraguan mengizinkan pengumpulan, penggunaan dan
pemindahan, dalam bentuk elektronik atau lain-lain, data peribadi Peserta seperti yang diterangkan dalam Perjanjian dan bahan-bahan geran Unit Saham Terbatas yang lain oleh dan di antara, seperti yang berkenaan, Majikan, Syarikat dan
Anak-anak Syarikat untuk tujuan yang eksklusif bagi melaksanakan, mentadbir dan menguruskan penyertaan Peserta di dalam Pelan.
Peserta memahami bahawa Majikan, Syarikat and Anak-anak Syarikat mungkin memegang maklumat peribadi tertentu
tentang Peserta, termasuk, tetapi tidak terhad kepada, nama Peserta, alamat rumah dan nombor telefon, tarikh lahir, nombor insurans sosial atau nombor pengenalan lain, gaji, kewarganegaraan, jawatan, apa-apa Syer atau jawatan pengarah yang
dipegang dalam Syarikat, butir-butir semua Unit Saham Terbatas, atau apa-apa hak lain atas Syer yang dianugerahkan, dibatalkan, dilaksanakan, terletak hak, tidak diletak hak ataupun yang belum dijelaskan bagi faedah Peserta, untuk tujuan
eksklusif bagi melaksanakan, mentadbir dan menguruskan Pelan tersebut ("Data"). Data tersebut dibekalkan oleh Majikan dan juga oleh saya berkenaan dengan Perjanjian dan Pelan.
Peserta memahami bahawa Data ini akan dipindahkan kepada Morgan Stanley, atau mana-mana pembekal perkhidmatan
pelan saham lain sebagaimana yang dipilih oleh Syarikat pada masa depan, yang membantu Syarikat dengan pelaksanaan, pentadbiran dan pengurusan Pelan. Peserta memahami bahawa penerima-penerima Data mungkin berada di Amerika Syarikat atau
mana-mana tempat lain, dan bahawa negara penerima-penerima (contohnya, Amerika Syarikat) mungkin mempunyai undang-undang privasi data dan perlindungan yang berbeza daripada negara Peserta. Peserta memahami bahawa sekiranya Peserta menetap
di luar Amerika Syarikat, Peserta boleh meminta satu senarai yang mengandungi nama-nama dan alamat-alamat penerima-penerima Data yang berpotensi dengan menghubungi wakil sumber manusia tempatan peserta di +60-03-2170-7700. Peserta memberi
kuasa kepada Syarikat, Morgan Stanley dan mana-mana penerima-penerima kemungkinan lain yang mungkin akan membantu Syarikat (pada masa sekarang atau pada masa depan) dengan melaksanakan, mentadbir dan menguruskan Pelan untuk menerima,
memiliki, menggunakan, mengekalkan dan memindahkan Data, dalam bentuk elektronik atau lain-lain, bagi tujuan-tujuan untuk melaksanakan, mentadbir dan menguruskan penyertaan Peserta di dalam Pelan, termasuk segala pemindahan Data tersebut
sebagaimana yang dikehendaki kepada broker, egen eskrow atau pihak ketiga dengan siapa Saham diterima semasa peletakhakan Unit Saham Terbatas mungkin didepositkan. Peserta memahami bahawa Data hanya akan disimpan selagi ia adalah
diperlukan untuk melaksanakan, mentadbir, dan menguruskan penyertaan peserta dalam Pelan. Peserta memahami bahawa sekiranya peserta menetap di luar Amerika Syarikat, peserta boleh, pada bila-bila masa, melihat Data, meminta maklumat
tambahan mengenai penyimpanan dan pemprosesan Data, meminta bahawa pindaan-pindaan dilaksanakan ke atas Data atau menolak atau menarik balik persetujuan dalam ini, dalam mana-mana kes, tanpa kos, dengan menghubungi secara bertulis wakil
sumber manusia tempatan. Selanjutnya, Peserta memahami bahawa peserta memberikan persetujuan di sini secara sukarela semata-mata. Sekiranya Peserta tidak bersetuju, atau sekiranya Peserta kemudian membatalkan persetujuannya, status
pekerjaan atau perkhidmatan dan kerjaya Peserta dengan Majikan tidak akan terjejas; satu-satunya akibat buruk sekiranya Peserta tidak bersetuju atau menarik balik persetujuan Peserta adalah bahawa Syarikat tidak akan dapat memberikan Unit
Saham Terbatas atau anugerah ekuiti lain atau mentadbir atau mengekalkan anugerah-anugerah tersebut kepada Peserta. Oleh itu, Peserta memahami bahawa keengganan atau penarikan balik persetujuan peserta boleh menjejaskan keupayaan Peserta
untuk mengambil bahagian dalam Pelan. Untuk maklumat lebih lanjut mengenai akibat-akibat keengganan Peserta untuk memberikan keizinan atau penarikan balik keizinan, Peserta memahami bahawa Peserta boleh menghubungi wakil sumber manusia
tempatan.
|
22
NETHERLANDS
There are no country-specific provisions.
NEW ZEALAND
Securities Law Information. Participant is being
offered Performance Restricted Stock Units which, if vested, allows Participant to acquire Shares in accordance with the terms of this Agreement and the Plan. The Shares, if issued, will give Participant a stake in the ownership of the Company.
Participant may receive a return if dividends are paid.
If the Company runs into financial difficulties and is wound up, Participant will be paid only after all creditors have been paid. Participant may lose some
or all of Participant’s investment, if any.
New Zealand law normally requires people who offer financial products to give information to investors before they invest. This information is designed to
help investors to make an informed decision. The usual rules do not apply to this offer because it is made under an employee share scheme. As a result, Participant may not be given all the information usually required. Participant will also have
fewer other legal protections for this investment. Participant should ask questions, read all documents carefully, and seek independent financial advice before committing.
The Shares are quoted on the New York Stock Exchange (“NYSE”). This means that if Participant acquires Shares under the Plan, Participant may be able to sell
the Shares on the NYSE if there are interested buyers. Participant may get less than Participant invested. The price will depend on the demand for the Shares.
23
For information on risk factors impacting the Company’s business that may affect the value of the Shares, Participant should refer to the risk factors
discussion on the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, which are filed with the U.S. Securities and Exchange Commission and are available online at www.sec.gov,
as well as on the Company’s “Investor Relations” website at http://ir.nuskin.com
SINGAPORE
Sale Restriction. Participant
agrees that any Shares acquired pursuant to the Performance Restricted Stock Units will not be offered for sale in Singapore prior to the six-month anniversary of the Grant Date, unless such offer or sale is made pursuant to the exemptions under
Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”), or pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
Securities Law Information. The grant of the
Performance Restricted Stock Units is being made pursuant to the “Qualifying Person exemption” under section 273(1)(f) of the SFA under which it is exempt from the prospectus and registration requirements and is not made with a view to the
underlying Shares being subsequently offered for sale to any other party. The Plan has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore.
Director Notification Requirement. Directors,
associate directors and shadow directors of a Singapore subsidiary or affiliate are subject to certain notification requirements under the Singapore Companies Act. The directors, associate directors and shadow directors must notify the Singapore
subsidiary or affiliate in writing of an interest (e.g., Performance Restricted Stock Units, Shares, etc.) in the Company or any related companies within two
business days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest (e.g., when the Shares are sold), or (iii) becoming a director,
associate director or shadow director.
TAIWAN
Data Privacy Consent. Participant hereby acknowledges that he or she has read and understood the terms regarding collection, processing and transfer of Data contained in Section 10 of the Agreement and by
participating in the Plan, Participant agrees to such terms. In this regard, upon request of the Company or the Employer, Participant agrees to provide an executed data privacy consent form to the Employer or the Company (or any other agreements
or consents that may be required by the Employer or the Company) that the Company and/or the Employer may deem necessary to obtain under the data privacy laws in Participant’s country, either now or in the future. Participant understands he or she
will not be able to participate in the Plan if Participant fails to execute any such consent or agreement.
Securities Law Information. The Performance
Restricted Stock Units and the Shares to be issued pursuant to the Plan are available only to employees of the Company. The grant of the Performance Restricted Stock Units does not constitute a public offer of securities.
24
Exchange Control Information. Participant may
remit foreign currency (including proceeds from the sale of Shares or the receipt of any dividends paid on such Shares) into or out of Taiwan up to US$5,000,000 per year without special permission. If the transaction amount is TWD500,000 or more
in a single transaction, Participant must submit a Foreign Exchange Transaction Form to the remitting bank and provide supporting documentation to the satisfaction of the remitting bank.
THAILAND
Exchange Control Information. If the proceeds from
the sale of Shares or the receipt of any dividends paid on such Shares are equal to or greater than US$1,000,000 or more in a single transaction, Participant must repatriate the proceeds to Thailand immediately upon receipt and convert the funds to
Thai Baht or deposit the proceeds in a foreign currency deposit account maintained by a bank in Thailand within 360 day of remitting the proceeds to Thailand. In addition Participant must report the inward remittance to the Bank of Thailand on a
foreign exchange transaction form. If Participant fails to comply with these obligations, Participant may be subject to penalties assessed by the Bank of Thailand. Because exchange control regulations change frequently and without notice,
Participant should consult his or her personal advisor before selling Shares to ensure compliance with current regulations. Participant is responsible for ensuring compliance with all exchange control laws in Thailand, and neither the Company nor
any of its Subsidiaries will be liable for any fines or penalties resulting from his or her failure to comply with applicable laws.
25
SCHEDULE A
[Performance Vesting Provisions]
26
SCHEDULE B
DENMARK EMPLOYER STATEMENT
SÆRLIG MEDDELELSE TIL MEDARBEJDERE I DANMARK
ARBEJDSGIVERERKLÆRING
I henhold til § 3, stk. 1, i lov om brug af køberet eller tegningsret mv. i ansættelsesforhold ("Aktieoptionsloven") er medarbejderen ("Medarbejderen")
berettiget til i en særskilt skriftlig erklæring at modtage følgende oplysninger vedrørende incitamentsordningen Third Amended and Restated 2010 Omnibus Incentive Plan ("Planen") hos Nu Skin Enterprises, Inc. ("Selskabet").
Denne erklæring indeholder kun de oplysninger, der er nævnt i Aktieoptionsloven, mens de øvrige vilkår og betingelser for Medarbejderens tildeling af "
Performance Restricted Stock Units" er nærmere beskrevet i Planen, "Performance Restricted Stock Unit Agreement" ("Aftalen") og det øvrige tildelingsmateriale, som er blevet udleveret. Begreber, der står med stort begyndelsesbogstav i denne
Arbejdsgivererklæring, men som ikke er defineret heri, har samme betydning som de begreber, der er defineret i Planen eller Aftalen.
1. Tidspunkt for tildeling af den
vederlagsfri ret til at modtage aktier mod opfyldelse af visse betingelser
Tidspunktet for tildelingen af "Performance Restricted Stock Units" er den dato, hvor Bestyrelsens Vederlagsudvalg ("Udvalget") godkendte tildelingen.
2. Kriterier og betingelser for tildeling
af retten til senere at modtage aktier
Kun Selskabets Medarbejdere, bestyrelsesmedlemmer og konsulenter kan deltage i Planen. Tildeling af " Performance Restricted Stock Units" i henhold til Planen
sker efter Selskabets eget skøn og har til formål at give Selskabet og dets datterselskaber mulighed for at tiltrække og fastholde udvalgte medarbejdere, som forventes at bidrage til Selskabets success og opnå langsigtede mål til gavn for Selskabets
aktionærer. Medarbejderen har ikke nogen ret til eller noget krav på fremover at få tildelt "Performance Restricted Stock Units".
3. Modningstidspunkt eller -periode
Dine "Performance Restricted Stock Units" optjenes over et antal år som fastsat i Aftalen. Dine "Performance Restricted Stock Units"r vil ved optjeningen
blive konverteret til et tilsvarende antal ordinære aktier i Selskabet. Optjeningen kan accelerere under visse andre omstændigheder som beskrevet i Aftalen.
4. Udnyttelseskurs
Der betales ingen udnyttelseskurs ved modning af "Performance Restricted Stock Units" eller udstedelse af aktier til Medarbejderen.
27
5. Medarbejderens retsstilling i
forbindelse med fratræden
Såfremt du fratræder din stilling, vil dine "Performance Restricted Stock Units" blive behandlet i overensstemmelse med ophørsbestemmelserne i Aftalen, der kan
opsummeres til følgende: Undtagen i tilfælde af en "Change in Control" (som beskrevet i Aftalen) hvis dit ansættelsesforhold bringes til ophør, bortfalder dine ikke-optjente "Performance Restricted Stock Units".
6. Økonomiske aspekter ved at deltage i
Planen
Tildelingen af "Performance Restricted Stock Units" har ingen umiddelbare økonomiske konsekvenser for Medarbejderen. Værdien af "Performance Restricted Stock
Units" indgår ikke i beregningen af feriepenge, pensionsbidrag eller andre lovpligtige, vederlagsafhængige ydelser.
Ordinære aktier er finansielle instrumenter. Den fremtidige værdi af de underliggende aktier i forbindelse med "Performance Restricted Stock Units" kendes
ikke og kan ikke forudsiges med sikkerhed.
28
Exhibit 10.13
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED 2010 OMNIBUS INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
This Restricted Stock Unit Agreement, Participant’s award information (the “Award Summary”), which can be accessed on the Morgan Stanley stock plan website (currently www.stockplanconnect.com) or the website of any
other stock plan administrator selected by the Company in the future, and the Appendix for Participant’s country contained in this agreement, if any, (collectively, this “Agreement”) sets forth the terms and conditions of the Restricted Stock Units
granted to Participant under the Third Amended and Restated Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the “Plan”). In the event of a conflict between (i) the terms and conditions of the Plan; and (ii) the terms and conditions of this
Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the capitalized terms in this Agreement shall have the same defined meaning assigned to them in the Plan.
1. Grant of Restricted Stock Units.
1.1 Grant of Restricted Stock Units. Effective as of the date of grant specified in the Award Summary (the “Grant Date”), the
Company grants to Participant an award of the number of Restricted Stock Units as set forth in the Award Summary. Each Restricted Stock Unit is a bookkeeping entry representing the Company’s unfunded promise to deliver one Share on the terms
provided herein and in the Plan.
1.2 Vesting of Restricted Stock Units. The Restricted Stock Units shall vest in full on the earlier of April 30 of the calendar
year following the Grant Date or one day prior to the annual stockholder meeting in the calendar year following the Grant Date (the “Vesting Date”), except as otherwise provided in this Agreement, including pursuant to Sections 1.3 and 4.
1.3 Termination of Continuous Service. In the event Participant’s Continuous Service (as defined below) is terminated for any
reason prior to the full vesting of the Restricted Stock Units, the Restricted Stock Units granted hereunder shall terminate to the extent they are not vested as of the termination of Participant’s Continuous Service, as determined in accordance with
Section 9(g) below, and Participant shall not have any right to receive any Shares subject to such unvested Restricted Stock Units.
For purposes of this Agreement:
“Continuous Service” means that Participant’s service with the Company or a Subsidiary, whether as an Employee, Director, or Consultant, is not interrupted or terminated. Participant’s Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which Participant renders service to the Company or a Subsidiary as an Employee, Consultant, or Director, or a change in the entity for which Participant renders such service,
provided that there is no interruption or termination of Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of a Subsidiary or a Director will not constitute an interruption of
Continuous Service. Subject to the requirements of applicable law, the Committee, in its sole discretion, shall determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by the Company or a
Subsidiary, including sick leave, military leave or any other personal leave.
1
1.4 Settlement of Restricted Stock Units. Subject to the terms of the Plan and this Agreement, Restricted Stock Units shall be
settled in Shares, provided that Participant has satisfied any Tax-Related Items pursuant to Section 8 below. Shares will be issued to Participant within a reasonable time following each Vesting Date, but in no event shall the Shares be issued more
than 70 days from the end of the calendar year that includes the applicable Vesting Date unless subject to the terms of the Company’s deferred compensation plan.
1.5 Stockholder Rights. Unless and until Shares are issued by the Company after the Vesting Date, Participant shall have none of
the rights or privileges of a shareholder of the Company (including voting, dividend and liquidation rights) with respect to the Shares covered by the Restricted Stock Units.
2. Securities Law Compliance. Participant represents that Participant has received and carefully read a
copy of the Prospectus for the Plan, together with the Company’s most recent Annual Report to Stockholders. Participant hereby acknowledges that Participant is aware of the risks associated with the Shares and that there can be no assurance the
price of the Shares will not decrease in the future. Participant hereby acknowledges that no representations or statements have been made to Participant concerning the value or potential value of the Shares. Participant acknowledges that
Participant has relied only on information contained in the Prospectus and has received no representations, written or oral, from the Company or its employees, attorneys or agents, other than those contained in the Prospectus or this Agreement.
Participant acknowledges that the Company has made no representations or recommendations, and is not providing any tax, legal or financial advice, regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the
underlying Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
3. Transfer Restrictions. Participant shall not transfer, assign, sell, encumber, pledge, grant a security
interest in or otherwise dispose of the Restricted Stock Units subject to this Agreement in any manner other than by the laws of descent or distribution. Any such transfer, assignment, sale, encumbrance, pledge, security interest or disposition
shall be void.
4. Forfeiture. If, at any time during Participant’s Continuous Service or at any time during the 12-month
period following termination of Participant’s Continuous Service, a Forfeiture Event (as defined below) occurs, then at the election of the Committee, (a) this Agreement and all unvested Restricted Stock Units granted hereunder shall terminate, and
(b) Participant shall return to the Company for cancellation all Shares held by Participant plus pay the Company the amount of any proceeds received from the sale of any Shares, to the extent such Shares were issued pursuant to Restricted Stock Units
granted under this Agreement that vested (i) during the 12-month period immediately preceding the Forfeiture Event, or (ii) on the date of or at any time after such Forfeiture Event.
2
“Forfeiture Event” means the following:
(a) an act of fraud or intentional misrepresentation related to Participant’s services;
(b) disclosure or use of confidential information in a manner detrimental to the Company;
(c) competing with the Company; or
(d) any other willful misconduct by Participant that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. The
Committee, in its sole discretion, may waive at any time in writing this forfeiture provision and release Participant from liability hereunder.
The forfeiture provisions of this Section 4 shall be applied by the Committee, at its discretion, to the maximum extent permitted under applicable laws. Further, these provisions are in addition to, and not in lieu
of, any recoupment requirements under the Sarbanes-Oxley Act or under other applicable laws, rules, regulations or stock exchange listing standards, including, without limitation, Section 954 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 or Section 10D of the U.S. Securities Exchange Act of 1934, as amended, and shall apply notwithstanding anything to the contrary in this Agreement or in the Plan. Participant expressly agrees that the Company may take such
actions as are necessary or appropriate to effectuate the foregoing (as applicable to Participant) or applicable law without further consent or action being required by Participant. For purposes of the foregoing and as a condition to the grant,
Participant expressly and explicitly authorizes the Company to issue instructions, on Participant’s behalf, to Morgan Stanley (or any other stock plan service provider engaged by the Company to administer awards granted under the Plan) to re-convey,
transfer or otherwise return such Shares and/or other amounts to the Company.
5. Governing Plan Document. This Agreement incorporates by reference all of the terms and conditions of the
Plan, as presently existing and as hereafter amended. Participant expressly acknowledges and agrees that the terms and provisions of this Agreement are subject in all respects to the provisions of the Plan. Participant also expressly:
(a) Acknowledges receipt of the Plan and represents that Participant is familiar with the provisions of the Plan, and that Participant enters into this Agreement subject to all of the
provisions of the Plan;
(b) Recognizes that the Committee has been granted complete authority to administer the Plan in its sole discretion, and agrees to accept all decisions related to the Plan and all
interpretations of the Plan made by the Committee as final and conclusive upon Participant and upon all persons at any time claiming any interest through Participant in the Restricted Stock Units or the Shares subject to this Agreement; and
3
(c) Acknowledges and understands that the establishment of the Plan and the existence of this Agreement are not sufficient, in and of themselves, to exempt Participant from the requirements
of Section 16(b) of the Exchange Act and any rules or regulations promulgated thereunder, and that Participant (to the extent Section 16(b) applies to Participant) shall not be exempt from such requirements pursuant to Rule 16b-3 unless and until
Participant shall comply with all applicable requirements of Rule 16b-3, including without limitation, the possible requirement that Participant must not sell or otherwise dispose of any Shares acquired pursuant to Restricted Stock Units unless and
until a period of at least six months shall have elapsed between the Grant Date and the date upon which Participant desires to sell or otherwise dispose of such Shares.
6. Representations and Warranties. As a condition to the receipt of any Shares upon vesting of the
Restricted Stock Units, the Company may require Participant to make any representations and warranties to the Company that legal counsel to the Company may determine to be required or advisable under any applicable law or regulation, including
without limitation, representations and warranties that the Shares are being acquired only for investment and without any present intention or view to sell or distribute any such Shares.
7. Compliance With Law and Regulations. Notwithstanding any other provision of the Plan or this Agreement,
unless there is an available exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon settlement of the Restricted Stock Units prior to
the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other
governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem
necessary or advisable. Participant understands that the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for
the issuance or sale of the Shares. Further, Participant agrees that the Company shall have unilateral authority to amend the Plan and this Agreement without Participant’s consent to the extent necessary to comply with securities or other laws
applicable to issuance of Shares.
8. Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company,
the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan and legally applicable to Participant or deemed by the
Company in its discretion to be an appropriate charge to Participant even if legally applicable to the Company (“Tax-Related Items”), is and remains Participant’s responsibility and may exceed the amount, if any, actually withheld by the Company.
Participant further acknowledges that the Company (a) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant,
vesting or settlement of the Restricted Stock Units, the subsequent sale of any Shares acquired at settlement and the receipt of any dividends; and (b) does not commit to and is under no obligation to structure the terms of the grant or any aspect of
the Restricted Stock Units to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant is subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges
that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
4
In connection with any relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items.
Under current tax law, Participant is treated as an “independent contractor” for tax purposes, and as such, Participant is responsible to pay his or her Tax-Related Items without involvement by the Company. However,
to the extent it becomes necessary or appropriate for the Company to assist in the collection of Participant’s Tax-Related Items, full payment of the Tax-Related Items shall be made by any of the following, or a combination thereof, subject to the
Committee’s or Company’s right to eliminate, prior to vesting, any of the following as permissible payment methods: (i) in cash or cash equivalents (including certified check, bank check or wire transfer of immediately available funds); (ii) by
tendering previously acquired Shares (either actually or by attestation) valued at their then-Fair Market Value; (iii) by withholding Shares otherwise issuable in connection with the vesting of the RSUs; (iv) through same-day voluntary or involuntary
(on Participant’s behalf pursuant to this authorization) sales through a broker if permitted by the Company’s Securities Trading Policy; (v) withholding from Participant’s wages or other cash compensation paid to Participant by the Company; or (vi)
any combination of any of the foregoing. In the absence of Participant’s timely election or in the event Section 16(b) applies to Participant and withholding of Tax-Related items is necessary, the Company will withhold in Shares upon the relevant
taxable or tax withholding event, as applicable. In the event that such withholding in Shares is problematic under applicable tax or securities law or has materially adverse accounting consequences, Participant authorizes and directs the Company or
its agents, at their discretion, to satisfy any applicable withholding obligation with regard to all Tax-Related Items by one or a combination of the methods above.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable withholding rates in Participant’s jurisdiction(s) (up to the rate that will not cause an adverse
accounting consequence or cost, including pursuant to ASC Topic 718, as applicable). If the Company withholds more than the amount necessary to satisfy the liability for Tax-Related Items, Participant may receive a refund of any over-withheld amount
in cash and will have no entitlement to the equivalent Shares, or if not refunded, Participant may be able to seek a refund from the applicable tax authorities. If the Company withholds less than the amount necessary to satisfy the liability for
Tax-Related Items, Participant may be required to pay additional Tax-Related Items directly to the applicable tax authorities or to the Company. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes,
Participant is deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
Participant agrees to pay to the Company any amount of Tax-Related Items that the Company may be required to withhold or account for as a result of Participant’s participation in the Plan that cannot be satisfied by
the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if Participant fails to comply with Participant’s obligations in connection with the Tax-Related Items.
5
9. Nature of Grant. In accepting the Restricted Stock Units, Participant acknowledges, understands and
agrees that:
(a) the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent
permitted by the Plan;
(b) the grant of Restricted Stock Units is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or
benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded in the past;
(c) nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in the service of the Company as a member of the Board of Directors of the Company or in any
other capacity;
(d) all decisions with respect to future grants of Restricted Stock Units or other grants, if any, will be at the sole discretion of the Committee and/or Company;
(e) Participant’s participation in the Plan is voluntary;
(f) the future value of the underlying Shares is unknown, indeterminable and unpredictable;
(g) in the event of the termination of Participant’s Continuous Service (as defined above) (for any reason whatsoever, whether or not later found to be invalid), unless otherwise expressly
provided in this Agreement or determined by the Company, Participant’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of the date Participant’s Continuous Service terminated, as determined by the Committee in
its sole discretion;
(h) Restricted Stock Units and the Shares subject to Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for any purpose, including, but
not limited to, calculation of any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar mandatory payments;
(i) Restricted Stock Units and the Shares subject to Restricted Stock Units, and the income and value of same, are not intended to replace any pension rights or compensation;
(j) Restricted Stock Units are an extraordinary item that does not constitute compensation of any kind for service of any kind rendered to the Company;
(k) no claim or entitlement to compensation or damages shall arise from forfeiture of Restricted Stock Units resulting from termination of Participant’s Continuous Service (for any reason
whatsoever, whether or not later found to be invalid); and
(l) neither the Company nor any of its Subsidiaries shall be liable for any foreign exchange rate
fluctuation between Participant’s local currency and the United States Dollar that may affect the value of Restricted Stock Units or of any amounts due to Participant pursuant to the settlement of the Restricted Stock Units or the subsequent sale of
any Shares acquired upon settlement.
6
10. Data Privacy Notice and Consent. Participant hereby explicitly and
unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data, as described in this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Company
and any Subsidiaries for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company and any Subsidiaries may hold certain personal information about Participant, including, but not limited to, Participant’s name, home
address, email address, telephone number, date of birth, social security number, passport information, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of
all Restricted Stock Units or any other entitlement to Shares or other equivalent benefits awarded, canceled, purchased, exercised, vested, unvested or outstanding in Participant’s favor (“Data”), for the exclusive purpose of implementing,
administering and managing the Plan.
Participant understands that Data will be transferred to Morgan Stanley, or such other stock plan service provider as may be selected by the Company in the future, which is
assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United
States) may have different data privacy laws and protections than Participant’s country. Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential
recipients of the Data by contacting the Company. Participant authorizes the Company, Morgan Stanley and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan
to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Participant’s participation in the Plan, including any transfer of such Data as may be required to a
broker, escrow agent or other third party with whom the Shares received upon vesting of Restricted Stock Units may be deposited. Participant understands that Data will be held only as long as is necessary to implement, administer and manage his or
her participation in the Plan. Participant understands that if he or she resides outside the United States, he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary
amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, Participant understands that he or she is providing the consents herein on a
purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, his or her status will not be affected; the only consequence of refusing or withdrawing Participant’s consent is that the Company
may not be able to grant Restricted Stock Units or other equity awards to Participant or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to
participate in the Plan. For more information on the consequences of his or her refusal to consent or withdrawal of consent, Participant understands that he or she may contact the Company.
Upon request of the Company, Participant agrees to provide an executed data privacy form (or any other agreements or consents) that the Company may deem necessary to obtain from
Participant for the purpose of administering Participant’s participation in the Plan in compliance with the data privacy laws in Participant’s country, either now or in the future. Participant understands and agrees that he or she will not be able
to participate in the Plan if Participant fails to provide any such consent or agreement as requested by the Company.
7
11. Miscellaneous Provisions.
11.1 Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the sender’s local mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the latest address on file or at such other address as such party may designate by ten days
advance written notice under this Section to all other parties to this Agreement.
11.2 Waiver. The failure of the Company in any instance to exercise any rights under this Agreement, including the forfeiture
rights under Section 4, shall not constitute a waiver of any other rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and Participant. Participant acknowledges that no waiver by the
Company of any breach of any provision of this Agreement shall operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Participant or any other Participant, whether of like or different nature.
11.3 Imposition of Other Requirements & Participant Undertaking. The Company reserves the right to impose other requirements on
Participant’s participation in the Plan, on the Restricted Stock Units and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. Participant hereby agrees to
take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out the foregoing or one or more of the obligations or restrictions imposed on either Participant or the Shares
pursuant to the provisions of this Agreement.
11.4 Entire Contract. This Agreement and the Plan constitute the entire understanding and agreement of the parties with respect to
the subject matter contained herein. This Agreement is made pursuant to, and incorporates by reference, the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.
11.5 Language. Participant acknowledges that he or she is sufficiently proficient in English, or, alternatively, Participant
acknowledges that he or she will seek appropriate assistance to understand the terms and conditions in this Agreement. Furthermore, if Participant has received this Agreement or any other document related to the Plan translated into a language other
than English and if the meaning of the translated version is different than the English version, the English version will control.
11.6 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to
current or future participation in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by
the Company or a third party designated by the Company.
8
11.7 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and
its successors and assigns and upon Participant, Participant’s permitted assigns and the legal representatives, heirs and legatees of Participant’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof. Participant may not assign this Agreement other than by the laws of descent and distribution.
11.8 Severability. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be
severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.
11.9 Governing Law and Choice of Venue. The Restricted Stock Units and the provisions of this Agreement shall be governed by, and
subject to, the laws of the State of Utah, United States, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Agreement or this grant of Restricted Stock Units, the
parties hereby submit to and consent to the jurisdiction of the State of Utah, agree that such litigation shall be conducted in the courts of Utah County, Utah, or the federal courts of the United States for
the District of Utah, where this grant is made and/or to be performed.
11.10 Appendix. Notwithstanding any provisions in this Agreement, the Restricted Stock Units shall be subject to any special terms and
conditions set forth in any Appendix to this Agreement for Participant’s country. Moreover, if Participant relocates to one of the countries included in the Appendix, the terms and conditions for such country will apply to Participant, to the extent
the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Agreement.
11.11 Insider Trading Restrictions/Market Abuse Laws. Participant acknowledges that, depending on Participant’s country, broker’s
country, or where Shares are listed, Participant may be subject to insider trading and/or market abuse laws which may affect Participant’s ability to accept, acquire, sell or otherwise dispose of Shares, rights to such shares (e.g., Restricted Stock
Units) or rights linked to the value of Shares under the Plan during such times as Participant is considered to have “material nonpublic information” or “inside information” regarding the Company (as defined by the laws or regulations in the relevant
jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Participant places before Participant possessed inside information. Furthermore, Participant could be prohibited from (i) disclosing
inside information to any third party (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Third parties include employees of the Company. Any restrictions under these laws or
regulations are separate from and in addition to any restrictions that may be imposed under the Company’s insider trading policy, and the requirements of applicable laws may or may not be consistent with the terms of the Company’s insider trading
policy. Participant acknowledges that it is his or her responsibility to comply with any applicable restrictions, and that Participant should speak to his or her personal advisor on this matter.
9
11.12 Exchange Control Tax and Foreign Asset/Account Reporting Requirements.
Participant acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect Participant’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in
the Plan (including from any dividends paid on Shares acquired under the Plan) in a brokerage, bank account or legal entity outside Participant’s country. Participant may be required to report such accounts, balances, assets and/or the related
transactions to the tax or other authorities in his or her country. Participant also may be required to repatriate sale proceeds or other funds received as a result of Participant’s participation in the Plan to his or her country through a
designated bank or broker within a certain time after receipt. Participant acknowledges that it is Participant’s responsibility to be compliant with such regulations and Participant should consult his or her personal legal advisor for any details.
Participant agrees to take any and all actions, and consents to any and all actions taken by the Company as may be required to allow the Company to comply with local laws, rules and regulations in Participant’s country of residence (and country of
employment, if different). Finally, Participant agrees to take any and all actions as may be required to comply with Participant’s personal legal and tax obligations under local laws, rules and regulations in Participant’s country of residence (and
country of employment, if different).
11.13 Section 409A. The Restricted Stock Units and issuance of Shares thereunder are intended to comply with Code Section 409A and the
U.S. Treasury Regulations relating thereto so as not to subject the Participant to the payment of additional taxes and interest under Code Section 409A or other adverse tax consequences. In furtherance of this intent, the provisions of this
Agreement will be interpreted, operated, and administered in a manner consistent with these intentions. The Committee may modify the terms of this Agreement, the Plan or both, without the consent of the Participant, in the manner that the Committee
may determine to be necessary or advisable in order to comply with Code Section 409A or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Code Section 409A if compliance is not
practical. This Section 11.13 does not create an obligation on the part of the Company to modify the terms of this Agreement or the Plan and does not guarantee that the Restricted Stock Units or the delivery of Shares upon vesting/settlement of the
Restricted Stock Units will not be subject to taxes, interest and penalties or any other adverse tax consequences under Code Section 409A. Nothing in this Agreement shall provide a basis for any person to take any action against the Company or any
of its Subsidiaries based on matters covered by Code Section 409A, including the tax treatment of any amounts paid under this Agreement, and neither the Company nor any of its Subsidiaries will have any liability under any circumstances to the
Participant or any other party if the Restricted Stock Units, the delivery of Shares upon vesting/settlement of the Restricted Stock Units or other payment or tax event hereunder that is intended to be exempt from, or compliant with, Code Section
409A, is not so exempt or compliant or for any action taken by the Committee with respect thereto. Further, settlement of any portion of the Restricted Stock Units that is Deferred Compensation may not be accelerated or postponed except to the
extent permitted by Code Section 409A.
By electronically accepting this Agreement and participating in the Plan, Participant agrees to be bound by the terms and conditions in the Plan and this Agreement, including the Appendix. Within
six months of the Grant Date, if Participant has not electronically accepted this Agreement on Morgan Stanley’s website, or the website of any other stock plan service provider appointed by the Company, and has not otherwise rejected the grant, then
this award shall automatically be deemed accepted, and Participant shall be bound by the terms and conditions in the Plan and this Agreement, including the Appendix.
10
APPENDIX
FOR PARTICIPANTS OUTSIDE THE U.S.
NU SKIN ENTERPRISES, INC.
THIRD AMENDED AND RESTATED
2010 OMNIBUS INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
Unless otherwise defined herein, the capitalized terms in this Appendix shall have the same defined meaning assigned to them in the Plan and the Agreement.
This Appendix includes special country-specific terms and conditions that apply to Participants in the countries listed below. This Appendix is part of the Agreement. This Appendix also includes information of which
Participant should be aware with respect to his or her participation in the Plan. For example, certain individual exchange control reporting requirements may apply upon vesting of the Restricted Stock Units and/or sale of Shares. The information is
based on the securities, exchange control and other laws in effect in the respective countries as of January 2022 and is provided for informational purposes. Such laws are often complex and change frequently, and results may be different based on
the particular facts and circumstances. As a result, the Company recommends that Participant does not rely on the information noted herein as the only source of information relating to the consequences of Participant’s participation in the Plan
because the information may be out of date at the time the Restricted Stock Units vest or are settled, or Participant sells Shares acquired under the Plan.
In addition, the information is general in nature and may not apply to Participant’s particular situation, and the Company is not in a position to assure Participant of any particular result. Accordingly, Participant
should seek appropriate professional advice as to how the relevant laws in Participant’s country may apply to his or her situation.
Finally, if Participant is a citizen or resident of a country other than the one in which he or she currently is residing and/or providing services, transfers after the Restricted Stock Units are granted to him or her,
or is considered a resident of another country for local law purposes, the terms and conditions and/or notifications contained herein may not be applicable to him or her, and the Company shall, in its discretion, determine to what extent such terms
and conditions contained herein shall apply to him or her.
DATA PRIVACY PROVISIONS APPLICABLE TO GRANTEES IN THE EUROPEAN UNION/EUROPEAN ECONOMIC AREA
The following provision replaces Section 10 of the Agreement:
Data Collection and Usage. Pursuant to applicable data protection laws, Participant is hereby notified that the
Company collects, processes, uses and transfers certain personally-identifiable information about Participant for the exclusive legitimate purpose of granting Restricted Stock Units and implementing, administering and managing Participant’s
participation in the Plan. Specifics of the data processing are described below.
11
Controller, EU Representative and DPO. The Company is the controller responsible for the processing of
Participant’s personal data in connection with the Plan. The Company’s representative in the European Union is NSE Products Europe BVBA, Da Vincilaan 9, 1935 Zaventem, Belgium, telephone number +32 2 722 70 00. Participant can reach the data
protection officer (“DPO”) of the Company at +1 (801) 345-1505, 75 West Center Street, Provo, Utah 84601.
Personal Data Subject to Processing. The Company collects, processes and uses the following types of personal
data about Participant: Participant’s name, home address, telephone number, email address, date of birth, social insurance, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the
Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, settled, vested, unvested or outstanding in Participant’s favor, which the Company receives from Participant, as well as Participant’s hire date,
term date, term reason code, status, and Company’s Division (“Personal Data”).
Purposes and Legal Bases of Processing. The Company processes the Personal Data for the purpose of granting
Restricted Stock Units, implementing, administering and managing Participant’s participation in the Plan. The legal basis for the processing of the Personal Data by the Company and the third‑party service providers described below is the necessity
of the data processing for the Company to perform its contractual obligations under the Agreement and generally administering employee equity awards.
Stock Plan Administration Service Providers. The Company transfers Personal Data to Morgan Stanley Smith Barney
LLC and its affiliated companies (collectively, “Morgan Stanley”), an independent stock plan administrator with operations, relevant to the Company, in the United
States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select different service providers and may share Personal Data with such service providers. As a data controller,
the Company’s stock plan administrator will open an account for Participant to receive and trade Shares. Participant will be asked to agree on separate terms and data processing practices with the service provider, which is a condition of
Participant’s ability to participate in the Plan. Participant’s Personal Data will only be accessible by those individuals requiring access to it for purposes of implementing, administering and operating Participant’s participation in the Plan.
Participant understands that Participant may request a list with the names and addresses of any potential recipients of Personal Data by contacting Participant’s local human resources representative.
International Data Transfers. The Company and its service providers, including, without limitation, Morgan
Stanley, operate, relevant to the Company, in the United States, which means that it will be necessary for Personal Data to be transferred to, and processed in, the United States. Participant understands and acknowledges that the United States is
not subject to an unlimited adequacy finding by the European Commission and that Participant’s Personal Data may not have an equivalent level of protection as compared to Participant’s country of residence.
The legal basis for the processing of the Personal Data by the Company and the third‑party service providers is the necessity of the data processing for the Company to perform its contractual obligations under the
Agreement and generally administering employee equity awards.
Data Retention. The Company will use the Personal Data only as long as necessary to implement, administer and
manage Participant’s participation in the Plan, or as required to comply with legal or regulatory obligations, including tax and securities laws. When the Company no longer needs the Personal Data, the Company will remove it from its systems. If
the Company keeps data longer, it would be to satisfy tax, legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulations.
12
Data Subject Rights. To the extent provided by law, Participant has the right to (i) inquire whether and what
kind of Personal Data the Company holds about Participant and how it is processed, and to access or request copies of such Personal Data, (ii) request the correction or supplementation of Personal Data that is inaccurate, incomplete or out-of-date
in light of the purposes underlying the processing, or (iii) obtain the erasure of Personal Data no longer necessary for the purposes underlying the processing or processed in non-compliance with applicable legal requirements. In addition,
Participant has, to the extent provided by law, the right to (iv) request the Company to restrict the processing of Personal Data in certain situations where Participant feels its processing is inappropriate, (v) object, in certain circumstances,
to the processing of Personal Data for legitimate interests, and to (vi) request portability of Personal Data that Participant has actively or passively provided to the Company, where the processing of such Personal Data is based on consent or a
contractual agreement with Participant and is carried out by automated means. In case of concerns, Participant also has the right to (vii) lodge a complaint with the competent local data protection authority. To receive additional information
regarding Participant’s rights, raise any other questions regarding the practices described in this Agreement or to exercise his or her rights, Participant should contact his or her local human resources representative.
Contractual Requirement. Participant’s provision of Personal Data and its processing as described above is
required for the performance of the Company’s obligations pursuant to the Plan and a condition to Participant’s ability to participate in the Plan. Participant understands that, as a consequence of Participant’s refusing to provide Personal Data,
the Company may not be able to allow Participant to participate in the Plan, grant Restricted Stock Units to Participant or administer or maintain such Restricted Stock Units. However, Participant’s participation in the Plan and his or her
acceptance of this Agreement are purely voluntary. While Participant will not receive Restricted Stock Units if he or she decides against participating in the Plan or providing Personal Data as described above, Participant’s career and salary will
not be affected in any way. For more information on the consequences of the refusal to provide Personal Data, Participant may contact his or her local human resources representative.
CHINA
The following provisions apply only to Participants who are subject to exchange control restrictions imposed by the State Administration of Foreign Exchange ("SAFE"), as determined by the Company in its sole
discretion:
Settlement of Restricted Stock Units. This provision supplements Section 1.4 of the Agreement:
The Restricted Stock Units will only vest if and when the Company has completed the registration of the Plan with SAFE and provided such registration remains effective. If the Company is unable to complete the
registration or maintain the registration, the settlement of the Restricted Stock Units may be delayed. Shares issued to Participant under the Plan must be maintained in an account with Morgan Stanley or such other broker as may be designated by the
Company until the Shares are sold through that broker.
13
Furthermore, due to regulatory requirements, Participant acknowledges and agrees that Participant must sell any Shares issued to Participant upon vesting of the Restricted Stock Units as soon as practicable following
the termination of Participant’s Continuous Service and in no event later than six months following the termination of Participant’s Continuous Service, or within any other such time frame as may be required by SAFE. Participant agrees that if
Participant continues to hold any of such Shares after this time, the Shares will be sold by the Company’s designated broker on Participant’s behalf at the instruction of the Company. Therefore, by accepting the Restricted Stock Units, Participant
understands and agrees that the Company is authorized to, and may in its sole discretion, instruct its designated broker to assist with the mandatory sale of Shares (on Participant’s behalf pursuant to this authorization) and that Participant
expressly authorizes the Company’s designated broker to complete the sale of such Shares. Participant acknowledges that the Company’s designated broker is under no obligation to arrange for the sale of the Shares at any particular price. Upon the
sale of the Shares, the proceeds, less any Tax-Related Items and brokerage fees or commissions will be remitted to Participant pursuant to the procedures described in the “Exchange Control Information” section below.
Exchange Control Information. Participant understands and agrees that, to facilitate compliance with exchange control requirements, Participant will be required
to immediately repatriate to China the cash proceeds from the sale of the Shares issued upon the vesting of the Restricted Stock Units. Participant further understands that, under local law, such repatriation of the cash proceeds will be
effectuated through a special exchange control account established by the Company or its Subsidiary in China, and Participant hereby consents and agrees that the proceeds from the sale of Shares acquired under the Plan may be transferred to such
special account prior to being delivered to Participant. The Company may deliver the proceeds to Participant in U.S. dollars or local currency at the Company’s discretion. If the proceeds are paid in U.S. dollars, Participant understands that he
or she will be required to set up a U.S. dollar bank account in China so that the proceeds may be deposited into this account. If the proceeds are converted to local currency, there may be delays in delivering the proceeds to Participant.
Participant agrees to bear the risk of any currency fluctuation between the time the Shares are sold, either through voluntary sale or through a mandatory sale arranged by the Company, or proceeds are otherwise realized under the Plan and the time
such proceeds are distributed to Participant through the special exchange control account.
Participant further agrees to comply with any other requirements that may be imposed by the Company in the future to facilitate compliance with exchange control requirements in China.
HONG KONG
Restricted Stock Units Only Payable in Shares. Notwithstanding any discretion in the Plan, the Restricted Stock Units will be settled in Shares only. The grant
of Restricted Stock Units does not provide any right for Participant to receive a cash payment.
Restriction on Sale of Shares. Shares received under the Plan are accepted as a personal investment. Should any portion of the Restricted Stock Units vest within
six months of the Grant Date, Participant agrees that Participant will not dispose of the Shares acquired at vesting prior to the six-month anniversary of the Grant Date.
Securities Law Information. Warning: The contents of this document have not been reviewed by any regulatory authority in Hong
Kong. Participant is advised to exercise caution in relation to the offer. If Participant is in any doubt about any of the contents of the Agreement, including this Appendix, or the Plan, Participant should obtain independent professional
advice. The Restricted Stock Units and any Shares issued pursuant to the grant do not constitute a public offering of securities under Hong Kong law and are available only to employees or certain other service providers of the Company. The
Agreement, including this Appendix, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable
securities legislation in Hong Kong. The Restricted Stock Units and any related documentation are intended only for the personal use of each eligible employee or service provider of the Company and may not be distributed to any other person.
14
Exhibit 10.18
NU SKIN ENTERPRISES, INC.
EXECUTIVE SEVERANCE POLICY
Amended and Restated Effective as of January 4, 2023
TABLE OF CONTENTS
| PAGE | ||
|
SECTION 1.
|
DEFINITIONS
|
1
|
|
SECTION 2.
|
TERM OF POLICY
|
5
|
|
SECTION 3.
|
TERMINATION BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON
|
5
|
|
SECTION 4.
|
TERMINATION BY REASON OF DEATH OR DISABILITY
|
7
|
|
SECTION 5.
|
TERMINATION BY THE COMPANY FOR CAUSE
|
7
|
|
SECTION 6.
|
VOLUNTARY TERMINATION WITHOUT GOOD REASON; RETIREMENT
|
8 |
|
SECTION 7.
|
SEPARATION AND RELEASE AGREEMENT
|
8
|
|
SECTION 8.
|
RESTRICTIVE COVENANTS
|
8
|
|
SECTION 9.
|
COMPLIANCE WITH SECTION 409A
|
8 |
|
SECTION 10.
|
WITHHOLDING TAXES
|
10
|
|
SECTION 11.
|
PARACHUTE PAYMENTS
|
10
|
|
SECTION 12.
|
ADMINISTRATION
|
10
|
|
SECTION 13.
|
AMENDMENT AND TERMINATION
|
10
|
|
SECTION 14.
|
OTHER PROVISIONS
|
11
|
|
EXHIBIT A
|
|
EXHIBIT B
|
NU SKIN ENTERPRISES, INC.
EXECUTIVE SEVERANCE POLICY
This Nu Skin Enterprises, Inc. Executive Severance Policy (“Policy”) has been adopted by the Executive Compensation Committee (“Committee”) of the Board of Directors of the Company to
apply to selected Executives of the Company. Eligible Executives will be eligible for coverage under the Policy for the payment of severance benefits upon termination of employment under certain circumstances, subject to the conditions set forth
below. This Policy shall be effective as of the Effective Date as provided herein.
This Policy supersedes any prior plan, policy, agreement or practice involving the payment of severance benefits to eligible Executives. While the Policy is in effect, any severance benefits
provided to an eligible Executive must be paid pursuant to this Policy or pursuant to another express written agreement between Company and the eligible Executive entered into after the effective date of this Policy.
Section 1. Definitions
As used herein, the following terms shall have the following respective meanings:
1.1 “Accrued Rights” shall have the meaning given in Section 3.3 hereof.
1.2 “Affiliate” shall mean an entity that directly or indirectly controls, is controlled by, or is under common control with Nu Skin Enterprises, Inc.
1.3 “Annual Target Bonus” means the aggregate Bonuses that Executive is eligible to earn for the incentive period(s) in the fiscal year in which Executive’s Date of Termination
occurs, assuming attainment of such corporate targets at the “target level” (100% performance level) and disregarding any individual performance targets and regardless of whether any such Bonus has already been paid, as shall be established by the
Committee for such fiscal year. For the avoidance of doubt, the Annual Target Bonus shall be determined assuming satisfaction of the aforementioned corporate targets, irrespective of whether such targets are actually achieved and whether any Bonus
for a period in the fiscal year has already been paid.
1.4 “Bonus” means the cash incentive bonuses payable to Executive under the Third Amended and Restated Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (as may be amended from
time to time), or such other or successor bonus program in which Executive participates from time to time.
1.5 “Base Salary” means the annual base salary in effect for the payroll period during which Executive’s employment is terminated. Bonuses, incentive pay and any taxable or nontaxable
fringe benefits or payments are not included in the calculation of Base Salary. Base Salary shall be determined before any deferrals to any qualified or nonqualified plans of the Company and before any reduction in salary that would constitute Good
Reason.
1.6 “Cause” means, subject to the conditions below, that Executive has engaged in any one of the following: (i) a material breach of this Policy, including but not limited to a breach
of Section 8 of this Policy, or the Company’s Employee Covenants Agreement attached hereto as Exhibit B; (ii) any willful violation by Executive of any material law or regulation applicable to the business of the Company or any of its
Affiliates; (iii) Executive’s conviction of, or a plea of guilty or nolo contendere to, a felony or any willful perpetration of common law fraud; or (iv) any other willful misconduct by 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 Affiliates. For purposes of the foregoing, in determining whether a “material breach” has occurred, or whether there has been a willful violation
of a “material” law or regulation, the standard shall be a breach or violation that is, or will reasonably likely be, materially injurious to the financial condition or business reputation of, or is, or will reasonably likely be, otherwise materially
injurious to, the Company or any of its Affiliates, as determined by the Committee in its sole discretion.
1.7 “Change in Control” means the consummation of any of the following transactions effecting a change in ownership or control of the Company:
(i) During any 24-month period, individuals who, as of the beginning of such period, constitute the Board of Directors of the Company (the “Incumbent Directors”) cease for any reason
to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors then on the Board of Directors of the Company (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to
such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any
other actual or threatened solicitation of proxies by or on behalf of any person other than the Board of Directors of the Company shall be deemed to be an Incumbent Director;
(ii) Any “person” (as such term is defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities eligible to
vote for the election of the Board of Directors of the Company (“Company Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following
acquisitions: (A) by the Company or any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such
securities, (D) pursuant to a Non-Qualifying Transaction, as defined in paragraph (iii), or (E) by any person of Company Voting Securities from the Company, if a majority of the Incumbent Directors approves in advance the acquisition of beneficial
ownership of 50% or more of Company Voting Securities by such person;
2
(iii) The consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the
approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than 50% of the total voting
power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of at least 90% of the voting
securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented
by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities
among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the
beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C)
at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of
the Board of Directors of the Company’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be
a “Non‑Qualifying Transaction”); or
(iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale of all or substantially all of the Company’s assets.
1.8 “Company” means Nu Skin Enterprises, Inc., a Delaware corporation.
1.9 “Code” means the Internal Revenue Code of 1986, as amended.
1.10 “Committee” means the Compensation and Human Capital Committee of the Board of Directors of the Company.
1.11 “Date of Termination” means the effective date of the relevant Executive’s termination.
1.12 “Disability” means a physical or mental impairment which, the Committee determines, after consideration and implementation of reasonable accommodations, precludes the Executive from
performing Executive’s essential job functions for a period longer than 3 consecutive months or a total of 120 days in any 12-month period.
1.13 “Effective Date” means, with respect to this amendment and restatement of the Policy, January 4, 2023, or such later date as determined by the Committee with respect to an
Executive. The original Effective Date of the Policy was March 8, 2018.
1.14 “Executive” means the executive employees of the Company who are eligible to participate in the Policy as set forth in Schedule A to this Policy, as it may be amended from time to
time. Schedule A may be amended at any time to add additional executive employees or to remove executive employees from eligibility to participate in this Policy as Executives.
3
1.15 “Good Reason” means Executive’s voluntary resignation for any of the following events that result in a material negative change to Executive: (i) without Executive’s consent, a
material reduction in the scope of Executive’s duties and responsibilities or the level of management to which Executive reports; (ii) without Executive’s consent, a reduction in Base Salary (other than an across-the-board reduction of not more than
10% applicable to all senior executive officers); (iii) without Executive’s consent, a material reduction in Executive’s benefits in the aggregate (in terms of benefit levels, other than an across-the-board reduction) from those provided to Executive
under any employee benefit plan, program and practice in which only the Executives (and no other employees of the Company) participate, provided that such material reduction occurs within six months immediately prior to or following the consummation
of a Change in Control; (iv) without Executive’s consent, a relocation of Executive’s principal place of employment of more than 50 miles, (v) a material breach of any provision of this Policy by the Company, or (vi) the failure of the Company to
have a successor entity specifically assume this Policy within 10 business days after the Change in Control. Notwithstanding the foregoing, Good Reason shall only be found to exist if Executive, not later than 90 days after the initial occurrence of
an event deemed to give rise to a right to terminate for Good Reason, has provided 30 days written notice to the Company prior to Executive’s resignation indicating and describing the event resulting in such Good Reason, and the Company does not cure
such event (other than the event in clause (vi), which shall not be subject to cure) within 90 days following the receipt of such notice from Executive.
1.16 “Policy” means this Nu Skin Enterprises, Inc. Executive Severance Policy.
1.17 “Pro Rata Earned Bonus” means the pro-rata portion of the Executive’s earned bonus, if any, for each outstanding bonus cycle as of the date on which termination of employment
occurs, based upon attainment of such corporate targets, and disregarding any individual performance targets, as shall be established by the Committee for such bonus cycle (determined by multiplying the amount of the actual earned bonus that would be
payable for the bonus cycle by a fraction, the numerator of which is the number of days during the bonus cycle that the Executive is employed by the Company and the denominator of which is the full number of days in the bonus cycle); provided, however, Executive shall not be entitled to a Pro Rata Earned Bonus for an annual bonus cycle if Executive’s termination date is earlier than March 31 of the year of termination.
1.18 “Termination” and “Terminate(s),” whether capitalized or not in this Policy, describes when an Executive is no longer employed by, and has no outstanding offer of employment
(including an offer that Executive has received and rejected) from, the Company or any Affiliate. In addition, the following shall not be treated as a termination that entitles Executive to rights and benefits under this Policy: (i) an Executive’s
termination of employment in connection with any merger, acquisition, sale or other disposition of the stock or assets of the Company or an Affiliate, if such Executive is offered or provided a position with a successor entity (including either the
purchaser or any subsidiary or affiliate of the purchaser); or (ii) any instance where an Executive is employed by the Company or an Affiliate and either (A) such entity ceases to be an Affiliate in connection with any merger, acquisition, sale or
other disposition of such entity, or (B) substantially all of such entity’s assets are sold. For the avoidance of doubt, this paragraph is not intended to override Executive’s “Good Reason” rights under this Policy; if Executive would otherwise have
Good Reason to terminate his or her employment as a result of the occurrence of any event described in (i) or (ii) above, Executive may still qualify for a “termination for Good Reason” under this Policy.
4
Section 2. Term of Policy.
The term of this Policy shall begin on the Effective Date and shall continue in effect until modified or terminated by the Company pursuant to Section 13 hereof.
Section 3. Termination by Company without Cause or by Executive for Good Reason.
If the Company terminates Executive’s employment during the term of the Policy without Cause, or if Executive terminates his or her employment during the term of the Policy for Good Reason, then,
subject to Sections 7 and 8 below, Executive shall be entitled to the following rights and benefits under this Section 3:
3.1 Lump Sum Payment. Executive shall be entitled to either the lump sum payment described in Section 3.1(i) or the lump sum payment described in Section 3.2(ii).
| (i) |
Termination without Cause or for Good Reason in Connection with Change in Control.
|
In the event that the Company terminates the employment of Executive during the term of the Policy without Cause or Executive terminates his or her employment during the term of the Policy for Good
Reason, and the applicable Date of Termination occurs (A) within six months prior to and in connection with a Change in Control (as determined by the Committee), or (B) within two years following such Change in Control, then the Company will pay
Executive a lump sum payment equal to the product of: (I) the sum of (A) Executive’s Base Salary as of the Date of Termination plus (B) the Annual Target Bonus; and (II) the Multiplier specified in Schedule A.
The lump sum amount described above in this Section 3.1(i) shall be paid in a lump sum payment within 30 days of the Date of Termination, but in no event earlier than the date the Separation and
Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the Date of Termination occurs. In addition, the Company shall pay Executive the Pro Rata Earned Bonus. The Pro Rata Earned
Bonus shall be paid to Executive at the same time as bonuses are paid to other executive officers of the Company for each outstanding bonus period that is considered part of the Pro Rata Earned Bonus, but in no event earlier than the date the
Separation and Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the Date of Termination occurs.
5
(ii) Other Termination without Cause or for Good Reason.
If the Company terminates Executive’s employment during the term of the Policy without Cause, or if Executive terminates his or her employment during the term of the Policy for Good Reason, and
Executive is not eligible for payment pursuant to Section 3.1(i), then the Company will pay Executive a lump sum payment equal to the product of: (A) Executive’s Base Salary as of the Date of Termination and (B) the Multiplier specified in Schedule
A.
The lump sum payment described above in this Section 3.1(ii) shall be paid in a lump sum payment within 30 days after the Date of Termination, but in no event earlier than the date the Separation and
Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the Date of Termination occurs. In addition, the Company shall pay Executive the Pro Rata Earned Bonus. The Pro Rata Earned
Bonus shall be paid to Executive at the same time as bonuses are paid to other executive officers of the Company for each outstanding bonus period that is considered part of the Pro Rata Earned Bonus, but in no event earlier than the date the
Separation and Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the Date of Termination occurs.
For the avoidance of doubt, Executive shall not be eligible for payment pursuant to this Section 3.1(ii) if Executive is eligible for payment pursuant to Section 3.1(i).
3.2 COBRA Payment. Executive shall be eligible for continuation of coverage for Executive and Executive’s eligible dependents under the Company’s group health plan(s) as required
under COBRA, at Executive’s sole expense at the applicable COBRA rate for such plan(s), subject to the following: the Company shall pay to Executive a lump sum payment equal to the aggregate employer and employee cost of 12 months of health care
continuation coverage under the Company’s medical, dental, prescription drug and vision care group health plans as in effect from time to time. The lump sum payment contemplated under this Section 3.2 shall be paid to Executive as soon as
administratively practicable following the Date of Termination, but in no event earlier than the date the Separation and Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the
Date of Termination occurs.
3.3 Accrued Rights. As soon as administratively practicable following the Date of Termination, or as otherwise provided below, the Company will pay or provide Executive with (i) all
accrued but unpaid base salary through the Date of Termination, (ii) any previously awarded but unpaid Bonus for a completed bonus cycle prior to the Date of Termination, payable at the time such Bonuses regularly are paid, (iii) any unreimbursed
business expenses that are reimbursable under the Company’s business expense policy, (iv) all rights and benefits under the employee benefit plans of the Company in which Executive is then participating, payable at the times set forth in such plans,
and (v) any other payments as may be required under applicable law (collectively, the “Accrued Rights”).
3.4 Treatment of Equity Awards. The vesting and exercise of any equity awards that may be held by Executive as of the Date of Termination shall be determined in accordance with the
applicable equity incentive plan and grant documentation for that Executive.
6
3.5 No Additional Rights. Except as provided in this Section 3, Executive’s participation under any benefit plan, program, policy or arrangement sponsored or maintained by the Company
shall cease and be terminated on the Date of Termination. Without limiting the generality of the foregoing, Executive’s eligibility for and active participation in any tax qualified retirement or pension plans maintained by the Company will end as of
the Date of Termination and Executive will earn no additional benefits under those plans after that date. Executive shall be treated as a terminated employee for purposes of all such benefit plans and programs effective as of the Date of Termination,
and shall receive all payments and benefits due under such plans and programs in accordance with the terms and conditions thereof.
Section 4. Termination
by Reason of Death or Disability.
In the event that the employment of Executive is terminated during the term of the Policy by reason of Executive’s death or Disability, then, subject to Sections 7 and 8 below, Executive shall be
entitled to the following rights and benefits under this Section 4:
4.1 Salary Continuation (Disability Only). In the event that the employment of Executive is terminated during the term of the Policy by reason of Executive’s Disability, the Company
will pay Executive salary continuation at an annual rate equal to Executive’s then-current Base Salary until the earlier of (i) the date Executive is eligible for disability payments under the Company’s group disability policies (as determined by the
Company) or (ii) 90 days following the Date of Termination by reason of Disability. Salary continuation under this Section 4.1 shall be paid in equal bi-monthly installments in accordance with the Company’s customary payroll practices.
4.2 Bonus. The Company will pay the Pro Rata Earned Bonus, which shall be paid on the date that Bonuses are normally paid, but in no event earlier than the date the Separation and
Release Agreement described in Section 7 becomes effective, or later than March 15th of the year following the year in which the Date of Termination occurs.
4.3 Accrued Rights. As soon as administratively practicable following the Date of Termination, the Company will pay or provide Executive with the Accrued Rights.
4.4 Treatment of Equity Awards. The vesting and exercise of any equity awards that may be held by Executive as of the Date of Termination shall be determined in accordance with the
applicable equity incentive plan and grant documentation for that Executive.
Section 5. Termination
by the Company for Cause.
The Company may terminate Executive’s employment for any reason and at any time, with or without Cause. In the event that the Company terminates the employment of Executive during the term of the
Policy for Cause, the Company will pay or provide Executive with the Accrued Rights and no other benefits.
7
Section 6. Voluntary Termination without Good Reason; Retirement.
Executive shall not be entitled to any payments or benefits under this Policy (other than Accrued Rights) by reason of Executive’s voluntary termination of employment from the Company without Good
Reason. This Policy shall have no effect on the rights and benefits to which an Executive may be entitled upon retirement under (without limitation) any retirement or savings plan of the Company, nor under any of the Company’s equity incentive or
cash incentive plans (including applicable award agreements), non-qualified deferred compensation plans, key employee death plans, and other health and miscellaneous benefit plans, each of which shall be governed exclusively by the terms of such
plans and agreements, as applicable.
Section 7. Separation and Release Agreement.
To the extent permitted under applicable law, as a condition precedent to receiving any payments and benefits as provided under this Policy, Executive must execute a general release of claims (the “Separation
and Release Agreement”), substantially in the form attached as Exhibit A hereto, and such Separation and Release Agreement must become irrevocable, by the 60th day following the Date of Termination. If Executive fails to execute and
deliver the Separation and Release Agreement, or revokes the Separation and Release Agreement, Executive shall not be entitled to receive any payments or benefits described herein (other than Accrued Rights). For purposes of this Policy, the
Separation and Release Agreement shall be considered to have been executed by Executive if it is signed by Executive’s legal representative in the case of legal incompetence or on behalf of Executive’s estate in the case of Executive’s death.
Section 8. Restrictive Covenants.
8.1 Employee Covenants Agreement. In consideration of, and as a condition of, Executive’s continued employment by the Company and the additional rights and benefits provided to
Executive by this Policy, Executive will agree to and execute the Employee Covenants Agreement substantially in the form attached as Exhibit B hereto and such other forms that the Committee may approve from time to time.
8.2 Transfer of Duties. Upon termination of employment, Executive must cooperate with the orderly transfer of his or her duties as requested by the Company.
8.3 Return of Property. Upon termination of employment, Executive must return all Company property by a date specified by the Company.
Section 9. Compliance with Section 409A.
9.1 Notwithstanding any other provision of this Policy to the contrary, the parties agree that this Policy is intended to comply with or be exempt from Code Section 409A and the regulations
and guidance promulgated thereunder (collectively “Section 409A”), and all provisions of this Policy shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A. The
Company and Executive intend that, to the maximum extent possible, any amounts paid pursuant to this Policy shall qualify as a short-term deferral pursuant to Section 409A or as separation pay exempt from Section 409A. In no event will the Company or
its affiliates be liable for any additional tax, interest or penalties that may be imposed on Executive under Section 409A or any damages for failing to comply with Section 409A.
8
9.2 Notwithstanding any other provision of this Policy to the contrary, to the extent that any payment under this Policy constitutes “nonqualified deferred compensation” under Section 409A, the
following shall apply to the extent Section 409A is applicable to such payment:
(i) Any payable that is triggered upon the Executive’s termination of employment shall be paid only if such termination of employment constitutes a “separation from service” under Section
409A.
(ii) All in-kind benefits, expenses or other reimbursements paid pursuant to this Policy that are taxable income to Executive shall be paid no later than the end of the calendar year next
following the calendar year in which Executive incurs such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (a) the right to reimbursement or
in-kind benefits shall not be subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided, in any other taxable year; and (c) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.
(iii) In the event that Executive is deemed on the date of termination to be a “specified employee” as defined in Section 409A, then with regard to any payment or the provision of any
benefit that is subject to Section 409A and is payable on account of a separation from service (as defined in Section 409A), such payment or benefit shall be delayed until the earlier of (a) the first business day of the seventh calendar month
following such termination of employment, or (b) Executive’s death. Any payments delayed by reason of the prior sentence shall be paid in a single lump sum, without interest thereon, on the date indicated by the previous sentence and any remaining
payments due under this Policy shall be paid as otherwise provided herein.
9.3 For purposes of Section 409A, Executive’s right to receive any installment payments under this Policy (whether severance payments, reimbursements or otherwise) shall be treated as a right
to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment.
9.4 To the extent required to avoid the imposition of additional taxes and penalties under Section 409A, amounts payable under this Policy on termination of employment will not be paid until
Executive experiences a separation from service within the meaning of Section 409A as specified above.
9.5 Notwithstanding any provision of this Policy to the contrary, in no event shall the timing of Executive’s execution of the Separation and Release Agreement, directly or indirectly,
result in Executive designating the calendar year of payment, and if a payment pursuant to this Policy that is subject to execution of the Separation and Release Agreement could be made in more than one taxable year, based on timing of the execution
of the Separation and Release Agreement, payment shall be made in the later taxable year.
9
Section 10. Withholding Taxes.
All compensation payable pursuant to this Policy shall be subject to all applicable federal, state and local tax withholding.
Section 11. Parachute
Payments.
Notwithstanding anything in this Policy to the contrary, in the event the Company determines that any payment or distribution in the nature of compensation (within the meaning of Code Section
280G(b)(2)) to or for the benefit of Executive, whether paid or payable pursuant to this Policy or otherwise would be subject to the excise tax imposed by Code Section 4999, then Executive shall be entitled to receive (i) the greatest amount so that
no portion the payments shall be an excess parachute payment (the “Limited Amount”), or (ii) if the amount of payments otherwise paid or provided (without regard to clause (i)) reduced by all taxes applicable thereto (including, for the
avoidance of doubt, the excise tax imposed by Code Section 4999) would be greater than the Limited Amount reduced by all taxes applicable thereto, then the amount of payments shall be the amount otherwise payable. Any reductions described in the
preceding sentence shall be done in the manner that is least economically disadvantageous to Executive. Where the decision to cut back between two amounts is economically equivalent, but the amounts are payable at different times, the amounts will be
reduced on a pro rata basis.
Section 12. Administration.
The Committee is responsible for the administration of this Policy and shall have all powers and duties necessary to fulfill its responsibilities. The Committee shall have full power and discretion
to interpret the Policy and related documents, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, and to determine the rights and benefits, if any, of any Executive or other employee, in accordance with the
provisions of the Policy. The Committee shall also have the authority to waive any restrictions with respect to participation in the Policy or the maturity of benefits under the Policy for any specific Executive where, in the opinion of the
Committee, it is reasonable to do so and does not prejudice the rights of the particular Executive under the Policy and it does not cause the Executive to be subject to adverse tax treatment under Section 409A. The Committee’s decision with respect
to any matter shall be final and binding on all parties concerned. The Committee may, from time to time, by action of its appropriate officers, delegate to designated persons, committees, or entities the right to exercise any of its powers or the
obligation to carry out its duties under the Policy.
Section 13. Amendment and Termination.
The Company reserves the right to amend or terminate this Policy at any time and in any manner, subject to the following: (i) no amendment or termination of this Policy made during the period
beginning six months prior to a Change in Control and continuing until the second anniversary of the Change in Control, shall become effective until the second anniversary of a Change in Control, provided that the Company shall have the ability to
make any amendment required under applicable law (including without limitation any amendments necessary to comply with Section 409A) at any time; (ii) if any modification of this Policy decreases the benefits available to an Executive through this
Policy (such modification, an “Adverse Change”), the Company shall give written notice to the impacted Executive of the Adverse Change; and (iii) the Adverse Change shall not be effective with respect to the Executive any sooner than one year
from the date on which the notice described in (ii) above was provided to the impacted Executive. Notwithstanding the foregoing, (x) no amendment or termination of the Policy shall affect the rights of an Executive whose Date of Termination has
occurred prior to the date of such amendment or termination of the Policy and who remains entitled to severance payments or benefits under this Policy, and (y) the requirements described in (ii) and (iii) above, with respect to an Executive impacted
by an Adverse Change, may be waived in writing by the Executive.
10
Section 14. Other Provisions.
14.1 Acknowledgment. Executive acknowledges that this Policy does not constitute a contract of employment or impose on the Company any obligation to retain Executive as an employee and
that this Policy does not prevent Executive from terminating employment at any time.
14.2 Non-Duplication of Benefits. The benefits under this Policy are not intended to duplicate any other benefits provided by the Company in connection with the termination of an
employee’s employment, such as wage replacement benefits, pay-in-lieu-of-notice, severance pay, or similar benefits under any other benefit plans, severance programs, employment contracts, or applicable federal or state laws, such as the WARN Acts.
Should such other benefits be payable, the benefits under this Policy will be reduced accordingly or, alternatively, benefits previously paid under this Policy will be treated as having been paid to satisfy such other benefit obligations. In either
case, the Company will determine how to apply this provision and may override other provisions in this Policy in doing so.
14.3 Construction. This Policy shall be governed and enforced in accordance with the laws of the State of Utah, and any litigation between the parties relating to this Policy shall be
conducted in the courts of Utah County.
14.4 Severability. If any provision of this Policy, or the application of such provision to any person or in any circumstance, is found by a court of competent jurisdiction to be
unenforceable for any reason, such provision may be modified or severed from this Policy to the extent necessary to make such provision unenforceable against such person or in such circumstance. Neither the unenforceability of such provision nor the
modification or severance of such provision will affect (i) the enforceability of any other provision of this Policy or (ii) the enforceability of such provision against any person or in any circumstance other than those against or in which such
provision is found to be unenforceable.
14.5 Records. The records of the Company with respect to the determination of eligibility, employment history, Accrued Rights, Base Salary, Bonus, and any and all other relevant
matters shall be conclusive for all purposes of this Policy.
14.6 Entire Agreement. The Company and Executive understand and agree that this Policy shall constitute the entire understanding between them regarding the subject matter contained
herein, and that all prior understandings regarding these matters are hereby superseded and replaced, unless specifically provided otherwise in this Policy.
11
SCHEDULE A
Executives (updated 1/31/2022)
|
Name and Title of Executive
|
Multiplier for
Section 3.1(i)
|
Multiplier for
Section 3.1(ii)
|
|
|
• Ryan Napierski, President and Chief Executive Officer
|
2
|
1.5
|
|
|
• Connie Tang, Executive Vice President and Chief Global Growth and Customer Experience Officer
• Mark Lawrence, Executive Vice President and Chief Financial Officer
• Chayce Clark, Executive Vice President and General Counsel
• Joseph Chang, Executive Vice President and Chief Scientific Officer
• Steven Hatchett, Executive Vice President and Chief Product Officer
|
1.5
|
1.25
|
EXHIBIT A
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement (this “Agreement”) is entered by and between Nu Skin Enterprises, Inc. (“Company”) and ___________, an individual (“Employee”). Company and Employee are
sometimes hereinafter referred to as “party” or “parties.” This Agreement shall become effective on the eighth calendar day after execution by Employee (hereafter, the “Effective Date”).
RECITALS
| A. |
Employee’s employment with Company terminated on or about _________ (the “Employment Termination Date”).
|
| B. |
Company and Employee mutually agree it is in the best interests of both to enter a mutual understanding and compromise of all claims and disputes, if any, between them.
|
AGREEMENT
In consideration of the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt, adequacy, and legal sufficiency of which are hereby acknowledged, the parties
hereby mutually agree as follows:
1. Payment to Employee. The Company agrees to make certain payments (the “Severance Payment”) to Employee as set forth in the Nu Skin Enterprises, Inc. Executive Severance Policy (the
“Executive Severance Policy”). Except as expressly set forth in this Agreement or in the Sole Agreements, as defined in Section 5, Employee shall not be entitled to any further compensation or benefits from the Company.
The Severance Payment will be paid to Employee in accordance with the Executive Severance Policy after the expiration of the revocation period specified in Section 3, if the Agreement has been signed by Employee,
Employee has not revoked the Agreement, and Employee has complied with the other terms of this Agreement.
Should Employee receive COBRA payments, Employee understands and agrees that he or she has the sole responsibility to elect COBRA coverage, comply with the requirements of COBRA, and to make
all monthly premiums in the manner required by the COBRA administrator.
2. Release of Claims. In consideration for the Severance Payment, Employee, on Employee’s behalf and for each and all of Employee’s agents, representatives, successors, assigns, attorneys,
heirs and beneficiaries, and others claiming through or under Employee, (collectively, the “Releasors”) hereby unconditionally and irrevocably releases, acquits, absolves and forever discharges Company and each and all of Company’s respective
predecessors, successors, former, current, and future assigns, affiliates, divisions, subsidiaries and parent corporations (collectively, the “Nu Skin Companies”) and each and all of the Nu Skin Companies’ owners, stockholders, agents,
directors, officers, employees, attorneys and representatives of and from any and all suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, damages, losses, interest, costs, expenses, or attorneys’ fees, whether
known or unknown, fixed or contingent, in law or in equity, which any of the Releasors have, had, or may claim to have, from the beginning of time through Employee’s execution of this Agreement, including without limitation, any claims,
charges, demands, lawsuits, obligations, or causes of action based on, arising from, or relating to Employee’s employment or the termination thereof, including, without limitation, any claims, charges, demands, grievances, and/or causes of
action under:
A-1
| (a) |
Title VII of the Civil Rights Acts of 1964 and 1991, as amended, which prohibit discrimination on the basis of race, color, sex, religion, or national origin;
|
| (b) |
Section 1981 of the Civil Rights Act of 1866, which prohibits discrimination on the basis of race;
|
| (c) |
The Employee Retirement Income Security Act as of the Effective Date of this Agreement;
|
| (d) |
The Worker Adjustment and Retraining Notification Act, whether such claim exists at or before Employee’s execution of this Agreement, or arises in the future after Employee’s execution of this Agreement as a result of Employee’s
termination being aggregated with the terminations of other employees;
|
| (e) |
The Family and Medical Leave Act;
|
| (f) |
The Americans with Disabilities Act;
|
| (g) |
The Age Discrimination in Employment Act of 1967, as amended (the “ADEA”);
|
| (h) |
The Utah Antidiscrimination Act;
|
| (i) |
any state or federal laws against discrimination;
|
| (j) |
any claims for compensation of any type whatsoever, including but not limited to claims for salary, wages, bonuses, commissions, incentive compensation, vacation, sick pay, or severance;
|
| (k) |
any other foreign, federal, state, or local statute or common law relating to employment; and
|
|
(l)
|
any claim for attorneys’ fees or other costs or expenses. |
The foregoing release also includes, without limitation, the release of any claims for wrongful discharge, breach of express or implied contract, employment-related torts, personal injury (whether physical or
mental), or any claims in any way related to Employee’s employment with or separation from Company. Employee acknowledges and agrees that Employee has not been discriminated or retaliated against in any manner prohibited by law during Employee’s
employment with Company or with regard to Employee’s separation from Company. Nothing in this Agreement shall be construed in any way to waive, limit, or hinder Employee’s rights with respect to long term disability insurance coverage.
3. Acknowledgement and Waiver and Release of Rights under the ADEA. Employee expressly acknowledges that Employee is waiving and releasing any rights Employee may have under the ADEA and that
this waiver and release is knowing and voluntary. Employee and Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after this Agreement is executed. Employee acknowledges that the
consideration given for this waiver and release is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that Employee has been advised by this writing that:
| (a) |
Employee should consult with Employee’s own attorney prior to executing this Agreement;
|
| (b) |
Employee has at least 45 calendar days from the Employment Termination Date within which to consider this Agreement, although Employee may accept the terms of this Agreement at any time within those 45 days provided the acceptance
occurs after the Employment Termination Date;
|
A-2
| (c) |
If Employee signs this Agreement before 45 days have passed, Employee acknowledges and agrees that Employee has signed this Agreement knowingly and voluntarily, without coercion to do so by Company;
|
| (d) |
Employee and Company agree that immaterial or material changes to this Agreement do not restart the running of the 45-day period;
|
| (e) | Employee has 7 days following Employee’s signing of this Agreement to revoke it; and |
| (f) |
This Agreement is effective and enforceable on the eighth calendar day after the date it is signed by Employee. This Agreement may be revoked by Employee by providing written notice of revocation to Company at any time during the
seven-day period following the date Employee executes this Agreement. Any such revocation must be sent to Employment Counsel, Legal Department, Nu Skin Enterprises, Inc., 75 West Center Street, Provo, UT 84601, and must be received
within the seven calendar days. Employee understands that Employee has no right to the consideration specified in this Agreement if Employee revokes this Agreement and Employee further understands that if any consideration is provided to
Employee prior to Employee’s revocation, Employee must promptly return any such consideration to Company.
|
4. Release to Use Image, Name, Voice, and Likeness. Employee hereby grants Company and its agents, licensees and assigns a perpetual, non-revocable, and non-exclusive right to use,
distribute, and/or display, throughout the world in any form now known or later developed, Employee’s name, image, likeness, title, picture, portrait, appearance, words, voice, biographical information, and/or actions (the “Personal
Information”), by incorporating it into any form of commercial, informational, educational, advertising, and/or promotional material (the “Works”), even if such Works are created after the termination of Employee’s employment, so long as such
Personal Information was obtained during Employee’s employment with Company. Employee expressly consents to Company’s use of the Personal Information to create Works that express or imply that Employee approves, endorses, have endorsed, or will
endorse the specific subject matter of the Works. Company may use the Personal Information for any purpose, in its sole discretion, except that Company will not use the Personal Information for any criminal or illegal purpose.
Employee agrees to indemnify and defend Company, its agents, employees, licensees and assigns from any and all claims or causes of action that Employee, or any third party, may have now or in the future, arising
out of the use, distribution, or display of the Personal Information.
Employee agrees that Company is and shall be the exclusive owner of all right, title, and interest, including copyright, in the Works. Employee agrees that, except as set forth in this Agreement, Employee will not
be entitled to compensation of any kind for the use of the Personal Information and/or the Works.
5. Sole Agreements. This Agreement, the Executive Severance Policy, any Employee Covenants Agreement, and the agreements, if any, related to Company’s deferred compensation plan, 401(k)
plan, and incentive compensation plans (collectively, the “Sole Agreements”), constitute the entire and sole agreements between Employee and Company and/or any other of the Nu Skin Companies. No other promises or agreements have been made to
Employee other than those contained in the Sole Agreements. Employee and Company acknowledge that they have read this Agreement carefully, fully understand the meaning of the terms of this Agreement and are signing this Agreement knowingly and
voluntarily. This Agreement may not be amended or modified except by an instrument in writing signed by all parties hereto.
A-3
6. Resignation From Other Positions. Employee hereby resigns from any and all positions Employee holds as director, trustee, officer, or manager with Nu Skin Enterprises, Inc., The Force
For Good Foundation, and any affiliate entity of Nu Skin Enterprises, Inc., effective as of the Employment Termination Date. [This section may be omitted if it is inapplicable.]
7. Non-Disclosure. Employee agrees that Employee will not, without the prior written consent of Company, directly or indirectly, disclose, reveal or communicate, or cause or allow to be
disclosed, revealed or communicated to any unauthorized person, confidential matters, material non-public information, proprietary information or trade secrets, including without limitation, formulae, operating procedures, processes,
intellectual property information, plans concerning acquisitions, products or technologies, customer or supplier relationships, distributor lists, secret developments, and products and inventions held or maintained by any of the Nu Skin
Companies. Employee further agrees not to utilize any such confidential or proprietary information or trade secrets for Employee’s benefit or the benefit of others, including, without limitation, others in direct or indirect competition with
any of the Nu Skin Companies. The obligations set forth in this Section shall be in addition to any other confidentiality obligations that Employee may have in any of the Sole Agreements, and Employee agrees that Employee’s obligations under
any of the Sole Agreements continue after the termination of Employee’s employment. The parties expressly acknowledge that Employee obtained experience and skills during Employee’s employment, and this covenant is not intended to restrict
Employee’s ability to use or leverage that knowledge or experience, but rather only to prevent Employee from using the above-described information or trade secrets of any of the Nu Skin Companies. Notwithstanding the foregoing, Employee will
be immune from liability under state and federal trade secret law for disclosure of a trade secret: (a) made in confidence to a government official or attorney solely for the purpose of reporting or investigating a suspected violation of law;
or (b) in a complaint or other document filed in a lawsuit or other proceeding, as long as such filing is made under seal; or (c) to an attorney representing Employee in a claim for retaliation for reporting a suspected violation of law.
8. Return of Company Equipment. Employee represents and covenants that Employee has returned to Company all confidential information, computers, laptops, cell phones, and all other
equipment or materials owned by any of the Nu Skin Companies in the possession of Employee that Company has not explicitly allowed Employee to keep.
9. No Lawsuits. Employee affirms that Employee has not filed any lawsuit, claim or charge against the Nu Skin Companies with any court, administrative or government agency and covenants not
to file or allow to be filed on Employee’s behalf any lawsuit against Company or any of the other Nu Skin Companies regarding the claims released in Sections 2 and 3 above. Employee acknowledges that Employee is not releasing any right that
cannot be waived under law, and Employee understands that this Agreement does not preclude Employee from filing an administrative charge or claim with the Equal Employment Opportunity Commission (“EEOC”), the National Labor Relations Board, the
Occupational Safety and Health Administration, the Securities and Exchange Commission, or any other federal, state, or local governmental agency or commission (each a “Government Agency”). Employee acknowledges that the Agreement does not limit
Employee’s right to receive an award for any information provided to any Government Agency. Nevertheless, Employee agrees that Employee shall not seek, accept, or be entitled to any monetary damages, whether for Employee individually or as a
member of a class or group, arising from any claim waived herein, including but not limited to any claim or action before the EEOC or a state anti-discrimination or human rights agency filed by Employee or on Employee’s behalf, and Employee
hereby waives Employee’s right to recover any such monetary relief. Employee further understands that this Agreement does not limit Employee’s ability to communicate with any Government Agency or otherwise participate in any investigation or
proceeding that may be covered by any Government Agency, including providing documents or other information, without notice to Company.
A-4
11. Confidentiality. Employee agrees that this Agreement and its terms shall be kept confidential and shall not be disclosed to any person or entity who is not a party hereto.
Notwithstanding the foregoing, Employee may disclose this Agreement and its terms (a) with Company’s prior written consent; (b) to Employee’s immediate family; (c) as necessary to Employee’s attorneys, accountants, auditors, tax and financial
advisors provided that Employee obtains from the receiving party an agreement to maintain the confidentiality of this Agreement and its terms; (d) in response to a validly issued subpoena or other legal process if reasonable notice is provided
to Company before any disclosure to allow Company to seek a protective order or other legal process to limit or preclude such disclosure; or (e) in connection with a legal proceeding seeking enforcement of this Agreement. If Employee violates
or breaches this Agreement, this Agreement shall remain in full force and effect and Company will be entitled to recover from Employee the monies paid pursuant to Section 1 above, reasonable attorneys’ fees and any other remedy available to
Company pursuant to this Agreement or otherwise.
12. Non-Disparagement. Employee agrees that Employee will not at any time make any written or oral statements disparaging any of the Nu Skin Companies or any of the Nu Skin Companies’
officers, directors, employees, distributors, customers or products. Nothing in this Agreement shall in any way limit Employee from: (a) fully cooperating with any governmental investigation or inquiry or from responding fully and truthfully to
any questions or information requests made by any government agency or entity in connection with such government investigation or inquiry, or from testifying truthfully or otherwise responding to legal process; or (b) from exercising protected
rights, or reporting possible violations of law or regulation to any governmental agency or entity, including but not limited to the United States Department of Justice, the Securities and Exchange Commission, and any other agency, or making
other disclosures that are protected under the whistleblower provisions of law or regulation.
13. Severability. The provisions of this Agreement are severable. Should any provision hereof be voidable or unenforceable under applicable law, such voidable, or unenforceable provision
shall not affect the validity of any other clause or provision, which shall remain in full force and effect, and it is the intention and agreement of the parties that all terms and conditions herein be enforced to the fullest extent permitted
by law.
14. Choice of Law, Jurisdiction and Venue. The validity of this Agreement and the interpretation and performance 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 Federal District Court for the District of Utah.
A-5
16. Counterparts; Electronic Signatures. This Agreement may be executed in one or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. Any facsimile or electronic signature to this Agreement of a party transmitted by a party or its legal counsel and any email copy of a party’s signature to this Agreement emailed by a party or its legal
counsel shall be deemed an original and binding signature of this Agreement by such party.
17. Interpretation. This Agreement was drafted with the full participation of all parties. Accordingly, if there is an ambiguity in this Agreement, it should not be resolved against any
particular party, but rather should be resolved by a fair reading of what the Agreement was intended by the parties to provide.
18. Opportunity to Read and Understand the Agreement. Employee acknowledges that Employee has read this Agreement carefully, fully understands the meaning of the terms of this Agreement, and
is signing this Agreement knowingly and voluntarily.
19. Amendments. This Agreement may not be amended or modified except by an instrument in writing signed by all parties hereto.
THIS AGREEMENT IS INTENDED TO RELEASE ALL RELEASABLE CLAIMS RELATED TO EMPLOYEE’S EMPLOYMENT. THUS, EMPLOYEE MUST NOT SIGN THIS AGREEMENT BEFORE THE EMPLOYMENT TERMINATION DATE.
IF EMPLOYEE SIGNS THIS AGREEMENT BEFORE THE LAST DAY OF EMPLOYEE’S EMPLOYMENT, IT WILL NOT BE VALID AND EMPLOYEE WILL NOT BE ENTITLED TO THE SEVERANCE PAYMENT.
|
NU SKIN ENTERPRISES, INC.
|
||
|
BY:
|
||
|
EMPLOYEE:
|
A-6
EXHIBIT B
EMPLOYEE COVENANTS AGREEMENT
“Employee”
(PRINT NAME)
Nu Skin Enterprises, Inc. and its affiliated companies (collectively “Company”) operate in the highly competitive direct selling marketplace competing for product market share as well as recruitment and retention
of independent distributors. The success of Company depends on maintaining a competitive edge in this industry through the introduction of innovative products and attracting and retaining distributors. Accordingly, as a condition of and in
consideration of employment or continued employment with Company, Company and Employee hereby acknowledge and agree as follows.
| 1. |
Conflict of Interest: During employment with Company, Employee shall not have any personal interest that is
incompatible with the loyalty and responsibility Employee owes to Company. Employee must discharge Employee’s responsibility solely on the basis of what is in the best interest of Company and independent of personal considerations or
relationships. Employee shall maintain impartial relationships with vendors, suppliers and distributors. Should Employee have any questions regarding this matter, Employee should consult with Employee’s director or supervisor or with
the Human Resources Department (“HR”). If any actual or potential conflict of interest arises, the Employee must notify Employee’s director or supervisor and HR as promptly as possible after such conflict of interest arises, and seek
an appropriate waiver or resolution of such conflict of interest. Although it is difficult to identify every activity that might give rise to a conflict of interest, the following provisions address some examples of conflicts of
interest:
|
| 1.1 |
Related Party Transactions. Employee shall not have a direct or indirect ownership or financial interest in vendors or
suppliers of Company or in any person or entity doing or seeking to do business with Company. Employee shall also not have a direct or indirect financial or other interest in any transaction involving the Company. In the event such a
conflict arises, Employee must notify Employee’s director or supervisor and HR, and Company may not do business with such vendor or supplier, or enter into any such transaction, unless it has been approved (a) in accordance with
Company’s policy with respect to related party transactions; or, if such policy does not apply, (b) by Employee’s manager.
|
| 1.2 |
Other Employment. Employee shall not be employed by, or perform services of any kind, whether compensated or not, for any
person or entity doing or seeking to do business with Company. Employee shall not be employed by, or perform services of any kind, whether compensated or not, for any person or entity that competes with Company. Employee shall not allow
employment by, or performance of services for, any other person or entity to detract from Employee’s job performance; use Company’s time, resources, or personnel in connection therewith; or expend such long hours in connection therewith
as to adversely affect Employee’s physical or mental effectiveness. Further, neither Employee’s spouse, nor any member of Employee’s household, shall be employed by another direct sales or multilevel marketing company without the prior
written consent of Company.
|
B-1
| 1.3 |
Distributorships. While employed by Company and for a period of three months after termination of an employment
relationship with Company for any reason, Employee shall not have a direct or indirect ownership or financial interest in a Company distributorship or similar account. Additionally, during the course of employment, neither Employee’s
spouse, nor any member of Employee’s household, shall have a direct or indirect ownership or financial interest in, or otherwise be affiliated with, a Company distributorship without the prior written consent of Company. Further,
neither Employee’s spouse, nor any member of Employee’s household, shall have a direct or indirect ownership or financial interest in, or otherwise be affiliated with, another direct sales or multilevel marketing distributorship without
the prior written consent of Company. Any pre-existing ownership, financial interests, or employment covered in these subparagraphs must be disclosed to Company at the time of the execution of this Agreement.
|
| 2. |
Inventions:
|
| 2.1 |
Attached hereto as Exhibit A is a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were conceived, developed, reduced to practice, or created by Employee prior to
Employee’s employment with Company, which belong to Employee, and which are not assigned to Company hereunder (collectively referred to as “Prior Inventions”). If nothing is listed on Exhibit A, or if no such list is attached, Employee
represents that there are no such Prior Inventions. If, in the course of Employee’s employment with Company, Employee incorporates into a Company product, process, service, or other work a Prior Invention owned by Employee or in which
Employee has an interest, Employee hereby grants to Company and Company shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use, sell, offer to sell, copy, reproduce, distribute,
make derivative works of and publicly display or perform such Prior Invention as part of or in connection with such product, process, service, or other work and to practice any method related thereto and to sublicense the foregoing
rights.
|
B-2
| 2.2 |
Employee agrees to promptly make full written disclosure to Company, will hold in trust for the sole right and benefit of Company, and hereby assigns to Company, or its designee, all of Employee’s right, title, and interest in and to
any and all inventions, original works of authorship, developments, improvements, concepts, processes, designs, discoveries, ideas, technology advances, unique solutions to business problems, trademarks, or trade secrets, whether or not
patentable, and whether or not registrable under copyright or other federal or state laws, which Employee may solely or jointly conceive, develop, create, or reduce to practice, or cause to be conceived, developed, created or reduced to
practice, and which also satisfy any one of the following: (i) was within the scope of Employee’s employment; (ii) was on Company’s time; (iii) was with the aid, assistance, or use of any of Company’s property, equipment, facilities,
supplies, resources, or intellectual property; (iv) was the result of any work, services, or duties performed by Employee for Company; (v) was related to Company’s industry or trade; and/or (vi) was related to the current or demonstrably
anticipated business, research, or development of Company (collectively referred to as “Inventions”).
|
| 2.3 |
Employee further acknowledges that all original works of authorship that are made by Employee (solely or jointly with others) within the scope of and during the period of employment with Company and that are protectable by copyright
are “works made for hire,” as that term is defined in the United States Copyright Act.
|
| 2.4 |
Employee understands and agrees that the decision whether or not to commercialize or market any Inventions developed by Employee solely or jointly with others is within Company’s sole discretion and for Company’s sole benefit and that
no royalty will be due to Employee as a result of Company’s efforts to commercialize or market any such Invention.
|
| 2.5 |
Employee agrees to keep and maintain adequate and current written records of all Inventions made by Employee (solely or jointly with others) during the term of employment with Company. The records will be in the form of notes,
sketches, drawings, and any other format that may be specified by Company. The records will be available to and remain the sole property of Company at all times.
|
| 2.6 |
Employee agrees to assist Company, or its designee, at Company’s expense, in every proper way to secure, obtain, maintain, reissue, defend, and enforce Company’s rights in the Inventions and any copyrights, patents, trademarks, trade
secrets, mask work rights or any other intellectual property rights whatsoever relating thereto in any and all countries, including the disclosure to Company of all pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments, and all other instruments that Company shall deem necessary in order to apply for, obtain, maintain, reissue, defend, and enforce such rights (including, but not limited to, improvements,
renewals, extensions, continuations, divisions or continuations in part thereof) and in order to assign and convey to Company, its successors, assigns, and nominees the sole and exclusive right, title, and interest in and to such
Inventions, and any copyrights, patents, trademarks, trade secrets, mask work rights or any other intellectual property rights whatsoever relating thereto. Employee further agrees that Employee’s obligation to execute or cause to be
executed, when it is in Employee’s power to do so, any such instrument or papers shall continue after the termination of this Agreement. If Company is unable because of Employee’s mental or physical incapacity or for any other reason to
secure Employee’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to Company as above, or execute any of
the other above instruments or papers, then Employee hereby irrevocably designates and appoints Company and its duly authorized officers and agents as Employee’s agent and attorney in fact, to act for and in Employee’s behalf and stead to
execute and file any such applications and to do all other lawfully permitted acts to further the prosecution, maintenance, reissue, defense, enforcement, and issuance of letters patent or copyright registrations thereon with the same
legal force and effect as if executed by Employee.
|
B-3
| 3. |
Non-Disclosure and Assignment:
|
| 3.1 |
Employee acknowledges that during the term of employment with Company, Employee will have access or be exposed to, or learn or develop, Confidential Information. Employee understands that “Confidential Information” means any Company
information, data, or physical property that relates to the actual or anticipated business or research and development of Company, Company proprietary information, technical data, trade secrets, or know-how, including, but not limited to:
research; formulas; business plans; strategic plans; product and marketing plans; sales compensation plans; sales methods; financial information; vendor information (both actual and potential), including, without limitation, vendor lists,
and vendor contact, volume, and pricing information; supplier information (both actual and potential), including, without limitation, supplier lists, and supplier contact, volume, and pricing information; distributor information (both
actual and potential), including, but not limited to; distributor lists, and distributor contact information, volume, sales, ability, performance, compensation, downline, upline, and personally identifiable information; employee
information (both actual and potential), including, but not limited to, employee lists, and employee contact information, experience, qualification, ability, performance, compensation, and personally identifiable information; markets;
market development strategies; sales strategies; strategies for the acquisition, retention, acquisition, and growth of distributors; software and computer programs; specifications; reports; designs; drawings; prototypes; procedures;
inventions; operations; procedures; manufacturing techniques, engineering processes; technology; unpublished patent applications and invention disclosures; production planning information; sales and purchasing quantities, prices, or
quotations; budget plans; contracts; risk analysis; correspondence with distributors, suppliers, and vendors; and other business information disclosed to me by Company, directly or indirectly, that is proprietary, confidential, or secret,
whether in digital, hard copy, verbal, visual, tangible, intangible, or other form.
|
B-4
| 3.2 |
During and after Employee’s employment, Employee shall hold the Confidential Information and/or Inventions in strictest confidence and shall protect them with utmost care. Employee shall not disclose, copy, remove from Company’s
premises, or permit any person to disclose or copy any of the Confidential Information and/or Inventions, and Employee shall not use any of the Confidential Information and/or Inventions, except for the exclusive benefit of Company and
only as necessary to perform Employee’s duties as an employee of Company.
|
| 3.3 |
During employment with Company, Employee shall not improperly use or disclose any confidential or proprietary information or trade secrets of any former or concurrent employer or previously obtained from or provided by any other person
or entity. On signing this Agreement, Employee shall disclose to Company the existence of agreements Employee has with prior employers or such other persons or entities, and shall comply with the terms of all such agreements with respect
to confidential or proprietary information or trade secrets. Employee agrees and represents that Employee’s employment with Company does not cause Employee to be in breach of any contract or agreement with any former or concurrent
employer.
|
| 3.4 |
Employee recognizes that Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Company’s part to maintain the confidentiality of such information and
to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest confidence and to not use or disclose it except as necessary in carrying out Employee’s work for
Company consistent with Company’s agreement with such third party.
|
| 3.5 |
This Agreement will not be interpreted to prevent the use or disclosure of information that: (a) is required by law to be disclosed, but only to the extent that such disclosure is legally required, (b) becomes a part of the public
knowledge other than by a breach of an obligation of confidentiality, or (c) is rightfully received from a third party not obligated to hold such information confidential. The Federal Defend Trade Secrets Act provides immunity to
individuals under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for
the purpose of reporting or investigating a suspected violation of law; or (ii) in a complaint or other document filed in a lawsuit or other proceedings, if such filing is made under seal. An individual who files a lawsuit for
retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document
containing the trade secret under seal and does not disclose the trade secret, except pursuant to court order. If Employee brings suit against Company in connection with Employee’s employment relationship with Company, Employee may
disclose Confidential Information to Employee’s attorney and use the Confidential Information in the court proceeding, if Employee files any document containing Confidential Information under seal and does not disclose the Confidential
Information, except pursuant to court order. Other than as described or addressed in this subparagraph, or as outlined in Paragraph 17 below, Employee must advise Company prior to disclosure of Confidential Information to be communicated
pursuant to law so that Company may obtain a protective order as necessary to protect its confidentiality interests.
|
B-5
| 4. |
Future Inventions: Employee recognizes that inventions, original works of authorship, developments, improvements,
and trade secrets that relate to Employee’s activities while working for Company, and which are conceived, developed, reduced to practice, or created by Employee, whether alone or with others, within one year after termination of
Employee’s employment (“future inventions”), may constitute Inventions as that term is defined above. Accordingly, Employee agrees that Company’s rights and Employee’s obligations with respect to Inventions apply to future inventions,
unless and until Employee has established the contrary.
|
| 5. |
Ethical Standards: Employee agrees to maintain the highest ethical and legal standards in Employee’s conduct, to
be scrupulously honest and straightforward in all of Employee’s dealings, and to avoid all situations which might create the appearance or perception of unethical or illegal conduct.
|
| 6. |
Product Resale: As an employee of Company, Employee may receive Company products and materials either at no charge
or at a discount as specified from time to time by Company in its sole discretion. Employee agrees that the products and materials received shall be used strictly in accordance with the applicable policies of Company and shall not be
sold, distributed, or transferred in any manner that would violate such policies.
|
| 7. |
Gratuities: Employee shall neither seek nor retain gifts, gratuities, entertainment, or other forms of
compensation, benefit, or persuasion from suppliers, distributors, vendors, or their representatives except in compliance with Company policy.
|
| 8. |
Non-Solicitation: Employee shall not in any way, directly or indirectly, on Employee’s own behalf or on behalf of
others, either alone or with, assisting, or through others, at any time during employment or within one year after either a voluntary or involuntary employment termination: (a) solicit, divert, take away, or interfere with Company’s
distributors, employees, suppliers, or vendors, including, without limitation, inducing, facilitating, recruiting, or encouraging Company’s distributors, employees, suppliers, or vendors to terminate or alter their relationship with
Company or to do business with any person or entity that competes with Company, regardless of whether or not Employee initiates any such contact; or (b) attempt to do any of the foregoing.
|
B-6
| 9. |
Non-Disparagement: Subject to Paragraph 17 below, Employee shall not in any way, directly or indirectly, at any
time during employment or after either voluntary or involuntary employment termination, disparage Company, Company products, Company employees, or Company distributors, including, without limitation, the business, reputation, practices,
or conduct of any of the foregoing.
|
| 10. |
Non-Competition: In exchange for the benefits of continued employment by Company, Employee shall not, without the
prior written consent of Company: (i) serve in any capacity whatsoever, including, but not limited to, as a partner, joint venturer, employee, distributor, consultant, principal, officer, director, manager, member, affiliate,
representative, agent, associate, contractor, inventor, advisor, licensor, licensee, promoter, or investor for; (ii) directly or indirectly, own, purchase, organize or take preparatory steps for the organization of; or (iii) build,
design, finance, acquire, lease, operate, manage, control, invest in, participate in, work or consult for or otherwise join or participate in or affiliate with or provide service to any direct selling or multilevel marketing company or
entity, including, without limitation, any direct or indirect affiliate or subsidiary of such company or entity, that competes with the business of Company whether for market share of products or for independent distributors; provided,
however, Employee may own publicly traded securities of a company whose securities are publicly traded on a national securities exchange that is registered with the Securities and Exchange Commission if Employee’s ownership interest is
less than 1% of the total outstanding securities of such company. The foregoing covenant shall cover Employee’s activities in every part of the Territory. “Territory” shall mean: (i) all states of the United States of America; and (ii)
any other countries in which Company maintains non-trivial operations or facilities, provides goods or services, has customers or distributors, or otherwise conducts business during the time of employment. Employee shall not engage in
activities that may require or inevitably require disclosure of Confidential Information. The restrictions set forth in this paragraph shall remain in effect during Employee’s employment with Company.
|
| 11. |
Release to Use Image, Name, Voice, and Likeness:
|
| 11.1 |
Employee hereby grants Company and its agents, licensees and assigns a perpetual, non-revocable, and non-exclusive right to use, distribute, and/or display, throughout the world in any form now known or later developed, Employee’s
name, image, likeness, title, picture, portrait, appearance, words, voice, biographical information, and/or actions (the “Personal Information”), by incorporating it into any form of commercial, informational, educational, advertising,
and/or promotional material (the “Works”), even if such Works are created after the termination of Employee’s employment, so long as such Personal Information was obtained during Employee’s employment with Company. Employee expressly
consents to Company’s use of the Personal Information to create Works that express or imply that Employee approves, endorses, have endorsed, or will endorse the specific subject matter of the Works. Company may use the Personal
Information for any purpose, in its sole discretion, except that Company will not use the Personal Information for any criminal or illegal purpose.
|
B-7
| 11.2 |
Employee agrees to indemnify and defend Company, its agents, employees, licensees and assigns from any and all claims or causes of action that Employee, or any third party, may have now or in the future, arising out of the use,
distribution, or display of the Personal Information.
|
| 11.3 |
Employee agrees that Company is and shall be the exclusive owner of all right, title, and interest, including copyright, in the Works. Employee agrees that Employee will not be entitled to compensation of any kind for the use of the
Personal Information and/or the Works unless otherwise agreed to in writing.
|
| 12. |
Acknowledgement: Employee acknowledges that Employee’s fulfillment of the
obligations contained in this Agreement, including, but not limited to, Employee’s confidentiality, non-solicitation, non-disparagement, and non-competition covenants in Paragraphs 3 and 8-10 above, are fair and reasonable,
are necessary to protect the Company’s Confidential Information and, consequently, to preserve the value and goodwill of the Company, and should be construed to apply to the fullest extent
possible by applicable laws. Employee further acknowledges the time, geographic, and scope limitations of these obligations are reasonable, and that Employee will not be precluded from gainful
employment if obligated not to compete with Company during the period and within the Territory as described in this Agreement. Employee has carefully read this Agreement, has consulted with independent legal counsel to the
extent Employee deems appropriate, and has given careful consideration to the restraints imposed by the Agreement. Employee acknowledges that the terms of this Agreement are enforceable regardless of the manner in which Employee’s
employment is terminated, whether voluntary or involuntary. In the event that Employee is to be employed as an attorney for a competitive business, Company and Employee acknowledge that Paragraph 10 is not intended to restrict the right
of Employee to practice law in violation of any applicable rules of professional conduct.
|
| 13. |
Separate Covenants: Employee’s confidentiality, non-solicitation, non-disparagement, and non-competition covenants
in Paragraphs 3 and 8-10 above shall be construed as a series of separate covenants, one for each city, county, and state of any geographic area in the Territory. Except for geographic coverage, each such separate covenant shall be
deemed identical in terms to the covenants contained above. If, in any judicial or arbitral proceeding, a court or arbitrator refuses to enforce any of such separate covenants (or any part thereof), then such unenforceable covenant (or
such part) shall be revised, or if revision is not permitted it shall be eliminated from this Agreement, to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event that the
provisions of Paragraphs 3 and 8-10 above are deemed to exceed the time, geographic, or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic, or scope limitations, as the
case may be, then permitted by such law. In the event that the applicable court or arbitrator does not exercise the power granted to it in the prior sentence, Employee and Company agree to replace such invalid or unenforceable term or
provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business, and other purposes of such invalid or unenforceable term.
|
B-8
| 14. |
Return of Equipment and Information upon Termination: On Company’s request at any time, and in any event on the
termination of employment for any reason, Employee shall promptly deliver to Company (and will not keep in Employee’s possession, in hard copy or digital form, or recreate, copy, or deliver to anyone else) any and all Confidential
Information and Inventions, including, but not limited to, any distributor, supplier, and vendor contact information and notes or summaries thereof. Employee will also deliver to the Company (and will not keep in Employee’s possession,
in hard copy or digital form, or recreate, copy, or deliver to anyone else) any and all devices, assets, equipment, property, passwords, documents, records, data, notes, reports, proposals, lists, correspondence, formulae,
specifications, drawings, or any other items or materials whatsoever (or any copies or reproductions of any of the aforementioned items), developed by Employee pursuant to Employee’s employment with Company or otherwise belonging to
Company. Employee understands and agrees that compliance with this paragraph may require that data be removed from Employee’s personal computer equipment and electronic storage devices of any kind, and Employee agrees to give the
qualified personnel of Company or its contractors access to such computer equipment or devices for that purpose.
|
| 15. |
Remedies and Enforcement of Restrictive Covenants: Employee acknowledges that: (a) compliance with the provisions
of the restrictive covenants contained in this Agreement is necessary to protect the business and goodwill of Company; and (b) a breach of such provisions will result in irreparable and continuing harm to Company, for which money
damages will not provide adequate relief. Consequently, Employee agrees that, in the event Employee breaches or threatens to breach any of such provisions, Company shall be entitled to temporary, preliminary, and/or permanent injunctive
relief to prevent the threatened harm or the continuation of harm. Employee agrees that Company does not need to post a bond to obtain an injunction and waives Employee’s right to require such a bond. The seeking and/or obtaining of
such injunctive relief shall be without prejudice to, and are in addition to, Company’s right to seek any other remedies available to Company for such breach or threatened breach, including the recovery of damages from Employee, and
remedies available under federal and state laws, including, but not limited to, the Federal Defend Trade Secrets Act, and the parties agree that all remedies are cumulative. It is further recognized and agreed that the provisions of
Paragraphs 3, 8, 9, or 10 of this Agreement and [Paragraphs 3 and 5] of the Addendum are for the purpose of restricting Employee’s activities to the extent necessary for the protection of the legitimate business interests of Company and
that Employee agrees that said provisions do not and will not preclude Employee from engaging in activities sufficient for the purposes of earning a living. Unless prohibited by law, Employee also agrees that any breach by Employee of
the provisions of Paragraphs 3, 8, 9, or 10 of this Agreement and [Paragraphs 3 and 5] of the Addendum during employment by Company shall be grounds for forfeiture of any accrued bonuses or commissions as liquidated damages, which shall
be in addition to and not exclusive of any and all other rights and remedies Company may have against Employee.
|
B-9
| 16. |
Attorney’s Fees: If any party to this Agreement breaches any of the terms of this Agreement, then that party shall
pay to the non-defaulting party all of the non-defaulting party’s costs and expenses, including reasonable attorney’s fees, incurred by that party in enforcing the terms of this Agreement.
|
| 17. |
Protected Activity: Nothing in this Agreement is intended, or should be interpreted, to restrict,
impede, or otherwise limit the rights of all employees to report possible violations of law or regulation to any governmental agency or entity tasked with enforcing such laws and regulations, including but not limited to the United
States Department of Justice, the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the Department of Labor, Congress, and any agency Inspector General, or to participate in an investigation by any such
agencies or entities; nor is this Agreement intended to limit employees’ rights to discuss among themselves or others wages, benefits, and other terms and conditions of employment or workplace matters of mutual concern, as protected by
the National Labor Relations Act or other law. Employee is not required to notify Company of his or her intention to file such a report or participate in such an investigation prior to contacting the agency or entity.
|
| 18. |
Severability: If any provision, paragraph, or subparagraph of this Agreement is adjudged by any court or
administrative agency to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of the Agreement, including any other provision, paragraph, or subparagraph. Each provision,
paragraph, and subparagraph of this Agreement is severable from every other provision, paragraph, and subparagraph and constitutes a separate and distinct covenant.
|
| 19. |
Governing Law and Forum: This Agreement shall be governed and enforced in accordance with the laws of the State of
Utah, excepting its choice of law rules, and any litigation between the parties relating to this Agreement shall be conducted in the state or federal courts in or for Utah County in the State of Utah.
|
| 20. |
Employment At Will: Employee understands that employment with Company is at-will, meaning that employment with
Company is completely voluntary and for an indefinite term and that either Employee or Company is free to terminate the employment relationship at any time, with or without cause or advance notice. Employee further understands that any
representation to the contrary is unauthorized and not valid unless obtained in writing and approved by the Company’s board of directors.
|
B-10
| 21. |
Employment Subject to Company’s Policies and Procedures: The parties acknowledge and agree that Company has
established, and may establish, various workplace policies and procedures, which Company may modify in its sole discretion from time to time. Employee acknowledges such policies and procedures, and agrees to abide by such policies and
procedures, as they may be implemented or modified from time to time.
|
| 22. |
Entire Agreement: Company and Employee understand and agree that this Agreement shall constitute the entire
agreement between them regarding the subject matter contained herein, and that all prior understandings or agreements regarding these matters are hereby superseded and replaced, including, without limitation, any written agreements
previously signed by the parties. Any amendment or addendum to, or modification or supplementation of, this Agreement must be in writing signed by the parties hereto and stating the intent of the parties to amend or modify this
Agreement.
|
| 23. |
Survivability of Obligations: This Agreement sets forth several obligations which continue after the termination
of Employee’s employment with Company, including, without limitation, those obligations set forth in Paragraphs 1, 2, 3, 4, 6, 8, 9, 11 and 12, and the parties specifically acknowledge and agree that such obligations shall survive the
termination of Employee’s employment for any reason.
|
THIS AGREEMENT HAS BEEN READ, UNDERSTOOD, AND FREELY ACCEPTED BY:
|
Dated:
|
|
Employee
|
B-11
EXHIBIT A
LIST OF PRIOR INVENTIONS
| Title |
Date |
Identifying Number or Brief Description |
_____ No inventions or improvements
_____ Additional Sheets Attached
|
Signature of Employee:
|
|
Print Name of Employee:
|
|
Date:
|
B-12
ADDENDUM TO EMPLOYEE COVENANTS AGREEMENT
FOR KEY EMPLOYEES
Company and Employee entered an Employee Covenants Agreement dated ______________. (“Employee Covenants Agreement”). As a condition of and in consideration of employment or continued
employment with Company, Company and Employee hereby acknowledge and agree to modify and/or supplement the terms of the Employee Covenants Agreement as follows:
| 1. |
Terms of Employee Covenants Agreement: Company and Employee agree that the defined terms in the Employee Covenants
Agreement shall have the same meaning in this Addendum. Company and Employee further agree that all terms of the Employee Covenants Agreement remain in full force and effect, except as modified herein. To the extent of a conflict
between terms of the Employee Covenants Agreement and this Addendum, the applicable portion or portions of this Addendum shall control.
|
| 2. |
Conflict of Interest: All references in Paragraph 1 and subparagraphs 1.1 through 1.3 of the Employee Covenants
Agreement to Employee’s “director,” “supervisor,” and “HR” shall be replaced with Company’s General Counsel. For example, and without limiting the provisions of that Paragraph and subparagraphs, Employee shall direct questions
concerning conflicts of interest to, report actual or potential conflicts of interest to, seek an appropriate waiver or resolution of such conflict of interest from, and provide any required notifications or disclosures to, Company’s
General Counsel. The General Counsel shall direct questions concerning conflicts of interest to, report actual or potential conflicts of interest to, seek an appropriate waiver or resolution of such
conflict of interest from, and provide any required notifications or disclosures to, the Chair of the Compensation and Human Capital Committee.
|
| 3. |
Non-Competition: Employee agrees that the restrictions in Paragraph 10 of the Employee Covenants Agreement shall
remain in effect during a period of one year following termination of Employee’s employment for any reason. In the event of any breach or violation of
these restrictions prior to or during this one-year period, or a good faith allegation by Company of Employee’s breach or violation of these restrictions, this one-year period shall be extended until such breach or violation of these
restrictions, or dispute related to an allegation by Company that Employee has breached or violated these restrictions, has been duly cured or resolved, as applicable.
|
| 4. |
Other Employment: Subject to the limitations in the Employee Covenants Agreement and this Addendum, should
Employee obtain other employment or service as a director during Employee’s employment with Company, or within one year immediately following Employee’s termination for any reason, Employee shall provide written notice to the Company’s
General Counsel of the name and address of the new employer, the position Employee expects to hold, and a general description of Employee’s expected duties and responsibilities, at least three days prior to starting such employment or
service. Employee shall also provide a copy of the Employee Covenants Agreement and this Addendum to the new employer.
|
B-13
| 5. |
[Non-Endorsement: Employee shall not in any way, directly or indirectly, at any time during employment or within one year after either a voluntary or involuntary employment termination,
endorse any sales compensation plan of another person or entity that competes with Company or any products of Company, promote or speak on behalf of any person or entity whose products compete with those of Company, or allow Employee’s
name or likeness to be used in any way to promote any person, entity, or product that competes with Company or any products of Company.][Paragraph to be included for employees as deemed appropriate by the
Company]
|
| 6. |
Acknowledgment: In addition to the acknowledgment of Paragraph 12 of the Agreement, Employee further acknowledges
that Employee’s position and work activities with the Company are “key” and vital to the on-going success of Company’s operation in each product category and in the Territory. In addition, Employee acknowledges that Employee’s
employment or involvement with any other direct selling or multilevel marketing company in particular would create the impression that Employee has left Company for a “better opportunity,” which could damage Company by this perception
in the minds of Company’s employees, distributors, or other persons. Therefore, Employee acknowledges that Employee’s non-competition covenant in this Addendum is fair and reasonable, is necessary to
protect the Company’s Confidential Information and, consequently, to preserve the value and goodwill of the Company, and should be construed to apply to the fullest extent possible by applicable laws. Employee further acknowledges the time, geographic, and scope limitations of this obligation are reasonable, and that Employee will not be precluded from gainful employment if obligated not to compete with Company
during the period and within the Territory as described in the Agreement and this Addendum. Employee has carefully read this Addendum, has consulted with independent legal counsel to the extent Employee deems appropriate, and
has given careful consideration to the restraints imposed by this Addendum. Employee acknowledges that the terms of this Addendum are enforceable regardless of the manner in which Employee’s employment is terminated, whether voluntary
or involuntary. In the event that Employee is to be employed as an attorney for a competitive business, Company and Employee acknowledge that this Addendum is not intended to restrict the right of Employee to practice law in violation
of any applicable rules of professional conduct.
|
THIS ADDENDUM TO EMPLOYEE COVENANTS AGREEMENT FOR KEY EMPLOYEES HAS BEEN READ, UNDERSTOOD, AND FREELY ACCEPTED BY:
|
Dated:
|
|
Employee
|
B-14
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Big Planet, Inc., a Delaware corporation
Corner Canyon Canada, Inc., an Ontario corporation
Corner Canyon Manufacturing, Inc., a Utah corporation
Elevate Nutraceuticals LLC, a Utah limited liability company
Grōv Technologies, LLC, a Utah limited liability company
Grow Solutions Tech LLC, a Utah limited liability company
Guangdong Xingchuang Daily-Use & Health Products Co. Ltd., a Chinese company
Ingredient Innovations International Company, a Delaware corporation
Innuvate Health Sciences LLC, a Utah limited liability company
L&W Holdings, Inc., a Utah corporation
MyFavoriteThings, Inc., a Delaware corporation
NOX Technologies, Inc., a Delaware corporation
NSE Asia Products, Pte. Ltd., a Singapore corporation
NSE Investments, Inc., a Delaware corporation
NSE Products Europe BV, a Belgium private limited liability company
NSE Products, Inc., a Delaware corporation
NSEMC, Inc., a Delaware corporation
NSJ Ltd., a Japan corporation
Nu Berry, LLC, a Utah limited liability company
Nu Skin (China) Daily-Use & Health Products Co., Ltd., a Chinese company
Nu Skin (Malaysia) Sdn. Bhd., a Malaysia corporation
Nu Skin Argentina, Inc., a Utah corporation
Nu Skin Asia Holdings, Pte. Ltd., a Singapore corporation
Nu Skin Asia Investment, Inc., a Delaware corporation
Nu Skin Beauty and Wellness Co. Ltd., a Chinese company
Nu Skin Canada, Inc., a Utah corporation
Nu Skin Colombia, Inc., a Delaware corporation
Nu Skin Czech Republic, s.r.o., a Czech Republic limited liability company
Nu Skin Eastern Europe Kft., a Hungary limited liability company
Nu Skin El Salvador, S.A. de C.V., an El Salvador corporation
Nu Skin Enterprises (Thailand) Limited, a Delaware corporation
Nu Skin Enterprises (Thailand) Limited, a Thailand corporation
Nu Skin Enterprises Australia, Inc., a Utah corporation
Nu Skin Enterprises Chile Ltda., a Chile limited liability company
Nu Skin Enterprises de Venezuela, C.A., a Venezuela corporation
Nu Skin Enterprises Hong Kong, LLC, a Delaware limited liability company
Nu Skin Enterprises New Zealand, Inc., a Utah corporation
Nu Skin Enterprises Philippines, LLC, a Delaware limited liability company
Nu Skin Enterprises Poland Sp. z o.o., a Poland limited liability company
Nu Skin Enterprises RS, LLC, a Russia limited liability company
Nu Skin Enterprises Singapore Pte. Ltd., a Singapore corporation
Nu Skin Enterprises South Africa (Proprietary) Limited, a South Africa proprietary limited company
Nu Skin Enterprises SRL, a Romania limited liability company
Nu Skin Enterprises Ukraine, LLC, a Ukraine limited liability company
Nu Skin Enterprises United States, Inc., a Delaware corporation
Nu Skin France, SRL, a France limited liability company
Nu Skin Germany, GmbH, a Germany limited liability company
Nu Skin Honduras, S.A., a Honduras corporation
Nu Skin International Management Group, Inc., a Utah corporation
Nu Skin Islandi ehf., an Iceland private limited liability company
Nu Skin Israel, Inc., a Delaware corporation
Nu Skin Italy, Srl, an Italy limited liability company
Nu Skin Japan Company, Limited, a Japan corporation
Nu Skin Korea Ltd., a Korea corporation
Nu Skin Malaysia Holdings Sdn. Bhd., a Malaysia corporation
Nu Skin Mexico, S.A. de C.V., a Mexico corporation
Nu Skin Netherlands, B.V., a Netherlands private limited liability company
Nu Skin New Caledonia EURL, a France limited company
Nu Skin Norway AS, a Norway private limited liability company
Nu Skin Peru S.A.C., a Peru company
Nu Skin Scandinavia A/S, a Denmark stock-based corporation
Nu Skin Services Costa Rica, a Costa Rica corporation
Nu Skin Slovakia s.r.o., a Slovak Republic limited liability company
Nu Skin Taiwan, LLC, a Utah limited liability company
Nu Skin United Kingdom Ltd, a United Kingdom private company
NuSkin Belgium, NV, a Belgium limited liability company
NuSkin Pharmanex (B) Sdn. Bhd, a Brunei corporation
Pharmanex (Huzhou) Health Products Co., Ltd., a Chinese company
Pharmanex Electronic-Optical Technology (Shanghai) Co., Ltd., a Chinese company
Pharmanex, LLC, a Delaware limited liability company
PT. Nu Skin Distribution Indonesia, an Indonesia corporation
PT. Nusa Selaras Indonesia, an Indonesia corporation
RHYZ Analytical, Inc., a Utah corporation
Treviso, LLC, a Utah limited liability company
Vertical Eden LLC, a Utah limited liability company
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-130304, 333-167690, 333-190508, 333-211617, 333-238908 and 333-252976) of Nu Skin Enterprises, Inc. of our
report dated February 15, 2023 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Salt Lake City, Utah
February 15, 2023
EXHIBIT 31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Ryan. S. Napierski, certify that:
| 1. |
I have reviewed this annual report on Form 10-K of Nu Skin Enterprises, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
|
Date: February 15, 2023
|
/s/ Ryan. S. Napierski
|
||
|
Ryan. S. Napierski
|
|||
|
Chief Executive Officer
|
EXHIBIT 31.2
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mark H. Lawrence, certify that:
| 1. |
I have reviewed this annual report on Form 10-K of Nu Skin Enterprises, Inc.;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| 4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| (b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| (d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
| (a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
|
Date: February 15, 2023
|
/s/ Mark H. Lawrence
|
||
|
Mark H. Lawrence
|
|||
|
Chief Financial Officer
|
EXHIBIT 32.1
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2022 (the “Report”), I, Ryan. S. Napierski, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Date: February 15, 2023
|
/s/ Ryan. S. Napierski
|
||
|
Ryan. S. Napierski
|
|||
|
Chief Executive Officer
|
EXHIBIT 32.2
SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2022 (the “Report”), I, Mark H.
Lawrence, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
Date: February 15, 2023
|
/s/ Mark H. Lawrence
|
||
|
Mark H. Lawrence
|
|||
|
Chief Financial Officer
|