AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NU SKIN ASIA PACIFIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 5122 87-(APPLIED FOR)
(STATE OF JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
75 WEST CENTER STREET
PROVO, UTAH 84601
(801) 345-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN J. LUND, PRESIDENT
NU SKIN ASIA PACIFIC, INC.
75 WEST CENTER STREET
PROVO, UTAH 84601
(801) 345-6100
(NAME, AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
NOLAN S. TAYLOR, ESQ. WILLIAM H. HINMAN, JR., ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, SHEARMAN & STERLING
L.L.P. 555 CALIFORNIA STREET, SUITE 2000
1000 KEARNS BUILDING SAN FRANCISCO, CA 94104
136 SOUTH MAIN STREET TELEPHONE: (415) 616-1100
SALT LAKE CITY, UTAH 84101-1685
TELEPHONE: (801) 320-6700
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the sameoffering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE OFFERING PRICE(3) REGISTRATION FEE
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Class A Common Stock,
par value........... 8,489,500 $22.00 $186,769,000 $64,403.10
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(1) Includes 2,850,000 shares being offered by certain stockholders of the
Company. Also includes 690,000 shares and 199,500 shares which the U.S.
Underwriters and the International Underwriters, respectively, have the
option to purchase from certain stockholders to cover overallotments, if
any.
(2) The amount of shares registered also includes any shares initially offered
or sold outside the United States that are thereafter sold or resold in
the United States. Offers and sales of shares outside the United States
are being made pursuant to the exemption afforded by Rule 901 of
Regulation S and this Registration Statement shall not be deemed effective
with respect to such offers and sales.
(3) Estimated pursuant to Rule 457(a) under the Securities Act of 1933 solely
for the purposes of calculating the amount of registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 16, 1996
PROSPECTUS
7,600,000 SHARES
NU SKIN ASIA PACIFIC, INC.
CLASS A COMMON STOCK
-----------
Of the 7,600,000 shares of Class A Common Stock, par value $ per share (the
"Class A Common Stock"), of Nu Skin Asia Pacific, Inc., a Delaware corporation
(the "Company"), offered hereby, 4,750,000 shares are being offered by the
Company and 2,850,000 shares are being offered by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
Of the 7,600,000 shares of Class A Common Stock being offered hereby,
4,600,000 shares are being offered initially in the United States and Canada by
the U.S. Underwriters (the "U.S. Offering"), 1,670,000 shares are being offered
initially in a concurrent offering in Japan by the Japanese Underwriters (the
"Japanese Offering"), and 1,330,000 shares are being offered initially in a
concurrent offering outside the United States, Canada and Japan by the
International Underwriters (the "International Offering," together with the
U.S. Offering and the Japanese Offering, the "Offerings"). The initial public
offering price and the underwriting discount per share are identical for each
of the Offerings. See "Underwriting."
Each share of Class A Common Stock entitles its holder to one vote, and each
share of Class B Common Stock (the "Class B Common Stock") of the Company
entitles its holder to ten votes. The Class A Common Stock and Class B Common
Stock are sometimes collectively referred to in this Prospectus as the "Common
Stock." All of the shares of Class B Common Stock are held by the Selling
Stockholders. After consummation of the Offerings, the Selling Stockholders
will beneficially own shares of Common Stock having approximately % of the
combined voting power of the outstanding shares of Common Stock (approximately
% if the Underwriters' over-allotment options are exercised in full). Each
share of Class B Common Stock is convertible into one share of Class A Common
Stock at the option of the holder of Class B Common Stock and in certain other
instances. See "Description of Capital Stock--Common Stock--Conversion."
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. The U.S. Underwriters and the International Underwriters have
reserved up to shares for sale (at the initial public offering price) to
certain of the Company's distributors and employees.
Application has been made to list the Class A Common Stock on the New York
Stock Exchange.
SEE "RISK FACTORS," BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDERS
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Per Share................ $ $ $ $
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Total(3)................. $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters, the Japanese Underwriters and the International Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$2,250,000.
(3) The Selling Stockholders have granted the U.S. Underwriters and the
International Underwriters options, exercisable within 30 days after the
date hereof, to purchase up to 690,000 and 199,500 additional shares of
Class A Common Stock, respectively, solely to cover over-allotments, if
any. If such options are exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-----------
The shares of Class A Common Stock offered hereby are offered by the
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of certificates for the shares of Class A
Common Stock will be made in New York, New York on or about , 1996.
-----------
MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
DEAN WITTER REYNOLDS INC. NOMURA SECURITIES INTERNATIONAL, INC
-----------
The date of this Prospectus is , 1996.
[GATEFOLD: PHOTOGRAPHS SHOWING PRODUCTS.]
Nu Skin (R), Interior Design Nutritionals(TM), IDN (R), a logo consisting of
an image of a gold fountain with the words "Nu Skin" below it, and a logo
consisting of the stylized letters "IDN" in black and red are trademarks of Nu
Skin International, Inc. ("NSI") which are licensed to the Company. The
italicized product names used in this Prospectus are product names and also,
in certain cases, trademarks and are the property of NSI. All other tradenames
and trademarks appearing in this Prospectus are the property of their
respective holders. See "Business--Relationship with NSI--Trademark/Tradename
License Agreements" and "--Licensing and Sales Agreements." The principal
executive offices of the Company are located at 75 West Center Street, Provo,
Utah 84601, and the Company's telephone number is (801) 345-6100.
IN CONNECTION WITH THE OFFERINGS BY THE UNDERWRITERS, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE CLASS A COMMON STOCK AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, territories, possessions and all areas subject to its
jurisdiction.
2
[GATEFOLD: PHOTOGRAPHS DEPICTING LIFESTYLE.]
[GATEFOLD: PHOTOGRAPHS DEPICTING LIFESTYLE.]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in this Prospectus. Unless otherwise
noted, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment options and gives effect to the consummation of
the Reorganization (as defined herein) to be effective on or prior to the
Offerings. As used herein, "Nu Skin Asia Pacific" or the "Company" means Nu
Skin Asia Pacific, Inc., including the Subsidiaries, giving effect to the
Reorganization. The "Subsidiaries" means Nu Skin Hong Kong, Inc. ("Nu Skin Hong
Kong"), Nu Skin Japan, Inc. ("Nu Skin Japan"), Nu Skin Korea, Inc.("Nu Skin
Korea"), and Nu Skin Taiwan, Inc. ("Nu Skin Taiwan"), collectively, and
excludes Nu Skin Thailand, Inc., which has been formed, but has not commenced
operations. See "The Reorganization." Until September 30, 1994, the Company's
fiscal year ended on September 30 of each year. As of October 1, 1994, the
Company changed its fiscal year end to December 31 of each year, beginning with
the fiscal year ended December 31, 1995.
THE COMPANY
Nu Skin Asia Pacific is a rapidly growing network marketing company involved
in the distribution and sale of premium quality, innovative personal care and
nutritional products. The Company is the exclusive distribution vehicle for Nu
Skin International, Inc. ("NSI") in the countries of Japan, Taiwan, Hong Kong
(including Macau) and South Korea, where the Company currently has operations,
and in Thailand, Indonesia, Malaysia, the Philippines, the People's Republic of
China ("PRC"), Singapore and Vietnam, where operations have not commenced.
The Company is one of the fastest growing network marketing companies in
Asia. Revenue increased 82.0% to $287.7 million for the six months ended
June 30, 1996 from $158.1 million for the same period in 1995. Net income
increased 78.2% to $35.1 million for the six months ended June 30, 1996 from
$19.7 million for the same period in 1995. Revenue increased 35.6% to $358.6
million for the year ended December 31, 1995 from $264.4 million in 1994. Net
income increased 86.1% to $40.2 million for the year ended December 31, 1995
from $21.6 million in 1994. The Company's network of independent distributors
has grown since the Company's inception in 1991 to more than 375,000 active
distributors as of June 30, 1996.
The Company's product philosophy is to combine the best of science and nature
in developing premium quality, innovative personal care and nutritional
products, which are specifically designed for the network marketing
distribution channel. The Company offers products in two distinct categories:
personal care products, marketed under the trademark "Nu Skin," and nutritional
products, marketed under the trademark "Interior Design Nutritionals" ("IDN").
The Nu Skin personal care product lines include facial care, body care, hair
care and color cosmetics, as well as specialty products such as sun protection,
oral hygiene and fragrances. The IDN product lines include nutritional
supplements, weight management products and nutritious snacks, and sports
nutrition products.
In Japan, Taiwan and Hong Kong, the Company currently offers most of NSI's
personal care products and approximately one-third of NSI's nutritional
products. In South Korea, the Company currently offers one-third of NSI's
personal care products and none of the nutritional products. The Company
believes that it can significantly grow its business and attract new customers
by expanding its product offerings in each of its markets to include more of
NSI's existing personal care and nutritional products. In addition to expanding
its product offerings with existing NSI products, the Company intends to
introduce new products tailored to specific markets.
The distribution of products through the network marketing and other direct
selling channels has grown significantly in recent years. The World Federation
of Direct Selling Associations ("WFDSA") reports that, since 1990, worldwide
direct distribution of goods and services to consumers has increased 60%,
resulting in the sale of over $72 billion of goods and services in 1995.
According to the WFDSA, $34 billion of goods and services were sold by its
members in 1995 through direct selling channels in the markets in which the
Company currently operates, which represents 47% of the global volume of direct
sales.
3
OPERATING STRENGTHS
The Company believes that its success is due to its commitment to provide a
wide range of premium quality, innovative personal care and nutritional
products and an appealing global business opportunity for persons interested in
establishing a direct sales business. The Company has been able to achieve
rapid, sustained and profitable growth by capitalizing on the following
operating strengths:
PREMIUM PRODUCT OFFERINGS. The Company is committed to building its brand
name and distributor and customer loyalty by selling premium quality,
innovative personal care and nutritional products that appeal to broad
markets. This commitment is illustrated by the Company's personal care
products slogan "All of the Good and None of the Bad" and its nutritional
products slogan "Adding Life to Years." The Company offers products
designed for the direct selling channel by focusing on innovative
consumable products which build loyalty and lead to repeat purchases.
Management believes that the Company's focus on innovative products
supports its distributors' demonstrative and educational sales techniques.
GLOBAL DISTRIBUTOR COMPENSATION PLAN. The strength of the Company's
global distributor compensation plan (the "Global Compensation Plan") is
its seamless integration across all markets in which NSI products are sold.
By entering into international sponsoring agreements with NSI, distributors
are authorized to sponsor new distributors in each country where NSI or the
Company has operations. This allows distributors to receive commissions at
the same rate for sales in foreign countries as for sales in their home
country. This is a significant benefit to distributors because they are not
required to establish new distributorships or requalify for higher levels
of commissions within each new country in which they begin to operate. The
seamless integration of the Global Compensation Plan means that distributor
knowledge and experience can be used to rapidly build distributor
leadership in new markets.
HIGH LEVEL OF DISTRIBUTOR INCENTIVES. The Company believes that the
Global Compensation Plan is among the most financially rewarding plans
offered to distributors by network marketing companies. There are two
fundamental ways in which distributors can earn money: (i) through retail
markups, for which the Company recommends a range from 43% to 60%, and (ii)
through a series of commissions on each product sale which can result in
commissions to distributors aggregating up to 58% of such product's
wholesale price. On a global basis, however, commissions have averaged from
40% to 42% of revenue from commissionable sales over the last seven years.
NEW MARKET DEVELOPMENT PROGRAM. The Company has developed a low cost,
disciplined approach to opening new markets. Each market opening is
preceded by a thorough analysis of economic and political conditions,
regulatory standards and other business, tax and legal issues. Prior to a
market opening, the Company's management team, in conjunction with NSI
support personnel, local legal counsel and tax advisors, works to obtain
all necessary regulatory approvals and establish facilities capable of
meeting distributor needs. This market development approach, combined with
the Global Compensation Plan, which motivates distributors to train and
sponsor other distributors to sell products in new markets, has enabled the
Company to quickly and successfully open new markets. See "Risk Factors--
Entering New Markets."
DISTRIBUTOR SUPPORT PROGRAMS. The Company is committed to providing a
high level of support services tailored to the needs of its distributors in
each market. The Company meets the needs and builds the loyalty of its
distributors with personalized distributor service, a support staff that
assists distributors as they build networks of downline distributors, and a
liberal product return policy. The Company provides walk-in, telephonic and
computerized product fulfillment and tracking services that result in user-
friendly, timely product distribution. Each walk-in center maintains
meeting rooms which distributors may utilize in training and sponsoring
activities.
4
RELATIONSHIP WITH NSI. NSI, founded in 1984 and based in Provo, Utah, is
engaged in selling personal care and nutritional products and, together
with its affiliates, comprises one of the largest network marketing
organizations in the world. NSI has provided, and will continue to provide,
a high level of support services to the Company, including product
development, marketing and other managerial support services. Management
believes that the Company's relationship with NSI has allowed the Company
to increase revenue and net income at rates that otherwise may not have
been possible.
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team,
members of which founded NSI, has been instrumental in successfully
managing the growth in revenue and net income experienced by the Company to
date. The Company has also attracted experienced local general managers to
oversee operations in Japan, Taiwan, Hong Kong and South Korea.
GROWTH STRATEGY
The Company's primary objective is to capitalize on its operating strengths
to become a leading distributor of consumer products in each of its markets.
Specifically, the Company's strategy to increase revenue and net income is as
follows:
INTRODUCE NEW PRODUCTS. Because new products tend to increase sales by
existing distributors and attract new distributors, the Company intends to
continue introducing existing and new NSI products. For example, LifePak,
the Company's most successful nutritional product, is currently available
only in Japan, where, after being introduced in 1995, it has grown to
represent approximately 20% of revenue. The Company intends, subject to
regulatory approval, to introduce LifePak in Taiwan in late 1996 and in
Hong Kong in 1997. In addition, the Company expects to launch Epoch, a new
line of ethnobotanical personal care products, in all markets by mid-1997.
The Company also intends to introduce products tailored to specific
demographic and geographic market segments and will consider introducing
entirely new product categories in the future.
OPEN NEW MARKETS. The Company will continue to pursue attractive new
market opportunities. Thailand is the next country in which the Company
intends to commence operations, subject to receipt of necessary government
approvals. The Company's preparatory work for Thailand is currently
ongoing. In addition, the Company has conducted preliminary investigations
on the feasibility of commencing operations in Indonesia, Malaysia, the
Philippines, the PRC, Singapore and Vietnam. The Company believes that
these countries may represent significant markets for the future expansion
of its operations. See "Risk Factors--Entering New Markets."
ATTRACT, RETAIN AND ENHANCE PRODUCTIVITY OF DISTRIBUTORS. To date, the
Company has enjoyed significant growth in the number of its active
distributors (defined as those distributors which have purchased products
from the Company during the previous three months). By leveraging its
operating strengths, the Company intends to continue to create and maintain
a business climate to promote the growth in the number of active
distributors and to increase distributor retention, motivation and
productivity. In addition, the Company will pursue growth in the number of
active distributors by continuing to work with NSI to enhance the Global
Compensation Plan, selectively opening new distributor walk-in centers to
provide a local presence in additional key cities, enhancing distributor
recognition programs, and targeting inactive distributors who may still
have an interest in the Company's business opportunity or products.
INCREASE PRODUCT CONSUMPTION. The Company intends to increase sales to
new and existing consumers through (i) increasing product promotions in
marketing literature, (ii) increasing the availability of sample packages,
(iii) emphasizing product "systems," such as the HairFitness system of
various shampoos and conditioners, which leads to the purchase of multiple
products rather than a single product, and (iv) implementing an automatic
reordering system which is designed to result in convenient repeat
purchases.
5
THE OFFERINGS
Of the 7,600,000 shares of Class A Common Stock, par value $ per share,
being offered hereby, 4,600,000 shares are being offered initially in the
United States and Canada by the U.S. Underwriters, 1,670,000 shares are being
offered initially in a concurrent offering in Japan by the Japanese
Underwriters, and 1,330,000 shares are being offered initially in a concurrent
offering outside the United States, Canada and Japan by the International
Underwriters. The initial public offering price and the underwriting discount
per share are identical for the Offerings. See "Underwriting."
Class A Common Stock offered
by(1):
The Company..................... 4,750,000 shares
The Selling Stockholders........ 2,850,000 shares
Total Class A Common Stock.... 7,600,000 shares
Common Stock to be outstanding
after the Offerings:
Class A Common Stock(2)......... shares
Class B Common Stock(3)(4)...... shares
Total Common Stock............ shares
Use of proceeds................... The Company expects to apply the net pro-
ceeds of the Offerings (i) to finance the
Company's entry into selected new countries
(including the payment of a one-time li-
censing fee to NSI); (ii) to repay a por-
tion of the S Distribution Notes (as de-
fined below); (iii) to introduce new prod-
ucts into countries in which the Company
currently operates; (iv) to enhance the
Company's technological infrastructure; (v)
to establish additional offices and distri-
bution centers in countries in which the
Company currently operates; and (vi) for
general corporate purposes.
Proposed New York Stock Exchange
symbol........................... "NUS"
Voting rights..................... The Class A Common Stock and Class B Common
Stock vote as a single class on all mat-
ters, except as otherwise required by law,
with each share of Class A Common Stock en-
titling its holder to one vote and each
share of Class B Common Stock entitling its
holder to ten votes. In all other respects
the holders of Class A Common Stock and the
holders of Class B Common Stock have equal
rights. All of the shares of Class B Common
Stock are owned by the Selling Stockhold-
ers. After consummation of the Offerings,
the Selling Stockholders will beneficially
own shares of Common Stock having approxi-
mately % of the combined voting power of
the outstanding shares of Common Stock (ap-
proximately % if the Underwriters' over-
allotment options are exercised in full).
6
- --------
(1) Assumes no exercise of the Underwriters' over-allotment options, which have
been granted by the Selling Stockholders.
(2) Includes (i) 7,600,000 shares of Class A Common Stock being offered in the
Offerings; (ii) shares of Class A Common Stock that will be outstanding
after the Offerings and are reserved for issuance pursuant to the
distributor incentives program; (iii) shares of Class A Common Stock
that will be outstanding after the Offerings and are reserved for issuance
to distributors and employees of NSI and its affiliates, excluding
employees of the Company. Does not include (i) shares reserved for
issuance pursuant to the 1996 Stock Incentive Plan, including options to
purchase shares of Class A Common Stock to be granted immediately prior
to the Offerings at an exercise price equal to 90% of the initial public
offering price of Class A Common Stock, and (ii) shares of Class A
Common Stock subject to stock options which have been granted to an
executive officer of the Company at an exercise price of $ per share. See
"Management--1996 Stock Incentive Plan" and "Certain Relationships and
Related Transactions."
(3) All shares of Class B Common Stock are currently held by the Selling
Stockholders and each such share is convertible at any time into one share
of Class A Common Stock and converts automatically into one share of Class
A Common Stock (i) upon a transfer to a person other than a Selling
Stockholder and (ii) if the number of shares of Class B Common Stock
becomes less than 10% of the aggregate number of shares of Common Stock
outstanding. See "Description of Capital Stock--Common Stock--Conversion."
7
SUMMARY COMBINED FINANCIAL AND OTHER INFORMATION
The following tables set forth summary combined, pro forma and other
financial information of the Company.
SIX MONTHS
YEAR ENDED ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31, JUNE 30,
---------------------------------- ------------------- -----------------
1991 1992 1993 1994 1994(/1/) 1995 1995 1996
------- ------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenue................. $ 677 $42,919 $110,624 $254,637 $264,440 $358,609 $158,125 $287,711
Cost of sales........... 462 14,080 38,842 86,872 82,241 96,615 41,901 80,963
------- ------- -------- -------- -------- -------- -------- --------
Gross profit............ 215 28,839 71,782 167,765 182,199 261,994 116,224 206,748
Operating expenses:
Distributor incen-
tives................. 130 14,659 40,267 95,737 101,372 135,722 60,224 107,090
Selling, general and
administrative........ 1,249 10,065 27,150 44,566 48,753 67,475 27,511 44,551
------- ------- -------- -------- -------- -------- -------- --------
Operating income........ (1,164) 4,115 4,365 27,462 32,074 58,797 28,489 55,107
Other income (expense),
net.................... 3 160 133 443 (394) 511 549 617
------- ------- -------- -------- -------- -------- -------- --------
Income before provision
for income taxes....... (1,161) 4,275 4,498 27,905 31,680 59,308 29,038 55,724
Provision for income
taxes.................. -- 1,503 417 10,226 10,071 19,097 9,350 20,591
------- ------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $(1,161) $ 2,772 $ 4,081 $ 17,679 $ 21,609 $ 40,211 $ 19,688 $ 35,133
======= ======= ======== ======== ======== ======== ======== ========
PRO FORMA INCOME STATEMENT DATA(/2/)(/3/):
Revenue.......................................... $358,609 $158,125 $287,711
Cost of sales.................................... 96,615 41,901 80,963
-------- -------- --------
Gross profit..................................... 261,994 116,224 206,748
Operating expenses:
Distributor incentives.......................... 135,722 60,224 107,090
Selling, general and administrative............. 73,264 30,405 47,446
-------- -------- --------
Operating income................................. 53,008 25,595 52,212
Other income (expense), net(/4/) ................ (1,272) (1,234) 617
-------- -------- --------
Income before provision for income taxes......... 51,736 24,361 52,829
Provision for income taxes....................... 20,530 9,345 19,381
-------- -------- --------
Net income (loss)................................ $ 31,206 $ 15,016 $ 33,448
======== ======== ========
Net income per share(/5/)........................ $ $ $
======== ======== ========
Weighted average common shares outstanding(/5/)..
AS OF JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(/6/)
-------- ----------------
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents............................. $ 51,464 $113,464
Working capital....................................... 39,334 59,469
Total assets.......................................... 124,691 206,695
Short term debt....................................... -- 44,565
Stockholders' equity.................................. 55,885 93,324
AS OF SEPTEMBER 30, AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------ -------------------- ----------------
1991 1992 1993 1994 1994 1995 1995 1996
----- ------ ------- ------- --------- --------- ------- -------
OTHER INFORMATION(/7/):
Number of active
distributors........... -- 33,000 106,000 152,000 170,000 236,000 200,000 384,000
Number of Executive
distributors........... -- 649 2,788 5,835 6,083 7,550 7,302 12,446
8
- --------
(1) The information for the year ended December 31, 1994 is not included in the
Company's Combined Financial Statements included elsewhere in this
Prospectus. Such information has been presented for comparative purposes.
(2) The unaudited pro forma income statement data reflects the Reorganization,
the Offerings and the following adjustments as if such events had occurred
on January 1, 1995: (i) the amortization over a 20 year period of a $15.0
million payment to NSI for the exclusive rights to distribute NSI products
in Thailand, Indonesia, Malaysia, the Philippines, the PRC, Singapore and
Vietnam (the "License Fee"); (ii) the recognition by the Company of
additional management charges of $3.8 million per year relating to certain
support services provided to the Company by NSI and an NSI affiliate, which
costs were borne by NSI prior to the Reorganization; (iii) additional
administrative and overhead costs of $1.3 million per year as if the
Company had operated as a public company; (iv) adjustments for U.S. Federal
and state income taxes as if the Company had been taxed as a C corporation
rather than an S corporation; and (v) interest expense of $1.8 million
relating to the issuance of $59.6 million of interest bearing S
distribution notes (the "S Distribution Notes") due and payable within six
months (8% interest per annum) to the Selling Stockholders in respect of
the earned and undistributed taxable S corporation earnings at June 30,
1996, that would have been distributed had the Company's S corporation
status been terminated on June 30, 1996.
(3) The pro forma financial statements do not reflect an estimated non-cash
operating expense of $ million in connection with the one-time grant of
stock options at 25% of the initial public offering price to independent
distributors (non-employees) of the Company in connection with the
Offerings. These options will include conditions related to the achievement
of performance goals and will vest in one year. The Company will record
distributor stock incentive expense for these non-employee stock options.
See "Certain Relationships and Related Transactions."
(4) Other income and expense for the year ended December 31, 1995, and for the
six months ended June 30, 1995, includes increased interest expense of $1.8
million relating to the issuance of $59.6 million of S Distribution Notes.
(5) Computed based upon the number of shares of Common Stock outstanding giving
effect to the Reorganization and the Offerings.
(6) The unaudited pro forma balance sheet data as of June 30, 1996, reflects
(i) the sale of 4,750,000 shares of Class A Common Stock pursuant to the
Offerings, (ii) the issuance of $59.6 million of S Distribution Notes to
the Selling Stockholders, (iii) a one-time payment of the $15.0 million
License Fee to NSI, (iv) a $15.0 million partial payment of the S
Distribution Notes from the proceeds of the Offerings, and (v) the
recognition of a deferred tax asset of $5.0 million relating to adjustments
for U.S. Federal and state income taxes as if the Company had been taxed as
a C corporation rather than as an S corporation since inception. No
adjustment has been made to give effect to the Company's earned and
undistributed taxable S Corporation earnings for the period from July 1,
1996 through the S Termination Date. The Company anticipates the increase
in the S Distribution Notes to be between approximately $20.0 million and
$30.0 million. See "The Reorganization and S Corporation Distribution." The
Company estimates that, at the Offerings, it will reserve between
approximately $40.0 million and $50.0 million of cash on hand for repayment
of the S Distribution Notes. The balance of the Notes will be repaid from
cash generated by operations.
(7) Active distributors are those distributors who are resident in the
countries in which the Company operates and who have purchased products
during the three months ended as of the date indicated, rounded to the
nearest thousand. An Executive distributor is a distributor who has
submitted a qualifying letter of intent and achieved a specified personal
and group sales volume for a four month period.
9
RISK FACTORS
An investment in the Class A Common Stock involves special considerations
and significant risks, including, but not limited to, those discussed or
referred to below. Prospective investors should carefully consider the
following risks and information in conjunction with the other information
contained in this Prospectus before purchasing shares of Class A Common Stock.
RELIANCE UPON INDEPENDENT DISTRIBUTORS OF NSI; EFFECT OF ADVERSE PUBLICITY
The Company distributes its products exclusively through independent
distributors who have contracted directly with NSI to become distributors.
Consequently, the Company does not contract directly with distributors but
licenses its distribution system and distributor force from NSI. The Company's
revenue is directly dependent upon the efforts of these independent
distributors, and any growth in future sales volume will require an increase
in the productivity of these distributors and/or growth in the total number of
distributors. As is typical in the direct selling industry, there is turnover
in distributors from year to year, which requires the sponsoring and training
of new distributors by existing distributors to maintain or increase the
overall distributor force and motivate new and existing distributors. The
Company experiences seasonal decreases in distributor sponsoring and product
sales in some of the countries in which the Company operates because of local
holidays and customary vacation periods. The size of the distribution force
can also be particularly impacted by general economic and business conditions
and a number of intangible factors such as adverse publicity regarding the
Company or NSI, or the public's perception of the Company's products, product
ingredients, NSI's distributors or direct selling businesses in general.
Historically, the Company has experienced periodic fluctuations in the level
of distributor sponsorship (as measured by distributor applications). However,
because of the number of factors that impact the sponsoring of new
distributors, and the fact that the Company has little or no control over the
level of sponsorship of new distributors, the Company cannot predict the
timing or degree of those fluctuations. There can be no assurance that the
number or productivity of the Company's distributors will be sustained at
current levels or increased in the future. In addition, the number of
distributors as a percent of the population in a given country or market could
theoretically reach levels that become difficult to exceed due to the finite
number of persons inclined to pursue a direct selling business opportunity.
This is of particular concern in Taiwan, where industry sources have estimated
that up to 10% of the population is already involved in some form of direct
selling.
Because distributors are independent contractors of NSI, neither NSI nor the
Company is in a position to provide the same level of direction, motivation
and oversight as either would with respect to its own employees. Although NSI
has a compliance department responsible for the enforcement of the policies
and procedures that govern distributor conduct, it can be difficult to enforce
these policies and procedures because of the large number of distributors and
their independent status, as well as the impact of certain resale price
maintenance and other regulations that limit the ability of NSI and the
Company to monitor and control the sales practices of distributors.
Distributor actions can negatively impact the Company and its products. For
example, in October 1995, the Company's business permit applications were
denied by the Malaysian government as the result of activities by certain NSI
distributors before required government approvals could be secured. NSI
subsequently terminated the distributorship rights of some of the distributors
involved and elected to withdraw from the Malaysian market for a period of
time. Distributor activities in other countries in which the Company has not
commenced operations may similarly result in an inability to, or delay in,
securing required regulatory and business permits. See "Business--New Market
Opportunities." In addition, the publicity resulting from inappropriate
earnings claims and product representations by distributors can make the
sponsoring and retaining of distributors more difficult, thereby negatively
impacting sales. Furthermore, the Company's business and results of operations
could be adversely affected if NSI terminates a significant number of
distributors or certain distributors who play a key role in the Company's
distribution system. There can be no assurance that these or other distributor
actions will not have a material adverse effect on the Company's business or
results of operations.
10
GOVERNMENT REGULATION
Direct selling activities are regulated by various governmental agencies.
These laws and regulations are generally intended to prevent fraudulent or
deceptive schemes, often referred to as "pyramid" or "chain sales" schemes,
that promise quick rewards for little or no effort, require high entry costs,
use high pressure recruiting methods and/or do not involve legitimate
products. As is the case with most network marketing companies, NSI and the
Company have from time to time received inquiries from various government
regulatory authorities regarding the nature of their business and other issues
such as compliance with local business opportunity and securities laws.
Although to date none of these inquiries has resulted in a finding materially
adverse to the Company or NSI, adverse publicity resulting from inquiries into
NSI's operations by certain government agencies in the early 1990's materially
adversely affected NSI's business and results of operations. There can be no
assurance that the Company or NSI will not face similar inquiries in the
future which, either as a result of findings adverse to the Company or merely
as a result of adverse publicity resulting from the instigation of such
inquiries, could have a material adverse effect on the Company's business and
results of operations. The Company believes that its method of distribution is
in compliance in all material respects with the laws and regulations relating
to direct selling activities of the countries in which the Company currently
operates. Even though management believes that laws governing direct selling
are generally becoming more permissive, many countries, including Singapore,
one of the Company's potential markets, currently have laws in place that
would prohibit the Company and NSI from conducting business in such markets.
There can be no assurance that the Company will be allowed to conduct business
in each of the new markets licensed from NSI, particularly in those (such as
Singapore) which currently prohibit network marketing.
The Company is also subject to or affected by extensive governmental
regulations not specifically addressed to network marketing. Such regulations
govern, among other things, (i) product formulation, labeling, packaging and
importation, (ii) product claims and advertising, whether made by the Company
or its distributors, (iii) fair trade laws that prohibit fixing retail prices
of products, and (iv) taxes, transfer pricing and similar regulations that
affect foreign taxable income and customs duties. Although the Company
believes that it is in material compliance with all regulations applicable to
it, it could be found not to be in material compliance with existing
regulations as a result of, among other things, the considerable
interpretative and enforcement discretion given to regulators or misconduct by
independent distributors. Any assertion or determination that either the
Company or any of its distributors is not in compliance with existing laws or
regulations could have a material adverse effect on the Company's business and
results of operations. In addition, in any country or jurisdiction, the
adoption of new laws or regulations or changes in the interpretation of
existing laws or regulations could have a material adverse effect on the
Company's business and results of operations. The Company cannot determine the
effect, if any, that future governmental regulations or administrative orders
may have on the Company's business and results of operations. Moreover,
governmental regulations in countries where the Company plans to commence or
expand operations may prevent, delay or limit market entry of certain products
or require the reformulation of such products. Regulatory action, whether or
not it results in a final determination adverse to the Company, has the
potential to create negative publicity, with detrimental effects on the
motivation and recruitment of distributors and, consequently, on the Company's
sales and earnings.
CONCENTRATION OF DISTRIBUTORS; RELIANCE ON DISTRIBUTOR NETWORKS
The loss of a key distributor together with a group of leading distributors
in such key distributor's downline network, or the loss of a significant
number of distributors for any reason, could adversely affect sales of the
Company's products, impair the Company's ability to attract new distributors
and adversely impact earnings. This is the result of the nature of the
Company's network marketing distribution system, under which distributors
develop relationships with other distributors, both within their own countries
and internationally, and under which the Company's sales are concentrated
within, and consequently dependent upon, a relatively small number of
distributor networks.
Under the Global Compensation Plan, a distributor receives commissions based
on products sold by the distributor and by participants in the distributor's
worldwide downline network, regardless of the country
11
in which such participants are located. The Company, on the other hand,
receives revenues based almost exclusively on the volume of products sold
within the Company's markets. So, for example, if a distributor located in
Japan sponsors a distributor in Europe, the Japanese distributor could receive
commissions based on the sales made by the European distributor, but the
Company would not receive any revenue since the products would have been sold
outside of the Company's markets. The interests of the Company and
distributors therefore diverge somewhat in that the Company's primary
objective is to maximize the amount of products sold within the Company's
markets, while the distributors' objective is to maximize the amount of
products sold by the participants in the distributors' worldwide downline
networks. The Company and NSI have observed that the commencement of
operations in a new country tends to distract the attention of distributors
from the established markets for a period of time while key distributors begin
to build their downline networks within the new country. NSI is currently
contemplating opening operations in additional countries outside of the
Company's markets. To the extent distributors focus their energies on
establishing downline networks in these new countries, and decrease their
focus on building organizations within the Company's markets, the Company's
business and results of operations could be adversely affected. Furthermore,
the Company itself is currently contemplating opening new markets. In the
event distributors focus on these new markets, sales in existing markets might
be adversely affected. There can be no assurance that these new markets will
develop or that any increase in sales in new markets will not be more than
offset by a decrease in sales in the existing markets.
ENTERING NEW MARKETS
As part of its growth strategy, the Company has acquired from NSI the right
to act as NSI's exclusive distribution vehicle in Thailand, Indonesia,
Malaysia, the Philippines, the PRC, Singapore and Vietnam. The Company
currently intends, subject to receipt of government approvals, to commence
operations in Thailand in the near future and has conducted preliminary
investigations into the feasibility of opening the other markets in the
countries for which the Company has the right to act as NSI's exclusive
distributor. The regulatory and political climate in these other markets is
such that a replication of the Company's current operating structure cannot be
guaranteed. Because the Company's personal care and nutritional product lines
are positioned as premium product lines, the market potential for the
Company's product lines in relatively less developed countries, such as the
PRC and Vietnam, remains to be determined. Modifications to each product line
may be needed to accommodate the market conditions in each country, while
maintaining the integrity of the Company's products. No assurance can be given
that the Company will be able to successfully reformulate its product lines in
any of its new markets to attract local consumers.
Each of the proposed new markets will present additional unique difficulties
and challenges. In Thailand, for example, businesses which are more than 50%
owned by non-citizens are not permitted to operate unless they have an Alien
Business Permit, which is frequently difficult to obtain. Under the treaty of
Amity and Economic Relations between Thailand and the United States (the
"Treaty of Amity") an Alien Business Permit is not required if a Thailand
business is owned by an entity organized in the United States, a majority of
whose owners are U.S. citizens or entities. From time to time, it has been
reported that certain Thailand government officials have considered supporting
the termination of the Treaty of Amity. There can be no assurance that the
Company will ever be able to obtain all of the necessary permits and approvals
to commence operations in Thailand. The Company could face particular
difficulties in commencing operations in Thailand if the Treaty of Amity were
terminated and the Company were forced to obtain an Alien Business Permit.
The PRC has also proven to be a particularly difficult market for foreign
corporations due to its extensive government regulation and the historical
political tenants of the PRC government. In order to enter the market in the
PRC, the Company may be required to create a joint venture enterprise with a
Chinese entity and to establish a local manufacturing presence, which will
entail a significant investment on the Company's part. The Company will likely
have to apply for licenses on a province by province basis and the
repatriation of the Company's profits will be subject to restrictions on
currency conversion and the fluctuations of the government controlled exchange
rate. In addition, because distribution systems are greatly fragmented, the
Company may be forced to use business models significantly different from
those used by the Company in more developed countries. The
12
lack of a comprehensive legal system and the uncertain and sporadic
enforcement of existing legislation and laws could also have an adverse effect
on the Company's proposed business in the PRC.
The other potential new markets also present significant regulatory,
political and economic obstacles to the Company. In Singapore, for example,
network marketing is currently illegal and is not permitted under any
circumstances. Although the Company believes that this restriction will
eventually be relaxed or repealed, no assurance can be given that such
regulation will not remain in place and that the Company will not be
permanently prevented from initiating sales in Singapore. In addition,
Malaysia has governmental guidelines that have the effect of limiting foreign
ownership of companies operating in Malaysia. There can be no assurance that
the Company will be able to properly structure Malaysian operations to comply
with this policy. Therefore, although the Company believes that significant
opportunities exist to expand its operations into new markets, there can be no
assurance that these or other difficulties will not prevent the Company from
realizing the benefits of this opportunity.
MANAGING GROWTH
The Company has experienced rapid growth since it commenced operations in
1991. The management challenges imposed by this growth include entry into new
markets, growth in the number of employees and distributors, expansion of
facilities necessary to accommodate growth and additions and modifications to
the Company's product lines. To manage these changes effectively, the Company
may be required to hire additional management and operations personnel and to
improve its operational, financial and management systems. If the Company is
unable to manage growth effectively or hire or retain qualified personnel, the
Company's business and results of operations could be adversely affected.
POSSIBLE ADVERSE EFFECT ON THE COMPANY OF A CHANGE IN THE STATUS OF HONG KONG
The Company has offices and a portion of its operations in the British Crown
Colony of Hong Kong. Effective July 1, 1997, the exercise of sovereignty over
Hong Kong will be transferred from the Government of the United Kingdom of
Great Britain and Northern Ireland (the "United Kingdom") to the government of
the PRC pursuant to the Sino-British Joint Declaration on the Question of Hong
Kong (the "Joint Declaration") and Hong Kong will become a Special
Administrative Region ("SAR") of the PRC. The Joint Declaration provides that
Hong Kong will be directly under the authority of the government of the PRC
but Hong Kong will enjoy a high degree of autonomy except in foreign and
defense affairs, and that Hong Kong will be vested with executive, legislative
and independent judicial power. The Joint Declaration also provides that the
current social and economic systems in Hong Kong will remain unchanged for 50
years after June 30, 1997 and that Hong Kong will retain the status of an
international financial center. Although sales in Hong Kong accounted for less
than 5% of the Company's revenues for the year ended December 31, 1995, Hong
Kong serves as the location for the Company's regional offices and an
important base of operations for many of the Company's most successful
distributors whose downline distributor networks extend into other Asian
markets. Any adverse effect on the social, political or economic systems in
Hong Kong resulting from this transfer could have a material adverse effect on
the Company's business and results of operations. Although the Company does
not anticipate any material adverse change in the business environment in Hong
Kong resulting from the 1997 transfer of sovereignty, the Company is
formulating contingency plans to transfer the Company's regional office to
another jurisdiction in the event that the Hong Kong business environment is
so affected.
RELATIONSHIP WITH AND RELIANCE ON NSI; POTENTIAL CONFLICTS OF INTEREST
Following the Reorganization, NSI will retain ownership and control of the
NSI trademarks, tradenames, the Global Compensation Plan, distributor lists
and related intellectual property and know-how (collectively, the "Licensed
Property"), and will license to the Company rights to use the Licensed
Property in certain markets. Thus the Company will not be able to use the Nu
Skin name to expand into other markets for which the Company does not
currently have a license without first obtaining additional licenses or other
rights from NSI. There can be no assurance that NSI will make any additional
markets available to the Company or that the terms of any new licenses from
NSI will be acceptable to the Company.
13
NSI has licensed to the Company, through the Subsidiaries, rights to
distribute NSI products and to use the Licensed Property in the Company's
markets, and an NSI affiliate, Nu Skin Management Group, Inc. ("NSIMG") will
provide management support services to the Company and the Subsidiaries,
pursuant to distribution, trademark/tradename license, licensing and sales,
and management services agreements (collectively, the "Operating Agreements").
The Company will rely on NSI for research, development, testing, labeling and
regulatory compliance for products sold to the Company under the distribution
agreements, and virtually all of the Company's revenues will be derived from
products and sales aids purchased from NSI pursuant to these agreements. NSIMG
will provide the Company with a variety of management and consulting services,
including, but not limited to, management, legal, financial, marketing and
distributor support/training, public relations, international expansion, human
resources, strategic planning, product development and operations
administration services. Each of the Operating Agreements is for a term ending
December 31, 2016, and is subject to renegotiation after December 31, 2001, in
the event that the Selling Stockholders, on a combined basis, no longer
beneficially own a majority of the combined voting power of the outstanding
shares of Common Stock. The Company will be almost completely dependent on the
Operating Agreements to conduct its business, and in the event NSI is unable
or unwilling to perform its obligations under the Operating Agreements, or
terminates the Operating Agreements as provided therein, the Company's
business and results of operations will be adversely affected.
Upon the consummation of the Offerings, approximately % of the combined
voting power of the outstanding shares of Common Stock will be held by the
Selling Stockholders (approximately % if the Underwriters' overallotment
options are exercised in full). Consequently, the Selling Stockholders will
have the ability, acting in concert, to elect all directors of the Company and
approve any action requiring approval by a majority of the stockholders of the
Company. The Selling Stockholders also own, and following the Offerings will
continue to own, 100% of the outstanding shares of NSI. As a result of this
ownership, the Selling Stockholders will consider the short-term and the long-
term impact of all stockholder decisions on the consolidated financial results
of NSI and the Company. See "--Control by Selling Stockholders; Anti-Takeover
Effect of Dual Classes of Common Stock."
The Operating Agreements were approved by the present Board of Directors of
the Company, which is composed entirely of officers and shareholders of NSI.
It is expected that, subsequent to the closing of the Offerings, the
composition of the Board of Directors of the Company will be changed so that
at least two of its members will be persons unaffiliated with NSI. In
addition, most of the executive officers of the Company are also executive
officers of NSI. It is expected that a number of the Company's executive
officers will continue to spend a portion of their time on the affairs of NSI,
for which they will continue to receive compensation from NSI.
In view of the substantial relationships between the Company and NSI,
conflicts of interest may exist or arise with respect to existing and future
business dealings, including, without limitation, the relative commitment of
time and energy by the executive officers to the respective businesses of the
Company and NSI, potential acquisitions of businesses or properties, the
issuance of additional securities, the election of new or additional directors
and the payment of dividends by the Company. There can be no assurance that
any conflicts of interest will be resolved in favor of the Company. Under
Delaware and Utah law, a person who is a director of both the Company and NSI
owes fiduciary duties to both corporations and their respective shareholders.
As a result, persons who are directors of both the Company and NSI are
required to exercise their fiduciary duties in light of what they believe to
be best for each of the companies and its shareholders. See "Certain
Relationships and Related Transactions."
RELIANCE ON AND CONCENTRATION OF OUTSIDE MANUFACTURERS
All the Company's products are produced by unaffiliated manufacturers
primarily through NSI. The Company currently has little or no direct contact
with these manufacturers. The Company's profit margins and its ability to
deliver its existing products on a timely basis are dependent upon the ability
of NSI's outside manufacturers to continue to supply products in a timely and
cost-efficient manner. Furthermore, the Company's ability to enter new markets
and sustain satisfactory levels of sales in each market is dependent in part
upon the ability of suitable outside manufacturers to reformulate existing
products, if necessary to comply with local
14
regulations or market environments, for introduction into such markets.
Finally, the development of additional new products in the future will
likewise be dependent in part on the services of suitable outside
manufacturers.
The Company currently acquires products or ingredients from sole suppliers
or suppliers that are considered by the Company to be the superior suppliers
of such ingredients. The Company believes that, in the event it is unable to
source any products or ingredients from its current suppliers, the Company
could produce such products or replace such products or substitute ingredients
without great difficulty or prohibitive increases in the cost of goods sold.
However, there can be no assurance that the loss of such a supplier would not
have a material adverse effect on the Company's business and results of
operations.
With respect to sales to the Company, NSI currently relies on two
unaffiliated manufacturers to produce approximately 70% and 60% of its
personal care and nutritional products, respectively. The Company believes
that in the event that NSI's relationship with either of these manufacturers
is terminated, NSI will be able to find suitable replacement manufacturers.
However, there can be no assurance that the loss of either manufacturer would
not have a material adverse effect on the Company's business and results of
operations.
HOLDING COMPANY STRUCTURE
The Company will conduct all of its operations through the Subsidiaries.
Accordingly, an important source of the Company's income will be dividends and
other distributions from the Subsidiaries. Each of the Subsidiaries has its
operations in a country other than the United States, the country in which the
Company is organized. In addition, each of the Subsidiaries receives its
revenues in the local currency of the country or jurisdiction in which it is
situated. As a consequence, the Company's ability to obtain dividends or other
distributions is subject to, among other things, restrictions on dividends
under applicable local laws and regulations, and foreign currency exchange
regulations of the country or jurisdictions in which the Subsidiaries operate.
The Subsidiaries' ability to pay dividends or make other distributions to the
Company is also subject to their having sufficient funds from their operations
legally available for the payment of such dividends or distributions that are
not needed to fund their operations, obligations or other business plans.
Because the Company will be a stockholder of each of the Subsidiaries, the
Company's claims as such will generally rank junior to all other creditors of
and claims against the Subsidiaries. In the event of a Subsidiary's
liquidation, there may not be assets sufficient for the Company to recoup its
investment in such Subsidiary.
TAXATION RISKS AND TRANSFER PRICING
After the Reorganization, the Company will be subject to taxation in the
United States, where it is incorporated, at a statutory corporate federal tax
rate of 35.0% plus any applicable state income taxes. In addition, each
Subsidiary will be subject to taxation in the country in which it operates,
currently ranging from a statutory tax rate of 57.9% in Japan to 16.5% in Hong
Kong. The Company will be eligible for foreign tax credits in the U.S. for the
amount of foreign taxes actually paid in a given period. In the event that the
Company's operations in high tax jurisdictions such as Japan grow
disproportionately to the rest of the Company's operations, the Company will
be unable to fully utilize its foreign tax credits in the U.S., which could,
accordingly, result in the Company paying a higher overall effective tax rate
on its worldwide operations.
Because the Subsidiaries operate outside of the United States, the Company
is subject to the jurisdiction of numerous foreign tax authorities. In
addition to closely monitoring the Subsidiaries locally based income, these
tax authorities regulate and restrict various corporate transactions,
including intercompany transfers. The Company believes that the tax
authorities in Japan and South Korea are particularly active in challenging
the tax structures of foreign corporations and their intercompany transfers.
Although the Company believes that its tax and transfer pricing structures are
in compliance in all material respects with the laws of every jurisdiction in
which it operates, no assurance can be given that these structures will not be
challenged by foreign tax authorities or that such challenges will not have a
material adverse effect on the Company's business or results of operations.
15
INCREASE IN DISTRIBUTOR COMPENSATION EXPENSE
Under the Licensing and Sales Agreement ("Licensing and Sales Agreement")
between the Company and NSI, the Company is obligated to pay NSI a fixed
commission expense of 42% of commissionable product sales to distributors in
each of the Company's markets (with the exception of South Korea where, due to
government regulations, the Company utilizes a different formula to satisfy
this obligation). The Agreement provides that the Company is to satisfy this
obligation by paying commissions owed to local distributors. In the event that
these commissions exceed 42% of commissionable product sales, the Company is
entitled to receive the difference from NSI. In the event that the commissions
paid are lower than 42%, the Company must pay the difference to NSI. Under
this formulation, the Company's total commission expense is fixed at 42% of
commissionable product sales in each country (except for South Korea). The 42%
figure has been set on the basis of NSI's experience over the past seven years
which indicates that actual commissions paid in a given year together with the
cost of administering the Global Compensation Plan average approximately 42%
of commissionable product sales for such year. In the event that actual
commissions payable to distributors from sales in the Company's markets vary
from these historical results, whether as a result of changes in distributor
behavior or changes to the Global Compensation Plan or in the event that NSI's
cost of administering the Global Compensation Plan increases or decreases, the
Licensing and Sales Agreement provides that the intercompany settlement figure
may be modified to more accurately reflect actual results. This could result
in the Company becoming obligated to make greater settlement payments to NSI
under the Licensing and Sales Agreement. Such additional payments could
adversely affect the Company's results of operations. Because the Company
licenses the right to use the Global Compensation Plan from NSI, the structure
of the plan, including commission rates, is under the control of NSI.
SEASONALITY AND CYCLICALITY
The Company's business is impacted by general seasonal trends common to the
direct selling channel in Asia. Seasonal fluctuations experienced by the
Company have generally been related to the occurrence of major cultural events
and vacation patterns in each of the Company's markets. For example, the
Company has historically experienced a decline in revenue in Japan, Taiwan and
Hong Kong during the local New Year celebrations, which fall in the Company's
first quarter. Management also anticipates a decline in revenue for the first
quarter in South Korea, when a similar New Year celebration occurs. In Japan,
the Company has also historically experienced a decline in revenue during
August, when many of the local distributors traditionally take vacations.
The Company's results of operations have been subject to cyclical
variations. Generally, the Company has experienced rapid revenue growth in
each new market from the commencement of operations. In Japan, Taiwan and Hong
Kong, the initial rapid revenue growth was followed by a short period of
stable or declining revenue followed by renewed growth fueled by new product
introductions, an increase in the number of active distributors and increased
distributor productivity. In addition, the Company has also experienced
variations on a quarterly basis in its results of operations, as new products
are introduced and new markets are opened. No assurances can be given that the
Company's revenue growth rate in South Korea, which commenced operations in
February 1996, or in new markets where operations have not commenced, will
follow this pattern.
PRODUCT LIABILITY
The Company may be subject, under applicable laws and regulations, to
liability for loss or injury caused by its products. The Company is currently
covered for product liability claims to the extent of and under insurance
programs maintained by NSI for its benefit and for the benefit of its
affiliates purchasing NSI products and will continue to be so covered after
the Offerings. Although the Company has not been the subject of material
product liability claims and the laws and regulations providing for such
liability in the Company's markets appear to have been seldom utilized, no
assurance can be given that the Company may not be exposed to future product
liability claims, and, if any such claims are successful, there can be no
assurance that the Company will be adequately covered by insurance or have
sufficient resources to pay such claims. The Company does not currently
maintain its own product liability policy.
16
COMPETITION
The markets for personal care and nutritional products are large and
intensively competitive. The Company competes directly with companies that
manufacture and market personal care and nutritional products in each of the
Company's product lines. Many of the Company's competitors have much greater
name recognition and financial resources than the Company. In addition,
personal care and nutritional products can be purchased in a wide variety of
channels of distribution. While the Company believes that consumers appreciate
the convenience of ordering products from home through a sales person or
through a catalog, the buying habits of many consumers accustomed to
purchasing products through traditional retail channels are difficult to
change. The Company's product offerings in each product category are also
relatively small compared to the wide variety of products offered by many
other personal care and nutritional product companies. There can be no
assurance that the Company's business and results of operations will not be
affected materially by market conditions and competition in the future.
The Company also competes with other direct selling organizations, some of
which have longer operating histories and greater name recognition and
financial resources. Management envisions the entry of many more direct
selling organizations into the marketplace as this channel of distribution
expands over the next several years. The Company has been advised that certain
large, well-financed corporations are planning to launch direct selling
enterprises which will compete with the Company in certain of its product
lines. There can be no assurance that the Company will be able to successfully
meet the challenges posed by this increased competition.
The Company competes for the time, attention and commitment of its
independent distributor force. Given that the pool of individuals interested
in the business opportunities presented by direct selling tends to be limited
in each market, the potential pool of distributors for the Company's products
is reduced to the extent other network marketing companies successfully
recruit these individuals into their businesses. Although management believes
that the Company offers an attractive business opportunity, there can be no
assurance that other network marketing companies will not be able to recruit
the Company's existing distributors or deplete the pool of potential
distributors in a given market.
OPERATIONS OUTSIDE THE UNITED STATES; CURRENCY RISKS
Virtually all of the Company's assets and operations are located, and all of
its revenues are derived from, operations outside the United States. The
Company's operations may be materially and adversely affected by economic,
political and social conditions in the countries in which it operates. A
change in policies by any government in the Company's markets could adversely
affect the Company and its operations through, among other things, changes in
laws, rules or regulations, or the interpretation thereof, confiscatory
taxation, restrictions on currency conversion, currency repatriation or
imports, or the expropriation of private enterprises. Although the general
trend in these countries has been toward more open markets and trade policies
and the fostering of private business and economic activity, no assurance can
be given that the governments in these countries will continue to pursue such
policies or that such policies will not be significantly altered in future
periods. This could be especially true in the event of a change in leadership,
social or political disruption or upheaval, or unforeseen circumstances
affecting economic, political or social conditions or policies. Moreover, the
Company's ability to expand its operations into the new markets for which it
has received an exclusive license to distribute NSI products will directly
depend on its ability to secure the requisite government approvals and comply
with the local government regulations in each of those countries. The Company
has in the past experienced difficulties in obtaining such approvals as a
result of certain actions taken by its distributors, and no assurance can be
given that these or similar problems will not prevent the Company from
commencing operations in those countries. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Currency
Fluctuation and Exchange Rate Information."
The Company purchases virtually all of its products from NSI through Nu Skin
Hong Kong. Nu Skin Hong Kong pays for its purchases from NSI under the
Regional Distribution Agreement in U.S. dollars, while the other Subsidiaries
pay for their purchases from Nu Skin Hong Kong under the Wholesale
Distribution Agreements in
17
their local currency. Nu Skin Hong Kong therefore bears significant currency
exchange risk as a result of purchases from NSI on behalf of the Subsidiaries.
Fluctuations in currency exchange rates, particularly those caused by an
increase in the value of the U.S. dollar, could have a material adverse effect
on the Company's financial position, results of operations and cash flows. The
Company is not a party to material foreign currency hedging transactions and
does not anticipate that it will engage in significant currency hedging
transactions in the future. See "Management's Discussion and Analysis of
Results of Operations."
IMPORT RESTRICTIONS, DUTIES AND REGULATION OF CONSUMER GOODS
With the exception of a small percentage of revenues in Japan, virtually all
of the Company's sales were derived from products purchased from NSI. All of
those products were imported into the countries in which they were ultimately
sold. The countries in which the Company currently conducts business impose
various legal restrictions on imports. In most cases, permits or licenses are
required to import particular types of goods, including nutritional
supplements and personal care products. Duties of varying amounts are imposed
based on the values or quantities of the goods imported. In certain countries
and jurisdictions, cosmetic and nutritional are subject to significant import
duties. Other products that the Company imports, notably products in the
personal care line, may be subject to health and safety regulations. Certain
products in the nutritional line are also subject to governmental regulation
regarding food and drugs, which regulations have had the effect of limiting
the Company's ability to sell some of its products in some of its countries
and jurisdictions. Certain of the Company's products which may be deemed in
certain countries to be "pharmaceutical" in nature may not be sold through
network marketing channels in those countries. The Company has not experienced
any difficulty maintaining its import licenses but has experienced
complications regarding health and safety, and food and drug regulations for
nutritional products. Many products require reformulation to comply with local
requirements. In addition, new regulations could be adopted or any of the
existing regulations could be changed at any time in a manner that could have
a material adverse effect on the Company's business and results of operations.
Duties on imports are a component of national trade and economic policy and
could be changed in a manner that would be materially adverse to the Company's
sales and its competitive position compared to locally-produced goods, in
particular in countries such as Taiwan, where the Company's products are
already subject to high customs duties. In addition, import restrictions in
certain countries and jurisdictions limit the Company's ability to import
products from NSI. In some jurisdictions, such as the PRC, regulators may
prevent the importation of NSI products altogether. Present or future health
and safety or food and drug regulations could delay or prevent the
introduction of new products into a given country or marketplace or suspend or
prohibit the sale of existing products in such country or marketplace.
CONTROL BY SELLING STOCKHOLDERS; ANTI-TAKEOVER EFFECT OF DUAL CLASSES OF
COMMON STOCK
Because of the relationship between the Company and NSI, management elected
to structure the capitalization of the Company in such a manner as to minimize
the possibility of a change in control of the Company without the consent of
the current NSI shareholders. Consequently, the shares of Class B Common Stock
enjoy ten to one voting privileges over the shares of Class A Common Stock
until the outstanding shares of Class B Common Stock constitute less than 10%
of the total outstanding shares of Common Stock. Immediately following the
Offerings, the shareholders of NSI will collectively own 100% of the
outstanding shares of the Class B Common Stock representing approximately %
of the combined voting power of the outstanding shares of Common Stock
(approximately % if the Underwriters' over-allotment options are exercised in
full). Accordingly, following completion of the Offerings, the shareholders of
NSI, acting fully or partially in concert, will be able to control the
election of the Board of Directors of the Company and thus the direction and
future operations of the Company without the supporting vote of any other
stockholder of the Company, including decisions regarding acquisitions and
other business opportunities, the declaration of dividends and the issuance of
additional shares of Class A Common Stock and other securities. NSI is a
privately-held company, the shareholders of which are named herein under
"Principal and Selling Stockholders." As long as the shareholders of NSI are
majority stockholders of the Company, assuming they act in concert, third
parties will not be able to obtain control of the Company through purchases of
shares of Class A Common Stock.
18
In addition, the Operating Agreements between the Company and NSI include
provisions that significantly reduce the likelihood of an involuntary change
of control. These anti-takeover mechanisms could have a negative impact on the
Company's valuation and be a limiting factor on the potential appreciation in
value of the shares offered hereby.
ABSENCE OF PUBLIC MARKET FOR CLASS A COMMON STOCK; DETERMINATION OF OFFERING
PRICE; PRICE FLUCTUATIONS
Prior to the Offerings, there has been no public market for the Class A
Common Stock and there can be no assurance that an active market for the Class
A Common Stock will develop or continue after the closing of the Offerings.
Accordingly, no assurance can be given as to the liquidity of the market for
the Class A Common Stock or the price at which any sales of shares of Class A
Common Stock may occur in the future, which price will depend upon the number
of holders thereof and other factors beyond the control of the Company,
including liquidity of the market for the Common Stock, investor perceptions
of the Company, changes in conditions or trends in the Company's industry or
publicly traded comparable companies, and adverse publicity which the Company
may suffer and general economic and other conditions. The initial public
offering price per share of the Class A Common Stock will be determined by
negotiation among the Company, the Selling Stockholders and representatives of
the Underwriters, and may not be indicative of the market price for the shares
of Class A Common Stock after the closing of the Offerings.
SHARES ELIGIBLE FOR FUTURE SALE
The Board of Directors of the Company is entitled to issue additional
shares of Class A Common Stock, generally without any stockholder vote. The
Company, its officers and directors, and the shareholders of NSI have agreed
not to sell or otherwise dispose of any shares of Class A Common Stock or
securities convertible into or exchangeable for shares of Class A Common Stock
for 180 days after the date of this Prospectus without the prior written
consent of Merrill Lynch & Co., except that the Company may, without such
prior consent, grant options or issue shares of Class A Common Stock pursuant
to the 1996 Stock Incentive Plan. See "Management--Executive Compensation" and
"Underwriting." The shares of Class A Common Stock and Class B Common Stock
issued in the Reorganization will be "restricted securities," as defined in
Rule 144 promulgated under the 1933 Act and, absent registration or an
exemption from registration under the 1933 Act, cannot, as Rule 144 is
currently in effect, be traded for a period of at least two years after the
Reorganization. Accordingly, approximately shares of Class A Common Stock
will be eligible for resale under Rule 144 on , 1998, which is the
expiration of the two-year holding period pursuant to Rule 144. The sale or
issuance or the potential for sale or issuance of such shares of Class A
Common Stock could have an adverse impact on the market price of the Class A
Common Stock or on any trading market for the Class A Common Stock that may
develop. See "Shares Eligible for Future Sale."
The Selling Stockholders have entered into a stockholder's agreement which
restricts the extent to which any of them can dispose of shares of Common
Stock following the Offerings. Among other things, in order to ensure the
qualification of the Reorganization under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), such stockholders have agreed not to
transfer any shares they own for 365 days after the Offerings without the
consent of the Company except for certain transfers to distributor and
employee incentive programs. After the expiration of the 365-day period, no
such stockholder is permitted to transfer in any one-year period a number of
shares greater than ten percent of the number of shares beneficially owned by
such stockholder at the time of the Offerings.
DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offerings will therefore incur immediate and substantial
dilution. See "Dilution."
19
THE REORGANIZATION AND S CORPORATION DISTRIBUTION
THE REORGANIZATION
Prior to or concurrently with the Offerings, the shareholders of Nu Skin
Japan, Nu Skin Korea, Nu Skin Taiwan, Nu Skin Hong Kong and Nu Skin Thailand
will contribute their shares of capital stock to the capital of the Company in
a transaction intended to qualify under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), in exchange for shares of the Company's
Class B Common Stock (the "Reorganization"). Prior to the Reorganization, all
of the outstanding shares of capital stock of the Subsidiaries and Nu Skin
Thailand were held by the Selling Stockholders. The Reorganization will result
in each of the Subsidiaries and Nu Skin Thailand becoming a wholly-owned
subsidiary of the Company.
Nu Skin Hong Kong and Nu Skin Taiwan are Utah corporations, each operating
through branches in Hong Kong and Taiwan, respectively. Nu Skin Japan and Nu
Skin Korea are Japanese and South Korean corporations and both are
domesticated corporations in Delaware. Nu Skin Thailand, which currently has
no operations, is a Thailand corporation and also a Delaware domesticated
corporation. Nu Skin Japan, Nu Skin Korea and Nu Skin Thailand each has dual
residence in the U.S. and its respective foreign jurisdiction, and each is
treated as a U.S. corporation for U.S. tax purposes and a Japan, South Korea
or Thailand corporation, respectively, for tax purposes in each such
jurisdiction. After the Reorganization, Nu Skin Hong Kong and Nu Skin Taiwan
will continue to be viewed as branches in Hong Kong and Taiwan, respectively,
and Nu Skin Japan, Nu Skin Korea and Nu Skin Thailand will continue to be
viewed as domestic corporations in Japan, South Korea and Thailand,
respectively.
The following chart illustrates the organizational structure of the Company
immediately after the Reorganization and the Offerings.
POST-REORGANIZATION AND THE OFFERINGS
Existing Public
Stockholders Stockholders
Class B Common Stock Class A Common Stock
representing % of the representing % of the
Total Common Stock Total Common Stock
Nu Skin Asia
(US Corporation)
100% 100%
Nu Skin Nu Skin Nu Skin Nu Skin
International, Inc. Hong Kong Japan Taiwan
US Corporation (US Corporation) (US Corporation (US Corporation)
and
Japan Corporation)
Nu Skin Nu Skin
Korea Thailand
(US Corporation (US Corporation
and South Korea and
Corporation) Thailand
Corporation)
S CORPORATION DISTRIBUTION
Prior to the Reorganization, each Subsidiary had elected to be treated as an
"S" corporation under subchapter S of the Code and comparable state tax laws.
As a result of the Subsidiaries' S corporation status, the earnings of the
Subsidiaries since incorporation have been included in the taxable income of
the Selling Stockholders for Federal and certain state income tax purposes,
and the Subsidiaries have generally not been subject to U.S. Federal or state
income tax on such earnings. Prior to the consummation of the Offerings, the
Subsidiaries' S corporation status will be terminated (the "S Termination
Date"). Prior to the S Termination
20
Date, the Company will declare a distribution to the Selling Stockholders that
will include all of the Subsidiaries' previously earned and undistributed S
corporation earnings through the S Termination Date (the "S Corporation
Distribution"). As of June 30, 1996, the Subsidiaries' aggregate undistributed
taxable S corporation earnings were $59.6 million. The Company estimates that
the Subsidiaries' aggregate undistributed taxable S corporation earnings will
be between $80.0 million and $90.0 million as of the S Termination Date (which
includes approximately $20.0 million to $30.0 million of the Company's earned
and undistributed taxable S corporation earnings for the period from July 1,
1996 through the S Termination Date). The S Corporation Distribution will be
distributed in the form of promissory notes due within six months of the S
Termination Date bearing interest at 8% per annum (S Distribution Notes). Upon
the consummation of the Offerings, approximately $15.0 million of the proceeds
from the Offerings will be used to pay a portion of the S Distribution Notes.
The Company estimates that, at the Offerings, it will reserve between
approximately $40.0 million and $50.0 million of cash on hand for repayment of
the S Distribution Notes. The balance of the Notes will be repaid from cash
generated by operations. On and after the S Termination Date, the Company will
no longer be treated as an S corporation and, accordingly, will be fully
subject to Federal and state income taxes. See "Management's Discussion and
Analysis of Results of Operations--Liquidity and Capital Resources."
21
USE OF PROCEEDS
The net proceeds from the sale of shares of Class A Common Stock by the
Company are estimated to be approximately $92 million, based on an assumed
initial public offering price of $ per share and after deducting estimated
underwriting discounts and offering expenses payable by the Company. The
Company will not receive any of the proceeds from the sale of shares of Class
A Common Stock by the Selling Stockholders, including from the exercise of the
Underwriter's over-allotment option. The Company has agreed to pay certain
expenses on behalf of the Selling Stockholders.
The Company anticipates applying the net proceeds of the Offerings as
follows: (i) approximately $40 million of such proceeds will be used, together
with operating income, to finance the entry of the Company into Thailand, the
Philippines, the PRC (where it is anticipated that the Company will be
required to invest in a manufacturing facility), Malaysia, Indonesia, Vietnam
and Singapore, which includes a $15 million payment to NSI for the exclusive
rights to distribute NSI products in these countries and which may include
organizational costs, the initial build up of inventory and other start up
expenses; (ii) approximately $15 million will be used to repay a portion of
the S Distribution Notes; (iii) approximately $12 million of such proceeds
will be used for the introduction of new products in the Company's markets;
(iv) approximately $12 million of such proceeds will be used to enhance the
Company's technological infrastructure, including the expansion of information
systems hardware and support capabilities allowing the Company the ability to
better support distributors; (v) approximately $10 million of such proceeds
will be used to expand the Company's presence and operations in South Korea,
Japan and Taiwan, which will include the establishment of several additional
walk-in distributor centers in major cities; and (vi) the remainder of such
proceeds, approximately $3 million, will be used for general corporate
purposes, which may include additional capital expansion projects. Pending
such uses, the Company intends to invest the proceeds from the Offerings in
short-term, interest bearing investment grade instruments.
DIVIDEND POLICY
The Company does not anticipate that, after the Offerings, any dividends
will be declared on the Class A Common Stock in the immediate future. The
Company intends from time to time to re-evaluate this policy based on its net
income and its alternative uses for retained earnings, if any. Any future
declaration of dividends, however, will be subject to the discretion of the
Board of Directors of the Company and subject to certain limitations under the
General Corporation Law of the State of Delaware (the "DGCL"). The time,
amount and form of dividends, if any, will depend, among other things, on the
Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors of the Company. It is
anticipated that any dividends, if declared, will be paid in U.S. dollars. The
Company, as a holding company, will be dependent on the earnings and cash flow
of, and dividends and distributions from, the Subsidiaries to pay any cash
dividends or distributions on the Class A Common Stock that may be authorized
by the Board of Directors of the Company. See "Certain United States Tax
Consequences to Non-United States Holders." Holders of Class A Common Stock
and holders of Class B Common Stock will share equally in any dividends
declared by the Board of Directors. See "Description of Capital Stock--Common
Stock--Dividends" and "--Preferred Stock."
22
CAPITALIZATION
The following table sets forth the cash and cash equivalents, the short-term
debt and capitalization of the Company on a combined basis as of June 30,
1996, and as adjusted as of that date to give effect to the Reorganization,
including (i) the S Corporation Distribution as if the Company's S Corporation
status had terminated on such date; and (ii) $5.0 million of net deferred tax
assets that would have been recorded had the Company's S Corporation status
been terminated on June 30, 1996, and as further adjusted to reflect the sale
by the Company of shares of Class A Common Stock in the Offerings, and the
application of the net proceeds therefrom. The information below should be
read in conjunction with the Combined Financial Statements (including Notes
thereto) and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and pro forma financial statements included elsewhere
in this Prospectus.
AS OF JUNE 30, 1996
-----------------------------------------------------------
(IN THOUSANDS)
AS AS FURTHER
ACTUAL ADJUSTED ADJUSTED (/1/)(/2/)(/3/)
------- -------- ------------------------
Cash and cash
equivalents............ $51,465 $51,464 $113,464
======= ======= ========
Short-term debt(/4/).... $ -- $59,565 $ 44,565
======= ======= ========
Long-term debt.......... $ -- $ -- $ --
Stockholders' equity:
Capital Stock of the
Subsidiaries prior to
the Reorganization.... 4,550(/5/) -- --
Preferred Stock, par
value $0.001 per
share, 25,000,000
shares authorized,
no shares issued and
outstanding .......... -- -- --
Class A Common Stock,
par value $ per
share, 500,000,000
shares
authorized, ,
and,
shares issued and
outstanding actual, as
adjusted and as
further adjusted,
respectively.......... -- -- 13
Class B Common Stock,
par value $ per
share, shares
authorized, ,
and,
shares issued and
outstanding actual, as
adjusted and as
further adjusted,
respectively.......... -- 100(/5/) 92
Additional paid in
capital............... -- -- 91,995
Cumulative foreign
currency translation
adjustment............ (3,780) (3,780) (3,780)
Retained earnings...... 55,115 5,004(/6/) 5,004
------- ------- --------
Total stockholders'
equity.............. 55,885 1,324 93,324
------- ------- --------
Total
capitalization...... $55,885 $ 1,324 $ 93,324
======= ======= ========
- --------
(1) Reflects the sale by the Company of 4,750,000 shares of Class A Common
Stock at an estimated offering price of $ per share, less estimated
offering expenses of $8.0 million, including Underwriters' discounts. The
Company will use a portion of the Offerings to pay the $15.0 million
License Fee to NSI. Approximately $15.0 million of the net proceeds of the
Offerings will also be used to repay a portion of the S Distribution
Notes, and the Company will reserve between approximately $40.0 million
and $50.0 million of cash on hand for repayment of the S Distribution
Notes. The balance of the S Distribution Notes will be repaid from cash
generated by operations.
(2) Reflects the conversion of shares of Class B Common Stock into Class
A Common Stock. These shares will be reserved for issuance to independent
distributors, employees of the Company and employees of affiliated
companies.
(3) No adjustment has been made to give effect to the Company's earned and
undistributed taxable S Corporation earnings for the period from July 1,
1996, through the S Termination Date. The Company anticipates the increase
in the S Distribution Notes to be between approximately $20.0 million and
$30.0 million. See "The Reorganization and S Corporation Distribution."
(4) Reflects the distribution of $59.6 million of S Distribution Notes to the
Selling Stockholders in respect of the earned and undistributed taxable S
corporation earnings at June 30, 1996, that would have been distributed
had the Subsidiaries' S corporation status been terminated on June 30,
1996. Approximately $15.0 million of the net proceeds of the Offerings
will be used to repay a portion of the S Distribution Notes.
(5) Reflects the contribution by the Selling Stockholders of their interests
in the Subsidiaries in exchange for shares of Class B Common Stock.
(6) Reflects the recognition of a deferred tax asset of $5.0 million. In
connection with the Reorganization, the Company will make certain
adjustments for U.S. Federal and state income taxes as if the Company had
been taxed as a C corporation rather than an S corporation.
23
DILUTION
The net tangible book value of the Company at June 30, 1996 was
approximately $55.9 million, or $ per share of Common Stock. After giving
effect to the Reorganization and the S Corporation Distribution as if they had
occurred as of June 30, 1996 and the Company's S Corporation status had
terminated at such date, the pro forma net tangible book value of the Company
at June 30, 1996 would have been approximately $1.3 million, or $ per share
of Common Stock. After giving effect to the sale of the 4,750,000 shares of
Class A Common Stock offered by the Company hereby, and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds" (after
deducting estimated offering expenses and the underwriting discount), the pro
forma net tangible book value of the Company as adjusted at June 30, 1996
would have been approximately $78.3 million, or $ per share. See "The
Reorganization and S Corporation Distribution" and "Use of Proceeds." This
represents an immediate dilution of $ per share to purchasers of shares at
the initial public offering price. The following table illustrates the per
share dilution:
Assumed initial public offering price per share(/1/)................ $
Net tangible book value per share at June 30, 1996............ $
Increase in net tangible book value per share attributable to
the establishment of deferred tax assets.....................
Decrease in net tangible book value per share attributable to
S Corporation Distribution and Reorganization................
Adjusted net tangible book value per share before the
Offerings....................................................
Increase in net tangible book value per share attributable to
the Offerings................................................
Decrease in tangible book value per share attributable to the
payment of the
License Fee..................................................
Net tangible book value, as further adjusted, per share after the
Offerings..........................................................
Dilution per share to purchasers of shares in the Offerings.........
--------
(1) Before deducting estimated underwriting discounts and commissions
and estimated expenses of the Offerings payable by the Company.
The following table summarizes on a pro forma basis as of June 30, 1996 the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the Selling Stockholders and by the purchasers of Common Stock in the
Offerings at an assumed initial offering price of $ per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
Selling Stockholders.... (/1/) % $ --(/2/) --% $--
New investors........... 7,600,000(/3/) % 159,600,000 100% $
--------- ----- ------------ -----
Total................. 100.0% $159,600,000 100.0%
========= ===== ============ =====
--------
(1) Excludes the 2,850,000 shares assumed to be sold to new investors
in connection with the Offerings. Includes million shares which
the Selling Stockholders have committed to transfer to the Company,
NSI and other affiliates for subsequent issuance to independent
distributors and employees under the terms of various stock option
plans. See "Summary Compensation--1996 Stock Incentive Plan."
(2) The cash consideration paid by the Selling Stockholders has been
reduced by distributions previously made to the Selling
Stockholders and certain distributions to be received by the
Selling Stockholders out of the net proceeds of the Offerings. See
"The Reorganization and S Corporation Distribution" and "Use of
Proceeds."
(3) Includes 2,850,000 shares sold to new investors by the Selling
Stockholders and 4,750,000 new shares in connection with the
Offerings.
24
SELECTED COMBINED AND OTHER FINANCIAL INFORMATION
The following selected combined financial data as of December 31, 1994 and
1995 and for the fiscal years ended September 30, 1993 and 1994 and for the
three month period ended December 31, 1994 and for the year ended December 31,
1995 have been derived from the Company's Combined Financial Statements, which
have been audited by Price Waterhouse LLP, independent accountants, included
elsewhere in this Prospectus. The combined financial data as of September 30,
1993 and 1994 are derived from the combined financial statements of the
Company, which have been audited but are not contained herein. The financial
data as of September 30, 1991 and 1992 and for the fiscal years ended
September 30, 1991 and 1992 and for the year ended December 31, 1994 and as of
June 30, 1996 and for the six months ended June 30, 1995 and 1996 are
unaudited. Interim results, in the opinion of management, include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods; however, such
results are not necessarily indicative of the results which may be expected
for any other interim period or for a full year. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Combined Financial Statements and
the related notes thereto included elsewhere in this Prospectus.
SIX MONTHS
THREE MONTHS YEAR ENDED ENDED
YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, JUNE 30,
---------------------------------- DECEMBER 31, ------------------- -----------------
1991 1992 1993 1994 1994 1994(/1/) 1995 1995 1996
------- ------- -------- -------- ------------ --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenue................. $ 677 $42,919 $110,624 $254,637 $73,562 $264,440 $358,609 $158,125 $287,711
Cost of sales........... 462 14,080 38,842 86,872 19,607 82,241 96,615 41,901 80,963
------- ------- -------- -------- ------- -------- -------- -------- --------
Gross profit............ 215 28,839 71,782 167,765 53,955 182,199 261,994 116,224 206,748
Operating expenses:
Distributor incen-
tives................. 130 14,659 40,267 95,737 27,950 101,372 135,722 60,224 107,090
Selling, general and
administrative........ 1,249 10,065 27,150 44,566 13,545 48,753 67,475 27,511 44,551
------- ------- -------- -------- ------- -------- -------- -------- --------
Operating income........ (1,164) 4,115 4,365 27,462 12,460 32,074 58,797 28,489 55,107
Other income (expense),
net.................... 3 160 133 443 (813) (394) 511 549 617
------- ------- -------- -------- ------- -------- -------- -------- --------
Income before provision
for income taxes....... (1,161) 4,275 4,498 27,905 11,647 31,680 59,308 29,038 55,724
Provision for income
taxes.................. -- 1,503 417 10,226 2,730 10,071 19,097 9,350 20,591
------- ------- -------- -------- ------- -------- -------- -------- --------
Net income (loss)....... $(1,161) $ 2,772 $ 4,081 $ 17,679 $ 8,917 $ 21,609 $ 40,211 $ 19,688 $ 35,133
======= ======= ======== ======== ======= ======== ======== ======== ========
PRO FORMA, AS ADJUSTED, INCOME STATEMENT DA-
TA(/2/)(/3/):
Revenue.......................................... $358,609 $158,125 $287,711
Cost of sales.................................... 96,615 41,901 80,963
-------- -------- --------
Gross profit..................................... 261,994 116,224 206,748
Operating expenses:..............................
Distributor incentives.......................... 135,722 60,224 107,090
Selling, general and administrative............. 73,264 30,405 47,446
-------- -------- --------
Operating income................................. 53,008 25,595 52,212
Other income (expense), net(/4/)................. (1,272) (1,234) 617
-------- -------- --------
Income before provision for income taxes......... 51,736 24,361 52,829
Provision for income taxes....................... 20,530 9,345 19,381
-------- -------- --------
Net income (loss)................................ $ 31,206 $ 15,016 $ 33,448
======== ======== ========
Net income per share(/5/)........................ $ $ $
======== ======== ========
Weighted average common shares outstanding(/5/)..
25
AS OF
AS OF SEPTEMBER 30, AS OF DECEMBER 31, JUNE 30,
------------------------------- -------------------- --------
1991 1992 1993 1994 1994 1995 1996
------ ------ ------- ------- --------- --------- --------
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equiva-
lents.................. $1,132 $1,553 $14,591 $18,077 $ 16,288 $ 63,213 $ 51,464
Working capital......... (921) 1,026 (504) 15,941 26,680 47,863 39,334
Total assets............ 2,733 10,236 41,394 71,565 61,424 118,228 124,691
Stockholders' equity.... (656) 2,749 6,926 24,934 33,861 61,771 55,885
AS OF JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(/6/)
-------- ----------------
BALANCE SHEET DATA: (IN THOUSANDS)
Cash and cash equivalents............................. $ 51,464 $113,464
Working capital....................................... 39,334 59,469
Total assets.......................................... 124,691 206,695
Short term debt....................................... -- 44,565
Stockholders' equity.................................. 55,885 93,324
AS OF SEPTEMBER 30, AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------- ------------------ ---------------
1991 1992 1993 1994 1994 1995 1995 1996
------ ------ ------- ------- --------- --------- ------- -------
OTHER INFORMATION(/7/):
Number of active
distributors........... -- 33,000 106,000 152,000 170,000 236,000 200,000 384,000
Number of executive
distributors........... -- 649 2,788 5,835 6,083 7,550 7,302 12,446
- --------
(1) The information for the year ended December 31, 1994 is not included in
the Company's Combined Financial Statements included elsewhere in this
Prospectus. Such information has been presented for comparative purposes.
(2) The unaudited pro forma income statement data reflects the Reorganization,
the Offerings and the following adjustments as if such events had occurred
on January 1, 1995: (i) the amortization over a 20 year period of a $15.0
million payment to NSI for the exclusive rights to distribute NSI products
in Thailand, Indonesia, Malaysia, the Philippines, the PRC, Singapore and
Vietnam (the "License Fee"); (ii) the recognition by the Company of
additional management charges of $3.8 million per year relating to certain
support services provided to the Company by NSI and an NSI affiliate,
which costs were borne by NSI prior to the Reorganization; (iii)
additional administrative and overhead costs of $1.3 million per year as
if the Company had operated as a public company; (iv) adjustments for U.S.
Federal and state income taxes as if the Company had been taxed as a C
corporation rather than an S corporation; and (v) interest expense of $1.8
million relating to the issuance of $59.6 million of interest bearing S
distribution notes (the S Distribution Notes) due and payable within six
months (8% interest per annum) to the Selling Stockholders in respect of
the earned and undistributed taxable S corporation earnings at June 30,
1996, that would have been distributed had the Company's S corporation
status been terminated on June 30, 1996.
(3) The pro forma financial statements do not reflect an estimated non-cash
operating expense of $ million in connection with the one-time grant of
stock options at 25% of the initial public offering price to independent
distributors (non-employees) of the Company in connection with the
Offerings. These options will include conditions related to the
achievement of performance goals and will vest in one year. The Company
will record distributor stock incentive expense for these non-employee
stock options. See "Certain Relationships and Related Transactions."
(4) Other income and expense for the year ended December 31, 1995, and for the
six months ended June 30, 1995, includes increased interest expense of
$1.8 million relating to the issuance of $59.6 million of S Distribution
Notes.
(5) Computed based upon the number of shares of Common Stock outstanding
giving effect to the Reorganization and the Offerings.
(6) The unaudited pro forma balance sheet data as of June 30, 1996, reflects
(i) the sale of 4,750,000 shares of Class A Common Stock pursuant to the
Offerings, (ii) the issuance of $59.6 million of S Distribution Notes to
the Selling Stockholders, (iii) a one-time payment of the $15.0 million
License Fee to NSI, (iv) a $15.0 million partial payment of the S
Distribution Notes from the proceeds of the Offerings, and (v) the
recognition of a deferred tax asset of $5.0 million relating to
adjustments for U.S. Federal and state income taxes as if the Company had
been taxed as a C corporation rather than as an S corporation since
inception. No adjustment has been made to give effect to the Company's
earned and undistributed taxable S Corporation earnings for the period
from July 1, 1996 through the S Termination Date. The Company anticipates
the increase in the S Distribution Notes to be between approximately $20.0
million and $30.0 million. See "The Reorganization and S Corporation
Distribution." The Company estimates that, at the Offerings, it will
reserve between approximately $40.0 million and $50.0 million of cash on
hand for repayment of the S Distribution Notes. The balance of the Notes
will be repaid from cash generated by operations.
(7) Active distributors are those distributors who are resident in the
countries in which the Company operates and who have purchased products
during the three months ended as of the date indicated, rounded to the
nearest thousand. An Executive distributor is a distributor who has
submitted a qualifying letter of intent and achieved a specified personal
and group sales volume for a four month period.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Combined Financial
Statements and the related notes thereto included elsewhere in this
Prospectus. See also "The Reorganization."
OVERVIEW
Nu Skin Asia Pacific is a rapidly growing network marketing company involved
in the distribution and sale of premium quality, innovative personal care and
nutritional products. The Company is the exclusive distribution vehicle for Nu
Skin International, Inc. ("NSI") in the countries of Japan, Taiwan, Hong Kong
(including Macau) and South Korea, where the Company currently has operations,
and in Thailand, Indonesia, Malaysia, the Philippines, the PRC, Singapore and
Vietnam, where operations have not commenced. Additionally, the Company
supplies certain products to NSI affiliates in Australia and New Zealand. The
Company's network of independent distributors has grown since inception to
more than 375,000 active distributors as of June 30, 1996.
The Company has generated increased revenue each year since it commenced
operations in September 1991 and has operated profitably each year since 1992.
The Company's growth is primarily due to an increase in revenue from sales of
personal care products, the introduction of nutritional products, an increase
in the number of active distributors and the expansion of operations into new
geographic markets.
The Company's revenue is primarily dependent upon the efforts of a network
of independent distributors who purchase products and sales materials from the
Company. The Company recognizes virtually all of its revenue when the Company
ships products and sales materials to its distributors, which occurs after
payment is received by the Company. Revenue is net of returns, which have
historically been approximately 1.5% of gross sales. The following table sets
forth revenue information for the time periods indicated.
SIX MONTHS ENDED
DATE YEAR ENDED DECEMBER 31, JUNE 30,
OPERATIONS ----------------------- -----------------
COUNTRY COMMENCED 1993 1994 1995 1995 1996
------- -------------- ------- ------- ------- -------- --------
(IN MILLIONS)
Japan................... April 1993 $ 101.2 $ 172.9 $ 231.5 $ 100.7 $ 166.5
Taiwan.................. January 1992 38.6 79.2 105.4 48.3 67.6
South Korea............. February 1996 -- -- -- -- 43.4
Hong Kong............... September 1991 14.3 10.9 17.1 7.5 8.1
Sales to NSI
affiliates(/1/)........ January 1993 8.5 1.4 4.6 1.6 2.1
------- ------- ------- -------- --------
Total revenue......... $ 162.6 $ 264.4 $ 358.6 $ 158.1 $ 287.7
======= ======= ======= ======== ========
--------
(1) Includes revenue from the sale of certain products to NSI
affiliates in Australia and New Zealand.
Revenue generated in Japan and Taiwan represented 57.9% and 23.5%,
respectively, of total revenue generated during the six months ended June 30,
1996. Since the commencement of operations in February 1996, the Company's
South Korean operations generated $43.4 million of revenue, or 15.1% of total
revenue for the six months ended June 30, 1996. Revenue generated in Hong Kong
during the six months ended June 30, 1996 represented 2.8% of total Company
revenue.
27
Cost of sales primarily consists of the cost of products purchased from NSI
as well as customs duties related to the importation of such products. As the
sales mix changes between product categories and from country to country, cost
of sales and, accordingly, gross profit, will fluctuate.
Distributor incentives are the Company's most significant expense. Pursuant
to the Operating Agreements with NSI, the Company is obligated to pay a fixed
commission expense of 42% on product sales (except in South Korea, where, due
to government regulations, the Company utilizes a different formula to satisfy
this obligation). The Company satisfies this commission obligation by paying
commissions owed to local distributors and settling the difference with NSI.
Because the Company's revenue includes sales of both commissionable and non-
commissionable items, distributor incentives as a percentage of total revenue
have ranged from approximately 36.4% to 38.1% since September 30, 1993. Non-
commissionable items consist of sales materials and starter kits as well as
sales to NSI affiliates in Australia and New Zealand.
Selling, general and administrative expenses include wages and benefits,
rents and utilities, travel and entertainment, promotion and advertising and
professional fees, as well as license and management fees paid to NSI and Nu
Skin International Management Group, Inc. ("NSIMG"). Pursuant to the Operating
Agreements, the Company contracts for management support services from NSIMG,
for which the Company pays a fee equal to an allocation of expenses plus 3%.
In addition, the Company pays to NSI a license fee of 4% of the Company's
revenues from sales to distributors (excluding sales of starter kits) for the
use of NSI's distributor lists, distribution system and certain related
intangibles.
Provision for income taxes is dependent on the statutory tax rates in each
of the countries in which the Company operates. Historically, each of the
Subsidiaries was only taxed in its local jurisdiction in accordance with
relevant tax laws. Statutory tax rates in the countries in which the Company
has operations are 16.5% in Hong Kong, 25.0% in Taiwan, 30.1% in South Korea
and 57.9% in Japan. The Company operates a regional business center in Hong
Kong, which bears inventory obsolescence and currency exchange risks. Any
income or loss incurred by the regional business center is not subject to
taxation in Hong Kong.
Upon the consummation of the Reorganization, the Company will be subject to
taxation in the United States, where it is incorporated, at a statutory
corporate federal tax rate of 35%. In addition, each Subsidiary will be
subject to taxation in the country in which it operates. The Company will
receive foreign tax credits for the amount of foreign taxes actually paid in a
given period, which may be utilized to reduce taxes paid in the United States.
In the event that the Company's operations in high tax jurisdictions such as
Japan grow disproportionately to the rest of the Company's operations, the
Company may be unable to fully utilize its foreign tax credits in the U.S.
which could, accordingly, result in the Company paying a higher overall
effective tax rate on its worldwide operations.
28
RESULTS OF OPERATIONS
The following tables set forth (i) the results of operations and
supplemental data, and (ii) operating results and supplemental data as a
percentage of revenue, respectively, for the periods indicated.
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, JUNE 30,
------------- -------------- -----------------
1993 1994 1994 1995 1995 1996
------ ------ ------ ------ -------- --------
(IN MILLIONS)
Revenue........................ $110.6 $254.6 $264.4 $358.6 $ 158.1 $ 287.7
Cost of sales.................. 38.8 86.8 82.2 96.6 41.9 81.0
------ ------ ------ ------ -------- --------
Gross profit................... 71.8 167.8 182.2 262.0 116.2 206.7
Operating expenses:
Distributor incentives....... 40.3 95.7 101.4 135.7 60.2 107.0
Selling, general and adminis-
trative..................... 27.1 44.6 48.8 67.5 27.5 44.6
------ ------ ------ ------ -------- --------
Operating income............... 4.4 27.5 32.0 58.8 28.5 55.1
Other income (expense), net.... .1 .4 (.4) .5 .5 .6
------ ------ ------ ------ -------- --------
Income before provision for
income taxes.................. 4.5 27.9 31.6 59.3 29.0 55.7
Provision for income taxes..... .4 10.2 10.0 19.1 9.3 20.6
------ ------ ------ ------ -------- --------
Net income..................... $ 4.1 $ 17.7 $ 21.6 $ 40.2 $ 19.7 $ 35.1
====== ====== ====== ====== ======== ========
Unaudited supplemental da-
ta(/1/):
Net income before pro forma
provision for income taxes.... $ 4.5 $ 27.9 $ 31.6 $ 59.3 $ 29.0 $ 55.7
Pro forma provision for income
taxes......................... 1.5 10.4 11.5 22.8 11.1 20.4
------ ------ ------ ------ -------- --------
Net income after pro forma
provision for income taxes.... $ 3.0 $ 17.5 $ 20.1 $ 36.5 $ 17.9 $ 35.3
====== ====== ====== ====== ======== ========
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, JUNE 30,
-------------- -------------- ------------------
1993 1994 1994 1995 1995 1996
------ ------ ------ ------ -------- --------
Revenue................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 35.1 34.1 31.1 26.9 26.5 28.1
------ ------ ------ ------ -------- --------
Gross profit.............. 64.9 65.9 68.9 73.1 73.5 71.9
------ ------ ------ ------ -------- --------
Operating expenses:
Distributor incentives... 36.4 37.6 38.4 37.8 38.1 37.2
Selling, general and ad-
ministrative............ 24.5 17.5 18.4 18.8 17.4 15.5
------ ------ ------ ------ -------- --------
Operating income.......... 4.0 10.8 12.1 16.5 18.0 19.2
Other income (expense),
net...................... .1 .2 (.1) .1 .3 .2
------ ------ ------ ------ -------- --------
Income before provision
for income taxes......... 4.1 11.0 12.0 16.6 18.3 19.4
Provision for income
taxes.................... .4 4.0 3.8 5.3 5.9 7.2
------ ------ ------ ------ -------- --------
Net income................ 3.7% 7.0% 8.2% 11.3% 12.4% 12.2%
====== ====== ====== ====== ======== ========
Unaudited supplemental da-
ta(/1/):
Net income before pro
forma
provision for income tax-
es....................... 4.1% 11.0% 12.0% 16.6% 18.3% 19.4%
Pro forma provision for
income taxes............. 1.4 4.1 4.3 6.4 7.0 7.1
------ ------ ------ ------ -------- --------
Net income after pro forma
provision for income tax-
es....................... 2.7% 6.9% 7.7% 10.2% 11.3% 12.3%
====== ====== ====== ====== ======== ========
- --------
(1) Reflects adjustment for Federal and state income taxes as if the Company
had been taxed as a C corporation rather than an S corporation.
29
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
REVENUE was $287.7 million during the six months ended June 30, 1996, an
increase of 82.0% from the revenue of $158.1 million recorded during the same
period in 1995. This increase is attributable to the following factors. First,
revenue in Japan increased by $65.8 million, or 65.3%, primarily as a result
of the continued success of nutritional, color cosmetics and HairFitness
products, which were introduced in October 1995. Second, revenue in Taiwan
increased by $19.3 million, or 40.0%, primarily as a result of the
introduction of color cosmetics and other products, along with the opening of
a new distribution center in Taichung, Taiwan. Third, in February 1996, Nu
Skin Korea commenced operations and, through June 30, 1996, has generated
revenue of $43.4 million. Additionally, revenue in Hong Kong increased by $0.6
million during the six months ended June 30, 1996 as compared to the same
period in 1995.
GROSS PROFIT as a percentage of revenue was 71.9% and 73.5% during the six
months ended June 30, 1996 and 1995, respectively. This decline is a result of
the introduction of three nutritional products in Japan in October 1995 and
the commencement of operations in South Korea in 1996. IDN products are
generally subject to higher duties than other products marketed by the
Company, which yields lower gross profit as a percentage of revenue. The
commencement of operations in South Korea also impacted gross profit as a
percentage of revenue due to South Korean regulations which result in higher
prices on imported products than in other markets.
DISTRIBUTOR INCENTIVES as a percentage of total revenue declined from 38.1%
for the six months ended June 30, 1995 to 37.2% for the same period in 1996.
The primary reason for this decline was increased revenue from South Korea
where local regulations limit the incentives which can be paid to South Korean
distributors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percentage of revenue
declined from 17.4% during the six months ended June 30, 1995 to 15.5% during
the same period in 1996. This fluctuation was primarily due to economies of
scale gained as the Company's revenue increased.
OPERATING INCOME during the six months ended June 30, 1996 increased to
$55.1 million, an increase of 93.3% from the $28.5 million of operating income
recorded during the same period in 1995. Operating income as a percentage of
revenue increased from 18.0% to 19.2%. This increase was caused primarily by
lower selling, general and administrative expenses as a percentage of revenue.
OTHER INCOME increased by $0.1 million during the six months ended June 30,
1996 as compared to the same period in 1995.
PRO FORMA PROVISION FOR INCOME TAXES increased to $20.4 million during the
six months ended June 30, 1996 compared to $11.1 million during the same
period in 1995. The effective tax rate decreased to 36.6% in 1996 as compared
to 38.3% for the same period in 1995. The Company generated excess foreign tax
credits in 1995 which did not continue in 1996.
NET INCOME AFTER PRO FORMA PROVISION FOR INCOME TAXES increased by $17.4
million to $35.3 million during the six months ended June 30, 1996 compared to
the $17.9 million during the same period in 1995. Pro forma net income as a
percentage of revenue increased to 12.3% for the six months ended June 30,
1996 as compared to 11.3% for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
REVENUE was $358.6 million during the year ended December 31, 1995, an
increase of 35.6% from the $264.4 million of revenue recorded during 1994.
This increase was due primarily to an increased number of active distributors
in each market, which was the primary factor contributing to a $58.6 million
increase in revenue in Japan, a $26.2 million increase in revenue in Taiwan
and a $6.2 million increase in revenue in Hong Kong. Nutritional products,
color cosmetics products and a new line of HairFitness products were
introduced in
30
Japan in the fourth quarter of 1995, accounting for $25.0 million of the $58.6
million increase. Revenue in Taiwan and Hong Kong increased as a result of a
higher volume of sales of color cosmetics, which were introduced in late 1994,
and other personal care products. Additionally, certain new product
introductions by NSI affiliates in Australia and New Zealand led to a $3.2
million increase in revenue.
GROSS PROFIT as a percentage of revenue increased from 68.9% in 1994 to
73.1% in 1995. The increase in gross profit resulted from a reduction in
product costs on purchases from NSI and from other cost savings related to
inventory shipping and handling.
DISTRIBUTOR INCENTIVES as a percentage of revenue decreased from 38.4% in
1994 to 37.8% in 1995. This decline was primarily attributable to an increase
in revenue in 1995 from non-commissionable sales materials and sales to NSI
affiliates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percentage of revenue
increased to 18.8% during the year ended December 31, 1995, from 18.4% during
1994. This increase was primarily due to a one-time cost incurred in February
1995 in connection with moving the Company's Japanese facilities into a
larger, more accessible office and distributor center in Tokyo, Japan.
OPERATING INCOME increased to $58.8 million in 1995 from $32.0 million in
1994, an increase of 83.7%. Operating income as a percentage of revenue
increased to 16.5% from 12.1%. The increase was primarily the result of the
product cost reductions discussed above.
OTHER INCOME increased by approximately $0.9 million during 1995 as compared
to 1994. This increase was primarily caused by the disposal of property and
equipment related to a move to new facilities during 1994, and an increase in
interest income generated through the short term investment of cash.
PRO FORMA PROVISION FOR INCOME TAXES increased to $22.8 million during the
year ended December 31, 1995 as compared to $11.5 million for the same period
in 1994. The effective tax rate was 38.4% in 1995 as compared to 36.4% in
1994.
NET INCOME AFTER PRO FORMA PROVISION FOR INCOME TAXES increased by $16.4
million to $36.5 million during the year ended December 31, 1995 as compared
to $20.1 million for the same period in 1994. Pro forma net income as a
percentage of revenue increased to 10.2% during the year ended December 31,
1995 as compared to 7.7% for the same period in 1994.
YEAR ENDED SEPTEMBER 30, 1994, COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1993
REVENUE for the year ended September 30, 1994, was $254.6 million, an
increase of 130.2% when compared to the $110.6 million of revenue reported in
1993. This increase was largely due to the following three factors: (i) a
$113.6 million increase in revenue reflecting a full year of operations in
Japan in fiscal year 1994 as compared to only six months of operations in
fiscal year 1993; (ii) a $33.2 million increase in revenue in Taiwan due to a
growing number of active distributors purchasing the Company's products; and
(iii) a $2.3 million increase in revenue in Hong Kong. These increases were
partially offset by a $5.1 million decrease in revenues from sales to NSI
affiliates in Australia and New Zealand.
GROSS PROFIT as a percentage of revenue increased slightly to 65.9% in
fiscal year 1994 from 64.9% in fiscal year 1993. The increase in gross profit
as a percentage of revenue was primarily due to changes in the sales mix.
DISTRIBUTOR INCENTIVES as a percentage of revenue increased to 37.6% during
the year ended September 30, 1994, from 36.4% during the year ended September
30, 1993. This increase was primarily due to a decrease in non-commissionable
sales to NSI affiliates in Australia and New Zealand which represented 6.7% of
total revenue in fiscal year 1993 compared to less than 1.0% of total revenue
in fiscal year 1994.
31
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percentage of revenue
decreased to 17.5% during the year ended September 30, 1994, from 24.5% during
the year ended September 30, 1993. This decrease in selling, general and
administrative expenses as a percentage of revenue was the result of economies
of scale obtained as revenue increased in Japan and Taiwan.
OPERATING INCOME during the year ended September 30, 1994, increased to
$27.5 million from $4.4 million recorded during the year ended September 30,
1993. This increase was the combination of an increase in revenue and a
decrease in selling, general, and administrative expenses.
OTHER INCOME increased by $0.3 million during the year ended September 30,
1994 as compared to the same period in 1993.
PRO FORMA PROVISION FOR INCOME TAXES increased to $10.4 million during the
year ended December 31, 1994, as compared to $1.5 million for the same period
in 1993. The effective tax rate was 37.3% in 1994 compared to 33.3% in 1993.
NET INCOME AFTER PRO FORMA PROVISION FOR INCOME TAXES increased by $14.5
million to $17.5 million during the year ended December 31, 1994 as compared
to $3.0 million for the same period in 1993. Pro forma net income as a
percentage of revenue increased to 6.9% for the year ended December 31, 1994
as compared to 2.7% for the same period in 1993.
UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS
As part of the Reorganization and Offerings, several actions will occur
which will impact the comparability of the historical financial results for
the Company with the future results of the Company. The following adjustments
are reflected in the unaudited pro forma combined financial information set
forth below and included elsewhere in this Prospectus: (i) the amortization
over a 20 year period of a $15.0 million payment to NSI for the exclusive
rights to distribute NSI products in Thailand, Indonesia, Malaysia, the
Philippines, the PRC, Singapore and Vietnam, (ii) the recognition by the
Company of additional management charges of $3.8 million per year relating to
certain support services provided to the Company by NSIMG and NSI, which costs
were borne by NSI prior to the Reorganization, (iii) additional administrative
and overhead costs of $1.3 million per year as if the Company had operated as
a public company, (iv) increased interest expense of $1.8 million relating to
the issuance of $59.6 million of S Distribution Notes due and payable within
six months (8% interest per annum) to the Selling Stockholders in respect of
the earned and undistributed taxable S corporation earnings at June 30, 1996
that would have been distributed had the Company's S corporation status been
terminated on June 30, 1996, and (v) adjustments for U.S. Federal and state
income taxes as if the Company had been taxed as a C corporation rather than
an S corporation. The pro forma financial statements do not reflect an
estimated non-cash operating expense of $ million in connection with the
one-time grant of stock options at 25% of the initial public offering price to
independent distributors (non-employees) of the Company in connection with the
Offerings. These options will include conditions related to the achievement of
performance goals and will vest in one year. The Company will record
distributor incentive stock expense for these non-employee stock options. See
"Certain Relationships and Related Transactions."
32
The following table sets forth the percentage of revenue represented by the
specific components of income and expense on a pro forma basis for the periods
presented. See "Unaudited Pro Forma Combined Financial Statements" (including
Notes thereto) included elsewhere in this Prospectus.
FOR THE SIX MONTHS
ENDED JUNE 30,
FOR THE YEAR ENDED --------------------
DECEMBER 31, 1995 1995 1996
------------------ --------- ---------
Revenue........................... 100.0% 100.0% 100.0%
Cost of sales..................... 26.9 26.5 28.1
----- --------- ---------
Gross profit...................... 73.1 73.5 71.9
Operating expenses:
Distributor Incentives........... 37.8 38.1 37.2
Selling, general and
administrative.................. 20.4 19.2 16.5
----- --------- ---------
Operating income.................. 14.9 16.2 18.2
Other income (expense), net....... (0.4) (0.7) 0.2
----- --------- ---------
Income before provision for income
taxes............................ 14.5 15.5 18.4
Provision for income taxes........ 5.7 5.9 6.7
----- --------- ---------
Net income........................ 8.8% 9.6% 11.7%
===== ========= =========
Upon the consummation of the Reorganization, the Company will be subject to
taxation in the United States, where it is incorporated, at a statutory
corporate federal tax rate of 35%. In addition, each Subsidiary will be
subject to taxation in the country in which it operates. The Company will
receive foreign tax credits for the amount of foreign taxes actually paid in a
given period, which may be utilized to reduce taxes paid in the United States.
In the event that the Company's operations in high tax jurisdictions such as
Japan grow disproportionately to the rest of the Company's operations, the
Company will be unable to fully utilize its foreign tax credits in the U.S.
which could, accordingly, result in the Company paying a higher overall
effective tax rate on its worldwide operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flow from operations. During the year
ended December 31, 1995, cash provided by operations totaled $65.0 million. As
of June 30, 1996, the Company had cash and cash equivalents of $51.5 million.
As of June 30, 1996, the Subsidiaries' aggregate undistributed taxable S
corporation earnings were $59.6 million. The Company estimates that the
Subsidiaries' aggregate undistributed taxable S corporation earnings will be
between $80.0 million and $90.0 million as of the S Termination Date (which
includes approximately $20.0 million to $30.0 million of the Company's earned
and undistributed taxable S corporation earnings for the period from July 1,
1996 through the S Termination Date). The S Corporation Distribution will be
distributed in the form of promissory notes due within six months of the S
Termination Date bearing interest at 8% per annum (S Distribution Notes). Upon
the consummation of the Offerings, approximately $15.0 million of the proceeds
from the Offerings will be used to pay a portion of the S Distribution Notes.
The Company estimates that at the Offerings it will reserve between
approximately $40.0 million and $50.0 million of cash on hand for repayment of
the S Distribution Notes. The balance of the Notes will be repaid from cash
generated by operations. On and after the S Termination Date, the Company will
no longer be treated as an S corporation and, accordingly, will be fully
subject to Federal and state income taxes. See "Management's Discussion and
Analysis of Results of Operations--Liquidity and Capital Resources."
The Company is able to generate significant cash balances due to its rapid
growth, high margins and minimal capital requirements. As of June 30, 1996,
working capital was $39.3 million compared to $47.9 million
33
and $26.7 million at December 31, 1995 and 1994, respectively. Cash and cash
equivalents at June 30, 1996 were $51.5 million compared to $63.2 million and
$16.3 million at December 31, 1995 and 1994, respectively.
Historically, the Company's principal need for funds has been for
distributor incentives, working capital (principally inventory purchases),
capital expenditures and the development of new markets. The Company has
generally relied entirely on cash flow from operations to meet its business
objectives without incurring long term debt to unrelated third parties. The
Company did, however, rely upon borrowings from NSI in initially establishing
operations in Japan, Taiwan and Hong Kong. Regulations in South Korea preclude
borrowings from related entities, which led to the Company establishing an
$8.0 million line of credit to facilitate the opening of the South Korean
market. As of June 30, 1996, all borrowings under the line of credit had been
repaid, and no further borrowings under the line of credit are anticipated.
Capital expenditures, primarily for equipment, computer systems and
software, office furniture and leasehold improvements, were $2.9 million, $5.4
million and $1.7 million for the six months ended June 30, 1996, and the years
ended December 31, 1995 and 1994, respectively. The Company anticipates
additional capital expenditures of $3.5 million to support growth through the
end of 1996. In addition, the Company anticipates capital expenditures over
the next two years of approximately $22.0 million to further enhance its
infrastructure, including computer systems and software, warehousing
facilities and distributor centers in order to accommodate future growth.
Under the Operating Agreements with NSI, the Company incurs related party
payables. The Company had related party payables of $21.0 million, $28.7
million and $10.6 million at June 30, 1996, and December 31, 1995 and 1994,
respectively. In addition, the Company had related party receivables of $9.9
million, $1.8 million and $17.9 million, respectively, at those dates. NSI has
the right to charge interest on balances outstanding in excess of 60 days at a
rate of 2% above the U.S. prime rate. As of June 30, 1996, none of the related
party payables or receivables had been outstanding for more than 60 days.
Management believes that the proceeds from the Offerings together with
future cash flows from operations will be adequate to fund cash needs relating
to the implementation of the Company's strategic plans, including opening new
markets and funding the S Distribution Notes.
SEASONALITY AND CYCLICALITY
The Company's business is impacted by general seasonal trends common to the
direct selling channel in Asia. Seasonal fluctuations experienced by the
Company have generally been related to the occurrence of major cultural events
and vacation patterns in each of the Company's markets. For example, the
Company has historically experienced a decline in revenue in Japan, Taiwan and
Hong Kong during the local New Year celebrations, which fall in the Company's
first quarter. Management also anticipates a decline in revenue for the first
quarter in South Korea, when a similar New Year celebration occurs. In Japan,
the Company has also historically experienced a decline in revenue during
August, when many of the local distributors traditionally take vacations.
The Company's results of operations have been subject to cyclical
variations. Generally, the Company has experienced rapid revenue growth in
each new market from the commencement of operations. In Japan, Taiwan and Hong
Kong, the initial rapid revenue growth was followed by a short period of
stable or declining revenue followed by renewed growth fueled by new product
introductions, an increase in the number of active distributors and increased
distributor productivity. In addition, the Company has also experienced
variations on a quarterly basis in its results of operations, as new products
are introduced and new markets are opened. No assurances can be given that the
Company's revenue growth rate in South Korea, which commenced operations in
February 1996, or in new markets where operations have not commenced, will
follow this pattern.
34
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly data for the
periods shown.
YEAR ENDED DECEMBER
YEAR ENDED DECEMBER 31, 1995 31, 1996
------------------------------------ --------------------
1ST 2ND 3RD 4TH 1ST 2ND
QUARTER QUARTER QUARTER QUARTER(/1/) QUARTER(/2/) QUARTER
------- ------- ------- ------------ ------------ -------
(IN MILLIONS)
Revenue................... $77.7 $80.5 $83.3 $117.2 $124.2 $163.5
Gross profit.............. 57.3 59.7 61.0 83.9 89.4 117.4
Operating income.......... 13.5 15.0 12.7 17.6 23.2 31.9
--------
(1) LifePak, Nu Colour and HairFitness products were introduced in Japan
during October of 1995.
(2) The Company commenced operations in South Korea in February of 1996.
CURRENCY FLUCTUATION AND EXCHANGE RATE INFORMATION
The Company purchases inventory from NSI in U.S. dollars and assumes
currency exchange rate risk with respect to such purchases. Local currency in
Japan, Taiwan, Hong Kong and South Korea is generally used to settle non-
inventory transactions with NSI. It is anticipated that the Company will
transact its business in new markets with NSI in a similar manner, as
permitted by local regulations. Given the uncertainty of exchange rate
fluctuations, the Company cannot estimate the effect of these fluctuations on
its future business, product pricing, results of operations or financial
condition. The Company is not a party to material foreign currency hedging
transactions and does not anticipate engaging in significant currency hedging
transactions in the future.
INFLATION
In general, costs are affected by inflation and the effects of inflation may
be experienced by the Company in future periods. Management believes, however,
that such effects have not been material to the Company during the periods
presented. Certain of the countries in which the Company operates have
experienced significant inflation in the past. Although to date this inflation
has not had a material effect on the Company's results of operations, there
can be no assurance that inflation will not in the future so affect results of
operations.
35
BUSINESS
GENERAL
Nu Skin Asia Pacific is a rapidly growing network marketing company involved
in the distribution and sale of premium quality, innovative personal care and
nutritional products. The Company is the exclusive distribution vehicle for Nu
Skin International, Inc. in the countries of Japan, Taiwan, Hong Kong
(including Macau) and South Korea, where the Company currently has operations,
and in Thailand, Indonesia, Malaysia, the Philippines, the PRC, Indonesia,
Singapore and Vietnam, where operations have not yet commenced.
The Company is one of the fastest growing network marketing companies in
Asia. Revenue increased 82.0% to $287.7 million for the six months ended
June 30, 1996 from $158.1 million for the same period in 1995. Net income
increased 78.2% to $35.1 million for the six months ended June 30, 1996 from
$19.7 million for the same period in 1995. Revenue increased 35.6% to $358.6
million for the year ended December 31, 1995 from $264.4 million in 1994. Net
income increased 86.1% to $40.2 million for the year ended December 31, 1995
from $21.6 million in 1994. The Company's network of independent distributors
has grown since inception in 1991 to more than 375,000 active distributors as
of June 30, 1996.
The Company's product philosophy is to combine the best of science and
nature in developing premium quality, innovative personal care and nutritional
products which are specifically designed for the network marketing
distribution channel. The Company offers products in two distinct categories:
personal care products, marketed under the trademark "Nu Skin," and
nutritional products, marketed under the trademark "Interior Design
Nutritionals" (IDN). The Nu Skin personal care product lines include facial
care, body care, hair care and color cosmetics, as well as specialty products
such as sun protection, oral hygiene and fragrances. The IDN product lines
include nutritional supplements, weight management products and nutritious
snacks, and sports nutrition products.
In Japan, Taiwan and Hong Kong, the Company currently offers most of NSI's
personal care products and approximately one-third of NSI's nutritional
products. In South Korea, the Company currently offers one-third of NSI's
personal care products and none of the nutritional products. The Company
believes that it can significantly grow its business and attract new customers
by expanding its product offerings in each of its markets to include more of
NSI's existing personal care and nutritional products. In addition to
expanding its product offerings with existing NSI products, the Company
intends to introduce new products tailored to specific markets.
The distribution of products through the network marketing and other direct
selling channels has grown significantly in recent years. The WFDSA reports
that, since 1990, worldwide direct distribution of goods and services to
consumers has increased 60%, resulting in the sale of over $72 billion of
goods and services in 1995. According to the WFDSA, $34 billion of goods and
services were sold by its members in 1995 through direct selling channels in
the markets in which the Company operates, which represents 47% of the global
volume of direct sales.
OPERATING STRENGTHS
The Company believes that its success is due to its commitment to provide a
wide range of premium quality, innovative personal care and nutritional
products and an appealing global business opportunity for persons interested
in establishing a direct sales business. The Company has been able to achieve
rapid, sustained and profitable growth by capitalizing on the following
operating strengths:
PREMIUM PRODUCT OFFERINGS. The Company is committed to building its brand
name and distributor and customer loyalty by selling premium quality,
innovative personal care and nutritional products that appeal to broad
markets. This commitment is illustrated by the Company's personal care
products slogan "All of the Good and None of the Bad" and its nutritional
products slogan "Adding Life to Years." The Company offers products designed
for the direct selling channel by focusing on innovative consumable products
which build loyalty and
36
lead to repeat purchases. Management believes that the Company's focus on
innovative products supports its distributors' demonstrative and educational
sales techniques.
GLOBAL DISTRIBUTOR COMPENSATION PLAN. The strength of the Global
Compensation Plan is its seamless integration across all markets in which NSI
products are sold. By entering into international sponsoring agreements with
NSI, distributors are authorized to sponsor new distributors in each country
where NSI or the Company has operations. This allows distributors to receive
commissions for sales at the same rate for sales in foreign countries as for
sales in their home country. This is a significant benefit to distributors
because they are not required to establish new distributorships or requalify
for higher levels of commissions within each new country in which they begin
to operate. The seamless integration of the Global Compensation Plan means
that distributor knowledge and experience can be used to rapidly build
distributor leadership in new markets.
HIGH LEVEL OF DISTRIBUTOR INCENTIVES. The Company believes that the Global
Compensation Plan is among the most financially rewarding plans offered to
distributors by network marketing companies. There are two fundamental ways in
which distributors can earn money: (i) through retail markups, for which the
Company recommends a range from 43% to 60%; and (ii) through a series of
commissions on each product sale which can result in commissions to
distributors aggregating up to 58% of such product's wholesale price. On a
global basis, however, commissions have averaged from 40% to 42% of revenue
from commissionable sales over the last seven years.
NEW MARKET DEVELOPMENT PROGRAM. The Company has developed a low cost,
disciplined approach to opening new markets. Each market opening is preceded
by a thorough analysis of economic and political conditions, regulatory
standards and other business, tax and legal issues. Prior to a market opening,
the Company's management team, in conjunction with NSI support personnel,
local legal counsel and tax advisors, works to obtain all necessary regulatory
approvals and establish facilities capable of meeting distributor needs. This
marked development approach, combined with the Global Compensation Plan, which
motivates distributors to train and sponsor other distributors to sell
products in new markets, has enabled the Company to quickly and successfully
open new markets. See "Risk Factors--Entering New Markets."
DISTRIBUTOR SUPPORT PROGRAMS. The Company is committed to providing a high
level of support services tailored to the needs of its distributors in each
market. The Company meets the needs and builds the loyalty of its distributors
with personalized distributor service, a support staff that assists
distributors as they build networks of downline distributors, and a liberal
product return policy. The Company provides walk-in, telephonic and
computerized product fulfillment and tracking services that result in user-
friendly, timely product distribution. Each walk-in center maintains meeting
rooms which distributors may utilize in training and sponsoring activities.
RELATIONSHIP WITH NSI. NSI, founded in 1984 and based in Provo, Utah, is
engaged in selling personal care and nutritional products and, together with
its affiliates, comprises one of the largest network marketing organizations
in the world. NSI has provided, and will continue to provide, a high level of
support services to the Company, including product development, marketing and
other managerial support services. Management believes that the Company's
relationship with NSI has allowed the Company to increase revenue and net
income at rates that otherwise may not have been possible. See "Risk Factors--
Relationship with and Reliance on NSI; Potential Conflict of Interest."
EXPERIENCED MANAGEMENT TEAM. The Company's senior management team, members
of which founded NSI, has been instrumental in successfully managing the
growth in revenue and net income experienced by the Company to date. The
Company has also attracted experienced local general managers to oversee
operations in Japan, Taiwan, Hong Kong and South Korea.
GROWTH STRATEGY
The Company's primary objective is to capitalize on its operating strengths
to become a leading distributor of consumer products in each of its markets.
Specifically, the Company's strategy to increase revenue and net income is as
follows:
37
INTRODUCE NEW PRODUCTS. Because new products tend to increase sales by
existing distributors and attract new distributors, the Company intends to
continue introducing existing and new NSI products. For example, LifePak, the
Company's most successful nutritional product, is currently available only in
Japan, where, after being introduced in 1995, it has grown to represent
approximately 20% of revenue. The Company intends, subject to regulatory
approval, to introduce LifePak in Taiwan in late 1996 and in Hong Kong in
1997. In addition, the Company expects to launch Epoch, a new line of
ethnobotanical personal care products, in all markets by mid-1997. The Company
also intends to introduce products tailored to specific demographic and
geographic market segments and will consider introducing entirely new product
categories in the future.
OPEN NEW MARKETS. The Company will continue to pursue attractive new market
opportunities. Thailand is the next country in which the Company intends to
commence operations, subject to receipt of necessary government approvals. The
Company's preparatory work for Thailand is currently ongoing. In addition, the
Company has conducted preliminary investigations on the feasibility of
commencing operations in Indonesia, Malaysia, the Philippines, the PRC,
Singapore and Vietnam. The Company believes that these countries may represent
significant markets for the future expansion of its operations. See "Risk
Factors--Entering New Markets."
ATTRACT, RETAIN AND ENHANCE PRODUCTIVITY OF DISTRIBUTORS. To date, the
Company has enjoyed significant growth in the number of its active
distributors (defined as those distributors which have purchased products from
the Company during the previous three months). By leveraging its operating
strengths, the Company intends to continue to create and maintain a business
climate to promote the growth in the number of active distributors and to
increase distributor retention, motivation and productivity. In addition, the
Company will pursue growth in the number of active distributors by continuing
to work with NSI to enhance the Global Compensation Plan, selectively opening
new distributor walk-in centers to provide a local presence in additional key
cities, enhancing distributor recognition programs, and targeting inactive
distributors who may still have an interest in the Company's business
opportunity or products.
INCREASE PRODUCT CONSUMPTION. The Company intends to increase sales to new
and existing consumers through (i) increasing product promotions in marketing
literature, (ii) increasing the availability of sample packages, (iii)
emphasizing product "systems," such as the HairFitness system of various
shampoos and conditioners, which leads to the purchase of multiple products
rather than a single product, and (iv) implementing an automatic reordering
system which is designed to result in convenient repeat purchases.
INDUSTRY OVERVIEW
The distribution of products through the network marketing and other direct
selling channels has grown dramatically in recent years. The WFDSA reports
that, since 1990, worldwide direct distribution of goods and services to
consumers has increased 60%, resulting in the sale of over $72 billion of
goods and services in 1995. According to the WFDSA, $34 billion of goods and
services were sold by its members in 1995 through direct selling channels in
the markets in which the Company currently operates, which represents 47% of
the global volume of direct sales. The Company believes that extended family
relationships, the family culture and the extended social networks common in
Asian countries are particularly well suited to the Company's network
marketing methods. The Company also believes that a variety of recent social
and economic changes which have occurred throughout Asia have had a positive
impact on the Company's revenues and net income. Trends that have benefited
the Company include the emergence of a greater interest on the part of some
Asians in pursuing more independent entrepreneurial activities outside
traditional business settings, an increase in the number of Asian women
joining the work force and an increase in the number of Asians seeking
supplemental income from alternative sources.
The Asian retail market is generally characterized by fragmented
distribution and numerous small retailers who may have only limited knowledge
of the products they sell and may not be able to effectively demonstrate their
products to customers. In Japan, these problems are further exacerbated by the
multi-tiered, traditional Japanese distribution system which has proven
difficult for many foreign manufacturers to penetrate. Outside of
38
Japan, the general lack of a developed distribution infrastructure throughout
Asia has fostered and encouraged the growth of direct selling as a significant
distribution channel. Given this environment, the Company believes that the
high level of personal service provided by direct selling companies, including
convenient in-home demonstrations, easy-access product ordering, timely
delivery and product return policies, provides additional value to consumers.
In addition, rapidly growing Asian economies and a growing demand in Asia for
Western brand name products has fueled the growth and demand for high quality
consumer products.
COUNTRY PROFILES
The following table sets forth the Company's revenue and the total number of
active distributors for each of the countries in which the Company currently
operates for the years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1996.
SIX
MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- JUNE 30,
COUNTRY 1994 1995 1996
------- ----------- ----------- --------
(DOLLARS IN THOUSANDS)
Revenue:
Japan.................................... $ 172,960 $ 231,540 $166,513
Taiwan................................... 79,219 105,415 67,561
Hong Kong................................ 10,880 17,046 8,093
South Korea(/1/)......................... -- -- 43,407
----------- ----------- --------
Total(/2/)............................. $ 263,059 $ 354,001 $285,574
=========== =========== ========
Active Distributors(/3/)(/4/):
Japan.................................... 106,000 147,000 195,000
Taiwan................................... 53,000 75,000 93,000
Hong Kong................................ 11,000 14,000 14,000
South Korea(/1/)......................... -- -- 82,000
----------- ----------- --------
Total.................................. 170,000 236,000 384,000
=========== =========== ========
--------
(1) The Company commenced operations in South Korea in February 1996.
(2) Does not include sales of certain products to NSI affiliates in
Australia and New Zealand of $1.4 million, $4.6 million and $2.1
million in 1994, 1995 and the first six months of 1996,
respectively.
(3) "Active Distributors" include only those distributors who
purchased products from the Company during the three months ended
as of the date indicated.
(4) Numbers are rounded to the nearest thousand.
The following table sets forth certain estimated economic and demographic
data regarding the Company's markets:
REAL GDP
1995 POPULATION 1995 GDP 1995 GDP GROWTH
COUNTRY (IN MILLIONS) (IN BILLIONS OF $) PER CAPITA (IN $) 1995/1994(%)
------- --------------- ------------------ ----------------- ------------
Japan................... 125.3 $4,645.5 $37,672 0.9%
Taiwan.................. 21.2 259.9 13,403 6.1
Hong Kong............... 6.2 144.3 26,442 5.0
South Korea............. 44.9 446.4 11,422 8.1
- --------
Source: World Information Sources; Country Data Forecasts March, 1996.
JAPAN. The Company, through its subsidiary Nu Skin Japan, commenced
operations in Japan in April 1993. According to the WFDSA, the direct selling
channel in Japan generated sales of approximately $30 billion of goods and
services in 1995, making Japan the largest direct selling market in the world.
Management believes that as many as six million people are involved in direct
selling businesses in Japan.
39
To date, the Company has experienced significant growth in Japan, where
revenue increased 34% in 1995 compared to 1994 and has continued to grow at
44% on an annualized basis for the six months ended June 30, 1996. Significant
revenue was recognized from the outset of the Company's operations in Japan
due to the immediate attention given to the market by leading NSI distributors
from around the world. A great deal of the Company's success to date can be
directly attributed to the growth of its Japanese business in recent years.
Furthermore, given the size of the Japanese market, management believes that
there is significant opportunity for expansion of its market share. Nu Skin
Japan currently offers 50 of the 80 NSI personal care products and 9 of the 30
IDN products, including LifePak, the core IDN product. Additionally, Nu Skin
Japan offers 11 personal care products that are manufactured in Japan and are
specifically targeted to the Japanese market.
In support of the Company's growth strategy, Nu Skin Japan intends to (i)
focus on internal country development by opening offices in additional
Japanese cities, thereby increasing consumer awareness and enhancing the
Company's image; (ii) expand development capacity to develop more products
that are particularly suited to the Japanese market; and (iii) enhance
corporate support of distributors by upgrading information technology
resources.
TAIWAN. The Company, through its subsidiary Nu Skin Taiwan, commenced
operations in Taiwan in January 1992. According to the WFDSA, the direct
selling channel in Taiwan generated approximately $2 billion in sales of goods
and services in 1995, of which 43% were nutritional products. Currently, two
million people (approximately 10% of the population) are estimated to be
involved in direct selling.
Revenue growth in Taiwan has averaged 52% on an annualized basis since 1992.
The Company believes that the recent increase in sales is primarily due to (i)
the opening of walk-in centers in Kaohsiung and Taichung; (ii) increased
distributor training and recognition; and (iii) increased product offerings.
Based on information provided by the Taiwan Direct Selling Association, Nu
Skin Taiwan is the third largest direct selling business in Taiwan. Management
believes that Nu Skin Taiwan has captured approximately 31% and 1% of the
market for personal care products and nutritional supplements, respectively,
sold through the direct selling channel. Nu Skin Taiwan currently offers 55 of
the 80 NSI personal care products and 7 of the 30 IDN products.
In support of the Company's growth strategy, Nu Skin Taiwan intends to (i)
capitalize on the size of the nutritional supplements market by expanding the
current product offerings in Taiwan to include additional NSI products, in
particular LifePak, which, subject to regulatory approval, is scheduled for
introduction in Taiwan by the end of 1996, (ii) focus more resources on
product development specifically for the Taiwanese market, (iii) add
additional walk-in distribution and distributor support centers in additional
major cities, and (iv) enhance corporate support of distributors by upgrading
information technology resources.
HONG KONG. The Company, through its subsidiary Nu Skin Hong Kong, commenced
operations in Hong Kong in September 1991. According to the WFDSA, the direct
selling channel in Hong Kong generated approximately $78 million in sales of
goods and services in 1995. Hong Kong represents an important market in the
structure of the Asian region because it serves as the location of the
Company's regional office and is an important base of operations for many of
the Company's most successful distributors, whose downline distributor
networks extend into other Asian markets. Nu Skin Hong Kong currently offers
69 of the 80 NSI personal care products and 13 of the 30 IDN products.
Hong Kong is currently a British Crown Colony and is scheduled to become a
Special Administrative Region ("SAR") of the PRC effective July 1, 1997. The
further integration of the Hong Kong economy and political system with the
economy and political system of the PRC could have an impact on the Company's
business in Hong Kong. See "Risk Factors--Possible Adverse Effect on the
Company of a Change in the Status of Hong Kong."
In February 1995, Macau, a Portuguese colony scheduled to become an SAR of
the PRC in 1999, was opened as a new market. Revenue figures for Macau are
combined with those of Hong Kong. Macau represents the smallest of the
Company's markets in population, with just under 500,000 residents. The
Company's Macau office works under the direction of Nu Skin Hong Kong.
40
In support of the Company's growth strategy, Nu Skin Hong Kong intends to
(i) promote distributor growth, retention and leadership development through
local initiatives such as a recently opened "distributor business center,"
which provides offices for distributors to rent, at cost, from which they can
conduct business; (ii) seek regulatory approvals for the introduction of
LifePak; which is not yet available in Hong Kong, and (iii) stimulate
purchases from inactive distributors through direct mail campaigns.
SOUTH KOREA. The Company, through its subsidiary Nu Skin Korea, commenced
operations in South Korea in February 1996. According to the WFDSA, the direct
selling channel in South Korea generated approximately $1.7 billion in sales
of goods and services in 1995.
The Company's sales in South Korea exceeded $43 million through June 30,
1996, making the Company the second largest direct seller in the country. Nu
Skin Korea currently offers 26 of the 80 NSI personal care products and none
of the IDN products. Nu Skin Korea was among the first foreign-owned firms to
register and begin operations under the new direct selling legislation
implemented in 1995. Management believes that significant competition will
soon enter the South Korean market. See "Risk Factors--Competition" and "--
Competition."
In support of the Company's growth strategy, Nu Skin Korea intends to (i)
continue to add products from NSI's personal care product line to stimulate
new sales; (ii) seek regulatory approvals for the introduction of IDN
products; (iii) continue to develop an infrastructure to support a rapidly
growing distributor base, including, but not limited to, adding additional
walk-in centers in major South Korean cities; and (iv) promote the development
of local distributor leadership.
NEW MARKET OPPORTUNITIES
The Company has developed a low cost, disciplined approach to opening new
markets. Each market opening is preceded by a thorough analysis of economic
and political conditions, regulatory standards and other business, tax and
legal issues. Prior to a market opening, the Company's management team, in
conjunction with NSI support personnel, local legal counsel and tax advisors,
works to obtain all necessary regulatory approvals and establish facilities
capable of meeting distributor needs. This approach, combined with the Global
Compensation Plan, which motivates distributors to sponsor and train other
distributors to sell products in new markets, has enabled the Company to
quickly and successfully open new markets.
The Company, as a matter of policy, does not announce the timing of its
opening of new markets. However, the Company has announced that its next new
market expansion efforts will be in Thailand and anticipates opening this
market upon receipt of all final government approvals. In addition to
Thailand, the Company is the exclusive distributor of NSI products in
Indonesia, Malaysia, the Philippines, the PRC, Singapore and Vietnam. The
Company believes that these countries collectively represent significant
markets for future expansion. There are, however, significant risks and
uncertainties associated with this expansion. See "Risk Factors--Entering New
Markets."
The following table sets forth certain economic and demographic data
regarding the countries for which the Company has an exclusive license but in
which the Company has not commenced operations.
1995 POPULATION 1995 GDP 1995 GDP REAL GDP GROWTH
COUNTRY (IN MILLIONS) (IN BILLIONS OF $) PER CAPITA (IN $) 1995/1994
------- --------------- ------------------ ----------------- ---------------
Thailand................ 60.7 $ 162.7 $ 3,033 8.6%
Indonesia............... 203.1 196.4 1,066 8.0%
Malaysia................ 20.0 86.5 4,826 9.6%
Philippines............. 68.9 74.6 1,186 4.8%
PRC..................... 1,227.0 673.5 680 10.2%
Singapore............... 3.0 79.2 29,573 8.9%
Vietnam................. 74.7 22.8 379 9.5%
--------
Source: World Information Services; Country Data Forecasts March, 1996
41
THAILAND. According to the WFDSA, direct sales in 1995 totaled $562 million
in Thailand. This makes Thailand the sixteenth largest direct selling market
worldwide. In opening the Thailand market, the Company does not anticipate a
material departure from its traditional business model.
INDONESIA. Indonesia has experienced a recent emphasis on deregulation and
private enterprise and an average annual growth in GDP of 6% from 1985 to
1994. The Indonesian Direct Selling Association reports that there are 600,000
participants in direct selling in the country. Management believes that the
combination of the above factors creates an attractive opportunity for
expansion.
MALAYSIA. According to the WFDSA, more than $640 million in goods and
services were sold through the direct selling channel in Malaysia in 1995.
There are currently several direct selling companies operating in Malaysia. In
October 1995, the Company's business permit applications were denied by the
Malaysian government as the result of activities by certain NSI distributors
before required government approvals could be secured. See "Risk Factors--
Reliance Upon Independent Distributors of NSI; Effect of Adverse Publicity."
Management is reevaluating the time frame in which it will reapproach the
Malaysian market.
PHILIPPINES. Even though the per capita GDP in the Philippines is low, the
Company believes that there is demand for premium personal care and nutrition
products, especially near Manila, the capital city, which, in 1995, had a
population of 11 million. Management believes that nearly $500 million of
goods and services are sold annually through the direct selling channel and
that more than 20 international direct selling companies currently operating
in the Philippines.
PRC. With the PRC's large population and the Company's success in the
neighboring and Chinese-speaking countries of Hong Kong and Taiwan, management
believes that the PRC will be an attractive market for the Company. The PRC
government and local jurisdictions have recently initiated rules and
regulations for network marketing companies. The Company believes that it will
be able to comply with these regulations in operating a network marketing
business in the PRC. See "Risk Factors--Reliance Upon Independent Distributors
of NSI; Effect of Adverse Publicity."
SINGAPORE. In Singapore, relatively high levels of GDP per capita indicate
that the country enjoys strong consumer buying power and a dynamic market
structure similar to Hong Kong. Although direct selling activities are
permitted, currently network marketing is not allowed in Singapore. See "Risk
Factors--Entering New Markets."
VIETNAM. The Company believes that there is little or no direct selling
activity in Vietnam. However, the country is moving towards a market-based
economy and has recently adopted a freely convertible currency. The Company
anticipates that the increase in free enterprise will help to develop the
direct selling channel.
DISTRIBUTION SYSTEM
OVERVIEW OF DISTRIBUTION SYSTEM. The foundation of the Company's sales
philosophy and distribution system is network marketing. Under most network
marketing systems, distributors purchase products for retail sale or personal
consumption. Pursuant to the Global Compensation Plan, products are sold
exclusively to or through independent distributors who are not employees of
the Company or NSI. Distributors contract directly with NSI, and NSI makes
such distributors available to the Company through Licensing and Sales
Agreements. See "--Relationship with NSI" and "Certain Relationships and
Related Transactions."
Network marketing is an effective vehicle to distribute the Company's
products because (i) a consumer can be educated about a product in person by a
distributor, which is more direct than the use of television and print
advertisements; (ii) direct sales allow for actual product testing by a
potential consumer; (iii) the impact of distributor and consumer testimonials
is enhanced; and (iv) as compared to other distribution methods, distributors
can give customers higher levels of service and attention, by, among other
things, delivering products to a consumer's home and following up on sales to
ensure proper product usage, customer satisfaction, and to encourage repeat
purchases. Under most network marketing systems, independent distributors
purchase products either for resale or for personal consumption.
42
Direct selling as a distribution channel has been enhanced in the past
decade due to advancements in communications, including telecommunications,
and the proliferation of the use of videos and fax machines. Direct selling
companies can now produce high quality videos for use in product education,
demonstrations and sponsoring sessions that project a desired image for the
Company and the product line. Management believes that high quality sales aids
play an important role in the success of distributor efforts. For this reason,
NSI maintains an in-house staff of video production personnel and video and
audio cassette duplication equipment for timely and cost-effective production
of sales materials. These facilities and expertise are available for the
Company's use. Management is committed to fully utilizing current and future
technological advances to continue enhancing the effectiveness of direct
selling.
NSI's network marketing program differs from many other network marketing
programs in several respects. First, the Global Compensation Plan allows NSI
distributors to develop a seamless global network of downline distributors.
Second, NSI's order and fulfillment systems eliminate the need for
distributors to carry significant levels of inventory. Third, the Global
Compensation Plan is among the most financially rewarding plans offered to
distributors by network marketing companies, and can result in commissions to
distributors aggregating up to 58% of a product's wholesale price. On a global
basis, commissions have averaged 40% to 42% of revenue from commissionable
sales over the last seven years.
SPONSORING. The Company relies solely on its distributor force to sponsor
new distributors. While the Company provides, at cost, product samples,
brochures, magazines and other sales materials, distributors are primarily
responsible for educating new distributors with respect to products, the
Global Compensation Plan, and how to build a successful distributorship.
The sponsoring of new distributors creates multiple levels in the network
marketing structure. Persons whom a distributor sponsors are referred to as
"downline" or "sponsored" distributors. If downline distributors also sponsor,
they create additional levels in the structure, but their downline
distributors remain part of the same distribution line as their original
sponsors. See "Risk Factors--Concentration of Distributors; Reliance on
Distributor Networks."
Sponsoring activities are not required of distributors. However, because of
the financial incentives provided to those who succeed in building a
distributor network, the Company believes that most of its distributors
attempt, with varying degrees of effort and success, to sponsor additional
distributors. Generally, distributors invite friends, family members and
acquaintances to sales meetings where Company products are presented and where
the Global Compensation Plan is explained. People are often attracted to
become distributors after using Company products and becoming regular retail
customers. Once a person becomes a distributor, he or she is able to purchase
products directly from the Company at wholesale prices for resale to consumers
or for personal consumption. The distributor is also entitled to sponsor other
distributors in order to build a network of distributors and product users.
A potential distributor must enter into a standard distributor agreement
with NSI which obligates the distributor to abide by NSI's policies and
procedures. Additionally, in all countries except Japan, a new distributor is
required to enter into a product purchase agreement with the Company's local
Subsidiary, which governs product purchases. In Japan, Taiwan and Hong Kong,
distributors are also required to purchase a starter kit, which includes NSI's
policies and procedures, for between $55 and $85, which essentially represents
the cost of producing the starter kit, and active distributors are required to
pay the Company an Annual Materials Fee ("AMF") of up to $35 to cover the cost
of newsletters, magazines and updates that are mailed regularly to them. In
South Korea, due to local regulations, distributors are not required to
purchase a starter kit, and active distributors are not required to pay an
AMF.
GLOBAL COMPENSATION PLAN. One of the Company's key competitive advantages is
the Global Compensation Plan, which it licenses from NSI. The Global
Compensation Plan is seamlessly integrated across all markets in which NSI
products are sold. This seamless integration means that the Company's
distributor base has global reach and that the knowledge and experience
resident in current distributors can be used to build
43
distributor leadership in new markets. By entering into international
sponsoring agreements with NSI, distributors are authorized to sponsor new
distributors in each country where NSI or the Company has operations. These
countries currently include the U.S., the United Kingdom, Puerto Rico, Canada,
Taiwan, Hong Kong (including Macau), Japan, South Korea, Australia, New
Zealand, Ireland, Germany, France, the Netherlands, Belgium, Italy, Spain,
Mexico and Guatemala. This allows distributors to receive commissions at the
same rate for sales in foreign countries as for sales in their home country.
This is a significant benefit to distributors because they are not required to
establish new distributorships or requalify for higher levels of commissions
within each new country in which they begin to operate. Under the Global
Compensation Plan, a distributor is paid consolidated monthly commissions in
the distributor's home country, in local currency, for product sales in that
distributor's global downline distributor network. Current and future
distributor lists have been licensed by NSI to the Company, pursuant to
Licensing and Sales Agreements. See "--Relationship with NSI" and "Certain
Relationships and Related Transactions."
The Global Compensation Plan allows an individual the opportunity to develop
a business, the success of which is based upon that individual's level of
commitment, time, enthusiasm, personal skills, contacts, and motivation. For
many, a distributorship is a very small business, in which products may be
purchased primarily for personal consumption and for resale to relatively few
customers. For others, a distributorship becomes a full-time occupation.
HIGH LEVEL OF DISTRIBUTOR INCENTIVES. The Company believes that the Global
Compensation Plan is among the most financially rewarding plans offered to
distributors by network marketing companies. There are two fundamental ways in
which distributors can earn money: (i) through retail markups, for which the
Company recommends a range from 43% to 60%; and (ii) through a series of
commissions on product sales, which can result in commissions to distributors
aggregating up to 58% of such product's wholesale price. On a global basis,
however, commissions have averaged from 40% to 42% of revenue from
commissionable sales for each of the last seven years.
Each product carries a specified number of sales volume points. Commissions
are based on total personal and group sales volume points per month. Sales
volume points are essentially based upon a product's wholesale cost, net of
any point of sale taxes. As a distributor's retail business expands and as he
or she successfully sponsors other distributors into the business who in turn
expand their own businesses, he or she receives a higher percentage of
commissions.
Once a distributor becomes an executive ("Executive"), the distributor can
begin to take full advantage of the benefits of commission payments on
personal and group sales volume. To achieve Executive status, a distributor
must submit a qualifying letter of intent and achieve specified personal and
group sales volumes for a four-month period of time. To maintain Executive
status, a distributor must generally also maintain specified personal and
group sales volumes each month. An Executive's commissions increase
substantially as multiple downline distributors achieve Executive status. In
determining commissions, the number of levels of downline distributors that
can be included in an Executive's group increases as the number of executive
distributorships directly below the Executive increases.
As of the dates indicated below, the Company had the following number of
Executive distributors.
TOTAL NUMBER OF EXECUTIVE DISTRIBUTORS
AS OF DECEMBER 31, AS OF
--------------------------- JUNE 30,
EXECUTIVE DISTRIBUTORS 1992 1993 1994 1995 1996
---------------------- ----- ----- ----- ----- --------
Japan................................... -- 2,459 3,613 4,017 7,422
Taiwan.................................. 551 1,170 2,093 3,014 3,685
Hong Kong............................... 164 275 377 519 507
South Korea............................. -- -- -- -- 832
----- ----- ----- ----- ------
Total................................. 715 3,904 6,083 7,550 12,446
===== ===== ===== ===== ======
44
On a monthly basis, the Company and NSI evaluate requests for exemptions to
the Global Compensation Plan to determine whether technical exemptions should
be granted. While the general policy is to discourage exceptions, management
believes that the flexibility to grant such exceptions is critical in
retaining distributor loyalty and dedication. In each market, distributor
services personnel evaluate each such instance and appropriate recommendations
are made to NSI.
DISTRIBUTOR SUPPORT. The Company is committed to providing a high level of
support services tailored to the needs of its distributors in each market. The
Company meets the needs and builds the loyalty of its distributors with
personalized distributor service, a support staff that assists distributors as
they build networks of downline distributors, and a liberal product return
policy. Because many distributors have only a limited number of hours each
week to concentrate on their Nu Skin business, management believes that
maximizing a distributor's efforts through effective support of each
distributor has been and will continue to be important to the success of the
Company.
Through training meetings, annual conventions, distributor focus groups,
regular telephone conference calls and personal contacts with distributors,
the Company seeks to understand and satisfy the needs of each distributor. The
Company provides walk-in, telephonic and computerized product fulfillment and
tracking services that result in user-friendly, timely product distribution.
In addition, the Company is committed to evaluating new ideas in technology
and services, such as automatic product reordering, that the Company can
provide to distributors. The Company currently utilizes voicemail,
teleconferencing and fax services. Global Internet access (including Company
and product information, ordering abilities and group and personal sales
volume inquiries) is anticipated to be provided to distributors in the future.
Each walk-in center maintains meeting rooms which distributors may utilize in
training and sponsoring activities.
RULES AFFECTING DISTRIBUTORS. NSI's standard distributor agreement, policies
and procedures, and compensation plan contained in every starter and/or
introductory kit outline the scope of permissible distributor marketing
activities. The Company's distributor rules and guidelines are designed to
provide distributors with maximum flexibility and opportunity within the
bounds of governmental regulations regarding network marketing. Distributors
are independent contractors and are thus prohibited from representing
themselves as agents or employees of NSI or the Company. Distributors are
obligated to present the Company's products and business opportunity ethically
and professionally. Distributors agree that the presentation of the Company's
business opportunity must be consistent with, and limited to, the product
claims and representations made in literature distributed by the Company. No
medical claims may be made regarding the products, nor may distributors
prescribe any particular product as suitable for any specific ailment. Even
though sponsoring activities can be conducted in many countries, distributors
are prohibited from conducting marketing activities outside of countries in
which NSI and the Company conduct business and are not allowed to export
products from one country to another. Prior to the commencement of Company
operations in a new country, distributor activity is restricted to discussions
of the product line and business opportunity with personal acquaintances.
Distributors must represent that the receipt of commissions is based on
substantial efforts. Exhibiting commission statements or checks is prohibited.
Sales aids such as videotapes, promotional clothing, pens, stationary and
other miscellaneous items must be produced or pre-approved by the Company or
NSI.
Distributors may not use any form of media advertising to promote products.
Products may be promoted only by personal contact or by literature produced or
approved by the Company. Generic business opportunity advertisements (without
using either the Company or the NSI names) may be placed in accordance with
certain guidelines in some countries. NSI logos and names may not be
permanently displayed on physical premises. Distributors may not use NSI
trademarks or other intellectual property of NSI without NSI's consent.
Products may not be sold, and the business opportunity may not be promoted,
in traditional retail environments such as food markets, pharmacies and
drugstores. Nor may business be conducted at conventions,
45
trade shows, flea markets, swap meets, and similar events. Distributors who
own or are employed by a service-related business such as a doctor's office,
hair salon, or health club, may make products available to regular customers
as long as products are not displayed visibly to the general public in such a
way as to attract the general public into the establishment to purchase
products.
Generally, distributors can receive commission bonuses only if, on a monthly
basis (i) the distributor achieves at least 100 points (approximately U.S.
$100) in personal sales volume, (ii) the distributor documents retail sales to
at least five retail customers, (iii) the distributor sells and/or consumes at
least 80% of personal sales volume, and (iv) the distributor is not in default
of any material policies or procedures.
If NSI determines that a distributor has violated any of the distributor
policies or procedures, it may either terminate the distributor's rights
completely or impose sanctions such as warnings, probation, withdrawal or
denial of an award, suspension of privileges of a distributorship, fines or
penalties, withholding commissions until specified conditions are satisfied,
or other appropriate injunctive relief. Distributors may voluntarily terminate
their distributorship at any time.
PAYMENT. Distributors pay for products prior to or shortly after shipment.
Accordingly, the Company carries minimal accounts receivable. Distributors pay
for products in one of several ways. Cash, which represents a large portion of
all payments, is received by order takers in the distribution center when
orders are personally picked up by a distributor. In addition, in Japan cash
is sent through the mail using a postal cash envelope. The Company also
accepts payment through the use of credit cards. This method of payment is
very popular in Hong Kong and Taiwan and is expected to increase in popularity
in South Korea. Another form of payment utilized in Japan is a Tososhin card,
which is essentially a distributor credit card utilized to place orders. Bank
wire transfers are also popular throughout Asia, particularly in Japan.
46
PRODUCT SUMMARY
The Company offers products in two distinct categories: personal care
products, marketed under the trademark "Nu Skin," and nutritional products,
marketed under the trademark "Interior Design Nutritionals" (IDN). The Company
is entitled to distribute NSI products in specified Asian countries pursuant
to a Regional Distribution Agreement. See "--Relationship with NSI." NSI
markets 80 different personal care and 30 different nutritional products, of
which 69 and 13, respectively, are available in the Company's current markets.
Nearly all products sold by the Company are purchased from NSI, with the
exception of a line of 11 personal care products which are produced locally in
Japan. In addition to products, the Company offers a variety of sales aids,
including items such as starter kits, introductory kits, brochures, product
catalogs, videotape and personal care accessories.
The following chart indicates how many of the NSI personal care and IDN
products available as of June 30, 1996, in each of the Company's current
markets.
PERSONAL CARE AND IDN PRODUCT OFFERINGS
PRODUCT CATEGORIES /PRODUCT
LINES TOTAL PRODUCTS OFFERED IN THE CURRENT COUNTRIES
- --------------------------- PRODUCTS ----------------------------------------------------
OFFERED BY HONG SOUTH
NSI JAPAN TAIWAN KONG KOREA
---------- ----- ---------- ---------- ----------
Personal Care:
Facial Care.............. 17 10(/1/) 13 15 9
Body Care................ 12 9 9 12 7
Hair Care................ 14 13 13 13 10
Color Cosmetics.......... 11 10 10 10 -
Specialty................ 26 8 10 19 -
--- ---------- ---------- ---------- ----------
Total.................. 80 50 55 69 26
=== ========== ---------- ========== ==========
IDN:
Nutritional Supplements.. 18 7 5 10 -
Weight Management
Products and Nutritious
Snacks.................. 8 1 2 3 -
Sports Nutrition......... 4 1 - - -
--- ---------- ---------- ---------- ----------
Total.................. 30 9 7 13 -
=== ========== ========== ========== ==========
--------
(1) In Japan, the Company also sells 11 locally sourced facial care
products.
Presented below are the dollar amount and percentage of revenue of each of
the two product categories and other sales aid revenue for the years ended
December 31, 1994 and 1995, and for the six months ended June 30, 1996.
REVENUE BY PRODUCT CATEGORY
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996
------------------- ------------------- ------------------
PRODUCT CATEGORY $ % $ % $ %
---------------- ---------- -------- ---------- -------- --------- --------
(DOLLARS IN THOUSANDS)
Personal care..... $ 241,188 91.2% $ 308,145 85.9% $ 213,707 74.3%
Nutritional....... 5,464 2.1 16,298 4.5 51,065 17.7
Sales aids........ 17,788 6.7 34,166 9.6 22,939 8.0
---------- ------- ---------- ------- --------- ------
Total........... $ 264,440 100.0% $ 358,609 100.0% $ 287,711 100.0%
========== ======= ========== ======= ========= ======
47
PERSONAL CARE PRODUCTS
The Company's current personal care products category is divided into the
following lines: facial care, body care, hair care and color cosmetics, as
well as specialty products, such as sun protection, oral hygiene and
fragrances. Each of the Subsidiaries markets a variety of the 80 personal care
products currently offered by NSI. The Company also offers product sets that
include a variety of products in each product line as well as small, sample-
size packages to facilitate product sampling by potential consumers. The
product sets are especially popular during the opening phase of a new country,
where distributors and consumers are anxious to purchase a variety of
products, and during holiday and gift giving seasons in each market. The
Company anticipates the introduction of additional personal care products into
each market, based on the likelihood of the particular product's success in
the market as well as applicable regulatory approvals.
The personal care products offered in Taiwan and Hong Kong are substantially
the same formulations of the products offered by NSI in the U.S. In Japan and
South Korea, however, most of the products have been reformulated to satisfy
certain regulatory requirements with respect to product ingredients and
preservatives and to meet the preferences of Japanese and South Korean
consumers.
The following is a brief description of each line within the personal care
product category offered by the Company as of June 30, 1996:
FACIAL CARE. The goal of the facial care line is to allow users to cleanse
thoroughly without causing dryness and to moisturize with effective humectants
that allow the skin to attract and retain vital water. The Company's facial
care line currently consists of 17 different products: Cleansing Lotion,
Facial Scrub, Exfoliant Scrub, Facial Cleansing Bar, Clay Pack, pH Balance
Facial Toner, NaPCA Moisturizer, Rejuvenating Cream, Celltrex (called Hylatrex
in Japan and South Korea), Intensive Eye Complex, HPX Hydrating Gel, Face Lift
and Activator (two formulas for sensitive and normal skin), Jungamals Lip
Balm, Clarifex Cleansing Scrub, Clarifex Mud, Alpha Extra Face and Nu Colour
Eye Makeup Remover.
BODY CARE. The Company's line of body care products relies on premium
quality ingredients to cleanse and condition skin. The cleansers are uniquely
formulated without soap, and the moisturizers contain light but effective
humectants and emollients. The Company's body care line currently consists of
12 products: Antibacterial Body Cleansing Gel, Liquid Body Lufra, Body
Smoother, Hand Lotion, NaPCA Moisture Mist, Body Bar, Body Cleansing Gel,
Enhancer, Glacial Marine Mud (Original), Jungamals Crazy Crocodile Cleaner,
Jungamals Rhino Ray Resister and Alpha Extra Body. Glacial Marine Mud
(Original) is exclusively licensed to NSI for sale in the direct selling
channel.
HAIR CARE. The Company's hair care line, HairFitness, is designed to meet
the needs of people with all types of hair and hair problems. Focusing on the
condition of the scalp and its impact on hair quality, the Company's hair care
products use water-soluble conditioners like panthenol to reduce build-up on
the scalp and to promote healthy hair. HairFitness includes 12 products
featuring ceregen, a revolutionary wheat hydrocolloid complex of conditioning
molecules that have been shown to have dramatic hair repair and moisture
control aspects: 3 in 1 Shampoo, Moisturizing Shampoo, Balancing Shampoo,
Vital Shampoo, Deep Clarifying Shampoo, Glacial Therapy, Weightless
Conditioner, Luxurious Conditioner, Conditioning Detangler Spray, Styling Gel,
Holding Spray and Mousse (Styling Foam). The Company also carries Dermanator
Shampoo and Jungamals Tiger Tangle Tamer Shampoo.
COLOR COSMETICS. In the latter part of 1995, the Company introduced Nu
Colour, a new line of color cosmetics, in Hong Kong, Taiwan and Japan. The Nu
Color line consists of 11 products with 72 sku's including MoistureShade
Liquid Finish (10), MoistureShade Pressed Powder (4), Blush Duo (5), Eye
Shadow Trio (6), Mascara (2), Eyeliner (3), Lip Liner (5), Lipstick (20),
DraMATTEics Lip Pencils (6), Nu Colour Moisture Finish (10), and Lip Gloss.
SPECIALTY PRODUCTS. The Company recently introduced a product line labeled
Epoch, a unique line of ethnobotanical personal care products created in
cooperation with well known ethnobotanists. These products,
48
which unite natural compounds used by indigenous cultures with advanced
scientific ingredients, include Glacial Marine Mud, Deodorant with Citrisomes,
Polishing Bar, LeafClean Hand Wash, Everglide Foaming Shave Gel, Desert Breeze
Aftershave and Post Shave Lotion for Women. Epoch will be launched in the fall
of 1996 in Hong Kong and Taiwan and is currently expected to be launched,
subject to regulatory approval, in the spring of 1997 in Japan and South
Korea. Glacial Marine Mud is exclusively licensed to NSI for sale in the
direct selling channel.
Nutriol, a line of products exclusively licensed to NSI for sale in the
direct selling channel and manufactured in Europe, consists of five products:
Nutriol Hair Fitness Preparation, Nutriol Shampoo, Nutriol Mascara, Nutriol
Nail and Nutriol Eyelash. Nutriol represents a product designed to replenish
the hair's vital minerals and elements. Each Nutriol product uses
mucopolysaccharide, a patented ingredient.
The Company's line of Sunright products is designed to provide a variety of
sun screen protection with non-irritating and non-greasy products. The sun
protection line includes a sun preparation product that prepares the skin for
the drying impact of the sun, five sun screen alternatives with various levels
of SPF, and a sun screen lip balm. In the Asian market, the Company's sun care
line is currently available in Hong Kong and Japan. At present, Sunright Prime
Pre & Post Sun Moisturizer and Sunright Lip Balm are not available in Japan.
AP-24, a line of oral health care products which incorporates anti-plaque
technology designed to help prevent plaque build-up 24 hours a day, is
exclusively licensed to the Company, together with the associated trademark,
for sale in the direct selling channel under the trademark AP-24. This product
line includes AP-24 Anti-Plaque Toothpaste, AP-24 Anti-Plaque Mouthwash, AP-24
Triple Action Dental Floss and AP-24 Anti-Plaque Breath Spray. These products
are currently available in Hong Kong and Taiwan. The Company currently intends
to launch this product line, subject to regulatory approval, in South Korea
and Japan in 1997. The AP-24 oral health care products for kids offers
products designed to make oral care fun for children, including Jungamal's
Tough Tusk Toothpaste and Jungamal's Fluffy Flamingo Floss.
The Company offers a men's and a women's fragrance under the Nu Skin
trademark Safiro.
PRODUCT SETS. The Company currently offers product sets that include a
sampling of products from a given product line. These package configurations
are intended to encourage increased product trials.
INTERIOR DESIGN NUTRITIONALS
The IDN product category is comprised of 30 products in the following lines:
nutritional supplements, weight management products and nutritious snacks, and
sports nutrition. IDN is designed to promote healthy, active lifestyles and
general well-being through proper diet, exercise and nutrition. Although less
developed in the Asian market than the personal care category, each of the
Subsidiaries, except Nu Skin Korea, markets a variety of the IDN products
offered by NSI. In the United States, the IDN division is an official licensee
of the U.S. Olympic Committee.
The Company believes that the nutritional supplement market is expanding in
Asia because of changing dietary patterns, a health-conscious population and
recent reports supporting the benefits of using vitamin and mineral
nutritional supplements. This product line is particularly well suited to
network marketing because the average consumer is often uneducated regarding
nutritional products. The Company believes that network marketing is a more
efficient method than traditional retailing channels in educating consumers
regarding the benefits of nutritional products. Because of the numerous over-
the-counter vitamin and mineral supplements in Asia, the Company is confident
that individual attention and testimonials by distributors will provide
information and comfort to a potential consumer.
IDN products generally require reformulation to satisfy the strict
regulatory requirements of each Asian market. While each product's concept and
positioning are generally the same, regulatory differences between U.S. and
Asian markets result in some product ingredient differences. In addition,
Asian preferences and regulations favor tablets instead of gel caps, which are
typically used in the U.S.
49
The following is a brief description of each of the IDN product lines:
NUTRITIONAL SUPPLEMENTS. LifePak, the core IDN nutritional supplement, is
designed to provide an optimum mix of nutrients including vitamins, minerals,
antioxidants and phytonutrients (natural chemical extracts from plants). The
introduction of LifePak in Japan in October 1995 resulted in a significant
increase in revenue and currently represents 20% of the Company's sales in
Japan. LifePak is scheduled for launch in Taiwan in the fall of 1996.
Additional nutritional supplements include: Vitox, which incorporates beta
carotene and other important vitamins for overall health; Metabotrim, which
provides B vitamins necessary to convert food to energy and chromium chelate
which has been shown to help preserve lean muscle mass; Optimum Omega, a pure
source of omega 3 fatty acids aimed to improve cardiovascular health; Image
HNS, an all-around vitamin and antioxidant supplement; and Optigar Q, a blend
of co-enzyme Q10 and deodorized garlic. The IDN Masters Wellness System
provides a nutritional program specifically for an aging generation. Jungamals
Children's Chewables combine natural flavors and colors and contain a unique
blend of antioxidants, chelated minerals, and vitamins specifically tailored
for children. NutriFi contains four grams of soluble and insoluble fibers per
serving in a powder that can be added to liquids and foods to supplement the
recommended daily amounts of fiber.
The Company also offers a number of nutritional drinks. Hot & Healthy,
unlike traditional hot drinks, is 100% caffeine-free and contains beneficial
ingredients such as Korean Panax Ginseng and grape seed extract. Splash C with
juice crystals is a healthy beverage providing significant doses of vitamins C
and E as well as calcium in each serving. Real fruit juice crystals are added
to create orange or lemon flavor.
IDN's botanical line contains phytonutrients for those who seek natural
ingredients in dietary supplements and is designed to address specific areas
of need. The botanicals, offered in eight different dietary supplements,
provide natural ingredients without sugar, salt, wheat, dairy products,
artificial colors, chemicals or preservatives.
WEIGHT MANAGEMENT PRODUCTS AND NUTRITIOUS SNACKS. As part of its mission to
promote a healthy lifestyle and long-term wellness, IDN includes a Weight
Management Lifestyle System (which includes LifePak and Metabotrim),
Breakbars, which provide carbohydrates, protein and fiber, Appeal Lite, a
nutritional drink containing chelated minerals and vitamins, and instructional
assessment materials with a counseling program.
SPORTS NUTRITION. To cater to health conscious individuals with active
lifestyles, the IDN Sports Nutrition System offers a comprehensive, flexible
program for individuals who desire to optimize performance on an individual
basis. The system includes LifePak, OverDrive, a sports supplement licensed by
the U.S. Olympic Committee that features antioxidants, B vitamins and chromium
chelate, GlycoBar energy bars, and SportaLyte performance drink to help supply
the necessary carbohydrates, electrolytes and chelated minerals to optimize
performance. AminoBuild is a low fat high protein drink mix that is designed
to replace nutrients before and after workouts.
SALES AIDS
The Company provides an assortment of sales aids to facilitate the sales of
its products. Sales aids include videotapes, promotional clothing, pens,
stationary, business cards, brushes, combs, cotton pads, tissues, and other
miscellaneous items to help create consumer awareness of the Company and its
products. Sales aids are priced at the Company's approximate cost and are not
commissionable items (i.e., distributors do not receive commissions on
purchases of sales aids).
PRODUCT GUARANTEES
The Company believes that it is among the most consumer protective companies
in the direct selling industry. For 30 days from the date of purchase, the
Company's product return policy allows a retail purchaser to return any
product to the distributor through whom the product was purchased for a full
refund. After 30 days
50
from the date of purchase, the return privilege is in the discretion of the
distributor. Because distributors may return unused and resalable products to
the Company for a refund of 90% of the purchase price for one year, they are
encouraged to provide consumer refunds beyond 30 days. In addition, the
product return policy is a material aspect of the success of distributors in
developing a retail customer base. The Company's experience with actual
product returns to date has averaged approximately 1.5% of annual revenue
through 1995.
PRODUCT DEVELOPMENT AND PRODUCTION
PRODUCT DEVELOPMENT PHILOSOPHY. The Company is committed to building its
brand name and distributor and customer loyalty by selling premium quality,
innovative personal care and nutritional products that appeal to broad
markets. This commitment is illustrated by the Company's personal care
products slogan "All of the Good and None of the Bad" and its nutritional
products slogan "Adding Life to Years." The Company's product philosophy is to
combine the best of science and nature and to include in each of its products
the highest quality ingredients. For example, NSI avoids soaps and other harsh
cleansers that can dry and irritate skin, undesirable oils such as lanolin,
elements known to be irritating and pore clogging, volatile alcohols such as
ethyl alcohol, and conditioning agents that leave heavy residues. This
philosophy has led to the Company being one of the only personal care
companies in Japan to disclose every ingredient to consumers. This philosophy
has also led to the Company's commitment to avoid any ingredients in
nutritional supplements that are reported to have any long-term addictive or
harmful effects, even if short-term effects may be desirable. Independent
distributors need to have confidence that they are distributing the best
products available in order to have a sense of pride in their association with
the Company and to have products that are distinguishable from "off the shelf"
products. NSI and the Company are committed to developing and providing
quality products that can be sold at an attractive retail price and allow the
Company to maintain reasonable profit margins.
NSI is also committed to constantly improving its evolving product
formulations to incorporate innovative and proven ingredients into its product
line. Whereas many consumer product companies develop a formula and stay with
that formula for years, and sometimes decades, NSI believes that it must stay
current with product and ingredient evolution to maintain its reputation for
innovation to retain distributor and consumer attention and enthusiasm. For
this reason, NSI continuously evaluates its entire line of products for
possible enhancements and improvements.
In addition, the Company believes that timely and strategic product
introductions are critical to maintaining the growth of independent
distribution channels. Distributors become enthusiastic about new products and
are generally excited to share new products with their customer base. An
expanding product line helps to attract new distributors and generate
additional revenues.
NSI maintains a laboratory and a staff of approximately 90 individuals
involved in product development. NSI also relies on an advisory board
comprised of recognized authorities in various disciplines. In addition, NSI
and the Company evaluate a significant number of product ideas that are
presented by distributors and other outside sources. NSI believes that
strategic relationships with certain vendors also provide important access to
innovative product concepts. The Company will continue to develop products
tailored to appeal to the particular needs of the Company's markets.
Historically, one of the reasons for the success of the Company's personal
care product line has been its gender neutral positioning. This product
positioning substantially expands the size of the traditional skin and hair
care market. NSI's IDN line of products has historically been positioned to be
age neutral. However, with a substantial distributor and user base
established, the Company believes that it can further increase its market
share in both the personal care and the nutritional products categories by
introducing age and gender specific products, including LifePak for Women,
additional vitamin products targeted to seniors, and personal care products
targeted to either men or women.
PRODUCTION. All the Company's products are produced by unaffiliated
manufacturers primarily through NSI. The Company currently has little or no
direct contact with these manufacturers. The Company's profit
51
margins and its ability to deliver its existing products on a timely basis are
dependent upon the ability of NSI's outside manufacturers to continue to
supply products in a timely and cost-efficient manner. Furthermore, the
Company's ability to enter new markets and sustain satisfactory levels of
sales in each market is dependent in part upon the ability of suitable outside
manufacturers to reformulate existing products, if necessary to comply with
local regulations or market environments, for introduction into such markets.
Finally, the development of additional new products in the future will
likewise be dependent in part on the services of suitable outside
manufacturers.
The Company currently acquires products or ingredients from sole suppliers
or suppliers that are considered by the Company to be the superior suppliers
of such ingredients. The Company believes that, in the event it is unable to
source any products or ingredients from its current suppliers, the Company
could produce such products or replace such products or substitute ingredients
without great difficulty or prohibitive increases in the cost of goods sold.
However, there can be no assurance that the loss of such a supplier would not
have a material adverse effect on the Company's business and results of
operations.
With respect to sales to the Company, NSI currently relies on two
unaffiliated manufacturers to produce approximately 70% and 60% of its
personal care and nutritional products, respectively. The Company believes
that in the event that NSI's relationship with either of these manufacturers
is terminated, NSI will be able to find suitable replacement manufacturers.
However, there can be no assurance that the loss of either manufacturer would
not have a material adverse effect on the Company's business and results of
operations. See "Risk Factors--Reliance on and Concentration of Outside
Manufacturers."
RELATIONSHIP WITH NSI
Upon the consummation of the Offerings, approximately % of the combined
voting power of the outstanding shares of Common Stock will be held by the
Shareholders of NSI. In addition, the Company has entered into, or, upon
consummation of the Offerings will enter into, the Operating Agreements with
NSI and with NSIMG, a Delaware corporation also controlled by the shareholders
of NSI, summary descriptions of which are set forth below. Such summaries are
qualified in their entirety by reference to the Operating Agreements, which
are filed as exhibits to the Registration Statement of which this Prospectus
forms a part. In the future the Company may enter into amendments to the
Operating Agreements or additional agreements with NSI or NSIMG. The Company
intends to seek the approval of a majority of its independent directors for
any amendment to the Operating Agreements and any new agreement which the
Company believes to be of material importance to the Company and as to which
the Company and NSI or NSIMG have conflicting interests.
DISTRIBUTION AGREEMENTS. The Company has entered into a regional
distribution agreement (the "Regional Distribution Agreement") with NSI,
through Nu Skin Hong Kong, pursuant to which NSI has granted to the Company
the exclusive right to sell and distribute NSI products and sales aids in the
Company's markets. Nu Skin Japan, Nu Skin Taiwan and Nu Skin Korea have each
entered into wholesale distribution agreements (the "Wholesale Distribution
Agreements") with Nu Skin Hong Kong, pursuant to which each such Subsidiary
has been granted the right to sell and distribute NSI products in its
respective country.
The Company has the right to purchase any of NSI's products, subject to
unavailability due to local regulatory requirements. See "--Government
Regulation." Purchases are made by submission of a purchase order to NSI,
which NSI must accept unless it has insufficient inventory to fill the order.
In determining whether it has sufficient inventory to fill a given order, NSI
is required to treat the Company on a parity basis with its other affiliates.
The prices for products are governed by a price schedule which is subject to
change by NSI from time to time upon at least 30 days advance notice. NSI pays
ordinary freight and the Company pays handling, excise taxes and customs
duties on the products the Company orders. In order to assist NSI in planning
its inventory and pricing, the Company is required to provide NSI with certain
business plans and reports of its sales and prices to independent
distributors.
52
The Company purchases virtually all of its products from NSI through Nu Skin
Hong Kong. Nu Skin Hong Kong pays for its purchases from NSI under the
Regional Distribution Agreement in U.S. dollars, while the other Subsidiaries
pay for their purchases from Nu Skin Hong Kong under the Wholesale
Distribution Agreements in their local currency. Nu Skin Hong Kong therefore
bears significant currency exchange risk as a result of purchases from NSI on
behalf of the other Subsidiaries. See "Risk Factors--Operations Outside the
United States; Currency Risks."
The Company is responsible for paying for and obtaining government approvals
and registrations necessary for importation of NSI's products into its
markets. In addition, the Company is responsible for obtaining any government
approvals, including any filings and notifications, necessary for the
effectiveness of the Regional Distribution Agreement and the Wholesale
Distribution Agreements or for the parties performance thereunder.
NSI is generally responsible for paying for the research, development and
testing of the products sold to the Company, including any product
reformulations needed to comply with local regulatory requirements. NSI
warrants as to the merchantability of, and its title to, such products. NSI
has further indemnified the Company from losses and liability relating to
claims arising out of alleged or actual defects in the design, manufacture or
content of its products. NSI is required to maintain insurance covering claims
arising from the use of its products and to cause each Subsidiary to be a
named insured on such insurance policy. The Subsidiaries are also required to
maintain insurance policies covering the business to be conducted by them
pursuant to the Regional Distribution Agreement and the Wholesale Distribution
Agreements.
The Company is prohibited from selling NSI products outside of the countries
for which it has an exclusive distribution license, except that the Company
may sell certain NSI products to NSI affiliates in Australia and New Zealand.
In addition, the Company is prohibited from selling products which directly or
indirectly compete with NSI products in any country without NSI's prior
consent, which consent will not be unreasonably withheld or delayed. The
Company may sell non-competing products without restriction.
The Company may manufacture products which do not compete with NSI products
without restriction but may not manufacture products which compete directly or
indirectly with NSI products without NSI's prior consent, which consent will
not be unreasonably withheld or delayed. Any products manufactured by the
Company carrying an NSI trademark will be subject to the Trademark License
Agreements with NSI described below and will require the payment to NSI of
certain royalties as set forth therein. If NSI discontinues a product that the
Company would like to continue to sell, the Company may elect to manufacture
the product itself or through a third party manufacturer unless NSI has a
competing product. In this event, NSI has agreed to license the product
formulation and any associated trademarks and tradenames to the Company
pursuant to the Trademark/Tradename License Agreements described below. See
"--Relationship with NSI--Trademark/ Tradename License Agreements."
When the Company determines to commence operations in Thailand, Indonesia,
Malaysia, the Philippines, the PRC, Singapore or Vietnam, NSI has agreed under
the Regional Distribution Agreement to enter into new Trademark/Tradename
License Agreements and Licensing and Sales Agreements and to cause NSIMG to
enter into new Management Services Agreements, in each case substantially
similar to those described below, with the Company or subsidiaries operating
in such countries. See "--Relationship with NSI--Trademark/Tradename License
Agreements;" "--Relationship with NSI--Licensing and Sales Agreements."
TRADEMARK/TRADENAME LICENSE AGREEMENTS. Pursuant to the Trademark/Tradename
License Agreement, NSI has granted to each Subsidiary an exclusive license to
use in its market the NSI and IDN trademarks, the individual product
trademarks used on NSI products and any NSI tradenames. Each of the
Subsidiaries may thus use the licensed trademarks and tradenames on products
and commercial materials not purchased from NSI, including locally sourced
products and commercial materials and products and commercial materials
manufactured by such subsidiary and may grant a sub-license, with the consent
of NSI, for the licensed
53
trademarks and tradenames in its market. In addition, each Subsidiary has the
right to export such products and commercial materials into other Company
markets with NSI's consent, which consent shall not be unreasonably withheld
or delayed.
The Company pays a royalty to NSI for use of the licensed trademarks and
tradenames on products and commercial materials not purchased from NSI,
including locally sourced products and commercial materials and products and
commercial materials manufactured by the Company. The royalty is paid monthly
and is equal to 5% of the Company's revenues from such products and commercial
materials for such month generally and a total of 8% where NSI owns the
formula or has exclusive rights in the subject market for such products or
commercial materials.
NSI has the right to inspect the premises where products using its
trademarks are manufactured in order to ensure that the products meet its
quality standards. The Company's labels, packaging, advertising and
promotional materials using NSI's trademarks must conform with NSI's published
standards and NSI has the right of prior approval. The Company is responsible
for correcting any manufacturing defects in locally sourced products or
products it manufactures that are brought to the Company's attention by NSI or
otherwise.
NSI is responsible for securing and maintaining trademark registrations in
the territory covered by each Trademark/Tradename Agreement. NSI has agreed to
take such actions as the Company may reasonably request to protect its and the
Company's rights to the licensed trademarks from infringement and related
claims and has indemnified the Company from losses and liability resulting
from such claims.
LICENSING AND SALES AGREEMENTS. Currently, all distributor agreements are
entered into between the distributor and NSI rather than with the Company.
Therefore, the Company does not own the distributor lists or the distribution
system, the Global Compensation Plan, copyrights and related intangibles.
Consequently, each of the Subsidiaries has entered into a Licensing and Sales
Agreement with NSI which includes a license to the Company to use the
distributor lists, the Global Compensation Plan, know how, distributor system
and related intellectual property exclusively in its markets. The Company pays
a license fee to NSI of 4% of the Company's revenue from product sales
(excluding starter and introductory kits) to NSI distributors for the use of
such licensed property. The Company may not grant a sublicense for the
licensed property.
The Company is required to use the Global Compensation Plan to distribute
any products, except as NSI may agree to modify the plan in accordance with
local requirements. The Company must comply with all policies implemented by
NSI under the Global Compensation Plan. This is necessary to ensure global
consistency in NSI's operations. The Company must also employ all NSI policies
relating to commissions payable to, and other relationships with, NSI
distributors.
The Company is obligated to pay NSI a fixed commission expense of 42% of
commissionable product sales to distributors in each of the Company's markets
(with the exception of South Korea where, due to government regulations, the
Company utilizes a different formula to satisfy this obligation). The
Licensing and Sales Agreement provides that the Company is to satisfy this
obligation by paying commissions owed to local distributors. In the event that
these commissions exceed 42% of commissionable product sales, the Company is
entitled to receive the difference from NSI. In the event that the commissions
paid are lower than 42%, the Company must pay the difference to NSI. Under
this formulation, the Company's total commission expense is fixed at 42% of
commissionable product sales in each country (except for South Korea). The 42%
figure has been set on the basis of NSI's experience over the past seven years
which indicates that actual commissions paid in a given year together with the
cost of administering the Global Compensation Plan average approximately 42%
of commissionable product sales for such year. In the event that actual
commissions payable to distributors from sales in the Company's markets vary
from these historical results, whether as a result of changes in distributor
behavior or changes to the Global Compensation Plan or in the event that NSI's
cost of administering the Global Compensation Plan increases or decreases, the
Licensing and Sales Agreement provides that the intercompany settlement figure
may be modified to more accurately reflect actual results.
54
In addition to payments to local distributors, the Company is generally
responsible for distributor support and relations within Japan, Taiwan, Hong
Kong and South Korea. The Company has agreed to use its best efforts to
support the development of NSI's distributor network in its markets by
purchasing starter or introductory kits from NSI and selling them to potential
NSI distributors.
NSI has agreed to take such actions as the Company may reasonably request to
protect its and the Company's rights to the property licensed under the
Licensing and Sales Agreements from infringement and related claims and has
indemnified the Company from losses and liability resulting from such claims.
Both NSI and the Company are required to maintain insurance coverage adequate
to insure their assets and financial stability. NSI is responsible for
ensuring that the property licensed under the Licensing and Sales Agreements
complies with local laws and regulations, including direct selling laws.
MANAGEMENT SERVICES AGREEMENTS. Upon consummation of the Offerings, the
Subsidiaries will enter into Management Services Agreements with NSIMG,
pursuant to which NSIMG has agreed to provide a variety of management and
support services to each Subsidiary. These services will likely include
management, legal, financial, marketing and distributor support/training,
public relations, international expansion, human resources, strategic
planning, product development and operations administration services. Most of
NSI's senior management personnel and most employees who deal with
international issues are employees of NSIMG.
Generally, the management and support services will be provided by employees
of NSI and NSIMG acting through NSIMG either (i) on a temporary basis in a
specific consulting role or (ii) on a full-time basis in a management position
in the country in which the services are required. The Management Services
Agreement does not cover the services of many of the Company's executive
officers. See "Management--Executive Compensation."
GENERAL PROVISIONS. The Operating Agreements are each for a term ending on
December 31, 2016, and, after December 31, 2001, will be subject to
renegotiation in the event that members of the families of, or trusts or
foundations established by or for the benefit of the Selling Stockholders of
NSI on a combined basis no longer beneficially own a majority of the combined
voting power of the outstanding shares of Common Stock of the Company. Such
renegotiation provision is to protect the NSI trademarks and product quality,
as well as to ensure the confidentiality of NSI trade secrets. Each Operating
Agreement is subject to termination by either party in the event of: (i) a
material breach by the other party which remains uncured for a period of 60
days after notice thereof; (ii) the bankruptcy or insolvency of the other
party; (iii) entry of a judgment by a court of competent jurisdiction against
the other party in excess of $25,000,000; or (iv) the placement of a lien or
encumbrances securing an amount in excess of $25,000,000 on the assets of the
other party. Each Operating Agreement is further subject to termination by NSI
upon 30 days notice in the event of a change of control of the subsidiary
party thereto. Each Operating Agreement provides that neither party may assign
its rights thereunder without the consent of the other party. Each Operating
Agreement is governed by Utah law. Any dispute arising under an Operating
Agreement is to be settled by arbitration conducted in Utah in accordance with
the applicable rules of the American Arbitration Association, as supplemented
by the commercial arbitration procedures for international commercial
arbitration.
MUTUAL INDEMNIFICATION AGREEMENTS. Prior to or concurrently with the
Offerings, the Company and NSI will enter into a mutual indemnification
agreement pursuant to which NSI will indemnify the Company for certain claims,
losses and liabilities relating to the operations of the Subsidiaries prior to
the Reorganization and the Company will indemnify NSI for certain claims,
losses and liabilities relating to the operations of the Subsidiaries after
the Reorganization.
COMPETITION
PERSONAL CARE AND NUTRITIONAL PRODUCTS. The markets for personal care and
nutritional products are large and intensively competitive. The Company
competes directly with companies that manufacture and market personal care and
nutritional products in each of the Company's product categories. Many of the
Company's
55
competitors have much greater name recognition and financial resources than
the Company. In addition, personal care and nutritional products can be
purchased in a wide variety of channels of distribution. While the Company
believes that consumers appreciate the convenience of ordering products from
home through a sales person or through a catalog, the buying habits of many
consumers accustomed to purchasing products through traditional retail
channels are difficult to change. The Company's product offerings in each
product category are also relatively small compared to the wide variety of
products offered by many other personal care and nutritional product
companies. There can be no assurance that the Company will be able to
successfully meet the challenges posed by this increased competition.
NETWORK MARKETING COMPANIES. The Company also competes with other direct
selling organizations, some of which have a longer operating history and
higher visibility, name recognition and financial resources. Management
envisions the entry of many more direct selling organizations into the
marketplace as this channel of distribution expands over the next several
years. The Company has been advised that certain large, well-financed
corporations are planning to launch direct selling enterprises which will
compete with the Company in certain of its product lines. There can be no
assurance that the Company will be able to successfully meet the challenges
posed by this increased competition.
GOVERNMENT REGULATION
Direct selling activities are regulated by various governmental agencies.
These laws and regulations are generally intended to prevent fraudulent or
deceptive schemes, often referred to as "pyramid" or "chain sales" schemes,
that promise quick rewards for little or no effort, require high entry costs,
use high pressure recruiting methods and/or do not involve legitimate
products. See "Risk Factors--Government Regulation." In Japan, the Company's
distribution system is regulated under the "Door-to-Door" Sales Law, which
requires the submission of specific information concerning the Company's
business and products and which provides certain cancellation and cooling-off
rights for consumers and new distributors. In Taiwan, the Fair Trade Law (and
the Enforcement Rules and Supervisory Regulations of Multi-Level Sales)
requires the Company to comply with registration procedures and also provides
distributors with certain rights regarding cooling-off periods and product
returns. The Company also complies with South Korea's strict Door-to-Door
Sales Act, which requires, among other things, the regular reporting of
revenue, the registration of distributors together with the issuance of a
registration card, and the maintaining of a current distributor registry. This
law also limits the amount of sponsoring bonuses that a registered multi-level
marketing company can pay to its distributors to 35% of the aggregate
wholesale value of products sold in a given month.
The Japanese Ministry of Health and Welfare ("MOHW") requires the Company to
possess an import business license and to register each personal care product
imported into the country. Packaging and labeling requirements are also
specified. The Company has had to reformulate many products to satisfy MOHW
regulations. In Japan, nutritional foods, drugs and quasi-drugs are all
strictly regulated. The chief concern involves the types of claims and
representations that can be made regarding the efficacy of nutritional
products. The Company's successful introduction of IDN products in Japan was
done utilizing the combined efforts of NSI's technical staff as well as inside
and outside consultants.
All "medicated" cosmetic and pharmaceutical products, including PharmAssist,
require registration in Taiwan. Non-medicated cosmetic products, such as
shampoo and hair conditioner, require no registration.
In Hong Kong, cosmetic products not classified as "drugs" nor as
"pharmaceutical products" are not subject to statutory registrations,
packaging and labeling requirements apart from the Trade Descriptions
Ordinance. In Macau, "pharmaceutical" products are strictly regulated; general
products are not subject to registration requirements.
In South Korea, the Company has obtained the mandatory certificate of
confirmation as a qualified importer of cosmetics under the Pharmaceutical
Affairs Law as well as additional product approvals for each of the 45
categories of cosmetic products which it imports. Each new cosmetic product
undergoes a 60 day post-customs
56
inspection where, in addition to compliance with ingredient requirements, each
product is inspected for compliance with South Korean labeling requirements.
The Company believes it is operating in compliance in all material respects
with all applicable regulations relating to both its products and distribution
system.
EMPLOYEES
As of June 30, 1996, the Company had approximately 800 full-time and part-
time employees. None of the employees is represented by a union or other
collective bargaining group. The Company believes its relationship with its
employees is good, and does not currently foresee a shortage in qualified
personnel needed to operate the business. Each Subsidiary is directed by an
experienced manager. In Japan, Taiwan, Hong Kong and South Korea, the
Company's employee staff consists of well trained, highly efficient personnel
that support distributors in a professional manner.
PROPERTIES
In each of its current markets, the Company has established a central office
for the local administrative staff who is directed by a general manager. These
offices also have a training room for distributor and employee use and an
adjoining distribution center where distributors can place, pay for, and pick
up orders. In Japan, Taiwan, and South Korea additional pick up centers have
been added to provide better service to distributors and meet the increasing
demand for product. In Hong Kong, the Company maintains a distributor business
center where established distributors can use office space for training and
sponsoring activities at cost.
In addition to the Company's corporate headquarters in Provo, Utah, the
following table summarizes, as of June 30, 1996, the Company's leased office
and distribution facilities in each country where the Company currently has
operations.
PROPERTIES LEASED
LOCATION FUNCTION LEASE TOTAL
-------- -------- ------------------
Tokyo, Japan............ Central office/ distribution center 35,000 square feet
Osaka, Japan............ Distribution center/office 7,700 square feet
Taipei, Taiwan.......... Central office/distribution center 22,000 square feet
Kaohsiung, Taiwan....... Distribution center/office 9,500 square feet
Taichung, Taiwan........ Distribution center/office 17,000 square feet
Taoyuan, Taiwan......... Warehouse/distribution center 36,000 square feet
Causeway Bay, Hong
Kong................... Central office/distribution 19,000 square feet
center/distributor business
center/regional office
Tsing Yi, Hong Kong..... Warehouse 10,000 square feet
Macau................... Distribution center/office 2,000 square feet
Seoul, Korea............ Central office/distribution center 20,000 square feet
Seoul, Korea............ Distribution center 7,000 square feet
Kyungki-Do, Korea....... Warehouse 16,000 square feet
LEGAL PROCEEDINGS
The Company is not a party to any litigation or other legal proceedings or
investigations which is expected to have a material adverse effect on its
financial condition or results of operations, nor are any such proceedings
known to be contemplated.
57
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers.
NAME AGE POSITION
---- --- --------
Blake M. Roney.......... 38 Chairman of the Board
Steven J. Lund.......... 42 President, Chief Executive Officer and Director
Renn M. Patch........... 46 Chief Operating Officer
Corey B. Lindley........ 32 Vice President of Finance
Michael D. Smith........ 50 Vice President of Operations
M. Truman Hunt.......... 37 Vice President of Legal Affairs and Investor Relations
Keith R. Halls.......... 38 Secretary and Director
Takashi Bamba........... 61 President, Nu Skin Japan
John Chou............... 50 President, Nu Skin Taiwan
S.T. Han................ 54 President, Nu Skin Korea
George Mak.............. 42 President, Nu Skin Hong Kong
Mark L. Adams........... 44 Controller
Sandie N. Tillotson..... 39 Director
Brooke B. Roney......... 34 Director
Kirk V. Roney........... 42 Director
Max L. Pinegar.......... 65 Director
Max E. Esplin........... 53 Director
Blake M. Roney has served as Chairman of the Board since the Company's
inception and is a founder of NSI. He has also served as President, Chief
Executive Officer and Chairman of the Board of NSI and its affiliated entities
since their respective inceptions. He received a B.S. degree from Brigham
Young University. He is the brother of Kirk V. Roney and Brooke B. Roney.
Steven J. Lund has been the President, Chief Executive Officer and a
Director of the Company since its inception. Mr. Lund has also served as
Executive Vice President and a Director of NSI since its inception and as Vice
President and Secretary of certain NSI affiliated entities since their
respective inceptions. Mr. Lund previously worked as an attorney in private
practice. 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.
Renn M. Patch has been the Chief Operating Officer of the Company since its
inception. Since 1992 he has been Vice President of Global Operations and
Assistant General Manager of NSI. Before joining NSI in 1991 as Director of
Government Affairs, Mr. Patch was an associate with the Washington, D.C.
consulting firm of Parry and Romani Associates. Mr. Patch earned a B.A. degree
from the University of Minnesota, a J.D. degree from Hamline University School
of Law, and his L.L.M. degree from Georgetown University.
Corey B. Lindley has been the Vice President of Finance of the Company since
its inception. From 1993 to 1996, he served as Managing Director,
International of NSI. Mr. Lindley worked as the International Controller of
NSI from 1991 to 1994 and lived in Hong Kong and Japan during that time. Mr.
Lindley is a Certified Public Accountant. Prior to joining NSI he worked for
the accounting firm of Deloitte and Touche. He earned a B.S. degree from
Brigham Young University and an M.B.A. degree from Utah State University.
Michael D. Smith has been the Vice President of Operations for the Company
since its inception. He has also served as Vice President of Asian Operations
of NSI since February 1996. Prior to that time, he served as General Counsel
of NSI from 1992 to 1996 and as Director of Legal Affairs of NSI from 1989 to
1992. He earned B.S. and M.A. degrees from Brigham Young University and a J.D.
degree from the University of Utah.
58
M. Truman Hunt has served as Vice President of Legal Affairs and Investor
Relations since the Company's inception. He has also served as Counsel to the
President of NSI since 1994. From 1991 to 1994, Mr. Hunt served as President
and Chief Executive Officer of Better Living Products, Inc., an NSI affiliate
involved in the manufacture and distribution of houseware products sold
through traditional retail channels. Prior to this time, he was a securities
and business attorney in private practice. He received a B.S. degree from
Brigham Young University and a J.D. degree from the University of Utah.
Keith R. Halls has served as a Secretary and Director of the Company since
its inception. He has also served as a General Vice President and Director of
NSI since 1992. He served as Director of Finance of NSI from 1986 to 1992. Mr.
Halls is a Certified Public Accountant. Mr. Halls received a B.A. degree from
Stephen F. Austin State University and a B.S. degree from Brigham Young
University.
Takashi Bamba has served as the President of Nu Skin Japan since 1995. From
1993 to the present, Mr. Bamba has served as General Manager and then
President of Nu Skin Japan. Previously, Mr. Bamba served five years as
President and CEO of Avon Products Co., Ltd., the publicly traded Japanese
subsidiary of Avon Products, Inc. Prior to working at Avon Products Co., Ltd.,
he spent seventeen years at Avon Products, Inc. He received a B.A. degree from
Yokohama National University.
John Chou has served as President, Nu Skin Taiwan since 1991. Prior to
joining the Company in 1991, he spent twenty-one years in international
marketing and management with 3M Taiwan, Amway Taiwan and Universal PR Co., a
subsidiary of Edelman Public Relations Worldwide. Mr. Chou is a standing
director of the Taiwan ROC Direct Selling Association. He is also a member of
the Kiwanis International, and the Taiwan American Chamber of Commerce. He
received a degree from Tan Kang University in Taipei, Taiwan.
S.T. Han has served as President of Nu Skin Korea since 1995. He joined the
Company in 1995 in preparation for the Company's opening in South Korea. Prior
to joining NSI, Mr. Han spent four years as the Executive Managing Director of
Woosung Film Co., the exclusive distributor of Konica film in Korea. He also
worked for Amway Korea, Ltd. during that company's start-up phase of
operations in 1991. Mr. Han graduated with a B.A. degree from ChungAng
University.
George Mak has served as President, Nu Skin Hong Kong since 1991. Prior to
joining the Company in 1991, Mr. Mak worked for Johnson & Johnson as a
personnel and administration manager for Hong Kong and Shanghai from 1989 to
1991. Prior to joining Johnson & Johnson he worked for 10 years in the human
resources and accounting fields. He earned an M.B.A. degree from the
University of East Asia, Macau.
Mark L. Adams has served as Controller since the Company's inception. He has
served as International Controller of NSI since September 1996. Prior to
joining NSI he was an audit manager with Arthur Andersen & Co. and served as
Chief Financial Officer and Director of Sanyo Icon, a subsidiary of Sanyo
Electric Co. Ltd. He received an M.A. from Brigham Young University and has
been a Certified Public Accountant since 1978.
Sandie N. Tillotson has served as a Director of the Company since its
inception. She was a founder of NSI and has also served as a General Vice
President since 1992 and a Director of NSI since its inception. She served as
Vice President of Corporate Services for NSI from 1984 to 1992. She earned a
B.S. degree from Brigham Young University.
Brooke B. Roney has served as a Director of the Company since its inception.
He was a founder of NSI and has also served as a General Vice President and
Director of NSI since 1992. He served as Vice President of Distribution for
NSI from 1984 to 1992. He is the brother of Blake M. Roney and Kirk V. Roney.
Kirk V. Roney has served as a Director of the Company since its inception.
He has also served as a General Vice President since 1992 and a Director of
NSI since 1984. He served as Vice President of Planning and Development of NSI
from 1984 to 1992. He earned his Master's Degree in international business
from the
59
American Graduate School of International Management. He earned an M.A. degree
from Central Michigan University and a B.A. from Brigham Young University. He
is the brother of Blake M. Roney and Brooke B. Roney.
Max L. Pinegar has served as a Director of the Company since September 1996.
He has also served as General Manager of NSI since 1989 and as Vice President
of NSI since 1992. He received a B.A. degree from Brigham Young University and
an M.B.A. degree from the University of Utah.
Max E. Esplin has served as a Director of the Company since September 1996.
He has also served as Vice President of Finance of NSI since 1993. He served
as Controller of NSI from 1989 until 1993. Mr. Esplin is a Certified Public
Accountant. He received a B.S. degree from Brigham Young University.
Following completion of the Offerings, the Board of Directors intends to
appoint at least two additional directors who will not be officers or
employees of NSI or the Company. It is expected that these outside directors
will receive annual retainer and per meeting fees in connection with these
directorships. See "Compensation of Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
Within 90 days after the closing of the Offerings, the Company's Board will
establish an Audit Committee consisting of at least two directors, none of
whom will be an officer or employee of the Company or NSI. The duties of the
Audit Committee will be to recommend to the Company's Board of Directors the
selection of independent certified public accountants to audit annually the
books and records of the Company, to review the activities and the reports of
the independent certified public accountants and to report the results of such
review to the Company's Board of Directors. The Audit Committee will also
consider the adequacy of the Company's internal controls and internal auditing
methods and procedures. Within 90 days after the closing of the Offerings, the
Company's Board of Directors will establish a Compensation Committee
consisting of at least two directors, none of whom will be an officer or
employee of the Company, the duties of which are to make recommendations to
the Company's Board of Directors with respect to the salaries, bonuses and
other compensation to be paid to the Company's officers. The Company's Board
of Directors also intends to establish an Executive Committee consisting of
Messrs. Blake M. Roney, Steven J. Lund and Keith R. Halls. The duties of the
Executive Committee are, to the extent authorized by the Company's Board of
Directors, to exercise all the powers and authority of the Company's Board of
Directors with respect to the management of the business and affairs of the
Company.
COMPENSATION OF DIRECTORS
Following the Offerings, directors who do not receive compensation as
officers or employees of the Company, NSI or its affiliates will be paid an
annual fee of $25,000 and a fee of $1,000 for each meeting of the Board of
Directors or any committee meeting thereof that they attend.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not currently have a compensation committee but
anticipates establishing one within 90 days following the closing of the
Offerings. Several members of the Company's Board of Directors are also
directors of NSI and have set or will set compensation for certain executive
officers of the Company who have been or will be following the Offerings,
executive officers of NSI.
EXECUTIVE COMPENSATION
The Company was formed in September 1996, and consequently paid no
compensation to the executive officers named in the table below during the
year ended December 31, 1995. However, salary, bonus and other compensation is
presented in the table below for the year ended December 31, 1995 based on
payments by NSI as if the Company had been in existence during that period.
During fiscal 1995, Messrs. Bamba, Chou, and Mak were employed full time as
the Presidents of Nu Skin Japan, Nu Skin Taiwan and Nu Skin Korea,
respectively.
60
During fiscal 1995, Messrs. Lund and Patch were, and after the Offerings will
continue to be, executive officers of NSI. The compensation presented in the
table below reflects an allocation of the time spent by Messrs. Lund and Patch
providing services to the Subsidiaries during fiscal 1995. During 1996, the
Company will pay Messrs. Lund and Patch annual salaries commensurate with
their fiscal 1995 salaries in return for their services to the Company. These
salaries and bonuses will be in addition to any amounts received by these
officers from NSI in return for their services to NSI. During 1996, the
Company will pay Messrs. Bamba, Chou and Mak salaries of $361,028, $211,111
and $110,897, respectively. In addition, Messrs. Bamba, Chou and Mak will be
eligible to participate in the Company's contemplated bonus incentive plan
which is intended to be modeled after NSI's cash bonus long term incentive
plan which was in effect for these individuals in fiscal 1995. See "--Bonus
Incentive Plan." It is anticipated that Messrs. Bamba, Chou and Mak will
continue to receive all of their compensation directly from the Company.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------------------
OTHER
ANNUAL ALL
SALARY BONUS COMPENSATION OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) COMPENSATION
--------------------------- ---- ------- ------- ------------ ------------
Steven J. Lund........... 1995 236,364 85,529(/1/) -- --
President and Chief
Executive Officer
Takashi Bamba............ 1995 361,028 105,563(/2/) 98,063(/3/) 3,297(/4/)
President, Nu Skin Japan
John Chou................ 1995 185,370 75,786(/2/) 63,730(/5/) --
President, Nu Skin
Taiwan
Renn M. Patch............ 1995 97,175 104,765(/6/) 18,750(/7/) --
Chief Operating Officer
George Mak............... 1995 102,564 17,535(/2/) 9,645(/8/) --
President, Nu Skin Hong
Kong
--------
(1)Cash bonus paid to Mr. Lund, not pursuant to a formal bonus plan.
(2) Cash bonus paid during fiscal 1995 pursuant to NSI's cash bonus long
term incentive plan for the Presidents of the Subsidiaries.
(3) Includes deferred portion of a bonus accrued during fiscal 1995
pursuant to NSI's cash bonus long term incentive plan for the
Presidents of the Subsidiaries and annual lease payments for a Company
provided automobile.
(4) Annual premium for disability and accidental death insurance policy.
(5) Includes deferred portion of a bonus accrued during fiscal 1995
pursuant to NSI's cash bonus long term incentive plan for the
Presidents of the Subsidiaries and annual payments for Company provided
automobile and club dues.
(6)Noncash bonus paid to Mr. Patch, not pursuant to a formal bonus plan.
(7) Includes $16,500 of accrued deferred compensation and $2,250 of vested
deferred compensation awarded to Mr. Patch under NSI's deferred
compensation plan.
(8) Deferred portion of a bonus accrued during fiscal 1995 pursuant to
NSI's cash bonus long term incentive plan for the Presidents of the
Subsidiaries.
EMPLOYMENT AGREEMENTS
Messrs. Bamba, Chou and Han have entered into employment agreements with Nu
Skin Japan, Nu Skin Taiwan and Nu Skin Korea, respectively. Under these
agreements, these individuals are paid an annual salary and receive various
other benefits. These individuals, together with Mr. Mak, are also entitled to
participate in the Bonus Incentive Plan to be adopted by the Company prior to
or concurrently with the Offerings. See "--Bonus Incentive Plan."
Mr. Bamba is employed as the President of Nu Skin Japan at an annual salary
of $361,028 as converted from local currency. This salary is subject to annual
review by Nu Skin Japan. Under the terms of his
61
employment agreement, Mr. Bamba is entitled to reimbursement of business
related expenses, the use of a company provided automobile, a country club
membership and dues, and participation in any retirement plan offered by Nu
Skin Japan. Mr. Bamba has the right under his employment agreement to have Nu
Skin Japan purchase a country club membership and pay related dues, although
he has not exercised this right. Mr. Bamba is also provided with a private
insurance plan paid for by Nu Skin Japan provided the premium for such private
insurance plan does not exceed (Yen)300,000 per year. Mr. Bamba has agreed to
certain confidentiality obligations. The term of Mr. Bamba's employment is
indefinite, subject to termination by Mr. Bamba or Nu Skin Japan upon three
months' notice.
Mr. Chou is employed as the President of Nu Skin Taiwan at an annual salary
of $211,111 as converted from local currency. Under the terms of his
employment agreement, Mr. Chou is entitled to health insurance paid for in
part by Nu Skin Taiwan. Nu Skin Taiwan also provides Mr. Chou with a monthly
car allowance. The term of Mr. Chou's employment agreement currently extends
until June 1997. Under his employment agreement, Mr. Chou has agreed to
certain confidentiality obligations.
Mr. Han is employed by the Company as the President of Nu Skin Korea at an
annual salary of $110,000 as converted from local currency. The Company also
provides Mr. Han with the use of an automobile and driver as well as medical
insurance and pension benefits. Mr. Han's employment is for a three year term
ending January 1, 1999, subject to the right of the Company or Mr. Han to
terminate the agreement on 60 days' advance notice. Once Mr. Han has been
employed by the Company for 12 months, he will become entitled to receive,
upon termination, severance pay equal to two months' salary for each
consecutive year of service. Mr. Han has agreed to certain confidentiality and
noncompetition obligations.
1996 STOCK INCENTIVE PLAN
The Board of Directors of the Company has adopted the Nu Skin Asia, Inc.
1996 Stock Incentive Plan (the "Plan"). The purpose of the Plan is to attract
and retain executives, other employees and independent consultants who are
important to the success and growth of the Company and to ensure that their
interests are aligned with the interests of the stockholders of the Company.
The Company expects that the Selling Stockholders of the Company will approve
the Plan prior to consummation of the Offerings.
ADMINISTRATION. The Plan is administered by the 1996 Stock Incentive Plan
Committee (the "Plan Committee") which is the Company's Board of Directors and
once constituted, the Compensation Committee of the Board of Directors. The
Plan Committee will determine, from time to time, the individuals to whom
awards shall be made, the type of awards, and the amount, size and terms of
each award. The Plan Committee will make all other determinations necessary or
advisable for the administration of the Plan.
AWARDS. Awards under the Plan may be in the form of options (both
nonqualified stock options ("NQSOs") and incentive stock options ("ISOs")),
contingent stock, restricted stock, and stock appreciation rights ("SARs"), or
such other forms as the Plan Committee in its discretion may deem appropriate.
NUMBER OF SHARES. A total of shares of the Company's Class A Common Stock
has been authorized to be issued pursuant to the Plan. Messrs. Renn M. Patch,
Corey B. Lindley, Michael D. Smith, Takashi Bamba, John Chou, S.T. Han, George
Mak, and Mark Adams, will receive options to purchase , , , , ,
, , shares, respectively, each at an exercise price of $ . These
options vest ratably over four years following the date of grant. The Company
anticipates granting % of these shares to executive officers of the Company
prior to the Offerings. The maximum number of awards that may be issued to any
one person during the life of the Plan shall be limited to 10% of the shares
reserved for issuance under the Plan. The maximum number of awards that may be
awarded during a calendar year to any one person is limited to 10% of the
shares reserved for issuance under the Plan. The number of shares which may be
issued under the Plan as well as the terms of any outstanding awards may be
equitably adjusted by the Plan Committee in the event of a stock split, stock
dividend, recapitalization, merger, consolidation, combination or similar
events.
62
PLAN AMENDMENT. The Board of Directors may amend the Plan, without
stockholder approval, anytime in any respect unless stockholder approval of
the amendment in question is required under Delaware law, the Internal Revenue
Code of 1986, as amended, any exemption from Section 16 of the Securities
Exchange Act of 1934, as amended, any national securities exchange system on
which the shares are then listed or reported, by any regulatory body having
jurisdiction with respect to the Plan, or other applicable laws, rules or
regulations. No amendment to the Plan may alter or impair any option granted
under the Plan without the consent of the holders thereof. The Plan may be
terminated at any time by the Board of Directors.
OPTIONS. The Plan provides for the grant of ISOs to employees and NQSOs to
employees and independent consultants. In the case of ISOs, the exercise price
of an option may not be less than 100% of the fair market value of a share of
Class A Common Stock at the time of grant (or 110% of such fair market value
if the optionee owns more than 10% of the total voting power of all classes of
Company stock outstanding at the time of grant). In the case of NQSOs, the
exercise price of an option may not be less than 85% of the fair market value
of a share of Class A Common Stock at the time of grant. The Plan Committee
may provide for a reduction in the exercise price of a NQSO by dividends paid
on a share of Class A Common Stock while the NQSO is outstanding. Options will
be exercisable for a term determined by the Plan Committee provided such
exercise shall not occur earlier than six months after the grant of the option
and not later than ten years (five years if the optionee owns more than ten
percent of the total voting power of all classes of Company Stock outstanding
at the time of grant). The aggregate fair market value of shares (determined
at the time of grant) with respect to which ISOs granted by an employee for
the first time in any one calendar year that are exercisable shall not exceed
$100,000. If any option is not granted, exercised, or held pursuant to the
provisions applicable to an ISO, it will be considered to be an NQSO to the
extent that any or all of the grant is in conflict with these restrictions. In
general, if options are for any reason cancelled, or expire or terminate
unexercised, the shares covered by such options shall again be available for
the grant of options. No options may be granted after 10 years from the
effective date of the Plan. The Plan Committee has the power to permit
acceleration of previously determined exercise terms under certain
circumstances and upon such terms and conditions as the Plan Committee deems
appropriate.
CONTINGENT STOCK. The Plan Committee will determine the amount of contingent
stock to be granted to a participant based on the past or expected impact the
participant has had or can have on the financial well being of the Company and
other factors determined by the Plan Committee to be appropriate. A
participant receiving an award of contingent stock will receive the stock upon
the satisfaction of certain objectives. Contingent stock awards made pursuant
to the Plan will be subject to such terms, conditions and restrictions,
including obtainment of performance objectives, for such period or periods as
may be determined by the Plan Committee at the time of grant.
RESTRICTED STOCK. The Plan Committee will determine the amount of restricted
stock to be granted to a participant based on the past or expected impact the
participant has had or can have on the financial well being of the Company and
other factors deemed by the Plan Committee to be appropriate. Restricted stock
is issued to the participant subject to forfeiture if certain objectives are
not met. Restricted stock awards made pursuant to the Plan shall be subject to
the terms, conditions and restrictions, including the payment of performance
objectives, and for such period or periods as will be determined by the Plan
Committee at the time of grant. The Plan Committee in its discretion may
permit acceleration of the expiration of the applicable restriction period
with respect to part or all of the award to any participant. Shares of
restricted stock may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, for such period provided in the participant's award agreement.
SARS. SARs are rights to receive cash or shares of Company stock, or a
combination thereof, as the Plan Committee may determine in an amount equal to
the excess of (i) the fair market value of the stock with respect to which the
SAR is exercised, or (ii) one hundred percent of the fair market value of such
stock at the time the SAR was granted, less any dividends paid on such shares
while the SAR was outstanding. No cash consideration will be received by the
Company for the grant of any SAR. No SAR may be granted for a period of less
than one year or greater than ten years.
63
FEDERAL INCOME TAX CONSEQUENCES. The participant recognizes no taxable gain
or loss when an incentive stock option is granted or exercised. If the shares
acquired upon the exercise of an incentive stock option are held for at least
one year after exercise and two years after grant (the "Holding Period"), the
participant recognizes any gain or loss recognized upon such sale as long-term
capital gain or loss and the Company is not entitled to a deduction. If the
shares are not held for the Holding Period, the gain is ordinary income to the
participant to the extent of the difference between the exercise price and the
fair market value of the Class A Common Stock on the date the option is
exercised and any excess is capital gain. Also, in such circumstances, the
Company is entitled to a deduction equal to the amount of any ordinary income
recognized by the participant.
The participant recognizes no taxable income and the Company receives no
deduction when a nonqualified stock option is granted. Upon exercise of a
nonqualified stock option, the participant recognizes ordinary income and the
Company is entitled to a deduction equal to the difference between the
exercise price and the fair market value of the shares on the date of
exercise. The participant recognizes as a capital gain or loss any subsequent
profit or loss realized on the sale or exchange of any shares disposed of or
sold.
A participant granted restricted stock or contingent stock is not required
to include the value of such shares in income until the first time such
participant's rights in the shares are transferable or are not subject to
substantial risk of forfeiture, whichever occurs earlier, unless such
participant timely files an election under Code Section 83(b) to be taxed on
the receipt of the shares. In either case, the amount of such ordinary income
will be equal to the excess of the fair market value of the shares at the time
the income is recognized over the amount (if any) paid for the shares. The
Company is entitled to a deduction, in the amount of the ordinary income
recognized by the participant, for the Company's taxable year in which the
participant recognizes such income.
Upon the grant of an SAR, the participant recognizes no taxable income and
the Company receives no deduction. The participant recognizes ordinary income
and the Company is entitled to a deduction at the time of exercise equal to
the cash and the fair market value of shares payable upon such exercise.
Under certain circumstances, an accelerated vesting or cash out of stock
options, or accelerated lapse of restrictions on other awards, in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code Section
280G. To the extent it is so considered, the participant may be subject to a
20% excise tax and the Company may be denied a tax deduction.
Code Section 162(m) limits to $1,000,000 per year the federal income tax
deduction available to a public company for compensation paid to any of its
chief executive officer and four other highest paid executive officers.
However, (S) 162(m) provides an exception from its limitation for certain
"performance based" compensation if various requirements are satisfied. The
Plan contains provisions which are intended to satisfy these requirements for
awards made at the time the Company is considered a public company and which
otherwise are "performance based" compensation.
BONUS INCENTIVE PLAN
Concurrent with the Offerings, the Company intends to adopt a bonus
incentive plan for the Presidents of the Subsidiaries. This bonus incentive
plan will be patterned after a similar plan under which Messrs. Bamba, Chou,
Han and Mak were compensated by NSI prior to the Reorganization and the
Offerings. Under the contemplated bonus incentive plan, Messrs. Bamba, Chou,
Han and Mak will be entitled to receive an annual cash bonus based upon the
prior year's operating results of the Subsidiary for which they are
responsible. Under this bonus incentive plan, participants would be able to
receive a bonus equal to 100% of their respective salaries, conditioned on
meeting certain performance criteria and subject to cash availability and
approval of the Board of Directors of the Company. One half of this bonus
would be payable by February 15 of the year following the year in which the
bonus is earned and the remaining one half would be deferred and would vest
ratably over 10 years or at age 65, whichever occurs first.
64
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following the Offerings, the Selling Stockholders will own all of the
outstanding shares of Class B Common Stock, which will represent
approximately % of the combined voting power of all outstanding Common
Stock. Prior to or concurrently with the Offerings, the Selling Stockholders
who are also the stockholders of Nu Skin Japan, Nu Skin Taiwan, Nu Skin Korea
and Nu Skin Hong Kong will contribute their shares of capital stock in such
entities to the Company in exchange for shares of Class B Common Stock. See
"The Reorganization and S Corporation Distribution."
Upon the consummation of the Offerings, approximately % of the combined
voting power of the outstanding shares of Common Stock will be held by the
Selling Stockholders, who are also the shareholders of NSI (approximately %
if the Underwriters' over-allotment option is exercised in full).
Consequently, the Selling Stockholders will have the ability, acting in
concert, to elect all directors of the Company and approve any action
requiring approval by a majority of the stockholders of the Company. The
Selling Stockholders also own, and following the Offerings will continue to
own, 100% of the outstanding shares of NSI. As a result of this ownership, the
Selling Stockholders will consider the short-term and the long-term impact of
all stockholder decisions on the consolidated financial results of NSI and the
Company. The interests of NSI, on the one hand, and of the Company, on the
other hand, may differ from time to time. See "Risk Factors--Control by
Selling Stockholders; Anti-Takeover Effect of Dual Classes of Common Stock"
and "Relationship with and Reliance on NSI; Conflict of Interest."
The Operating Agreements were approved by the present Board of Directors of
the Company, which is composed entirely of officers and shareholders of NSI.
It is expected that, subsequent to the closing of the Offerings, the
composition of the Board of Directors of the Company will be changed so that
at least two of its members will be persons unaffiliated with NSI. In
addition, most of the executive officers of the Company are also executive
officers of NSI. It is expected that a number of the Company's executive
officers will continue to spend a portion of their time on the affairs of NSI,
for which they will continue to receive compensation from NSI. See "Risk
Factors--Relationship with and Reliance on NSI; Conflict of Interest" and
"Business--Relationship with NSI."
Virtually all of the products sold by the Company are purchased from NSI
pursuant to distribution agreements with NSI. The Company also manufactures
itself, or through third-party manufacturers, certain products and commercial
materials which it then sells using NSI trademarks or tradenames licensed
under trademark/tradename license agreements with NSI. In addition, the
Company does not have its own sales or distribution network but licenses the
right to use NSI's distribution network and the Global Compensation Plan
pursuant to licensing and sales agreements with NSI. During 1995, the Company
paid NSI approximately $99.2 million for goods and services provided to the
Company under the Operating Agreements. NSIMG also provides a broad range of
management, administrative and technical support to the Company pursuant to
management services agreements with the Company. During 1995, the Company paid
NSIMG approximately $2.1 million for services provided to the Company under a
management service agreement. For a summary of the terms of these agreements,
see "Business--Relationship with NSI." See also Combined Financial Statements
and footnotes thereto.
During 1995, Nu Skin Japan paid NSI a royalty of 8% of the revenue from
sales of products manufactured by a third party manufacturer under a license
agreement between Nu Skin Japan and NSI. In fiscal 1995, Nu Skin Japan paid
NSI $2.3 million in royalties pursuant to this license agreement.
Pursuant to wholesale distribution agreements, Nu Skin Hong Kong distributes
certain NSI products to Nu Skin Personal Care Australia, Inc. and Nu Skin New
Zealand, Inc. Pursuant to these agreements, Nu Skin Hong Kong was paid
approximately $4.6 million in fiscal 1995 by Nu Skin Personal Care Australia,
Inc. and Nu Skin New Zealand, Inc.
Prior to or concurrently with the Offerings, the Company will purchase from
NSI for $15.0 million, the exclusive rights to distribute NSI products in
Thailand, Indonesia, Malaysia, the Philippines, the PRC, Singapore
65
and Vietnam. This amount will be paid out of proceeds of the Offerings. See
"Use of Proceeds." In addition the Company and NSI will enter into a mutual
indemnification agreement pursuant to which NSI will indemnify the Company for
certain claims, losses and liabilities relating to the operations of the
Subsidiaries prior to the Reorganization and the Company will indemnify NSI
for certain claims, losses and liabilities relating to the operations of the
Subsidiaries after the Reorganization. See "Business--Relationship with NSI."
Craig Bryson and Craig S. Tillotson are major stockholders of the Company
and have been NSI distributors since 1984. Messrs. Bryson and Tillotson are
partners in an entity (the "Partnership") which receives substantial
commissions from NSI, including commissions on sales generated within the
Company's markets. For the fiscal year ended December 31, 1995, total
commissions paid to the Partnership on sales originating in the Company's then
open markets (Japan, Taiwan and Hong Kong) was approximately $1.1 million. By
agreement, NSI pays commissions to the Partnership at the highest level of
commissions available to distributors. Management believes that this
arrangement allows Messrs. Bryson and Tillotson the flexibility of using their
expertise and reputations in network marketing circles to sponsor, motivate
and train distributors to benefit NSI's distributor force generally, without
having to focus solely on their own organizations.
The Selling Stockholders will enter into a stockholders' agreement with the
Company (the "Stockholders' Agreement"). The Selling Stockholders will in the
aggregate own shares having % of the voting power of the Company immediately
after the Offerings. Pursuant to the Stockholders' Agreement, the Selling
Stockholders have agreed not to transfer any shares of Common Stock they own
except in accordance with such Agreement. In order to ensure the qualification
of the Reorganization under Section 351 of the Code, the Selling Stockholders
have agreed not to transfer any shares they own for 365 days after the
Offerings without the consent of the Company except for certain transfers
relating to a distributor stock incentive program and an employee stock
incentive program. After the expiration of this 365-day period the Selling
Stockholders may not transfer in any one-year period a number of shares
greater than ten percent of the number of shares beneficially owned by such
Selling Stockholder at the time of the Offerings. Such transfer may be made
without additional limitation to Selling Stockholders, spouses of Selling
Stockholders and certain trusts controlled by, and descendants of, Selling
Stockholders ("Permitted Transferees"). If a Selling Stockholder (the
"Offering Stockholder") intends to transfer shares to a party who is not a
Permitted Transferee, the other Selling Stockholders (the "Offerees") have a
right of first offer to purchase such shares except in certain limited
circumstances. Each Offeree will have the opportunity to purchase the
Offeree's pro rata portion of the shares to be offered by the Offering
Stockholder as well as additional shares not purchased by other Offerees. Any
shares not purchased pursuant to the right of first offer may be sold at or
above 95% of the price offered to the Offerees. The Stockholders' Agreement
will terminate upon the occurrence of certain specified events, including the
transfer of shares of Common Stock by a Selling Stockholder that causes all
Selling Stockholders immediately after such transaction to own beneficially in
the aggregate shares having less than 10% of the total voting power of the
Company.
Prior to the Offerings, the Company will enter into indemnification
agreements with its officers and directors indemnifying them against liability
incurred by them in the course of their service to the Company. The Company
has granted certain of its officers options to purchase shares of Class A
Common Stock. In January 1994, NSI stockholders agreed to grant M. Truman Hunt
an option to purchase shares of capital stock of the Company at an
exercise price of $ per share. This option is immediately exercisable, upon
consummation of the Reorganization.
Prior to the Offerings, the Selling Stockholders intend to contribute to the
Company and NSI an aggregate of up to 4% of the outstanding shares of the
Company's common stock on the date of such contribution for issuance by NSI to
its independent distributors pursuant to an NSI distributor equity incentive
program. Approximately 50% of the shares contributed by the Selling
Stockholders will be used in an equity incentive program for NSI distributors
which management intends to implement in connection with the Offerings. The
plan will include conditions related to the achievement of performance goals
by NSI distributors. The Company will record distributor incentive expense for
equity incentives granted to NSI distributors. The remaining 50% of the shares
contributed by the Selling Stockholders will be held for equity incentive
programs that may be implemented in the future.
66
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of June 30, 1996, certain information
regarding the beneficial ownership of the Class A Common Stock and Class B
Common Stock assuming the Company was in existence on that date and after
giving effect to the Reorganization and as adjusted to give effect to the
sales of shares of Class A Common Stock in the Offerings (assuming no exercise
of the Underwriters' over-allotment options) by (i) each person known by the
Company to own beneficially more than 5% of either the outstanding shares of
Class A Common Stock or Class B Common Stock; (ii) each of the Company's
directors; (iii) each of the executive officers whose names appear in the
summary compensation table; and (iv) all directors and executive officers as a
group. The business address of the 5% stockholders is 75 West Center Street,
Provo, Utah 84601.
CLASS A CLASS B TOTAL
COMMON STOCK(/1/) COMMON STOCK COMMON STOCK
-------------------------------- ---------------------- ------------
TO BE
OWNED AND OWNED OWNED PRIOR TO AND VOTING
DIRECTORS, EXECUTIVE OFFICERS TO BE SOLD AFTER THE AFTER POWER AFTER
AND 5% STOCKHOLDERS IN THE OFFERINGS(/2/) OFFERINGS THE OFFERINGS(/3/) OFFERINGS
- ----------------------------- --------------------- ---------- ---------------------- ------------
NUMBER NUMBER % NUMBER % %
--------------------- ------ --- ----------- --------- ------------
Blake M. Roney..........
Nedra D. Roney..........
Sandie N. Tillotson.....
Craig S. Tillotson......
Craig Bryson............
Steven J. Lund..........
Brooke B. Roney.........
Kirk V. Roney...........
Keith R. Halls..........
Renn M. Patch(/4/)......
Takashi Bamba(/5/)......
John Chou(/6/)..........
George Mak(/7/).........
All directors and
executive officers as a
group (17
persons)(/8/)..........
--------
(1) Each share of Class B Common Stock is convertible at any time at
the option of the holder into one share of Class A Common Stock
and is automatically converted into a share of Class A Common
Stock upon transfer to any person who is not a permitted
Transferee as defined in the Stockholders' Agreement entered into
by the existing stockholders prior to the Offerings. See "Certain
Relationships and Related Transactions."
(2) Prior to the Offerings, the Selling Stockholders will convert
shares of Class B Common Stock to Class A Common Stock to be sold
in the Offerings.
(3) Reflects the conversion prior to the Offerings by the Selling
Stockholders of approximately shares of Class B Common Stock
into shares of Class A Common Stock which were contributed by
the Selling Stockholders pro rata to NSI, its affiliates and the
Company for distribution to distributors of NSI and employees of
NSI and its affiliates pursuant to the Distributor Incentives and
Employee Incentives. See "Shares Eligible For Future Sale."
(4) Excludes stock options to purchase a total of shares of Class A
Common Stock granted to Mr. Patch and which will not be
exercisable within 60 days of the Offerings.
(5) Excludes stock options to purchase a total of shares of Class A
Common Stock granted to Mr. Bamba and which will not be
exercisable within 60 days of the Offerings.
(6) Excludes stock options to purchase a total of shares of Class
A Common Stock granted to Mr. Han and which will not be
exercisable within 60 days of the Offerings.
(7) Excludes stock options to purchase a total of shares of Class
A Common Stock granted to Mr. Mak and which will not be
exercisable within 60 days of the Offerings.
(8) See notes (4) through (7).
67
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common Stock
and no prediction can be made that an active trading market will develop or as
to the effect, if any, that market sales of shares or the availability of such
shares for sale will have on the market price of the Common Stock prevailing
from time to time. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."
Upon completion of the Offerings, the Company will have shares of Class
A Common Stock issued and outstanding (assuming the exercise of all
Distributor Options). Prior to the Offerings, the Company intends to grant
Stock Options to certain of its executive officers and other employees to
acquire shares of Class A Common Stock. These options rest ratably over
four years from the date of grant.
Prior to the Offerings, the Selling Stockholders intend to contribute to the
Company and NSI an aggregate of up to 4% of the outstanding shares of the
Company's common stock on the date of such contribution for issuance by NSI to
its independent distributors pursuant to an NSI distributor equity incentive
program. Approximately 50% of the shares contributed by the Selling
Stockholders will be used in an equity incentive program for NSI distributors
which management intends to implement in connection with the Offerings. The
plan will include conditions related to the achievement of performance goals
by NSI distributors. The Company will record distributor incentive expense for
equity incentives granted to NSI distributors. The remaining 50% of the shares
contributed by the Selling Stockholders will be held for equity incentive
programs that may be implemented in the future.
The original stockholders of the Company have also previously contributed an
additional 1.2% of the Company's outstanding Class A Common Stock (the
"Employee Options") to NSI and its affiliates for use by NSI and its
affiliates in connection with stock option plans to be sponsored by NSI and
its affiliates using such shares of Class A Common Stock.
Persons other than "affiliates" of the Company, as defined in Rule 144 of
the 1933 Act, purchasing the shares of Common Stock sold in the Offerings will
generally be able to trade such shares freely without restrictions or further
registration under the Securities Act. Shares acquired by the stockholders as
part of the Reorganization are "restricted securities" (as defined in Rule
144) and, absent registration under the 1933 Act or an exemption therefrom,
cannot be traded for a period of at least two years after the consummation of
the Reorganization.
The Selling Stockholders have entered into a stockholders' agreement which
restricts the extent to which any Selling Stockholder can dispose of shares of
Common Stock following the Offerings. Among other things, in order to ensure
the qualification of the Reorganization under Section 351 of the Code, such
stockholders have agreed not to transfer any shares they own for 365 days
after the Offerings without the consent of the Company except for certain
transfers pursuant to a distributor incentive program. After the expiration of
the 365-day period, no such stockholder is permitted to transfer in any one-
year period a number of shares greater than ten percent of the number of
shares beneficially owned by such stockholder at the time of the Offerings.
Generally, as currently in effect, Rule 144 provides that beginning 90 days
after the date of this Prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned "restricted" shares of the Common Stock
for at least two years will be entitled to sell on the open market in broker's
transactions within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of the Common
Stock (1% is expected to be equal to approximately shares immediately
following the Offerings) or (ii) the average weekly trading volume in the
Common Stock on the open market during the four calendar weeks preceding such
sale. Sales under Rule 144, as currently in effect, are also subject to
certain notice requirements and the availability of current public information
about the Company. Under the provisions of Rule 144, the Selling Stockholders
will be deemed to have acquired beneficial ownership of the shares of
68
Common Stock currently held by them on the date of the issuance of such shares
by the Company in the Reorganization.
The shares of Class A Common Stock sold in the Offerings will not be listed
on any stock exchange in Japan and will not be registered with the Japan
Securities Dealers Association as shares to be traded in the Japanese over-
the-counter market. Therefore, there will be no public market in Japan for the
trading of such shares. Under the Securities and Exchange Law of Japan, if the
offer of shares of Class A Common Stock is made to 50 or more persons in Japan
on uniform terms and conditions and the aggregate offering price is (Yen)500
million or more, such offer will be subject to regulations applicable to
secondary public offerings, the primary requirements of which are the filing
of a notification with the Minister of Finance of Japan (the "MOF") and the
distribution of a prospectus.
The Company, its directors and officers, and the Selling Stockholders have
agreed or will agree prior to the Offerings not to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable
or exercisable for Common Stock, without the prior consent of Merrill Lynch &
Co., for a period of 180 days after the date of this Prospectus, except that
the Company may, without such consent, grant options or issue shares of Common
Stock pursuant to certain equity incentives, including, without limitation,
the Distributor Incentives and the Employee Incentives.
69
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this Prospectus (and after consummation of the
Reorganization), the authorized capital stock of the Company consists of
500,000,000 shares of Class A Common Stock, par value $ per share ("Class A
Common Stock") and 100,000,000 shares of Class B Common Stock, par value
per share (the "Class B Common Stock"), and 25,000,000 shares of Preferred
Stock, par value $0.001 per share (the "Preferred Stock"). As of the date of
this Prospectus (and after consummation of the Reorganization and giving
effect to the implementation of the Distributor Equity Incentive Plan) there
are shares of Class A Common Stock and shares
of Class B Common Stock outstanding, all of which are held of record by the
Selling Stockholders. See "The Reorganization and S Corporation Distribution"
and "Principal and Selling Stockholders." Of the authorized shares of
Preferred Stock, no shares of Preferred Stock are outstanding. The following
description is a summary and is subject to and qualified in its entirety by
reference to the provisions of the Company's Certificate of Incorporation
filed as an exhibit in the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights and
transfer restrictions regarding the shares of the Class B Common Stock, as
described below.
VOTING RIGHTS. Each share of Class A Common Stock entitles the holder to one
vote on each matter submitted to a vote of the Company's stockholders and each
share of Class B Common Stock entitles the holder to ten votes on each such
matter, including the election of directors. There is no cumulative voting.
Except as required by applicable law, holders of Class A Common Stock and
holders of Class B Common Stock will vote together on all matters submitted to
a vote of the stockholders. With respect to certain corporate changes, such as
liquidations, reorganizations, recapitalizations, mergers, consolidations and
sales of substantially all of the Company's assets, holders of Class A Common
Stock and holders of Class B Common Stock will vote together as a single class
and the approval of 66 2/3% of the outstanding voting power is required to
authorize or approve such transactions. See "Risk Factors-Control by Selling
Stockholders; Anti-Takeover Effect of Dual Classes of Common Stock."
Any action that can be taken at a meeting of the stockholders may be taken
by written consent in lieu of a meeting if the Company receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present. This could permit holders of Class B Common
Stock to take all actions required to be taken by the stockholders without
providing the other stockholders an opportunity to make nominations or raise
other matters at a meeting. The right to take action by less than unanimous
written consent expires at such time as there are no shares of Class B Common
Stock outstanding.
DIVIDENDS. Holders of Class A Common Stock and holders of Class B Common
Stock are entitled to receive dividends at the same rate if, as and when such
dividends are declared by the Board of Directors of the Company out of assets
legally available therefor after payment of dividends required to be paid on
shares of Preferred Stock, if any.
If a dividend or distribution payable in Class A Common Stock is made on the
Class A Common Stock, the Company must also make a pro rata and simultaneous
dividend or distribution on the Class B Common Stock payable in shares of
Class B Common Stock. Conversely, if a dividend or distribution payable in
Class B Common Stock is made on the Class B Common Stock, the Company must
also make a pro rata and simultaneous dividend or distribution on the Class A
Common Stock payable in shares of Class A Common Stock.
70
RESTRICTIONS ON TRANSFER. If a holder of Class B Common Stock transfers such
shares, whether by sale, assignment, gift, bequest, appointment or otherwise,
to a person other than a permitted transferee (as defined in the Company's
Certificate of Incorporation) such shares will be converted automatically into
shares of Class A Common Stock. In the case of a pledge of shares of Class B
Common stock to a financial institution, such shares will not be deemed to be
transferred unless and until a foreclosure occurs.
CONVERSION. The Class A Common Stock has no conversion rights. The Class B
Common Stock is convertible into shares of Class A Common Stock, in whole or
in part, at any time and from time to time at the option of the holder, on the
basis of one share of Class A Common Stock for each share of Class B Common
Stock converted. In the event of a transfer of shares of Class B Common Stock
to any person other than a Permitted Transferee each share of Class B Common
Stock so transferred automatically will be converted into one share of Class A
Common Stock. Each share of Class B Common Stock will also automatically
convert into one share of Class A Common Stock if, on the record date for any
meeting of the stockholders, the number of shares of Class B Common Stock then
outstanding is less than 10% of the aggregate number of shares of Class A
Common Stock and Class B Common Stock then outstanding.
LIQUIDATION. In the event of liquidation, after payment of the debts and
other liabilities of the Company and after making provision for the holders of
Preferred Stock, if any, the remaining assets of the Company will be
distributable ratably among holders of Class A Common Stock and holders of
Class B Common Stock treated as a single class.
MERGERS AND OTHER BUSINESS COMBINATIONS. Upon the merger or consolidation of
the Company, holders of each class of Common Stock are entitled to receive
equal per share payments or distributions, except that in any transaction in
which shares of capital stock are distributed, such shares may differ as to
voting rights to the extent and only to the extent that the voting rights of
the Class A Common Stock and the Class B Common Stock differ at that time. The
Company may not dispose of all or any substantial part of the assets of the
Company to, or merge or consolidate with, any person, entity or "group" (as
defined in Rule 13-d-5 of the Securities Exchange Act of 1934, as amended (the
"1934 Act")), which beneficially owns in the aggregate 10% or more of the
outstanding Common Stock of the Company (a "Related Person") without the
affirmative vote of the holders, other than such Related Person, of not less
that 66 2/3% of the voting power of outstanding Class A Common Stock and Class
B Common Stock voting as a single class. For the sole purpose of determining
the 66-2/3% vote, a Related Person will also include the seller or sellers
from whom the Related Person acquired, during the preceding six months, at
least 5% of the outstanding shares of Class A Common Stock in a single
transaction or series of related transactions pursuant to one or more
agreements or other arrangements (and not through a brokers' transaction), but
only if such seller or sellers have beneficial ownership of shares of Common
Stock having a fair market value in excess of $10 million in the aggregate
following such disposition to such Related Person. This 66-2/3% voting
requirement is not applicable, however, if (i) the proposed transaction is
approved by a vote of not less that a majority of the Board of Directors of
the Company who are neither affiliated nor associated with the Related Person
(or the seller of shares to the Related Person as described above) or (ii) in
the case of transaction pursuant to which the holders of Common Stock are
entitled to receive cash, property, securities or other consideration, the
cash or fair market value of the property, securities or other consideration
to be received per share in such transaction is not less than the higher of
(A) the highest price per share paid by the Related Person for any of its
holdings of Common Stock within the two-year period immediately prior to the
announcement of the proposed transaction or (B) the highest closing sale price
during the 30-day period immediately preceding such date or during the 30-day
period immediately preceding the date on which the Related Person became a
Related Person, whichever is higher.
OTHER PROVISIONS. Holders of the Class A Common Stock and holders of Class B
Common Stock are not entitled to preemptive rights. Neither the Class A Common
Stock nor the Class B Common Stock may be subdivided or combined in any manner
unless the other class is subdivided or combined in the same proportion.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the Class
A Common Stock is First Security Bank of Utah, N.A.
71
LISTING. The Company has made application to list the Class A Common Stock
on the New York Stock Exchange under the trading symbol "NUS."
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed
by the DGCL or the rules of the New York Stock Exchange or other organizations
on whose systems stock of the Company may be quoted or listed, to provide for
the issuance of additional shares of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the rights, powers, preferences and privileges of the shares of
each wholly unissued series and any qualifications, limitations or
restrictions thereon, and to increase or decrease the number of shares of such
series, without any further vote or action by the stockholders. The approval
of the holders of at least 66 2/3% of the combined voting power of the
outstanding shares of Common Stock, however, is required for the issuance of
shares of Preferred Stock that have the right to vote for the election of
directors under ordinary circumstances or to elect 50% or more of the
directors under any circumstances. Depending upon the terms of the Preferred
Stock established by the Board of Directors, any or all series of Preferred
Stock could have preference over the Common Stock with respect to dividends
and other distributions and upon liquidation of the Company or could have
voting or conversion rights that could adversely affect the holders of the
outstanding Common Stock. In addition, the Preferred Stock could delay, defer
or prevent a change of control of the Company. The Company has no present
plans to issue any share of Preferred Stock.
OTHER CHARTER AND BYLAW PROVISIONS
Special meetings of stockholders may be called only by the majority
stockholders, the Board of Directors, the President or the Secretary. Except
as otherwise required by law, stockholders, in their capacity as such, are not
entitled to request or call a special meeting of the stockholders.
Stockholders of the Company are required to provide advance notice of
nominations of directors to be made at, and of business proposed to be brought
before, a meeting of the stockholders. The failure to deliver proper notice
within the periods specified in the Company's Bylaws will result in the denial
of the stockholder of the right to make such nominations or propose such
action at the meeting.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Upon consummation of the Offerings, the Company will be subject to the
provisions of Section 203 of the DGCL (the "Anti-Takeover Law") regulating
corporate takeovers. The Anti-Takeover Law prevents certain Delaware
corporations, including those whose securities are listed on the New York
Stock Exchange, from engaging, under certain circumstances, in a "business
combination" (which includes a merger of not more than 10% of the
corporations' assets) with an "interested stockholder" (a stockholder who,
together with affiliates and associates, within the prior three years did own,
15% or more of the corporation's outstanding voting stock) for three years
following the date that such stockholder became an "interested stockholder,"
unless the "business combination" or "interested stockholder" is approved in a
prescribed manner.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the fullest extent permitted by the DGCL, the Company's Certificate of
Incorporation and Bylaws provide that the Company shall indemnify and advance
expenses to each of its currently acting and former directors and officers,
and may so indemnify and advance expenses to each of its employees and other
individuals. The Company believes the foregoing provisions are necessary to
attract and retain qualified persons as directors and officers. Prior to the
consummation of the Offerings, the Company intends to enter into separate
indemnification agreements with each of its directors and executive officers
in order to effectuate such provisions. See "Certain Relationships and Related
Transactions."
72
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is
any person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust. This discussion does not address all aspects of
United States federal income and estate taxes and does not deal with foreign,
state and local consequences that may be relevant to such Non-U.S. Holders in
light of their personal circumstances. Furthermore, this discussion is based
on provisions of the Code, existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change (possibly with retroactive
effect). Each prospective purchaser of Class A Common Stock is advised to
consult a tax advisor with respect to current and possible future tax
consequences of acquiring, holding and disposing of Class A Common Stock as
well as any tax consequences that may arise under the laws of any U.S. state,
municipality or other taxing jurisdiction.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to a non-resident alien) by virtue of being present in the
United States on at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will
be subject to withholding of United States federal income tax either at a rate
of 30% of the gross amount of the dividends or at such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business by the Non-U.S.
Holder within the United States and, where a tax treaty applies, are
attributable to a United States permanent establishment of the Non-U.S.
Holder, are not subject to the withholding tax (provided the Non-U.S. Holder
files appropriate documentation, including, under current law, IRS Form 4224,
with the payor of the dividend), but instead are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current law, dividends paid to an address outside the United States
are presumed to be paid to a resident of such country (unless the payer has
knowledge to the contrary) for purposes of the withholding discussed above and
for purposes of determining the applicability of a tax treaty rate. However,
under proposed Treasury regulations not currently in effect, in the case of
dividends paid after December 31, 1997 (December 31, 1999 in the case of
dividends paid to accounts in existence on or before the date that is 60 days
after the proposed regulations are published as final regulations), a Non-U.S.
Holder of Class A Common Stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
and other requirements either directly or through an intermediary. In
addition, backup withholding, as discussed below, may apply in certain
circumstances if applicable certification and other requirements are not met.
A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Class A Common Stock unless (i) the gain is effectively connected with a trade
or business of the Non-U.S. Holder in the United States, and, where a tax
treaty applies, is attributable to a United States permanent establishment of
the Non-U.S. Holder, (ii) in the case of a Non-U.S.
73
Holder who is an individual and holds the Class A Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, or (iii) the Company is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes. The Company
believes it is not and does not anticipate becoming a "U.S. real property
holding corporation" for United States federal income tax purposes.
If an individual Non-U.S. Holder falls under clause (i) above, he will,
unless an applicable treaty provides otherwise, be taxed on his net gain
derived from the sale under regular graduated United States federal income tax
rates. If an individual Non-U.S. Holder falls under clause (ii) above, he will
be subject to a flat 30% tax on the gain derived from the sale, which may be
offset by certain United States capital losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its gain under regular graduated United States
federal income tax rates and may be subject to an additional branch profits
tax at a 30% rate, unless it qualifies for a lower rate under an applicable
income tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock held by an individual Non-U.S. Holder at the time of
death will be included in such holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A backup withholding tax is imposed at the rate of 31% on certain payments
to persons that fail to furnish certain identifying information to the payor.
Under current law, backup withholding generally will not apply to dividends
paid to a Non-U.S. Holder at an address outside the United States (unless the
payer has knowledge that the payee is a U.S. person), but generally will apply
to dividends paid on Class A Common Stock at addresses inside the United
States to Non-U.S. Holders that fail to provide certain identifying
information in the manner required. However, under proposed Treasury
regulations not currently in effect, in the case of dividends paid after
December 31, 1997 (December 31, 1999 in the case of dividends paid to accounts
in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary or a Non-
U.S. Holder otherwise establishes an exemption from backup withholding.
Payment of the proceeds of a sale of Class A Common Stock by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner provides the payor with its
name and address and certifies under penalties of perjury that it is a Non-
U.S. Holder, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Class A Common Stock by or through a foreign office of a
foreign broker. If, however, such broker is, for United States federal income
tax purposes a U.S. person, a controlled foreign corporation, or a foreign
person that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, such payments will be
subject to information reporting, but not backup withholding, unless (i) such
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or (ii) the beneficial
owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
74
UNDERWRITING
The U.S. Underwriters named below (the "U.S. Underwriters"), acting through
their U.S. representatives, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Morgan Stanley & Co. Incorporated, Dean Witter Reynolds
Inc. and Nomura Securities International, Inc. (collectively, the "U.S.
Representatives"), have severally agreed, subject to the terms and conditions
of a U.S. Purchase Agreement with the Company and the Selling Stockholders
(the "U.S. Purchase Agreement"), to purchase from the Company and the Selling
Stockholders the number of shares of Class A Common Stock set forth opposite
their respective names below.
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Morgan Stanley & Co. Incorporated.................................
Dean Witter Reynolds Inc. ........................................
Nomura Securities International, Inc..............................
---------
Total........................................................... 4,600,000
=========
The Company and the Selling Stockholders have also entered into an
International Purchase Agreement (the "International Purchase Agreement") with
certain underwriters outside the United States, Canada and Japan (the
"International Underwriters"), for whom Merrill Lynch International Limited,
Morgan Stanley & Co. International Limited, Dean Witter International Ltd. and
Nomura International Plc. are acting as representatives (the "Lead
International Underwriters"). Subject to the terms and conditions set forth in
the International Purchase Agreement, the Company and the Selling Stockholders
have agreed to sell to the International Underwriters, and the International
Underwriters have severally agreed to purchase, an aggregate of 1,330,000
shares of Class A Common Stock pursuant to Regulation S under the Securities
Act.
The Company and the Selling Stockholders have also entered into a Japanese
Underwriting Agreement (the "Japanese Underwriting Agreement" and, together
with the U.S. Purchase Agreement and the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters in Japan (the "Japanese
Underwriters" and, together with the U.S. Underwriters and the "International
Underwriters", the "Underwriters"), for whom The Nomura Securities Co., Ltd.,
Merrill Lynch Japan Incorporated and Morgan Stanley Japan Limited are acting
as representatives (the "Lead Japanese Underwriters"). Subject to the terms
and conditions set forth in the Japanese Underwriting Agreement, the Company
and the Selling Stockholders have agreed to sell to the Japanese Underwriters,
and the Japanese Underwriters have jointly and severally agreed to purchase,
an aggregate of 1,670,000 shares of Class A Common Stock pursuant to
Regulation S under the Securities Act.
Merrill Lynch is acting as the Global Coordinator of the Offerings. In each
Purchase Agreement, the Underwriters named therein have agreed, subject to the
terms and conditions set forth in such Purchase Agreement, to purchase all of
the shares of Class A Common Stock being sold pursuant to such Purchase
Agreement if any of the shares of Class A Common Stock being sold pursuant to
such Purchase Agreement are purchased. Under certain circumstances, under the
U.S. or International Purchase Agreements, the commitments of non-defaulting
Underwriters may be increased. Each Purchase Agreement provides that the
Company and the Selling Stockholders are not obligated to sell, and the U.S.
Underwriters, International Underwriters and Japanese Underwriters are not
obligated to purchase, the shares of Class A Common Stock under the terms of
each Purchase Agreement unless the shares of Class A Common Stock to be sold
pursuant to the Purchase Agreements are contemporaneously sold.
75
The initial public offering price per share and the total underwriting
discount per share are identical under the U.S. Purchase Agreement, the
International Purchase Agreement and the Japanese Underwriting Agreement.
All of the shares to be offered in connection with the Offerings have been
under the Securities Act. With regards to the Japanese Offering, a filing of a
securities registration statement and amendments thereto under the Securities
and Exchange Laws of Japan has also been made with the Minister of Finance of
Japan. The Japanese Underwriters have agreed that the Japanese Offering will
be a public offering without listing in Japan and will be governed by the
Japanese laws and regulations.
The Company has been informed that the U.S. Underwriters, the International
Underwriters and the Japanese Underwriters have entered into an Intersyndicate
Agreement dated the date hereof (the "Intersyndicate Agreement") which
provides for the coordination of their activities. Under the terms of the
Intersyndicate Agreement, the U.S. Underwriters, the International
Underwriters and the Japanese Underwriters are permitted to sell shares of
Class A Common Stock to each other.
The Company has been informed that, under the terms of the Intersyndicate
Agreement (i) the U.S. Underwriters and any dealer to whom they sell shares of
Class A Common Stock will not offer to sell or resell shares of Class A Common
Stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
(ii) the International Underwriters and any dealer to whom they sell shares of
Class A Common Stock will not offer to sell or resell shares of Class A Common
Stock to U.S., Canadian or Japanese persons, or to persons they believe intend
to resell to persons who are U.S., Canadian or Japanese persons, and (iii) the
Japanese Underwriters and any sub-underwriter to whom they sell shares of
Class A Common Stock will not offer to sell or resell shares of Class A Common
Stock to non-Japanese persons, or to persons they believe intend to resell to
persons who are non-Japanese persons, except in each case for transactions
pursuant to the Intersyndicate Agreement, which, among other things, permits
the Underwriters to purchase from each other and offer for resale such number
of shares of Class A Common Stock as the selling Underwriter or Underwriters
and the purchasing Underwriter or Underwriters may agree. As used in this
section, "United States Person" or "Canadian Person" shall mean, respectively,
any individual who is resident in the United States or Canada or any
corporation, pension, profit-sharing or other trust or entity organized under
or governed by the laws of the United States or Canada or any political
subdivision thereof (other than a foreign branch or subsidiary of any United
States or Canadian Corporation), and shall include, respectively, any United
States or Canadian branch of a person other than a United States or Canadian
Person. "United States" shall mean the United States of America, its
territories, its possessions and all areas subject to its jurisdiction.
"Canada" shall mean the provinces of Canada, its territories, its possessions
and all areas subject to its jurisdiction. "Japanese Person" shall mean (i)
any individual who is resident in Japan, or (ii) any corporation, mutual fund,
trust or other similar entity organized under the laws of Japan (other than a
branch of such a corporate entity located outside Japan or mutual funds,
trusts or other similar entities the assets of which are managed in a
discretionary manner by an individual or entity not located in Japan) and
shall include any branch established in Japan of a foreign corporate entity
and any mutual fund, trust or other similar entity, regardless of the country
under whose laws it is organized, the assets of which are managed in a
discretionary manner by an individual or entity located in Japan. "Japan"
shall mean Japan and all areas subject to its jurisdiction.
The Selling Stockholders have granted the U.S. Underwriters and the
International Underwriters options exercisable for 30 days after the date of
this Prospectus to purchase up to 690,000 and 199,500 additional shares of
Class A Common Stock, respectively, to cover over-allotments, if any, at the
initial public offering price, less the underwriting discount. To the extent
that the U.S. and International Underwriters exercise such options, each of
the U.S. and International Underwriters will have a firm commitment, subject
to certain conditions, to purchase approximately the same percentage of the
option shares that the number of shares to be purchased initially by that
Underwriter is of the number of shares of Common Stock initially purchased by
the U.S. and International Underwriters. No over-allotment option has been
granted under the Japanese Underwriting Agreement.
76
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose to offer the shares of Class A Common Stock to the public initially at
the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $ per
share. The U.S. Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share on sales to certain other dealers.
After the initial public offering of the Class A Common Stock, the public
offering price, concession and discount may be changed.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters, the Japanese Underwriters and the International Underwriters
against certain liabilities which may be incurred in connection with the
offering of the Class A Common Stock and the exercise of the over-allotment
options, including liabilities under the Securities Act and other applicable
securities laws. In addition, the Company has agreed to reimburse the Japanese
Underwriters for certain out-of-pocket expenses incurred in connection with
the Japanese Offering.
Without the consent of Merrill Lynch, the Company, its executive officers
and the Selling Stockholders have agreed that they will not, for a period of
180 days following the date of this Prospectus, directly or indirectly, offer
to sell, grant any option for the sale of, or otherwise dispose of, any shares
of Class A Common Stock or any securities convertible into or exchangeable or
exercisable for any such shares. The foregoing agreements with respect to the
issuance of stock by the Company are subject to certain exceptions, including
the contribution of shares of Class A Common Stock to the Company and NSI for
issuance of such shares in the Distributor and Employee Incentive programs.
See "Shares Eligible for Future Sale."
Application has been made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "NUS." In order to meet the requirements for
listing of the Class A Common Stock on the NYSE, the U.S. Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
owners.
At the request of the Company, the U.S. Underwriters and the International
Underwriters have reserved up to shares of Class A Common Stock for sale
at the public offering price to certain employees of NSI and the Company and
to certain distributors of NSI and the Company, who have expressed an interest
in purchasing such shares. The number of shares available to the general
public will be reduced to the extent these persons purchase the reserved
shares. Any reserved shares that are not so purchased by such employees or
distributors at the closing of the Offerings will be offered by the U.S.
Underwriters and the International Underwriters to the general public on the
same terms as the other shares offered hereby.
In order to comply with local securities laws in certain jurisdictions
outside the United States, sales to certain employees and distributors will be
made directly by the Company rather than through the Underwriters, and the
total underwriting discount set forth on the cover page of this Prospectus
will be reduced accordingly. In addition, all shares sold to employees and
distributors outside the United States will be shares offered by the Company,
rather than by the Selling Stockholders.
Prior to the Offerings, there has been no established trading market for the
shares of Class A Common Stock. The initial public offering price for the
Class A Common Stock offered hereby has been determined by negotiation among
the Company and the Underwriters. Among the factors considered in making such
determination were the history of and the prospects for the industry in which
the Company competes, an assessment of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company and the trend of its revenues and earnings, the prospects for future
earnings of the Company, the general condition of the securities markets at
the time of the Offerings, the prices of similar securities of generally
comparable companies and other relevant factors. There can be no assurance
that an active trading market will develop for the Class A Common Stock or
that the Class A Common Stock will trade in the public market subsequent to
the Offerings at or above the initial public offering price.
The U.S. Representatives have informed the Company that the U.S.
Underwriters do not intend to confirm sales of Class A Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
77
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company and the Selling Stockholders by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, Salt Lake City, Utah. Certain legal
matters will be passed upon for the U.S. and International Underwriters by
Shearman & Sterling, San Francisco, California and for the Japanese
Underwriters by Tomotsune Kimura & Mitomi, Tokyo, Japan.
EXPERTS
The combined financial statements of Nu Skin Asia Pacific, Inc. as of
December 31, 1994 and 1995 and for the fiscal years ended September 30, 1993
and 1994, for the three month period ended December 31, 1994 and for the year
ended December 31, 1995 and balance sheet of Nu Skin Asia Pacific, Inc. as of
September 6, 1996 included in this Prospectus have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1, of which this
Prospectus is a part, with the Securities and Exchange Commission (the
"Commission") under the 1933 Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the
financial schedules and exhibits filed therewith. Statements made in this
Prospectus as to the contents of any contract, agreement or other documents
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise with the Commission. Each such statement shall be deemed qualified
in its entirety by such reference. Copies of the Registration Statement,
including all exhibits and schedules thereto, may be obtained from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 upon the payment of the fees prescribed by the Commission, or may be
examined without charge at the public reference facilities maintained at the
principal office of the Commission. The Commission maintains a Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file with the
Commission.
The Company intends to furnish holders of the Class A Common Stock with
annual reports containing audited consolidated financial statements and a
report thereon by its independent auditors, and quarterly reports containing
unaudited consolidated financial information. Such audited financial
statements and unaudited quarterly financial information will be prepared in
accordance with United States generally accepted accounting principles.
78
NU SKIN ASIA PACIFIC, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
COMBINED FINANCIAL STATEMENTS:
Report of Independent Accountants..................................... F-2
Combined Balance Sheets at December 31, 1994 and 1995, and at June 30,
1996 (unaudited)..................................................... F-3
Combined Statements of Income for the years ended September 30, 1993
and 1994, the three months ended December 31, 1993 (unaudited) and
1994, the year ended December 31, 1995, and the six months ended June
30, 1995 (unaudited) and 1996 (unaudited)............................ F-4
Combined Statements of Stockholders' Equity for the years ended Sep-
tember 30, 1993 and 1994, the three months ended December 31, 1994,
the year ended December 31, 1995, and the six months ended June 30,
1996 (unaudited)..................................................... F-5
Combined Statements of Cash Flows for the years ended September 30,
1993 and 1994, the three months ended December 31, 1993 (unaudited)
and 1994, the year ended December 31, 1995, and the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)....................... F-6
Notes to Combined Financial Statements................................ F-7
NU SKIN ASIA PACIFIC, INC.:
Report of Independent Accountants..................................... F-15
Balance Sheet as of September 6, 1996................................. F-16
Notes to Balance Sheet................................................ F-17
UNAUDITED PRO FORMA DATA:
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996.... F-20
Unaudited Pro Forma Consolidated Statements of Income For the Year
Ended
December 31, 1995.................................................... F-21
Unaudited Pro Forma Consolidated Statements of Income For the Six
Months Ended
June 30, 1996........................................................ F-22
Notes to Unaudited Pro Forma Consolidated Balance Sheet and Statements
of Income............................................................ F-23
All schedules are omitted because they are not applicable or the required
information is shown in the combined financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Nu Skin Asia Pacific, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Nu Skin
Asia Pacific, Inc. at December 31, 1994 and 1995, and the results of its
operations and its cash flows for the years ended September 30, 1993 and 1994,
the three months ended December 31, 1994, and the year ended December 31,
1995, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Nu Skin Hong Kong,
Inc. --Hong Kong Branch for the year ended September 30, 1993, which
statements reflect 17% of revenue for the year then ended. Those statements
were audited by other independent accountants whose report dated April 14,
1994 (except for Notes 2 and 8, as to which the date is August 30, 1996)
expressed an unqualified opinion on those statements. Our opinion, as it
relates to data of Nu Skin Hong Kong, Inc. for the year ended September 30,
1993, is based solely on the report of other independent accountants. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Salt Lake City, Utah
September 10, 1996
F-2
NU SKIN ASIA PACIFIC, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents...................... $16,288 $ 63,213 $ 51,464
Accounts receivable............................ 1,068 3,242 4,899
Related parties receivable..................... 17,870 1,793 9,945
Inventories, net............................... 15,556 32,662 38,383
Prepaid expenses and other..................... 3,461 3,410 3,449
------- -------- --------
54,243 104,320 108,140
Property and equipment, net...................... 3,850 6,904 8,120
Other assets..................................... 3,331 7,004 8,431
------- -------- --------
Total assets................................. $61,424 $118,228 $124,691
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................... $ 3,630 $ 4,395 $ 8,101
Accrued expenses............................... 13,377 23,313 39,672
Related parties payable........................ 10,556 28,749 21,033
------- -------- --------
27,563 56,457 68,806
------- -------- --------
Commitments and contingencies (Notes 7 and 10)
Stockholders' equity
Capital stock.................................. 1,300 4,550 4,550
Cumulative foreign currency translation adjust-
ment.......................................... 441 (2,940) (3,780)
Retained earnings.............................. 32,120 60,161 55,115
------- -------- --------
33,861 61,771 55,885
------- -------- --------
Total liabilities and stockholders' equity... $61,424 $118,228 $124,691
======= ======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-3
NU SKIN ASIA PACIFIC, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
THREE
YEAR ENDED MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- ------------------- ------------ -----------------------
1993 1994 1993 1994 1995 1995 1996
-------- -------- ----------- ------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenue................. $110,624 $254,637 $63,759 $73,562 $358,609 $158,125 $287,711
Cost of sales........... 38,842 86,872 24,238 19,607 96,615 41,901 80,963
-------- -------- ------- ------- -------- -------- --------
Gross profit............ 71,782 167,765 39,521 53,955 261,994 116,224 206,748
-------- -------- ------- ------- -------- -------- --------
Operating expenses
Distributor
incentives............ 40,267 95,737 22,315 27,950 135,722 60,224 107,090
Selling, general and
administrative........ 27,150 44,566 9,358 13,545 67,475 27,511 44,551
-------- -------- ------- ------- -------- -------- --------
Total operating
expenses............... 67,417 140,303 31,673 41,495 203,197 87,735 151,641
-------- -------- ------- ------- -------- -------- --------
Operating income........ 4,365 27,462 7,848 12,460 58,797 28,489 55,107
Other income (expense),
net.................... 133 443 24 (813) 511 549 617
-------- -------- ------- ------- -------- -------- --------
Income before provision
for income taxes....... 4,498 27,905 7,872 11,647 59,308 29,038 55,724
Provision for income
taxes (Note 8)......... 417 10,226 2,885 2,730 19,097 9,350 20,591
-------- -------- ------- ------- -------- -------- --------
Net income.............. $ 4,081 $ 17,679 $ 4,987 $ 8,917 $ 40,211 $ 19,688 $ 35,133
======== ======== ======= ======= ======== ======== ========
Unaudited pro forma
data:
Income before pro forma
provision for income
taxes.................. 4,498 27,905 7,872 11,647 59,308 29,038 55,724
Pro forma provision for
income taxes (Note 8).. 1,511 10,391 2,931 4,041 22,751 11,139 20,443
-------- -------- ------- ------- -------- -------- --------
Income after pro forma
provision for income
taxes.................. $ 2,987 $ 17,514 $ 4,941 $ 7,606 $ 36,557 $ 17,899 $ 35,281
======== ======== ======= ======= ======== ======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-4
NU SKIN ASIA PACIFIC, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CUMULATIVE
FOREIGN
CURRENCY TOTAL
CAPITAL TRANSLATION RETAINED STOCKHOLDERS'
STOCK ADJUSTMENT EARNINGS EQUITY
------- ----------- -------- -------------
Balance at October 1, 1992........ $1,300 $ 6 $ 1,443 $ 2,749
Net change in cumulative foreign
currency translation adjustment.. -- 96 -- 96
Net income........................ -- -- 4,081 4,081
------ ------- ------- -------
Balance at September 30, 1993..... 1,300 102 5,524 6,926
Net change in cumulative foreign
currency translation adjustment.. -- 329 -- 329
Net income........................ -- -- 17,679 17,679
------ ------- ------- -------
Balance at September 30, 1994..... 1,300 431 23,203 24,934
Net change in cumulative foreign
currency translation adjustment.. -- 10 -- 10
Net income........................ -- -- 8,917 8,917
------ ------- ------- -------
Balance at December 31, 1994...... 1,300 441 32,120 33,861
Contributed capital............... 3,250 -- -- 3,250
Dividends......................... -- -- (12,170) (12,170)
Net change in cumulative foreign
currency translation adjustment.. -- (3,381) -- (3,381)
Net income........................ -- -- 40,211 40,211
------ ------- ------- -------
Balance at December 31, 1995...... 4,550 (2,940) 60,161 61,771
Dividends (unaudited)............. -- -- (40,179) (40,179)
Net change in cumulative foreign
currency translation
adjustment (unaudited)........... -- (840) -- (840)
Net income (unaudited)............ -- -- 35,133 35,133
------ ------- ------- -------
Balance at June 30, 1996
(unaudited)...................... $4,550 $(3,780) $55,115 $55,885
====== ======= ======= =======
The accompanying notes are an integral part of these combined financial
statements.
F-5
NU SKIN ASIA PACIFIC, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE
YEAR ENDED MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
----------------- ------------------- ------------ -----------------------
1993 1994 1993 1994 1995 1995 1996
------- -------- ----------- ------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows from
operating activities:
Net income............. $ 4,081 $ 17,679 $ 4,987 $ 8,917 $ 40,211 $19,688 $ 35,133
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation........... 813 1,401 466 358 2,012 996 1,285
Loss on disposal of
property and
equipment............. 1 90 -- 1,093 12 4 --
Changes in operating
assets and
liabilities:
Accounts receivable.... 36 (1,006) (4,141) 165 (2,174) (2,364) (1,657)
Related parties
receivable............ (3,615) (25,288) 100 11,108 16,077 15,316 (8,152)
Inventories, net....... (9,301) 158 947 (939) (17,106) (3,298) (5,721)
Prepaid expenses and
other................. (587) (890) (3,530) (836) 51 1,663 (39)
Other assets........... (542) 277 195 (20) (2,994) (572) (1,432)
Accounts payable....... 1,544 884 1,928 279 765 188 3,706
Accrued expenses....... 2,216 13,106 3,457 (4,384) 9,936 2,937 16,359
Related parties
payable............... 19,398 3,475 (1,152) (16,442) 18,193 9,888 (7,716)
------- -------- ------- ------- -------- ------- --------
Net cash provided by
(used in) operating
activities............ 14,044 9,886 3,257 (701) 64,983 44,446 31,766
------- -------- ------- ------- -------- ------- --------
Cash flows from
investing activities:
Purchase of property
and equipment......... (4,061) (1,766) (500) (417) (5,422) (3,237) (2,859)
Proceeds from disposal
of property and equip-
ment.................. 20 25 -- 14 48 3 --
Payments for lease de-
posits................ (1,726) (614) (73) (677) (701) (295) --
Receipt of refundable
lease deposits........ 337 153 153 -- 22 3 5
------- -------- ------- ------- -------- ------- --------
Net cash used in
investing activities.. (5,430) (2,202) (420) (1,080) (6,053) (3,526) (2,854)
------- -------- ------- ------- -------- ------- --------
Cash flows from
financing activities:
Proceeds from related
party loans........... 4,350 -- -- -- -- -- --
Payments on related
party loans........... -- (4,350) -- -- -- -- --
Proceeds from capital
contributions......... -- -- -- -- 3,250 -- --
Dividends paid......... -- -- -- -- (12,170) (2,456) (40,179)
------- -------- ------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities............ 4,350 (4,350) -- -- (8,920) (2,456) (40,179)
------- -------- ------- ------- -------- ------- --------
Effect of exchange rate
changes on cash....... 74 152 (702) (8) (3,085) 1,584 (482)
------- -------- ------- ------- -------- ------- --------
Net increase (decrease)
in cash and cash
equivalents............ 13,038 3,486 2,135 (1,789) 46,925 40,048 (11,749)
Cash and cash
equivalents, beginning
of period.............. 1,553 14,591 14,591 18,077 16,288 16,288 63,213
------- -------- ------- ------- -------- ------- --------
Cash and cash
equivalents, end of
period................. $14,591 $ 18,077 $16,726 $16,288 $ 63,213 $56,336 $ 51,464
======= ======== ======= ======= ======== ======= ========
Supplemental cash flow
information:
Interest paid.......... $ 207 $ 81 $ 42 $ 6 $ 119 $ 25 $ 24
======= ======== ======= ======= ======== ======= ========
The accompanying notes are an integral part of these combined financial
statements.
F-6
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. THE COMPANY
Nu Skin Asia Pacific, Inc. (the "Company") is a network marketing company
involved in the distribution of premium quality personal care and nutritional
products in Asia. The Company is the exclusive distribution vehicle for Nu
Skin International, Inc. ("NSI") in the countries of Japan, Taiwan, Hong Kong
(including Macau) and South Korea (collectively referred to as the
"Subsidiaries"). Additionally, the Company sells products to NSI affiliates in
Australia and New Zealand. NSI was founded in 1984 and is one of the largest
network marketing companies in the world. NSI owns the Nu Skin trademark and
provides the products and marketing materials to each of its affiliates. Nu
Skin Management Group, Inc. ("NSIMG"), an NSI affiliate, has provided, and
will continue to provide, a high level of support services to the Company,
including product development, marketing, legal, accounting and other
managerial services. The operations of the Company, of NSI, of NSIMG and of
other NSI affiliates are conducted by a variety of individual entities that
are under the control of a group of common stockholders.
Inasmuch as the Subsidiaries are under common control, and in accordance
with the planned reorganization discussed in Note 11, the Subsidiaries'
historical balance sheets and related statements of income, of stockholders'
equity and of cash flows are combined and presented as a single entity after
elimination of intercompany transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE IN FISCAL YEAR
In October 1994, the Company's Board of Directors approved a change in the
Company's fiscal year end from September 30 to a calendar year end of December
31. The change became effective as of September 30, 1994.
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates include reserves for product returns,
obsolete inventory and taxes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid instruments with original
maturities of 90 days or less.
INVENTORIES
Inventories consist of merchandise purchased for resale and are stated at
the lower of cost using the first-in, first-out method or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
Furniture and fixtures........ 5 - 7 years
Computers and equipment....... 3 - 5 years
Leasehold improvements........ Shorter of estimated useful life or lease term
Vehicles...................... 3 - 5 years
Expenditures for maintenance and repairs are charged to expense as incurred.
F-7
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
OTHER ASSETS
Other assets consist primarily of deposits for noncancelable operating
leases.
REVENUE RECOGNITION
Revenue is recognized when products are shipped and title passes to
independent distributors who are the Company's customers. A reserve for
product returns is accrued based on historical experience. The Company
generally requires cash payment at the point of sale. The Company has
determined that no allowance for doubtful accounts is necessary. Amounts
received prior to shipment to distributors are recorded as deferred revenue.
INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes".
Under SFAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
the differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The Company elected to be taxed as an S corporation whereby the U.S. Federal
and state income tax effects of the Company's activities accrue directly to
its stockholders. The cumulative affect of adopting SFAS No. 109 as of
October 1, 1993 was not material to the Company's operations.
FOREIGN CURRENCY TRANSLATION
All business operations of the Company occur outside of the United States.
Each Subsidiary's local currency is considered the functional currency. Since
a substantial portion of the Company's inventories are purchased with U.S.
dollars from the United States and since the Company is incorporated in the
United States, all assets and liabilities are translated into U.S. dollars at
exchange rates existing at the balance sheet dates. Revenues and expenses are
translated at 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 combined balance sheets, and transaction gains and losses are included in
other income in the combined statements of income.
INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company operates in a single industry, which is the direct selling of
skin care, hair care and nutritional products, and in a single geographic
area, which is the Asia Pacific Region.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments including cash and cash equivalents,
accounts receivable, related parties receivable, accounts payable, accrued
expenses and related parties payable approximate their recorded values.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 30, 1996, the statement of
stockholders' equity for the six months ended June 30, 1996 and the statements
of income and of cash flows for the three months ended December 31, 1993 and
the six months ended June 30, 1995 and 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments necessary for the
fair statement of the results of interim periods. The data disclosed in these
notes to the combined financial statements at such dates or for such periods
are also unaudited.
F-8
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. RELATED PARTY TRANSACTIONS
SCOPE OF RELATED PARTY ACTIVITY
The Company has extensive and pervasive transactions with affiliated
entities that are under the control of a group of common stockholders. These
transactions are as follows: (1) The Company purchases virtually all of its
products from NSI through Nu Skin Hong Kong under the terms of the Regional
Distribution Agreement. The Company's purchase prices for NSI products and
commercial materials are governed by a price schedule which is subject to
negotiation between the Company and NSI. (2) The Company sells NSI products to
each of its subsidiaries and to NSI affiliates in Australia and New Zealand
through Nu Skin Hong Kong under the terms of the Regional Distribution
Agreement. (3) The Company pays a royalty to NSI for use of licensed
trademarks and trade names on products and commercial materials not purchased
from NSI, including products and commercial materials manufactured or locally
sourced by each of the Subsidiaries under the terms of the Trademark/Tradename
License Agreements. (4) Distributor agreements are entered into between the
distributor and NSI rather than the Company. The Company pays license fees to
NSI for the right to use NSI's distributor lists, the distribution system and
other intangibles in the countries in which the Company maintains exclusive
distribution rights under the terms of the Licensing and Sales Agreements. (5)
The Company is obligated to pay NSI a commission fee of 42% on all sales to
distributors by the Company to fulfill NSI's obligation under the Global
Compensation Plan as outlined in the Licensing and Sales Agreement. Such
payment is compensation to NSI for the commissions which become payable by NSI
to the independent distributors upon the Company's sales of product and covers
the costs of such commissions and the administration of the Global
Compensation Plan. The Company offsets this liability by paying directly the
commissions and rebates due to the distributors in the countries in which the
Company operates. (6) The Company pays fees to NSIMG for management and
support services under the terms of the Management Services Agreement. The
Company's management believes that the fees charged by NSI and NSIMG are
reasonable. In the event that NSI and NSIMG are unable or unwilling to perform
their obligations under the above agreements, or terminate the agreements as
provided therein, the Company's business and results of operations will be
adversely affected.
Total commission fees (including those paid directly to distributors within
the Company's geographic territory) are recorded as distributor incentives in
the combined statements of income. Trademark royalty fees, license fees and
management fees are included in selling, general and administrative expenses
in the combined statements of income.
SUMMARY OF TRANSACTIONS
The following summarizes the Company's transactions with related parties (in
thousands):
Product purchases
YEAR ENDED THREE SIX
SEPTEMBER 30, MONTHS ENDED YEAR ENDED MONTHS ENDED
----------------- DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1994 1995 1996
------- -------- ------------ ------------ ------------
(UNAUDITED)
Beginning inventories... $ 5,474 $ 14,775 $14,617 $ 15,556 $ 32,662
Inventory purchases from
affiliates............. 29,877 61,409 11,608 69,821 65,821
Other inventory
purchases, import
duties and value added
locally................ 18,266 25,305 8,938 43,900 20,863
------- -------- ------- -------- --------
Total products available
for sale............... 53,617 101,489 35,163 129,277 119,346
Less: Cost of sales..... (38,842) (86,872) (19,607) (96,615) (80,963)
------- -------- ------- -------- --------
Ending inventories...... $14,775 $ 14,617 $15,556 $ 32,662 $ 38,383
======= ======== ======= ======== ========
F-9
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Related parties payable transactions
YEAR ENDED THREE SIX
SEPTEMBER 30, MONTHS ENDED YEAR ENDED MONTHS ENDED
------------------ DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1994 1995 1996
-------- -------- ------------ ------------ ------------
(UNAUDITED)
Beginning related
parties payable........ $ 4,125 $ 27,873 $ 26,998 $ 10,556 $ 28,749
Inventory purchases from
affiliates............. 47,076 61,409 11,608 69,821 65,821
Distributor incentives.. 40,267 95,737 27,950 135,722 107,090
Less: Distributor
incentives paid
directly to
distributors........... (13,256) (68,880) (19,837) (105,642) (83,148)
License fees............ 3,574 9,252 2,750 13,158 10,741
Trademark royalty fees.. -- -- 19 2,694 1,383
Management fees......... 794 1,449 499 2,066 1,333
Proceeds from (payments
for) related party
loans.................. 4,350 (4,350) -- -- --
Less: Payments to
related parties........ (59,057) (95,492) (39,431) (99,626) (110,936)
-------- -------- -------- --------- ---------
Ending related parties
payable................ $ 27,873 $ 26,998 $ 10,556 $ 28,749 $ 21,033
======== ======== ======== ========= =========
RELATED PARTIES RECEIVABLE AND PAYABLE BALANCES
The Company has receivable and payable balances with affiliates in Australia
and New Zealand, and with NSI and NSIMG. Related parties balances outstanding
greater than 60 days bear interest at prime plus 2%. Since no significant
balances have been outstanding greater than 60 days, no related parties
interest income or interest expense has been recorded in the combined
financial statements. Sales to related parties were $7,426,000 and $2,288,000
for the years ended September 30, 1993 and 1994, respectively, $855,000 for
the three months ended December 31, 1994, $4,608,000 for the year ended
December 31, 1995 and $2,137,000 (unaudited) for the six months ended June 30,
1996.
Related parties receivable includes $15,746,000 due from NSI at December 31,
1994 for excess payments made during 1994 resulting from a refund of
overpayments on inventory purchased from NSI during 1994. The Company has
determined that no allowance is necessary for amounts due from related
parties.
CERTAIN RELATIONSHIPS WITH STOCKHOLDER DISTRIBUTORS
Two major stockholders of the Company have been NSI distributors since 1984.
These stockholders receive substantial commissions from NSI, including
commissions relating to sales within the countries in which the Company
operates. By agreement, NSI pays commissions to these stockholders at the
highest level of distributor compensation to allow the stockholders to use
their expertise and reputations in network marketing to further develop NSI's
distributor force, rather than focusing solely on their own distributor
organizations.
F-10
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following (in thousands):
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
Furniture and fixtures............................ $ 982 $ 3,593 $ 4,589
Computers and equipment........................... 3,772 5,060 6,006
Leasehold improvements............................ 1,240 2,221 2,531
Vehicles.......................................... 156 152 241
------- ------- -------
6,150 11,026 13,367
Less: accumulated depreciation.................... (2,300) (4,122) (5,247)
------- ------- -------
$ 3,850 $ 6,904 $ 8,120
======= ======= =======
Depreciation of property and equipment totaled $813,000 and $1,401,000 for
the years ended September 30, 1993 and 1994, respectively, $358,000 for the
three months ended December 31, 1994, $2,012,000 for the year ended December
31, 1995 and $1,285,000 (unaudited) for the six months ended June 30, 1996.
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
Income taxes payable.............................. $ 7,577 $17,463 $27,797
Other taxes payable............................... 606 798 5,167
Other accruals.................................... 5,194 5,052 6,708
------- ------- -------
$13,377 $23,313 $39,672
======= ======= =======
6. LINE OF CREDIT
During 1995, the Company entered into an $8,000,000 revolving credit
agreement with a financial institution in South Korea. Advances were available
under the agreement through July 1, 1996. The credit facility bears interest
at an annual rate of 12%. There were no outstanding balances under the credit
facility at December 31, 1995 and June 30, 1996 (unaudited).
7. LEASE OBLIGATIONS
The Company leases office space and computer hardware under noncancelable
long-term operating leases. Most leases include renewal options of up to three
years. Minimum future operating lease obligations at December 31, 1995 are as
follows (in thousands):
Year ending December 31,
1996............................................................... $6,626
1997............................................................... 2,141
1998............................................................... 209
------
Total minimum lease payments......................................... $8,976
======
F-11
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense for operating leases totaled $3,941,000 and $5,848,000 for
the years ended September 30, 1993 and 1994, respectively, $1,639,000 for the
three months ended December 31, 1994, $9,470,000 for the year ended December
31, 1995 and $4,154,000 (unaudited) for the six months ended June 30, 1996.
8. INCOME TAXES
Combined income before provision for income taxes consists of income earned
solely from international operations. The provision for income taxes for the
years ended September 30, 1993 and 1994, for the three months ended December
31, 1994, for the year ended December 31, 1995 and for the six months ended
June 30, 1996 (unaudited) primarily represents income taxes paid in foreign
countries.
PRO FORMA PROVISION FOR INCOME TAXES
The combined statements of income include a pro forma presentation for
income taxes which would have been recorded if the Company had not been an S
corporation based upon the U.S. Federal and state tax laws. The unaudited pro
forma provision for income taxes consists of the following (in thousands):
YEAR ENDED THREE SIX
SEPTEMBER 30, MONTHS ENDED YEAR ENDED MONTHS ENDED
--------------- DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1994 1995 1996
------ ------- ------------ ------------ ------------
(UNAUDITED)
Current:
Federal........... $1,176 $ 870 $1,505 $ 5,113 $1,192
State............. -- -- -- -- --
Foreign........... 944 11,176 2,779 19,500 22,967
Deferred:
Federal........... (82) (705) (194) (1,459) (1,340)
State............. -- -- -- -- --
Foreign........... (527) (950) (49) (403) (2,376)
------ ------- ------ ------- -------
$1,511 $10,391 $4,041 $22,751 $20,443
====== ======= ====== ======= =======
The principal components of pro forma deferred tax assets are as follows:
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
Deferred tax assets:
Product return reserve.......................... $ 54 $ 115 $ 866
Inventory reserve............................... 14 414 1,114
Depreciation.................................... 979 866 1,078
Exchange gains and losses....................... -- 389 --
Accrued expenses not deductible until paid...... 179 123 141
Uniform capitalization.......................... 897 1,696 1,726
Minimum tax credit.............................. -- -- 1,193
Valuation allowance............................. -- -- (1,193)
Other........................................... 82 61 79
------ ------ ------
$2,205 $3,664 $5,004
====== ====== ======
F-12
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the Company's pro forma effective tax rate compared to
the statutory U.S. Federal tax rate is as follows:
YEAR ENDED THREE SIX
SEPTEMBER 30, MONTHS ENDED YEAR ENDED MONTHS ENDED
-------------- DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1994 1995 1996
------ ------ ------------ ------------ ------------
(UNAUDITED)
Income taxes at statu-
tory rate.............. 34.00% 35.00% 35.00% 35.00% 35.00%
Foreign tax credit limi-
tation (benefit)....... (0.60) 1.97 (0.42) 2.69 (0.52)
Alternative minimum
tax.................... -- -- -- -- 2.14
Non-deductible ex-
penses................. 0.26 0.27 0.11 0.67 0.07
Other................... (0.05) -- -- -- --
------ ------ ----- ----- -----
33.61% 37.24% 34.69% 38.36% 36.69%
====== ====== ===== ===== =====
9. FINANCIAL INSTRUMENTS
The Subsidiaries enter into significant transactions with each other, NSI
and third parties which may not be denominated in the respective entity's
functional currency. The Company reduces its exposure to fluctuations in
foreign exchange rates by creating offsetting positions through the use of
foreign currency exchange contracts. The Company currently does not use such
financial instruments for trading or speculative purposes. The Company
regularly monitors its foreign currency risks and periodically takes measures
to minimize the impact of foreign exchange fluctuations on the Company's
operating results.
At December 31, 1994 and 1995, and June 30, 1996, the Company held foreign
currency forward contracts with notional amounts totaling $-0-, $1,000,000 and
$1,000,000, respectively, to hedge foreign currency risks. These contracts all
have maturities prior to December 31, 1996. At December 31, 1995 and June 30,
1996 and for the periods then ended, there were no significant unrealized
losses on these contracts.
10. COMMITMENTS AND CONTINGENCIES
The Company is subject to governmental regulations pertaining to product
formulation, labeling and packaging, product claims and advertising and to the
Company's direct selling system. The Company is also subject to the
jurisdiction of numerous foreign tax authorities. These tax authorities
regulate and restrict various corporate transactions, including intercompany
transfers. The Company believes that the tax authorities in Japan and South
Korea are particularly active in challenging the tax structures of foreign
corporations and their intercompany transfers. Any assertions or determination
that either the Company or any of its distributors 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.
Although management believes that the Company is in compliance, in all
material respects, with the statutes, laws, rules and regulations of every
jurisdiction in which it operates, no assurance can be given that the
Company's compliance with applicable statutes, laws, rules and regulations
will not be challenged by foreign authorities or that such challenges will not
have a material adverse effect on the Company's financial position or results
of operations.
F-13
NU SKIN ASIA PACIFIC, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS
PLANNED REORGANIZATION
Prior to or concurrently with the initial public offerings, the stockholders
of the Subsidiaries will effectuate a tax-free reorganization whereby the
stockholders will contribute their shares of capital stock to the Company in
exchange for shares of the Company's Class B Common Stock intended to qualify
as a tax free transfer under Section 351 of the Internal Revenue Code of 1986
(the "Reorganization"). The Reorganization will result in each of the
Subsidiaries becoming a wholly-owned subsidiary of the Company. Prior to the
Reorganization, each Subsidiary elected to be treated as an S corporation. As
part of the Reorganization, each Subsidiary will terminate its S corporation
status.
Inasmuch as the separate entities that will be reorganized to constitute the
Company are under common control, the Reorganization will be accounted for in
a manner similar to a pooling of interests. Accordingly, the individual
Subsidiaries' historical balance sheets and related statements of income, of
stockholders' equity and of cashflows are combined and presented as a single
entity after elimination of intercompany transactions. The unaudited pro forma
statements included elsewhere in this registration statement reflect the
Reorganization and related accounting treatment.
F-14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Nu Skin Asia Pacific, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Nu Skin Asia Pacific, Inc. at
September 6, 1996, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
balance sheet is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
balance sheet, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Salt Lake City, Utah
September 10, 1996
F-15
NU SKIN ASIA PACIFIC, INC.
BALANCE SHEET
AS OF SEPTEMBER 6, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
Deferred offering costs................................................. $1,676
------
Total assets........................................................ $1,676
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses...................................................... $1,676
------
Total liabilities................................................... 1,676
------
Stockholders' equity
Preferred Stock--25,000,000 shares authorized, $.001 par value........ --
Class A Common Stock.................................................. --
Class B Common Stock.................................................. --
------
Total stockholders' equity.......................................... --
------
Total liabilities and stockholders' equity.......................... $1,676
======
The accompanying notes are an integral part of this balance sheet.
F-16
NU SKIN ASIA PACIFIC, INC.
NOTES TO BALANCE SHEET
AS OF SEPTEMBER 6, 1996
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nu Skin Asia Pacific, Inc. (the "Company") is a network marketing company
involved in the marketing, distribution and sale of premium quality,
innovative personal care and nutritional products. The Company is the
exclusive distribution vehicle of products produced by Nu Skin International,
Inc. ("NSI") in Japan, Taiwan, Hong Kong, and South Korea, where the Company
currently has operations, and in Thailand, Indonesia, Malaysia, the
Philippines, the People's Republic of China, Singapore and Vietnam, where
operations have not commenced. The Company belongs to a group of affiliated
entities that are under the control of a group of common stockholders (the "Nu
Skin Group"). The Nu Skin Group's affiliates include various entities that
have exclusive Nu Skin marketing rights, distribution rights and trademark
licenses in each of the markets in which the Company operates.
The Company was organized in September 1996 as a holding company in
anticipation of a tax-free reorganization of the distribution and marketing
entities operating in Japan, Taiwan, Hong Kong, and South Korea (collectively
referred to as the "Subsidiaries"). The Reorganization will be undertaken in
anticipation of the initial public offerings (the "Offerings").
The balance sheet should be read in conjunction with the historical Combined
Financial Statements of Nu Skin Asia Pacific, Inc. included elsewhere in this
registration statement.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles required management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and
disclosures of contingent assets and liabilities at the date of the balance
sheet. Actual results could differ from those estimates. Management believes
that the estimates are reasonable.
INCOME TAXES
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the difference between the financial and tax bases of
assets and liabilities and are measured using the currently enacted tax rates
and laws in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.
STOCK-BASED COMPENSATION
The Company will adopt Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. SFAS 123 becomes
effective during 1996. The Company will measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, and will provide pro forma
disclosures of net income and net income per share as if the fair value-based
method prescribed by SFAS 123 had been applied in measuring compensation
expense.
NOTE 2--DEFERRED OFFERING COSTS
The Company has incurred costs totaling $1,676,000 in connection with the
Offerings. These costs have been reflected as deferred offerings costs in the
accompanying balance sheet as of September 6, 1996. If the Offerings are
successful, the costs will be deducted from the proceeds received from the
Offerings. If the Offerings are not successful, the costs will be charged to
expense in the period in which a decision is made to terminate the Offerings.
In such event, the costs would be paid by NSI.
F-17
NU SKIN ASIA PACIFIC, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
SEPTEMBER 6, 1996
NOTE 3--CAPITAL STOCK
The Company's capital stock consists of Preferred Stock, Class A Common
Stock, and Class B Common Stock. The shares of Class A Common Stock and Class
B Common Stock are identical in all respects, except for voting rights and
certain conversion rights and transfer restrictions, as follows: (1) each
share of Class A Common Stock entitles the holder to one vote on matters
submitted to a vote of the Company's stockholders and each share of Class B
Common Stock entitles the holder to ten votes on each such matter; (2) stock
dividends of Class A Common Stock may be paid only to holders of Class A
Common Stock and stock dividends of Class B Common Stock may be paid only to
holders of Class B Common Stock; (3) if a holder of Class B Common Stock
transfers such shares to a person other than a permitted transferee, as
defined in the Company's' Certificate of Incorporation, such shares will be
converted automatically into shares of Class A Common Stock; and (4) Class A
Common Stock has no conversion rights; however, each share of Class B Common
Stock is convertible into one share of Class A Common Stock, in whole or in
part, at any time at the option of the holder.
STOCKHOLDER CONTROL
Subsequent to the Offerings, a group of common stockholders (the "Existing
Stockholders") will own all of the outstanding shares of Class A Common Stock
and Class B Common Stock, which will represent approximately 99% of the
combined voting rights of all outstanding Common Stock. Accordingly, the
Existing Stockholders, acting as a group, will control the election of the
entire Board of Directors and decisions with respect to the Company's dividend
policy, the Company's access to capital, mergers or other business
combinations involving the Company, the acquisition or disposition of assets
by the Company and any change in control of the Company.
CERTAIN RELATIONSHIPS WITH STOCKHOLDERS
Prior to or concurrent with the Offerings of the Company's shares, all of
the Company's current stockholders will enter into a Stockholders' Agreement
with the Company which will contain certain limitations on the transfer of
shares of Class A Common Stock and Class B Common Stock. Additionally, each
Existing Stockholder who is a party to the Stockholders' Agreement will grant
the other parties (subject to certain exceptions) a right of first offer to
purchase a pro rata (based on ownership percentages) portion of shares to be
offered as well as any shares not purchased by the other parties.
DIVIDEND REPATRIATION
The Company will conduct all of its operations through the Subsidiaries.
Accordingly, an important source of the Company's income will be dividends and
other distributions from the Subsidiaries. The Company's ability to obtain
dividends or other distributions is subject to, among other things,
restrictions on dividends under applicable local statutes, laws, rules and
regulations, and foreign currency exchange regulations of the countries in
which the Subsidiaries operate. The Subsidiaries' ability to pay dividends or
make other distributions to the Company is also subject to the Subsidiaries
having sufficient funds from their operations which are legally available for
the payment of such dividends or distributions and which are not required to
fund future operations. Because the Company will be a stockholder of each of
the Subsidiaries, the Company's claims will generally rank junior to all other
creditors. Therefore, in the event of an entity's liquidation, there may not
be assets sufficient for the Company to recoup its investment in such entity.
NOTE 4--EQUITY INCENTIVE PLANS (UNAUDITED)
The Company has reserved 5% of the outstanding shares of the Company's
common stock just prior to the Offerings for issuance as equity incentives to
employees and other eligible participants under the Company's 1996 Stock
Incentive Plan. The Company will account for employee equity incentives in
accordance with SFAS 123.
F-18
NU SKIN ASIA PACIFIC, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
SEPTEMBER 6, 1996
Prior to the Offerings, certain existing stockholders (the "Selling
Stockholders") intend to contribute to the Company and NSI an aggregate of up
to 4% of the outstanding shares of the Company's common stock on the date of
such contribution for issuance by NSI to its independent distributors pursuant
to an NSI distributor equity incentive program. Approximately 50% of the
shares contributed by the Selling Stockholders will be used in an equity
incentive program for NSI distributors which management intends to implement
in connection with the Offerings. The plan will include conditions related to
the achievement of performance goals by NSI distributors. The Company will
record distributor incentive expense for equity incentives granted to NSI
distributors. The remaining 50% of the shares contributed by the Selling
Stockholders will be held for equity incentive programs that may be
implemented in the future.
In addition, prior to the Offerings, the Selling Stockholders will
contribute to NSI and other members of the Nu Skin Group, shares equal to an
aggregate of 1.25% of the outstanding shares of the Company's common stock on
the date of such contribution for issuance to employees of NSI and employees
of other members of the Nu Skin Group as part of an employee equity incentive
plan. Equity incentives granted or awarded under this plan will vest over the
four year period following the grant or award date. Compensation expense
related to equity incentives granted to employees of NSI and other members of
the Nu Skin Group will be recorded by the entity that benefits from the
employee's services.
In addition, in January 1994, NSI agreed to grant one of the Company's
executives an option to purchase 1/3 of one percent of the Company's common
stock, to become exercisable upon the Reorganization. The exercise price of
this option was set at the estimated fair market value of this equity interest
in January 1994.
F-19
NU SKIN ASIA PACIFIC, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NU SKIN PRO FORMA
ASIA PACIFIC, PRO FORMA PRO FORMA FOR THE
INC. COMBINED ADJUSTMENTS ADJUSTMENTS REORGANIZATION
SEPTEMBER 6, PREDECESSOR FOR THE PRO FORMA FOR FOR THE AND THE
1996 ENTITIES REORGANIZATION REORGANIZATION OFFERING OFFERING
------------- ----------- -------------- -------------- ----------- --------------
ASSETS
Current assets
Cash and cash
equivalents.......... $ -- $ 51,464 $ -- $ 51,464 $62,000 (g) $113,464
Accounts receivable... -- 4,899 -- 4,899 -- 4,899
Related parties
receivable........... -- 9,945 -- 9,945 -- 9,945
Inventories, net...... -- 38,383 -- 38,383 -- 38,383
Prepaid expenses and
other................ -- 3,449 2,700 (b) 6,149 -- 6,149
------ -------- ------- -------- ------- --------
-- 108,140 2,700 110,840 62,000 172,840
Property and equipment,
net.................... -- 8,120 -- 8,120 -- 8,120
Deferred offering
costs.................. 1,676 -- -- 1,676 (1,676)(g) --
Deferred tax assets..... -- -- 2,304 (b) 2,304 -- 2,304
Other assets............ -- 8,431 -- 8,431 15,000 (g) 23,431
------ -------- ------- -------- ------- --------
Total assets........ $1,676 $124,691 $ 5,004 $131,371 $75,324 $206,695
====== ======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ -- $ 8,101 $ -- $ 8,101 $ -- $ 8,101
Accrued expenses...... 1,676 39,672 -- 41,348 (1,676)(g) 39,672
Related parties
payable.............. -- 21,033 -- 21,033 -- 21,033
Notes payable to
stockholders......... -- -- 59,565 (d) 59,565 (15,000)(g) 44,565
------ -------- ------- -------- ------- --------
1,676 68,806 59,565 130,047 (16,676) 113,371
------ -------- ------- -------- ------- --------
Stockholders' equity
Capital Stock of
Predecessor Entities.. -- 4,550 (4,550)(a) -- -- --
Preferred Stock--
25,000,000 shares
authorized, $.001 par
value................ -- -- -- -- -- --
Class A Common Stock--
500,000,000 shares
authorized........... -- -- -- -- 13 (g) 13
Class B Common Stock.. -- -- 100 (a) 100 (8)(g) 92
Additional paid-in
capital.............. -- -- -- -- 91,995 (g) 91,995
Cumulative foreign
currency translation
adjustment........... -- (3,780) -- (3,780) -- (3,780)
Retained earnings..... -- 55,115 (55,115)(d) 5,004 -- 5,004
5,004(b)
------ -------- ------- -------- ------- --------
-- 55,885 (54,561) 1,324 92,000 93,324
------ -------- ------- -------- ------- --------
Total liabilities
and stockholders'
equity............. $1,676 $124,691 $ 5,004(b) $131,371 $75,324 $206,695
====== ======== ======= ======== ======= ========
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
F-20
NU SKIN ASIA PACIFIC, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA
PRO FORMA PRO FORMA FOR THE
NU SKIN COMBINED ADJUSTMENTS PRO FORMA ADJUSTMENTS REORGANIZATION
ASIA PREDECESSOR FOR THE FOR FOR THE AND THE
PACIFIC, INC. ENTITIES REORGANIZATION REORGANIZATION OFFERING OFFERING
------------- ----------- -------------- -------------- ----------- --------------
Revenue................. $-- $358,609 $ -- $358,609 $ -- $358,609
Cost of sales........... -- 96,615 -- 96,615 -- 96,615
--- -------- ------- -------- ----- --------
Gross profit............ -- 261,994 261,994 261,994
--- -------- ------- -------- ----- --------
Operating expenses
Distributor
incentives(f)......... -- 135,722 -- 135,722 -- 135,722
Selling, general and
administrative........ -- 67,475 5,039(c) 72,514 750(h) 73,264
--- -------- ------- -------- ----- --------
Total operating
expenses............... -- 203,197 5,039 208,236 750 208,986
--- -------- ------- -------- ----- --------
Operating income........ -- 58,797 (5,039) 53,758 (750) 53,008
Other income (expense).. -- 511 (1,783)(e) (1,272) -- (1,272)
--- -------- ------- -------- ----- --------
Income before provision
for income taxes....... -- 59,308 (6,822) 52,486 (750) 51,736
Provision for income
taxes.................. -- 19,097 1,721 20,818 (288)(i) 20,530
--- -------- ------- -------- ----- --------
Net income.............. $-- $ 40,211 $(8,543) $ 31,668 $(462) $ 31,206
=== ======== ======= ======== ===== ========
Net income per share.... $ $
======== ========
Weighted average shares
outstanding............
======== ========
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
F-21
NU SKIN ASIA PACIFIC, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA
PRO FORMA PRO FORMA FOR THE
NU SKIN COMBINED ADJUSTMENTS PRO FORMA ADJUSTMENTS REORGANIZATION
ASIA PACIFIC, PREDECESSOR FOR THE FOR FOR THE AND THE
INC. ENTITIES REORGANIZATION REORGANIZATION OFFERING OFFERING
------------- ----------- -------------- -------------- ----------- --------------
Revenue................. $ -- $287,711 $ -- $287,711 $ -- $287,711
Cost of sales........... -- 80,963 -- 80,963 -- 80,963
---- -------- ------- -------- ----- --------
Gross profit............ -- 206,748 -- 206,748 -- 206,748
---- -------- ------- -------- ----- --------
Operating expenses
Distributor
incentives (f)........ -- 107,090 -- 107,090 -- 107,090
Selling, general and
administrative........ -- 44,551 2,520 (c) 47,071 375 (h) 47,446
---- -------- ------- -------- ----- --------
Total operating
expenses............... -- 151,641 2,520 154,161 375 154,536
---- -------- ------- -------- ----- --------
Operating income........ -- 55,107 (2,520) 52,587 (375) 52,212
Other income (expense).. -- 617 -- 617 -- 617
---- -------- ------- -------- ----- --------
Income before provision
for income taxes....... -- 55,724 (2,520) 53,204 (375) 52,829
Provision for income
taxes.................. -- 20,591 (1,072)(b) 19,519 (138)(i) 19,381
---- -------- ------- -------- ----- --------
Net income.............. $ -- $ 35,133 $(1,448) $ 33,685 $(237) $ 33,448
==== ======== ======= ======== ===== ========
Net income per share.... $ $
======== ========
Weighted average shares
outstanding............
======== ========
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
F-22
NU SKIN ASIA PACIFIC, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME
NOTE 1--BASIS OF PRESENTATION
Prior to or concurrently with the initial public offerings (the "Offerings")
the stockholders of Nu Skin Japan, Inc., Nu Skin Taiwan, Inc., Nu Skin Hong
Kong, Inc. and Nu Skin Korea, Inc. (the "Subsidiaries") will contribute their
shares of capital stock to the capital of Nu Skin Asia Pacific, Inc. (the
"Company") in a reorganization which is a transaction intended to qualify
under Section 351 of the Internal Revenue Code of 1986 as a tax free transfer
in exchange for shares of the Company's Class B Common Stock (the
"Reorganization"). The Reorganization will result in each of the Subsidiaries
becoming a wholly-owned subsidiary of the Company. Prior to the
Reorganization, each of the Subsidiaries elected to be taxed as an S
corporation whereby the income tax effects of the Company's activities accrued
directly to the stockholders.
Inasmuch as the Subsidiaries that will be reorganized are under common
control, the Reorganization will be accounted for in a manner similar to a
pooling of interests. Accordingly, the historical balance sheets and related
statements of income, of stockholders' equity and of cash flows are combined
and presented as a single entity after elimination of intercompany
transactions.
The unaudited pro forma financial data reflect the Reorganization and the
Offerings as if all conditions to these transactions had been completed as of
June 30, 1996 for pro forma combined balance sheet data purposes and as of
January 1, 1995 for pro forma combined statement of income data purposes.
These data do not necessarily reflect the results of operations or financial
position of the Company that would have resulted had such transactions
actually been consummated as of such dates. Also, these data are not
necessarily indicative of the future results of operations of future financial
position of the Company.
NOTE 2--PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the following:
REORGANIZATION
a) Reflects the contribution by the existing stockholders of their
interest in the Subsidiaries in exchange for all shares of the Class B
Common Stock. As a result, the Company will become the parent company and
the Subsidiaries will become wholly-owned subsidiaries of the Company.
b) Prior to the Reorganization, each of the Subsidiaries elected to be
taxed as an S corporation whereby the income tax effects of the Company's
activities accrued directly to the stockholders. The pro forma adjustment
includes $3.6 million for the year ended December 31, 1995 and $0.1 million
for the six month period ended June 30, 1996 for income taxes that would
have been recorded if the Company had not been taxed as an S corporation.
Additionally, tax benefits relating to pro forma adjustments on earnings of
$1.9 million for the year ended December 31, 1995 and $0.9 million for the
six months ended June 30, 1996 are included.
c) Reflects the Company's estimated incremental annual costs for
management fees of $3.8 million per year relating to compensation expense,
corporate overhead, operations, marketing, public relations, human
resources, legal fees, director fees, accounting fees, printing costs and
salaries of $1,272,000. These incremental costs will result from the
Company operating separately from Nu Skin International, Inc. ("NSI").
d) Reflects the distribution of 59.6 million of notes to the Selling
Stockholders in respect of the earned and undistributed taxable S
corporation earnings at June 30, 1996 that would have been distributed had
the Subsidiaries' S corporation status been terminated on June 30, 1996.
F-23
NU SKIN ASIA PACIFIC, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME--(CONTINUED)
The adjustments reflect the distribution and the related issuance of
promissory notes. The Company estimates that at the Offerings it will
reserve between $40.0 million and $50.0 million of cash on hand for
repayment of the S Distribution Notes. The balance of the Notes will be
repaid from cash generated by operations.
e) Reflects the increase in interest expense for the promissory notes
issued in connection with the distribution to the stockholders of the
undistributed S corporation earnings. The promissory notes will bear
interest at 8% per annum and are due and payable within six months from the
date of issuance.
f) The pro forma financial statements do not reflect an estimated non-
cash operating expense of $ million in connection with the one-time grant
of stock options at 25% of the initial public offering price to independent
distributors (non-employees) of the Company immediately prior to the
Offerings. These options will include conditions related to the achievement
of performance goals and will vest in one year. The Company will record
distributor stock incentive expenses for these non-employee stock options
over the one year vesting period.
OFFERING
g) Reflects the estimated net proceeds to the Company from the Offerings
of $94 million less a $2 million payment for the offering costs, a $15.0
million payment of short term notes to the stockholders, and a $15.0
million payment to NSI for the exclusive rights to distribute products in
Thailand, the Philippines, the PRC, Malaysia, Indonesia, Vietnam and
Singapore, and the related adjustments to stockholders' equity. Also,
reflects the conversion of shares of Class B Common Stock into Class A
Common Stock and the sale by the Company of an estimated shares of
Class A Common Stock.
h) Reflects the amortization of the acquired distribution rights from
NSI. Amortization will be recorded on a straight-line basis over the
estimated useful life of twenty years.
i) Reflects tax effect of pro forma adjustments on earnings.
NOTE 3--DEFERRED OFFERING COSTS
The Company has incurred costs totaling 1,676,000 in connection with the
Offerings of the Class A Common Stock. These costs have been reflected as
deferred offering costs in the accompanying balance sheet as of June 30, 1996.
If the Offerings are successful, the costs will be deducted from the proceeds
received from the Offerings. If the Offerings are not successful, the costs
will be charged to expense in the period in which a decision is made to
terminate the Offerings. In such event, the costs would be paid by NSI.
NOTE 4--PRO FORMA NET INCOME PER SHARE
Pro forma net income per share presented in the Unaudited Pro Forma
Consolidated Statements of Income gives effect for the issuance of shares
of the Company's common stock ( in connection with the Reorganization,
in connection with the Offerings, a reduction of shares of Class B Common
Stock from certain stockholders in connection with Selling Shareholders and
shares of Class B Common Stock in connection with stock options granted to
an officer of the Company in July 1994) and gives effect to the pro forma
adjustments to expenses described in Note 2 above.
F-24
[Gatefold: Pictures to be provided by the Company]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO OTHER DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
THE CLASS A COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
The Reorganization....................................................... 20
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Consolidated Financial Information.............................. 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 36
Management............................................................... 58
Certain Relationships and Related Transactions........................... 65
Principal and Selling Stockholders....................................... 67
Shares Eligible for Future Sale.......................................... 68
Description of Capital Stock............................................. 70
Underwriting............................................................. 75
Legal Matters............................................................ 78
Experts.................................................................. 78
Additional Information................................................... 78
Index to Financial Statements............................................ F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,600,000 SHARES
[LOGO]
NU SKIN ASIA PACIFIC, INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
DEAN WITTER REYNOLDS INC.
NOMURA SECURITIES INTERNATIONAL, INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the issuance and distribution, all of which are
payable by the Registrant, are as follows.
SEC Registration Fee............................................. $64,403.10
NASD Fee......................................................... 19,176.90
Stock Exchange Listing........................................... *
Printing and Engraving........................................... *
Accounting Fees and Expenses..................................... *
Legal Fees and Expenses.......................................... *
Blue Sky Fees and Expenses....................................... *
Transfer Agent's Fees and Expenses............................... *
Miscellaneous Expenses........................................... *
----------
Total........................................................ *
==========
- --------
*To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 10 of the Company's Certificate of Incorporation and Article 5 of
the Company's Bylaws require indemnification to the fullest extent permitted
by Section 145 of DGCL. Section 145 of the DGCL provides that a corporation
may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
specified actions, suits or proceedings, whether civil, criminal,
administrative, or investigative (other than action by or in the right of the
corporation a "derivative action"), if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard
is applicable in the case of derivative actions, except that indemnification
only extends to expenses (including attorneys' fees) incurred in connection
with the defense or settlement of such actions, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Indemnification
provided by or granted pursuant to Section 145 of the DGCL is not exclusive of
other indemnification that may be granted by a corporation's bylaws, any
agreement, any vote of stockholders or disinterested directors or otherwise.
Article 5 of the Company's Bylaws provides for indemnification consistent with
the requirements of Section 145 of the DGCL. Reference is made to Exhibits 3.1
and 3.2 to this Registration Statement for the complete text of, respectively,
Article 10 of the Company's Certificate of Incorporation and Article 5 of the
Company's Bylaws.
Section 145 of the DGCL also permits a corporation to purchase and maintain
insurance on behalf of directors and officers. Article 5 of the Company's
Bylaws permits it to purchase such insurance on behalf of its directors and
officers.
Article 7 of the Company's Certificate of Incorporation provides for, to the
fullest extent permitted by the DGCL, elimination or limitation of liability
of directors to the Company or its stockholders for breach of fiduciary duty
as a director. Section 102(b)(7) of the DGCL permits a corporation to provide
in its certificate of incorporation that a director of the corporation shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duties as a director, except for liability (i)
for any breach of a
II-1
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve international misconduct
or a knowing violation of law; (iii) for improper payment of dividends or
redemptions of shares; or (iv) for any transaction from which the director
derives an improper personal benefit. Reference is made to Exhibit 3.1 to this
Registration Statement for the complete text of Article 7 of the Company's
Certificate of Incorporation.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
to this Registration Statement which provides for the indemnification of the
directors and officers of the Company signing this Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the 1933 Act, in certain instances by the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Prior to or concurrently with the Offerings, the shareholders of Nu Skin
Japan, Nu Skin Korea, Nu Skin Taiwan, Nu Skin Hong Kong and Nu Skin Thailand
will contribute their shares of capital stock to the capital of the Company in
a transaction intended to qualify under Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), in exchange for shares of the Company's
Class B Common Stock (the "Reorganization"). Prior to the Reorganization, all
of the outstanding shares of capital stock of the Subsidiaries were held by
the Selling Stockholders. The Reorganization will result in each of the
Subsidiaries becoming a wholly-owned subsidiary of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits
*1.1 Form of U.S. Underwriting Agreement
*1.2 Form of Japanese Underwriting Agreement
*1.3 Form of International Underwriting Agreement
2.1 Form of Contribution Agreement
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Form of Stock Certificate for Class A Common Stock
4.2 Specimen Form of Stock Certificate for Class B Common Stock
*5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding legality
of the securities covered by this Registration Statement
10.1 Form of Indemnification Agreement to be entered into by and among the
Company and certain of its officers and directors
10.2 Form of Stockholders' Agreement by and among the initial stockholders
of the Company
10.3 Employment Contract, dated December 12, 1991, by and between the
Company and John Chou
10.4 Employment Agreement, dated May 1, 1993, by and between the Company
and Takashi Bamba
10.5 Service Agreement, dated January 1, 1996, by and between the Company
and Sung-Tae Han
10.6 Form of Purchase and Sale Agreement between Nu Skin Hong Kong and NSI
+10.7 Form of Licensing and Sales Agreement between NSI and each Subsidiary
(other than Nu Skin Korea)
10.8 Form of Regional Distribution Agreement between NSI and Nu Skin Hong
Kong
10.9 Form of Wholesale Distribution Agreement between NSI and each
Subsidiary (other than Nu Skin Hong Kong)
10.10 Form of Trademark/Tradename License Agreement between NSI and each
Subsidiary
10.11 Form of Management Services Agreement between NSIMG and each
Subsidiary
+10.12 Form of Licensing and Sales Agreement between NSI and Nu Skin Korea
10.13 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Hong Kong/Macau
10.14 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Japan
10.15 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in South Korea
II-2
10.16 Form of Independent Distributor Agreement by and between NSI and
Independent Distributors in Taiwan
10.17 Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan
*10.18 Form of Bonus Incentive Plan for Subsidiary Presidents
*10.19 Option Agreement, by and between the Company and Truman Hunt
10.20 Form of Mutual Indemnification Agreement between the Company and NSI
*10.21 Manufacturing Sublicense Agreement, dated July 27, 1995, by and between
NSI and Nu Skin Japan
*11.1 Statement Regarding Computation of Shares by Price Waterhouse LLP
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP, independent certified public
accountants
23.2 Consent of Price Waterhouse LLP, independent certified public
accountants
23.3 Report of Grant Thornton, independent certified public accountants
23.4 Consent of Grant Thornton, independent certified public accountants
*23.5 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in their
Opinion filed as exhibit 5.1)
24 Power of Attorney (included with the signatures in Part II of this
Registration Statement)
- --------
*To be filed by amendment.
+ Confidential treatment has been requested. The copy filed as an exhibit
omits the information subject to the confidentiality request.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
1933 Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
II-3
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction on the question
whether such indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as a part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or (4) or
497(h) under the 1933 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Provo,
State of Utah on September 5, 1996.
NU SKIN ASIA PACIFIC, INC.
By: /s/ Steven J. Lund
---------------------------
Steven J. Lund
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below on September 5, 1996 by the
following persons in the capacities indicated. Each person whose signature
appears below hereby appoints and constitutes Steven J. Lund, as his or her
attorney-in-fact, with full power of substitution, for him or her in any and
all capacities, to execute in the name and on behalf of such person any
amendment to this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith, making such changes in
this Registration Statement as the person so acting deems appropriate, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute may
do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Blake M. Roney Chairman of the September 5,
- ------------------------------------ Board of Directors 1996
Blake M. Roney
/s/ Steven J. Lund President and Chief September 5,
- ------------------------------------ Executive Officer 1996
Steven J. Lund and Director
(Principal
Executive Officer)
/s/ Corey B. Lindley Vice President September 5,
- ------------------------------------ Finance (Principal 1996
Corey B. Lindley Financial and
Accounting Officer)
/s/ Sandie N. Tillotson Director September 5,
- ------------------------------------ 1996
Sandie N. Tillotson
/s/ Keith R. Halls Director September 5,
- ------------------------------------ 1996
Keith R. Halls
/s/ Brooke B. Roney Director September 5,
- ------------------------------------ 1996
Brooke B. Roney
/s/ Kirk V. Roney Director September 5,
- ------------------------------------ 1996
Kirk V. Roney
II-5
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Max E. Esplin Director September 5,
- ------------------------------------- 1996
Max E. Esplin
/s/ Max L. Pinegar Director September 5,
- ------------------------------------- 1996
Max L. Pinegar
II-6
INDEX TO EXHIBITS
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER EXHIBIT DESCRIPTION SYSTEM
------- ------------------- ----------
*1.1 Form of U.S. Underwriting Agreement
*1.2 Form of Japanese Underwriting Agreement
*1.3 Form of International Underwriting Agreement
2.1 Form of Contribution Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Company
3.2 Amended and Restated Bylaws of the Company
4.1 Specimen Form of Stock Certificate for Class A Common
Stock
4.2 Specimen Form of Stock Certificate for Class B Common
Stock
*5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
regarding legality of the securities covered by this
Registration Statement
10.1 Form of Indemnification Agreement to be entered into by
and among the Company and certain of its officers and
directors
10.2 Form of Stockholders' Agreement by and among the initial
stockholders of the Company
10.3 Employment Contract, dated December 12, 1991, by and
between the Company and John Chou
10.4 Employment Agreement, dated May 1, 1993, by and between
the Company and Takashi Bamba
10.5 Service Agreement, dated January 1, 1996, by and between
the Company and Sung-Tae Han
10.6 Form of Purchase and Sale Agreement between Nu Skin Hong
Kong and NSI
+10.7 Form of Licensing and Sales Agreement between NSI and
each Subsidiary (other than Nu Skin Korea)
10.8 Form of Regional Distribution Agreement between NSI and
Nu Skin Hong Kong
10.9 Form of Wholesale Distribution Agreement between NSI and
each Subsidiary (other than Nu Skin Hong Kong)
10.10 Form of Trademark/Tradename License Agreement between NSI
and each Subsidiary
10.11 Form of Management Services Agreement between NSIMG and
each Subsidiary
+10.12 Form of Licensing and Sales Agreement between NSI and Nu
Skin Korea
10.13 Form of Independent Distributor Agreement by and between
NSI and Independent Distributors in Hong Kong/Macau
10.14 Form of Independent Distributor Agreement by and between
NSI and Independent Distributors in Japan
10.15 Form of Independent Distributor Agreement by and between
NSI and Independent Distributors in South Korea
10.16 Form of Independent Distributor Agreement by and between
NSI and Independent Distributors in Taiwan
10.17 Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan
*10.18 Form of Bonus Incentive Plan for Subsidiary Presidents
*10.19 Option Agreement, by and between the Company and Truman
Hunt
10.20 Form of Mutual Indemnification Agreement between the
Company and NSI
*10.21 Manufacturing Sublicense Agreement, dated July 27, 1995,
by and between NSI and Nu Skin Japan
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER EXHIBIT DESCRIPTION SYSTEM
------- ------------------- ----------
*11.1 Statement Regarding Computation of Shares by Price
Waterhouse LLP
21.1 Subsidiaries of the Company
23.1 Consent of Price Waterhouse LLP, independent certified
public accountants
23.2 Consent of Price Waterhouse LLP, independent certified
public accountants
23.3 Report of Grant Thornton, independent certified public
accountants
23.4 Consent of Grant Thornton, independent certified public
accountants
*23.5 Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(contained in their Opinion filed as exhibit 5.1)
24 Power of Attorney (included with the signatures in Part
II of this Registration Statement)
- --------
*To be filed by amendment.
+ Confidential treatment has been requested. The copy filed as an exhibit omits
the information subject to the confidentiality request.
Exhibit 2.1
Form of Contribution Agreement
================================================================================
CONTRIBUTION AGREEMENT
by and among
NU SKIN ASIA, INC.
and
EACH OF THE PERSONS LISTED ON THE SIGNATURE PAGES HEREOF
Dated ___________, 1996
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.......................................2
ARTICLE II CONTRIBUTION OF THE ASIAN ENTITY
SHARES AND SUBSCRIPTION AND
PURCHASE OF THE HOLDING COMPANY SHARES............3
2.1 Contribution of the Asian Entity Shares and Subscription and
------------------------------------------------------------
Purchase of the Holding Company Shares.............................3
--------------------------------------
2.2 Closing................................................................3
-------
2.3 Delivery of Holding Company Shares.....................................4
----------------------------------
2.4 Delivery of Asian Entity Shares........................................4
-------------------------------
ARTICLE III TAX TREATMENT OF THE CONTRIBUTION.................4
3.1 Federal Income Tax Treatment of Contributing Stockholders and
-------------------------------------------------------------
IPO Public Stockholders............................................4
-----------------------
3.2 Federal Income Tax Treatment of the Holding Company and
-------------------------------------------------------
Asian Entities.....................................................5
--------------
3.3 Obligations of the Holding Company, Contributing Stockholder and
----------------------------------------------------------------
IPO Public Stockholders............................................5
-----------------------
3.4 Termination of "S" Corporation Status..................................5
-------------------------------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES....................5
4.1 Representations and Warranties of Contributing Stockholders.............5
-----------------------------------------------------------
4.1.1 Title to Shares.............................................5
---------------
4.1.2 Conflicts, Consents, etc....................................6
------------------------
4.1.3 Intent to Transfer..........................................6
------------------
4.1.4 Not an Investment Company...................................6
-------------------------
4.2 Representations and Warranties of the Holding Company...................6
-----------------------------------------------------
ARTICLE V CONDITIONS PRECEDENT..............................7
5.1 Conditions to Obligations of Contributing Stockholders and
----------------------------------------------------------
the Holding Company.................................................7
-------------------
5.1.1 Representations and Performance by the Contributing
---------------------------------------------------
Stockholders.................................................7
------------
5.1.2 No Injunction, etc...........................................7
------------------
5.1.3 IPO..........................................................7
---
ARTICLE VI MISCELLANEOUS........................7
6.1 Stock Transfer Taxes....................................................7
--------------------
6.2 Modification; Waiver....................................................7
--------------------
6.3 Further Actions.........................................................8
--------------
6.4 Notices.................................................................8
-------
-i-
Page
----
6.5 Assignment..............................................................8
----------
6.6 Counterparts............................................................8
------------
6.7 Governing Law...........................................................8
-------------
-ii-
CONTRIBUTION AGREEMENT, dated ____________, 1996 (this "Agreement"), by
and among Nu Skin Asia, Inc., a Delaware corporation (the "Holding Company"),
and each of the persons listed on the signature pages hereof (collectively, the
"Contributing Stockholders").
W I T N E S S E T H:
-------------------
WHEREAS, the Contributing Stockholders are, as of the date of this
Agreement, the record and beneficial owners of all of the issued and outstanding
shares of capital stock of each of Nu Skin Hong Kong, Inc., a corporation
organized under the laws of the State of Utah, Nu Skin Japan, Inc., a
corporation organized under the laws of Japan and the State of Delaware, Nu Skin
Korea, Inc. a corporation organized under the laws of South Korea and the State
of Delaware, Nu Skin Taiwan, Inc., a corporation organized under the laws of the
State of Utah and Nu Skin Thailand, Inc., a corporation organized under the laws
of the State of Utah (each, an "Asian Entity" and collectively, the "Asian
Entities") as listed in Schedule A hereto for each Contribution Stockholder;
WHEREAS, the aggregate number of shares of common stock issued and
outstanding of each Asian Entity (collectively, the "Asian Entity Shares") are
as listed in Schedule A hereto;
WHEREAS, the Holding Company was incorporated to become the holding
company for the Asian Entities;
WHEREAS, the Contributing Stockholders wish to contribute the Asian
Entity Shares to the Holding Company solely in exchange for shares of Class B
common stock, par value $.001 per share, of the Holding Company ("Class B Common
Stock"), to effect such holding company structure (the "Contribution");
WHEREAS, immediately after the Contribution, the Contributing
Stockholders will own all of the issued and outstanding shares of Class B Common
Stock of the Holding Company;
WHEREAS, substantially simultaneously with the Contribution, the
Holding Company plans to offer and sell shares of Class A common stock, par
value $.001 per share of the Holding Company ("Class A Common Stock") to the
public through an initial public offering pursuant to an effective registration
statement on Form S-1 (the "IPO") subsequent to the Contribution, which will
constitute a qualified underwriting transaction within the meaning of Treas.
Reg. Section 1.351-1(a)(3); and
WHEREAS, immediately after the Contribution and the IPO, the
Contributing Stockholders and the Persons purchasing Class A common stock
pursuant to the IPO (the "IPO
Public Stockholders") will be treated as a group being in control of the holding
company for purposes of Section 351 of the Code;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
As used herein and in the Schedules hereto, the terms set forth in this
Article I have the respective meanings indicated. Terms defined in the singular
or plural, as the case may be, shall have the same respective meaning when used
in the plural or singular, as the case may be.
Asian Entities: the meaning specified in the first WHEREAS clause of
--------------
this Agreement.
Asian Entity Shares: the meaning specified in the second WHEREAS
-------------------
clause of this Agreement.
Class A Common Stock: the meaning specified in the sixth WHEREAS
--------------------
clause of this Agreement.
Class B Common Stock: the meaning specified in the fourth WHEREAS
--------------------
clause of this Agreement.
Closing: the meaning specified in Section 2.2.
-------
Closing Date: the meaning specified in Section 2.2.
------------
Code: the Internal Revenue Code of 1986, as amended.
----
Commission: the U.S. Securities and Exchange Commission.
----------
Consents: the meaning specified in Section 4.1.2(b).
--------
Contributing Stockholder: the meaning specified in the introductory
------------------------
paragraph of this Agreement.
Contribution: the meaning specified in the fourth WHEREAS clause of
------------
this Agreement.
-2-
Control: the ownership of stock possessing at least 80 percent of the
-------
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of the
corporation.
Holding Company Shares: the Class B Common Stock issued and delivered
----------------------
to the Contributing Stockholders pursuant to this Agreement.
IPO: the meaning specified in the sixth WHEREAS clause of this
---
Agreement.
IPO Public Stockholders: the meaning specified in the seventh WHEREAS
-----------------------
clause of this Agreement.
Lien: the meaning specified in Section 4.1.7.
----
Person: any individual, corporation, partnership, firm, joint venture,
------
unincorporated organization, governmental or regulatory authority or other
entity.
Securities Act: the Securities Act of 1933, as amended.
--------------
ARTICLE II
CONTRIBUTION OF THE ASIAN ENTITY SHARES
AND SUBSCRIPTION AND PURCHASE
OF THE HOLDING COMPANY SHARES
Section 2.1 Contribution of the Asian Entity Shares and Subscription
--------------------------------------------------------
and Purchase of the Holding Company Shares. Subject to all of the terms and
- ------------------------------------------
conditions of this Agreement and in reliance upon the representations and
warranties contained herein, at the Closing provided for in Section 2.2, (I)
each Contributing Stockholder agrees to contribute and transfer, and the Holding
Company agrees to acquire, the number of Asian Entity Shares as set forth
opposite such Contributing Stockholder's name on Schedule A hereto under the
heading "Asian Entity Shares to be Contributed" and (ii) each Contributing
Stockholder agrees to subscribe for and purchase, and the Holding Company agrees
to issue, the number of Holding Company Shares set forth opposite such
Contributing Stockholder's name on Schedule A hereto under the heading "Holding
Company Shares to be Received." The Holding Company shall deliver to each
Contributing Stockholder the certificates for Holding Company Shares as provided
in Section 2.3 and each Contributing Stockholder shall deliver to the Holding
Company certificates for its Asian Entity Shares as provided in Section 2.4.
Section 2.2 Closing. (a) The Closing of the purchase and sale of the
-------
Holding Company Shares contemplated hereby (the "Closing") shall be held at a
time and location to be
-3-
designated by the Holding Company on the Closing Date. The "Closing Date" shall
be, if the conditions set forth in Article VI have been satisfied or waived,
(i) the date on which the IPO closes or (ii) such other date prior to the
closing of the IPO as the Contributing Stockholders and the Holding Company
shall mutually agree. The Closing shall be deemed to have occurred at 12:01
a.m., New York time, on the Closing Date.
(b) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date:
(i) by the mutual written consent of the Holding Company and each of
the Contributing Stockholders; or
(ii) by the Holding Company if the Closing has not occurred on or
before February 15, 1997.
In the event this Agreement shall be terminated pursuant to this
Section 2.2(b), all further obligations of the parties under this Agreement
(other than Section 6.7) shall terminate without further liability of any party
to this Agreement; provided, however, that nothing herein shall relieve any
-------- -------
party from liability for its willful breach of this Agreement.
Section 2.3 Delivery of Holding Company Shares. At the Closing, the
----------------------------------
Holding Company shall deliver to each Contributing Stockholder, against delivery
of certificates for the Asian Entity Shares to be delivered to the Holding
Company by such Contributing Stockholder hereunder, stock certificates
registered in the name of such Contributing Stockholder and representing the
Holding Company Shares to be issued to such Contributing Stockholder, which
certificates shall bear such legends as are determined to be appropriate by
counsel to the Holding Company.
Section 2.4 Delivery of Asian Entity Shares. At the Closing, each
-------------------------------
Contributing Stockholder shall deliver to the Holding Company, against delivery
of certificates for the Holding Company Shares to be delivered to such
Contributing Stockholder by the Holding Company hereunder, stock certificates
representing the number of Asian Entity Shares as set forth opposite such
Contributing Stockholder's name on Schedule A hereto under the heading "Asian
Entity Shares to be Contributed," duly endorsed in proper form for transfer and
with such other instruments as shall reasonably be required by the Holding
Company to vest fully in the Holding Company all right, title and interest in
and to such Asian Entity Shares free and clear of any Liens.
ARTICLE III
TAX TREATMENT OF THE CONTRIBUTION
-4-
Section 3.1 Federal Income Tax Treatment of Contributing Stockholders
---------------------------------------------------------
and IPO Public Stockholders. For Federal income tax purposes, the Contribution
- ---------------------------
and the IPO shall be treated as part of a single integrated transaction
qualifying under Section 351 of the Code, pursuant to which neither the
Contributing Stockholders nor the IPO Public Stockholders acquiring their shares
of Class A Common Stock through the IPO will recognize any gain or loss. Under
Section 358 of the Code, the basis in the Class B Common Stock received by the
Contributing Stockholders will be equal to their basis in the stock of the Asian
Entities contributed to the Holding Company, and the basis of the Class A Common
Stock in the hands of the IPO Public Stockholders will be the same as the price
paid pursuant to the IPO.
Section 3.2 Federal Income Tax Treatment of the Holding Company and
-------------------------------------------------------
Asian Entities. Neither the Holding Company nor the Asian Entities shall
- --------------
recognize any gain or loss as a result of the Contribution and IPO. No
liabilities will be assumed by the Holding Company under Section 357 of the
Code. The basis of the property transferred to the Holding Company shall be
equal to the basis of such property in the hands of the Contributing
Stockholders and the IPO Public Stockholders immediately prior to the transfer
to the Holding Company.
Section 3.3 Obligations of the Holding Company, Contributing
------------------------------------------------
Stockholders and IPO Public Stockholders. The Contributing Stockholders and the
- ----------------------------------------
IPO Public Stockholders agree to file the information required by Treas. Reg.
Section 1.351-3 for his Federal income tax return for the taxable year in which
the Contribution and IPO occur, and the Holding Company agrees to furnish to
each Contributing Stockholder and each IPO Public Stockholder information
necessary to enable such stockholder to comply with the information reporting
requirements of Treas. Reg. Section 1.351-3.
Section 3.4 Termination of "S" Corporation Status. As a result of the
-------------------------------------
Contribution, the Asian Entities will cease to qualify as "S" corporations
within the meaning of Section 1361(a) of the Code and will become "C"
corporations within the meaning of Section 1361(a)(2) of the Code, which will
join in filing consolidated Federal income tax returns with the Holding Company
as the common parent.
ARTICLE
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Contributing
----------------------------------------------
Stockholders. Each Contributing Stockholder, severally and not jointly,
- ------------
represents and warrants to, and acknowledges and agrees with, the Holding
Company as follows:
Section 4.1.1 Title to Shares. As of the date hereof, such
---------------
Contributing Stockholder is, and as of the Closing Date such Contributing
Stockholder shall be, the record and beneficial owner of and have good and valid
title to the Asian Entity Shares identified on
-5-
Schedule A hereto as being owned by such Contributing Stockholder, free and
clear of any lien, pledge, charge, security interest, encumbrance, option or
other right or claim with respect thereto (collectively, "Liens"), except for
Liens created by virtue of entering into this Agreement. Upon the exchange of
the Asian Entity Shares for the Holding Company Shares, such Contributing
Stockholder shall transfer to the Holding Company good and valid title to such
Asian Entity Shares, free and clear of any Lien.
Section 4.1.2 Conflicts, Consents, etc. (a) Conflicts. The execution
------------------------- ---------
and delivery of this Agreement by such Contributing Stockholder, and the
consummation by such Contributing Stockholder of the transactions contemplated
hereby in the manner contemplated hereby, will not conflict with, require any
consent or other action by any Person under or result in any violation of, or
default under (or any event that, with notice or lapse of time or both, would
constitute a default under) or give rise to any right of termination,
cancellation or acceleration under any provision of (i) any mortgage, indenture,
loan agreement, note, bond, deed of trust, other agreement, commitment or
obligation for the borrowing of money or the obtaining of credit, lease or other
agreement, contract, license, franchise, permit or instrument to which such
Contributing Stockholder is a party or by which it is bound or (ii) any
judgment, order, decree, law, statute, rule or regulation applicable to such
Contributing Stockholder.
(b) Consents. No consent, waiver, approval, authorization, permit,
--------
order, filing, registration or qualification of or with any court, governmental
authority or third party (collectively, "Consents") is required to be obtained
or made by such Contributing Stockholder in connection with the execution and
delivery of this Agreement by such Contributing Stockholder or the consummation
by such Contributing Stockholder of the transactions contemplated hereby in the
manner contemplated hereby.
Section 4.1.3 Intent to Transfer. No Contributing Stockholder has any
------------------
intention or plan, formally or informally, on the date hereof, to transfer any
shares of the Holding Company received in exchange for the Contribution, except
for the establishment of the stock option plans pursuant to which approximately
4 million shares of Class A Common Stock will be transferred by the Contributing
Stockholders to the Holding Company and Nu Skin International, Inc.
Section 4.1.4 Not an Investment Company. None of the Asian Entities is
-------------------------
an investment company within the meaning of Section 351(e) of the Code and the
Treasury regulations promulgated thereunder.
Section 4.2 Representations and Warranties of the Holding Company. The
-----------------------------------------------------
Holding Company represents and warrants that it is not an investment company
within the meaning of Section 351(e) of the Code and Treasury regulations
promulgated thereunder and that it has no current plan or intention to dispose
of any of the assets contributed to it by the Contributing Stockholders and the
IPO Public Stockholders and intends to cause the Asian
-6-
Entities to carry on their active trade or businesses. No liabilities will be
assumed by the Holding Company as part of the Contribution or IPO.
ARTICLE
CONDITIONS PRECEDENT
Section 5.1 Conditions to Obligations of Contributing Stockholders and
----------------------------------------------------------
the Holding Company. The obligations of each Contributing Stockholder and of the
- -------------------
Holding Company, as the case may be, under this Agreement to consummate the
transactions contemplated hereby is subject to the fulfillment, at or prior to
the Closing, of the following conditions, any one or more of which may be waived
by such Contributing Stockholder or the Holding Company, as the case may be, at
its sole discretion:
Section 5.1.1 Representations and Performance by the Contributing
---------------------------------------------------
Stockholders. The representations and warranties of each Contributing
- -------------
Stockholder contained in Section 4.1 shall be true and correct as of the date
made and as of the Closing Date as though made at and as of the Closing Date or
as of the date specified therein as though made at and as of such date.
Contributing Stockholders shall have duly performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by Contributing Stockholders prior to
or at the Closing.
Section 5.1.2 No Injunction, etc. No injunction, judgment or provision
------------------
of applicable law or regulation or other order restraining or prohibiting the
consummation of the transactions contemplated by this Agreement or seeking to
prohibit, alter, prevent or materially delay the Closing, shall be threatened or
pending or in effect.
Section 5.1.3 IPO. A registration statement on Form S-1 for the IPO
---
shall have been declared effective by the Commission and the Holding Company and
the underwriters of the IPO shall have agreed on the terms of pricing.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Stock Transfer Taxes. All stock, stamp, transfer
--------------------
registration or similar taxes or duties, if any, resulting from (i) the transfer
of the Holding Company Shares shall be paid by the Holding Company and
(ii) resulting from the transfer of the Asian Entity Shares shall be paid by the
Contributing Stockholders.
-7-
Section 6.2 Modification; Waiver. This Agreement may be modified only
--------------------
by a written instrument executed by the parties to this Agreement. Any of the
terms and conditions of this Agreement may be waived in writing at any time on
or prior to the Closing Date by the party entitled to the benefits of such terms
and conditions.
Section 6.3 Further Actions. Each party shall execute and deliver such
---------------
certificates and other documents and take such other actions as may reasonably
be requested by the other parties in order to consummate or implement the
transactions contemplated by this Agreement.
Section 6.4 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered, telecopied or mailed, certified or registered
mail, first-class postage paid, return receipt requested, or any other delivery
service with proof of delivery:
if to the Holding Company:
Nu Skin Asia, Inc.
75 West Center Street
Provo, UT 84601
Attention: Steven J. Lund, President
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
136 South Main Street
Salt Lake City, UT 84101-1685
Attention: Nolan S. Taylor, Esq.
If to Contributing Stockholders, at their respective addresses set
forth on Schedule A.
or to such other address or to such other person as any party shall have last
designated by notice to the other parties.
Section 6.5 Assignment. This Agreement shall be binding upon and inure
----------
to the benefit of the parties and their respective successors and permitted
assigns, but shall not be assignable, by operation of law or otherwise, by any
party without the prior written consent of the other parties.
-8-
Section 6.6 Counterparts. This Agreement may be executed in
------------
counterparts, all of which shall constitute one and the same instrument.
Section 6.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Utah applicable
to agreements made and to be performed entirely within such State, without
regard to the conflicts of law principles of such State except that, to the
extent applicable, all matters relating specifically to the Holding Company
Shares shall be governed by the laws of Delaware.
-9-
IN WITNESS WHEREOF, this Agreement has been signed by each of the
parties hereto as of the date first above written.
NU SKIN ASIA, INC. CONTRIBUTING STOCKHOLDERS
By:
--------------------------- ------------------------------
Name: Blake M. Roney
Title:
------------------------------
Nedra D. Roney
------------------------------
Sandie N. Tillotson
------------------------------
Craig S. Tillotson
------------------------------
Craig Bryson
------------------------------
Steven J. Lund
------------------------------
Brooke B. Roney
------------------------------
Kirk V. Roney
------------------------------
Keith R. Halls
-10-
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NU SKIN ASIA, INC.
NU SKIN ASIA, INC, a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify that:
(1) The Corporation's original Certificate of Incorporation was filed with
the Delaware Secretary of State on September 4, 1996, and the name under which
the Corporation was originally incorporated was Nu Skin Asia, Inc.
(2) The following Amended and Restated Certificate of Incorporation was
duly adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 241 of the Delaware General Corporation Law, as amended
(the "DGCL"). The Board of Directors of the Corporation hereby certifies that
the Corporation has not received any payment for any of its stock and that the
amendments set forth herein were duly adopted by the Board of Directors in
accordance with the provisions of Section 241 of the DGCL. In lieu of a meeting
of the Board of Directors, written consent has been given by all of the members
of the Corporation's Board of Directors for the amendment and restatement of the
Corporation's Certificate of Incorporation and the adoption of said Amended and
Restated Certificate of Incorporation pursuant to the applicable provisions of
Sections 141, 241 and 245 of the DGCL.
(3) The Corporation's Certificate of Incorporation is amended and restated
in its entirety as follows:
1. Name. The name of the corporation is Nu Skin Asia Pacific, Inc. (the
----
"Corporation").
2. Office and Registered Agent. The address of the registered office of the
---------------------------
Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at that address is The Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage in any lawful act or
-------
activity for which corporations may be organized under the Delaware General
Corporation Law, as amended (the "DGCL").
4. Capital Stock. The Corporation is authorized to issue 625,000,000 shares
-------------
of capital stock, $0.001 par value per share. The shares of capital stock shall
be divided into three classes, designated as follows:
Designation of Class Number of Shares Par Value
-------------------- ---------------- ---------
Class A Common Stock 500,000,000 $0.001
Class B Common Stock 100,000,000 $0.001
Preferred Stock 25,000,000 $0.001
----------
TOTAL 625,000,000
===========
The Class A Common Stock and the Class B Common Stock shall hereinafter
collectively be called "Common Stock," and the Preferred Stock shall hereinafter
be called "Preferred Stock." The number of authorized shares of any class or
classes of capital stock of the Corporation may be increased or decreased (but
not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the voting power of the capital stock of the
Corporation entitled to vote generally in the election of directors irrespective
of the provision of Section 242(b)(2) of the DGCL or any corresponding provision
hereinafter enacted.
4.1 Underlying Terms of Common Stock.
--------------------------------
4.1.1 Voting Rights. The holders of shares of Class A Common
-------------
Stock and of Class B Common Stock shall have the following voting rights:
4.1.1.1 Each share of Class A Common Stock shall entitle
the holder thereof to one (1) vote on all matters submitted to a vote of the
stockholders of the Corporation.
4.1.1.2 Each share of Class B Common Stock shall entitle
the holder thereof to ten (10) votes on all matters submitted to a vote of the
stockholders of the Corporation.
4.1.1.3 Except as otherwise required by the DGCL, the
holders of shares of Class A Common Stock and the holders of shares of Class B
Common Stock shall vote together as one class on all matters submitted to a vote
of the stockholders of the Corporation or, if any holders of shares of Preferred
Stock are entitled to vote together with the holders of Class A Common Stock and
Class B Common Stock as a single class, with such holders of shares of Preferred
Stock.
4.1.2 Dividends and Distributions. Subject to the preferences
---------------------------
applicable to Preferred Stock outstanding at any time, the holders of shares of
Class A Common Stock and the holders of shares of Class B Common Stock shall be
entitled to receive such dividends and other distributions in cash, property or
shares of capital stock of the Corporation as may be declared by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor; provided, however, that subject to the provisions of this
Section 4.1.2., the Corporation shall pay the same dividend per share on all
outstanding shares of capital stock comprising the Common Stock. In the case of
dividends or other distributions payable in shares of Class A Common Stock or
shares of Class B Common Stock, including distributions made pursuant to stock
splits or divisions of the Class A Common Stock or the Class B Common Stock that
occur after the first date upon which the Corporation has issued shares of both
Class A Common Stock and Class B Common Stock, only shares of Class A Common
Stock shall be distributed with respect to Class A Common Stock and only shares
of Class B Common Stock shall be distributed
with respect to Class B Common Stock. Whenever a dividend or distribution,
including distributions pursuant to stock splits or divisions of the Class A
Common Stock or the Class B Common Stock, is payable in shares of Class A Common
Stock or shares of Class B Common Stock, the number of shares of each class of
capital stock comprising the Common Stock payable per share of such class of
Common Stock shall be equal in number. In the case of dividends or other
distributions consisting of other voting securities of the Corporation, the
Corporation shall declare and pay such dividends in two separate classes of such
voting securities, identical in all respects, except that the voting rights of
each such security paid to the holders of Class A Common Stock shall be one-
tenth (1/10th) of the voting rights of each such security paid to the holders of
Class B Common Stock, and such security paid to the holders of Class B Common
Stock shall be convertible into the security paid to the holders of Class A
Common Stock upon the same terms and conditions applicable to the Class B Common
Stock as set forth in Section 4.1.4 below. In the case of dividends or other
distributions consisting of securities convertible into or exchangeable for
voting securities of the Corporation, the Corporation shall provide that such
convertible or exchangeable securities and the underlying securities shall be
identical in all respects (including, without limitation, the conversion or
exchange rates), except that the voting rights for the underlying securities of
the convertible or exchangeable security paid to the holders of Class A Common
Stock shall be one-tenth (1/10th) of the voting rights of each underlying
security of the convertible or exchangeable security paid to the holders of
Class B Common Stock, and such underlying securities paid to the holders of
Class B Common Stock shall be convertible into the underlying securities paid to
the holders of Class A Common Stock upon the same terms and conditions
applicable to the Class B Common Stock.
4.1.3 Transfer of Class B Common Stock. If any Class B Holder
--------------------------------
(as defined below) voluntarily or involuntarily transfers, sells, assigns,
devises, distributes or bequeaths any of such Class B Holder's interest in his,
her or its shares of Class B Common Stock (including, without limitation, the
power to vote or provide a consent with respect to his, her or its shares of
Class B Common Stock by proxy or otherwise, except for proxies given to any
Permitted Transferee (as defined below) of the Class B Holder or to a person
designated by the Board of Directors of the Corporation who is soliciting
proxies on behalf of the Corporation), to any person who is not a Permitted
Transferee, each share of Class B Common Stock so transferred, sold, assigned,
devised, distributed or bequeathed automatically will be converted into one
share of fully paid and non-assessable Class A Common Stock. In the event of
such a transfer, the Corporation and the transfer agent for the Class B Common
Stock, if any (the "Transfer Agent"), shall not register the transfer of such
shares of Class B Common Stock, whether by sale, grant of proxy, assignment,
gift, devise, bequest, distribution, appointment or otherwise, except to the
Corporation or to a Permitted Transferee; provided, however, that such
restrictions on transfer shall not apply to a merger, consolidation or business
combination of the Corporation with or into another corporation or entity,
whether or not the Corporation is the surviving corporation or entity. For the
purposes of this Section 4.1.3, a "Permitted Transferee" shall include only the
following persons and entities: (A) Blake M. Roney, Nedra D. Roney, Kirk V.
Roney, Brooke B. Roney, Steven J. Lund, Sandie N. Tillotson, R. Craig Bryson,
Craig S. Tillotson and Keith R. Halls (collectively, the "Designated
Individuals") and each of their respective spouses, estates, guardians,
conservators or committees; (B) each descendant of any of the Designated
Individuals (individually, a "Stockholder Descendant") and their respective
estates, guardians conservators or committees; (C) each Family Controlled Entity
(as defined below); (D) the trustees, in their respective capacities as such of
each Family Controlled Trust; (E) any trust established by any of the Designated
Individuals for any beneficiary of such trust that such Designated Individual
may select; (F) any foundation established by any of the Designated Individuals;
(G) any charitable remainder trust established by any of the Designated
Individuals; and (H) any limited liability company organized by
any of the Designated Individuals, provided that after the organization thereof
such Designated Individual gifts all or a portion of the membership interests in
such limited liability company to a charitable remainder trust that was
established by such Designated Individual. For purposes of this Section 4.1.3,
the term "Family Controlled Entity" shall mean (i) any corporation if at least
eighty percent (80%) of the value of its outstanding equity is owned by
Permitted Transferees; (ii) any partnership if at least eighty percent (80%) of
the value of its partnership interests are owned by Permitted Transferees; and
(iii) any limited liability company or similar company if at least eighty
percent (80%) of the value of the company is owned by Permitted Transferees. For
purposes of this Section 4.1.3, the term "Family Controlled Trust" shall mean
any trust the primary beneficiaries of which are any of the Designated
Individuals, Stockholder Descendants, Spouses of Stockholder Descendants (as
defined below) and/or charitable organizations (collectively, "Stockholder
Beneficiaries"); provided, however, that if the trust is a wholly charitable
trust, at least eighty percent (80%) of the trustees of such trust consist of
the Designated Individuals and/or Stockholder Descendants. For purposes of this
Section 4.1.3, the primary beneficiaries of a trust will be deemed to be
Stockholder Beneficiaries if, under the maximum exercise of discretion by the
trustee in favor of persons who are not Stockholder Beneficiaries, the value of
the interests of such persons in such trust, computed actuarially, is twenty
percent (20%) or less. The factors and methods prescribed in Section 7520 of the
Internal Revenue Code of 1986, as amended, for use in ascertaining the value of
certain interests shall be used in determining a beneficiary's actuarial
interest in a trust for purposes of applying this Section 4.1.3. For purposes of
this Section 4.1.3, the actuarial value of the interest in a trust of any person
in whose favor a testamentary power of appointment may be exercised shall be
deemed to be zero. For purposes of this Section 4.1.3, in the case of a trust
created by a Stockholder Descendant, the actuarial value of the interest in such
trust of any person who may receive trust property only at the termination of
the trust and then only in the event that, at the termination of the trust,
there are no living issue of such Stockholder Descendant, shall be deemed to be
zero. For purposes of this Section 4.1.3, the term "Spouses of Stockholder
Descendants" shall mean those individuals who at any time were married to any
Stockholder Descendant whether or not such marriage is subsequently dissolved by
death, divorce or by any other means.
Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Class B Holder's shares of Class B Common Stock
to a financial institution pursuant to a bona fide pledge of such shares as
collateral security for indebtedness due to the pledgee; provided, however, that
such shares shall remain subject to the provisions of this Section 4.1.3 and may
not be transferred to, or voted by, the pledgee, except as otherwise permitted
by the provisions of this Section 4.1.3. In the event of foreclosure or other
similar action by the pledgee, such pledged shares of Class B Common Stock may
only be transferred to a Permitted Transferee or converted into shares of Class
A Common Stock, as the pledgee may elect. For purposes of this Section 4.1.3,
(i) the relationship of any person that is derived by or through legal adoption
shall be considered to be a natural relationship; (ii) a minor who is a
descendant of a shareholder and for whom shares of Class B Common Stock are held
pursuant to the Uniform Gifts to Minors Act or similar law shall be considered
to be a Class B Holder of such shares and the custodian who is the record holder
of such shares shall not be considered to be a Class B Holder; (iii) an
incompetent stockholder who is a Permitted Transferee but whose shares are owned
or held by a guardian or conservator shall be considered to be a Class B Holder
of such shares and such guardian or conservator who is the holder of such shares
shall not be considered to be a Class B Holder; (iv) unless otherwise specified,
the term "person" means and includes natural persons, corporations,
partnerships, unincorporated associations, firms, joint ventures, limited
liability companies, trusts and all other entities; and (v) except as provided
in clauses (ii) and (iii) above, the term "Class B Holder" shall
mean in respect of any share of Class B Common Stock, the record holder of such
share of Class B Common Stock who is not holding such share solely as a nominee.
4.1.3.1 The Corporation may, in connection with preparing
a list of stockholders entitled to vote at any meeting of stockholders, or as a
condition to the transfer or the registration of shares of Class B Common Stock
on the Corporation's books, or at any other time, require the furnishing of such
affidavits or other proof as it deems necessary to establish that a Class B
Holder is a Permitted Transferee. Upon the transfer, sale, assignment, devise,
distribution or bequeath by any Class B Holder of shares of Class B Common Stock
to any person who is not a Permitted Transferee, each such share of Class B
Common Stock automatically will be converted with one share of Class A Common
Stock. Upon the determination by the Board of Directors of the Corporation or a
committee thereof that a Class B Holder is not a Permitted Transferee, notice of
each such automatic conversion shall be given by the Corporation to all Class B
Holders as soon as possible pursuant to the Class B Common Stock conversion
procedures set forth in Section 4.1.4 hereof.
4.1.3.2 Each certificate representing shares of Class B
Common Stock shall be endorsed with a legend that states that shares of Class B
Common Stock are not transferable other than to certain transferees and are
subject to certain restrictions as set forth in this Certificate of
Incorporation filed by the Corporation with the Secretary of State of the State
of Delaware.
4.1.4 Conversion of Class B Common Stock.
----------------------------------
4.1.4.1 If, on the record date for any meeting of
stockholders of the Corporation, the number of shares of Class B Common Stock
then outstanding constitutes less than ten percent (10%) of the aggregate number
of shares of Common Stock then outstanding, as determined by the Board of
Directors of the Corporation, each share of Class B Common Stock then issued and
outstanding shall thereupon be automatically converted as of such record date
into one (1) fully paid and non-assessable share of Class A Common Stock and
will have one (1) vote per share at such meeting. Upon making such
determination, notice of each automatic conversion shall be given by the
Corporation by means of a press release and written notice to all Class B
Holders as soon as practicable, but no later than the next meeting of
stockholders of the Corporation, and the Secretary of the Corporation shall be
instructed to, and shall promptly request from each Class B Holder that each
Class B Holder promptly deliver, and each Class B Holder shall promptly deliver,
the certificate representing each share of Class B Common Stock to the
Corporation for exchange hereunder, together with instructions for transfer, in
form satisfactory to the Corporation and the Transfer Agent, duly executed by
such Class B Holder or such Class B Holder's duly authorized attorney, and
together with transfer stamps or funds therefor, if required pursuant to Section
4.1.4.7.
4.1.4.2 Each Class B Holder shall be entitled to convert,
at any time and from time to time, any or all of the shares of each such Class B
Holder's Class B Common Stock, on a one-for-one basis, into the same number of
fully paid and non-assessable shares of Class A Common Stock. Such rights shall
be exercised by the surrender to the Corporation of the certificate or
certificates representing shares of Class B Common Stock to be converted at any
time during normal business hours at the principal executive offices of the
Corporation or at the office of the Transfer Agent, accompanied by a written
notice of the Class B Holder stating that such Class B Holder desires to convert
such shares of Class B Common Stock or a stated number of shares of Class B
Common Stock represented by such
certificate or certificates, into an equal number of shares of Class A Common
Stock, and (if so required by the Corporation or the Transfer Agent) by
instruments of transfer, in form satisfactory to the Corporation and the
Transfer Agent, duly executed by such Class B Holder or such Class B Holder's
duly authorized attorney, and transfer tax stamps or funds therefor, if required
pursuant to Section 4.1.4.7 hereof.
4.1.4.3 As set forth in Section 4.1.3.1 hereof, upon
determination by the directors of the Corporation or a committee thereof that a
Class B Holder is not a Permitted Transferee, each share of Class B Common Stock
or any beneficial interest therein held by such Class B Holder shall thereupon
be automatically converted into one (1) fully paid and non-assessable share of
Class A Common Stock. A determination by the Board of Directors of the
Corporation that a Class B Holder is not a Permitted Transferee and, therefore,
that conversion is required, shall be made in the sole discretion of the Board
of Directors and shall be conclusive. Upon making such a determination, the
Secretary of the Corporation shall be instructed to, and shall promptly request
the Class B Holder, that such Class B Holder promptly deliver and such Class B
Holder shall promptly deliver, the certificate representing each such share of
Class B Common Stock to the Corporation for exchange hereunder, together with
instruments of transfer, in form satisfactory to the Corporation and the
Transfer Agent, duly executed by such Class B Holder or such Class B Holder's
duly authorized attorney, and together with transfer tax stamps or funds
therefor, if required pursuant to Section 4.1.4.7 hereof.
4.1.4.4 As promptly as practicable following the surrender
for conversion of a certificate representing shares of Class B Common Stock in
the manner provided in Section 4.1.4.1, 4.1.4.2 or 4.1.4.3, as applicable, and
the payment in cash of any amount required by the provisions of Section 4.1.4.7,
the Corporation will deliver or cause to be delivered at the office of the
Transfer Agent, a certificate or certificates representing the number of full
shares of Class A Common Stock issuable upon such conversion, issued in such
name or names as such Class B Holder may direct. In the case of a conversion
under Section 4.1.4.1 hereof, such conversion shall be deemed to have been made
on the record date for such meeting of stockholders on which the condition set
forth in Section 4.1.4.1 hereof is determined by the Board of Directors of the
Corporation to have occurred. In the case of a conversion under Section 4.1.4.2
hereof, such conversion shall be deemed to have been effected immediately prior
to the close of business on the date of the surrender of the certificate or
certificates representing shares of Class B Common Stock. In the case of a
conversion under Section 4.1.4.3 hereof, such conversion shall be deemed to have
been made on the date of transfer. Upon the date any conversion under Section
4.1.4.1 hereof is made or effected, all rights of the Class B Holder in such
shares of Class B Common Stock shall cease, and the person or persons in whose
name or names the certificate or certificates representing the shares of Class A
Common Stock are to be issued shall be treated for all purposes as having become
the record holder or holders of such shares of Class A Common Stock; provided,
however, that if any such surrender and payment occurs on any date when the
stock transfer books of the Corporation shall be closed, the person or persons
in whose name or names the certificate or certificates representing shares of
Class A Common Stock are to be issued shall be deemed the record holder or
holders thereof for all purposes immediately prior to the close of business on
the next succeeding day on which the stock transfer books of the Corporation are
open. Upon the date any conversion under Section 4.1.4.3 hereof is made, all
rights of the Class B Holder shall cease, and the new owner or owners of the
shares of Class A Common Stock shall be treated for all purposes as having
become the record holder or holders of such shares of Class A Common Stock.
4.1.4.5 In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a Class B Holder shall be entitled to
receive upon conversion the amount of such security that such Class B Holder
would have received upon conversion if such Holder's shares of Class B Common
Stock were converted into shares of Class A Common Stock immediately prior to
the record date of such reclassification or other similar transaction. No
adjustments in respect of dividends shall be made upon the conversion of any
share of Class B Common Stock; provided, however, that if a share of Class B
Common Stock shall be converted subsequent to the record date for the payment of
a dividend or other distribution on shares of Class B Common Stock but prior to
such payment, then the registered Class B Holder of such share of Class B Common
Stock at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on such share of Class B Common Stock
on such date notwithstanding the conversion thereof or the Corporation's default
in payment of the dividend due on such date.
4.1.4.6 The Corporation will at all times reserve and keep
available out of its authorized but unissued shares of Class A Common Stock,
solely for the purpose of issuance upon conversion of the outstanding shares of
Class B Common Stock, such number of shares of Class A Common Stock that shall
be issuable upon the conversion of all such outstanding shares of Class B Common
Stock; provided, however, that nothing contained herein shall be construed to
preclude the Corporation from satisfying its obligations in respect of the
conversion of the outstanding shares of Class B Common Stock by delivery of
purchased shares of Class A Common Stock that are held in the treasury of the
Corporation. All shares of Class A Common Stock that will be issued upon
conversion of shares of Class B Common Stock will, upon issuance, be fully paid
and non-assessable.
4.1.4.7 The issuance of certificates for shares of Class A
Common Stock upon conversion of shares of Class B Common Stock shall be made
without charge to such Class B Holders of such shares of Class B Common Stock
for any stamp or other similar tax in respect of such issuance; provided,
however, that if any such certificate is to be issued in a name other than that
of such Class B Holder, then the person or persons requesting the issuance
thereof shall pay to the Corporation the amount of any tax that may be payable
in respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
4.1.4.8 Shares of Class B Common Stock that are converted
into shares of Class A Common Stock as provided herein shall not, after
conversion, be reissued as such and shall be retired.
4.1.5 Stock Splits. The Corporation shall not in any manner
------------
subdivide (by any stock split, stock dividend, reclassification,
recapitalization or otherwise) or combine (by reverse stock split,
reclassification, recapitalization or otherwise) the outstanding shares of one
class of the capital stock comprising the Common Stock unless the outstanding
shares of all classes of capital stock comprising the Common Stock shall be
proportionately subdivided or combined.
4.1.6 Options, Rights or Warrants. The Corporation shall have the
---------------------------
power to create and issue, whether or not in connection with the issuance and
sale of any shares of its capital stock or other securities of the Corporation,
rights or options entitling the holders thereof to purchase from the Corporation
any shares of its capital stock of any class or classes at the time authorized,
which rights or
options may have such terms and conditions and be evidenced by any instrument or
instruments as shall be approved by the Board of Directors.
4.1.7 Mergers, Consolidation, Etc. In the event that the
----------------------------
Corporation shall enter into any consolidation, merger, combination or other
transaction in which shares of Common Stock are exchanged for or changed into
shares of other capital stock or securities, cash and/or any other property,
then, and in such event, the shares of each class of Common Stock shall be
exchanged for or changed into an amount per share equal to the amount of capital
stock, securities, cash and/or other property, as the case may be, into which or
for which each share of any other class of Common Stock is exchanged or changed;
provided, however, that if shares of Class A Common Stock and Class B Common
Stock are exchanged for or changed into shares of capital stock, such shares so
exchanged for or changed into may differ to the extent and only to the extent
that the Class A Common Stock and the Class B Common Stock differ as provided
herein.
4.1.8 Liquidation Rights. In the event of any dissolution,
------------------
liquidation or winding up of the business and affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation and after making provision for
the holders of each series of Preferred Stock, if any, the remaining assets and
funds of the Corporation, if any, shall be divided among and paid ratably to the
Class A Holders and the Class B Holders treated as a single class.
4.1.9 No Pre-Emptive Rights. The holders of shares of Common
---------------------
Stock are not entitled to any pre-emptive rights to subscribe for, purchase or
receive any part of any new or additional issue of the Corporation's capital
stock of any class, whether now or hereafter authorized, or of bonds, debentures
or other securities convertible into or exchangeable for shares of the
Corporation's capital stock.
4.2. Preferred Stock. Shares of Preferred Stock may be issued from
---------------
time to time in one or more series. The Board of Directors is authorized, by
resolution adopted and filed in accordance with the DGCL, to provide for the
issuance of such series of shares of Preferred Stock and to establish from time
to time the number of shares to be included in each such series. Each series of
Preferred Stock (a) may have such voting powers, full or limited, or may be
without voting powers; provided, however, that unless holders of at least sixty-
six and two-thirds percent (66-2/3%) of the combined voting power of the Common
Stock have approved the issuance of such shares of Preferred Stock, the Board of
Directors may not issue any shares of Preferred Stock that have the right (i) to
vote for the election of directors under ordinary circumstances or (ii) under
any circumstances to elect fifty percent (50%) or more of the directors of the
Corporation; (b) may not be subject to redemption at such time or times and at
such prices; (c) may be entitled to receive dividends (which may be cumulative
or non-cumulative) at such rate or rates, on such conditions and at such times,
and payable in preference to, or in such relation to, the dividends payable on
any other class or classes or series of the Corporation's capital stock; (d) may
have such rights upon the liquidation or dissolution of, or upon any
distribution of the assets of, the Corporation; (e) may be made convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or upon any other class or classes of the Corporation's
capital stock or such other corporation or entity at such price or prices or at
such rates of exchange and with such adjustments; (f) may be entitled to the
benefit of a sinking fund to be applied to the purchase or redemption of shares
of such series in such amount or amounts; (g) may be entitled to the benefit of
conditions and restrictions upon the creation of indebtedness of the Corporation
or any subsidiary, upon the issue of any additional shares of capital stock
(including additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Corporation or any Subsidiary (as defined
below) of, any outstanding shares of the Corporation's capital stock; and (h)
may have such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions, all as shall be stated in said
resolution or resolutions providing for the issuance of such shares of Preferred
Stock. The Board of Directors is also authorized to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In the case
the number of shares of any series shall be decreased, the shares constituting
such decrease shall resume the status they had prior to the adoption of the
resolution originally fixing the number of shares of such series. Shares of
Preferred Stock of any series that have been redeemed or repurchased by the
Corporation (whether through the operation of a sinking fund or otherwise) or
that, if convertible or exchangeable, have been converted or exchanged in
accordance with their terms shall be retired and shall have the status of
authorized but unissued shares of Preferred Stock of the same series and may be
reissued as a part of the series of which they were originally a part or may,
upon the filing of an appropriate certificate with the Delaware Secretary of
State, be reissued as part of a new series of shares of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of any
other series of shares of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of any series of shares of
Preferred Stock.
5. Board of Directors.
------------------
5.1 Number of Directors. The initial number of directors that shall
-------------------
constitute the whole Board of Directors shall be designated by the Bylaws of the
Corporation and may be changed from time to time in the manner described
therein.
5.2 Powers of the Board of Directors. The business and affairs of the
--------------------------------
Corporation shall be managed by or under the direction of the Board of Directors
selected as provided by the DGCL and this Certificate of Incorporation and the
Bylaws of the Corporation. In furtherance, and not in limitation, of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to:
5.2.1 adopt, amend, alter, change or repeal the Bylaws of the
Corporation; provided, however, that no Bylaws hereafter adopted shall
invalidate any prior act of the Corporation that would have been valid if such
new Bylaws had not been adopted;
5.2.2 subject to the Bylaws as from time to time in effect, determine
the rules and procedures for the conduct of the business of the Board of
Directors and the management and direction by the Board of Directors of the
business and affairs of the Corporation, including the power to designate and
empower committees of the Board of Directors, to elect, or authorize the
appointment of, and empower officers and other agents of the Corporation, and to
determine the time and place of, the notice requirements for, and the manner of
conducting, Board meetings, as well as other notice requirements for, and the
manner of taking, Board action; and
5.2.3 exercise all such powers and do all such acts as may be
exercised or done by the Corporation, subject to the provisions of the DGCL and
this Certificate of Incorporation and the Bylaws of the Corporation.
5.3 Vacancies. Except as otherwise required by the DGCL and subject to the
---------
rights of the holders of shares of Preferred Stock, any vacancy on the Board of
Directors for any reason and any newly-created directorship resulting by reason
of any increase in the number of directors may be filled only by the Board of
Directors (and not by the stockholders), by resolution adopted by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum (or by a sole remaining director); provided, however,
that if not so filled, any such vacancy shall be filled by the stockholders at
the next annual meeting or at a special meeting called for that purpose. Any
director so appointed shall hold office until the next meeting of stockholders
at which directors are to be elected and until his or her successor is elected
and qualified.
5.4 Removal of Directors. Any director (including all members of the Board
--------------------
of Directors) may be removed from office at any time by the affirmative vote of
the holders of at least sixty-six and 2/3 two-thirds percent (66-2/3%) of the
voting power of all of the shares of capital stock of the Corporation then
entitled to vote generally in the election of directors, voting together as a
single class.
5.5 Rights of Preferred Stock. Notwithstanding the foregoing, whenever the
-------------------------
holders of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election, term
of office, filling of vacancies and other features of such directorships shall
be governed by the terms of this Certificate of Incorporation or the resolution
or resolutions adopted by the Board of Directors.
6. Vote Required for Extraordinary Transactions and Transactions With Related
--------------------------------------------------------------------------
Persons
-------
6.1 Extraordinary Transactions. Notwithstanding that approval by a lesser
--------------------------
percentage vote is permitted by the DGCL, the affirmative vote of the holders of
not less than sixty-six and two-thirds percent (66-2/3%) of the outstanding
shares of Voting Stock (as defined below) of the Corporation shall be required
for the approval or authorization of (a) any merger or consolidation requiring
the approval of the Corporation's stockholders under Section 251 et. seq. of the
DGCL or any successor provision or provisions thereto or (b) any sale, lease or
exchange of all or substantially all of the Corporation's property and assets
requiring the approval of the Company's stockholders under Section 271 of the
DGCL or any successor provision or provisions thereto.
6.2 Transactions With Related Persons.
---------------------------------
6.2.1 Except as otherwise expressly provided in Section 6.2.2 hereof,
in addition to any affirmative vote required by the DGCL or by any other
provision hereof or by the Bylaws of the Corporation, the affirmative vote of
the holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of Voting Stock, other than those shares held by a Related
Person (as defined below), shall be required for the approval or authorization
of any of the transactions (a "Business Combination") listed below:
6.2.1.1 any merger, consolidation or share exchange of the
Corporation into or with a Related Person, pursuant to which the holders of
shares of Common Stock of the Corporation will receive cash, property,
securities or other consideration; or
6.2.1.2 any sale, lease, exchange or other disposition to or
with such Related Person of all or any Substantial Part (as defined below) of
the assets of the Corporation or any of its Subsidiaries.
6.2.2 Notwithstanding Section 6.2.1 hereof, the sixty-six and two-
thirds percent (66-2/3%) voting requirement shall not be applicable if (i) any
transaction specified above shall have been approved by a vote of not less than
a majority of the Continuing Directors (as defined below) or (ii) in the case of
any transaction pursuant to which the holders of the Common Stock of the
Corporation are entitled to receive cash, property, securities or other
consideration, the cash or fair market value of the property, securities or
other consideration (as determined by the Continuing Directors) to be received
per share by holders of the Common Stock of the Corporation in such transaction
is not less than the higher of (A) the highest price per share paid by the
Related Person for any of its holdings of Common Stock within the two (2) year
period immediately prior to the announcement of the proposed transaction (the
"Announcement Date"), excluding transactions by and among the individuals or
entities included in the definition of Permitted Transferees under Section 4.1.3
hereof, or (B) the highest closing sale price per share of Common Stock during
the thirty (30) day period immediately preceding the Announcement Date or during
the period immediately preceding the date on which the Related Person became a
Related Person, whichever is higher. The highest closing sale price shall be
determined by the reports of closing sale prices on the Composite Tape for New
York Stock Exchange listed stocks or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange or other principal United States
securities exchange on which such stock is listed or, for any period when such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock on the National Association of Securities
Dealers, Inc. Automated Quotation System; provided, however, that such price
under clause (A) or (B) above shall be proportionately adjusted for any
subsequent increase or decrease in the number of issued shares of the
Corporation's capital stock resulting from a subdivision or consolidation of
shares or any other capital adjustments, the payment of a stock dividend, or
other increase or decrease in such shares of capital stock effected without
receipt of consideration by the Corporation.
6.2.3 The Board of Directors, with the approval of a majority
of the total number of Continuing Directors, shall have the power and duty to
determine, on the basis of information known to it after reasonable inquiry, all
facts necessary to determine compliance with this Section 6, including, without
limitation, (i) whether a person is a Related Person; (ii) the number of shares
of Voting Stock Beneficially Owned by any person; (iii) whether a person is an
Affiliate (as defined below) or Associate (as defined below) of another person;
(iv) whether the applicable conditions set forth in Section 6.2.2 hereof have
been met with respect to any Business Combination; and (v) whether the proposed
transaction is a Business Combination. Any such determination shall be final and
conclusive.
6.3 Definitions.
-----------
For purposes of Section 6.2 hereof:
6.3.1 The term "Related Person" shall mean and include any
individual, corporation, partnership or other person, entity or group, as such
term is defined in Rule 13d-5 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that Beneficially Owns (as defined below), in the
aggregate, ten percent (10%) or more of the outstanding Voting Stock of the
Corporation. For purposes of calculating the sixty-six and two-thirds percent
(66-2/3%) vote under Section 6.2.1, a Related Person shall also include the
seller or sellers from whom the Related Person, during the six (6) months
preceding the Announcement Date, acquired at least five percent (5%) of the
outstanding shares of Class A Common Stock pursuant to one or more agreements or
other arrangements (excluding brokers' transactions) but only if such sellers or
seller Beneficially Own(s) shares of Common Stock having an aggregate fair
market value in excess of $10 million at the Announcement Date. Notwithstanding
the foregoing, neither the Corporation nor any Subsidiary shall be a Related
Person.
6.3.2 The terms "Affiliate" and "Associate" shall have the
meanings set forth in Rule 12b-2 under the Exchange Act, as in effect on the
date this Certificate of Incorporation is filed in the office of the Secretary
of State of the State of Delaware.
6.3.3 The term "Beneficially Owns" or "Beneficially Owned"
shall have the meaning set forth in Rule 13d-3 under the Exchange Act, as in
effect on the date of this Certificate of Incorporation is filed in the office
of the Secretary of State of the State of Delaware.
6.3.4 The term "Continuing Director", with respect to any
Business Combination, shall mean any member of the Board of Directors of the
Corporation who is not a Related Person with whom such Business Combination is
proposed and is neither Affiliated nor Associated with or designated by such
Related Person. Notwithstanding the foregoing, any director of the Corporation
elected pursuant to a voting agreement to which such Related Person is a party
but who is not designated by such Related Person and any director of the
Corporation who has a family relation with such Related Person (unless
designated by such Related Person) shall not be considered to be an Affiliate or
Associate of such Related Person.
6.3.5 The term "Substantial Part" shall mean more than thirty
percent (30%) of the fair market value, as determined by two-thirds (2/3rds) of
the Continuing Directors, of the total consolidated assets of the Corporation
and its Subsidiaries taken as a whole as of the end of its most recent fiscal
year ending prior to the time the determination is being made, subject to
adjustments made by the Continuing Directors to take into account transactions
made subsequent to year end.
6.3.6 The term "Subsidiary" shall mean any corporation of which
a majority of the Voting Stock thereof entitled to vote generally in the
election of directors is owned, directly or indirectly, by the Corporation.
6.3.7 The term "Voting Stock" shall mean all outstanding
shares of capital stock of the Corporation or another corporation entitled to
vote generally in the election of directors, and each reference to a percentage
of shares of Voting Stock shall refer to such percentage of the votes entitled
to be cast by such shares .
7. Liability of Directors.
----------------------
7.1 Limitation of Liability. No director of the Corporation shall be
-----------------------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (a) for any
breach of the director's duty of loyalty to the Corporation or its stockholders;
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (c) under Section 174 of the DGCL; or
(d) for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended after the date this Certificate of
Incorporation is filed with the Delaware Secretary of State to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
7.2 Amendments. Any repeal or modification of Section 7.1 hereof by the
----------
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
8. Stockholders.
------------
8.1 Action by Stockholders. Any action required or permitted to be taken
----------------------
by the holders of the issued and outstanding capital stock of the Corporation
may be effected at an annual or special meeting of stockholders duly called and
held in accordance with the DGCL and this Certificate of Incorporation and the
Bylaws or, as long as any shares of Class B Common Stock are outstanding,
without a meeting, by written consent, setting forth the action so taken, signed
by the holders of outstanding shares entitled to vote thereon having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a stockholders' meeting at which all shares entitled to vote
thereon were present. If no shares of Class B Common Stock are outstanding,
such written consent shall require the signature by holders of all outstanding
shares of capital stock entitled to vote thereon.
8.2 Special Meetings of Stockholders. Except as otherwise required by the
--------------------------------
DGCL, special meetings of stockholders may be called only by the Chairman of the
Board of Directors or the President of the Corporation or by the Board of
Directors pursuant to a resolution adopted by the affirmative vote of a majority
of the entire Board. Except as otherwise required by the DGCL, stockholders of
the Corporation shall not have the right to request or call a special meeting of
the stockholders.
9. Bylaws.
------
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws by the affirmative vote of at least a majority of the members then in
office. The affirmative vote of the holders of not less than sixty-six and two-
thirds percent (66-2/3%) of the voting power of all shares of capital stock of
the Corporation then entitled to vote generally in the election of directors,
voting as a single class, shall be required to adopt, amend or repeal the Bylaws
(notwithstanding the fact that approval by a lesser
percentage may be permitted by the DGCL).
10. Indemnification and Insurance.
-----------------------------
10.1 Indemnification.
---------------
10.1.1 The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent or another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fine and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
10.1.2 The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses that the
Court of Chancery or such other court shall deem proper.
10.1.3 To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 10.1.1 and 10.1.2 above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
10.1.4 Any indemnification under Section 10.1.1 and 10.1.2 above
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in Section 10.1.1 and 10.1.2
above. Such determination shall be made (i) by the Board by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders of the Corporation.
10.1.5 Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Section 10. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate.
10.1.6 The indemnification and advancement of expenses provided by,
or granted pursuant to, other subsections of this Section 10 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding office.
10.1.7 For purposes of this Section 10, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger that, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section 10 with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
10.1.8 For purpose of this Section 10, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation that imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Section 10.
10.1.9 The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 10 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
10.2 Insurance for Indemnification. The Corporation may purchase and
-----------------------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 145 of the
DGCL.
11. Incorporator. The name and mailing address of the sole incorporator of the
------------
Corporation is Thomas R. Taylor, LeBoeuf, Lamb, Greene & MacRae, L.L.P., 136
South Main Street, Suite 1000, Salt Lake City, Utah 84101-1685.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by M. Truman Hunt, its Vice President
of Legal Affairs and Investor Relations, this 12th day of September, 1996.
M. Truman Hunt
--------------------------------------------
M. Truman Hunt,
Vice President of Legal Affairs and Investor
Relations
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
NU SKIN ASIA PACIFIC, INC.
TABLE OF CONTENTS
Page No.
ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meetings.......................................... 1
1.2 Annual Meeting............................................. 1
1.3 Special Meetings........................................... 1
1.4 Notice of Meetings......................................... 1
1.5 Voting List................................................ 1
1.6 Quorum..................................................... 1
1.7 Adjournments............................................... 2
1.8 Voting and Proxies......................................... 2
1.9 Action at Meeting.......................................... 2
1.10 Advance Notice of Stockholder Nominees and
Stockholder Business....................................... 2
ARTICLE 2 - DIRECTORS
2.1 General Powers............................................. 4
2.2 Number; Election; Tenure and Qualification................. 4
2.3 Enlargement of the Board of Directors...................... 4
2.4 Vacancies.................................................. 4
2.5 Resignation................................................ 4
2.6 Removal.................................................... 4
2.7 Meetings................................................... 5
2.8 Special Meetings........................................... 5
2.9 Notice of Special Meetings................................. 5
2.10 Meetings by Telephone Conference Call...................... 5
2.11 Quorum..................................................... 5
2.12 Action at Meeting.......................................... 5
2.13 Action by Consent.......................................... 5
2.14 Committees................................................. 5
2.15 Compensation for Directors................................. 6
ARTICLE 3 - OFFICERS
3.1 Enumeration................................................ 6
3.2 Election................................................... 6
3.3 Qualification.............................................. 6
3.4 Tenure..................................................... 6
3.5 Resignation and Removal.................................... 6
3.6 Vacancies.................................................. 7
3.7 Chairman of the Board and Vice Chairman of the Board....... 7
3.8 President.................................................. 7
3.9 Vice Presidents............................................ 7
3.10 Secretary and Assistant Secretary.......................... 7
3.11 Treasurer and Assistant Treasurer.......................... 7
3.12 Bonded Officers............................................ 8
3.13 Salaries................................................... 8
-i-
TABLE OF CONTENTS cont'd.
Page No.
ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock.......................................... 8
4.2 Certificates of Stock...................................... 8
4.3 Transfers.................................................. 8
4.4 Lost, Stolen or Destroyed Certificates..................... 9
4.5 Record Date................................................ 9
ARTICLE 5 - INDEMNIFICATION AND INSURANCE
5.1 Indemnification............................................ 9
5.2 Insurance for Indemnification.............................. 11
ARTICLE 6 - GENERAL PROVISIONS
6.1 Fiscal Year................................................ 11
6.2 Execution of Instruments................................... 11
6.3 Waiver of Notice........................................... 12
6.4 Voting of Securities....................................... 12
6.5 Evidence of Authority...................................... 12
6.6 Certificate of Incorporation............................... 12
6.7 Transactions with Interested Parties....................... 12
6.8 Severability............................................... 13
6.9 Pronouns................................................... 13
ARTICLE 7 - AMENDMENTS
7.1 By the Board of Directors.................................. 13
7.2 By the Stockholders........................................ 13
-ii-
AMENDED AND RESTATED
BYLAWS
OF
NU SKIN ASIA PACIFIC, INC.
ARTICLE 1
STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held each year beginning in the calendar
year 1997 on such date and at such time as the Board of Directors determines.
The date so determined by the Board of Directors shall fall upon a legal holiday
at the place of the meeting, then such meeting shall be held on the next
succeeding business day at the same hour. If no annual meeting is held in
accordance with the foregoing provisions, the Board of Directors shall cause the
meeting to be held as soon thereafter as convenient.
1.3 Special Meetings. Special meetings of stockholders for any purpose
----------------
or purposes may be called by the Board, the President or the Secretary of the
Corporation or by the recordholders of at least a majority of the shares of
Common Stock of the Corporation issued and outstanding and entitled to vote
thereof.
1.4 Notice of Meetings. Except as otherwise provided by the Delaware
------------------
General Corporation Law, as amended (the "DGCL"), written notice of each meeting
of stockholders, whether annual or special, shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
Corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by the DGCL, the Certificate of
------
Incorporation, as it may be amended from time to time (the "Certificate of
Incorporation"), or these Bylaws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to
------------
another time and to any other place at which a meeting of stockholders may be
held under these Amended and Restated Bylaws by the stockholders present or
represented at the meeting and entitled to vote, although not less than a
quorum, or, if no stockholder is present, by any officer entitled to preside at
or to act as Secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than thirty (30) days if the time and
place of the adjourned meeting are announced at the meeting at which adjournment
is taken, unless after the adjournment a new record date is fixed for the
adjourned meeting. At the adjourned meeting, the Corporation may transact any
business that might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one (1) vote for
------------------
each share of capital stock entitled to vote that is held of record by such
stockholder and a proportionate vote for each fractional share so held, unless
otherwise provided in the Certificate of Incorporation. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the Corporation. No such proxy shall be voted or acted upon after
three (3) years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. In all matters other than the election of
-----------------
directors, when a quorum is present at any meeting, the holders of a majority of
the shares of capital stock present or represented and entitled to vote on the
subject matter (or if there are two or more classes of capital stock entitled to
vote as separate classes, then in the case of each such class, the holders of a
majority of the shares of capital stock of that class present or represented and
entitled to vote on the subject matter) shall decide any matter to be voted upon
by the stockholders at such meeting, except when a different vote is required by
express provision of the DGCL, the Certificate of Incorporation or these Amended
and Restated Bylaws. All elections of directors by the stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election. Any action required or permitted to be taken by the
stockholders may be effected without a meeting by a written consent in
accordance with Section 8.1 of the Certificate of Incorporation.
1.10 Advance Notice of Stockholder Nominees and Stockholder Business.
---------------------------------------------------------------
(a) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (A) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (C) otherwise properly brought before the
meeting by a stockholder. For business or a proposal to be properly bought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's proposal must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than one hundred
twenty (120) days in advance of the date of the Corporation's proxy statement
released to security holders in connection
-2-
with the previous year's annual meeting of the stockholders except that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) calendar days from the date
contemplated at the time of the previous year's proxy statement, a stockholder's
proposal must be delivered to or mailed and received at the principal executive
offices of the Corporation a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by the stockholder; (iv) any material interest
of the stockholder in such business; and (v) any other information that is
required to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the rules and regulations promulgated under the
1934 Act. Notwithstanding anything in these Amended and Restated Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph (a). The Chairman of
the annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (a), and, if he should so
determine, such Chairman shall so declare at the annual meeting that any such
business not properly brought before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (b). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
(as set forth in paragraph (a) of this Section 1.10) in writing to the Secretary
of the Corporation in accordance with the provisions of this paragraph (b) of
this Section 1.10. Such stockholder's notice shall set forth (i) as to each
person, if any, whom the stockholder proposes to nominate for election or
reelection as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the Corporation's capital stock
that are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including, without limitation,
such person's written consent to being named in the proxy statement, if any, as
a nominee and to serving as a director of the Corporation if elected), and (ii)
as to such stockholder giving notice, the information required to be provided
pursuant to paragraph (a) of this Section 1.10. At the request of the Board of
Directors, any person nominated by a stockholder for election as a director
shall furnish to the Secretary of the Corporation that information required to
be set forth in the stockholder's notice of nomination that pertains to the
nominee. No persons shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set froth in this
paragraph (b). The Chairman of the meeting shall, if the facts warrant,
-3-
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Amended and Restated Bylaws,
and, if he should so determine, such Chairman shall so declare at the meeting
and the defective nomination shall be disregarded.
(c) For purposes of this Section 1.10, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, the
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the United States Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the 1934 Act.
ARTICLE 2
DIRECTORS
2.1 General Powers. The business and affairs of the Corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the Corporation except as otherwise provided by the DGCL, the
Certificate of Incorporation or these Amended and Restated Bylaws. In the event
of a vacancy on the Board of Directors, the remaining directors, except as
otherwise provided by the DGCL, may exercise the powers of the full Board of
Directors until the vacancy is filled.
2.2 Number; Election; Tenure and Qualification. The number of directors
------------------------------------------
of the Corporation shall be fixed from time to time exclusively, but the total
number of directors shall not be less than five (5) nor more than eleven (11).
Directors need not be stockholders of the Corporation. Directors shall be
elected at the annual meeting of stockholders or, if, in accordance with Section
1.9 hereof, no such annual meeting is held, by written consent in lieu of
meeting pursuant to Section 1.9 hereof, and each director shall hold office
until his successor is elected and qualified, or until his earlier death or
resignation or removal in the manner hereinafter provided.
2.3 Enlargement of the Board of Directors. The authorized number of
-------------------------------------
directors on the Board of Directors may be increased by the Board of Directors
pursuant to a resolution adopted by a majority of the then maximum number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board for adoption.
2.4 Vacancies. Unless and until filled by the stockholders, any vacancy
---------
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board of Directors, may be filled by vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, provided; however, that a vacancy created by the removal of
a director by the vote of the stockholders or by court order may be filled only
by the affirmative vote of a majority of the shares of the Corporation's capital
stock represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute a majority of the required
quorum) or by written consent in accordance with Section 8.1 of the Certificate
of Incorporation. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified, or until such
director's earlier death, resignation or removal.
-4-
2.5 Resignation. Any director may resign by delivering his written
-----------
resignation to the Corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.6 Removal. Any director or the entire Board of Directors may be
-------
removed, only as permitted by the DGCL and Section 5 of the Certificate of
Incorporation.
2.7 Meetings. Meetings of the Board of Directors may be held without
--------
notice at such time and place, within or without the State of Delaware, as shall
be determined from time to time by the Board of Directors, provided that any
director who is absent when such a determination is made shall be given notice
of the determination. A meeting of the Board of Directors may be held without
notice immediately after and at the same place as the annual meeting of
stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the President, two (2) or more
directors, or by one director in the event that there is only a single director
then in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary of the Corporation or
by the officer or one of the directors calling the meeting. Notice shall be
given to each director in person, by telephone, by facsimile transmission or by
telegram sent to his business or home address at least forty-eight (48) hours in
advance of the meeting, or by written notice mailed to his business or home
address at least seventy-two (72) hours in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
2.10 Meetings by Telephone Conference Call. Directors or any members of
-------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone call or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.11 Quorum. A majority of the number of directors then in office, as
------
established pursuant to Section 2.2 hereof, shall constitute a quorum at all
meetings of the Board of Directors. In the event one or more of the directors
shall be disqualified to vote at any meeting, then the required quorum shall be
reduced by one for each such director so qualified; provided, however, that in
no case shall less than one-third (1/3) of the number of directors then in
office constitute a quorum. In the absence of a quorum at any such meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice other than announcement at the meeting, until a quorum
shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
-----------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by the DGCL,
the Certificate of Incorporation or these Amended and Restated Bylaws. For so
long as the Corporation's Board of Directors consists of an even number of
directors, a majority of the Board of Directors for purposes of these Amended
and Restated Bylaws shall equal one or more than are half of the directors then
in office.
-5-
2.13 Action by Consent. Any action required or permitted to be taken at
-----------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting without prior notice and without a
vote, if all members of the Board of Directors or committee, as the case may be,
consent to the action in writing, and the written consents are filed with the
minutes of proceedings of the Board of Directors or committee.
2.14 Committees. The Board of Directors may, by resolution passed by a
----------
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the DGCL, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each such committee shall keep minutes and make
such reports as the Board of Directors may from time to time request. Except as
the Board of Directors may otherwise determine, any committee may make rules for
the conduct of its business, but unless otherwise provided by the directors or
in such rules, its business shall be conducted as nearly as possible in the same
manner as is provided in these Amended and Restated Bylaws for the Board of
Directors.
2.15 Compensation for Directors. Directors may be paid such compensation
--------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the Corporation or any of its parent or
subsidiary Corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3
OFFICERS
3.1 Enumeration. The officers of the Corporation shall consist of a
-----------
Chairman, a President, a Secretary, a Treasurer and such other officers with
such other titles as the Board of Directors shall determine, including one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries.
3.2 Election. Except as otherwise provided by the DGCL, by the
--------
Certificate of Incorporation or by these Amended and Restated Bylaws, each
officer shall be appointed by the Board of Directors at its first meeting
following the annual meeting of stockholders.
3.3 Qualification. The President need not be a director. No officer need
-------------
be a stockholder. Any two or more offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by the DGCL, by the Certificate
------
of Incorporation or by these Amended and Restated Bylaws, each officer shall
hold office until his successor is elected and qualified, unless a different
term is specified in the vote choosing or appointing him, or until his earlier
death, resignation or removal.
-6-
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the Corporation at its principal office or to the
President or the Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event. The Board of Directors, or a committee duly authorized to
do so, may remove any officer with or without cause. Except as the Board of
Directors may otherwise determine, no officer who resigns or is removed shall
have any right to any compensation as an officer for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise, unless
such compensation is expressly provided in a duly authorized written agreement
with the Corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Chairman
----------------------------------------------------
of the Board shall, when present, preside at all meetings of the Board of
Directors. He shall perform such duties and possess such powers as are usually
vested in the office of the Chairman of the Board or as may be vested in him by
the Board of Directors. If the Board of Directors appoints a Vice Chairman of
the Board, he shall, in the absence or disability of the Chairman of the Board,
perform the duties and exercise the powers of the Chairman of the Board and
shall perform such other duties and possess such other powers as may from time
to time be vested in him by the Board of Directors.
3.8 President. Unless otherwise determined by the Board of Directors,
---------
the President shall be the Chief Executive Officer of the Corporation. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business and affairs of the Corporation.
Unless otherwise provided by the directors, he shall preside at all meetings of
the stockholders and of the Board of Directors (except as provided in Section
3.7 hereof). The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one Vice
President, the Vice Presidents in the order determined by the Board of
Directors) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice President the title of
Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
3.10 Secretary and Assistant Secretary. The Secretary shall perform such
---------------------------------
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required and to be the custodian of corporate
-7-
books and records. Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Secretary, the Assistant Secretary (or if there shall be more than one
Assistant Secretary, the Assistant Secretaries in the order determined by the
Board of Directors) shall perform the duties and exercise the powers of the
Secretary. In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary Secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurer. In the absence of a Vice
---------------------------------
President of Finance, the Treasurer shall be the chief financial officer and the
chief accounting officer of the Corporation. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds of
the Corporation in depositories selected in accordance with these Amended and
Restated Bylaws, to disburse such funds as ordered by the Board of Directors,
to make proper accounts of such funds and to render, as required by the Board of
Directors, statements of all such transactions and of the financial condition of
the Corporation. Any Assistant Treasurers shall perform such duties and possess
such powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one
Assistant Treasurer, the Assistant Treasurers in the order determined by the
Board of Directors) shall perform the duties and exercise the powers of the
Treasurer.
3.12 Bonded Officers. The Board of Directors may require any officer to
---------------
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his duties and for the restoration to the
Corporation of all property in his possession or under his control belonging to
the Corporation.
3.13 Salaries. Officers of the Corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4
CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
held in its treasury may be issued, sold, transferred or otherwise disposed of
by vote of the Board of Directors in such manner, for such consideration and on
such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of capital stock of the
---------------------
Corporation shall be entitled to have a certificate, in such form as may be
prescribed by the DGCL and by the Board of Directors, certifying the number and
class of shares owned by him in the Corporation. Each such certificate shall be
signed by, or in the name of the Corporation by, the Chairman or Vice Chairman,
-8-
if any, of the Board of Directors, or the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation. Any or all of the signatures on share certificates
may be facsimiles. Each certificate for shares of stock that is subject to any
restriction on transfer pursuant to the Certificate of Incorporation, these
Amended and Restated Bylaws, applicable securities laws, rules or regulations or
any agreement among any number of stockholders or among such stockholders and
the Corporation shall have conspicuously noted on the face or back of the stock
certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 Transfers. Subject to the restrictions, if any, stated or noted on
---------
the stock certificates, shares of the Corporation's capital stock may be
transferred on the books of the Corporation by the surrender to the Corporation
or its transfer agent of the certificate(s) representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the Corporation or its transfer agent may reasonably require. Except as may be
otherwise required by the DGCL, by the Certificate of Incorporation or by these
Amended and Restated Bylaws, the Corporation shall be entitled to treat the
record holder of shares of capital stock as shown on its books as the owner of
such stock for all purposes, including the payment of dividends and the right to
vote with respect to such capital stock, regardless of any transfer, pledge or
other disposition of such stock until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these Amended
and Restated Bylaws.
4.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
--------------------------------------
new stock certificate in place of any previously issued certificate alleged to
have been lost, stolen or destroyed, upon such terms and conditions as the Board
of Directors may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the Board of
Directors may require for the protection of the Corporation or any transfer
agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than sixty (60) nor less than ten
(10) days prior to any other action to which such record date relates. If no
record date is fixed, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the day before the day on which notice is given, or, if notice is waived, at
the close of business on the day before the day on which the meeting is held.
The record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written consent
is expressed. The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating to such purpose. A determination of stockholders
of record entitled to notice of or to vote at a meeting of the stockholders
shall apply to any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
ARTICLE 5
INDEMNIFICATION AND INSURANCE
-9-
5.1 Indemnification.
---------------
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or inves-
tigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent or another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fine and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the Corpo-
ration as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses (inclu-
ding attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses that the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding refereed to in Section 5.1(a) and (b) above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under Section 5.1(a) and (b) above (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 5.1(a) and (b) above. Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders of the Corporation.
-10-
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Section 5. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other subsections of this Section 5 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding office.
(g) For purposes of this Section 5, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger that, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section 5 with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purpose of this Section 5, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Section
5.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 5 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
5.2 Insurance for Indemnification. The Corporation may purchase and
-----------------------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 145 of the
DGCL.
-11-
ARTICLE 6
GENERAL PROVISIONS
6.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the Corporation shall end on December 31
of each year.
6.2 Execution of Instruments. The President, the Chief Executive
------------------------
Officer, if different, any Vice President, the Secretary or the Treasurer shall
have power to execute and deliver on behalf of and in the name of the
Corporation any instrument requiring the signature of an officer of the
Corporation, except as otherwise provided in these Amended and Restated Bylaws,
or where the execution and delivery of such an instrument shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by the DGCL, the Certificate of Incorporation or these Amended and
Restated Bylaws, a waiver of such notice either in writing signed by the person
entitled to such notice or such person's duly authorized attorney, or by
telegraph, facsimile or any other available method, whether before, at or after
the time stated in such waiver, or the appearance of such person or persons at
such meeting in person or by proxy, shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President, the Chief Executive Officer, if different, any Vice
President, the Secretary or the Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for the
Corporation (with or without power of substitution) at any meeting of the
stockholders or the shareholders of any other Corporation or organization, the
securities of which may be held by the Corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, the directors, any committee of the Board of Directors or any
officer or representative of the Corporation shall, as to all persons who rely
on the certificate in good faith, be conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these Amended and
----------------------------
Restated Bylaws to the Certificate of Incorporation shall be deemed to refer to
the Certificate of Incorporation of the Corporation, as amended and in effect
from time to time. These Amended and Restated Bylaws are subject to the
provisions of the Certificate of Incorporation, the DGCL and other applicable
laws, rules and regulations.
6.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other Corporation, partnership, association or other
organization in which one or more of the Corporation's directors or officers
serves as a director or officer, or has a financial interest, shall be void or
voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or of a
committee of the Board of Directors that authorizes the contract or transaction
or solely because his or their votes are counted for such purpose, if:
-12-
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors may be less
than a quorum;
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee that authorizes the contract or
transaction.
6.8 Severability. Any determination that any provision of these Amended and
------------
Restated Bylaws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these Amended and Restated Bylaws.
6.9 Pronouns. All pronouns used in these Amended and Restated Bylaws shall
--------
be deemed to refer to the masculine, feminine or neuter gender, singular or
plural, as the identity of the person or persons may require.
ARTICLE 7
AMENDMENTS
7.1 By the Board of Directors. Subject to the provisions of the
-------------------------
Certificate of Incorporation, these Amended and Restated Bylaws may be altered,
amended or repealed or new Bylaws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
7.2 By the Stockholders. Subject to the provisions of the Certificate of
-------------------
Incorporation, these Amended and Restated Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote either by
written consent or at any annual meeting of the stockholders, or at any special
meeting of the stockholders, provided notice of such alteration, amendment,
repeal or adoption of new Bylaws shall have been stated in the notice of such
special meeting.
-13-
EXHIBIT 4.1
CLASS A CLASS A
COMMON STOCK COMMON STOCK
NUMBER ______
001 SHARES
CUSIP 67018T 10 5
NU SKIN ASIA PACIFIC, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR RESTRICTED STOCK LEGENDS,
THE STATE OF DELAWARE CERTAIN DEFINITIONS AND STATEMENTS
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF SHARES
THIS CERTIFIES THAT
_____________________________________________________________
is the record holder of
_________________________________________________________
FULLY PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK, PAR VALUE $0.001
PER SHARE, OF
Nu Skin Asia Pacific, Inc.
========================== ==========================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
WITNESS the signatures of the Corporation's duly authorized officers.
Dated: _______________, 1996
________________________________ ____________________________________
_____________, Secretary ________________, President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS THE SHARES
ARE REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR
UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE SALE, ASSIGNMENT, GIFT, BEQUEST, TRANSFER, DISTRIBUTION, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES REPRESENTED
BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF A STOCKHOLDER'S AGREEMENT
AMONG CERTAIN INDIVIDUALS AND PERSONS REFERRED TO IN THE STOCKHOLDER'S
AGREEMENT, A COPY OF WHICH MAY BE EXAMINED AT THE OFFICE OF THE
CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP
AGREEMENT BETWEEN THE HOLDER HEREOF AND MERRILL LYNCH, PIERCE, FENNER &
SMITH, INC. (THE "UNDERWRITER") THAT PREVENTS, AMONG OTHER THINGS, THE
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, CONTRACT TO SELL OR OTHER
DISPOSITION OF, DIRECTLY OR INDIRECTLY, ANY SHARES REPRESENTED HEREBY
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CORPORATION AND THE UNDERWRITER
UNTIL 365 DAYS FROM THE DATE OF THE CLOSING OF THE CORPORATION'S INITIAL
PUBLIC OFFERING OF SHARES OF ITS CLASS A COMMON STOCK.
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights as established, from time to
time, by the Certificate of Incorporation of the Corporation and by any
certificate of determination, the number of Shares constituting each class and
series, and the designations thereof. Such requests shall be made to the
Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian __________
TEN ENT - as tenants by the entireties (Minor) (Cust)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act _____________
survivorship and not as tenants (State)
in common UNIF TRF MIN ACT - __________ Custodian (until age ______)
(Cust)
_________ under Uniform Transfers
(Minor)
to Minors Act ____________________
(State)
Additional abbreviations may also be used through not in the above list
FOR VALUE RECEIVED, ____________________hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
____________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common 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 premises.
Dated: _______________________________ ____________________________________
____________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
By:_______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATES AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE
17Ad-15.
EXHIBIT 4.2
CLASS B CLASS B
COMMON STOCK COMMON STOCK
NUMBER ______
001 SHARES
CUSIP ______
NU SKIN ASIA PACIFIC, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR RESTRICTED STOCK LEGENDS,
THE STATE OF DELAWARE CERTAIN DEFINITIONS AND STATEMENTS
AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF SHARES
THIS CERTIFIES THAT
_____________________________________________________________
is the record holder of
_________________________________________________________
FULLY PAID AND NONASSESSABLE SHARES OF CLASS B COMAMON STOCK, PAR VALUE $0.001
PER SHARE, OF
Nu Skin Asia Pacific, Inc.
========================= ===========================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
WITNESS the signatures of the Corporation's duly authorized officers.
Dated: _______________, 1996
__________________________________ _________________________________
____________,Secretary _____________, President
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS THE SHARES
ARE REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR
UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE SALE, ASSIGNMENT, GIFT, BEQUEST, TRANSFER, DISTRIBUTION, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES REPRESENTED
BY THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF A STOCKHOLDER'S AGREEMENT
AMONG CERTAIN INDIVIDUALS AND PERSONS REFERRED TO IN THE STOCKHOLDER'S
AGREEMENT, A COPY OF WHICH MAY BE EXAMINED AT THE OFFICE OF THE
CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP
AGREEMENT BETWEEN THE HOLDER HEREOF AND MERRILL LYNCH, PIERCE, FENNER &
SMITH, INC. (THE "UNDERWRITER") THAT PREVENTS, AMONG OTHER THINGS, THE
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, CONTRACT TO SELL OR OTHER
DISPOSITION OF, DIRECTLY OR INDIRECTLY, ANY SHARES REPRESENTED HEREBY
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CORPORATION AND THE UNDERWRITER
UNTIL 365 DAYS FROM THE DATE OF THE CLOSING OF THE CORPORATION'S INITIAL
PUBLIC OFFERING OF SHARES OF ITS CLASS A COMMON STOCK.
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights as established, from time to
time, by the Certificate of Incorporation of the Corporation and by any
certificate of determination, the number of Shares constituting each class and
series, and the designations thereof. Such requests shall be made to the
Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian __________
TEN ENT - as tenants by the entireties (Minor) (Cust)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act _____________
survivorship and not as tenants (State)
in common UNIF TRF MIN ACT - __________ Custodian (until age ______)
(Cust)
_________ under Uniform Transfers
(Minor)
to Minors Act ____________________
(State)
Additional abbreviations may also be used through not in the above list
FOR VALUE RECEIVED, ____________________hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
____________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common 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 premises.
Dated: _________________________ ____________________________________
____________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
By:_______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATES AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE
17Ad-15.
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
this ______ day of ________________, 1996 between Nu Skin Asia Pacific, Inc.,
a Delaware corporation ("Corporation"), and ____________________________
("Indemnitee")
RECITALS:
A. WHEREAS, Indemnitee, an officer or a member of the Board of
Directors of Corporation, performs a valuable service in such capacity for
Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum event authorized by Section
145 of the Delaware General Corporation Law, as amended (the "DGCL"); and
C. WHEREAS, the Bylaws and the DGCL, by their non-exclusive
nature, permit contracts between Corporation and the members of its Board of
Directors and officers with respect to indemnification of such directors and
officers; and
D. WHEREAS, in accordance with the authorization as provided by
the DGCL, Corporation has purchased or may purchase a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering certain
liabilities that may be incurred by its directors and officers in the
performance as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors and officers by
such D & O Insurance and by statutory and bylaw indemnification provisions; and
F. WHEREAS, in order to induce Indemnitee to serve as a member of
the Board of Directors or as an officer of Corporation, Corporation has
determined and agreed to enter into this Agreement with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as a
director or officer of Corporation after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Indemnitee. Corporation hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the DGCL, as the same may be amended from time to time.
2. Additional Indemnity. Subject only to the exclusions set forth
--------------------
in Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (including an action by or in the right of Corporation) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provisions of Article 5 of
the Bylaws of Corporation and the DGCL.
3. Limitations on Additional Indemnity. No indemnity pursuant to
-----------------------------------
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Indemnitee is indemnified
pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and
maintained by Corporation;
(b) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions
of any federal, state or local statutory law;
(d) on account of Indemnitee's conduct that is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
(e) on account of Indemnitee's conduct that is the subject of an
action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of any action, claim or proceeding (other than a
proceeding referred to in Section 8(b) hereof) initiated by Indemnitee unless
such action, claim or proceeding was authorized in the specific case by action
of the Board of Directors; and
(g) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both Corporation and Indemnitee have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
4. Contribution. If the indemnification provided in Sections 1
------------
and 2 hereof is unavailable by reason of a court decision described in paragraph
(g) of Section 3 hereof based on grounds other than any of those set forth in
paragraphs (b) through (f) of Section 3 hereof, then in respect of any
threatened, pending or completed action, suit or proceeding in which Corporation
is jointly liable with Indemnitee (or would be if joined in such action, suit
or proceeding), Corporation shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in such
proportion as is appropriate to reflect (i) the relative benefits received by
Corporation on the one hand and Indemnitee on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of Corporation on the one hand and of Indemnitee on the other in
connection with the events that resulted in such expenses, judgments, fines or
settlement amounts, as well as any other relevant equitable considerations. The
relative fault of Corporation on the one hand and of Indemnitee on the other
shall be determined by reference to, among other things, the parties relative
intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such expenses, judgments, fines or settlement
amounts. Corporation agrees that it would not be just and equitable if
contribution pursuit to this Section 4 were determined by pro rata allocation or
any other method of allocation that does not take account of the foregoing
equitable considerations.
-2-
5. Continuation of Obligations. All agreements and obligations of
---------------------------
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of Corporation (or is or was serving at
the request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee is subject to
any possible or threatened, pending or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was a director of Corporation or serving in any other capacity referred to
herein.
6. Notification and Defense of Claim. Not later than thirty (30)
---------------------------------
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve Corporation
from any liability that it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, to the extent that it
may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof with counsel reasonably
satisfactory to Indemnity. After notice from Corporation to Indemnitee of its
election so as to assume the defense thereof, Corporation will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from Corporation
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by
Corporation, (ii) Indemnitee shall have reasonably concluded that there may be
a conflict of interest between Corporation and Indemnitee in the conduct of the
defense of such action, suit or proceeding or (iii) Corporation shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be at
the expense of Corporation. Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of Corporation
or as to which Indemnitee shall have made the conclusion provided for in clause
(ii) above; and
(c) Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action, suit or
proceeding or claim effected without its written consent. Corporation shall be
permitted to settle any action, suit or proceeding except that it shall not
settle any action, suit or proceeding in any manner that would impose any
penalty or limitation on Indemnitee without Indemnitee's written consent.
Neither Corporation nor Indemnitee will unreasonably withhold its consent to any
proposed settlement.
7. Advancement and Repayment of Expenses.
-------------------------------------
(a) In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, administrative or investigative, any and all
reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Indemnitee for such
expenses.
(b) Indemnitee agrees that he will reimburse Corporation for
all reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Indemnitee in the event and only to the
extent it shall be determined by a final judicial decision (from which there is
no right of appeal) that Indemnitee is not entitled under the provisions of the
DGCL, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation
for such expenses.
-3-
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff; unless such advance is specifically
approved by a majority of the Board of Directors, or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board of Directors that alleges willful misappropriation of corporate assets
by Indemnitee, disclosure of confidential information in violation of
Indemnitee's fiduciary or contractual obligations to Corporation, or any other
willful and deliberate breach in bad faith of Indemnitee's duty to Corporation
or its stockholders.
8. Enforcement.
-----------
(a) Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Indemnitee to serve as a director or officer of
Corporation, and acknowledges that Indemnitee is relying upon this Agreement in
serving in such capacity.
(b) In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, Corporation shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such action.
9. Subrogation. In the event of payment under this Agreement,
-----------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnity, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
10. Non-Exclusivity of Rights. The conferred on Indemnitee by this
-------------------------
Agreement shall not be exclusive of any other right that Indemnitee may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of the stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
11. Survival of Rights. The rights conferred on Indemnitee by this
------------------
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
12. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and is independent of the others, so that if any
or all of the provisions hereof are held to be invalid or unenforceable for any
reason, such invalidity or enforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of Corporation
to indemnify Indemnitee to the fullest extent provided by the Bylaws or the
DGCL.
13. Governing Law. This Agreement shall be interpreted and
-------------
enforced in accordance with the laws of the State of Delaware.
14. Binding Effect. This Agreement shall be binding upon
--------------
Indemnitee and upon Corporation, its successors and assigns, and shall inure to
the benefit of Indemnitee, his heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and assigns.
15. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
-4-
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
INDEMNITEE: CORPORATION:
- ---------- -----------
NU SKIN ASIA PACIFIC, INC.,
a Delaware corporation
- ---------------------------------
By:
--------------------------------
Its: Chief Executive Officer
-5-
EXHIBIT 10.2
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement"), dated _________,
1996, is entered into by and among Blake M. Roney, Nedra D. Roney, Kirk V.
Roney, Brooke B. Roney, Steven J. Lund, Sandie N. Tillotson, R. Craig Bryson,
Craig S. Tillotson and Keith R. Halls (hereinafter referred to, together with
each other person that hereafter acquires Shares (as defined below), as the
"Existing Stockholders"), and Nu Skin Asia Pacific, Inc., a corporation
organized under the laws of the State of Delaware (the "Corporation").
WITNESSETH:
----------
A. WHEREAS, the Existing Stockholders collectively own (a)
_____________ shares of the Corporation's outstanding Class A Common Stock, par
value $0.001 per share (the "Class A Common Stock"), and (b) ______________
shares of the Corporation's outstanding Class B Common Stock, par value $0.001
per share (the "Class B Common Stock");
B. WHEREAS, the Class A Common Stock and the Class B Common Stock
together are referred to herein as the "Shares"; and
C. WHEREAS, the Existing Stockholders and the Corporation have
agreed that it would be in the best interests of each Existing Stockholder and
the Corporation to assure the continued management of the Corporation by
restricting the privilege of ownership of the Class B Common Stock and, except
as hereinafter provided, to provide each of the Existing Stockholders with the
opportunity to acquire additional Shares pursuant to the provisions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
1. Restriction on Transfer. Each of the Existing Stockholders
-----------------------
hereby agrees that he, she or it shall not sell, assign, give, bequeath,
transfer, distribute, pledge, hypothecate or otherwise encumber or dispose of
(collectively, "Transfer") any of the Shares owned by him, her or it (whether
now owned or hereafter acquired) except as otherwise allowed by this Agreement.
Any attempted or purported Transfer of any Shares by any Stockholder (as defined
below) in violation or contravention of the terms of this Agreement shall be
void. The Corporation shall, and shall instruct its transfer agent to, reject
and refuse to transfer on its books any Shares that may have been Transferred in
violation or contravention of any of the provisions of this Agreement and shall
not recognize any person, estate, executor, administrator, firm, association or
corporation holding any of the Shares as being a shareholder of the Corporation,
and any such person, estate, executor, administrator, firm, association or
corporation shall not have any rights as a shareholder of the Corporation. No
dividends shall be paid on, nor any distribution made on, any Shares Transferred
in breach of this Agreement.
2. Permitted Transfers. The Stockholders shall be permitted to
-------------------
Transfer Shares as provided in Section 3 hereof and, in addition, as follows:
2.1 Public Sales and Certain Gifts, Bequests and Distributions.
----------------------------------------------------------
Any Stockholder may Transfer shares of Class A Common Stock pursuant to a widely
distributed public offering of such shares registered under the Securities Act
of 1933, as amended (the "Securities Act"), or pursuant to Rule 144 (including
subsection (k) thereof) (or any successor rule or regulation to Rule 144) under
the Securities Act, subject to and only in accordance with the terms and
conditions of this Agreement. In addition, subject to the lock-up agreement set
forth in Section 2.6 below, any Stockholder may Transfer to persons or entities
who are not Stockholders, shares of Class A Common Stock as follows: (a) by
gift, bequest or sale to (i) any trust established by any Stockholder for any
beneficiary thereof that such Stockholder may select, (ii) any foundation, (iii)
any charitable remainder trust or (iv) any limited liability company followed by
a gift of all or a portion of the membership interests in said limited liability
company to a charitable remainder trust, and (b) in the case of Stockholders who
are the trustees of a Stockholder Controlled Trust (as defined below) or the
executors of the estate of a Stockholder Descendant (as defined below), by
distribution from such Stockholder controlled Trust or such estate to one or
more beneficiaries thereof who are not Stockholders, all without regard to the
limitations imposed by this Agreement other than the requirements of the lock-up
agreement set forth in Section 2.6 below. For purposes of this Section 2.1, the
trustees of a Stockholder Controlled Trust in their capacity as trustees of such
Stockholder Controlled Trust shall be deemed to be a single Stockholder and the
executors of the estate of a Stockholder Descendant in their capacity as
executors of such estate shall be deemed to be a single Stockholder.
2.2 Transfers Among Existing Stockholders. Any Existing
-------------------------------------
Stockholder may Transfer Shares to one or more Existing Stockholders without
regard to the limitations imposed by this Agreement; provided, however, that, as
-------- -------
a condition to such Transfer, any Existing Stockholder to whom any such Shares
are Transferred that is not a party to this Agreement executes and delivers to
the Corporation an undertaking in substantially the form attached hereto as
Exhibit "A".
2.3 Pledges to Institutions. Any Stockholder may grant a lien or
-----------------------
security interest in, pledge, hypothecate or encumber (collectively, a "Pledge")
any Shares beneficially owned by him, her or it to a nationally or
internationally recognized financial or lending institution with assets of not
less than $10,000,000,000 (an "Institution"); provided, however, that the
-------- -------
Institution must agree in writing at or prior to the time such Pledge is made
that (i) no Transfer of Shares in connection with a foreclosure, forfeiture or
similar proceeding arising from the operation of such Pledge shall be made
except as provided in the immediately following sentence and (ii) if such
Institution itself should acquire ownership of Shares in connection with a
foreclosure, forfeiture or similar proceeding arising from the operation of such
Pledge, it will thereafter Transfer such Shares only in a manner that a
Stockholder would be permitted to do pursuant to Sections 2.1, 2.2, 2.4 or 2.5
hereof. An Institution that has been granted a Pledge of Shares may Transfer
such Shares in connection with a foreclosure, forfeiture or similar proceeding
arising from the operation of such Pledge (a) to such Institution, (b) in a
manner a Stockholder would be permitted to do pursuant to Sections
2
2.1, 2.2, 2.4 or 2.5 hereof or (c) in any other public or private sale so long
as (A) the Stockholders are given at least forty-five (45) days prior written
notice of the time and place initially fixed for such sale (which sale may be
adjourned from time to time to any such time and place as is announced at the
time and place theretofore fixed for such sale) and (B) each Stockholder is
entitled to bid to purchase such Shares at such sale subject only to whatever
limitations and conditions of general applicability are generally established by
such Institution in connection with such sale (including, without limitation,
limitations and conditions to assure compliance with the Securities Act) (a
"Foreclosure Sale"). All sales pursuant to a Foreclosure Sale shall be subject
to the right of first offer granted to existing stockholders in Section 2.5
hereof. Shares Pledged to an Institution that are acquired by such Institution
in connection with a foreclosure, forfeiture or similar proceeding arising from
a Pledge of such Shares may be transferred to the parent corporation of such
Institution or any affiliated entity controlled by such Institution's parent
corporation without regard to the limitations imposed by this Agreement so long
as the transferee agrees in writing to be bound by the provisions of this
Agreement to the same extent such Institution is bound.
2.4 Agreement to Implement Equity Incentive Programs. Each
------------------------------------------------
Stockholder hereby covenants and agrees for a period of three (3) years from the
date of this Agreement to make available to the Corporation or its designee up
to six percent (6%) of each such Stockholder's shares of Class B Common Stock
(the "Incentive Shares") for the purpose of implementing any distributor or
employee equity incentive program or programs sponsored by the Corporation, Nu
Skin International, Inc., a Utah corporation, or any affiliate thereof. To
effect the provisions of this section, the Corporation shall make demand for the
Incentive Shares by delivering notice thereof to each stockholder (the
"Demand"). The Demand shall set forth the number of Incentive Shares required to
be contributed by each Stockholder and the date upon which certificates
representing the Incentive Shares shall be delivered, duly endorsed, for
transfer to the Corporation or its designee as requested. Each of the
Stockholders hereby authorizes and irrevocably appoints the Secretary of the
Corporation as his, her or its duly authorized attorney-in-fact for purposes of
executing any stock powers necessary to effect a transfer of Incentive Shares
hereunder.
2.5 Right of First Offer.
--------------------
(a) Except for Transfers permitted hereunder or made in
accordance with Section 6.11 below or in accordance with Rule 144 under the 1933
Act, any Stockholder may Transfer Shares to any person or entity other than
another Stockholder provided such transferring Stockholder (an "Offering
Stockholder") first offers such Shares to be Transferred (the "Offered Shares")
to all Stockholders who are then parties to this Agreement as provided below
(the "Right of First Offer").
(b) In order to offer any Offered Shares, the Offering
Stockholder shall give written notice (an "Offer Notice") of the proposed
Transfer to all Stockholders who then are parties to this Agreement setting
forth, in reasonable detail, the Offering Stockholder's intent to make such
proposed Transfer, the number of Offered Shares, the proposed date of
consummation of such Transfer (if known), the proposed purchase price per Share
(including, if known, the amount of cash or other property or consideration to
be received upon the consummation of the Transfer) (the "Offered Price Per
Share"), any proposed sales
3
commission or advisory fees, and any other material terms and conditions of the
proposed Transfer to the extent then known. If the Transfer is not for value,
such as in the case of a gift, bequest or distribution, the Offered Price Per
Share shall equal the closing sales price per share of the shares of Class A
Common Stock on the last trading day prior to the date the Offer Notice is given
in accordance with the requirements of Section 6.2 hereof.
(c) Each Stockholder who is a party to this Agreement shall
then have the irrevocable right, exercisable within thirty (30) days after the
Offer Notice is given in accordance with the requirements of Section 6.2 hereof
(the "Notice Period"), to purchase such portion of the Offered Shares as the
number of Shares owned by such Stockholder bears to the total number of Shares
owned by all Stockholders (excluding Shares owned by the Offering Stockholder),
at a price per Share equal to the Offered Price Per Share and on the payment
terms specified in the Offer Notice; provided, however, that the Offered Price
-------- -------
Per Share for the Offered Shares shall be reduced by the difference (if
positive) between (i) the per Share amount of proposed sales commissions and
advisory fees specified in the Offer Notice and (ii) the per Share amount of any
placement, investment advisory or other similar fees (in the aggregate amount
not to exceed one percent (1%) of the gross purchase price for the Offered
Shares) payable by the Offering Stockholder in respect of the sale of the
Offered Shares. Each Stockholder who is a party to this Agreement may exercise
his, her or its Right of First Offer by delivering to the Offering Stockholder a
notice of such exercise (an "Exercise Notice") within the Notice Period. If any
Stockholder wishes to purchase less than all of his, her or its proportionate
share of the Offered Shares, he, she or it shall specify the number of Offered
Shares he, she or it wishes to purchase in his, her or its Exercise Notice. Any
Offered Shares that a Stockholder shall have not elected to purchase during the
Notice Period shall be reoffered thereafter to all Stockholders who have elected
to purchase the full number of Shares offered to them. Such reoffer shall remain
open for ten (10) days commencing on the date on which written notice of such
reoffer is given in accordance with the requirements of Section 6.2 hereof. Each
such Stockholder who is reoffered Offered Shares shall notify the Offering
Stockholder in writing within such ten (10) day period of the number of such
reoffered Offered Shares such Stockholder desires to purchase (such
Stockholder's "Designated Shares") and shall be entitled to purchase that number
of such reoffered Offered Shares equal to the lesser of (x) such Stockholder's
Designated Shares and (y) the total number of such reoffered Offered Shares
multiplied by a fraction, the numerator of which is such Stockholder's
Designated Shares and the denominator of which is the aggregate Designated
Shares of all Stockholders.
(d) The closing of the purchase and sale of the Offered
Shares shall occur on a date not later than sixty (60) days after the date on
which the Exercise Notice is given (or such later date as is the earliest date
on which the purchase may be completed in compliance with all applicable laws,
rules and regulations), and at the time and place provided for in the Offer
Notice.
(e) If any Offered Shares are not to be so purchased by
Stockholders exercising their rights during such thirty (30) day and/or ten (10)
day periods, as the case may be, then, for a period of sixty (60) days
commencing on the day after the last day of such ten (10) day period or, if
there is no reoffer, the last day of such thirty (30) day period (the "Third
Party Sale Period"), the Offering Stockholder shall be entitled to Transfer such
4
Shares to one or more third parties for a gross price (or, in the case of a
Block Sale (as defined below), a price net of any sales commissions and advisory
fees) that is at least ninety-five percent (95%) of the Offered Price Per Share,
and otherwise on terms substantially similar to those described in the Offer
Notice; provided, however, that any Transfer of Shares proposed to be made by
-------- -------
such Offering Stockholder after the Third Party Sale Period or for a price per
Share below the price per Share specified in this sentence shall again be
subject to the provisions of this Section 2.5. The Offering Stockholder shall
promptly notify the Stockholders who are parties to this Agreement of the sale
(including the final per Share sale price) of any such Offered Shares to any
third party during the Third Party Sale Period. As used in this Agreement,
"Block Sale" means any sale, transfer or other disposition, directly or
indirectly, in a single transaction or a series of transactions, of Offered
Shares in any Third Party Sale Period in which beneficial ownership of eighty
percent (80%) or more of the aggregate amount of such Offered Shares is acquired
by one or two groups each consisting of two or more persons or entities who are
(i) "affiliates" (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of each other or one
another, or (ii) "associates" (as such term is defined in Rule 12b-2 under the
Exchange Act) of each other or one another or (iii) members of a group within
the meaning of Rule 13d-5 of the Exchange Act.
(f) Any Pledge of Shares beneficially owned by a Stockholder
to an Institution shall not give the Stockholders any right to acquire such
Shares pursuant to this Section 2.5. However, any proposed Transfer of such
Shares in connection with a foreclosure, forfeiture or similar proceeding
arising from the operation of any Pledge (other than a Transfer (i) to the
Institution to which such Pledge has been granted, (ii) pursuant to Sections
2.1, 2.2 or 2.4 hereof or (iii) pursuant to a Foreclosure Sale) shall constitute
a Transfer subject to the provisions of this Section 2.5.
2.6. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following meanings:
(a) "Stockholder" or "Stockholders" shall mean the following
-------------------------------
persons and entities: (i) each Existing Stockholder and their respective
estates, guardians, conservators or committees; (ii) each descendant of each
Existing Stockholder (an "Existing Stockholder's Descendant") and their
respective estates, guardians, conservators or committees; (iii) each
Stockholder Controlled Entity (as defined below); and (iv) the trustees, in
their respective capacities as such, of each Stockholder Controlled Trust (as
defined below).
(b) "Stockholder Controlled Entity" shall mean the following
-------------------------------
entities: (i) any not-for-profit corporation if at least eighty percent (80%) of
its board of directors is composed of a Stockholder and his or her Stockholder
Descendants; (ii) any other corporation if at least eighty percent (80%) of the
value of its outstanding equity is owned by Stockholders; (iii) any partnership
if at least eighty percent (80%) of the value of its partnership interests are
owned by Stockholders; and (iv) any limited liability company or similar company
if at least eighty percent (80%) of the value of such company is owned by
Stockholders.
5
(c) "Stockholder Controlled Trust" shall mean the following
------------------------------
trusts (i) the trusts set forth on Schedule "A" attached hereto, if any, and
(ii) any trust the primary beneficiaries of which are the Existing Stockholder's
descendants, Spouses of Stockholder Descendants (as defined below) and/or
charitable organizations (collectively, "Stockholder Beneficiaries"), provided,
that, if any such trust is a wholly charitable trust, at least eighty percent
(80%) of the trustees of such trust consist of Stockholders and/or Existing
Stockholder's Descendants. For purposes of this Section 2.6(c), the primary
beneficiaries of a trust will be deemed to be Stockholder Beneficiaries if,
under the maximum exercise of discretion by the trustee in favor of persons or
entities who are not Stockholder Beneficiaries, the value of the interests of
such persons or entities in such trust, computed actuarially, is twenty percent
(20%) or less. The factors and methods prescribed in Section 7520 of the
Internal Revenue Code of 1986, as amended, for use in ascertaining the value of
certain interests shall be used in determining a beneficiary's actuarial
interest in a trust for purposes of applying this Section 2.6(c). For purposes
of this Section 2.6(c), the actuarial value of the interest in a trust of any
person or entity in whose favor a testamentary power of appointment may be
exercised shall be deemed to be zero. For purposes of this Section 2.6(c), in
the case of a trust created by a Stockholder Descendant, the actuarial value of
the interest in such trust of any person or entity who may receive trust
property only at the termination of the trust and then only in the event that,
at the termination of the trust, there are no living issue of such Stockholder
Descendant, shall be deemed to be zero.
(d) "Stockholder Descendant" shall mean any descendant of any
----------------------
Stockholder and their respective estates, guardians, conservators or committees.
(e) "Spouses of Stockholder Descendants" shall mean those
------------------------------------
individuals who at any time were married to any Stockholder Descendant whether
or not such marriage is subsequently dissolved by death, divorce or by any other
means.
2.7 Lock-Up Agreement; Permitted Periodic Sales. Except for
-------------------------------------------
Transfers made in accordance with Section 6.11 below, from and after the date
each Stockholder executes this Agreement, such Stockholder will not, without the
prior written consent of the Corporation (and, during the first six (6) months
following the closing of the Corporation's initial pubic offering, the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith, Inc. (the
"Underwriter"), which Underwriter is serving as the managing underwriter for the
Corporation in its proposed initial public offering of shares of Class A Common
Stock), jointly or individually, Transfer, offer, make any short sale of,
contract to sell, lend, grant any option for the purchase of, or otherwise
dispose of, directly or indirectly, any shares of Class A Common Stock or Class
B Common Stock owned of record or beneficially by such Stockholder on the
effective date of the Corporation's Registration Statement on Form S-1 or
thereafter acquired, for a period of three hundred sixty-five (365) days from
the date of the closing of the Company's initial public offering of shares of
its Class A Common Stock, except for the sale of shares of Class A Common Stock
sold pursuant to the terms of the Underwriting Agreements pertaining to the
Corporation's initial public offering as disclosed in the Registration Statement
filed with the United States Securities and Exchange Commission and the Japanese
Ministry of Finance in connection with such offering. Each Stockholder agrees to
execute and deliver a lock-up agreement to the Underwriter in form and substance
acceptable to the Underwriter. In addition, after the expiration of said three
hundred sixty-
6
five (365) day lock-up period, no Stockholder shall sell more than ten percent
(10%) of the total number of Shares that such Stockholder owns beneficially at
the closing of the Corporation's initial public offering set forth in the
Registration Statement in any one (1) year period. The Stockholders further
agree that an appropriate restrictive legend in substantially the form set forth
below shall be inscribed on all certificates evidencing Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP
AGREEMENT BETWEEN THE HOLDER HEREOF AND MERRILL LYNCH, PIERCE, FENNER
& SMITH, INC. (THE "UNDERWRITER") THAT PREVENTS, AMONG OTHER THINGS,
THE SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, CONTRACT TO SELL OR OTHER
DISPOSITION OF, DIRECTLY OR INDIRECTLY, ANY SHARES REPRESENTED HEREBY
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CORPORATION AND THE
UNDERWRITER UNTIL 365 DAYS FROM THE DATE OF THE CLOSING OF THE
CORPORATION'S INITIAL PUBLIC OFFERING OF SHARES OF ITS CLASS A COMMON
STOCK.
3. Involuntary Transfers. If Shares of a Stockholder are Transferred by
---------------------
operation of law to any person or entity other than a Stockholder, including,
without limitation, the trustee in bankruptcy of a Stockholder or a purchaser at
any creditor's or judicial sale (but not including (a) any Transfer pursuant to
a foreclosure forfeiture or similar sale as disclosed in Section 2.3 hereof, (b)
any Transfer to the guardian, conservator or committee of an incompetent
Stockholder or (c) any Transfer in a bankruptcy of Shares that are pledged to an
Institution), or if any Stockholder holding Shares ceases to be a Stockholder,
then, in each such case, such Stockholder shall be deemed to have offered all of
his, her or its Shares to all Stockholders who are parties to this Agreement in
the manner described in Section 2.5hereof, except that the period of time in
which the Stockholders have the option to purchase such Shares shall commence on
the date of receipt by the Corporation of notice of such involuntary Transfer or
such Stockholder ceasing to be a Stockholder, as the case may be, and the
Offered Price Per Share shall equal the closing sales price per share of the
shares of Class A Common Stock on the last trading day prior to such date. The
Corporation shall notify the appropriate Stockholders of the occurrence of such
involuntary Transfer or of a Stockholder ceasing to be a Stockholder as soon as
practicable after it is notified of the same.
4. Legend on Certificates.
----------------------
4.1 All Shares now or hereafter owned by the Stockholders shall be
subject to the provisions of this Agreement and the certificates representing
such Shares shall bear the following legend:
THE SALE, ASSIGNMENT, GIFT, BEQUEST, TRANSFER, DISTRIBUTION, PLEDGE,
HYPOTHECATION OR OTHER ENCUMBRANCE OR DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE
7
TERMS OF A STOCKHOLDERS' AGREEMENT AMONG CERTAIN INDIVIDUALS AND
PERSONS REFERRED TO IN SUCH STOCKHOLDERS' AGREEMENT, A COPY OF WHICH
MAY BE EXAMINED AT THE OFFICE OF THE CORPORATION.
4.2 Deposit of Certificates.
-----------------------
Each Existing Stockholder hereby agrees to deposit and leave on
deposit with the Secretary of the Corporation during the period of the lock-up
described in Section 2.6 above, all certificates representing Shares.
5. Termination. The rights and obligations under this Agreement shall
-----------
terminate automatically with respect to each Stockholder upon the earliest to
occur of (i) the execution of a written instrument to that effect by the
Corporation and each Stockholder who then owns Shares; (ii) the merger or
consolidation of the Corporation with a corporation or other entity upon
consummation of which all Stockholders immediately thereafter own in the
aggregate less than ten percent (10%) of the total voting power of the surviving
or resulting corporation and (iii) the sale, disposition or other Transfer of
Shares by any Stockholder that causes all Stockholders immediately after such
transaction to own in the aggregate less than ten percent (10%) of the total
voting power of the Corporation.
6. General Provisions.
------------------
6.1 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
6.2 Notices. Any notices and other communications given pursuant to
-------
this Agreement shall be in writing and shall be effective upon delivery by hand
or on the fifth day after deposit in the mail if sent by certified or registered
mail (postage prepaid and return receipt requested) or on the next business day
if sent by a nationally recognized overnight courier service (appropriately
marked for overnight delivery) or upon transmission if sent by facsimile (with
request for immediate confirmation of receipt in a manner customary for
communication of such type and with physical delivery of the communication being
made by one of the other means specified in this Section 6.2 as promptly as
practicable thereafter). Notices are to be addressed as follows:
(i) If to the Company:
Nu Skin Asia Pacific, Inc.
75 West Center Street,
Suite 900
Provo, Utah 84601
Attention: Steven J. Lund, President
Telecopy: (801) 345-5999
8
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
136 South Main Street,
Suite 1000
Salt Lake City, Utah 84101-1685
Attention: Nolan S. Taylor, Esq.
Telecopy: (801) 359-8256
(ii) If to a Stockholder, then as
set forth in the second column
of Schedule "B" attached hereto
with a copy to the person or
persons listed in the third column
of Schedule "B" attached hereto.
All notices to a party hereto shall be deemed to have been duly given for all
purposes under this Agreement if given to such party (with a copy to such person
or persons as specified) in accordance with the first sentence of this Section
6.2 (a) until notice is given pursuant to this Section 6.2 of a different
address from the address provided above or, in the case of any person or entity
that hereafter becomes a Stockholder, the address specified in the undertaking
delivered pursuant to Section 2.2 hereof, or (b) after notice has been given
pursuant to this Section 6.2 of a different address, the address specified in
such notice. No notices hereunder shall be required to be given to any
Stockholder that hereafter becomes a Stockholder until notice of such
Stockholder becoming a Stockholder (including a copy of such Stockholder's
undertaking given pursuant to Section 2.2 hereof) is given to the Corporation
and to each Stockholder (with a copy of the same to such other persons as
specified) pursuant to this Section 6.2.
6.3 Headings. The headings of the various Sections of this
--------
Agreement have been inserted for convenience only and shall not be deemed to be
part of this Agreement.
6.4 Binding Effect. This Agreement will be binding upon and inure
--------------
to the benefit of the Corporation, its successors and assigns and to the
Stockholders and their respective heirs, personal representatives, successors
and assigns.
6.5 No Oral Change. This Agreement may not be changed orally, but
--------------
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
6.6 Entire Understanding. This Agreement sets forth the entire
--------------------
agreement and understanding of the parties hereto in respect of the subject
matter hereof and the transactions contemplated hereby and supersedes all prior
written and oral agreements, arrangements and understandings relating to the
subject matter hereof.
9
6.7 Remedies.
--------
6.7.1 The parties hereto acknowledge that money damages are not
an adequate remedy for violations of this Agreement and that any party may, in
such party's sole discretion, apply to any court of competent jurisdiction for
specific performance or injunctive relief or such other relief as such court may
deem just and proper in order to enforce this Agreement or prevent any violation
hereof and, to the extent permitted by applicable law, each party hereto waives
any objection to the imposition of such relief.
6.7.2 All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof, whether at law or in equity,
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party hereto shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by such party.
6.8 Trustees' Capacity. With respect to obligations of trustees
------------------
who are parties to this Agreement in their capacity as a trustee of one or more
trusts, this Agreement shall be binding upon such trustees only in their
capacities as trustees, not individually and not with respect to any Shares
other than Shares held by them in their capacity as trustees of such trusts.
6.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies each signed by less than all, but together signed
by all, of the parties hereto.
6.10 Application of Agreement to After-Acquired Shares. All the
-------------------------------------------------
provisions of this Agreement shall apply to all of the Shares of the Corporation
owned by a person or entity at the time he, she or it is or becomes a party
hereto or that may be issued or transferred hereafter to a Stockholder as a
result of any additional issuance, purchase, exchange or reclassification of
Shares, corporate reorganization or any other form of recapitalization,
consolidation, merger, share split or share dividend or that are acquired by a
Stockholder in any other manner
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
THE CORPORATION: THE STOCKHOLDERS:
- --------------- ----------------
NU SKIN ASIA PACIFIC, INC,
a Delaware Corporation
---------------------------------------
Blake M. Roney
By:
---------------------------
Its:
---------------------------
---------------------------------------
Nedra D. Roney
---------------------------------------
Kirk V. Roney
---------------------------------------
Brooke B. Roney
---------------------------------------
Steven J. Lund
---------------------------------------
Sandie N. Tillotson
---------------------------------------
R. Craig Bryson
---------------------------------------
Craig S. Tillotson
---------------------------------------
Keith R. Halls
11
SCHEDULE "A"
TRUSTS QUALIFYING AS STOCKHOLDER CONTROLLED TRUSTS
Name of Trust
- -------------
12
SCHEDULE "B"
STOCKHOLDERS
Stockholder Name Address With Copy To
- ---------------- ------- ------------
EXHIBIT 10.3
EMPLOYMENT CONTRACT
THIS EMPLOYMENT CONTRACT (hereinafter the "Contract") is entered into on
this 12th day of December 1991, by and between NU SKIN TAIWAN, INC. and JOHN
----
CHOU (hereinafter "Manager"). Hereinafter, Nu Skin and Manager are collectively
referred to as the Parties.
RECITALS
A. The primary purpose of Nu Skin Taiwan, Inc. (hereinafter "Nu Skin") is
to engage in the business of providing cosmetic and personal care products for
distribution in the Republic of China ("R.O.C.") to the general public by
independent distributors.
B. In order to achieve its corporate and business objectives, Nu Skin
desires to hire an experienced and knowledgeable general manager, who will be Nu
Skin's principal in its Taiwan Branch in Taiwan with other duties and
responsibilities as set forth herein.
C. Manager is experienced and knowledgeable concerning one or more
aspects of Nu Skin's business and desires to be employed by Nu Skin for the
period and purposes set forth herein.
D. The Parties mutually desire to agree upon the terms of Manager's
future employment with Nu Skin and, in addition thereto, to agree to certain
benefits of said employment.
TERMS AND CONDITIONS
THEREFORE, in consideration of the mutual promises, warranties and
covenants herein contained, the Parties hereby agree as follows:
1. EMPLOYMENT. Nu Skin hereby employs Manager as its General Manager in
Taiwan, and Manager hereby accepts employment upon the terms and conditions
hereinafter set forth.
Page 1 of 7
-----------
2. TERM. Subject to the provisions as hereinafter provided, the term of
this Agreement shall be as follows:
a) Beginning December 1, 1991 on a part-time basis;
b) Beginning full-time employment on January 1, 1992 and ending
thirty months later on June 30, 1994.
Nu Skin has the right to extend the employment for an additional three (3)
years, in one year increments, by written notice to Manager given not less than
60 days prior to the end of each term.
3. COMPENSATION. Nu Skin will pay Manager a salary of NT$104,167.00 (NT
dollars One hundred and four thousand, one hundred and sixty-seven) for the
month of December 1991.
Thereafter, Nu Skin will pay Manager an annual salary of NT$2,500,000.00
(NT dollars Two million five hundred thousand) payable in twelve equal monthly
installments.
4. DUTIES. Manager is employed by Nu Skin to function as the General
Manager of Nu Skin's Taiwan Branch operations. Manager will report to the
Managing Director of Nu Skin Taiwan, Inc.
5. EXTENT OF SERVICES. During the month of December 1991, Manager shall
devote one-half of his time to his duties with Nu Skin. Beginning January 1,
1992 and for the term of this Contract, Manager shall devote all of his time,
attention and energies to the business as requested and as is required to
accomplish its purposes as communicated by the duly authorized officers,
directors and management of Nu Skin.
6. OFFICE. Nu Skin shall provide Manager with an office, telephone,
secretary, and such other equipment, etc. as is reasonably necessary for Manager
to carry out his duties with Nu Skin.
7. INSURANCE. Nu Skin will make health insurance benefits available to
Manager on the same basis provided to its employees, and will pay 50% of
Consultant's monthly premium. Said coverage will be effective and begin as soon
as is possible under the terms and conditions permitted by the policy.
8. COMPANY CAR. Nu Skin will provide Manager with a reasonable car
allowance to be mutually agreed upon. If Manager is given the use of a company
car, it shall remain the property of Nu Skin and shall be used for business
purposes only.
Page 2 of 7
-----------
9. CONDITIONAL REIMBURSEMENT. Manager desires to sell his business,
Universal PR & Consultant Co., Ltd., (hereinafter "UPR") in order to accept
employment with Nu Skin herein described. In the event Manager sells it during
the term of this Contract, and in the event he incurs a loss (as defined
hereafter), Nu Skin will reimburse Manager for the amount of such loss up to
US$20,000.00, upon presentment to Nu Skin of sufficient and adequate written
evidence of loss. "Loss" as used herein shall be defined as that amount of
Manager's equity and liabilities of UPR not recovered from the sales price.
In the event a sale of UPR does not take place during the first year
of this Contract and in the event UPR must cease operations due to losses, Nu
Skin agrees to purchase useable UPR office equipment at its fair market value as
determined by an appraiser of Nu Skin's choice.
10. NO PARTICIPATION. Manager acknowledges and agrees that this Contract
shall not give or extend to Manager any additional rights with respect to added
contributions by Nu Skin to any deferred compensation plan, bonus pay, or fringe
benefits other than those specifically set forth herein.
11. DEATH OR DISABILITY. If Manager dies during the term of this Contract
or is otherwise unable to perform services by reason of illness or incapacity,
this Contract will terminate and compensation cease.
12. ASSIGNMENT. Neither Manager nor Nu Skin may sell, assign, transfer or
hypothecate any rights or interests created under this Agreement or delegate any
of their duties without the prior written consent of the other, provided that Nu
Skin may assign this Agreement to an affiliated company. Any such assignment or
delegation of either party hereunder without such consent shall be void.
13. DISCLOSURE OF INFORMATION. Manager shall not disclose or appropriate
to his own use, or to the use of any third party, at any time during or
subsequent to the term of this Contract, any secret or confidential information
of Nu Skin or any of Nu Skin's affiliates or subsidiaries of which Manager
becomes informed during such period, whether or not developed by Manager,
including, but not limited to, information pertaining to customer lists,
services, methods, processes, know how, good will and operating procedures, etc.
except as required in connection with Manager's performance of this Contract or
as required by a governmental authority.
Page 3 of 7
-----------
Upon termination of this Contract, Manager shall promptly deliver to Nu
Skin all manuals, letters, notes, notebooks, reports and all other materials
(written or electronic, whether originals or copies) of a secret or confidential
nature or under the control of Manager. Nu Skin shall have the right to obtain
(and Manager agrees to stipulate to) injunctive relief for violation of the
terms of this section; the terms of this section shall survive the term of this
Contract.
14. INVENTIONS, DISCOVERIES. Manager shall disclose promptly to Nu Skin
any and all inventions, discoveries and improvements conceived or made by
Manager during the term of this Contract and related to the business or
activities of Nu Skin or any of its subsidiaries or affiliates, and hereby
assigns and agrees to assign all his interest therein to Nu Skin, and shall be
and remain the exclusive property of Nu Skin. Whenever requested to do so by Nu
Skin, Manager shall execute any and all applications, assignments or other
instruments which Nu Skin shall deem necessary to apply for and obtain Letters
Patent of the United States or any foreign country or to otherwise protect Nu
Skin's interest therein. The obligations in this Paragraph shall be binding
upon Manager's assigns, executors, administrators and other legal
representatives. Nu Skin shall have the right to obtain injunctive relief for
violation of the terms of this paragraph; the terms of this paragraph shall
survive the term of this Contract.
15. FURTHER ASSURANCES. The Parties agree to perform any further acts and
to execute and deliver any further documents which may be necessary or
appropriate to carry out the purposes of this Contract.
16. BREACH AND DEFAULT. In the event of breach or default by Manager to
any of the terms and conditions of this Contract, Nu Skin may, in its sole
discretion, declare a breach and default by sending written notice of the same
to Manager in accordance with the Notice provisions of this Contract. Manager
will have five (5) days from the date of said notice, to cure the breach or
default and bring himself into compliance with the terms and conditions of this
Contract. If Manager cannot or does not cure the breach or default within the
required time period, Nu Skin may, in its sole discretion, terminate this
Contract, in whole or in part, by another notice to Manager, effective upon
receipt if personally delivered or upon deposit with the United States mail. In
the event of such termination, Manager forever waives and forfeits his right to
claim or receive any further compensation or disbursements, and his release of
Nu Skin shall be conclusive, consummated, perfected and complete.
Page 4 of 7
-----------
17. NOTICES. Any notice required or permitted to be given under this
Contract shall be sufficient if in writing and if sent by personal delivery or
by certified mail, return receipt requested, to the party to whom notice should
be given at the address set forth below or any address subsequently provided in
writing by the Parties:
Nu Skin: 145 East Center
Provo, Utah 84606
Manager: 2 F. No. 28 LANE
--------------------
MINTEH RD SHIN-TIEN CITY TAIPEI
-------------------
Notice shall be deemed effective upon receipt, if made by personal
delivery, or upon deposit in United States mail with the required postage.
18. SEVERABILITY. If any provision of this Contract is held to be
unenforceable, invalid or illegal by any court of competent jurisdiction, such
unenforceable, invalid or illegal provisions shall not affect the remainder of
this Contract.
19. WAIVER. Failure of either party hereto to insist upon strict
compliance with any of the terms, covenants and conditions hereof shall not be
deemed a waiver or relinquishment of any similar right or power hereunder at any
subsequent time or of any other provision hereof.
20. SUBJECT HEADINGS. The subject headings of the paragraphs of this
Contract are included solely wazzu for purposes of convenience and reference
only, and shall not be deemed to explain, modify, limit, amplify or aid in the
meaning, construction or interpretation of any of the provisions of this
Contract.
21. APPLICABLE LAW, JURISDICTION AND VENUE. The validity of this Contract
and the interpretation and performance of all of its terms shall be governed by
the substantive laws of the State of Utah. Jurisdiction and venue shall exist
in Utah County, State of Utah.
22. ARBITRATION. Any dispute or controversy between the Parties arising
out of or relating to this Contract or its subject matter, including without
limitation, a dispute or controversy relating to the construction of any
provision or the validity or enforceability of any term or condition (including
this paragraph) or of the entire Contract (including this provision) is void or
voidable, shall be submitted to arbitration before a single arbitrator in
accordance with the Commercial Rules of Arbitration of the American Arbitration
Association in Utah County, State of Utah. Each party shall bear its own costs
in any such proceeding.
Page 5 of 7
-----------
The decision of the arbitrator shall be final and binding upon the Parties and
may be enforced in any court of competent jurisdiction. To the fullest extent
permitted by law, the Parties irrevocably submit to the jurisdiction of such
forum and waive any objection they may have to either the jurisdiction or of
such forum.
23. ATTORNEYS' FEES. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Contract, or because of an
alleged dispute, breach or default in connection with any of the provisions of
this Contract, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees incurred in this action or proceeding in addition to
any other relief to which he or it may be entitled.
24. NO INDUCEMENTS. Each of the parties hereto acknowledges that no party
has made any promise, representation or warranty whatsoever, express or implied,
not contained herein concerning the subject matter hereof, to induce him or it
to execute this Agreement, and acknowledges that he or it has not executed this
instrument in reliance on any such promise, representation or warranty not
contained herein. Each of the parties acknowledges that he or it has been or
has had the opportunity to be represented by legal counsel of his or its choice
throughout all negotiations which preceded the execution of this Agreement and
has executed said Agreement with the consent and advice (or the opportunity to
obtain) of such legal counsel.
25. FACSIMILE TRANSMISSIONS. Facsimile (fax) transmissions shall be
considered to be original documents for all purposes of this Contract, including
the execution of the Contract itself. Fax transmissions shall suffice for all
notices, transmissions and communications under and pursuant to this Contract,
unless expressly otherwise provided for herein.
26. COUNTERPARTS. The Parties may execute this Contract in counterparts,
which shall, in the aggregate, be signed by all Parties. Each counterpart shall
be deemed an original instrument as against any party who has signed it.
27. GOVERNING LANGUAGE. The governing language of this Contract is the
English language. Where any interpretation of any provision or term is
required, the English version of this Contract shall govern any such
interpretation.
28. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the Parties and supersedes any prior or contemporaneous statements, negotiations
or agreement of the Parties. It may not be changed orally but only in writing
signed by the Party against whom enforcement of any waiver, charge,
modification, extension or discharge is sought.
Page 6 of 7
-----------
29. AUTHORITY. Any person signing this Contract in a representative
capacity hereby represents and warrants to the Parties that such person has full
power and authority to sign this Contract and to effect the actions required
hereunder on behalf of the entity he or she represents or acts on behalf of.
IN WITNESS WHEREOF, Nu Skin has caused this Contract to be signed by its
corporate officer thereunto duly authorized, and the Manager has signed this
Contract, all as of the date first above written.
NU SKIN TAIWAN, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Its: Vice President
-------------------------------
Date: December 13, 1991
------------------------------
MANAGER
/s/ John Chou
-----------------------------------
JOHN CHOU
Date: Dec 12, 1991
------------------------------
Page 7 of 7
-----------
NU SKIN TAIWAN, INC.
Facsimile Transmission Cover Letter
PERSONAL & CONFIDENTIAL:
The information contained in this FAX is confidential and privileged. This
FAX is intended only for the person named below. If the reader of this
TRANSMISSION LETTER is not the intended recipient or a representative of
the intended recipient, you are hereby notified that any review,
dissemination or copying of this FAX or the information contained herein is
prohibited. Thank you.
TO: Corey Lindley FAX #: (81) (3) 3243-9276
------------------------ ------------------
COMPANY: NU SKIN JAPAN, INC. TEL #: 9236
------------------------ ------------------
CC: ----------------------------------------------------------------------
FROM: John Chou FAX #: (886) 2-707-5999
---------------------------- TEL #: (886) 2-701-9900
DATE: February 25, 1993
----------------------------
====================================MESSAGE====================================
RE: My Personal Employment and Salary Adjustment
1. As per our telephone conversation, I seriously
considered and agreed your suggestion for the transfer
of my employment with Nu Skin as an ordinary staff in
NST instead of being on the contractual basis. I
propose my employment with NST effective on Jan. 1,
1993.
2. For your information, the salary adjustment for NST
staff was 9% cross company, however it will be
differentiated by the personal performance. Those who
are below average get 3 to 6 %, the average ones get 7
to 11% while the excellent ones get 12 to 15%.
3. My current monthly salary is NT$208,333 for a 13 months
package. The extra one month pay as approved by you on
December 24, 1992 through the phone.
Therefore please also put into consideration of my
salary adjustment for 1993 as an ordinary employee in
NST.
Your approval on my new personal employment and salary scale will be highly
appreciated.
JC/rc
================================================================================
Total Number of Pages 1 including this cover page. If all of this fax
--------,
transmission is not received, please call the number listed.
EXHIBIT 10.4
AGREEMENT
This Agreement (the "Agreement"), dated as of this 1st day of May, 1993, by
and between:
Nu Skin Japan, Inc., a corporation duly organized and existing under the
laws of the State of Utah, U.S.A., having a branch office at Sumitomo Fudosan
Shiba Building 5th Floor, 11-11, Shiba 1-Chrome, Minato-ku, Toyko, Japan
(hereinafter referred to as "NSJ").
and
Takashi Bamba, an individual residing at 1-24-4, Soshigaya, Setagaya-ku,
Toyko, 157, Japan (hereinafter referred to as "Mr. Bamba").
WITNESSETH:
WHEREAS, NSJ wishes to employ Mr. Bamba and Mr. Bamba wishes to be employed
by NSJ for the successful operation of the Japan Branch of NSJ; and
WHEREAS, NSJ and Mr. Bamba wish to set forth the terms and conditions of
Mr. Bamba's relationship with NSJ;
NOW, THEREFORE, in consideration of the mutual covenants and premises
hereinafter set forth and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
covenant and agree as follows:
1. Relationship
------------
NSJ agrees to retain Mr. Bamba with the operating Title of "General
Manager" ("Nihon Shisha-cho" in the Japanese language) for the Term specified in
paragraph 2, and Mr. Bamba agrees to accept such position upon the terms and
conditions hereinafter set forth. Mr. Bamba agrees to the arrangement that, upon
the decision of NSJ, he shall be registered as the Representative in Japan of
NSJ with the Legal Affairs Bureau of the Ministry of Justice having jurisdiction
over the Japan Branch of NSJ. In the event Mr. Bamba is terminated from NSJ for
any reason whatsoever or NSJ decides to remove Mr. Bamba as Representative in
Japan of NSJ for any reason whatsoever, Mr. Bamba shall immediately execute
written resignation forms, in both the English and Japanese languages, stating
that he is immediately resigning from the position as Representative in Japan of
NSJ; such documents being necessary to delete the registration of Mr. Bamba as
the Representative in Japan of NSJ with the Legal Affairs Bureau of the Ministry
of Justice.
2. Term
----
This Agreement shall be for a three (3) year period commencing on May 1,
1993 and terminating on April 30, 1996 (the "Term"), and unless this Agreement
is sooner terminated under the provisions hereof or unless either party shall
give to the other party notice on or before January 31, 1996 that this Agreement
shall not continue to remain in effect after April 30, 1996, the Term shall
continue indefinitely from and after May 1, 1996 until such time as either party
shall give to the other at least three (3) months' notice of termination
specifying the date of termination, which notice may be given at any time before
or after May 1, 1996, In lieu of giving such three months' notice of
termination, NSJ may make the termination date immediate by paying Mr. Bamba
severance pay equal to three months' salary at his then current rate, less
applicable taxation on such severance pay pursuant to Japanese tax rules as then
exist.
3. Duties and Responsibilities
---------------------------
(a) During the Term Mr. Bamba shall perform such executive duties and
responsibilities compatible with his position as General Manager as may be
assigned to him by the Board of Directors of NSJ and as communicated by said
Directors from time to time. Mr. Bamba's relationship with NSJ shall be full-
time and exclusive, and during the Term, Mr. Bamba agrees that he will devote
all his business time and attention and his best efforts, skill and ability to
carry out his duties in a competent and professional manner and that he shall
supervise and administrate and work with other employees of NSJ in-a competent
and professional manner. The area of his duties shall include, but not be
limited to, the following: the maximization of profits by increasing revenues
and reasonably decreasing expenses; the maximization of NSJ's growth; the
harmonization of employee relations at NSJ; maximum support, administration and
education of Independent Distributors, accounting, and finance; the maintenance
and protection of NSJ's goodwill and reputation, the maintenance of good
relationships with the relevant governmental bodies and the relevant industrial
circles including the Japan Direct Selling Association.
(b) Mr. Bamba will report directly to the Regional Managing Director.
Daily business operations of NSJ will be managed pursuant to the general
guidelines of NSJ and any other directives, guidelines, policies, business
plans, sales plans, etc. which may be issued by NSJ or its affiliated company,
Nu Skin International Inc. ("NSI").
4. Compensation
------------
As compensation for services hereunder and in consideration of the
provisions set forth in paragraph 9 below, NSJ shall pay
2
Mr. Bamba during the Term, in accordance with NSJ's normal payroll practices, a
direct salary compensation at an annual rate of 31,800,000 [yen] (Thirty One
Million Eight Hundred Thousand Japanese Yen) (taxes, social security or health
insurance premiums, or any other deductions required by law or NSJ's regulations
are the responsibility of Mr. Bamba). Such salary shall be reviewed before April
1 on an annual basis.
5. Expenses; Fringe Benefits
-------------------------
In addition to the compensation provided for under paragraph 4, NSJ agrees
to pay to Mr. Bamba as follows:
(a) NSJ agrees to pay or to reimburse Mr. Bamba during the Term for all
reasonable, ordinary and necessary vouchered business or entertainment
expenses incurred in the performance of his services hereunder in
accordance with NSJ's policies as from time to time in effect, provided,
however that, if it is impossible to obtain vouchers or receipts for small
expenses as per the custom or practice in Japan, such vouchers or receipts
can be dispensed with.
(b) During the Term, Mr. Bamba shall be entitled to participate in all
retirement benefit plans as are now, or hereafter may be, established by
NSJ for the benefit of NSJ employees.
(c) NSJ shall also apply for membership in and be responsible for all fees
associated with membership in:
(i) The American Club located in Tokyo;
(ii) A golf club in the Tokyo suburbs area within a budget of
37,000,000 [yen] (Thirty Seven Million Yen) by which amount a
membership for such a golf club can be purchased and within an annual
expense of 300,000 [yen] (Three Hundred Thousand Yen) for annual
membership dues and cost of renting a locker, etc.
The above memberships are to be used solely for the purpose of promoting
NSJ in the country of Japan and all memberships will be in the name of NSJ.
Mr. Bamba will only be entitled to use the above memberships while he is
employed by NSJ in the capacity of General Manager. In the event Mr. Bamba
is terminated from NSJ for any reason whatsoever, the above membership
privileges entitled to Mr. Bamba through his employment with NSJ will
immediately cease.
(d) Mr. Bamba shall be entitled to have the following holidays:
(i) Saturdays, Sundays and Japanese National holidays;
3
(ii) New Year's Holidays.
Mr. Bamba will be entitled to ten (10) days paid vacation for the
first year of his employment, Mr. Bamba will be entitled to an additional
two (2) days per year for each year of employment up to a maximum of twenty
(20) days vacation in total.
(e) Mr. Bamba will be supplied with a leased car in the Nissan CIMA class
for his job related duties, including commuting to and from work, NSJ will
pay for insurance, maintenance and taxes, and any other related expenses,
if any, on such leased car.
(f) In addition to any benefits provided to all fulltime NSJ employees
concerning National Medical, Employment and Social Welfare Insurance
premiums, NSJ will subscribe to a private insurance plan(s) of Mr. Bamba's
choice for the benefit of Mr. Bamba or his estate as the case may be in
order to provide disability and accidental death coverage. The budget for
such insurance will be 300,000 [yen] (Three Hundred Thousand Yen) per
annum.
6. Company Rules
-------------
Mr. Bamba agrees to be bound by and agrees to faithfully observe and abide
by all of NSJ's rules, policies, practices and regulations that now exist or may
hereafter be adopted, as well as any and all orders, instructions, or directives
which may be issued by the Board of Directors of NSJ or its affiliated company,
NSI.
Further, Mr. Bamba and his immediate family members are expressly
prohibited from either being Nu Skin distributors or having an interest in a Nu
Skin distributorship whether it be in Japan or elsewhere.
7. Discharge by Company
--------------------
NSJ by direction of the Board of Directors, shall be entitled to
immediately terminate and discharge Mr. Bamba, for cause, upon giving Mr. Bamba
thirty (30) days written notice. However, NSJ reserves the right to itself to
have the discharge take effect immediately and instead pay Mr. Bamba a payment
equivalent to thirty days' salary.
8. Disability; Death
-----------------
(a) In the event that Mr. Bamba shall be unable to perform his duties
hereunder at the office of the Company by virtue of illness or physical or
mental incapacity or disability, as determined by the Board of Directors of NSJ
from any cause or
4
causes whatever, NSJ shall have the right to terminate its relationship with Mr.
Bamba hereunder as at the end of any calendar month upon sixty (60) days prior
written notice to him.
(b) In case of the death of Mr. Bamba, this Agreement shall terminate and
NSJ shall be obligated to pay to Mr. Bamba's estate his then salary and all
accrued benefits hereunder to the end of the month in which such death occurred.
9. Protection of Confidential Information, Etc.
-------------------------------------------
(a) Mr. Bamba agrees that his services hereunder are of a special, unique,
extraordinary and intellectual character, and his position with NSJ places him
in a position of confidence and trust with NSJ and its affiliated companies, Mr.
Bamba further acknowledges that in the performance of his duties he will be
exposed to very sensitive and proprietary NSJ and NSI information, and sensitive
and proprietary information from other affiliated companies of NSJ, that is
uniquely valuable, special and essential to the business of NSJ and its
affiliated companies.
(b) Consequently, Mr. Bamba agrees that it is reasonable and necessary for
the protection of the goodwill and business of NSJ and its affiliated companies
that Mr. Bamba make the covenants contained herein.
(c) Mr. Bamba agrees that he shall not at any time, during and after his
term of employment with NSJ, unless authorized in writing by NSJ, disclose to
any third parties, whether they be a person, firm, corporation, association,
consultancy, or any other entity for any reason or purpose, any confidential
information or trade secret or any other matters deemed by NSJ to be essential
and valuable to the business of NSJ or its affiliated companies, or deemed by
NSJ to be essential and valuable to any other party with which NSJ or its
affiliated companies has or has had a relationship, or utilize such sensitive
and proprietary information or trade secrets for his own benefit, or for the
benefit of third parties. Confidential information will specifically cover NSJ's
list of Independent Distributors, marketing techniques and product
formulation/information. NSJ shall be the sole arbiter of what information
gained via Mr. Bamba's employment with NSJ is sensitive and proprietary
information.
(d) All memoranda, notes, records or other documents, including
reproductions, complied by Mr. Bamba or made available to Mr. Bamba during the
Term concerning the business of NSJ or its affiliated companies and its
Independent Distributors, suppliers, vendors, or any other party which NSJ or
its affiliated companies has or has had a relationship shall be the property of
NSJ, as the case may be, and shall be delivered to
5
NSJ on the termination of Mr. Bamba's relationship with NSJ or at any other time
upon request.
(e) If Mr. Bamba commits a breach or is about to commit a breach, of any
of the above provisions, NSJ shall have the right to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction without
being required to post bond or other security and without having to prove the
inadequacy of the available remedies at law, it being acknowledged and agreed
that any such breach or threatened breach will cause irreparable injury to NSJ
and its affiliated companies and that monetary relief will not provide an
adequate remedy to NSJ and its affiliated companies. In addition, NSJ may take
all such other actions and remedies available to it under law or in equity and
shall be entitled to such damages as it can show it has sustained by reason of
such breach.
(f) The parties acknowledge that the type of restrictions imposed in the
above provisions, are fair and reasonable and are reasonably required for the
protection of NSJ and its affiliated companies, and are fair and reasonable to
Mr. Bamba considering the intimate knowledge of the operations of NSJ and its
affiliated companies he will gain via his position as General Manager of NSJ. If
part of the above covenant contained in this paragraph 9 is hereafter construed
to be invalid or unenforceable, the same shall not affect the remainder of the
covenant, which shall be given full effect without regard to the invalid
portions. If any part of the covenant contained in this paragraph 9 is held to
be unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or areas of such provision and, in its
reduced form, said provision shall then be enforceable.
(g) Both parties, NSJ and Mr. Bamba, in addition to the above provisions
contained in sub-paragraphs (a) through (f) of this paragraph 9, agree that in
the event that Mr. Bamba is separated from NSJ, for any reason whatsoever, both
parties shall refrain from making any public comments concerning each other,
including NSJ's affiliated companies, which may cause either party, including
NSJ's affiliated companies, to be viewed in a negative manner.
Further, both parties agree not to commit any acts or participate in any
actions, whether they be passive or proactive, either individually or in
conjunction with other individuals or business entities or associations in any
form, which may harm the interests, business opportunities, reputation or
creditability of either party, including NSJ's affiliated companies.
This sub-paragraph (g) of paragraph 9 shall survive the termination of this
Agreement and continue to bind both parties
6
after Mr. Bamba's separation from NSJ.
10. Intellectual Property
---------------------
During the Term, Mr. Bamba will disclose to NSJ all ideas, inventions and
business plans developed by him during such period which relate directly or
indirectly to NSJ's business or any of its subsidiaries or affiliates, including
without limitation, any process, operation, product or improvement which may be
patentable or copyrightable, Mr. Bamba agrees that such will be the property of
NSJ and that he will at NSJ's request and cost do whatever is necessary to
secure the rights thereto by patent, copyright or otherwise to NSJ.
11. Enforceability
--------------
The failure of either party at any time to require performance by the other
party of any provision hereunder shall in no way affect the right of that party
thereafter to enforce the same, nor shall it affect any other party's right to
enforce the same, or to enforce any of the other provisions in this Agreement;
nor shall the waiver by either party of the breach of any provision hereof be
taken or held to be a waiver of any subsequent breach of such provision or as a
waiver of the provision itself.
12. Assignment
----------
This Agreement is a personal contract and Mr. Bamba's rights and
obligations hereunder, may not be sold, transferred assigned pledged or
hypothecated by Mr. Bamba. The rights and obligations of NSJ hereunder shall be
binding upon and run in favor of the successors and assigns of NSJ. In the event
of any attempted assignment or transfer of rights hereunder contrary to the
provisions hereof, NSJ shall have no further liability for payments hereunder.
13. Modification
------------
This Agreement may not be orally canceled, changed, modified or amended,
and (without prejudice to the provisions or paragraphs 7 and 8) no cancellation,
change, modification or amendment shall be effective or binding, unless in
writing and signed by both parties to this Agreement, and approved in writing by
the Executive Vice President of NSJ.
14. Severability; Survival
----------------------
In the event any provision of this Agreement is found to be void and
unenforceable by a court of competent jurisdiction, the remaining provisions of
this Agreement shall nevertheless be binding upon the party with the same effect
as though the void or
7
unenforceable party had been severed and deleted. The provisions of paragraph 9
and this paragraph 14 shall survive the termination of this Agreement.
15. Life Insurance
--------------
Mr. Bamba agrees that NSJ shall have the right, in NSJ's sole discretion,
to obtain life insurance on Mr. Bamba's life, at NSJ's sole expense and with NSJ
as the sole beneficiary thereof. Mr. Bamba shall (a) cooperate fully with NSJ in
obtaining such life insurance forms or documents and (b) take any required
medical examinations.
16. Notice
------
Any notice, request, instruction or other document to be given hereunder by
either party hereto to the other shall be in writing and shall be deemed
effective when delivered in person or if mailed, on the date of deposit in the
mails, postage prepaid by certified or registered mail, in the case of Mr. Bamba
and NSJ to the address set forth for such party at the head of this Agreement.
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
17. Miscellaneous
-------------
NSJ shall have the right to fulfill its obligation to make payments (other
than direct salary) and reimbursements to Mr. Bamba as herein provided through
its subsidiaries or affiliates.
18. Applicable Law
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the country of Japan.
19. Governing Language
------------------
This Agreement is in the English language only, which language shall be
controlling in all respects. No translation, if any, of this Agreement into the
Japanese or any other language shall be of any force or effect in the
interpretation of this Agreement or in a determination of the intent of any of
the party hereto.
20. Entire Agreement
----------------
This Agreement represents the entire agreement between NSJ and Mr. Bamba
with respect to the subject matter hereof, and all prior agreements relating to
the employment of Mr. Bamba, written or oral, are nullified and superseded
hereby.
8
21. Headings
--------
This headings contained in this Agreement are for reference purposes only,
and shall not affect the meaning or interpretation of the Agreement.
IN WITNESS WHEREOF, the parties have set their hands and/or seals on and as
the day and year first above written.
Nu Skin Japan, Inc.
/s/ Steven lund /s/ Corey B Lindley
By: ----------------------- By: ----------------------
Steven Lund Corey B. Lindley
Executive Vice President Representative in Japan
Takashi Bamba
/s/ Takashi Bamba
---------------------
Witnessed By:
/s/ Robert Conlee
----------------------
Robert Conlee
9
EXHIBIT 10.5
SERVICE AGREEMENT
-----------------
This Agreement is entered into as of the 19 day of January 1996 by and
between Nu Skin Korea, Ltd., a corporation organized and existing under the laws
of Korea, with its principal office at 890-12, Daechi-dong, Kangnam-ku, Seoul
(hereinafter referred to as A) and Mr. Sung-Tae Han, a citizen of the Republic
of Korea residing at 402-dong, 901-ho, Lucky Apt. 875, Hosumaul, Janghong-dong,
Koyang-si, Kyonggi-do, Korea (hereinafter referred to as B).
WITNESSETH:
-----------
WHEREAS, B wishes to provide certain services to A as Representative
Director of A on the terms and conditions set forth hereinafter:
WHEREAS, A wishes to obtain the services of B as Representative Director of
A;
NOW, THEREFORE, in consideration of the mutual promises, undertakings and
covenants set forth hereinafter, the parties hereto mutually agree as follows:
1. Appointment - A hereby agrees to appoint B as a Representative Director of
-----------
A and B hereby agrees to such appointment to perform the functions and
carry out the duties and responsibilities as the Representative Director of
A on the terms and conditions set forth hereinafter.
The duties and responsibilities of his position will include but are not
limited to the attached Position Specification. B shall be notified of
changes or additions in his responsibilities during the course of the
Agreement [See the Attachment].
2. Direction - B shall be subject to and act in accordance with the rules,
---------
regulations and instructions issued from time to time by the Board of
Directors of A as well as such limitations as are set by the Shareholders
or the Board of Directors of A.
-2-
3. Compensation - B shall receive the following compensation and benefits for
------------
services rendered to A. No other compensation, other than allowances
specifically mentioned in this Agreement, shall be paid.
a. Remuneration: B shall receive a gross annual remuneration of
85,000,000 Korean Won divided into twelve (12) installments, which
shall be payable for each month of the 25th day of the month. In the
event the 25th day falls on a non-workday, the remuneration shall be
paid on the preceding workday. The annual remuneration shall be
reviewed annually and any adjustment will be effective from the first
day of July of each year. The annual remuneration and any adjustment
shall be subject to the resolution of the Shareholders of A.
b. Automobile: B shall be provided a company car appropriate to his
position and a driver who will be duly required to perform his duties
and responsibilities. All of these costs and expenses will be paid by
A.
c. Vacation: For each 12 months of service, B shall be entitled to 22
days of vacation with pay, which may be taken in any combination and
at any time during each of said 12-month periods, consistent with the
requirements of his job, and provided that a vacation schedule shall
be reported at least 7 days in advance. In the event of an early
termination of this Agreement, B will be credited with vacation time
in proportion to the actual service period.
d. Coverage of Medical Insurance and National Pension: A shall subscribe
to the governmental medical insurance program and national pension
program. The contributions to the above programs shall be equally
borne by a and B in accordance with the relevant laws.
e. Workers Compensation Insurance: A shall subscribe to a private
insurance policy that provides protection comparable to that available
to workers under the Industrial Accident Compensation Law.
4. Service Hours - B's regular service hours are 40 hours per week from Monday
-------------
through Friday. It is understood that in the light of his position as a
Representative Director he
-3-
may be required to provide services beyond normal service hours. It is
further agreed that B's remuneration has been set with this fact in mind
and that B has no right to ask additional compensation for such extra
services.
5. Confidentiality - Without the written approval of A, B shall not copy or
---------------
disclose to others or use, for B's own benefit or otherwise, any
information, knowledge or data that B receives or develops during the
period of employment which is secret confidential, including information
contained in formulas, business plans, financial data, vendor lists,
product and marketing plans, distributor lists and other trade secrets or
information that A has received in confidence from others, nor will B to A
any confidential information of others.
6. Non-Competition - B hereby agrees that he shall not, during the term of
---------------
this Agreement, and for one year immediately after termination of this
Agreement, directly or indirectly, by any means or device whatsoever, for
himself or on behalf of or in conjunction with any person, partnership, or
corporation, do any one or more of the following:
a. provide services similar to A's services or products;
b. divert, take away, or attempt to take away any account which B may
have become aware of from customer information furnished to B by any
employee or agent or former employee or agent of A; and
c. compete with A or render services for a competitor of A.
7. Term of Agreement
-----------------
a. This Agreement shall be effective as of January 1, 1996, and continue
in full force and effect for a period of three years thereafter,
subject to automatic renewal for an additional three years unless this
Agreement is terminated.
b. Either party may terminate this Agreement at any time by giving the
other party 60 days advance notice. The termination by A is subject
to the shareholder resolution as required under the Korean Commercial
-4-
Code. The Agreement may be terminated without notice by A if B
materially breaches his duties as set forth in this Agreement or in
A's regulations or the directions of the shareholder or the Board of
Directors and subject to shareholder resolution. In the event A
terminates this Agreement without cause, A shall be liable only for
compensating B for remuneration due for the remainder of his term of
office.
8. End of Service Benefits - B shall receive an end of service payment which
-----------------------
will accrue at the rate of two months' remuneration for each consecutive
year of service, provided that this benefit shall not be paid until B has
worked at least 12 months, and provided further that this benefit shall be
subject to shareholder resolution and adoption by shareholders of
regulations governing these benefits.
9. Tax Returns - Filing annual income tax returns with the Korean tax
-----------
authorities is the responsibility of B. However, income tax withheld from
remuneration and other payments will be paid to the tax authorities by A.
10. Entire Agreement - This Agreement contains the entire agreement between the
----------------
parties relating to the subject matter hereof. No modification, alteration
or amendment of this Agreement and no waiver of any provision hereof may be
made unless such modification, alteration, or waiver is set forth in
writing signed by the parties hereto.
11. Governing Law - This Agreement shall be construed in accordance with and
-------------
governed by the laws of the Republic of Korea.
12. Prevailing Language - This Agreement shall be executed in two counterparts
-------------------
in the English language, each of which shall be deemed an original but
which, taken together, shall constitute one and the same instrument. Should
any conflict arise between the English language version of this Agreement
and any translation hereof, the English language version shall be
controlling.
-5-
IN WITNESS WHEREOF, the parties hereto and/or their duly authorized
representatives have executed this Agreement as of the date first above written.
Nu Skin Korea Ltd. Sung-Tae Han
[STAMP OF NU SKIN KOREA LTD.] /S/ Sung -Tae Han
By ________________________________ ____________________
Name: Name:
Title:
[Attachment]
. Duties and Responsibilities;
1. Assist the Regional Managing Director and the V.P. of International in
developing the strategic and operational plans for the country which, with
other country plans, forms the basis of the Nu Skin International's
international operational strategy.
2. Assist the Regional Managing Director and the V.P. of International in
developing the budget to support the country strategic plan.
3. Provide the V.P. of International with suggestions for country opening
activities including event time-line calendar, list of participants,
activities, courtesy calls, open-houses, press conferences, et.
4. Provide suggestions to the V.P. of International and Regional Managing
Director for designing quality assurance and performance measurement
standards for the country.
5. Suggest methods and strategies to the Regional Managing Director for
improving country market share and profitability.
6. Ensure that the strategic plan is implemented in the country in an
efficient and effective manner which will maximize a return on investment.
7. Ensure that ongoing country office and warehouse operations comply with all
government regulations.
8. Report status of country operations to Regional Managing Director and V.P.
of International.
9. Conduct quality assurance and personal performance appraisals as needed.
10. Meet with government and senior business officials and with the press as
needed.
11. Keep Regional Managing Director and V.P. of International informed at all
times of trends.
12. Train, motivate and support the sponsor/distributor networking in the
country.
Exhibit 10.6
PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT is made this___ day of November, 1996
between Nu Skin International, Inc., a corporation organized and existing under
the laws of the State of Utah, U.S.A. (hereinafter "NSI"), and Nu Skin Hong
Kong, Inc., a corporation organized and existing under the laws of the State of
Utah, U.S.A. (hereinafter "NSHK"). NSI and NSHK shall hereinafter be
collectively referred to as the "Parties."
WITNESSETH
----------
WHEREAS, NSI owns the exclusive right to distribute Products and Sales Aids
(each as hereinafter defined) in the countries of Japan, the Republic of Korea
(Korea), the Republic of China (Taiwan) and Hong Kong (including Macau),
(hereinafter the "AP Region"), which right it licenses to NSHK pursuant to a
Regional Distribution Agreement dated October 1, 1993 and amended on July 12,
1994 (the "Existing Distribution Agreement"); and
WHEREAS, NSI also owns the exclusive right to distribute Products and Sales Aids
in the countries of Thailand, the Philippines, Malaysia, the People's Republic
of China (China), Indonesia, Vietnam and Singapore (hereinafter the "Extended AP
Region"); and
WHEREAS, NSI is willing to sell, and NSHK is willing to purchase, said exclusive
rights to distribute Products and Sales Aids in the Extended AP Region;
NOW THEREFORE, in consideration of the premises, the mutual covenants herein
contained and other good and valuable consideration, the Parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to the singular and plural
forms of the terms defined):
1.1 "Agreement" shall mean this Purchase and Sale Agreement between NSI
and NSHK, as the same may be modified, amended or supplemented from time to
time.
1.2 "Amended and Restated Distribution Agreement" shall mean the
Existing Distribution Agreement, as amended and restated to reflect the increase
in territory for which NSHK is granted exclusive rights to distribute Products
and Sales Aids to include the Extended AP Region and to incorporate such other
matters to which the Parties may agree.
1.3 "AP Region" shall have the meaning assigned thereto in the recitals
to this Agreement.
1.4 "Closing Date" shall mean such date as shall be mutually agreed upon
by NSI and NSHK following the satisfaction or waiver of all conditions to the
obligations of the parties set forth in Article III.
1.5 "Existing Distribution Agreement" shall have the meaning assigned
thereto in the recitals to this Agreement.
1.6 "Extended AP Region" shall have the meaning assigned thereto in the
recitals to this Agreement.
1.7 "NSAP" shall mean Nu Skin Asia Pacific, Inc., a Delaware corporation
and the sole stockholder of NSHK.
1.8 "Products" shall mean those products, including without limitation,
cosmetics, nutritional products, dietary supplements, vitamins, over-the-counter
drugs, quasi-drugs, drugs and pharmaceutical products that are produced,
manufactured or purchased by NSI for sale or resale, subject to unavailability
due to local regulatory requirements.
1.9 "Sales Aids" shall mean materials, in whatever form, designed,
approved and produced by NSI to assist in the marketing of the Products.
ARTICLE II
PURCHASE AND SALE
-----------------
2.1 Grant of License. Upon the terms and subject to the conditions
contained in this Agreement, on the Closing Date, NSI shall grant to NSHK, and
NSHK shall accept from NSI, a license (the "License") to act as the exclusive
distributor of products and Sales Aids in the Extended AP Region, on the terms
and conditions, for the term and together with the associated rights and
obligations as set forth in the Amended and Restated Distribution Agreement.
2.2 License Price. NSHK hereby agrees to pay to NSI, and NSI agrees to
accept as payment and consideration for the License, the amount of FIFTEEN
MILLION DOLLARS ($15,000,000.00) (the "License Price").
2
2.3 Scope of Sale. The Parties further understand and agree that by this
grant and acceptance NSHK does not acquire any claim to, or interest in, NSI's
network of independent distributors, distributor lists, sales compensation plan,
copyrights, trademarks, associated know-how, or any other right or interest
owned by NSI and/or which NSI licenses to NSHK, Nu Skin Japan Company, Limited,
Nu Skin Taiwan, Inc. and Nu Skin Korea, Inc. under its Licensing and Sales
Agreements and Trademark/Tradename License Agreement with such entities.
2.4 Representations and Warranties of NSI. As an inducement to NSHK to
enter into this Agreement, NSI hereby represents and warrants to NSHK that it
has not granted, sold conveyed or otherwise transferred to any party any rights
to distribute Products or Sales Aids in the Extended AP Region, except to NSHK
as contemplated by this Agreement and the Amended and Restated Distribution
Agreement. The representations and warranties of NSI contained in this Section
2.4 shall survive the termination of the Agreement.
2.5 Limitations on Representations and Warranties. Nothing in this
Agreement shall be construed as a representation or warranty by NSI as to the
ability of NSHK to operate in or to otherwise exercise its rights under this
Agreement or the Amended and Restated Distribution Agreement in any country in
the Extended AP Region, pursuant to the laws, regulations and ordinances of such
country.
ARTICLE III
CONDITIONS TO CLOSING
---------------------
3.1 Conditions to Obligations of NSI. The obligation of NSI to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment, at or prior to the Closing Date, of each of the following
conditions:
(a) License Price. NSHK shall have paid, or caused to be paid, the
-------------
License Price.
(b) Amended and Restated Distribution Agreement. NSHK shall have
-------------------------------------------
entered into the Amended and Restated Distribution Agreement with NSI,
which shall be in form and substance satisfactory to NSI.
(c) Indemnification Agreement. NSA shall have entered into a mutual
-------------------------
indemnification agreement with NSI, which shall be in form in substance
satisfactory NSI.
3.2 Conditions to Obligations of NSHK. The obligations of NSHK to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing Date, of each of the following
conditions:
(a) Representations and Warranties of NSI. The representations and
-------------------------------------
warranties of NSI contained in Section 2.4 of this Agreement shall have
been true and correct when made and shall be true and correct as of the
Closing Date with the same force and effect as if made as of the Closing
Date.
3
(b) Amended and Restated Distribution Agreement. NSI shall have
-------------------------------------------
entered into the Amended and Restated Distribution Agreement with NSHK,
which shall be in form and substance satisfactory to NSHK.
(c) Indemnification Agreement. NSI shall have entered into a mutual
-------------------------
indemnification agreement with NSA, which shall be in form and substance
satisfactory to NSHK.
(d) Receipt for License Price. NSHK shall have received a receipt
-------------------------
from NSI for payment of the License Price.
ARTICLE IV
TERMINATION
-----------
4.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by either NSI or NSHK if an initial public offering by NSA of
shares of its Class A Common Stock shall not have occurred by December 31,
1996; or
(b) by the mutual written consent of NSI and NSHK.
4.2 Effects of Termination. In the event of termination of this
Agreement as provided in Section 4.1, this Agreement shall forthwith become void
and there shall be no liability on the part of either party hereto except (a) as
set forth in Section 2.4 and Article V and (b) that nothing in this Section 4.2
shall relieve a Party from liability for any breach of this Agreement.
ARTICLE V
CONFIDENTIALITY
---------------
All trade secrets, proprietary technology, know-how or other non-
public or proprietary business or technical information owned or used by NSI or
NSHK and supplied to or acquired by the other whether in oral or documentary
form (the "Confidential Information") shall be supplied and acquired in
confidence and shall be solely for the use of the receiving party pursuant to
this Agreement and such party shall keep the Confidential Information
confidential and shall not disclose the same, at any time during the term of
this Agreement or after its termination, except to its employees and to
affiliates and to their employees for the purposes of its business in accordance
with this Agreement and except as may be required by law; provided that if the
receiving party determines that a disclosure is required by law, the receiving
party shall notify the disclosing party in order to give the disclosing party an
opportunity to seek an injunction or otherwise attempt to keep the Confidential
Information confidential. The receiving
4
party shall, at the request of the disclosing party, destroy or return the
Confidential Information without retaining copies if, as and when this Agreement
is terminated or expires. For purposes of this Agreement, the term "Confidential
Information" shall not include information or documents that (i) become
generally available to the public other than as a result of a disclosure by the
receiving party, (ii) was otherwise lawfully available to the receiving party,
or (iii) was generated independently by the receiving party. The provisions of
this Article shall survive termination of this Agreement.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither Party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other Party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
6.2 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return electronic communication or signal that the message has been received, or
if mailed, ten (10) days after dispatch by registered airmail, postage prepaid,
from any post office addressed as follows:
If to NSI: Attn: Chief Operating Officer
Nu Skin International, Inc.
75 West Center Street
Provo, Utah 84601
Facsimile No.: (801) 345-5999
If to NSHK: Attn: Regional Legal Counsel
Nu Skin Hong Kong, Inc.
26th Floor, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
Facsimile No.:
5
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
6.3 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
6.4 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSHK within 30 days after written notice of such dispute is given by
NSHK or NSI, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If the
dispute is not resolved within such 30-day period, the Parties shall petition
the AAA to promptly appoint a competent, disinterested person to act as such
arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSHK. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSHK. The decision of the
arbitrator shall be final and binding upon NSI and NSHK and may be enforced in
any court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSI and NSHK; provided, that each of NSI
and NSHK shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
6.5 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
6.6 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
6.7 Severability. To the extent that any provision of this Agreement
is (or, in the opinion of counsel mutually acceptable to both parties, would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other
6
provision of this Agreement, nor will such provision of this Agreement be
invalidated or rendered unenforceable in any other jurisdiction.
6.8 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
6.9 Specific Performance. The parties acknowledge that it will be
impossible to measure in money the damages to the parties of any failure to
comply with any of the restrictions or obligations imposed by this Agreement,
that every such restriction and obligation is material, an that in the event of
any such failure, the parties will not have an adequate remedy at law or in
damages. Therefore, each party consents to the issuance of an injunction or the
enforcement of other equitable remedies against it at the suit of an aggrieved
party, to compel performance of all the terms of this Agreement, and waives any
defenses to an equitable remedy, including without limitation the defenses of
failure of consideration, breach of any other provision of this Agreement, and
availability of relief in damages.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their authorized representatives.
NU SKIN INTERNATIONAL, INC. NU SKIN HONG KONG, INC.
- -------------------------- -----------------------
Name: Name:
Title: Title:
7
EXHIBIT 10.7
NSI - NSJ
AMENDED AND RESTATED
LICENSING AND SALES AGREEMENT
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission)
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
DEFINITIONS................................................................. 2
1.1 "Agreement"...................................................... 3
1.2 "Bonus Payments"................................................. 3
1.3 "Commission Expense"............................................. 3
1.4 "Copyrights"..................................................... 3
1.5 "Distributor Contract"........................................... 3
1.6 "Distributor Lists".............................................. 3
1.7 "Fixed Commission Expense"....................................... 4
1.8 "Independent Distributor Network"................................ 4
1.9 "Know-How"....................................................... 4
1.10 "Licensed Property".............................................. 4
1.11 "Net Sales"...................................................... 4
1.12 "NSI Independent Distributor".................................... 4
1.13 "Products"....................................................... 4
1.14 "Proprietary Information"........................................ 5
1.15 "Resident NSI Independent Distributor"........................... 5
1.16 "Sales Compensation Plan"........................................ 6
1.17 "Sales Aids"..................................................... 6
1.18 "Starter Kit".................................................... 6
1.19 "Territory"...................................................... 6
ARTICLE II
GRANT OF LICENSE AND PARTIAL
ASSIGNMENT OF OBLIGATIONS; LICENSE FEES.................................... 6
2.1 Grant of License................................................. 6
2.2 Assignment of Obligations........................................ 6
2.3 NSI's Interest in Licensed Property.............................. 7
2.4 Recitals of Value of Licensed Property........................... 7
2.5 Warranty of Title................................................ 7
2.6 Modifications.................................................... 7
2.7 License Fee...................................................... 7
ARTICLE III
COMPUTATION AND PAYMENT TERMS.............................................. 8
3.1 Bonus Payments................................................... 8
3.2 License Fee...................................................... 9
3.3 Records......................................................... 10
3.4 Payment Terms................................................... 10
3.5 Default Rate.................................................... 10
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT.................... 11
4.1 Certain Obligations, Rights, and Duties of NSI.................. 11
4.2 Certain Obligation, Rights and Duties of NSJ.................... 12
ARTICLE V
STARTER KIT SALES......................................................... 13
5.1 Agreement to Purchase Starter Kits.............................. 13
5.2 Pricing......................................................... 13
5.3 Payment Method.................................................. 13
5.4 Quantities...................................................... 13
5.5 Quality of Starter Kits......................................... 14
5.6 Insurance....................................................... 14
ARTICLE VI
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS.............................. 14
ARTICLE VII
TERM AND TERMINATION...................................................... 15
7.1 Term............................................................ 15
7.2 Termination..................................................... 15
7.3 Survival of Obligations......................................... 17
7.4 Reversion of Rights............................................. 17
ARTICLE VIII
INFRINGEMENT; INDEMNIFICATION............................................. 17
ARTICLE IX
NATURE OF RELATIONSHIP.................................................... 18
ARTICLE X
CONFIDENTIALITY........................................................... 19
ARTICLE XI
MAINTENANCES OF LICENSED PROPERTY; RECORDING.............................. 20
ARTICLE XII................................................................ 20
12.1 Assignment...................................................... 20
12.2 Force Majeure................................................... 20
12.3 Governing Law and Dispute Resolution............................ 21
ii
12.4 Applicability of Post-Effective Law............................. 22
12.5 Waiver and Delay................................................ 22
12.6 Notices......................................................... 22
12.7 Integrated Contract............................................. 23
12.8 Modification and Amendments..................................... 23
12.9 Severability.................................................... 23
12.10 Counterparts and Headings....................................... 24
iii
AMENDED AND RESTATED
--------------------
LICENSING AND SALES AGREEMENT
-----------------------------
THIS AMENDED AND RESTATED LICENSING AND SALES AGREEMENT is made and entered
into this ______day of November, 1996, between Nu Skin International, Inc. a
corporation organized and existing under the laws of the State of Utah, U.S.A.,
(hereinafter referred to as "NSI") and Nu Skin Japan Company, Ltd., a company
dually incorporated organized and existing under the laws of Japan and the State
of Delaware, U.S.A., (hereinafter "NSJ"). Hereinafter, NSI and NSJ shall
collectively be referred to as the "Parties".
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, NSI is engaged in the design, production and marketing of products
and related sales aids, for multi-national distribution through a network of
independent distributors; and,
WHEREAS, NSJ desires to act as the exclusive wholesale distributor of NSI
products in the Territory (as hereinafter defined), having entered a separate
written Wholesale Distribution Agreement with Nu Skin Hong Kong, Inc., the
exclusive regional distributor of such products and sales aids in the Asia-
Pacific region; and ,
WHEREAS, NSI and NSJ desire to implement NSI's Independent Distributor
Network (as defined below) to promote sales of products and sales aids; and,
WHEREAS, NSI desires to further develop and enlarge its Independent
Distributor Network in the Territory with the assistance of NSJ, for
their mutual benefit, in accordance with the terms and conditions hereinafter
provided; and
WHEREAS, NSJ recognizes and agrees that NSI has expended considerable time,
effort and resources to develop and maintain the Licensed Property (as hereafter
defined) and NSJ further agrees it will derive a considerable benefit from its
use of the Licensed Property in the Territory and from NSI's efforts and
expenditures respecting the Licensed Property; and
WHEREAS, NSI and NSJ (as assignee of Nu Skin Japan, Inc.) entered into a
Licensing and Sales Agreement on November 11, 1993, and entered into Amendments
to said agreement on July 12, 1994, December 15, 1994 and March 14, 1995 (the
"Prior Licensing and Sales Agreement"); and
WHEREAS, the Parties wish to amend and restate the Prior Licensing and
Sales Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual promises,
covenants, and warranties hereinafter set forth and for other valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement, the following words and terms shall
have the meaning assigned to them in this Article I:
2
1.1 "Agreement" shall mean this Amended and Restated Licensing and Sales
Agreement (together with any exhibits and schedules hereto), as the same may be
modified, amended or supplemented from time to time.
1.2 "Bonus Payments" shall mean *****
1.3 *****
1.4 "Copyrights" shall mean any and all protectable software, programs,
databases, source codes and applications owned by NSI or which NSI has a right
to use, license or sub-license, relating directly or indirectly to the
Independent Distributor Network, Distribution Lists or the Sales Compensation
Plan.
1.5 "Distributor Contract" shall mean, for any NSI Independent
Distributor, its contract with NSI pursuant to which NSI authorizes it to
distribute NSI's Products and Sales Aids.
1.6 "Distributor Lists" shall mean any and all individual or accumulated
name, address, identification number, sponsor name and/or similar lists of all
present or future NSI Independent Distributors expressed in any medium.
1.7 *****
3
1.8 "Independent Distributor Network" shall mean the network of all NSI
Independent Distributors.
1.9 "Know-How" shall mean any information, including, without
limitation, any commercial or business information, lists, marketing methods,
marketing surveys, processes, specifications, quality control reports, drawings,
photographs, or any other information owned by NSI, whether or not considered
proprietary, relating to the Independent Distributor Network, the Distributor
Lists, and the Sales Compensation Plan.
1.10 "Licensed Property" shall mean *****
1.11 "Net Sales" shall mean, for any period, the number of Products,
Sales Aids and other items (exclusive of starter kits and goods sold on
consignment) sold by NSJ to NSI Independent Distributors during such period,
multiplied by NSJ's then current selling price to its distributors for each such
Product, Sales Aid or item less applicable consumption taxes and returns or
refunds reasonably accepted and credited by NSJ during such period .
1.12 "NSI Independent Distributor" shall mean a person or business entity
who has entered into a Distributor Contract.
1.13 "Products" shall mean those goods sold by NSI which carry a point
value within the Sales Compensation Plan.
1.14 "Proprietary Information" shall mean, without limitation, all
information other than information in published form or expressly designated by
either party in writing as non-confidential, which is directly or indirectly
disclosed to the other party, regardless of the form in which it is disclosed,
relating in any way to the following property owned by the Parties or which the
Parties
4
have been licensed to use or sub-license: (1) proprietary technical information
related to the Licensed Property and the Starter Kit; (2) information respecting
actual or potential customers or customer contacts and customer sales
strategies, names, addresses, phone numbers, identification numbers, database
information and its organization, unique business methods; (3) market studies,
penetration data, customers, products, contracts, copyrights, computer programs,
applications, technical data, licensed technology, patents, inventions,
procedures, methods, designs, strategies, plans, liabilities, assets, cost
revenues, sales costs, production costs, raw material sources and other market
information; (4) other sales and marketing plans, programs and strategies;
(5) trade secrets, Know-How, designs and proprietary commercial and technical
information, methods, practices, procedures, processes, formulae with respect to
manufacturing, assembly, design or processing products subject to this Agreement
and any component, part or manufacture thereof; (7) profits, organization,
employees, agents, distributors, suppliers, trade marks, trade names and
services; (8) other business and commercial practices in general relating
directly or indirectly to the foregoing; and, (9) computer disks or other
records or documents, originals or copies, containing in whole or in part any of
the foregoing.
1.15 *****
1.16 "Sales Compensation Plan" shall mean the method employed by NSI to
calculate Bonus Payments paid to the Independent Distributor Network upon the
Sale of Products.
1.17 "Sales Aids" shall mean materials, in whatever form and/or design
produced to assist in the marketing of Products.
5
1.18 "Starter Kit" shall mean those materials purchased by an NSI
Independent Distributor upon the execution of a Distributor Contract which
explains the Sales Compensation Plan and other NSI policies, procedures and
programs, the contractual relationship with NSI and the marketing support
programs for the Territory.
1.19 "Territory" shall mean the country of Japan.
ARTICLE II
GRANT OF LICENSE AND PARTIAL
ASSIGNMENT OF OBLIGATIONS; LICENSE FEES
---------------------------------------
2.1 Grant of License. Subject to the terms and conditions of this
Agreement, NSI hereby grants to NSJ an exclusive license to use the Licensed
Property *****
2.2 Assignment of Obligations. *****
2.3 NSI's Interest in Licensed Property. *****
6
2.4 Recitals of Value of Licensed Property. *****
2.5 Warranty of Title. NSI hereby warrants and represents that it is the
sole and exclusive owner of the Licensed Property and that to the best of its
knowledge and information no claim exists or has been made contesting the
ownership and title of said Licensed Property.
2.6 Modifications. NSJ shall make no modification to the Licensed
Property without the express, prior written consent of NSI.
2.7 License Fee. *****
ARTICLE III
COMPUTATION AND PAYMENT TERMS
-----------------------------
3.1 Bonus Payments. *****
7
3.1(a) *****
3.1(b) *****
3.1(c) *****
8
*****
3.1(d) *****
3.2 License Fee. *****
3.2(a) *****
3.2(b) *****
3.2(c) *****
9
3.3 Records. *****
3.4 Payments to NSI. *****
3.5 Payments to NSJ. *****
3.6 Default Rate. *****
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT
------------------------------------------------------
4.1 Certain Obligations, Rights, and Duties of NSI. NSI agrees that, in
addition to its other obligations under this Agreement, NSI will maintain and
provide support for the Sales Compensation Plan. *****
10
***** and to otherwise support and maintain the Independent Distributor Network
within the Territory.
4.2 Certain Obligation, Rights and Duties of NSJ. In addition to its other
obligations under this Agreement NSJ agrees, among other things: (1) to
maintain, at its sole cost and expense, such facilities and other places of
business within the Territory necessary to effect the purposes and intentions of
this Agreement and to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting, legal and such similar expenses,
relating to the business of NSJ under the terms and conditions of this
Agreement, unless otherwise agreed in writing by the Parties; *****
11
***** to transmit information regarding Net Sales to NSI ***** Section 3.1
hereof; (8) to monitor and supervise the activities of Resident NSI
Distributors; (9) to enforce the Distributor Contracts to ensure compliance
therewith and with NSI's policies and procedures and to any action against
Resident NSI Distributors for violation of the terms and conditions of the
Distributor Contract, NSI's policies and procedures, or any other rules and
regulations of NSI or NSJ as NSI shall reasonably request; and, (10) to perform
any other function or provide support as NSI shall reasonably request to enable
NSI to fully perform its obligations to the NSI Independent Distributors under
the Sales Compensation Plan and their Distributor Contracts.
12
ARTICLE V
STARTER KIT SALES
-----------------
5.1 Agreement to Purchase Starter Kits. The Parties acknowledge that
pursuant to this Agreement NSJ is being granted an exclusive license to use the
Licensed Property, including the Independent Distributor Network, in the
Territory. NSJ agrees to use its best efforts in supporting the development of
the Independent Distributor Network in the Territory by purchasing Starter Kits
from NSI and selling them to potential NSI Independent Distributors in the
Territory.
5.2 Pricing. The Parties agree that the price of Starter Kits shall be
negotiated and determined on an arm's length basis and may be adjusted from time
to time as agreed by the Parties in writing.
5.3 Payment Method. NSJ shall pay the commercial invoices for Starter Kits
shipped under this Agreement in the manner set forth in Section 3.4.
5.4 Quantities. NSJ agrees to purchase sufficient quantities of the Starter
Kit from NSI to fill orders, in a timely fashion, received from potential NSI
Independent Distributors in the Territory.
5.5 Quality of Starter Kits. NSI shall use its best efforts to maintain and
augment the quality, image and value of the Starter Kit such that Starter Kits
sold in the Territory are consistent with the quality of those sold in the
United States of America.
5.6 Merchantability. NSI warrants that Starter Kits sold to NSJ pursuant to
this Agreement will be merchantable and of sufficient quality for sales within
the Territory. If NSJ determines that certain Starter Kits supplied under this
Agreement are not merchantable, a claim for a refund of the price paid can be
made with 45 days from the day the Starter Kits are received in the Territory.
NSI
13
agrees to refund, or credit the account of NSJ for, the purchase price of such
non-merchantable Starter Kits.
ARTICLE VI
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
--------------------------------------------
6.1 NSJ agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances in
the Territory to enable this Agreement to become effective or to enable any
payment pursuant to the provisions of this Agreement to be made. NSJ agrees to
keep NSI informed of its progress in obtaining all such government approvals.
6.2 Each party agrees to refrain from any action that will cause the other
party to be in violation of any applicable law, regulation, or ordinance of any
jurisdiction in the Territory or the United States or elsewhere or any
international convention or bilateral or multilateral treaty to which any
jurisdiction in the Territory or the United States is a signatory, including,
without limitation, the U.S. Foreign Corrupt Practices Act of 1977, the U.S.
Export Control Laws, and the U.S. Anti-Boycott laws.
6.3 NSI agrees to take, or cause to be taken, at its sole cost and
expense, all actions necessary to ensure the compliance of the Licensed Property
with applicable laws, regulations and ordinances in the Territory (including,
without limitation, direct selling laws). NSI agrees to keep NSJ informed of
its progress in obtaining all such government approvals.
14
ARTICLE VII
TERM AND TERMINATION
--------------------
7.1 Term. Subject to Section 7.2 hereof, this Agreement shall be for
a term ending on December 31, 2016 provided, however, that this Agreement is
subject to renegotiation after December 31, 2001 in the event that members of
the families of, or trusts or foundations established by or for the benefit of,
Blake M. Roney, Nedra D. Roney, Sandie N. Tillotson, Craig Tillotson, Craig
Bryson, Steven J. Lund, Brooke B. Roney, Kirk V. Roney and Keith R. Halls on a
combined basis no longer beneficially own a majority of the voting stock of Nu
Skin Asia Pacific, Inc. ("Nu Skin Asia").
7.2 Termination. This Agreement may be terminated by either party
immediately or at any time the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or other
action (I) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, compensation or
other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian or other similar action;
or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged
or unbonded for a period of 90 days. Events described in clauses (a)
and (b) of this Section 7.2
15
shall be referred to as a Bankruptcy Event. If a Bankruptcy Event
occurs, all amounts owing under this Agreement shall become
immediately due and payable, without any notice thereof; or
(c) if the other Party causes or allows a judgment in excess of
twenty-five million dollars ($25,000,000) to be entered against it or
causes or allows a lien, security interest, or other encumbrance to
attach to its assets which secures an amount in excess of twenty-five
million dollars ($25,000,000) to be placed upon its assets.
7.3 This Agreement may be terminated by either party, if the other
party is in default in the performance of any material obligation under this
Agreement and such default has not been cured within sixty (60) days after
receipt of written notice of such default by the defaulting party.
7.4 This Agreement may be terminated by NSI if Nu Skin Asia shall no
longer own or control a majority of the voting interest in NSJ, with such
termination to take effect thirty (30) days after NSI gives written notice to
NSJ of the occurrence of a change in control and its intention to terminate this
Agreement based thereon.
7.5 Survival of Obligations. The obligations of the Parties to pay
any sums which are due and payable as of the expiration or termination of this
Agreement and their obligation under Section 2.3, Article VIII and Article X
hereof shall survive the expiration or termination of this Agreement.
7.6 Reversion of Rights. Upon termination of this Agreement, all
rights and licenses herein granted to NSJ shall immediately cease and shall
revert to NSI, and NSJ shall cease representing to any third party that it has
any right to use, assign, convey or otherwise transfer the Licensed Property.
16
ARTICLE VIII
INFRINGEMENT; INDEMNIFICATION
-----------------------------
NSI hereby represents and warrants that, as of the date hereof, there
are no infringement or misappropriation suits pending or filed or, to its
knowledge, threatened against NSI within the Territories that relate to the
Licensed Property and NSI is not presently aware of any such infringement or
misappropriation. NSI shall indemnify and hold NSJ harmless from and against
all claims, actions, suits, proceedings, losses, liabilities, costs, damages and
attorneys' fees in respect of a third party claim alleging infringement or
misappropriation by NSJ in respect of its use of the Licensed Property in the
Territory; provided that NSJ shall give NSI prompt written notice of any claim,
--------
action, suit or proceeding and without limiting the generality of Section 2.3
hereof, shall cooperate with NSI in the defense of any such claim, action, suit
or proceeding. NSI shall have the right to select counsel in any such claim,
action, suit or proceeding. In the event that any such claim, action, suit or
proceeding. In the event that any such claim, action or proceeding is
successful, NSI shall use reasonable efforts to make such changes in the
Licensed Property to permit NSJ to continue to make use of the Licensed Property
to permit NSJ to continue to make use of the Licensed Property to permit NSJ to
continue to make use of the Licensed Property free and clear of all infringement
and misappropriation. NSI shall give NSI prompt written notice of any
infringement or misappropriation of the Licensed Property by any third party.
NSI shall have the sole right to initiate any and all legal proceedings against
any such third party and, without limiting the generality of Section 2.3 hereof,
NSJ shall cooperate with NSI in the pursuit of any such proceeding. NSI shall
retain any damage award obtained from such third party.
17
ARTICLE IX
NATURE OF RELATIONSHIP
----------------------
The relationship of NSJ and NSI shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other.
ARTICLE X
CONFIDENTIALITY
---------------
All Proprietary Information or other non-public or proprietary
business or technical information owned or used by NSI or NSJ and supplied to or
acquired by the other whether in oral or documentary form (the "Confidential
Information") shall be supplied and acquired in confidence and shall be solely
for the use of the receiving party pursuant to this Agreement and such party
shall keep the Confidential Information confidential and shall not disclose the
same, at any time during the term of this Agreement or after its termination,
except to its employees for the purposes of its business in accordance with this
Agreement and except as may be required by law; provided that if the receiving
party determines that a disclosure is required by law, the receiving party shall
notify the disclosing party in order to give the disclosing party an opportunity
to seek an injunction or otherwise
18
attempt to keep the Confidential Information confidential. The receiving party
shall, at the request of the disclosing party, destroy or return the
Confidential Information without retaining copies if, as and when this Agreement
is terminated or expires. For purposes of this Agreement, the term
"Confidential Information" shall not include information or documents that (I)
become generally available to the public other than as a result of a disclosure
by the receiving party, (ii) was otherwise lawfully available to the receiving
party, or (iii) was generated independently by the receiving party. The
provisions of this Article shall survive termination of this Agreement.
ARTICLE XI
MAINTENANCE OF LICENSED PROPERTY; RECORDING
-------------------------------------------
NSI shall use its best efforts and take all reasonable steps
consistent with its existing internal policies and procedures and with this
Agreement to maintain the Licensed Property in the Territory. In no event shall
this clause be construed to require NSI to establish or maintain a branch
office, subsidiary corporation or fixed place of business or similar permanent
establishment in the Territory. NSI, in its sole discretion, shall have the
right to record this Agreement or proof thereof, or to enter NSJ as a registered
user in the Territory. NSJ agrees to cooperate, as reasonably requested by NSI,
in arranging for such recordings or entries, or in bearing or canceling such
recordings or entries in the event of amendments to or termination of this
Agreement for any reason.
19
ARTICLE XII
MISCELLANEOUS
12.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
12.2 Force Majeure. The Parties shall not be responsible for failure
to perform hereunder due to force majeure, which shall include, but not be
limited to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event
of force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
12.3 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSJ within 30 days after written notice of such dispute is given by NSJ
20
or NSI, as the case may be, shall be resolved through arbitration with the Utah
office and division of the American Arbitration Association ("AAA"). If the
dispute is not resolved within such 30-day period, the Parties shall petition
the AAA to promptly appoint a competent, disinterested person to act as such
arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSJ. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSJ. The decision of the
arbitrator shall be final and binding upon NSI and NSJ and may be enforced in
any court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSI and NSJ; provided, that each of NSI
--------
and NSJ shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
12.4 Applicability of Post-Effective Law. The parties agree that
neither the Vienna Convention on the International Sale of Goods nor any such
similar law, treaty or act that becomes effective during the term of this
Agreement shall be applicable to this Agreement or the transactions contemplated
hereunder.
12.5 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement
21
with respect to any subsequent breach thereof or a waiver by either party of its
right at any time thereafter to require exact and strict compliance with the
provisions thereof.
12.6 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered by hand, or if communicated by facsimile, cable or similar electronic
means to the facsimile number or cable identification number as previously
provided by each party to the other, at the time that receipt thereof has been
confirmed by return electronic communication or signal that the message has been
received, or if mailed, ten (10) days after dispatch by registered airmail,
postage prepaid, from any post office addressed as follows:
If to NSJ: General Manager
Nu Skin Japan Company Ltd.
Shinjuku I-Land Tower, 23rd Floor
6-5-1 Nishi Shinjuku, Tokyo, Japan, 163-13
Facsimile No.: 813-5321-7779
If to NSI: Chief Operating Officer
Nu Skin International, Inc.
75 West Center Street,
Provo, Utah 84601, U.S.A.
Facsimile No.: (801) 345-5999
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
22
12.7 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
12.8 Modification and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
12.9 Severability. To the extent that any provision of this
Agreement is (or in the opinion of counsel mutually acceptable to both Parties
would be) prohibited, judicially invalidated or otherwise rendered unenforceable
in any jurisdiction, such provision shall be deemed ineffective only to the
extent of such prohibition, invalidation or unenforceability in that
jurisdiction, and only within that jurisdiction. Any prohibited, judicially
invalidated or unenforceable provision of this Agreement will not invalidate or
render unenforceable any other provision of this Agreement, nor will such
provision of this Agreement be invalidated or rendered unenforceable in any
other jurisdiction.
12.10 Counterparts and Headings. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
23
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and year first-above written.
NU SKIN INTERNATIONAL, INC. NU SKIN JAPAN COMPANY LTD.
BY: BY:
----------------------- -----------------------
BLAKE M. RONEY TAKASHI BAMBA
PRESIDENT GENERAL MANAGER
24
EXHIBIT 10.8
NSI
NSHK
AMENDED AND RESTATED
REGIONAL DISTRIBUTION AGREEMENT
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS.............................................. 2
1.1 "AP Region".............................................. 2
1.2 "Agreement".............................................. 2
1.3 "NSAP Authorized Affiliate".............................. 2
1.4 "NSI Authorized Affiliate"............................... 3
1.5 "NSI Independent Distributor"............................ 3
1.6 "NSI".................................................... 3
1.7 "Products"............................................... 3
1.8 "Sales Aids"............................................. 3
1.9 "Trademarks"............................................. 3
ARTICLE II APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR........... 3
2.1 Scope.................................................... 3
2.2 Sub-distributors......................................... 3
2.3 Sales of Products and Sales Aids......................... 4
2.4 NSI Sales in the AP Region............................... 4
2.5 Sales Outside the AP Region.............................. 4
2.6 AP Region Orders and Inquiries........................... 4
ARTICLE III GOVERNMENTAL APPROVALS AND REGISTRATIONS................. 5
ARTICLE IV OBLIGATIONS OF NSHK AS EXCLUSIVE WHOLESALE DISTRIBUTOR
IN THE AP REGION......................................... 5
4.1 Marketing and Distribution............................... 5
4.2 NSHK Operations.......................................... 6
4.3 Management Planning...................................... 6
4.4 NSHK Claims and Representations.......................... 7
4.5 Capitalization........................................... 7
4.6 Customer Support......................................... 7
4.7 Allocation of Expenses................................... 7
ARTICLE V PURCHASE, SALE AND DELIVERY OF PRODUCTS AND SALES AIDS 8
5.1 Agreement to Purchase.................................... 8
5.2 Product Shipment......................................... 9
5.3 Payment Due Date......................................... 9
5.4 Passage of Title and Risk of Loss........................ 9
5.5 Inspection............................................... 9
ARTICLE VI PRODUCT AND SALES AIDS PURCHASE PRICES AND TERMS OF
PAYMENT.................................................. 10
6.1 Product Availability and Pricing......................... 10
6.2 Payment Method........................................... 10
ARTICLE VII OBLIGATIONS OF NSI AS SUPPLIER OF PRODUCTS AND SALES AIDS 11
7.1 Product Quality.......................................... 11
7.2 Warranty................................................. 11
7.3 Delivery................................................. 12
7.4 Allocation of Expenses................................... 12
ARTICLE VIII SALE AND MANUFACTURE OF PRODUCTS......................... 13
8.1 Non-Competing Products................................... 13
8.2 Competing Products....................................... 13
8.3 Discontinued Products.................................... 13
ARTICLE IX NATURE OF RELATIONSHIP................................... 14
ARTICLE X TERM..................................................... 14
ARTICLE XI TERMINATION.............................................. 15
ARTICLE XII EFFECT OF TERMINATION.................................... 16
ARTICLE XIII CONFIDENTIALITY.......................................... 16
ARTICLE XIV INDEMNIFICATION AND INSURANCE............................ 17
ARTICLE XV NEW COUNTRIES............................................ 18
ARTICLE XVI MISCELLANEOUS............................................ 19
16.1 Assignment............................................... 19
16.2 Notices.................................................. 19
16.3 Waiver and Delay......................................... 19
16.4 Force Majeure............................................ 20
16.5 Governing Law and Dispute Resolution..................... 20
16.6 Applicability of Post-Effective Laws..................... 21
16.7 Integrated Contract...................................... 21
16.8 Modifications and Amendments............................. 21
16.9 Severability............................................. 21
16.10 Counterparts and Headings................................ 21
-ii-
AMENDED AND RESTATED REGIONAL DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED REGIONAL DISTRIBUTION AGREEMENT is made and
entered this ____ day of November, 1996, by and between Nu Skin International,
Inc., a corporation duly organized and existing under the laws of the State of
Utah, U.S.A., (hereinafter "NSI") and Nu Skin Hong Kong, Inc., a foreign branch
of a corporation duly organized and existing under the laws of the State of
Utah, U.S.A., (hereinafter "NSHK"). Hereinafter, NSI and NSHK collectively shall
be referred to as the "Parties. "
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, NSI is engaged in the design, production and marketing of
Products and Sales Aids (as hereinafter defined) for distribution in
international markets in the AP Region (as hereinafter defined) through a
network of independent distributors; and,
WHEREAS, NSI believes that such activity in the AP Region (as
hereinafter defined) can best be accomplished through the contractual
appointment of an exclusive regional distributor to distribute such Products and
Sales Aids in the AP Region; and,
WHEREAS, NSHK desires, on the terms and conditions hereinafter set
forth, to act as the exclusive regional distributor of Products and Sales Aids
in the AP Region; and,
WHEREAS, NSI is willing, on the terms and conditions hereinafter set
forth, to grant to NSHK the exclusive right to so distribute Products and Sales
Aids; and,
WHEREAS, the Parties entered into a Regional Distribution Agreement on
October 1, 1993 and an Amendment to said agreement on July 12, 1994 (the "Prior
Distribution Agreement"); and,
-1-
WHEREAS, the Parties wish to amend and restate the Prior Regional
Distribution Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement the following words, terms, and
phrases shall have the meaning assigned to them in this Article I, unless the
context otherwise requires or the parties otherwise agree within the terms of
this Agreement:
1.1 "AP Region" shall mean the countries and regions of Japan,
Republic of China (Taiwan), Hong Kong (and Macau), the Republic of Korea (South
Korea), Thailand, Philippines, Malaysia, the People's Republic of China (China),
Indonesia, Vietnam and Singapore.
1.2 "Agreement" shall mean this Amended and Restated Regional
Distribution Agreement between NSI and NSHK (together with any exhibits and
schedules hereto), as the same may be modified, amended or supplemented from
time to time).
1.3 "Existing NSAP Affiliates" shall mean (i) Nu Skin Japan Company,
Limited, a company duly organized and existing under the laws of Japan and the
state of Delaware, U.S.A.; (ii) Nu Skin Korea, Inc., a company duly organized
and existing under the laws of the Republic of Korea and the state of Delaware,
U.S.A.; (iii) Nu Skin Taiwan, Inc., a company organized and existing under the
laws of the state of Utah, U.S.A.; and (iv) NSHK.
1.4 "NSAP Authorized Affiliate" shall mean (i) the Existing NSA
Affiliates; (ii) any current or future affiliate or subsidiary of Nu Skin Asia
Pacific, Inc. ("Nu Skin Asia"); provided that such subsidiary or affiliate shall
--------
enter into a Wholesale Distribution Agreement substantially similar to the
Wholesale Distribution Agreements between (A) each of the Existing NSAP
Affiliates and (B) NSHK, each dated as of the date hereof.
1.5 "NSI Authorized Affiliate" shall mean
Nu Skin Personal Care Australia, Inc. and Nu Skin New Zealand, Inc.
1.6 "NSI Independent Distributor" shall mean a person or business
entity authorized by contract with NSI to distribute, as an independent
contractor, the Products and Sales Aids in accordance with the terms of such
distribution contract.
1.7 "NSI" shall mean Nu Skin International, Inc., a U.S. corporation,
duly organized and existing under the laws of the State of Utah, U.S.A.
1.8 "Products" shall mean those products, including without
limitation, cosmetics, nutritional products, dietary supplements, vitamins,
over-the-counter drugs, quasi-drugs, drugs and pharmaceutical products that are
produced, manufactured or purchased by NSI for sale or resale, subject to
unavailability due to local regulatory requirements in the AP Region.
1.9 "Sales Aids" shall mean materials, in whatever form, designed,
approved and produced by NSI to assist in the marketing of the Products in the
AP Region.
1.10 "Trademarks" shall mean those words, symbols, devices, logos,
trade names and company names or a combination thereof used in relation to all
Products and Sales Aids covered by the existing or eventual registrations
thereof in the AP Region.
ARTICLE II
APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR
----------------------------------------------
2.1 Scope. NSI hereby appoints and authorizes NSHK as NSI's
exclusive regional distributor, during the term of this Agreement, for the sale
and distribution of Products and Sales Aids in the AP Region, under the
Products' names, logos, and Trademarks, subject to all terms and conditions of
this Agreement, and NSHK hereby accepts such appointment and authorization.
2.2 Sub-distributors. Except as set forth below, NSHK shall not,
without the prior written approval of NSI, appoint sub-distributors or agents to
promote or distribute Products or Sales Aids inside or outside the AP Region.
NSHK may, without the prior written approval of NSI, appoint an NSA Authorized
Affiliate
-3-
as a sub-distributor or agent to promote or distribute Products or Sales Aids in
the AP Region; provided that no such appointment of a sub-distributor or agent
--------
shall relieve NSHK of its obligations hereunder.
2.3 Sales of Products and Sales Aids.
2.3(a) NSHK agrees that any distribution of Products or Sales Aids in
the AP Region shall be made only to an NSI Independent Distributor or
an NSAP Authorized Affiliate. In addition, NSHK may distribute
Products or Sales Aids outside the AP Region to NSI Authorized
Affiliate.
2.3(b) To facilitate sales to NSI Independent Distributors, NSHK
shall have the right to access information regarding such NSI
Independent Distributors in the AP Region on NSI's computer system or
as otherwise recorded or maintained by NSI.
2.4 NSI Sales in the AP Region. NSI agrees not to sell Products or Sales
Aids to any party within the AP Region or to any party outside the AP Region for
delivery within the AP Region, except to NSHK pursuant to the terms and
conditions of this Agreement, unless NSI has received the written consent of
NSHK.
2.5 Sales Outside the AP Region. NSHK agrees that it will not sell
Products or Sales Aids outside the AP Region except as provided in Section
2.3(a) hereof. Further, NSHK shall not promote or solicit customers for Product
or Sales Aids sales outside the AP Region. NSHK shall not establish any
facility outside the AP Region through which orders are solicited or in which
inventories of Products or Sales Aids are stored without NSI's written consent.
2.6 AP Region Orders and Inquiries. The Parties acknowledge that from
time to time inquiries and orders concerning the AP Region will arise. If NSI
receives any order or inquiry concerning the sale of Products or Sales Aids in
the AP Region, NSI agrees to give prompt notice of such inquiry or order to
NSHK, such notice to include the name and address of the person making the order
or inquiry as well as any other relevant details regarding such order or inquiry
that NSHK shall reasonably request. If NSHK receives any order or inquiry
concerning the sale of Products or Sales Aids outside the AP Region, NSHK agrees
to give NSI prompt notice of such inquiry or order, such notice to include the
name and address of the person making the order or inquiry, as well as any other
-4-
relevant details regarding such order or inquiry that NSI shall reasonably
request.
ARTICLE III
GOVERNMENTAL APPROVALS AND REGISTRATIONS
----------------------------------------
3.1 NSHK agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances of
each country in the AP Region to enable this Agreement to become effective, to
enable the Products or Sales Aids to be sold in the AP Region (except as
otherwise provided herein) or to enable any payment pursuant to the provisions
of this Agreement to be made. NSHK agrees to keep NSI informed of the progress
in obtaining all such government approvals.
3.2 Each party agrees to refrain from any action that will cause the
other party to be in violation of any applicable law, regulation, or ordinance
of any jurisdiction in the AP Region or the United States or elsewhere or any
international convention or bilateral or multilateral treaty to which any
jurisdiction in the AP Region or the United States is a signatory, including,
without limitation, the U.S. Foreign Corrupt Practices Act of 1977, the U.S.
Export Control Laws, and the U.S. Anti-Boycott laws.
ARTICLE IV
OBLIGATIONS OF NSHK AS EXCLUSIVE WHOLESALE DISTRIBUTOR IN THE
--------------------------------------------------------------
AP REGION
---------
4.1 Marketing and Distribution. NSHK shall have the following obligations
with respect to marketing and distribution of the Products and Sales Aids:
4.1(a) To use its best efforts to further the promotion, marketing, sales
and other distribution of the Products and Sales Aids in the AP Region.
4.1(b) To maintain, or cause to be maintained, an adequate and balanced
inventory of Products, Sales Aids, supplies and necessary materials to
-5-
promote, market, sell and distribute the Products and Sales Aids in each
country within the AP Region.
4.1(c) To ensure that all inquiries by sub-distributors, NSI Independent
Distributors and customers, including complaints are responded to promptly.
To ensure that all orders are processed and all shipments of Products and
Sales Aids are made within each country in the AP Region in a timely
fashion.
4.1(d) To diligently investigate or cause to be investigated all leads
with potential customers referred to it by NSI.
4.1(e) To permit NSI to visit NSHK and its sub-distributors and to visit
NSHK's place of business and inspect its inventories, service records,
financial records and other relevant documents.
4.1(f) To maintain, cause to be maintained, or contract to maintain,
adequate personnel, distribution and laboratory facilities dedicated on a
full-time or part-time basis to the quality control and sale of Products,
in compliance with all laws, ordinances and regulations applicable within
each country comprising the AP Region.
4.1(g) To provide, at the request of NSI, a business plan for the term and
in the form and detail reasonably requested by NSI and to update such
business plan as reasonably requested by NSI.
4.1(h) To provide, at the request of NSI, reports of its activities and
sales respecting the Products and Sales Aids in the AP Region in a form and
in such detail and time period as NSI may reasonably require.
4.2 NSHK Operations. NSHK agrees to maintain, or cause to be maintained,
such facilities and other places of business within each country of the AP
Region necessary to effect the purposes and intentions of this Agreement. NSHK
further agrees to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting and legal expenses, relating to
such facilities.
4.3 Management Planning. In order to allow NSI to design and carry out
necessary and reasonable managerial planning for its worldwide business NSHK
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shall, in accordance with the schedule required by NSI, advise NSI of the
distribution prices of the Products or Sales Aids to be sold to NSI Independent
Distributors within the AP Region.
4.4 NSHK Claims and Representations. NSHK shall not make any promises,
representations, warranties or guarantees respecting the Products, Sales Aids or
the Sales and Compensation Plan, except in accordance with those
representations, warranties or guarantees provided by NSI with respect thereto
and in accordance and compliance with the applicable laws of the countries in
which NSHK distributes Products and Sales Aids.
4.5 Capitalization. NSHK agrees to capitalize itself adequately and
maintain its operations both on a financially sound basis and in compliance with
all applicable laws, regulations or ordinances covering the operations of such a
business entity within any country in which it may conduct business.
4.6 Customer Support. NSHK agrees to cooperate with NSI in dealing with
any NSI Independent Distributor or customer complaints concerning the Products
and Sales Aids and to take any action requested by NSI to solve such complaints.
NSHK also agrees to assist NSI in arranging for any customer warranty service
required by law or required pursuant to the judgment of NSI.
4.7 Allocation of Expenses.
4.7(a) Import Licenses. To the extent import licenses are required for
the importation of the Products or Sales Aids into the countries within the
AP Region, NSHK hereby agrees that it will be responsible for securing and
maintaining such import licenses and payment of all costs and expenses
associated therewith.
4.7(b) Import Expenses. NSHK agrees that it will be responsible for
payment of all customs duties, excise taxes, similar governmental charges
and levies, and any other charges or expenses related to any Products or
Sales Aids imported into the countries in the AP Region.
4.7(c) Freight. NSHK shall be liable for all freight charges not
allocated to NSI pursuant to Section 7.4(c) hereof.
4.7(d) Other Expenses. In addition to the costs and expenses described in
clauses (a), (b) and (c) above, NSHK agrees that it will be responsible
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for payments of the following expenses, fees and costs, related to the
development and maintenance of the Nu Skin business in the AP Region: (a)
fees and expenses to incorporate operating entities; (b) fees and expenses
for obtaining business licenses and permits; (c) fees, costs and expenses
incurred in drafting and producing required company documentation, Sales
Aids, and other literature such as product catalogs as well as contracts
such as local product purchase agreements; (d) fees and costs incurred in
determining the requirements for, and in actually formulating, and
registering Products, including ascertaining and complying with labeling
and custom\import requirements; (e) expenses and costs related to locating
and establishing office, warehouse and other physical facilities, including
build out, furnishings and equipment, as well as negotiation and securing
of necessary leases and permits; (f) all costs and expenses related to
hiring a general manager and staff, and compliance with local labor laws
and requirements; (g) expenses of monitoring, supervising and disciplining
NSI Independent Distributors; provided that such fees, costs or expenses
--------
are not allocated to NSI under Section 7.4(d) herein.
ARTICLE V
PURCHASE, SALE AND DELIVERY OF PRODUCTS AND SALES AIDS
------------------------------------------------------
5.1 Agreement to Purchase. NSHK shall order such quantities of Products
and Sales Aids as it deems necessary to meet its sales requirements within the
AP Region.
5.1(a) Each order shall be in the form of a written and signed Purchase
Order appearing on the official letterhead of NSHK and forwarded directly
to NSI.
5.1(b) Each Purchase Order shall identify the Product(s) or Sales Aids to
be purchased, the country to which such Products or Sales Aids shall be
distributed to ensure shipment and receipt of Products or Sales Aids which
comply with such country's laws and regulation, the quantities thereof, and
the shipment dates therefor.
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5.1(c) NSI agrees to accept each Purchase Order for Products or Sales Aids
placed by NSHK pursuant to this Article and subject to:
5.1.(c).(i) The availability in NSI's current inventory of the
Product(s) or Sales Aid(s) ordered by NSHK; and,
5.1.(c).(ii) The inability of NSI to perform by reason of force
majeure as defined in Section 16.4 hereof.
Acceptance by NSI shall be in writing, signed by a duly authorized
representative of NSI, and effective upon execution.
5.1(d) NSI agrees that, in determining whether it has sufficient inventory
to fill each Purchase Order, it will treat such Purchase Order on a parity
basis with the orders of all other NSI affiliates.
5.2 Product Shipment. NSI shall ship all Product(s) and Sales Aids sold
by NSI to NSHK hereunder as NSHK may designate in writing on the Purchase Order.
NSI shall transmit all commercial invoices for the Products and Sales Aids
directly to NSHK by registered airmail, postage prepaid, or any other method
mutually acceptable to the Parties.
5.3 Payment Due Date. NSHK shall pay for each shipment of Products and
Sales Aids within sixty (60) days after the date of shipment or the date of
dispatch of a commercial shipping invoice, whichever is later, and shall make
payment for such Products and Sales Aids as provided in Section 6.2 of this
Agreement.
5.4 Passage of Title and Risk of Loss. Title to and risk of loss for any
Product(s) or Sales Aids ordered and shipped pursuant to the terms of this
Article shall remain with NSI until such time that the shipment has moved 50
miles into international airspace or waters or at some point in transit as the
parties may agree to in writing, at which time title and risk of loss passes to
NSHK. Shipment shall be made in a commercially reasonable manner in accordance
with standards applicable in the trade and industry.
5.5 Inspection. Within forty-five (45) days following actual receipt of a
shipment of Products or Sales Aids by NSHK or other NSAP Authorized Affiliates,
NSHK shall inspect, or cause to be inspected, the Products and Sales Aids and
shall notify NSI in writing, in accordance with Section 16.2, of any defects in
such shipment of Products or Sales Aids. In the event of such notification, NSI
shall make appropriate arrangements, acceptable to NSHK, to replace any such
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defective Products or Sales Aids at NSI's sole cost and expense or, failing such
replacement, shall, at the option of NSI, either credit the purchase price of
the defective Products or Sales Aids to NSHK's account or promptly grant NSHK a
cash refund for such purchase price. If NSI is not notified of any defect in a
shipment of Products or Sales Aids within forty-five (45) days after actual
receipt thereof by NSHK or other country of final destination within the AP
Region, then NSHK shall be deemed to have waived its right to claim any defect
in the Products or Sales Aids contained in such shipment; provided that for any
--------
latent or other defect not reasonably discernable upon inspection of the
Products or Sales Aids under the prevailing circumstances NSHK shall have until
forty-five (45) days after discovery of such defect to exercise its rights under
this Section 5.5.
ARTICLE VI
PRODUCT AND SALES AIDS PURCHASE PRICES AND TERMS OF PAYMENT
-----------------------------------------------------------
6.1 Product Availability and Pricing. Concurrent with the execution of
this Agreement, NSI has provided NSHK with a listing of the current Products and
Sales Aids and applicable pricing for said Products and Sales Aids (the "Price
List"). NSI reserves the right, from time to time, in its sole discretion to
change the price of all Products and Sales Aids identified on the Price List, or
to remove Products and Sales Aids from and/or add new Products and Sales Aids to
the Price List; provided however, that (i) NSI shall give NSHK at least thirty
-------- -------
(30) days prior written notice of any price change or removal or addition of
Products or Sales Aids; (ii) Product Pricing shall be based on good faith
negotiations and pricing available to other comparably situated NSI affiliates,
subject to local market variances; and (iii) NSI shall thereafter provide NSHK
with a revised Exhibit B incorporating such change.
6.2 Payment Method. NSHK shall pay the commercial invoices for Products
and Sales Aids shipped under this Agreement in immediately available funds by
wire transfer to a bank or banks designated by NSI, or by such other means of
payment agreed to by NSI from time to time. All purchases of Products and Sales
Aids will be payable in United States Dollars. Without limiting any of NSI's
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other rights and remedies pursuant to this Agreement, amounts not paid within
the time period set forth in the payment provisions herein shall be subject to
an interest charge equal to two percent (2%) over the Citibank, N.A. prime rate
for the entire period such amounts remain unpaid.
ARTICLE VII
OBLIGATIONS OF NSI AS SUPPLIER OF PRODUCTS AND SALES AIDS
---------------------------------------------------------
7.1 Product Quality. NSI shall use its best efforts to maintain and
augment the quality, image and goodwill of the Products and Sales Aids and to
sell to NSHK for resale in the AP Region only Products and Sales Aids that are
consistent with the quality of Products and Sales Aids sold in the United States
of America. NSI and NSHK agree to cooperate to mutually determine the formulae
or ingredients to be used for Products in each market in the AP Region based on
local market regulations and consumer preferences.
7.2 Warranty. NSI warrants that the Products and Sales Aids supplied
hereunder shall be merchantable under (and will comply with) the laws and
regulations of the jurisdiction in which distribution of such Product or Sales
Aid is intended; that it will deliver good title thereto and that Products and
Sales Aids will be delivered free from any lawful security interest or other
lien or encumbrance.
7.2(a) NSI's liability for any breach of such warranties shall not exceed
in amount the price of the Products or Sales Aids in respect of which any
breach is claimed. NSI'S WARRANTY STATED HEREIN IS EXPRESSLY IN LIEU OF
ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
7.2(b) NSI neither assumes nor authorizes any person or entity to assume
for it any other liability in connection with the Products or Sales Aids
supplied hereunder, and there are no oral contracts or warranties
collateral to or affecting this Agreement. NSI shall not be liable to
NSHK or any third parties for consequential, special or incidental damages.
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7.3 Delivery. NSI shall promptly, in accordance with normal and
commercially reasonable delivery schedules in the trade, deliver to NSHK those
Products or Sales Aids for which NSHK places orders in accordance with Article V
hereof.
7.4 Allocation of Expenses.
7.4(a) Export Licenses. To the extent NSI is required to obtain any
United States or other export licenses to export the Products or Sales Aids
to the AP Region, NSI agrees that it will be responsible for securing and
maintaining all such export licenses and payment of all costs and expenses
associated therewith.
7.4(b) Export Expenses. NSI agrees that it will be responsible for
payments of for all customs duties, excise taxes and similar governmental
charges and levies related to the export of the Products or Sales Aids from
the United States of America, or any other jurisdiction.
7.4(c) Freight. NSI shall be liable for reasonable ocean freight and
insurance costs and expenses related to the export of the Products and
Sales Aids from the United States, or any other jurisdiction and delivery
of the Products and Sales Aids to the AP Region as designated in the
purchase order.
7.4(d) Other Expenses. In addition to the costs and expenses described in
clauses (a), (b) and (c) above, NSI shall pay the following additional
expenses, fees and costs: (a) fees and expenses of registering, renewing
and protecting Nu Skin trademarks; (b) fees, costs and expenses incurred in
drafting and producing NSI contracts and literature used in the AP Region
such as distributor agreements, sales compensation plan, policies and
procedures, corporate brochures, introductory booklets or starter kits and
international sponsor agreements; (c) fees, costs and expenses of
negotiating and drafting intercompany agreements relating to NSI's
relationship with NSHK; (d) fees, costs and expenses related to drafting,
negotiating and obtaining approval of NSI's marketing plan as used in the
AP Region; (e) costs and expenses incurred in monitoring and supervising
the pre-market activities of distributors, if any, including any resulting
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disciplinary actions; (f) the fees, costs and expenses incurred in
drafting, preparing, negotiating, obtaining approval for any and all
property licensed to NSHK under its Licensing and Sales Agreement with NSI;
provided that such fees, costs and expenses are not allocated to NSHK under
--------
Section 4.7 herein.
ARTICLE VIII
SALE AND MANUFACTURE OF PRODUCTS
--------------------------------
8.1 Non-Competing Products. Nothing contained herein, however, shall
restrict or prohibit NSHK from selling, distributing, manufacturing or causing
to be manufactured products or materials which do not compete directly or
indirectly with the Products and Sales Aids, provided that such other products
do not infringe upon any patent, name, Trademark, emblem, trade name, design
right, model or other commercial or industrial property right of NSI.
8.2 Competing Products. During the term of this Agreement, NSHK shall
not, and shall not authorize a third party to, manufacture, cause to be
manufactured, distribute or sell (i) any products or materials which directly or
indirectly compete with the Products or the Sales Aids or (ii) copies of the
Products, Sales Aids, or other products that might reasonably be deemed under
U.S. or foreign law to be confusingly similar to the Products or Sales Aids, in
each case without the prior written consent of NSI, which consent shall not be
unreasonably withheld.
8.3 Discontinued Products. Notwithstanding the foregoing, in the event NSI
shall discontinue the sale of any Product, NSI shall promptly notify NSHK of
such discontinuance and thereafter NSHK or an NSAP Authorized Affiliate may
elect to manufacture or cause to be manufactured such Product; provided that, if
-------------
such discontinued Product competes directly or indirectly with any Product, the
prior written consent of NSI shall be required. If NSHK or an NSAP Authorized
Affiliate elects to so manufacture or cause to be manufactured such discontinued
Product, NSI shall license the formula to such discontinued Product to NSHK or
such NSA Authorized Affiliate on substantially the same terms as set forth in
the
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Trademark/Tradename License Agreement, dated as of the date hereof, by and
between NSI and NSHK.
ARTICLE IX
NATURE OF RELATIONSHIP
----------------------
The relationship of NSHK and NSI shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other. The Parties understand and agree that NSI will refrain from
conducting business or engaging in any activity in the AP Region which could be
construed, under the applicable laws and tax regulations, as carrying on or
conducting business in the AP Region.
ARTICLE X
TERM
----
Subject to Article XI hereof, this Agreement shall be for a term ending on
December 31, 2016 provided, however, that this Agreement is subject to
renegotiation after December 31, 2001 in the event that members of the families
of, or trusts or foundations established by or for the benefit of, Blake M.
Roney, Nedra D. Roney, Sandie N. Tillotson, Craig Tillotson, Craig Bryson,
Steven J. Lund, Brooke B. Roney, Kirk V. Roney and Keith R. Halls on a combined
basis no longer beneficially own a majority of the voting stock of Nu Skin
Asia Pacific.
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ARTICLE XI
TERMINATION
-----------
11.1 This Agreement may be terminated by either Party in the
following circumstances immediately or at any time after the occurrence of any
of the following events:
(a) the other Party shall commence any case, proceeding
or other action (i) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
compensation or other relief with respect to it or its debts, or (b) seeking
appointment of a receiver, trustee, custodian or other similar action; or
(2) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above which (i)
results in the entry of an order for relief or any such adjudication or
appointment or (ii) remains undismissed, undischarged or unbonded for a period
of 90 days. Events described in clauses (a) and (b) of this Section 11.1 shall
be referred to as a Bankruptcy Event. If a Bankruptcy Event occurs, all amounts
owing under this Agreement shall become immediately due and payable, without any
notice thereof; or
(3) if the other Party causes or allows a judgment in excess of
twenty-five million dollars ($25,000,000) to be entered against it or causes or
allows a lien, security interest, or other encumbrance to attach to its assets
which secures an amount in excess of twenty-five million dollars ($25,000,000).
11.2 This Agreement may be terminated by either Party, if the other
Party is in default in the performance of any material obligation under this
Agreement and such default has not been cured within sixty (60) days after
receipt of written notice of such default by the defaulting party; or
11.3 This Agreement may be terminated by NSI if Nu Skin Asia Pacific shall
no longer own or control a majority of the voting interest in NSJ, with such
termination to take effect thirty (30) days after NSI gives written notice to
NSJ of the occurrence of a change in control and its intention to terminate this
Agreement based thereon.
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ARTICLE XII
EFFECT OF TERMINATION
---------------------
12.1 Upon termination of this Agreement, all rights and licenses herein
granted to NSHK shall cease and shall revert to NSI and NSHK shall immediately
cease holding itself out to the public as NSI's exclusive wholesale distributor
in the AP Region or otherwise represent that it is associated in any manner with
NSI.
12.2 Upon termination of this Agreement, NSI may either (a) deliver, and
NSHK shall pay for, all Products and Sales Aids ordered by NSHK prior to such
termination or (b) cancel, without cost or liability, the order of such Products
or Sales Aids.
12.3 Upon termination of this Agreement, neither party shall be released
from its obligations to pay monies due or to become due to the other party or to
complete any unfulfilled obligations under this Agreement, and each party shall
immediately pay, perform and discharge all debts, obligations and liabilities
hereunder.
12.4 Upon termination of this Agreement for any reason, neither party shall
be liable for any special, indirect, incidental, punitive or consequential
damages, regarding such termination, irrespective of whether such obligations or
liabilities may be contemplated in any law applicable within the AP Region and
or elsewhere, and, except as otherwise provided by applicable law, each party
hereby waives and relinquishes any rights, pursuant to law or otherwise, to any
such damages. The remedies contained herein shall be exclusive.
12.5 The provisions of Article XII, Article XIII, and Article XIV, as well
as any other provisions that by their terms so provide, shall survive
termination of this Agreement and continue in full force and effect thereafter.
ARTICLE XIII
CONFIDENTIALITY
---------------
13.1 All trade secrets, proprietary technology, know-how or other
non-public or proprietary business or technical information owned or used by NSI
or NSHK and supplied to or acquired by the other whether in oral or documentary
form
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(the "Confidential Information") shall be supplied and acquired in
confidence and shall be solely for the use of the receiving party pursuant to
this Agreement and such party shall keep the Confidential Information
confidential and shall not disclose the same, at any time during the term of
this Agreement or after its termination, except to its employees and to NSA
Authorized Affiliates and to their employees for the purposes of its business in
accordance with this Agreement and except as may be required by law; provided
that if the receiving party determines that a disclosure is required by law, the
receiving party shall notify the disclosing party in order to give the
disclosing party an opportunity to seek an injunction or otherwise attempt to
keep the Confidential Information confidential. The receiving party shall, at
the request of the disclosing party, destroy or return the Confidential
Information without retaining copies if, as and when this Agreement is
terminated or expires. For purposes of this Agreement, the term "Confidential
Information" shall not include information or documents that (i) become
generally available to the public other than as a result of a disclosure by the
receiving party, (ii) was otherwise lawfully available to the receiving party,
or (iii) was generated independently by the receiving party. The provisions of
this Article shall survive termination of this Agreement.
ARTICLE XIV
INDEMNIFICATION AND INSURANCE
-----------------------------
14.1 NSI agrees during and after the term of this Agreement to
indemnify and hold harmless NSHK from liability, loss, cost or damage,
(including reasonable attorney's fees) which NSHK may incur as a result of
claims, demands or judgments, of any kind or nature, by anyone whomsoever,
arising out of (i) an alleged or actual defect in the design, manufacture or
content of, or any harm caused by any Products or Sales Aids or the failure of
any Product to comply with all applicable regulatory requirements in the AP
Region; or (ii) a claim that NSI's proprietary information infringes any patent,
copyright, trade secret or other intellectual property right of a third party;
provided that NSHK provides
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NSI with prompt notice in writing of any such claim or demand and NSHK
cooperates with NSI in the defense or settlement of any such claim or action.
14.2 NSI, at its sole cost and expense, shall obtain and keep in
force during the term of this Agreement, a policy or policies of comprehensive
product liability insurance insuring NSI and NSHK against any liability arising
out of the manufacture, packaging and sale of the Products issued by recognized
insurers. The limits of said insurance shall not, however, limit the liability
of NSI hereunder. Within thirty (30) days following the execution of this
Agreement, NSI shall provide, if requested by NSHK, a certificate of insurance,
in form and substance satisfactory to NSHK which certificate shall evidence NSHK
as an additional insured under such policy on the same terms and conditions as
NSI is insured. Thereafter, and from time to time, NSI shall provide to NSHK
such assurance of coverage of NSHK with respect to such insurance policy or
policies as NSHK may reasonably request. NSI shall not do or permit to be done
anything which shall invalidate the insurance policy or policies obtained in
accordance with the provisions of this Section 14.2. NSHK shall also maintain,
or cause to be maintained, insurance with one or more recognized insurers
reasonable in coverage and amount in direct proportion and corresponding to the
business to be conducted by NSHK pursuant to this Agreement. At NSI's request
NSHK shall provide NSI with certificates evidencing such insurance coverage.
14.3 NSHK shall at all times remain fully liable for the performance
of its sub-distributors and/or agents and NSHK hereby agrees to indemnify and
hold harmless NSI from all damages, losses, cost or expenses arising in any
manner from any act or omission on the part of its sub-distributors or agents.
ARTICLE XV
NEW COUNTRIES
-------------
In the event Nu Skin Asia decides to commence operations in any
country in the AP Region in which it is not operating on the date hereof, NSI
agrees to enter into Trademark/Tradename License Agreements and Licensing and
Sales Agreements, and to cause Nuskin International Management Group, Inc.
("NSMG") to enter into management services agreements, with Nu Skin Asia or any
NSAP Authorized Affiliate operating in such country, which agreements shall be
substantially similar to the Trademark/
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Tradename License Agreements and Licensing and Sales Agreements between (a) each
of the Existing NSAP Affiliates and (b) NSI and the management services
agreements between (a) each of the existing NSAP affiliates and (b) NSMG, each
dated as of the date hereof.
ARTICLE XVI
MISCELLANEOUS
-------------
16.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither Party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other Party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
16.2 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered by hand, or if communicated by facsimile, cable or similar electronic
means to the facsimile number or cable identification number as previously
provided by each party to the other, at the time that receipt thereof has been
confirmed by return electronic communication or signal that the message has been
received, or if mailed, ten (10) days after dispatch by registered airmail,
postage prepaid, from any post office addressed as follows:
If to NSI: Attn: Chief Operating Officer
Nu Skin International, Inc.
75 West Center Street
Provo, Utah 84601
Facsimile No.: (801) 345-5999
If to NSHK: Attn: Regional Legal Counsel
Nu Skin Hong Kong, Inc.
26th Floor, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
Facsimile No.:
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
16.3 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
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insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
16.4 Force Majeure. The Parties shall not be responsible for
failure to perform hereunder due to force majeure, which shall include, but not
be limited to: fires, floods, riots, strikes, labor disputes, freight embargoes
or transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event
of force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
16.5 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSHK within 30 days after written notice of such dispute is given by
NSHK or NSI, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If
the dispute is not resolved within such 30-day period, the Parties shall
petition the AAA to promptly appoint a competent, disinterested person to act as
such arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSHK. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSHK. The decision of the
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arbitrator shall be final and binding upon NSI and NSHK and may be enforced in
any court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSI and NSHK; provided, that each of NSI
and NSHK shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
16.6 Applicability of Post-Effective Laws. The Parties agree that
neither the Vienna Convention on the International Sale of Goods nor any such
similar law, treaty or act that becomes effective during the term of this
Agreement shall be applicable to this Agreement or the transactions contemplated
hereunder.
16.7 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
16.8 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
16.9 Severability. To the extent that any provision of this Agreement
is (or, in the opinion of counsel mutually acceptable to both parties, would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
16.10 Counterparts and Headings. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
-21-
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized representatives in the United
States of America as of the day and the year first above written.
NU SKIN HONG KONG, INC. NU SKIN INTERNATIONAL, INC.
By:__________________________ By:__________________________
BLAKE M. RONEY MAX L. PINEGAR
PRESIDENT AND CEO GENERAL MANAGER
-22-
Exhibit 10.9
NSHK
NSJ
AMENDED AND RESTATED
WHOLESALE DISTRIBUTION AGREEMENT
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I DEFINITIONS.................................................. 1
1.1 "Agreement".................................................. 1
1.2 "NSJ Authorized Affiliate"................................... 1
1.3 "NSJ Independent Distributor"................................ 1
1.4 "NSJ"........................................................ 1
1.5 "Products"................................................... 1
1.6 "Territory".................................................. 1
1.7 "Sales Aids"................................................. 2
1.8 "Trademarks"................................................. 2
ARTICLE II APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR............... 2
2.1 Scope........................................................ 2
2.2 Sub-distributors............................................. 2
2.3 Sales of Products and Sales Aids............................. 2
2.4 NSJ Sales in the Territory................................... 2
2.5 Sales Outside the Territory.................................. 2
2.6 Territory Orders and Inquiries............................... 3
ARTICLE III GOVERNMENTAL APPROVALS AND REGISTRATIONS..................... 3
ARTICLE IV OBLIGATIONS OF NSJ AS EXCLUSIVE WHOLESALE
DISTRIBUTOR IN THE TERRITORY............................... 3
4.1 Marketing and Distribution................................... 3
4.2 NSJ Operations............................................... 4
4.3 Pricing Information.......................................... 5
4.4 NSJ Claims and Representations............................... 5
4.5 Capitalization............................................... 5
4.6 Customer Support............................................. 5
4.7 Allocation of Expenses....................................... 5
ARTICLE V PURCHASE, SALE AND DELIVERY OF PRODUCTS AND SALES AIDS....... 6
5.1 Agreement to Purchase........................................ 6
5.2 Product Shipment............................................. 7
5.3 Payment Due Date............................................. 7
5.4 Passage of Title and Risk of Loss............................ 7
5.5 Inspection................................................... 7
ARTICLE VI PRODUCT AND SALES AIDS PURCHASE PRICES
AND TERMS OF PAYMENT....................................... 8
6.1 Product Availability and Pricing............................. 8
6.2 Payment Method............................................... 8
ARTICLE VII OBLIGATIONS OF NSJ AS SUPPLIER OF PRODUCTS
AND SALES AIDS............................................. 8
7.1 Product Quality.............................................. 8
7.2 Warranty..................................................... 9
7.3 Delivery..................................................... 9
7.4 Allocation of Expenses....................................... 9
ARTICLE VIII SALE AND MANUFACTURE OF PRODUCTS............................. 10
8.1 Non-Competing Products....................................... 10
8.2 Competing Products........................................... 10
8.3 Discontinued Products........................................ 10
ARTICLE IX NATURE OF RELATIONSHIP....................................... 11
ARTICLE X TERM......................................................... 11
ARTICLE XI TERMINATION.................................................. 11
ARTICLE XII EFFECT OF TERMINATION........................................ 12
ARTICLE XIII CONFIDENTIALITY.............................................. 13
ARTICLE XIV INDEMNIFICATION AND INSURANCE................................ 14
ARTICLE XV MISCELLANEOUS................................................ 15
15.1 Assignment................................................... 15
15.2 Notices...................................................... 15
15.3 Waiver and Delay............................................. 15
15.4 Force Majeure................................................ 16
15.5 Governing Law and Dispute Resolution......................... 16
15.6 Applicability of Post-Effective Laws......................... 17
15.7 Integrated Contract.......................................... 17
15.8 Modifications and Amendments................................. 17
15.9 Severability................................................. 17
15.10 Counterparts and Headings.................................... 17
-ii-
AMENDED AND RESTATED WHOLESALE DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED WHOLESALE DISTRIBUTION AGREEMENT is made and
entered this ____ day of November, 1996, by and between Nu Skin Japan, Inc., a
corporation a company dually incorporated, organized and existing under the laws
of Japan and the State of Delaware, U.S.A., (hereinafter "NSJ") and Nu Skin Hong
Kong, Inc., a foreign branch of a corporation a company duly incorporated,
organized and existing under the laws of Japan and the State of Delaware,
U.S.A., (hereinafter "NSHK"). Hereinafter, NSJ and NSHK collectively shall be
referred to as the "Parties. "
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, NSI (as hereinafter defined) is engaged in the design, production
and marketing of Products and Sales Aids (as hereinafter defined) for
distribution in international markets through a network of independent
distributors; and,
WHEREAS, NSI has authorized and appointed NSHK as its exclusive regional
distributor of Products and Sales Aids in certain countries in the Asia/Pacific
region (including the Territory (as hereinafter defined)) and desires to appoint
subdistributors in certain of such countries pursuant to Section 2.2 of its
Regional Distribution Agreement with NSI, dated as of the date hereof (the
"Regional Distribution Agreement"); and,
WHEREAS, NSJ desires, on the terms and conditions hereinafter set forth, to
act as the exclusive distributor of NSHK of Products and Sales Aids in the
Territory; and,
WHEREAS, NSHK is willing, on the terms and conditions hereinafter set
forth, to grant to NSJ the exclusive right to so distribute Products and Sales
Aids; and,
WHEREAS, the Parties entered into a Wholesale Distribution Agreement on
November 11, 1993 and an Amendment to said agreement on July 12, 1993 (the
"Prior Distribution Agreement"); and,
WHEREAS, the Parties wish to amend and restate the Prior Wholesale
Distribution Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement the following words, terms, and phrases
shall have the meaning assigned to them in this Article I, unless the context
otherwise requires or the parties otherwise agree within the terms of this
Agreement:
1.1 "Agreement" shall mean this Amended and Restated Wholesale
Distribution Agreement between NSHK and NSJ (together with any exhibits and
schedules hereto), as the same may be modified, amended or supplemented from
time to time).
1.2 "NSI Independent Distributor" shall mean a person or business entity
authorized by contract with NSI to distribute, as an independent contractor, the
Products and Sales Aids in accordance with the terms of such distribution
contract.
1.3 "NSI" shall mean Nu Skin International, Inc., a U.S. corporation, duly
organized and existing under the laws of the State of Utah, U.S.A.
1.4 "Products" shall mean those products, including without limitation,
cosmetics, nutritional products, dietary supplements, vitamins, over-the-counter
drugs, quasi-drugs, drugs and pharmaceutical products that are produced,
manufactured or purchased by NSI for sale or resale, subject to unavailability
due to local regulatory requirements in the Territory.
1.5 "Territory" shall mean the country of Japan.
1.6 "Sales Aids" shall mean materials, in whatever form, designed,
approved and produced by NSJ to assist in the marketing of the Products in the
Territory.
1.7 "Trademarks" shall mean those words, symbols, devices, logos, trade
names and company names or a combination thereof used in relation to all
Products and Sales Aids covered by the existing or eventual registrations
thereof in the Territory.
ARTICLE II
APPOINTMENT AS EXCLUSIVE WHOLESALE DISTRIBUTOR
----------------------------------------------
2.1 Scope. NSHK hereby appoints and authorizes NSJ as NSHK's exclusive
distributor, during the term of this Agreement, for the sale and distribution of
Products and Sales Aids in the Territory, under the Products' names, logos, and
Trademarks, subject to all terms and conditions of this Agreement, and NSJ
hereby accepts such appointment and authorization.
2.2 Sub-distributors. NSJ shall not, without the prior written approval
of NSHK, appoint sub-distributors or agents to promote or distribute Products or
Sales Aids inside or outside the Territory.
2.3 Sales of Products and Sales Aids.
2.3(a) NSJ agrees that any distribution of Products or Sales Aids in the
Territory shall be made only to an NSI Independent Distributor.
2.3(b) To facilitate sales to NSI Independent Distributors, NSJ shall have
the right to access information regarding such NSI Independent Distributors
in the Territory as provided by NSI to NSHK pursuant to the Regional
Distribution Agreement.
2.4 NSHK Sales in the Territory. NSHK agrees not to sell Products or
Sales Aids to any party within the Territory or to any party outside the
Territory for delivery within the Territory, except to NSJ pursuant to the terms
and conditions of this Agreement, unless NSHK has received the written consent
of NSJ.
2.5 Sales Outside the Territory. NSJ agrees that it will not sell
Products or Sales Aids outside the Territory. Further, NSJ shall not promote or
solicit customers for Product or Sales Aids sales outside the Territory. NSJ
shall not establish any facility outside the Territory through which orders are
-2-
solicited or in which inventories of Products or Sales Aids are stored without
NSHK's written consent.
2.6 Territory Orders and Inquiries. The Parties acknowledge that from
time to time inquiries and orders concerning the Territory will arise. If NSHK
receives any order or inquiry concerning the sale of Products or Sales Aids in
the Territory, NSHK agrees to give prompt notice of such inquiry or order to
NSJ, such notice to include the name and address of the person making the order
or inquiry as well as any other relevant details regarding such order or inquiry
that NSJ shall reasonably request. If NSJ receives any order or inquiry
concerning the sale of Products or Sales Aids outside the Territory, NSJ agrees
to give NSHK prompt notice of such inquiry or order, such notice to include the
name and address of the person making the order or inquiry, as well as any other
relevant details regarding such order or inquiry that NSHK shall reasonably
request.
ARTICLE III
GOVERNMENTAL APPROVALS AND REGISTRATIONS
----------------------------------------
NSJ agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances of
the Territory to enable this Agreement to become effective, to enable the
Products or Sales Aids to be sold in the Territory (except as otherwise provided
herein) or to enable any payment pursuant to the provisions of this Agreement to
be made. NSJ agrees to keep NSHK informed of the progress in obtaining all such
government approvals.
ARTICLE IV
OBLIGATIONS OF NSJ AS EXCLUSIVE WHOLESALE DISTRIBUTOR IN THE
-------------------------------------------------------------
TERRITORY
---------
4.1 Marketing and Distribution. NSJ shall have the following obligations
with respect to marketing and distribution of the Products and Sales Aids:
-3-
4.1(a) To use its best efforts to further the promotion, marketing, sales
and other distribution of the Products and Sales Aids in the Territory.
4.1(b) To maintain, or cause to be maintained, an adequate and balanced
inventory of Products, Sales Aids, supplies and necessary materials to
promote, market, sell and distribute the Products and Sales Aids in each
country within the Territory.
4.1(c) To ensure that all inquiries by sub-distributors, NSI Independent
Distributors and customers, including complaints are responded to promptly.
To ensure that all orders are processed and all shipments of Products and
Sales Aids are made within the Territory in a timely fashion.
4.1(d) To diligently investigate or cause to be investigated all leads
with potential customers referred to it by NSHK.
4.1(e) To permit NSHK to visit NSJ and its sub-distributors and to visit
NSJ's place of business and inspect its inventories, service records,
financial records and other relevant documents.
4.1(f) To maintain, cause to be maintained, or contract to maintain,
adequate personnel, distribution and laboratory facilities dedicated on a
full-time or part-time basis to the quality control and sale of Products,
in compliance with all laws, ordinances and regulations applicable within
the Territory.
4.1(g) To provide, at the request of NSHK, a business plan for the term
and in the form and detail reasonably requested by NSHK and to update such
business plan as reasonably requested by NSHK.
4.1(h) To provide, at the request of NSHK, reports of its activities and
sales respecting the Products and Sales Aids in the Territory in a form and
in such detail and for such time period as NSHK may reasonably require.
4.2 NSJ Operations. NSJ agrees to maintain, or cause to be maintained,
such facilities and other places of business within the Territory necessary to
effect the purposes and intentions of this Agreement. NSJ further agrees to
bear all costs and expenses it incurs in the negotiation, memorialization,
execution and performance of all leases, rentals, equipment, salaries, taxes,
licenses,
-4-
insurance, permits, telephone, telegraph, promotional, advertising, travel,
accounting and legal expenses, relating to such facilities.
4.3 Pricing Information. At the request of NSHK, NSJ agrees to advise
NSHK of the distribution prices of the Products or Sales Aids to be sold to NSI
Independent Distributors within the Territory.
4.4 NSJ Claims and Representations. NSJ shall not make any promises,
representations, warranties or guarantees respecting the Products, Sales Aids or
the Sales and Compensation Plan, except in accordance with those
representations, warranties or guarantees as provided by NSI with respect
thereto and in accordance and compliance with the applicable laws of the
Territory.
4.5 Capitalization. NSJ agrees to capitalize itself adequately and
maintain its operations both on a financially sound basis and in compliance with
all applicable laws, regulations or ordinances covering the operations of such a
business entity within any country in which it may conduct business.
4.6 Customer Support. NSJ agrees to cooperate with NSHK in dealing with
any NSI Independent Distributor or customer complaints concerning the Products
and the Sales Aids and to take any action requested by NSHK to solve such
complaints. NSJ also agrees to assist NSHK in arranging for any customer
warranty service required by law or required pursuant to the judgment of NSHK.
4.7 Allocation of Expenses.
4.7(a) Import Licenses. To the extent import licenses are required for
the importation of the Products or Sales Aids into the Territory, NSJ
hereby agrees that it will be responsible for securing and maintaining such
import licenses and payment of all costs and expenses associated therewith.
4.7(b) Import Expenses. NSJ agrees that it will be responsible for
payment of all customs duties, excise taxes, similar governmental charges
and levies, and any other charges or expenses related to any Products or
Sales Aids imported into the Territory.
4.7(c) Freight. NSJ shall be liable for all freight charges not allocated
to NSHK pursuant to Section 7.4(c) hereof.
-5-
4.7(d) Other Expenses. In addition to the costs and expenses described in
clauses (a), (b) and (c) above, NSJ agrees that it will be responsible for
payments of the following expenses, fees and costs, related to the
development and maintenance of the Nu Skin business in the Territory:
(a) fees and expenses to incorporate operating entities; (b) fees and
expenses for obtaining business licenses and permits; (c) fees, costs and
expenses incurred in drafting and producing required company documentation,
Sales Aids, and other literature such as product catalogs as well as
contracts such as local product purchase agreements; (d) fees and costs
incurred in determining the requirements for, and in actually formulating,
and registering Products, including ascertaining and complying with
labeling and custom\import requirements; (e) expenses and costs related to
locating and establishing office, warehouse and other physical facilities,
including build out, furnishings and equipment, as well as negotiation and
securing of necessary leases and permits; (f) all costs and expenses
related to hiring a general manager and staff, and compliance with local
labor laws and requirements; (g) expenses of monitoring, supervising and
disciplining NSJ Independent Distributors; provided that such fees, costs
--------
or expenses are not allocated to NSJ under Section 7.4(d)
herein.
ARTICLE V
PURCHASE, SALE AND DELIVERY OF PRODUCTS AND SALES AIDS
------------------------------------------------------
5.1 Agreement to Purchase. NSJ shall order such quantities of Products
and Sales Aids as it deems necessary to meet its sales requirements within the
Territory.
5.1(a) Each order shall be in the form of a written and signed Purchase
Order appearing on the official letterhead of NSJ. Each Purchase order
shall be forwarded directly to NSI with a copy to be forwarded
simultaneously therewith to NSHK. NSHK shall review such Purchase Order
for compliance with the terms of the Regional Distribution Agreement and
for reasonableness of the quantities ordered with forecasted sales of
Products by NSJ. Unless earlier waived, NSHK shall have the right, within
-6-
ten (10) days after placement of such Purchase Order, to rescind such
Purchase Order and shall notify NSJ and NSI in writing of its decision to
exercise such rescission rights prior to the expiration of such ten-day
period.
5.1(b) Each Purchase Order shall identify the Product(s) or Sales Aids to
be purchased, the country to which such Products or Sales Aids shall be
distributed to ensure shipment and receipt of Products or Sales Aids which
comply with such country's laws and regulation, the quantities thereof, and
the shipment dates therefor.
5.1(c) NSI shall accept each Purchase Order for Products or Sales Aids
placed by NSJ pursuant to this Article and subject to:
5.1.(c).(i) The availability in NSI's current inventory of the
Product(s) or Sales Aid(s) ordered by NSJ; and,
5.1.(c).(ii) The inability of NSI to perform by reason of force
majeure as defined in Section 15.4 hereof; and,
5.1.(c).(iii) NSHK's ability to rescind such Purchase Order pursuant
to Section 5.1(a) hereof. NSI shall have up to ten (10) days after receipt of
any Purchase Order to accept such Purchase order. Acceptance by NSI shall be in
writing, signed by a duly authorized representative of NSI, and effective upon
execution.
5.1(d) NSI , in determining whether it has sufficient inventory
to fill each Purchase Order, will treat such Purchase Order on a parity basis
with the orders of all other NSI affiliates.
5.2 Product Shipment. NSI shall ship all Product(s) and Sales Aids sold
by NSHK to NSJ hereunder as NSJ may designate in writing on the Purchase Order.
NSJ shall transmit all commercial invoices for the Products and Sales Aids
directly to NSI and NSHK by registered airmail, postage prepaid, or any other
method mutually acceptable to the Parties.
5.3 Payment Due Date. NSJ shall pay for each shipment of Products and
Sales Aids within sixty (60) days after the date of arrival or the date of
dispatch of a commercial shipping invoice, whichever is later, and shall make
-7-
payment for such Products and Sales Aids as provided in Section 6.2 of this
Agreement.
5.4 Passage of Title and Risk of Loss. Title to and risk of loss for any
Product(s) or Sales Aids ordered and shipped pursuant to the terms of this
Article shall remain with NSHK until their actual delivery to NSJ or its
designed agent at the part designated in the Purchase Order or at some point in
transit as the parties may agree to in writing, at which time title and risk of
loss passes to NSJ. Shipment shall be made in a commercially reasonable manner
in accordance with standards applicable in the trade and industry.
5.5 Inspection. Within forty-five (45) days following actual receipt of a
shipment of Products or Sales Aids by NSJ, NSJ shall inspect, or cause to be
inspected, the Products and Sales Aids and shall notify NSHK and NSI in writing,
in accordance with Section 15.2, of any defects in such shipment of Products or
Sales Aids. In the event of such notification, NSHK shall make appropriate
arrangements, acceptable to NSJ, to replace any such defective Products or Sales
Aids at NSHK's sole cost and expense or, failing such replacement, shall, at the
option of NSHK, either credit the purchase price of the defective Products or
Sales Aids to NSI's account or promptly grant NSJ a cash refund for such
purchase price. If NSHK is not notified of any defect in a shipment of Products
or Sales Aids within forty-five (45) days after actual receipt thereof by NSJ or
other country of final destination within the Territory, then NSJ shall be
deemed to have waived its right to claim any defect in the Products or Sales
Aids contained in such shipment; provided that for any latent or other defect
--------
not reasonably discernable upon inspection of the Products or Sales Aids under
the prevailing circumstances NSJ shall have until forty-five (45) days after
discovery of such defect to exercise its rights under this Section 5.5.
ARTICLE VI
PRODUCT AND SALES AIDS PURCHASE PRICES AND TERMS OF PAYMENT
-----------------------------------------------------------
6.1 Product Availability and Pricing. Prices to be paid by NSJ to NSHK
for Products and Sales Aids purchased hereunder shall be negotiated and
-8-
determined on an arm's length basis may be adjusted from time to time as greed
by the Parties in writing.
6.2 Payment Method. NSJ shall pay the commercial invoices for Products
and Sales Aids shipped under this Agreement in immediately available funds by
wire transfer to a bank or banks designated by NSHK, or by such other means of
payment agreed to by NSHK from time to time. All purchases of Products and
Sales Aids will be payable in Japanese Yen with any exchange rate risk to be
borne by NSHK. Without limiting any of NSHK's other rights and remedies
pursuant to this Agreement, amounts not paid within the time period set forth in
the payment provisions herein shall be subject to an interest charge equal to
two percent (2%) over the Citibank, N.A. prime rate for the entire period such
amounts remain unpaid.
ARTICLE VII
OBLIGATIONS OF NSJ AS SUPPLIER OF PRODUCTS AND SALES AIDS
---------------------------------------------------------
7.1 Product Formulation. In consultation with NSI, NSHK and NSJ agree to
cooperate to mutually determine the formulae or ingredients to be used for
Products in the Territory based on local market regulations and consumer
preferences.
7.2 Warranty. NSHK warrants that the Products and Sales Aids supplied
hereunder shall be merchantable under (and will comply with) the laws and
regulations of the jurisdiction in which distribution of such Product or Sales
Aid is intended; that it will deliver good title thereto and that Products and
Sales Aids will be delivered free from any lawful security interest or other
lien or encumbrance.
7.2(a) NSHKs liability for any breach of such warranties shall not exceed
in amount the price of the Products or Sales Aids in respect of which any
breach is claimed. NSHK'S WARRANTY STATED HEREIN IS EXPRESSLY IN LIEU OF
ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
7.2(b) NSHK neither assumes nor authorizes any person or entity to assume
for it any other liability in connection with the Products or Sales Aids
-9-
supplied hereunder, and there are no oral contracts or warranties
collateral to or affecting this Agreement. NSHK shall not be liable to NSJ
or any third parties for consequential, special or incidental damages.
7.3 Delivery. NSHK shall promptly, in accordance with normal and
commercially reasonable delivery schedules in the trade, deliver to NSJ those
Products or Sales Aids for which NSJ places orders in accordance with Article V
hereof.
7.4 Allocation of Expenses.
7.4(a) Export Licenses. To the extent NSHK is required to obtain any
United States, Hong Kong or other export licenses to export the Products or
Sales Aids to the Territory, NSHK shall pay all costs and expenses
associated therewith.
7.4(b) Export Expenses. NSHK agrees that it will be responsible for
payments of all customs duties, excise taxes and similar governmental
charges and levies related to the export of the Products or Sales Aids from
the United States of America, Hong Kong or any other jurisdiction.
7.4(c) Freight. NSHK shall be liable for reasonable ocean freight and
insurance costs and expenses related to the export of the Products and
Sales Aids from the United States, Hong Kong or any other jurisdiction and
delivery of the Products and Sales Aids to the Territory as designated in
the purchase order.
ARTICLE VIII
SALE AND MANUFACTURE OF PRODUCTS
--------------------------------
8.1 Non-Competing Products. Nothing contained herein, however, shall
restrict or prohibit NSJ from selling, distributing, manufacturing or causing to
be manufactured products or materials which do not compete directly or
indirectly with the Products and Sales Aids, provided that such other products
do not infringe upon any patent, name, Trademark, emblem, trade name, design
right, model or other commercial or industrial property right of NSI.
8.2 Competing Products. During the term of this Agreement, NSJ shall not,
and shall not authorize a third party to, manufacture, cause to be
-10-
manufactured, distribute or sell (i) any products or materials which directly or
indirectly compete with the Products or the Sales Aids or (ii) copies of the
Products, Sales Aids, or other products that might reasonably be deemed under
U.S. or foreign law to be confusingly similar to the Products or Sales Aids, in
each case without the prior written consent of NSHK.
8.3 Discontinued Products. Notwithstanding the foregoing, in the event
NSHK receives notice from NSI of the discontinuance of the sale of any Product,
NSHK shall promptly notify NSJ of such discontinuance and thereafter NSJ may
elect to manufacture or cause to be manufactured such Product; provided that, if
--------
such discontinued Product competes directly or indirectly with any Product, the
prior written consent of NSI shall be required. If NSJ elects to so manufacture
or cause to be manufactured such discontinued Product, NSHK shall, pursuant to
the terms of the Regional Distribution Agreement, request that NSI license the
formula to such discontinued Product to NSJ on substantially the same terms as
set forth in the Trademark/Tradename License Agreement, dated as of the date
hereof, by and between NSI and NSJ.
ARTICLE IX
NATURE OF RELATIONSHIP
----------------------
The relationship of NSJ and NSHK shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other.
-11-
ARTICLE X
TERM
----
Subject to Article XI hereof, this Agreement shall be for a term ending on
the earlier of December 31, 2016 or the termination of the Regional DIstribution
Agreement in accordance with its terms.
ARTICLE XI
TERMINATION
-----------
11.1 This Agreement may be terminated by either Party in the following
circumstances immediately or at any time after the occurrence of any of the
following events:
(a) the other Party shall commence any case, proceeding or other action
(i) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, compensation or other relief with respect to it or its debts,
or (ii) seeking appointment of a receiver, trustee, custodian or other
similar action; or
(b) there shall be commenced against the other Party any case, proceeding
or other action of a nature referred to in clause (a) above which
(i) results in the entry of an order for relief or any such adjudication or
appointment or (ii) remains undismissed, undischarged or unbonded for a
period of 90 days. Events described in clauses (a) and (b) of this Section
11.1 shall be referred to as a Bankruptcy Event. If a Bankruptcy Event
occurs, all amounts owing under this Agreement shall become immediately due
and payable, without any notice thereof; or
(c) if the other Party causes or allows a judgment in excess of twenty-
five million dollars ($25,000,000) to be entered against it or causes or
allows a lien, security interest, or other encumbrance to attach to its
-12-
assets which secures an amount in excess of twenty-five million dollars
($25,000,000).
11.2 This Agreement may be terminated by either Party, if the other Party
is in default in the performance of any material obligation under this
Agreement and such default has not been cured within sixty (60) days after
receipt of written notice of such default by the defaulting party.
ARTICLE XII
EFFECT OF TERMINATION
---------------------
12.1 Upon termination of this Agreement, all rights and licenses herein
granted to NSJ shall cease and shall revert to NSHK and NSJ shall immediately
cease holding itself out to the public as NSHK's exclusive wholesale
distributor in the Territory or otherwise represent that it is associated in any
manner with NSHK.
12.2 Upon termination of this Agreement, NSHK may either (a) deliver, and
NSJ shall pay for, all Products and Sales Aids ordered by NSI prior to such
termination or (b) cancel, without cost or liability, the order of such Products
or Sales Aids.
12.3 Upon termination of this Agreement, neither party shall be released
from its obligations to pay monies due or to become due to the other party or to
complete any unfulfilled obligations under this Agreement, and each party shall
immediately pay, perform and discharge all debts, obligations and liabilities
hereunder.
12.4 Upon termination of this Agreement for any reason, neither party shall
be liable for any special, indirect, incidental, punitive or consequential
damages, regarding such termination, irrespective of whether such obligations or
liabilities may be contemplated in any law applicable within the Territory and
or elsewhere, and, except as otherwise provided by applicable law, each party
hereby waives and relinquishes any rights, pursuant to law or otherwise, to any
such damages. The remedies contained herein shall be exclusive.
-13-
12.5 The provisions of Article XII, Article XIII and Article XIV, as well
as any other provisions that by their terms so provide, shall survive
termination of this Agreement and continue in full force and effect thereafter.
ARTICLE XIII
CONFIDENTIALITY
---------------
13.1 All trade secrets, proprietary technology, know-how or other non-
public or proprietary business or technical information owned or used by NSHK
or NSJ and supplied to or acquired by the other whether in oral or documentary
form (the "Confidential Information") shall be supplied and acquired in
confidence and shall be solely for the use of the receiving party pursuant to
this Agreement and such party shall keep the Confidential Information
confidential and shall not disclose the same, at any time during the term of
this Agreement or after its termination, except to its employees for the
purposes of its business in accordance with this Agreement and except as may be
required by law; provided that if the receiving party determines that a
disclosure is required by law, the receiving party shall notify the disclosing
party in order to give the disclosing party an opportunity to seek an injunction
or otherwise attempt to keep the Confidential Information confidential. The
receiving party shall, at the request of the disclosing party, destroy or return
the Confidential Information without retaining copies if, as and when this
Agreement is terminated or expires. For purposes of this Agreement, the term
"Confidential Information" shall not include information or documents that
(i) become generally available to the public other than as a result of a
disclosure by the receiving party, (ii) was otherwise lawfully available to the
receiving party, or (iii) was generated independently by the receiving party.
The provisions of this Article shall survive termination of this Agreement.
ARTICLE XIV
INDEMNIFICATION AND INSURANCE
-----------------------------
14.1 NSHK agrees during and after the term of this Agreement to indemnify
and hold harmless NSJ from liability, loss, cost or damage, (including
reasonable
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attorney's fees) which NSJ may incur as a result of claims, demands or
judgments, of any kind or nature, by anyone whomsoever, arising out of (i) an
alleged or actual defect in the design, manufacture or content of, or any harm
caused by any Products or Sales Aids or the failure of any Product to comply
with all applicable regulatory requirements in the Territory; or (ii) a claim
that NSI's proprietary information infringes any patent, copyright, trade secret
or other intellectual property right of a third party; provided that NSJ
provides NSHK with prompt notice in writing of any such claim or demand and NSJ
cooperates with NSHK in the defense or settlement of any such claim or action.
14.2 At all times during and following the terms of this Agreement, NSHK
shall maintain insurance with one or more reputable insurers reasonable in
coverage and amount in direct proportion and corresponding to the business to be
conducted by NSJ pursuant to this Agreement.
14.3 NSJ shall at all times remain fully liable for the performance of its
sub-distributors and/or agents and NSJ hereby agrees to indemnify and hold
harmless NSHK from all damages, losses, cost or expenses arising in any manner
from any act or omission on the part of its sub-distributors or agents.
ARTICLE XV
MISCELLANEOUS
-------------
15.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither Party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other Party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
15.2 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered by
hand, or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return
-15-
electronic communication or signal that the message has been received, or if
mailed, ten (10) days after dispatch by registered airmail, postage prepaid,
from any post office addressed as follows:
If to NSHK: Attn: Regional Legal Counsel
NuSkin Hong Kong, Inc.
26th Floor, Windsor House
311 Gloucester Road
Causeway Bay, Hong Kong
If to NSJ: Attn: General Manager
Nu Skin Japan Company Ltd.
Shinjuku I-Land Tower, 23rd Floor
6-5-1 Nishi Shinjuku, Tokyo, Japan, 163-13
Facsimile No.: 813-5321-3799
Either party may change its facsimile number, cable identification number
or address by a notice given to the other party in the manner set forth above.
15.3 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement with respect to any subsequent breach thereof or a waiver by
either party of its right at any time thereafter to require exact and strict
compliance with the provisions thereof.
15.4 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder,
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or any cause beyond the reasonable control of a party. If an event of force
majeure should occur, the affected party shall promptly give notice thereof to
the other party and such affected party shall use its reasonable best efforts to
cure or correct any such event of force majeure.
15.5 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSHK and NSJ within 30 days after written notice of such dispute is given by
NSHK or NSJ, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If
the dispute is not resolved within such 30-day period, the Parties shall
petition the AAA to promptly appoint a competent, disinterested person to act as
such arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSHK and NSJ. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSHK and NSJ. The decision of the
arbitrator shall be final and binding upon NSHK and NSJ and may be enforced in
any court of competent jurisdiction. The expenses and costs of such arbitration
shall be divided and borne equally by NSHK and NSJ; provided, that each of NSHK
and NSJ shall pay all fees and expenses incurred by it in presenting or
defending against such claim, right or cause of action.
15.6 Applicability of Post-Effective Laws. The Parties agree that neither
the Vienna Convention on the International Sale of Goods nor any such similar
law, treaty or act that becomes effective during the term of this Agreement
shall be applicable to this Agreement or the transactions contemplated
hereunder.
15.7 Integrated Contract. This Agreement constitutes the entire agreement
between the Parties relating to the subject matter hereof and supersedes all
prior or contemporaneous negotiations, representations, agreements and
understandings (both oral and written) of the Parties.
-17-
15.8 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
15.9 Severability. To the extent that any provision of this Agreement is
(or, in the opinion of counsel mutually acceptable to both parties, would be)
prohibited, judicially invalidated or otherwise rendered unenforceable in any
jurisdiction, such provision shall be deemed ineffective only to the extent of
such prohibition, invalidation or unenforceability in that jurisdiction, and
only within that jurisdiction. Any prohibited, judicially invalidated or
unenforceable provision of this Agreement will not invalidate or render
unenforceable any other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any other
jurisdiction.
15.10 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized representatives in the United States of
America as of the day and the year first above written.
NU SKIN HONG KONG, INC. NU SKIN JAPAN COMPANY, LIMITED
By: By:
-------------------------- --------------------------
BLAKE M. RONEY TAKASHI BAMBA
PRESIDENT AND CEO GENERAL MANAGER
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Exhibit 10.10
NSI
NSJ
AMENDED AND RESTATED
TRADEMARK\TRADENAME LICENSING AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................. 2
1.1 "Agreement"................................. 3
1.2 "Commercial Materials"...................... 3
1.3 "Know-How".................................. 3
1.4 "Licensed Marks and Names".................. 3
1.5 "Net Sales"................................. 3
1.6 "NSI Independent Distributor"............... 4
1.7 "NSI Trademark"............................. 4
1.8 "NSI Tradename"............................. 4
1.9 "Product"................................... 4
1.10 "Proprietary Information"................... 4
1.11 "Sales Aid"................................. 5
1.12 "Starter Kit"............................... 5
1.13 "Territory"................................. 6
ARTICLE II GRANT OF EXCLUSIVE LICENSE; ROYALTIES....... 6
2.1 Grant of Exclusive License.................. 6
2.2 NSI's Interest in Licensed Marks and Names.. 6
2.3 Recitals of Value of Licensed Marks and
Names....................................... 6
2.4 Warranty of Title........................... 6
2.5 Royalties................................... 7
ARTICLE III COMPUTATION AND PAYMENT TERMS............... 7
3.1 Royalty Payments............................ 7
3.2 Records..................................... 8
3.3 Payment Terms............................... 8
3.4 Default Rate................................ 8
ARTICLE I CERTAIN COVENANTS........................... 8
4.1 Use of Licensed Marks and Names............. 8
4.2 Modifications............................... 9
4.3 Prejudicial Use............................. 9
4.4 Labels...................................... 9
4.5 Goodwill.................................... 10
4.6 Export of Products.......................... 10
ARTICLE V TERM........................................ 10
ARTICLE VI TERMINATION................................. 10
ARTICLE VII EFFECT OF TERMINATION....................... 12
7.1 Obligation of NSJ Upon Termination.......... 12
7.2 Survival of Obligations..................... 12
7.3 Reversion of Rights......................... 12
ARTICLE VIII GOVERNMENTAL APPROVALS, LAWS AND
REGULATIONS................................. 13
ARTICLE IX INFRINGEMENT; INDEMNIFICATION .............. 13
ARTICLE X CONFIDENTIALITY............................. 14
ARTICLE XI NATURE OF RELATIONSHIP...................... 15
ARTICLE XII MAINTENANCE OF TRADEMARKS; RECORDING;
REGISTRATION OF TRADEMARK................... 16
ARTICLE XIII MISCELLANEOUS............................... 17
13.1 Assignment.................................. 17
13.2 Force Majeure............................... 17
13.3 Governing Law and Dispute Resolution........ 18
13.4 Applicability of Post-Effective Laws........ 18
13.5 Waiver and Delay............................ 19
13.6 Notices..................................... 19
ARTICLE XIV INTEGRATED CONTRACT......................... 20
13.7 Integrated Contract......................... 20
13.8 Modification and Amendment.................. 20
13.9 Severability................................ 20
13.10 Counterparts and Headings................... 20
TRADEMARK \ TRADENAME LICENSING AGREEMENT
THIS AMENDED AND RESTATED TRADEMARK \ TRADENAME LICENSING AGREEMENT
is made and entered into this ____ day of November, 1996, between Nu Skin
International, Inc. a corporation organized and existing under the laws of the
State of Utah, U.S.A., (hereinafter referred to as "NSI") and Nu Skin Japan
Company Ltd., a company dually incorporated, organized and existing under the
laws of Japan and the State of Delaware, U.S.A.,(hereinafter "NSJ").
Hereinafter, NSI and NSJ shall collectively be referred to as the "Parties".
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, NSI is engaged in the design, production and marketing of Products
and related Sales Aids for distribution in the international markets of the
Asia-Pacific Region through a network of independent distributors; and,
WHEREAS, NSJ acts as the exclusive wholesale distributor of NSI products in
Japan, having entered a separate written Amended and Restated Wholesale
Distribution Agreement with Nu Skin Hong Kong, Inc. ("NSHK") dated as of the
date hereof, the exclusive regional distributor of such products and sales aids
in the Asia-Pacific region; and,
WHEREAS, NSJ has investigated the marketing potential for Products and
Commercial Materials, as defined in this Agreement, it
intends to design, manufacture, produce and distribute to enhance further its
competitiveness in the Territory; and,
WHEREAS, NSJ has complied with the requirements of its distribution
arrangement with NSJ and received appropriate consent in accordance with the
provisions of the agreement governing their relationship pertaining to
distribution of NSI products and the manufacture of non-competing Products in
the Territory; and,
WHEREAS, NSJ desires to affix NSI Trademarks, as defined herein, to the
Products and to affix NSI Tradenames, as defined herein, to Commercial Materials
it envisions for the Territory thereby deriving benefit from the goodwill, value
and reputation such marks and names shall lend when used to identify such
Products and Commercial Materials; and,
WHEREAS, NSI and NSJ (as assignee of Nu Skin Japan, Inc.) entered into a
Trademark\Tradename License Agreement on March 15, 1995 (the "Prior Trademark
Agreement"); and
WHEREAS, the Parties desire to amend and restate the Prior Trademark Agreement
as set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual promises,
covenants, and warranties hereinafter set forth and for other valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
2
ARTICLE I
DEFINITIONS
-----------
For the purposes of this Agreement, the following words and terms shall have
the meaning assigned to them in this Article I:
1.1 "Agreement" shall mean this Amended and Restated Trademark\Tradename
Licensing Agreement (together with any exhibits and schedules hereto), as the
same may be modified, amended or supplemented from time to time.
1.2 "Commercial Materials" shall mean, without limitation, any business
marquis, sign, letterhead, business card, pamphlet, brochure, magazine, flyer,
newsletter, Sales Aid, advertisement or other associated tangible materials NSJ
uses in its activities with the Independent Distributor Network or the public to
enhance its image and competitiveness in the Territory that NSJ has not
purchased from NSI or NSJ. Commercial Materials shall not, for the purposes of
this Agreement, include Starter Kits, as defined herein.
1.3 "Know-How" shall mean any information, including, without limitation, any
commercial or business information, lists, marketing methods, marketing surveys,
processes, specifications, quality control reports, drawings, photographs, or
any other information owned by NSI, whether or not considered proprietary,
3
relating to the network all NSI Independent Distributors, the NSI distributor
lists, and the NSI sales compensation plan.
1.4 "Licensed Marks and Names" shall mean any NSI Trademark, including those
affixed to any Product for purposes of identifying, promoting or selling such
Product in the Territory to any NSI Independent Distributor, and any NSI
Tradename, including those affixed to or used in connection with any Commercial
Materials produced to further NSJ's commercial activities in the Territory and
any product formula as agreed to by the Parties from time to time.
1.5 "Net Sales" shall mean, for any period, the number of Products and
Commercial Materials sold by NSJ during such period, multiplied by NSJ's then
current selling price to its distributors for each such Product or Commercial
Material, less applicable consumption taxes and returns or refunds reasonably
accepted and credited by NSJ during such period.
1.6 "NSI Independent Distributor" shall mean a person or business entity
authorized by contract with NSI to distribute, as an independent contractor NSI
products and sales aids.
1.7 "NSI Trademark" shall mean any service mark, trademark, logo or device
(or combination thereof) used or for which NSI has a bonafide intent to use or
registered or under application by NSI.
1.8 "NSI Tradename" shall mean any commercially valuable "mark," "name," or
"device" or combination thereof whether or not similar in appearance to any NSI
Trademark of which NSI is the owner, registered or otherwise.
4
1.9 "Product" shall mean any of the following bearing an NSI Trademark: any
product, including, without limitation, cosmetics, nutritional products, dietary
supplements, vitamins, over-the-counter drugs, quasi-drugs, drugs and
pharmaceutical products, and other products, which NSJ designs, manufactures,
produces and/or distributes or causes to be designed, manufactured, produced or
distributed in the Territory, that NSJ has not purchased from NSI or NSJ.
Products shall not, for the purposes of this Agreement, include Starter Kits.
1.10 "Proprietary Information" shall mean, without limitation, all
information other than information in published form or expressly designated by
either party in writing as non-confidential, which is directly or indirectly
disclosed to the other party, regardless of the form in which it is disclosed,
relating in any way to the following property owned by the Parties or which the
Parties have been licensed to use or sub-license: (1) proprietary technical
information related to the Licensed Marks and Names and the Starter Kit;
(2) information respecting actual or potential customers or customer contacts
and customer sales strategies, names, addresses, phone numbers, identification
numbers, database information and its organization, unique business methods;
(3) market studies, penetration data, customers, products, contracts,
copyrights, computer programs, applications, technical data, licensed
technology, patents, inventions, procedures, methods, designs, strategies,
plans, liabilities, assets, cost
5
revenues, sales costs, production costs, raw material sources and other market
information; (4) other sales and marketing plans, programs and strategies;
(5) trade secrets, Know-How, designs and proprietary commercial and technical
information, methods, practices, procedures, processes, formulae with respect to
manufacturing, assembly, design or processing products subject to this Agreement
and any component, part or manufacture thereof; (7) profits, organization,
employees, agents, distributors, suppliers, trademarks, tradenames and services;
(8) other business and commercial practices in general relating directly or
indirectly to the foregoing; (9) computer disks or other records or documents,
originals or copies, containing in whole or in part any of the foregoing; and,
(10) tax information, returns and other financial information.
1.11 "Sales Aid" shall mean materials, in whatever form and/or design
produced for the Territory to assist in the marketing of products or the Nu Skin
independent business opportunity in the Territory.
1.12 "Starter Kit" shall mean those materials developed, maintained and
approved by NSI and intended for sale in conjunction with the execution of the
distribution contract to NSI Independent Distributors in the Territory
explaining the Nu Skin independent business opportunity, the contractual
relationship with NSI and the marketing support programs for the Territory.
1.13 "Territory" shall mean the country of Japan.
6
ARTICLE II
GRANT OF EXCLUSIVE LICENSE; ROYALTIES
-------------------------------------
2.1 Grant of Exclusive License. NSI hereby grants to NSJ an exclusive
license and right to use, and, with the prior written consent of NSI, to
sublicense the use of, the Licensed Marks and Names in the Territory, provided
that all such uses shall comply in all material respects with the terms of this
Agreement.
2.2 NSI's Interest in Licensed Marks and Names. NSI hereby retains legal
title to the Licensed Marks and Names for all purposes, including but not
limited to, the bringing or defending of any legal action in the Territory which
it deems reasonable to protect its rights therein. NSJ agrees to assist NSI in
any manner to protect NSI's rights in the Licensed Marks and Names which NSI may
reasonably request. NSI shall reimburse NSJ for any third party costs incurred
by NSJ in providing such assistance.
2.3 Recitals of Value of Licensed Marks and Names. NSJ recognizes and agrees
that NSI has expended considerable time, effort and resources to develop,
register, apply for registrations, maintain and enhance the value and reputation
of the Licensed Marks and Names. NSJ further agrees it will derive a
considerable benefit from its use of the Licensed Marks and Names in the
Territory and from NSI's efforts and expenditures respecting the Licensed Marks
and Names.
2.4 Warranty of Title. NSI hereby represents and warrants that it is the
sole and exclusive owner of the Licensed Marks and
7
Names and that to the best of its knowledge and information no claim exists or
has been made contesting the ownership and title of said Licensed Marks and
Names.
2.5 Royalties. As compensation for the exclusive licenses granted pursuant
to the terms of this Agreement, NSJ shall pay to NSI a royalty equal to five
percent (5%) (or as otherwise mutually agreed upon by the Parties) of its Net
Sales during the entire term of this Agreement. Where NSI owns the formulae or
has exclusive rights in the Territory to the Product or Commercial Material, the
applicable royalty shall be eight percent (8%) of Net Sales, or as otherwise
mutually agreed upon by the Parties.
ARTICLE III
COMPUTATION AND PAYMENT TERMS
-----------------------------
3.1 Royalty Payments.
3.1(a) Within 30 days following the close of each month, NSJ shall deliver to
NSI, by electronic transmission or such other medium as the parties shall
agree from time to time, a statement of its Net Sales during such month in the
Territory and a computation of the royalties payable hereunder. NSJ shall make
payment of such royalties in accordance with Section 3.3 hereof concurrently
with the delivery of such statement.
8
3.1(b) For purposes of computing the royalty, Products and Commercial
Materials shall be considered sold when recognized for accounting purposes as
a sale by NSJ.
3.1(c) The Parties agree that the royalty shall remain competitive within the
market and shall be negotiated and determined on an arm's length basis and may
be adjusted from time to time as agreed by the Parties in writing.
3.2 Records. Each Party shall keep complete and accurate records of its
activities under this Agreement which shall be open to inspection by authorized
representatives of the other Party at any reasonable time.
3.3 Payment Terms. Payments made by NSJ to NSI under this Agreement shall be
payable in Japanese Yen. Payments shall be made either directly to NSI in
immediately available funds by wire transfer to an account designated by NSI, or
by such other means of payment acceptable to NSI from time to time.
3.4 Default Rate. Without limiting any of NSI's other rights and remedies
under this Agreement, amounts outstanding under the terms of this Agreement not
paid within ninety (90) days from the date due and payable, and as set forth in
the payment provisions herein, shall bear interest at the prime interest rate as
reported in the Wall Street Journal plus two percent (2%) for the full period
-------------------
outstanding. Whether or not interest charges are actually levied is at the
discretion of NSI.
9
ARTICLE IV
CERTAIN COVENANTS
-----------------
4.1 Use of Licensed Marks and Names. NSJ may use the Licensed Marks and
Names only in accordance with the terms of this Agreement.
4.1(a) The quality and performance of all Products and Commercial Materials
bearing the Licensed Marks and Names shall be in accordance with the
standards, specifications and instructions approved by NSI; and,
4.1(b) NSI shall have the right to inspect the premises of NSJ and those of
any of NSJ's subcontractors at which Product(s) are being manufactured, at
reasonable times, and also to receive samples of such Product(s), in
accordance with a reasonable schedule to be established promptly between NSI
and NSJ; and,
4.1(c) NSJ agrees to correct, as promptly as possible, any defects in the
Product(s) and/or manufacturing thereof brought to NSJ's attention by NSI or
otherwise; and,
4.1(d) NSJ agrees to submit to NSI for prior approval, which approval will
not be unreasonably withheld, labels, packaging, advertising and promotional
materials, in relation to which any of the NSI Trademarks are proposed to be
used, including the marking legends intended to be used in relation thereto.
10
4.2 Modifications. NSJ shall make no modification to the Licensed Marks and
Names without the express, prior written consent of NSI.
4.3 Prejudicial Use. Shall not use the Licensed Marks and Names in any way
that will prejudice NSI's rights therein.
4.4 Labels. At the request of NSI, labels or packaging which bear the NSI
Trademarks shall also bear an asterisk placed immediately above the end of the
mark to reference a statement which shall appear underneath the mark and shall
contain the words "*TM Registered - Registered by Nu Skin International" (where
the mark is registered) or "*TM - Licensed by Nu Skin International" (where the
mark is not registered).
4.5 Goodwill. All goodwill generated by use of the Licensed Marks and Names
shall inure to NSI, and, upon termination of this Agreement, NSJ shall not have
any claim against NSI for compensation for loss of distribution rights, loss of
goodwill or any similar loss.
4.6 Export of Products. The Licensee shall not export any product on which
any Licensed Mark or Name is affixed to any country outside the Territory
without the prior written consent of NSI, which consent shall not be
unreasonably withheld or delayed.
11
ARTICLE V
TERM
----
Subject to Article VI hereof, this Agreement shall be for a term ending on
December 31, 2016 provided, however, that this Agreement is subject to
renegotiation after December 31, 2001 in the event that members of the families
of, or trusts or foundations established by or for the benefit of, Blake M.
Roney, Nedra D. Roney, Sandie N. Tillotson, Craig Tillotson, Craig Bryson,
Steven J. Lund, Brooke B. Roney, Kirk V. Roney and Keith R. Halls on a combined
basis no longer beneficially own a majority of the voting stock of Nu Skin Asia
Pacific, Inc. ("Nu Skin Asia").
ARTICLE VI
TERMINATION
-----------
6.1 This Agreement may be terminated by either Party immediately or at any
time after the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or other action (i)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, compensation or other relief
with
12
respect to it or its debts, or (ii) seeking appointment of a receiver,
trustee, custodian or other similar action; or (b) there shall be commenced
against the other Party any case, proceeding or other action of a nature
referred to in clause (a) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 90 days. Events described in clauses
(a) and (b) of this Section 12.1(a) shall be referred to as a Bankruptcy
Event. If a Bankruptcy Event occurs, all amounts owing under this Agreement
shall become immediately due and payable, without any notice thereof; or
(c) if the other Party causes or allows a judgment in excess of twenty-five
million dollars ($25,000,000) to be entered against it or causes or allows a
lien, security interest, or other encumbrance to attach to its assets which
secures an amount in excess of twenty-five million dollars ($25,000,000); or
6.2 This Agreement may be terminated by either Party, if the other Party is
in default in the performance of any material obligation under this Agreement
and such default has not been cured within sixty (60) days after receipt of
written notice of such default by the defaulting Party; or
6.3 This Agreement may be terminated by NSI if Nu Skin Asia shall no longer
own or control a majority of the voting interest in NSJ, with such termination
to take effect thirty (30) days after
13
NSI gives written notice to NSJ of the occurrence of a change in control and its
intention to terminate this Agreement based thereon.
ARTICLE VII
EFFECT OF TERMINATION
---------------------
7.1 Obligation of NSJ Upon Termination. Upon termination of this Agreement
by either Party, NSJ agrees to (a) sell, destroy or otherwise dispose of all
Products and Commercial Materials bearing the Licensed Marks and Names within 45
days after such termination; (b) immediately discontinue use of the Licensed
Marks and Name in any form and not adopt in place thereof any word or design
that is confusingly similar thereto; and (c) return to NSI all manuals,
drawings, and standards or any other documents provided by NSI to NSJ relating
to the use of the Licensed Marks and Names.
7.2 Survival of Obligations. The obligations of the Parties to pay any sums
which are due and payable as of the expiration or termination of this Agreement
and their obligations under Section 2.2, Article IX and Article X hereof shall
survive the expiration or termination of this Agreement.
7.3 Reversion of Rights. Upon termination of this Agreement, all rights and
licenses herein granted to NSJ shall immediately cease and shall revert to NSI,
and NSJ shall cease representing to any third party that it has any right to
use, assign, convey or otherwise transfer the Licensed Marks and Names.
14
ARTICLE VIII
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
--------------------------------------------
8.1 NSJ agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances of
each country in the Territory to enable this Agreement to become effective or to
enable any payment pursuant to the provisions of this Agreement to be made. NSJ
agrees to keep NSI informed of the progress in obtaining all such government
approvals.
8.2 Each party agrees to refrain from any action that will cause the other
party to be in violation of any applicable law, regulation, or ordinance of any
jurisdiction in the Territory or the United States or elsewhere or any
international convention or bilateral or multilateral treaty to which any
jurisdiction in the Territory or the United States is a signatory, including,
without limitation, the U.S. Foreign Corrupt Practices Act of 1977, the U.S.
Export Control Laws, and the U.S. Anti-Boycott laws.
ARTICLE IX
INFRINGEMENT; INDEMNIFICATION
-----------------------------
NSI hereby represents and warrants that, as of the date hereof, there are no
infringement or misappropriation suits pending or filed or, to its knowledge,
threatened against NSI within the Territory that relate to the Licensed Marks
and Names and NSI is
15
not presently aware of any such infringement or misappropriation. NSI shall
indemnify and hold NSJ harmless from and against all claims, actions, suits,
proceedings, losses, liabilities, costs, damages and attorneys' fees in respect
of a third party claim alleging infringement or misappropriation by NSJ in
respect of its use of the Licensed Marks and Names in the Territory; provided
--------
that NSJ shall give NSI prompt written notice of any such claim, action, suit or
proceeding and, without limiting the generality of Section 2.2 hereof, shall
cooperate with NSI in the defense of any such claim, action, suit or proceeding.
NSI shall have the right to select counsel in any such claim, action, suit or
proceeding. In the event that any such claim, action, suit or proceeding is
successful, NSI shall use reasonable efforts to make such changes in the
Licensed Marks and Names to permit NSJ to continue to make use of the Licensed
Marks and Names free and clear of all infringement and misappropriation. NSJ
shall give NSI prompt written notice of any infringement or misappropriation of
the Licensed Marks and Names by any third party. NSJ shall have the sole right
to initiate any and all legal proceedings against any such third party and,
without limiting the generality of Section 2.2 hereof, NSJ shall cooperate with
NSI in the pursuit of any such proceeding. NSI shall retain any damage award
obtained from such third party.
16
ARTICLE X
CONFIDENTIALITY
---------------
All Proprietary Information or other non-public or proprietary business or
technical information owned or used by NSI or NSJ and supplied to or acquired by
the other whether in oral or documentary form (the "Confidential Information")
shall be supplied and acquired in confidence and shall be solely for the use of
the receiving party pursuant to this Agreement and such party shall keep the
Confidential Information confidential and shall not disclose the same, at any
time during the term of this Agreement or after its termination, except to its
employees for the purposes of its business in accordance with this Agreement and
except as may be required by law; provided that if the receiving party
--------
determines that a disclosure is required by law, the receiving party shall
notify the disclosing party in order to give the disclosing party an opportunity
to seek an injunction or otherwise attempt to keep the Confidential Information
confidential. The receiving party shall, at the request of the disclosing
party, destroy or return the Confidential Information without retaining copies
if, as and when this Agreement is terminated or expires. For purposes of this
Agreement, the term "Confidential Information" shall not include information or
documents that (i) become generally available to the public other than as a
result of a disclosure by the receiving party, (ii) was otherwise lawfully
available to the receiving party, or (iii) was generated independently by the
receiving party.
17
The provisions of this Article shall survive termination of this Agreement.
ARTICLE XI
NATURE OF RELATIONSHIP
----------------------
The relationship of NSJ and NSI shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other.
ARTICLE XII
MAINTENANCE OF TRADEMARKS; RECORDING; REGISTRATION OF TRADEMARK
---------------------------------------------------------------
NSI covenants to use its best efforts to maintain the registrations of the NSI
trademarks currently registered in the Territory as set forth in Exhibit A
hereto. NSI, in its sole discretion, shall have the right to record this
Agreement or proof thereof, or to enter NSJ as a registered user in the
Territory. NSJ agrees to cooperate, as reasonably requested by NSI, in arranging
for such recordings or entries, or in bearing or canceling such recordings or
entries in the event of amendments to
18
or termination of this Agreement for any reason. Upon termination of this
agreement for any reason, the parties agree to do everything necessary to effect
cancellation of the record of NSJ as a registered user of the NSI Trademarks in
the Territory.
At the request of NSJ, NSI shall file applications in the Territory
for the registration of all new NSI Trademarks that NSJ presently intends to use
in the Territory. If any mark used by NSJ in the United States of America with
respect to certain products is used by NSI in the Territory in relation to
similar products, then, whether or not the mark is registered in the Territory,
NSJ shall not claim any proprietary interest in such mark. If any of such marks
are immediately registrable in the Territory, NSJ will cooperate with NSI in
filing an application for registration of the marks in the name of NSI. If any
such marks are not immediately capable of registration because they lack
distinctiveness, then at any time when in the opinion of legal counsel for NSI
the use of the marks by NSJ has conferred on them sufficient distinctiveness to
permit registration in the Territory, NSJ shall, when requested by NSI, do all
things necessary and execute all documents required to register such marks in
the Territory and assign the eventual registrations to NSI who shall reimburse
NSJ for the cost of registration and assignment, but shall not be obligated to
make any other payment in consideration for the assignment.
19
ARTICLE XIII
MISCELLANEOUS
-------------
13.1 Assignment. This Agreement shall be binding on and inure to the benefit
of the heirs, successors, assigns and beneficiaries of the Parties; provided
that neither party may assign this Agreement or any rights or obligations
hereunder, whether by operation of law or otherwise, without the prior written
consent of the other party through its authorized representative. Any such
attempted assignment without the written consent provided herein shall be void
and unenforceable.
13.2 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event
of force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use
20
its reasonable best efforts to cure or correct any such event of force majeure.
13.3 Governing Law and Dispute Resolution. This Agreement shall be governed
by and construed in accordance with the laws of the State of Utah, applicable to
contracts made and to be wholly performed within such State. Any dispute
arising out of this Agreement, if not resolved by mutual agreement of NSI and
NSJ within 30 days after written notice of such dispute is given by NSJ or NSI,
as the case may be, shall be resolved through arbitration with the Utah office
and division of the American Arbitration Association ("AAA"). If the dispute is
not resolved within such 30-day period, the Parties shall petition the AAA to
promptly appoint a competent, disinterested person to act as such arbitrator.
Within 30 days after the designation or appointment of such arbitrator, such
arbitrator shall be required to commence the arbitration proceeding in the state
of Utah at a time and place to be fixed by the arbitrator, who shall so notify
NSI and NSJ. Such arbitration proceeding shall be conducted in accordance with
the applicable rules and procedures of the AAA, and/or as otherwise may be
agreed by NSI and NSJ. The decision of the arbitrator shall be final and
binding upon NSI and NSJ and may be enforced in any court of competent
jurisdiction. The expenses and costs of such arbitration shall be divided and
borne equally by NSI and NSJ; provided, that each of NSI and NSJ shall pay all
--------
fees and expenses
21
incurred by it in presenting or defending against such claim, right or cause of
action.
13.4 Applicability of Post-Effective Laws. The Parties agree that neither
the Vienna Convention on the International Sale of Goods nor any such similar
law, treaty or act that becomes effective during the term of this Agreement
shall be applicable to this Agreement or the transactions contemplated
hereunder.
13.5 Waiver and Delay. No waiver by either party of any breach or default in
performance by the other party, and no failure, refusal or neglect of either
party to exercise any right, power or option given to it hereunder or to insist
upon strict compliance with or performance of the other party's obligations
under this Agreement, shall constitute a waiver of the provisions of this
Agreement with respect to any subsequent breach thereof or a waiver by either
party of its right at any time thereafter to require exact and strict compliance
with the provisions thereof.
13.6 Notices. All notices, requests and other communications hereunder shall
be in writing and shall be deemed to have been duly given, if delivered by hand,
or if communicated by facsimile, cable or similar electronic means to the
facsimile number or cable identification number as previously provided by each
party to the other, at the time that receipt thereof has been confirmed by
return electronic communication or signal that the message has been received, or
if mailed, ten (10) days after dispatch by registered
22
airmail, postage prepaid, from any post office addressed as follows:
If to NSJ:
Takashi Bamba, General Manager
Nu Skin Japan Company Ltd.
Shinjuku I-Land Tower, 23rd Floor
6-5-1 Nishi Shinjuku, Tokyo, Japan, 163-13
Facsimile Number: 813-5321-3799
If to NSI:
Max L. Pinegar, General Manager
Nu Skin International, Inc.
75 West Center Street
Provo, Utah 84601, U.S.A.
Facsimile Number: (801) 345-5999
Either party may change its facsimile number, cable identification number or
address by a notice given to the other party in the manner set forth above.
ARTICLE XIV
INTEGRATED CONTRACT
-------------------
13.7 Integrated Contract. This Agreement constitutes the entire agreement
between the Parties relating to the subject matter hereof and supersedes all
prior or contemporaneous negotiations, representations, agreements and
understandings (both oral and written) of the Parties.
13.8 Modification and Amendment. No supplement, modification or amendment of
this Agreement shall be binding unless it is in writing and executed by both of
the Parties.
13.9 Severability. To the extent that any provision of this Agreement is (or
in the opinion of counsel mutually acceptable to
23
both Parties would be) prohibited, judicially invalidated or otherwise rendered
unenforceable in any jurisdiction, such provision shall be deemed ineffective
only to the extent of such prohibition, invalidation or unenforceability in that
jurisdiction, and only within that jurisdiction. Any prohibited, judicially
invalidated or unenforceable provision of this Agreement will not invalidate or
render unenforceable any other provision of this Agreement, nor will such
provision of this Agreement be invalidated or rendered unenforceable in any
other jurisdiction.
13.10 Counterparts and Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
24
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
the United States of America by their respective duly authorized representatives
as of the day and year first-above written.
NU SKIN INTERNATIONAL, INC. NU SKIN JAPAN COMPANY LTD.
BY:__________________________ BY:_________________________
BLAKE M. RONEY TAKASHI BAMBA
PRESIDENT AND CEO GENERAL MANAGER
25
EXHIBIT 10.11
MANAGEMENT SERVICES AGREEMENT
between
NU SKIN INTERNATIONAL MANAGEMENT GROUP, INC.
and
NU SKIN JAPAN COMPANY LTD.
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS..................................................... 2
-----------
1.1 "Agreement"............................................ 2
1.2 "Consulting Personnel"................................. 2
1.3 "Direct Expenses"...................................... 2
1.4 "Expatriate Personnel"................................. 2
1.5 "Allocable Expenses"................................... 2
1.6 "Management and Consulting Services"................... 2
1.7 "NSI".................................................. 2
ARTICLE 2
MANAGEMENT AND CONSULTING SERVICES.............................. 3
----------------------------------
2.1 Services............................................... 3
2.2 Performance of Services................................ 3
2.3 Expatriate Employees................................... 3
2.4 Approval of Services................................... 3
ARTICLE 3
COMPENSATION OF SERVICE PROVIDER................................ 3
--------------------------------
3.1 Compensation for Services by Consulting Personnel...... 3
3.2 Determination of Allocable Expenses.................... 3
3.3 Currency............................................... 4
3.4 Payment and Invoicing.................................. 4
ARTICLE 4
PREPARATION AND SHARING OF REPORTS AND INFORMATION.............. 4
--------------------------------------------------
4.1 Periodic Reports on Management and Consulting Services. 4
4.2 Time Allocation Study.................................. 4
4.3 Sharing of Information and Witnesses................... 4
ARTICLE 5
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION...................... 5
------------------------------------------
ARTICLE 6
TERM............................................................ 6
----
ARTICLE 7
TERMINATION..................................................... 6
-----------
ARTICLE 8
EFFECT OF TERMINATION........................................... 7
---------------------
8.1 Cessation of Rights.................................... 7
i
ARTICLE 9
COMPLIANCE WITH APPLICABLE LAWS........................ 8
-------------------------------
9.1 Compliance Generally................................... 8
9.2 Authorizations......................................... 8
9.3 Business Practices..................................... 8
ARTICLE 10
GENERAL PROVISIONS..................................... 8
------------------
10.1 Assignment............................................. 8
10.2 Notices................................................ 8
10.3 Waiver and Delay....................................... 9
10.4 Force Majeure.......................................... 9
10.5 Governing Law and Dispute Resolution................... 9
10.6 Applicability of Post-Effective Laws................... 10
10.7 Integrated Contract.................................... 10
10.8 Modifications and Amendments........................... 10
10.9 Severability........................................... 10
10.10 Counterparts and Headings.............................. 11
ii
MANAGEMENT SERVICES AGREEMENT
-----------------------------
This MANAGEMENT SERVICES AGREEMENT is made and entered into effective
August 15, 1996 between Nu Skin International Management Group, Inc., a
corporation organized and existng under the laws of the state of Delaware,
U.S.A. (hereinafter referred to as "NSIMG") and Nu Skin Japan Company Ltd., a
corporation dually incorporated, organized and existing under the laws of Japan
and the state of Delaware, U.S.A. (hereinafter referred to as "NSJ"). NSIMG and
NSJ shall hereinafter be collectively referred to as the "Parties" and each
shall be individually referred to as a "Party."
W I T N E S S E T H
-------------------
WHEREAS, NSIMG desires to provide Management and Consulting Services (as
hereinafter defined) to NSJ and NSJ desires to obtain such Management and
Consulting Services from NSIMG;
NOW, THEREFORE, in consideration of the premises, the mutual promises and
covenants hereinafter set forth and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Agreement, the following terms shall have the meaning
set out below:
1.1 "Agreement" shall mean this Management Services Agreement between
NSIMG and NSJ, as the same may be modified, amended or
supplemented from time to time.
1.2 "Consulting Personnel" shall mean employees of NSIMG or NSI or,
with the consent of NSJ, such other persons or entities as NSIMG
may retain, hire, or otherwise contract with for the provision of
Management and Consulting Services on behalf of, or in
conjunction with, NSIMG.
1.3 "Direct Expenses" shall mean all expenses incurred in the
provision of Management and Consulting Services for NSJ, which
expenses are measured solely for the benefit of NSJ, including,
without limitation, certain salary costs, benefits and business
expenses, convention expenses and travel expenses.
1.4 "Expatriate Personnel" shall mean Consulting Personnel who reside
in Japan for a definite or indefinite period of time to perform
Management and Consulting Services.
1.5 "Allocable Expenses" shall mean all expenses other than Direct
Expenses including without limitation, the following: rents,
utilities, telephone, equipment, recruitment, office supplies,
and other overhead expenses, certain salary costs and expenses
related to conventions, travel and accommodations at anniversary
events, the permitted use and appropriation of the names and
likeness of directors, and executive officials of NSJ or NSIMG,
telephone calls and counselling and conferences and meetings with
country managers and distributor leaders.
1.6 "Management and Consulting Services" shall mean the following
services: management, legal, financial, marketing and
distribution support/training, public relations, international
expansion, human resources, strategic planning, product
development and operations administration and such other services
as the Parties may agree to from time to time.
1.7 "NSI"shall mean Nu Skin International, Inc., a corporation dually
organized and existing under the laws of the state of Utah.
-2-
ARTICLE 2
MANAGEMENT AND CONSULTING SERVICES
----------------------------------
2.1 Services. NSIMG hereby agrees to provide Management and
Consulting Services to NSJ as NSJ may request from time to time,
until termination of this Agreement. NSJ agrees to reimburse and
compensate NSIMG for Management and Consulting Services rendered
pursuant to this Agreement in accordance with the applicable
compensation and invoicing provisions hereof.
2.2 Performance of Services. Unless otherwise agreed between the
Parties, the Management and Consulting Services shall be provided
through Consulting Personnel, as requested by NSJ.
2.3 Expatriate Employees. The Parties shall agree to the terms and
circumstances pursuant to which a Consulting Employee may be
assigned as an Expatriate Employee to work at NSJ; provided that
--------
nothing in this Agreement shall be interpreted to mean that NSIMG
must make available any Consulting Employee to work at NSJ as an
Expatriate Employee.
2.4 Approval of Services. NSJ hereby agrees that, by accepting and
paying invoices as provided in Article 3 herein, NSJ will be
deemed to have approved the nature and extent the Management and
Consulting Services so invoiced.
ARTICLE 3
COMPENSATION OF SERVICE PROVIDER
--------------------------------
3.1 Compensation for Services by Consulting Personnel. NSJ agrees to
compensate NSIMG for Management and Consulting Services that it
provides to NSJ through Consulting and Expatriate Personnel in
the form of a fee equal to the Direct Expenses and Allocable
Expenses incurred by NSIMG for Management and Consulting Services
provided to NSJ by Consulting Personnel plus three percent (3%)
of such Direct Expenses and Allocable Expenses, as such fee may
be adjusted from time to time by mutual agreement of the Parties;
provided that unless, otherwise agreed between the Parties,
--------
Allocable Expenses shall not, for any period, exceed one and one-
half percent (1 1/2%) of NSJ's revenues for such period.
3.2 Determination of Allocable Expenses. Allocable Expenses for any
period shall be equal to the total Allocable Expenses incurred by
NSI or NSIMG's internal departments for such period multiplied by
the percentage of such Allocable Expenses allocable to NSJ
pursuant to the
-3-
then applicable time allocation study prepared pursuant to
Section 4.2 hereof.
3.3 Currency. Any compensation to be paid to NSIMG for Management
and Consulting Services rendered pursuant to this Agreement shall
be paid in United States Dollars.
3.4 Payment and Invoicing. Within thirty (30) days after the end of
each month, NSIMG shall prepare and deliver an invoice to the NSJ
setting forth the fees payable hereunder for Management and
Consulting Services rendered pursuant to this Agreement during
such month.
4.4(a) Payments due under this Agreement shall be due and payable
within sixty (60) days after the date of dispatch of the invoice
for such payments.
4.4(b) Without limiting any of Parties' other rights and remedies
under this Agreement, amounts outstanding under the terms of this
Agreement not paid within sixty (60) days from the date due and
payable, and as set forth in the payment provisions herein, shall
bear interest at the prime interest rate as reported in the Wall
----
Street Journal plus two percent (2%) for the full period
--------------
outstanding. Whether or not interest charges are actually levied
is at the discretion of the Party to whom payment is due and
payable.
ARTICLE 4
PREPARATION AND SHARING OF REPORTS AND INFORMATION
--------------------------------------------------
4.1 Periodic Reports on Management and Consulting Services. NSJ may,
upon thirty (30) days written notice, request operations reports
of NSIMG setting forth such information regarding the Management
and Consulting Services provided under this Agreement and for
such time periods as NSJ shall reasonably request.
4.2 Time Allocation Study. NSIMG has prepared a study accurately
reflecting the allocation of time spent by each of NSI and
NSIMG's internal departments on the services provided to NSJ
under this Agreement. The study shall be updated on a quarterly
basis. NSJ may request a copy of the then applicable such time
allocation study from NSIMG upon thirty (30) days written notice.
4.3 Sharing of Information and Witnesses. At all times during the
term of this Agreement and for a period of three years
thereafter, each of the Parties shall maintain at its principal
place of business full, complete and accurate books of account
and records with regard to its activities under this Agreement.
In addition to the books and records pursuant to
-4-
Section 4.3, the NSI, NSIMG and NSJ may from time to time have in
their possession or under their control (or the control of
persons or entities which have rendered services to time)
additional books, records, contracts, instruments, data and other
information (together with the books and records referred to in
the first sentence of this Section 4.3 the "Information") which
may prove necessary or desirable to the other in connection with
the other's business. Accordingly, (i) shall provide to NSJ, and
NSJ shall provide to NSI and NSIMG upon the other's request, at
all reasonable times, full and complete access to (including
access to persons with respect to, and all Information as the
other may reasonably request and require in the conduct of its
business, and (ii) NSI and NSIMG shall make available to NSJ and
NSJ shall make available to the Affiliated NSIMG Company, upon
the other's request, such persons as may reasonably be required
to assist with any legal, administrative or other proceedings in
which NSJ, NSI or NSIMG, as the case may be, may from time to
time be involved. The Information shall include, without
limitation, information sought for audit, accounting, claims,
litigation and tax purposes as well as for, in the case of NSJ,
purposes of fulfilling disclosure and reporting obligations under
the United States securities laws. The party providing
Information or making available witnesses shall be entitled to
receive from the other party, upon the presentation of invoices
therefor, payment for its reasonable out-of-pocket expenses
incurred in connection therewith (but not the labor costs
thereof), but shall not be entitled to receive any other payment
with respect thereto. Nothing in this Agreement shall require
either party to reveal to the other any information if to do so
would violate such party's written and enforceable duty of
confidence to a third party from whom or which such information
was obtained; under such circumstances, however, the parties
shall work together to obtain a release of such information
without violation of such duty of confidence.
ARTICLE 5
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
All trade secrets, proprietary technology, know-how or other non-public or
proprietary business or technical information owned or used by NSI and NSIMG or
NSJ and supplied to or acquired by the other whether in oral or documentary form
(the "Confidential Information") shall be supplied and acquired in confidence
and shall be solely for the use of the receiving party pursuant to this
Agreement and such party shall keep the Confidential Information confidential
and shall not disclose the same, at any time during the term of this Agreement
or after its termination, except to its employees for the purposes of its
business in accordance with this Agreement and except as may be required by law;
provided that if the receiving party determines that a disclosure is required by
law, the receiving party shall notify the disclosing party in order to give the
disclosing party an opportunity to seek an
-5-
injunction or otherwise attempt to keep the Confidential Information
confidential. The receiving party shall, at the request of the disclosing
party, destroy or return the Confidential Information without retaining copies
if, as and when this Agreement is terminated or expires. For purposes of this
Agreement, the term "Confidential Information" shall not include information or
documents that (i) become generally available to the public other than as a
result of a disclosure by the receiving party, (ii) was otherwise lawfully
available to the receiving party, or (iii) was generated independently by the
receiving party. The provisions of this Article shall survive termination of
this Agreement.
ARTICLE 6
TERM
----
Subject to Article VII hereof, this Agreement shall be for a term ending on
December 31, 2016 provided, however, that this Agreement is subject to
renegotiation after December 31, 2001 in the event that members of the families
of, or trusts or foundations established by or for the benefit of, Blake M.
Roney, Nedra D. Roney, Sandie N. Tillotson, Craig Tillotson, Craig Bryson,
Steven J. Lund, Brooke B. Roney, Kirk V. Roney and Keith R. Halls on a combined
basis no longer beneficially own a majority of the voting stock of Nu Skin
Asia Pacific, Inc. ("Nu Skin Asia").
ARTICLE 7
TERMINATION
-----------
7.1 This Agreement may be terminated by either Party immediately or at any
time after the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or other
action (i) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, compensation or
other relief with respect to it or its debts, or (ii) seeking
appointment of a receiver, trustee, custodian or other similar action;
or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged
or unbonded for a period of 90 days. Events described in clauses (a)
and (b) of this Section 7.1(a) shall be referred to as a Bankruptcy
Event. If a Bankruptcy Event occurs, all amounts owing under this
Agreement shall become immediately due and payable, without any notice
thereof; or
-6-
(c) if the other Party causes or allows a judgment in excess of
twenty-five million dollars ($25,000,000) to be entered against it or
causes or allows a lien, security interest, or other encumbrance to
attach to its assets which secures an amount in excess of twenty-five
million dollars ($25,000,000).
7.2 This Agreement may be terminated by either Party, if the other Party
is in default in the performance of any material obligation under this
Agreement and such default has not been cured within sixty (60) days
after receipt of written notice of such default by the defaulting
Party; or
7.3 This Agreement may be terminated by NSIMG if Nu Skin Asia Pacific,
Inc. shall no longer own or control a majority of the voting interest
in NSJ, with such termination to take effect thirty (30) days after
NSI gives written notice to NSJ of the occurrence of a change in
control and its intention to terminate this Agreement based thereon.
7.4 NSJ may terminate any specific Management and Consulting Service
provided pursuant to this Agreement by providing written notice
thereof to NSIMG not less than sixty (60) days prior to the desired
termination date. NSIMG may discontinue providing any specific
Management and Consulting Service provided pursuant to this Agreement
by providing written notice thereof to the NSJ not less than sixty
(60) days prior to the desired termination date; provided, however,
-------- -------
that NSIMG shall not deliver any such notice in respect of any service
to the extent that NSIMG continues to provide such service to any
other international affiliate of NSI or NSIMG.
ARTICLE 8
EFFECT OF TERMINATION
---------------------
8.1 Cessation of Rights. Upon expiration or termination (collectively,
the "Termination") of this Agreement for any reason whatsoever, all
rights and obligations of the Parties hereunder shall cease; provided,
--------
however, that upon Termination of this Agreement, no Party shall be
-------
released from its obligations to pay monies due or to become due or to
complete any unfulfilled obligations under this Agreement, and the
provisions of Article V shall service such Termination.
8.2 Damages. Upon the Termination of this Agreement for any reason, no
Party shall be liable or obligated to the other Party with respect to
any payments, future profits, exemplary, special or consequential
damages, indemnifications or other compensation regarding such
Termination, and, except as otherwise required by applicable law, each
Party hereby waives and relinquishes any rights, pursuant to law or
otherwise, to any such payments, indemnifications or compensation.
-7-
ARTICLE 9
COMPLIANCE WITH APPLICABLE LAWS
-------------------------------
9.1 Compliance Generally. In the performance of its obligations under this
Agreement, the Parties shall, at all times, strictly comply with all
applicable laws, regulations and orders of the countries and
jurisdictions in which they operate and such United States laws as
outlined in paragraph 9.3 of this Article.
9.2 Authorizations. Each Party shall, at its own expense, make, obtain and
maintain in force at all times during the term of this Agreement, all
filings, registrations, reports, licenses, permits and authorizations
required under applicable law, regulations or orders in order for it
to perform its obligations under this Agreement.
9.3 Business Practices. In conformity with the United States Foreign
Corrupt Practice Act and with the Parties' established corporate
policies regarding business practices, the Parties and their
respective employees shall not directly or indirectly make an offer,
payment, promise to pay, or authorize payment, or offer a gift,
promise to give, or authorize the giving of anything of value for the
purpose of influencing an act or decision (including a decision not to
act) of an official of any Government or of an employee or any company
or including such a person to use his influence to effect any such act
or decision in order to assist any of the Parties in obtaining,
retaining or directing any business.
ARTICLE 10
GENERAL PROVISIONS
------------------
10.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the
Parties; provided that no Party may assign this Agreement or any
rights or obligations hereunder, whether by operation of law or
otherwise, without the prior written consent of all the other Party's
authorized representative (which consent may be granted or withheld).
Any attempted assignment by any Party without the prior written
consent of the other Party shall be void and unenforceable.
10.2 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if
delivered by hand, or if communicated by facsimile to the facsimile
number as may be provided from time to time by each Party to the
other, at the time that receipt thereof has been confirmed by return
electronic communication signal that the message has been received, or
-8-
if sent by reputable international courier service three (3) days
after dispatch addressed to the Parties at the addresses outlined
hereafter. Either Party may change its facsimile number or
address by a notice given to the other Party in the manner set
forth as follows:
If to NSIMG:
Attn: Chief Operating Officer
75 West Center, Provo, Utah 84601 USA
(801) 345-5500
(801) 345-5999 Fax
If to NSJ:
Attn: General Manager
Shinjuku I-Land Tower, 23rd Floor
6-5-1 Nishi Shinju-ku, Tokyo, Japan 163-13
(813) 5321-3600
(813) 5321-3799 Fax
10.3 Waiver and Delay. No waiver by any Party of any breach or
default in performance by any other Party, and no failure,
refusal or neglect of any Party to exercise any right, power or
option given to it hereunder or to insist upon strict compliance
with or performance of the other Party's obligations under this
Agreement, shall constitute a waiver of the provisions of this
Agreement with respect to any subsequent breach thereof or a
waiver by any Party of its right at any time thereafter to
require exact and strict compliance with the provisions thereof.
10.4 Force Majeure. The Parties shall not be responsible for failure
to perform hereunder due to force majeure, which shall include,
but not be limited to: fires, floods, riots, strikes, labour
disputes, freight embargoes or transportation delays, shortage of
labour, inability to secure fuel, material, supplies, equipment
or power at reasonable prices or on account of shortage thereof,
acts of God or of the public enemy, war or civil disturbances,
any existing or future laws, rules, regulations or acts of any
government (including any orders, rules or regulations issued by
any official or agency or such government) affecting a Party that
would delay or prohibit performance hereunder, or any cause
beyond the reasonable control of a Party. If an event of force
majeure should occur, the affected Party shall promptly give
notice thereof to the other Party and such affected Party shall
use its reasonable best efforts to cure or correct any such event
of force majeure.
10.5 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the
State of
-9-
Utah, applicable to contracts made and to be wholly performed
within such State. Any dispute arising out of this Agreement, if
not resolved by mutual agreement of NSI and NSHK within 30 days
after written notice of such dispute is given by NSHK or NSI, as
the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association
("AAA"). If the dispute is not resolved within such 30-day
period, the Parties shall petition the AAA to promptly appoint a
competent, disinterested person to act as such arbitrator.
Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the
arbitration proceeding in the state of Utah at a time and place
to be fixed by the arbitrator, who shall so notify NSI and NSHK.
Such arbitration proceeding shall be conducted in accordance with
the applicable rules and procedures of the AAA, and/or as
otherwise may be agreed by NSI and NSHK and may be enforced in
any court of competent jurisdiction. The expenses and costs of
such arbitration shall be divided and borne equally be NSI and
NSHK; provided, that such of NSI and NSHK shall pay all fees and
expenses incurred by it in presenting or defending against such
claim, right or cause of action.
10.6 Applicability of Post-Effective Laws. The Parties agree that
neither the Vienna Convention on the International Sale of Goods
nor any such similar law, treaty or act that becomes effective
during the term of this Agreement shall be applicable to this
Agreement or the transactions contemplated hereunder.
10.7 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter
hereof and supersedes all prior or contemporaneous negotiations,
representations, agreements and understanding (both oral and
written) of the Parties.
10.8 Modifications and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in
writing and executed by all Parties.
10.9 Severability. To the extent that any provision of this Agreement
is (or, in the opinion of counsel mutually acceptable to all
Parties, would be) prohibited, judicially invalidated or
otherwise rendered unenforceable in any jurisdiction relevant to
the Parties, such provision shall be deemed ineffective only to
the extent of such prohibition, invalidation or unenforceability
in that jurisdiction, and only within that jurisdiction. Any
prohibited, judicially invalidated or unenforceable provision of
this Agreement will not invalidate or render unenforceable any
other provision of this Agreement, nor will such provision of
this Agreement be invalidated or rendered unenforceable in any
other jurisdiction.
-10-
10.10 Counterparts and Headings. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their authorized representatives.
NU SKIN INTERNATIONAL MANAGEMENT GROUP, INC.
By:
----------------------------------
Name:
Title:
NU SKIN JAPAN COMPANY, LIMITED
By: -----------------------------------
Name:
Title:
EXHIBIT 10.12
NSI - NSK
AMENDED AND RESTATED
LICENSING AND SALES AGREEMENT
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission)
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
DEFINITIONS ........................................................ 2
1.1 "Agreement" ............................................ 3
1.2 "Bonus Payments" ....................................... 3
1.3 "Commission Expense .................................... 3
1.4 "Copyrights" ........................................... 3
1.5 "Distributor Contract" ................................. 3
1.6 "Distributor Lists" .................................... 3
1.7 "Fixed Commission Expense" ............................. 4
1.8 "Independent Distributor Network" ...................... 4
1.9 "Know-How" ............................................. 4
1.10 "Licensed Property" .................................... 4
1.11 "Net Sales" ............................................ 4
1.12 "NSI Independent Distributor" .......................... 4
1.13 "Products" ............................................. 4
1.14 "Proprietary Information" .............................. 5
1.15 "Resident NSI Independent Distributor" ................. 5
1.16 "Sales Compensation Plan" .............................. 6
1.17 "Sales Aids" ........................................... 6
1.18 "Starter Kit" .......................................... 6
1.19 "Territory" ............................................ 6
ARTICLE II
GRANT OF LICENSE AND PARTIAL
ASSIGNMENT OF OBLIGATIONS; LICENSE FEES ............................ 6
2.1 Grant of License ....................................... 6
2.2 Assignment of Obligations .............................. 6
2.3 NSI's Interest in Licensed Property .................... 7
2.4 Recitals of Value of Licensed Property ................. 7
2.5 Warranty of Title ...................................... 7
2.6 Modifications .......................................... 7
2.7 License Fee ............................................ 7
2.8 Consulting Fee ......................................... 7
ARTICLE III
COMPUTATION AND PAYMENT TERMS ...................................... 8
3.1 Bonus Payments Consulting Fee .......................... 8
3.2 License Fee ............................................ 9
3.3 Records ................................................ 10
ii
3.4 Payment Terms .......................................... 10
3.5 Default Rate ........................................... 10
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT ............. 11
4.1 Certain Obligations, Rights, and Duties of NSI ......... 11
4.2 Certain Obligation, Rights and Duties of NSK ........... 12
ARTICLE V
STARTER KIT SALES .................................................. 13
5.1 Agreement to Purchase Starter Kits ..................... 13
5.2 Pricing ................................................ 13
5.3 Payment Method ......................................... 13
5.4 Quantities ............................................. 13
5.5 Quality of Starter Kits ................................ 14
5.6 Insurance .............................................. 14
ARTICLE VI
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS ....................... 14
ARTICLE VII
TERM AND TERMINATION ............................................... 15
7.1 Term ................................................... 15
7.2 Termination ............................................ 15
7.3 Survival of Obligations ................................ 17
7.4 Reversion of Rights .................................... 17
ARTICLE VIII
INFRINGEMENT; INDEMNIFICATION ...................................... 17
ARTICLE IX
NATURE OF RELATIONSHIP ............................................. 18
ARTICLE X
CONFIDENTIALITY .................................................... 19
ARTICLE XI
MAINTENANCES OF LICENSED PROPERTY; RECORDING ....................... 20
ARTICLE XII ......................................................... 20
12.1 Assignment ............................................. 20
12.2 Force Majeure .......................................... 20
iii
12.3 Governing Law and Dispute Resolution ................... 21
12.4 Applicability of Post-Effective Law .................... 22
12.5 Waiver and Delay ....................................... 22
12.6 Notices ................................................ 22
12.7 Integrated Contract .................................... 23
12.8 Modification and Amendments ............................ 23
12.9 Severability ........................................... 23
12.10 Counterparts and Headings .............................. 24
iv
AMENDED AND RESTATED
--------------------
LICENSING AND SALES AGREEMENT
-----------------------------
THIS AMENDED AND RESTATED LICENSING AND SALES AGREEMENT is made and entered
into this ______day of November, 1996, between Nu Skin International, Inc. a
corporation organized and existing under the laws of the State of Utah, U.S.A.,
(hereinafter referred to as "NSI") and Nu Skin Korea Company, Ltd., a company
dually incorporated organized and existing under the laws of the Republic of
Korea and the State of Delaware, U.S.A., (hereinafter "NSK"). Hereinafter, NSI
and NSK shall collectively be referred to as the "Parties".
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, NSI is engaged in the design, production and marketing of products
and related sales aids, for multi-national distribution through a network of
independent distributors; and,
WHEREAS, NSK desires to act as the exclusive wholesale distributor of NSI
products in the Territory (as hereafter defined), having entered a separate
written Wholesale Distribution Agreement with Nu Skin Hong Kong, Inc., the
exclusive regional distributor of such products and sales aids in the Asia-
Pacific region; and,
WHEREAS, NSI and NSK desire to implement NSI's Independent Distributor
Network (as defined below) to promote sales of products and sales aids; and,
WHEREAS, NSI desires to further develop and enlarge its Independent
Distributor Network in the Territory with the assistance of NSK, for their
mutual benefit, in accordance with the terms and conditions hereinafter
provided; and
WHEREAS, NSK recognizes and agrees that NSI has expended considerable time,
effort and resources to develop and maintain the Licensed Property (as hereafter
defined) and NSK further agrees it will derive a considerable benefit from its
use of the Licensed Property in the Territory and from NSI's efforts and
expenditures respecting the Licensed Property; and
WHEREAS, NSI and NSK entered into a Licensing and Sales Agreement on
February 8, 1996 (the "Prior Licensing and Sales Agreement"); and
WHEREAS, the Parties wish to amend and restate the Prior Licensing and
Sales Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual promises,
covenants, and warranties hereinafter set forth and for other valuable
consideration, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
------------
For the purposes of this Agreement, the following words and terms shall
have the meaning assigned to them in this Article I:
2
1.1 "Agreement" shall mean this Amended and Restated Licensing and Sales
Agreement (together with any exhibits and schedules hereto), as the same may be
modified, amended or supplemented from time to time.
1.2 "Bonus Payments" shall mean *****
1.3 *****
1.4 "Copyrights" shall mean any and all protectable software, programs,
databases, source codes and applications owned by NSI or which NSI has a right
to use, license or sub-license, relating directly or indirectly to the
Independent Distributor Network, Distribution Lists or the Sales Compensation
Plan.
1.5 "Distributor Contract" shall mean, for any NSI Independent
Distributor, its contract with NSI pursuant to which NSI authorizes it to
distribute NSI's Products and Sales Aids.
1.6 "Distributor Lists" shall mean any and all individual or accumulated
name, address, identification number, sponsor name and/or similar lists of all
present or future NSI Independent Distributors expressed in any medium.
1.7 "Independent Distributor Network" shall mean the network of all NSI
Independent Distributors.
3
1.8 "Know-How" shall mean any information, including, without
limitation, any commercial or business information, lists, marketing methods,
marketing surveys, processes, specifications, quality control reports, drawings,
photographs, or any other information owned by NSI, whether or not considered
proprietary, relating to the Independent Distributor Network, the Distributor
Lists, and the Sales Compensation Plan.
1.9 "Licensed Property" shall mean *****
1.10 "Net Sales" shall mean, for any period, the number of Products,
Sales Aids and others items (exclusive of Starter Kits and goods sold on
consignment) sold by NSK to NSI Independent Distributors during such period,
multiplied by NSK's then current selling price to its distributors for each such
Product, Sales Aids or items less applicable consumption taxes and returns or
refunds reasonably accepted and credited by NSK during such period.
1.11 "NSI Independent Distributor" shall mean a person or business entity
who has entered into a Distributor Contract.
1.12 "Products" shall mean those goods sold by NSI which carry a point
value within the Sales Compensation Plan.
1.13 "Proprietary Information" shall mean, without limitation, all
information other than information in published form or expressly designated by
either party in writing as non-confidential, which is directly or indirectly
disclosed to the other party, regardless of the form in which it is disclosed,
relating in any way to the following property owned by the Parties or which the
Parties have been licensed to use or sub-license: (1) proprietary technical
information related to the Licensed
4
Property and the Starter Kit; (2) information respecting actual or potential
customers or customer contacts and customer sales strategies, names, addresses,
phone numbers, identification numbers, database information and its
organization, unique business methods; (3) market studies, penetration data,
customers, products, contracts, copyrights, computer programs, applications,
technical data, licensed technology, patents, inventions, procedures, methods,
designs, strategies, plans, liabilities, assets, cost revenues, sales costs,
production costs, raw material sources and other market information; (4) other
sales and marketing plans, programs and strategies; (5) trade secrets, Know-How,
designs and proprietary commercial and technical information, methods,
practices, procedures, processes, formulae with respect to manufacturing,
assembly, design or processing products subject to this Agreement and any
component, part or manufacture thereof; (7) profits, organization, employees,
agents, distributors, suppliers, trade marks, trade names and services; (8)
other business and commercial practices in general relating directly or
indirectly to the foregoing; and, (9) computer disks or other records or
documents, originals or copies, containing in whole or in part any of the
foregoing.
1.14 "Resident NSI Independent Distributor" shall mean *****
1.15 "Sales Compensation Plan" shall mean the method employed by NSI to
calculate Bonus Payments paid to the Independent Distributor Network upon the
Sale of Products.
1.16 "Sales Aids" shall mean materials, in whatever form and/or design
produced to assist in the marketing of Products.
5
1.17 "Starter Kit" shall mean those materials purchased by an NSI
Independent Distributor upon the execution of a Distributor Contract which
explains the Sales Compensation Plan and other NSI policies, procedures and
programs, the contractual relationship with NSI and the marketing support
programs for the Territory.
1.18 "Territory" shall mean the country of the Republic of Korea.
ARTICLE II
GRANT OF LICENSE AND PARTIAL
ASSIGNMENT OF OBLIGATIONS; LICENSE FEES
---------------------------------------
2.1 Grant of License. Subject to the terms and conditions of this
Agreement, NSI hereby grants to NSK an exclusive license to use the Licensed
Property in the Territory; provided that all such uses shall comply in all
--------
material respects with the terms of this Agreement and; provided further that
--------
NSK shall not have the right to grant any right, title, use or sublicense for
the Licensed Property.
2.2 Assignment of Obligations. *****
2.3 NSI's Interest in Licensed Property. NSI hereby retains legal title
to the Licensed Property for all purposes, including but not limited to, the
bringing or defending of any legal action in the Territory which it deems
reasonable to protect its rights therein. NSK agrees to assist NSI in any manner
to protect NSI's rights in the Licensed Property which NSI may reasonably
request. NSI shall reimburse NSK for any third party costs incurred by NSK in
providing such assistance.
6
2.4 Recitals of Value of Licensed Property. *****
2.5 Warranty of Title. NSI hereby warrants and represents that it is the
sole and exclusive owner of the Licensed Property and that to the best of its
knowledge and information no claim exists or has been made contesting the
ownership and title of said Licensed Property.
2.6 Modifications. NSK shall make no modification to the Licensed
Property without the express, prior written consent of NSI.
2.7 License Fee. As compensation for the exclusive licenses granted
pursuant to the terms of this Agreement, NSK shall pay to NSI a license fee
equal to four percent (4%) of its Net Sales
2.8. Consulting Fee. *****
7
2.9 *****
ARTICLE III
COMPUTATION AND PAYMENT TERMS
-----------------------------
3.1 Bonus Payments and Consulting Fee. *****
3.1(a) *****
3.1(b) *****
8
*****
3.1(c) *****
3.1(d) *****
3.2 License Fee. *****
3.2(a) *****
3.2(b) *****
9
3.2(c) *****
3.3 Records. Each Party shall keep complete and accurate records of its
compliance with its obligations under this Agreement which shall be open to
inspection by authorized representatives of the other Party at any reasonable
time.
3.4 Payments to NSI. *****
3.5 Default Rate. *****
ARTICLE IV
CERTAIN OBLIGATIONS OF THE PARTIES UNDER THE AGREEMENT
------------------------------------------------------
4.1 Certain Obligations, Rights, and Duties of NSI. NSI agrees that, in
addition to its other obligations under this Agreement, NSI will maintain and
provide support for the Sales Compensation Plan. NSI agrees, among other things:
*****
10
***** in consultation with NSK, to discipline NSI Independent Distributors
as it deems necessary to help insure the reputation of NSI; ***** to perform any
other function or provide the necessary support to comply with the terms of this
Agreement and to otherwise support and maintain the Independent Distributor
Network within the Territory.
4.2 Certain Obligation, Rights and Duties of NSK. In addition to its
other obligations under this Agreement NSK agrees, among other things: (1) to
maintain, at its sole cost and expense, such facilities and other places of
business within the Territory necessary to effect the purposes and intentions of
this Agreement and to bear all costs and expenses it incurs in the negotiation,
memorialization, execution and performance of all leases, rentals, equipment,
salaries, taxes, licenses, insurance, permits, telephone, telegraph,
promotional, advertising, travel, accounting, legal and such similar expenses,
relating to the business of NSK under the terms and conditions of this
Agreement, unless otherwise agreed in writing by the Parties; (2) to manage its
business affairs in such a manner that the reputation of NSI is not damaged;
*****
11
***** to train and lend assistance to NSI Independent Distributors in the
Territory; (6) to transmit information regarding Net Sales to NSI ***** to
monitor and supervise the activities of Resident NSI Distributors; (9) to
enforce the Distributor Contracts to ensure compliance therewith and with NSI's
policies and procedures and to any action against Resident NSI Distributors for
violation of the terms and conditions of the Distributor Contract, NSI's
policies and procedures, or any other rules and regulations of NSI or NSK as NSI
shall reasonably request; and, (10) to perform any other function or provide
support as NSI shall reasonably request to enable NSI to fully perform its
obligations to the NSI Independent Distributors under the Sales Compensation
Plan and their Distributor Contracts.
12
ARTICLE V
STARTER KIT SALES
-----------------
5.1 Agreement to Purchase Starter Kits. The Parties acknowledge that
pursuant to this Agreement NSK is being granted an exclusive license to use the
Licensed Property, including the Independent Distributor Network, in the
Territory. NSK agrees to use its best efforts in supporting the development of
the Independent Distributor Network in the Territory by purchasing Starter Kits
from NSI and selling them to potential NSI Independent Distributors in the
Territory.
5.2 Pricing. The Parties agree that the price of Starter Kits shall be
negotiated and determined on an arm's length basis and may be adjusted from time
to time as agreed by the Parties in writing.
5.3 Payment Method. NSK shall pay the commercial invoices for Starter
Kits shipped under this Agreement in the manner set forth in Section 3.4.
5.4 Quantities. NSK agrees to purchase sufficient quantities of the
Starter Kit from NSI to fill orders, in a timely fashion, received from
potential NSI Independent Distributors in the Territory.
5.5 Quality of Starter Kits. NSI shall use its best efforts to maintain
and augment the quality, image and value of the Starter Kit such that Starter
Kits sold in the Territory are consistent with the quality of those sold in the
United States of America.
5.6 Merchantability. NSI warrants that Starter Kits sold to NSK
pursuant to this Agreement will be merchantable and of sufficient quality for
sales within the Territory. If NSK determines that certain Starter Kits supplied
under this Agreement are not merchantable, a claim for a refund of the price
paid can be made with 45 days from the day the Starter Kits are received in the
13
Territory. NSI agrees to refund, or credit the account of NSK for, the purchase
price of such non-merchantable Starter Kits.
ARTICLE VI
GOVERNMENTAL APPROVALS, LAWS AND REGULATIONS
--------------------------------------------
6.1 NSK agrees to obtain, or cause to be obtained, at its sole cost and
expense, any governmental approval and make, or cause to be made, any filings or
notifications required under all applicable laws, regulations and ordinances in
the Territory to enable this Agreement to become effective or to enable any
payment pursuant to the provisions of this Agreement to be made. NSK agrees to
keep NSI informed of its progress in obtaining all such government approvals.
6.2 Each party agrees to refrain from any action that will cause the
other party to be in violation of any applicable law, regulation, or ordinance
of any jurisdiction in the Territory or the United States or elsewhere or any
international convention or bilateral or multilateral treaty to which any
jurisdiction in the Territory or the United States is a signatory, including,
without limitation, the U.S. Foreign Corrupt Practices Act of 1977, the U.S.
Export Control Laws, and the U.S. Anti-Boycott laws.
6.3 NSI agrees to take, or cause to be taken, at its sole cost and
expense, all actions necessary to ensure the compliance of the Licensed Property
with applicable laws, regulations and ordinances in the Territory (including,
without limitation, direct selling laws). NSI agrees to keep NSK informed of its
progress in obtaining all such government approvals.
14
ARTICLE VII
TERM AND TERMINATION
--------------------
7.1 Term. Subject to Section 7.2 hereof, this Agreement shall be for a
term ending on December 31, 2016 provided, however, that this Agreement is
subject to renegotiation after December 31, 2001 in the event that members of
the families of, or trusts or foundations established by or for the benefit of,
Blake M. Roney, Nedra D. Roney, Sandie N. Tillotson, Craig Tillotson, Craig
Bryson, Steven J. Lund, Brooke B. Roney, Kirk V. Roney and Keith R. Halls on a
combined basis no longer beneficially own a majority of the voting stock of Nu
Skin Asia Pacific, Inc. ("Nu Skin Asia").
7.2 Termination. This Agreement may be terminated by either party
immediately or at any time the occurrence of any of the following events:
(a) the other Party shall commence any case, proceeding or other action
(I) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it,
or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, compensation or other relief with respect to it or its
debts, or (ii) seeking appointment of a receiver, trustee, custodian or
other similar action; or
(b) there shall be commenced against the other Party any case,
proceeding or other action of a nature referred to in clause (a) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
15
unbonded for a period of 90 days. Events described in clauses (a) and (b)
of this Section 7.2 shall be referred to as a Bankruptcy Event. If a
Bankruptcy Event occurs, all amounts owing under this Agreement shall
become immediately due and payable, without any notice thereof; or
(c) if the other Party causes or allows a judgment in excess of twenty-
five million dollars ($25,000,000) to be entered against it or causes or
allows a lien, security interest, or other encumbrance to attach to its
assets which secures an amount in excess of twenty-five million dollars
($25,000,000) to be placed upon its assets.
7.3 This Agreement may be terminated by either party, if the other party
is in default in the performance of any material obligation under this Agreement
and such default has not been cured within sixty (60) days after receipt of
written notice of such default by the defaulting party.
7.4 This Agreement may be terminated by NSI if Nu Skin Asia shall no
longer own or control a majority of the voting interest in NSK, with such
termination to take effect thirty (30) days after NSI gives written notice to
NSK of the occurrence of a change in control and its intention to terminate this
Agreement based thereon.
7.5 Survival of Obligations. The obligations of the Parties to pay any
sums which are due and payable as of the expiration or termination of this
Agreement and their obligation under Section 2.3, Article VIII and Article X
hereof shall survive the expiration or termination of this Agreement.
7.6 Reversion of Rights. Upon termination of this Agreement, all rights
and licenses herein granted to NSK shall immediately cease and shall revert to
NSI, and NSK shall cease representing
16
to any third party that it has any right to use, assign, convey or otherwise
transfer the Licensed Property.
ARTICLE VIII
INFRINGEMENT; INDEMNIFICATION
-----------------------------
NSI hereby represents and warrants that, as of the date hereof, there are
no infringement or misappropriation suits pending or filed or, to its knowledge,
threatened against NSI within the Territories that relate to the Licensed
Property and NSI is not presently aware of any such infringement or
misappropriation. NSI shall indemnify and hold NSK harmless from and against all
claims, actions, suits, proceedings, losses, liabilities, costs, damages and
attorneys' fees in respect of a third party claim alleging infringement or
misappropriation by NSK in respect of its use of the Licensed Property in the
Territory; provided that NSK shall give NSI prompt written notice of any claim,
--------
action, suit or proceeding and without limiting the generality of Section 2.3
hereof, shall cooperate with NSI in the defense of any such claim, action, suit
or proceeding. NSI shall have the right to select counsel in any such claim,
action, suit or proceeding. In the event that any such claim, action, suit or
proceeding. In the event that any such claim, action or proceeding is
successful, NSI shall use reasonable efforts to make such changes in the
Licensed Property to permit NSK to continue to make use of the Licensed Property
to permit NSK to continue to make use of the Licensed Property to permit NSK to
continue to make use of the Licensed Property free and clear of all infringement
and misappropriation. NSI shall give NSI prompt written notice of any
infringement or misappropriation of the Licensed Property by any third party.
NSI shall have the sole right to
17
initiate any and all legal proceedings against any such third party and, without
limiting the generality of Section 2.3 hereof, NSK shall cooperate with NSI in
the pursuit of any such proceeding. NSI shall retain any damage award obtained
from such third party.
ARTICLE IX
NATURE OF RELATIONSHIP
----------------------
The relationship of NSK and NSI shall be and at all times remain,
respectively, that of independent contractor and contracting party. Nothing
contained or implied in this Agreement shall be construed to constitute either
party as the legal representative or agent of the other or to constitute or
construe the Parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking. Neither Party is authorized to
conclude any contract or agreement or make any commitment, representation or
warranty that binds the other or otherwise act in the name of or on behalf of
the other.
ARTICLE X
CONFIDENTIALITY
---------------
All Proprietary Information or other non-public or proprietary business
or technical information owned or used by NSI or NSK and supplied to or acquired
by the other whether in oral or documentary form (the "Confidential
Information") shall be supplied and acquired in confidence and shall be solely
for the use of the receiving party pursuant to this Agreement and such party
shall keep the Confidential Information confidential and shall not disclose the
same, at any time during the
18
term of this Agreement or after its termination, except to its employees for the
purposes of its business in accordance with this Agreement and except as may be
required by law; provided that if the receiving party determines that a
disclosure is required by law, the receiving party shall notify the disclosing
party in order to give the disclosing party an opportunity to seek an injunction
or otherwise attempt to keep the Confidential Information confidential. The
receiving party shall, at the request of the disclosing party, destroy or return
the Confidential Information without retaining copies if, as and when this
Agreement is terminated or expires. For purposes of this Agreement, the term
"Confidential Information" shall not include information or documents that (I)
become generally available to the public other than as a result of a disclosure
by the receiving party, (ii) was otherwise lawfully available to the receiving
party, or (iii) was generated independently by the receiving party. The
provisions of this Article shall survive termination of this Agreement.
ARTICLE XI
MAINTENANCE OF LICENSED PROPERTY; RECORDING
-------------------------------------------
NSI shall use its best efforts and take all reasonable steps consistent
with its existing internal policies and procedures and with this Agreement to
maintain the Licensed Property in the Territory. In no event shall this clause
be construed to require NSI to establish or maintain a branch office, subsidiary
corporation or fixed place of business or similar permanent establishment in the
Territory. NSI, in its sole discretion, shall have the right to record this
Agreement or proof thereof, or to enter NSK as a registered user in the
Territory. NSK agrees to cooperate, as reasonably requested by NSI,
19
in arranging for such recordings or entries, or in bearing or canceling such
recordings or entries in the event of amendments to or termination of this
Agreement for any reason.
20
ARTICLE XII
MISCELLANEOUS
12.1 Assignment. This Agreement shall be binding on and inure to the
benefit of the heirs, successors, assigns and beneficiaries of the Parties;
provided that neither party may assign this Agreement or any rights or
obligations hereunder, whether by operation of law or otherwise, without the
prior written consent of the other party's authorized representative. Any such
attempted assignment, without the written consent provided herein, shall be void
and unenforceable.
12.2 Force Majeure. The Parties shall not be responsible for failure to
perform hereunder due to force majeure, which shall include, but not be limited
to: fires, floods, riots, strikes, labor disputes, freight embargoes or
transportation delays, shortage of labor, inability to secure fuel, material,
supplies, equipment or power at reasonable prices or on account of shortage
thereof, acts of God or of the public enemy, war or civil disturbances, any
existing or future laws, rules, regulations or acts of any government (including
any orders, rules or regulations issued by any official or agency or such
government) affecting a party that would delay or prohibit performance
hereunder, or any cause beyond the reasonable control of a party. If an event of
force majeure should occur, the affected party shall promptly give notice
thereof to the other party and such affected party shall use its reasonable best
efforts to cure or correct any such event of force majeure.
12.3 Governing Law and Dispute Resolution. This Agreement shall be
governed by and construed in accordance with the laws of the State of Utah,
applicable to contracts made and to be wholly performed within such State. Any
dispute arising out of this Agreement, if not resolved by mutual agreement of
NSI and NSK within 30 days after written notice of such dispute is given by
21
NSK or NSI, as the case may be, shall be resolved through arbitration with the
Utah office and division of the American Arbitration Association ("AAA"). If the
dispute is not resolved within such 30-day period, the Parties shall petition
the AAA to promptly appoint a competent, disinterested person to act as such
arbitrator. Within 30 days after the designation or appointment of such
arbitrator, such arbitrator shall be required to commence the arbitration
proceeding in the state of Utah at a time and place to be fixed by the
arbitrator, who shall so notify NSI and NSK. Such arbitration proceeding shall
be conducted in accordance with the applicable rules and procedures of the AAA,
and/or as otherwise may be agreed by NSI and NSK. The decision of the arbitrator
shall be final and binding upon NSI and NSK and may be enforced in any court of
competent jurisdiction. The expenses and costs of such arbitration shall be
divided and borne equally by NSI and NSK; provided, that each of NSI and NSK
--------
shall pay all fees and expenses incurred by it in presenting or defending
against such claim, right or cause of action.
12.4 Applicability of Post-Effective Law. The parties agree that
neither the Vienna Convention on the International Sale of Goods nor any such
similar law, treaty or act that becomes effective during the term of this
Agreement shall be applicable to this Agreement or the transactions contemplated
hereunder.
12.5 Waiver and Delay. No waiver by either party of any breach or
default in performance by the other party, and no failure, refusal or neglect of
either party to exercise any right, power or option given to it hereunder or to
insist upon strict compliance with or performance of the other party's
obligations under this Agreement, shall constitute a waiver of the provisions of
this Agreement
22
with respect to any subsequent breach thereof or a waiver by either party of its
right at any time thereafter to require exact and strict compliance with the
provisions thereof.
12.6 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered by hand, or if communicated by facsimile, cable or similar electronic
means to the facsimile number or cable identification number as previously
provided by each party to the other, at the time that receipt thereof has been
confirmed by return electronic communication or signal that the message has been
received, or if mailed, ten (10) days after dispatch by registered airmail,
postage prepaid, from any post office addressed as follows:
If to NSK: General Manager
Nu Skin Japan Company Ltd.
Shinjuku I-Land Tower, 23rd Floor
6-5-1 Nishi Shinjuku, Tokyo, Japan, 163-13
Facsimile No.: 813-5321-7779
If to NSI: Chief Operating Officer
Nu Skin International, Inc.
75 West Center Street,
Provo, Utah 84601, U.S.A.
Facsimile No.: (801) 345-5999
Either party may change its facsimile number, cable identification
number or address by a notice given to the other party in the manner set forth
above.
23
12.7 Integrated Contract. This Agreement constitutes the entire
agreement between the Parties relating to the subject matter hereof and
supersedes all prior or contemporaneous negotiations, representations,
agreements and understandings (both oral and written) of the Parties.
12.8 Modification and Amendments. No supplement, modification or
amendment of this Agreement shall be binding unless it is in writing and
executed by both of the Parties.
12.9 Severability. To the extent that any provision of this
Agreement is (or in the opinion of counsel mutually acceptable to both Parties
would be) prohibited, judicially invalidated or otherwise rendered unenforceable
in any jurisdiction, such provision shall be deemed ineffective only to the
extent of such prohibition, invalidation or unenforceability in that
jurisdiction, and only within that jurisdiction. Any prohibited, judicially
invalidated or unenforceable provision of this Agreement will not invalidate or
render unenforceable any other provision of this Agreement, nor will such
provision of this Agreement be invalidated or rendered unenforceable in any
other jurisdiction.
12.10 Counterparts and Headings. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. All headings and
captions are inserted for convenience of reference only and shall not affect the
meaning or interpretation of any provision hereof.
24
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in the United States of America by their respective duly authorized
representatives as of the day and year first-above written.
NU SKIN INTERNATIONAL, INC. NU SKIN KOREA, INC.
BY: BY:
-------------------------- ------------------------
NAME: NAME:
TITLE: TITLE:
25
Exhibit 10.13
----------------------------------------
[ ] Agreement [ ] Amended Agreement
----------------------------------------
================================================================================
[GRAPHIC IMAGE APPEARS HERE] NU SKIN INDEPENDENT DISTRIBUTOR AGREEMENT -
HONG KONG/MACAU
================================================================================
Hong Kong Distribution Center 26th Floor, Windsor House, 311 Gloucester Road,
Causeway Bay, Hong Kong Phone: 852-2837-7833
Macau Distribution Center Rua de Pequim No. 244-246, 6-H Macau Finance
Centre, Macau Phone: 853-703-655
=============
Directions: Nu Skin Distributor Identification Number
=============
1. Complete this Agreement to apply for an
Independent Nu Skin Distributorship. This [BAR CODE APPEARS HERE]
is a binding contract with Nu Skin
International, Inc. (a U.S. corporation),
One Nu Skin Plaza, Provo, Utah 84601; HK0183210
please carefully read and complete before
signing.
2. Send the signed Agreement to Nu Skin Hong
Kong, Inc. ("Nu Skin HK Affiliate") at 26th
Floor, Windsor House, 311 Gloucester Road,
Hong Kong for forwarding to Nu Skin
International, Inc. in the U.S. for
official acceptance.
In consideration of the mutual promises and conditions set forth, Nu Skin
International, Inc. ("Nu Skin") and the undersigned ("Distributor" or "I") agree
as follows:
I. TERMS AND CONDITIONS:
These terms and conditions apply to and regulate all Hong Kong and Macau
Independent Distributorships.
. The Contract consists of this Independent Distributor Agreement
the "Distributor Policies & Procedures as modified for Hong
Kong/Macau", the "Nu Skin Sales Compensation Plan", and (if
applicable) the "Business Organization Information Sheet" (the
"Contract"). The terms of each of these separate documents are by
this reference incorporated into this document. By signing this
Independent Distributor Agreement I apply to become a Distributor
of Nu Skin, which application Nu Skin may accept or reject at its
sole discretion.
. The Contract becomes effective the date the application contained
in this Agreement is accepted by Nu Skin at its corporate
headquarters in the U.S.A. The application shall be accepted when
it is entered into the Nu Skin Contract Database with an
electronic identification signature consisting of a symbol or
code indicating acceptance. Distributor's signature below
indicates acceptance of all the terms of the Contract.
. Distributor may sell Nu Skin products purchased from Nu Skin HK
Affiliate and sponsor other prospective distributors in Hong Kong
and Macau (the "Territory") during the term of the Contract,
which shall be from the date of acceptance by Nu Skin until
December 31 of the current year. Unless either Nu Skin or
Distributor notifies the other in writing of its intention not
to renew the Contract at least one (1) month before the
expiration date, the Contract shall automatically be renewed on
January 1 and each January 1 thereafter, without notice, for an
additional one (1) year term.
. Distributor agrees distribution of Nu Skin products in any
country outside the Territory requires a separate distribution
contract with Nu Skin (see Optional Services section).
. Wholesale Nu Skin products may only be purchased by entering a
separate wholesale purchase agreement (Product Purchase
Agreement) with Nu Skin HK Affiliate - the company designated by
Nu Skin as the exclusive wholesale distributor of Nu Skin
products in the Territory. That contract will contain product
purchase, return and exchange provisions, as well as any other
information or requirements pertaining to the supervision of the
Distributor account serviced in the Territory by Nu Skin HK
Affiliate.
II. DISTRIBUTOR IDENTIFICATION INFORMATION
Distributor will be assigned a Distributor Identification Number used by Nu
Skin HK Affiliate in all transactions concerning Distributor's account.
Distributor certifies the information given is true and correct and agrees
that Nu Skin may declare the Contract void if such information is false or
misleading.
. Distributor's Full Name in English Name in Chinese
- ------------------------------------------------------- -----------------------
(if an individual, name must be same as on I.D. card or passport, Surname first,
if a business, must complete and attach a Business Organization Information
Sheet)
Distributor is a (please check one) [ ] individual [ ] corporation
[ ] partnership
1. If an individual: I am a permanent resident of (please check one)
[ ] Hong Kong - HK ID Card No.
[ ] Macau - Macau Inhabitant I.D. Card or Portugal I.D. Card No.
2. If a business: Business organization is registered in (please check one)
[ ] Hong Kong - HK Business Registration No.
[ ] Macau - Macau Business Registration No.
------------------------------------- ---------------------------------------
Distributor must provide a legible copy of current I.D. Card before the
application can be processed)
. Distributor Birthdate Mobile Phone No. Pager No.
month/ day/ year
- ------------- ---------------- ------------------------- --------------------
. Home Telephone Business/Daytime Telephone Fax No.
----------------------------- ------------------------- --------------------
. Mailing Address
------------------------------------------------------------------------------
------------------------------------------------------------------------------
. Distributor #2 or Spouse Full Name in English, Surname first (if applicable)
----------------------------------------------------------------------------
Name in Chinese
-----------------------------------------------------------------------------
. HK ID Card No./Macau Inhabitant I.D. Card or Portugal I.D. Card No. (please
delete inappropriate)
----------------------------------------
. . Sponsor's Name (Surname First)
--------------------------------------------
Sponsor's ID Number: . Sponsor's Telephone No.
-------------------------- --------------------------
(Attach Sticker/Write here)
. Your Upline Executive's Name (Surname first)
--------------------------------------------
. Have you or your partner/spouse ever been a Nu Skin distributor or
participated in a distributorship individually, in a partnership or as a
principal in a corporate distributorship?
[ ] yes [ ] no If yes, please give name of distributorship and list date
of last activity
month/ year/ Name (Surname First)
------------------------------------------------------------------------------
III. OPTIONAL SERVICES AND PAYMENT TERMS
. Optional Services: (please check appropriate boxes) Distributor would like
to investigate participation in international distribution opportunities and
has indicated the authorized countries for which he/she requests an
International Distributor and Sponsor Packet (IDSP). Distributor has
included HK $40/MOP40 for each country's IDSP with this form.
[ ] Canada [ ] Australia [ ] Taiwan [ ] Japan
[ ] New Zealand [ ] U.S. [ ] Mexico
(include total payment below HKD$/MOP _________ each)
. Payment Terms: Distributor understands the only financial requirement to
become a Nu Skin distributor is the purchase of a HKD$400.00 (for HK Starter
Kit only)/MOP420.00 (for Macau Starter Kit only) at-cost Starter Kit
produced by Nu Skin and supplied by Nu Skin HK Affiliate in the Territory,
which contains corporate and sales materials and information. Distributor
agrees to deal with Nu Skin HK Affiliate for the purchase of all Nu Skin
wholesale products.
. Distributor who is a natural person has personally affixed the signature and
certifies he/she is of legal age to form a contract.
Distributor Signature (For a Business Organization, signature must be identical
to signature on Business Organization Information Sheet by a person duly
authorized to sign for the business entity)
Distributor #3 or Spouse Signature (if applicable)
-------------------------------------------------------
* Please review additional terms on the reverse side *
-------------------------------------------------------
IV. ADDITIONAL CONTRACT TERMS
A. I understand the terms of the Contract and agree to adhere to them. I
acknowledge that any violation of the terms of the Contract may result in
(1) disciplinary action by Nu Skin HK Affiliate carrying on business in
the Territory as an authorized licensee of the Nu Skin Distribution
Network or (2) termination of my Contract by Nu Skin as it deems
appropriate in its sole discretion.
B. I am not an employee, agent, or legal representative of Nu Skin or Nu
Skin HK Affiliate. I am an independent contractor who agrees to become
familiar with and to pay any self-employment taxes and other assessments
required by local laws, ordinances, and regulations. I understand that I
am solely responsible for ensuring that anyone assisting me in my
business complies with the Contract.
C. I will use my best efforts to promote and sell at retail Nu Skin products
purchased at wholesale from Nu Skin HK Affiliate in the Territory, in
compliance with the Contract terms. In order to be eligible to receive a
bonus during each one month period I agree to the following conditions
for each such month:
1) Purchase product equivalent in value to a minimum of 100 points in
Personal Sales Volume (PSV).
2) Sell to a minimum of five (5) retail customers and/or consume
personally 80% of product purchased during each such month (retaining
proper documentation).
3) Adhere to order requirement stated in the Nu Skin Sales Compensation
Plan.
D. I agree not to use proprietary trade names and trademarks of Nu Skin
without prior written consent.
E. I shall make no statements, claims, representations, or warranties
respecting Nu Skin products not contained in official Nu Skin or Nu Skin
HK Affiliate promotional materials produced for the Territory. I agree
that only Executive Distributors with the title of Blue Diamond or above
may produce video sales aids or video recruiting aids. All such materials
must be sold by and purchased from Nu Skin HK Affiliate in the Territory.
If I use sales or recruiting materials not produced by Nu Skin or Nu Skin
HK Affiliate and not bearing their copyright designation, I accept sole
responsibility for their contents and shall indemnity Nu Skin, Nu Skin HK
Affiliate and their respective officers, directors and employees from any
liability arising from the same. Nu Skin may terminate the Contract if I
use sales or recruiting materials not conforming to the Contract and to
all local laws.
F. I agree that Nu Skin has proprietary right to the Nu Skin Distributor
Network and its lists of Distributor names. The list of Distributors I
receive are the property of Nu Skin made available to me for the limited
purpose of promoting my independent business. I will not utilize such
network, lists, or other Nu Skin contacts to promote the sale or use of
any products, services or any other endeavor, other than those offered
through Nu Skin HK Affiliate to any Nu Skin Distributor whom I did not
personally sponsor.
G. When recruiting prospective Nu Skin distributors, I shall fully disclose
the option to become a Nu Skin distributor by purchasing only a HKD$400 /
MOP420 at-cost Starter Kit, which does not contain any materials or
products on which bonuses are paid.
H. I shall make no specific earnings representations or income guarantees,
expressly or by implication, nor shall I display actual or photocopied
bonus cheques in promotional materials, business opportunity advertising,
or any other format or forum when presenting the Nu Skin Sales
Compensation Plan to prospective distributors.
I. Only Nu Skin products imported by and purchased from Nu Skin HK Affiliate
may be sold in the Territory. I certify I have not previously imported
and I will not import Nu Skin products into the Territory. I acknowledge
that to do so (directly or indirectly) would cause irreparable damage to
Nu Skin and Nu Skin HK Affiliate, for which Nu Skin may terminate the
Contract.
J. Nu Skin agrees to sell quality Nu Skin products to Nu Skin HK Affiliate
operating in the Territory for a wholesale distribution to the
Distributor.
K. Nu Skin agrees to ensure prompt payment of any bonuses due to the
Distributor under the terms and conditions of the Nu Skin Sales
Compensation Plan by entering a contractual payment arrangement with Nu
Skin HK Affiliate operating in the Territory. I agree to accept payment
of any bonus to which I am entitled from Nu Skin HK Affiliate in the
Territory.
L. The Distributor may, within 30 days of Nu Skin's acceptance, furnish Nu
Skin with a written notice to terminate the Contract and return the
Starter Kit for a refund equal to 100% of its original cost. Termination
will be effective on the date Nu Skin receives the written notice at its
U.S. A. headquarters.
M. Nu Skin may amend the terms and conditions of the Contract at any time
upon thirty (30) days written notice to the Distributor sent via post or
in the Nu Skin Magazine or Distributor Update produced for the Territory
by Nu Skin HK Affiliate. Notice shall be deemed to have been received by
the Distributor three days after the date of posting of such notice. Any
such amendment shall be deemed to be effective and binding on the
Distributor thirty (30) days from receipt of notice and any subsequent
Distributor account activity shall be deemed to constitute acceptance of
any such amendment to the Contract.
N. The Contract may not be transferred, amended or otherwise assigned
without the consent of Nu Skin.
O. If any provision of the Contract is judged by a court in the Territory to
be invalid or unenforceable, the remaining terms and conditions will be
unaffected and fully enforceable by law.
P. The place of origin of the Contract is the State of Utah, U.S.A. The
terms and conditions of this fully integrated contract shall be construed
in accordance with Utah law. If there is any difference between the
English language text of the terms and conditions and the Chinese
language text, for all purposes the English language shall be conclusive.
------------------------------------------------------------
Note* Signatures appear on the front page of this Contract
------------------------------------------------------------
EXHIBIT 10.14
(Ft) NU SKIN INDEPENDENT DISTRIBUTOR AGREEMENT - JAPAN
Nu Skin International, Inc., 75 West Center Street, One Nu Skin Plaza, Provo,
Utah 84601
- --------------------------------------------------------------------------------
Please read this form carefully. Also, please read the back of this form
carefully.
- --------------------------------------------------------------------------------
This agreement is a part of the "Agreement" that is made with Nu Skin
International, Inc., a corporation in the United States. This agreement becomes
effective only after it has been received and accepted in accordance with
company procedures by Nu Skin International in the USA. The "Agreement" permits
the individual or corporation to act as a Nu Skin Independent Distributor.
Until the agreement becomes effective, you may purchase all of the Nu Skin
products only through a temporary account. After the agreement becomes
effective, and the temporary account is made permanent. Distributor can
purchase products from Nu Skin Japan Co., Ltd. and market the products
throughout Japan. A temporary account is automatically closed if you do not
receive the approval and acceptance notice from Nu Skin International within 90
days from the date you sent the Distributor Agreement. To be a Nu Skin
Distributor, you need to purchase a Starter Kit for 8,000 yen. There are no
sales quota or the like. Also, a Distributor can sell any quantity and can set
the retail price freely on Nu Skin Products for customers at each Distributor's
discretion. The characteristics and the series of Nu Skin Products are
described in the printed materials. If you send in a written notice of
termination, the Nu Skin distributor agreement can be terminated at any time.
The termination becomes effective when the notice of termination is received by
NSI. You may send a notice to Nu Skin International, Inc. within 30 days from
the date of receiving the starter kit and, you can get an 100% refund of the
cost in exchange for returning the starter kit. Please fill in below and sign
or write your name and seal after carefully confirming and understanding the
above contents and the following information fully.
- --------------------------------------------------------------------------------
[Bar Code] Nu Skin Distributor Identification
Number
JA (seven numbers) JA (seven numbers)
- --------------------------------------------------------------------------------
Name of applicant or name of corporation (You must fill out and submit the
Business Organization Sheet if you would like to make a contract as a
corporation organization)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------------------
The date of Birth (Establishment [ ] Individual [ ] Corporation
date of corporation if you a
a corporation) ----------------------------- ------------------------------------
19 [ ] [ ] - [ ] [ ] - [ ] [ ] Telephone Number (home) Telephone Number (work place)
- ----------------------------------- ----------------------------- ------------------------------------
Current Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address to send the products (when address is different from above address) and
telephone number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------- -------------------------------------------------------------------------
Please fill out account for bonus Name of Sponsor Name of Upline Executive
transfer (we do not transfer to
Postal office account) -------------------------------------------------------------------------
Name of bank _____________________________
Number of bank _____________________________
-------------------------------------------------------------------------
Branch name _____________________________ Distributor ID number of sponsor Contact of Upline Executive
Number of branch _____________________________ -------------------------------------------------------------------------
[ ] (saving account) [ ] (cash account)
Have you or your spouse concluded an agreement with our company as
Number of account _____________________________ a Nu Skin Distributor as an individual or as a business organization
proprietor or controller in the past?
Name of account _____________________________
[ ] Yes [ ] No
If Yes: Prior Distributor ID No.
- -------------------------------------------------- -------------------------------------------------------------------------
-----------------------------------------------
I understand that the only financial payment in order to be a Nu Skin How to make a payment for Starter Kit
Distributor is the purchase, by paying 7,767 yen, of the starter kit Please transfer the money to the account
in cash with the consumption tax, which includes corporate materials printed below, if you transfer at the
and materials and information produced by Nu Skin International, Inc. bank and postal office
I understand that this starter kit does not include Nu Skin products
and that I do not have to purchase at the time of the agreement. [ ] Cash
[ ] Bank Transfer Fuji Bank Ginza Branch
Signature and Seal --------------------------------- (Checking account) 21400
Nu Skin Japan Co., Ltd.
--------------------------------- [ ] Postal Office Transfer 00130 9 713330
Nu Skin Japan Co., Ltd.
The signature and seal below shows that I have read and understand [ ] Others
all the contents and conditions both on the front and reverse sides
of this Agreement. Also, I have read and understand fully the
contents of the Nu Skin Compensation Plan and the Nu Skin Policies
and Procedures. The signature and seal that is written on this
agreement is all mine. I understand that I must be over 20 years
old in order to conclude this agreement. -----------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Signature and seal of contracting party (Corporation name and Date Seal
Corporation seal if you are corporate)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Signature and seal of spouse or partner (Corporation name and Date Seal
Corporation seal if you are corporate)
- -------------------------------------------------------------------------------------------------------------------------------
White paper to Nu Skin, Blue paper to Distributor
-------------------------------------------------
Please read the following articles carefully.
-------------------------------------------------
Nu Skin Distributor agrees to the following contents and conditions.
1. I, having read carefully and well understood the content of the Nu Skin
"Policies and Procedures," Nu Skin "Sales Compensation Plan," and this
agreement (these three documents as a set comprise and regulate the
contractual relationship between Nu Skin International, Inc. and
Distributors. The agreement contents and conditions that are described by the
three documents will be called "Agreement" as a whole), will observe and obey
all the contents and conditions of the "Agreement." I agree that in the case
of breaches against the contents and conditions of the "Agreement," my rights
and position as a Distributor will be taken away, and depending upon the
circumstances at that time, I will be asked for compensation or penalties
that are considered reasonable by Nu Skin International, Inc. Also, I confirm
that the "Policies and Procedures" and "Sales Compensation Plan" are part of
the "Agreement," and that these three documents constitute the content of the
Agreement and together constitute the entire "Agreement."
2. I, on providing this Independent Distributor Agreement, agree to present my
resident registration certificate(alien registration certificate) along with
the other information or documents that Nu Skin demands to Nu Skin
International, Inc.
3. I, agree to explain completely and openly in case of getting (prospecting
for?) Nu Skin Distributorship that the starter kit does not include any
elements on which bonuses will be paid, and that by purchasing the starter
kit with 7,767 yen in cash, excluding the consumption tax, and subject to
processing, examination and acceptance by Nu Skin the Distributor candidate
can get the rights to be a Nu Skin Distributor.
4. I agree not to show exaggerated profit or to guarantee income either
expressly or by implication and I promise not to present or show actual or
copies of the bonus check (check for bonus payment) or other evidence
concerning the bonus, in promotional information, advertising business
opportunities, or other information and in seminars and meetings, and on
explaining and showing distributor candidates the "Sales Compensation Plan".
5. I understand and agree that only Nu Skin products that Nu Skin Japan Co.,
Ltd. imports and sells in Japan are the Nu Skin products that I can purchase
and sell. I swear that I have never (directly or indirectly) imported Nu
Skin products or information in Japan before and I guarantee that I will not
import such from now on. However, personal use is not included in this.
Here I declare that I understand that this kind of act damages Nu Skin Japan
Co., Ltd. and other companies related to Nu Skin.
6. I promise not to violate any law in Japan or sensible moral and not to act
beyond such limitations. Also, I promise not to engage in excessive
solicitation of distributor candidates in any way.
7. The conclusion of the "Agreement" that includes the contents of this
document, is conditional upon its acceptance and approval in the state of
Utah by Nu Skin International Inc. Specifically, the declaration of
intention of acceptance and approval of the Agreement is expressed by Nu Skin
International, Inc. in the State of Utah in the United States sending the
"Contractual Information Packet to you. A separate notice will be sent if
approval is rejected upon examination by Nu Skin International, Inc.
8. Distributor may sell Nu Skin Products purchased from Nu Skin Japan Co., Ltd.
and sponsor other prospective distributors in Japan during the term of the
contract, which shall be from the date of acceptance by Nu Skin International
Inc. until December 31 of the current year. Unless either Nu Skin
International, Inc. or Distributor notifies the other in writing of its
intention not to renew the Contract at least one month before the expiration
date, the Contract shall automatically be renewed on January 1 and each
January 1 thereafter, without notice, for an additional one year term.
Nu Skin International, Inc. agrees to the following articles.
1. Nu Skin International, Inc. agrees, in accordance with the contents and
conditions set in the "Agreement," to supply Distributors serviceable, high
quality Nu Skin Products.
2. Nu Skin International, Inc. promises in accordance with the contents and
conditions set in the "Agreement," to pay bonuses due to the Distributors
promptly through Nu Skin Japan Co., Ltd.
Other Articles
1. Distributor, may by sending a notice to Nu Skin International, Inc. within 30
days from the date of receipt of the starter kit get a 100% refund for the
costs in exchange for the return of the starter kit(cooling off). There is
no obligation to purchase any inventory of Nu Skin products. Products are
not included in the starter kit.
2. Cooling off for Distributors
Purchaser (Distributor) can cancel the Distributorship within 14 days
unconditionally, if the Starter Kit purchase price and products and/or sales
aids purchase price in total exceeds 20,000 yen, and that purchase is taken
as a specified burden; and also Purchaser (Distributor) can cancel the
Distributorship unconditionally within 14 days from the day the products
and/or sales aids arrived at the Distributor if the first product order form
and/or sales aid order form after the conclusion of the Distributor Agreement
has a purchase price in excess of 20,000 yen in total. Upon such
cancellation, Nu Skin will pay back to Distributor all the money paid by the
Distributor including the consumption tax when such is paid. Also, Nu Skin
will pay for the cost of returning the starter kit, products and/or sales
aids and you will not be asked for compensation or penalties upon this
cancellation. However, the products that are already used or damaged under
the Distributor's responsibility will be eliminated from the refund amount.
3. Other than this Independent Distributor Agreement in Japan, any agreements or
promises that are concluded for the Japan market do not require you to make
the other party who made you conclude such an agreement or promise become
your sponsor or upline. All the agreements or promises that are made or
concluded before concluding the Independent Distributor Agreement to act as a
Distributor in Japan, are void and are not binding and have no legal force.
However, this Independent Distributor Agreement does not make invalid the Nu
Skin Distributor Agreements that already exist in the country in which Nu
Skin is open formally for business.
*Please read through this carefully along with the "Nu Skin Policies and
Procedures" and "Sales Compensation Plan" which are integrated with this
agreement.
EXHIBIT 10.15
[_] New Agreement [_] Amended Agreement
(Ft) NU SKIN INDEPENDENT DISTRIBUTOR AGREEMENT - REPUBLIC OF KOREA
Nu Skin International, Inc., 75 West Center Street, One Nu Skin Plaza, Provo,
Utah 84601
NU SKIN DISTRIBUTOR
IDENTIFICATION NUMBER
_______________________
KR (seven numbers)
_______________________
This Agreement is part of a binding Contract with Nu Skin International Inc, a
U.S. corporation, (hereinafter referred to as "Nu Skin"). The Contract, as
amended from time to time by Nu Skin, consists of this Independent Distributor
Agreement ("Agreement"), the "Distributor Policies and Procedures," the "Sales
Compensation Plan, the Distributor Pocket Notebook, the Registration Agreement,"
and (if wazzu applicable) the "Partnership Information Sheet." The terms of
each of these separate documents are by this reference incorporated into this
Agreement. By signing this Agreement and upon acceptance by Nu Skin the
Contract becomes effective.
DISTRIBUTOR IDENTIFICATION INFORMATION
Distributor is assigned the Distributor Identification Number referenced above.
This number is to be used in all transactions concerning the Distributor's
account. Distributor certifies the information below given is true and correct.
Nu Skin may declare the Contract void if such information is false or
misleading.
DISTRIBUTOR'S FULL NAME (surname first)____________________________________
(As it appears on your resident registration card or other proof of
identity and address, a copy of which must be submitted with this Agreement)
[_] INDIVIDUAL [_]PARTNERSHIP
(If you wish to sign up as a partnership, you must complete and attach a
Partnership Information Sheet, including VAT number)
POSTAL ADDRESS____________________________ HOME TELEPHONE NUMBER_______________
__________________________________________ BUSINESS DAYTIME TELEPHONE NUMBER___
_______________________DISTRIBUTOR DATE OF BIRTH________________________
MONTH / DAY / YEAR
JOINT DISTRIBUTOR OR SPOUSE FULL NAME (if applicable)_________________________
(Spouse may not enter a separate Agreement. If spouse desires to be a Nu
Skin Distributor, spouse must be a party to this Agreement)
SPONSOR'S NAME (surname first)________________ SPONSOR'S NU SKIN IDENTIFICATION
NUMBER ______________________ YOUR UPLINE EXECUTIVE'S NAME (surname first)______
_____ YOUR UPLINE EXECUTIVE'S TELEPHONE NUMBER__________________________________
If you or your partner/spouse have ever been a Nu Skin Distributor, whether
individually, in a partnership, please give the name of the distributorship
(surname first) _________________date of last activity ___________.
I understand that there is no financial requirement (sign-up fee or product
purchase requirement) to become a Nu Skin Distributor. I acknowledge receipt of
an Introductory Kit which contains, among other things, documents that
constitute the Contract. I understand that any products purchased in connection
with becoming a Distributor are optional.
Distributor Signature________________________________ Date __________________
Joint Distributor or Spouse Signature (if applicable)__________________________
Date _________________________________
*PLEASE READ THE ADDITIONAL TERMS ON THE REVERSE SIDE OF THE AGREEMENT WHICH
FORM PART OF THE CONTRACT BETWEEN YOU AND NU SKIN
Send the signed Agreement to Nu Skin Korea, Ltd., at Dabong Tower, 890-12
Daechi-dong, Kangnam-ku, Seoul, Korea for forwarding to Nu Skin
International, Inc., in the U. S. for official acceptance.
White copies to Nu Skin, yellow to Sponsor, pink to Distributor (C) 1996 Nu
Skin International, Inc. and Nu Skin Korea, Ltd.
ADDITIONAL CONTRACT TERMS
A. I have read and understand the terms of the Contract and I agree to comply
with them. I acknowledge that any violation of the terms of the Contract
may result in the termination of my Contract (distributorship), or other
disciplinary action as deemed appropriate by Nu Skin.
1. In the event that Nu Skin Korea, Ltd. terminates, or imposes
disciplinary action on, any Distributor due to the Distributor's
violation of the Registration Agreement between Nu Skin Korea, Ltd.
and the Distributor, such termination or action shall provide
sufficient grounds for Nu Skin to terminate, or impose disciplinary
action on, the Distributor with respect to this Agreement.
B. I am not an employee, agent, or legal representative of Nu Skin. I am an
independent contractor who agrees to be responsible for learning and
complying with all applicable and relevant laws and to pay any taxes
required by national, state, municipal and local laws or other statutes and
regulations including the proper collection and payment of any applicable
VAT on purchases and sales. I understand and agree that if my biannual
sales exceed 6 million Won, I may be required to be VAT registered. I
understand that I can delegate obligations under the Contract to others,
but that I am solely responsible for ensuring that anyone to whom I
delegate any obligation complies with the Contract.
C. In order to receive a monthly bonus from Nu Skin I must have a minimum of
100 points of Personally Sponsored Distributor Volume (PSDV), sell to a
minimum of 5 retail customers and/or personally consume 80% of products
previously purchased.
D. I expressly understand and agree that the Nu Skin trademarks and trade
names are proprietary to Nu Skin, and that I may not use them without first
obtaining prior written consent of Nu Skin.
E. I agree that I will make no statements, claims, representations, or
warranties regarding Nu Skin products which are not contained in official
Nu Skin promotional materials produced and distributed by Nu Skin Korea,
Ltd. or which are otherwise authorized by an Affiliated Nu Skin Company for
distribution in Korea.
F. I agree that Nu Skin has proprietary rights to its Distributor network and
lists of Distributors' names. I will not utilize such network, lists, or
other Nu Skin contacts to promote the sale or use of any products or
services, other than those offered through Nu Skin Korea, Ltd. to any Nu
Skin Distributor whom I did not personally sponsor.
G. Neither my partner/spouse nor I have been party or participant to a Nu Skin
distributorship individually, in a partnership in the past six months.
H. I agree that only Executive Distributors with the title of Diamond or above
may produce video sales aids or video recruiting material.
I. In the event that I use any sales or recruiting materials not produced by
Nu Skin or Nu Skin Korea, Ltd. or otherwise approved for use by Nu Skin or
Nu Skin Korea, Ltd., I accept full responsibility for the information
contained therein. I agree that my use of sales or recruiting aids not
conforming to the above requirements, to other applicable Nu Skin policies,
and to all local, state, territorial and national laws may result in the
termination of my Contract and/or other appropriate disciplinary action.
J. I agree that when recruiting prospective Nu Skin distributors in Korea, I
will fully disclose that the prospective distributor has no financial
obligation prerequisite to becoming a Distributor: that is, there is no
sign-up fee, nor any requirement to purchase products. I understand and
agree that when recruiting prospective distributors I must provide them an
Introductory Kit at no cost or at a nominal fee not exceeding cost which I
purchased or otherwise received from Nu Skin Korea, Ltd. and must ask the
prospective distributor to read the Contract.
K. I agree that I will make no specific earnings representations or income
guarantees, expressly or by implication, nor will I display actual or
photocopied bonus checks or bonus statements in promotional materials, or
business opportunity advertising, or any other method used to present the
Nu Skin opportunity and Sales Compensation Plan to prospective
Distributors.
L. I understand and agree that to help avoid personal risk and liability, a
Distributor should become familiar with the laws and requirements of the
countries in which he or she chooses to do the Nu Skin business and
distribute products.
M. I also understand and agree that no Nu Skin products originating outside
Korea may be sold or distributed in Korea. I certify that I have not
previously (directly or indirectly) and will not in the future import any
non-Korean Affiliated Nu Skin Company's products, labels, packaging or
materials into Korea. I hereby acknowledge that to do so would cause
irreparable damage and harm to Nu Skin Korea, Ltd. and the Affiliated Nu
Skin Companies.
N. I agree I will not engage in any excessive inducement of prospective Nu
Skin distributors. I understand and agree that it is not ethical to
specifically target or actively recruit participants of other direct
selling or network marketing companies as Nu Skin distributors.
O. Nu Skin agrees to provide Nu Skin products to Nu Skin Korea, Ltd. and other
Affiliated Nu Skin Companies for purchase and distribution by the
Distributor under the terms and conditions of the Contract.
P. There are no inventory requirements for Nu Skin Distributors. Distributors
are specifically discouraged from purchasing or otherwise acquiring more
product than is reasonably necessary for their personal consumption and/or
to service their retail customers .
Q. Nu Skin may terminate the Contract at any time by giving written notice to
the Distributor and may terminate the Contract forthwith at any time if the
Distributor is in breach of any of the provisions of the Contract.
1. Any notice given under this Agreement which is given by first class
mail to the address of the parties at the head of this Agreement or to
such other address as shall have been notified from time to time in
writing from one party to the other, shall result in a period of
notice commencing to run from the day when such notice is posted.
R. Nu Skin expressly reserves the right to make any changes or modifications
to the Contract upon thirty (30) days written notice to the Distributor
sent via mail or in the Nu Skin Magazine or Distributor Update or other
official publication produced for Korea by Nu Skin Korea, Ltd.. or an
Affiliated Nu Skin Company. The Distributor agrees that any such changes or
modifications become effective thirty (30) days after notification and are
automatically incorporated into the Contract as binding and enforceable
provisions. Distributor acknowledges acceptance of the new Contract terms
by continuing to purchase Nu Skin products after such changes or
modifications have become effective.
S. The Contract may not be transferred except as permitted under applicable
laws and with the prior written consent of Nu Skin.
T. If any provision of the Contract is unenforceable the remainder of the
terms and conditions will be unaffected and will remain fully enforceable
by law.
U. The principal business address of Nu Skin International, Inc. is 75 West
Center, Provo, Utah 84601, USA.
V. Tokyo, Japan shall be the forum for any mediation, arbitration or other
resolution of disputes arising hereunder between a Distributor and Nu Skin.
Mediation shall be resolved and settled with the designated authorities in
Tokyo, Japan. If not settled by mediation, by arbitration administered by
the International Chamber of Commerce "ICC" according to the Rules of
Arbitration and Reconciliation of the ICC. The arbitration proceedings sh
all be conducted in Tokyo, Japan. In this case this Agreement shall be
governed by the laws of Japan.
W. The State of Utah shall be the forum for any mediation, arbitration or
other resolution of any disputes arising hereunder between a Distributor
registered with Nu Skin Korea, Ltd., and a Distributor of another
Affiliated Nu Skin Company. Mediation shall be resolved and settled with
the designated authorities in Provo, Utah. If not settled by mediation, by
arbitration administered by the American Arbitration Association in
accordance with its Commercial Arbitration Rules as supplemented by the
procedures of the Rules of Arbitration and Reconciliation of the ICC. The
arbitration proceedings shall be conducted in Provo, Utah. In this case
this Agreement shall be governed by the laws of Utah.
Exhibit 10.16
NU SKIN INDEPENDENT DISTRIBUTOR AGREEMENT - TAIWAN
Nu Skin International, Inc., 75 West Center Street, Provo, Utah 84601 U.S.A.
(801) 345-1000
Four documents indicated below constitute this agreement with Nu Skin
International, Inc. ("Nu Skin") (a company incorporated in the United States).
This agreement allows individuals or business organizations to become
Independent Distributors of Nu Skin. Nu Skin Taiwan, Inc. ("NST") is the
exclusive wholesale distributor of Nu Skin products in Taiwan. NST is also an
affiliated company of Nu Skin. A Product Purchase Agreement must be made with
NST for anyone wishing to purchase Nu Skin products at wholesale price.
When filling in this agreement and before signing this agreement, please read
both sides of this agreement in detail:
Please check: [ ] Individual [ ] Company* [ ] Joint Ventures* [ ] Others*
(please specify) ________________________
Please fill in the identity card number for individuals and business
organization number for business organizations. (*Applicants have to submit
business organization information sheet for business organizations or joint
ventures).
The identity card number or business organization number will become Nu Skin's
record and be recorded in the database system of Nu Skin. Please attach clean
and legible copies of the identity card or business organization information
sheet to avoid any mistakes in the application process.
Chinese name for first applicant or
business organization (surname first)___________________________________________
English name for first applicant or
business organization (surname first)___________________________________________
Sponsor's identity number _____________________________________________________
Name of Sponsor (surname first) _______________________________________________
*Chinese name for second applicant or
spouse (surname first) _________________________________________________________
*English name for second applicant or
spouse (surname first) _________________________________________________________
Identity card number for second applicant or
spouse _________________________________________________________________________
Date of birth for first applicant/inauguration date for the business
organization ___________________________________
Date Month Year
Telephone No. (Home): _________________________________________________________
Telephone No. (Office or day time contact number)_______________________________
Correspondence Address:_________________________________________________________
Name of up line Independent Distributor:________________________________________
Telephone No. (Home): __________________________________________________________
Telephone No. (Day time contact number)_________________________________________
Have you or your partner/spouse ever been Nu Skin distributors, or participated
in a distributorship individually, or in a partnership, or in a company, or in
any other forms of business organizations to promote direct selling business?
[ ] Yes [ ] No
If Yes, please fill in date for the last activity?______________________________
Identity Number used before_____________________________________________________
I understand that the only financial requirement of being a Nu Skin Independent
Distributor is to purchase a Nu Skin Starter Kit at cost, $1,400.00 New Taiwan
Dollars, which includes corporate, sales and demonstration materials. This kit
contains no Nu Skin products and that the purchase of any products is optional
once the applicant becomes a distributor.
_______________________________
(Initial)
Starter Kit for Independent Distributors NT$1,400.00
Please check the following when making purchase for the kit (only one check
please):
[ ] Cheque [ ] Cheque/remittance [ ] Visa [ ] Master Card [ ] Master Card
Credit Card Number: __________________________________ Expiry Date:___________
Name of Credit Card Holder: _______________________________________________
I understand that this Distributor Agreement is only part of the contract. If
the application is accepted by Nu Skin, this contract will consist of Policies
and Procedures (with appendices for specific countries and geographical
locations); Sales Compensation Plan; this Distributor Agreement; and if
appropriate, business organization information sheet as well. These documents
are all part of the contract. In the event that any confusion arises in this
agreement, the meanings in the contract or its accompanying documents always
prevail.
Both sides of this Distributor Agreement; Nu Skin Sales Compensation Plan; Nu
Skin Polices and Procedures for Independent Distributors; business organization
information sheet are all part of this agreement. After reading all relevant
information thoroughly, the undersigned hereby accept and consent to all clauses
by signing below. The signature below is an original and authentic signature of
the undersigned. The applicant has also reached the legal age in his/her
principal place of residence.
Initial: _________________
Signature of first applicant ____________________________ Date ________________
(If the applicant is a joint venture, company or other forms of business
organizations, the signature must be identical to the signature on the business
organization information sheet by a person duly authorized to sign for the
business entity).
Signature of second applicant or spouse _____________________ Date _____________
Language chosen: [ ] Mandarin [ ] English
(Note: Please hand in the first two white forms to Nu Skin, yellow form to the
sponsor, and the red form to the Independent Distributor)
IN CONSIDERATION of the mutual promises, covenants, and conditions contained
herein, the Applicant (hereinafter the "Independent Distributor") hereby
undertakes and agrees as follows:
A. I am legally competent to form a contract in the jurisdiction in which I
reside.
B. Until duly approved by Nu Skin International, Inc. ("Nu Skin"), this form of
Agreement is only my application to become an independent Nu Skin Distributor
in the country of my residence. Upon acceptance by Nu Skin in Provo, Utah,
this Agreement will take effect, thus binding me to the terms and conditions
of the contract and to all terms and conditions incorporated therein by
reference.
C. I will promote and effectuate the retail sale of Nu Skin products on a
continuing basis. Without affecting my status as an Independent Distributor
and my right to profits based on my sale of Nu Skin products, I can receive
from Nu Skin bonus commissions based on product sales by other Independent Nu
Skin Distributors sponsored by me only if, on a monthly basis: (1) I add to
my inventory at least 100 points worth of Nu Skin products (as explained in
the Nu Skin sales Compensation Plan), (2) I sell at least 80% of my product
Inventory to at least five retail customers, and (3) I am not in default in
any of my material obligations under the Contract, I agree to purchase Nu
Skin products based upon a separate agreement only from the Independent Nu
Skin company acting as the authorized, exclusive wholesale distributor in the
jurisdiction of my principal residence.
D. I am not an employee, agent, or legal representative of Nu Skin. I am an
independent contractor and I will pay self-employment, social security, and
other taxes required of independent contractors by applicable law.
E. I have read and I understand the Contract, and I agree to adhere to the terms
and conditions set forth herein. I acknowledge that any violation by me of
the terms of the Contract may, among other things, result in the termination
of my status as an Independent Distributor or in such other disciplinary
action deemed appropriate by Nu Skin.
F. The name "Nu Skin" and all its related trade names, trademarks, and marks are
the exclusive proprietary property of Nu Skin. I will not use, register,
claim title to, or in any manner impugn the right of Nu Skin in such
proprietary property without the prior written consent of Nu Skin.
G. I will make no statements, claims, representations, or warranties respecting
Nu Skin products which are not contained in official Nu Skin promotional
materials.
H. Nu Skin's marketing system (and related know how) and lists of Independent
Distributors and/or customer names are the exclusive proprietary property of
Nu Skin. I will not utilize such system, lists, or other Nu Skin contacts to
promote the sale or use of any products or services, other than those
authorized by Nu Skin, to any Independent Distributor of Nu Skin whom I did
not personally sponsor.
I. I represent and warrant to Nu Skin that, during the past six months, neither
my spouse nor cohabitant, if any, nor I have been party to or participant in
a Nu Skin distributorship, whether individually; as a partner in a
partnership or as a shareholder, principal, officer, or director of a
corporate distributorship; or as a beneficial owner in any other form of
business organization.
J. I will not use any sales aid, recruiting, or promotional materials other than
those authorized and distributed by the Nu Skin company in the jurisdiction
of my residence. The use of any other material may result in the termination
of my status as in Independent Distributor and of the Contract.
K. When recruiting prospective Independent Distributors, I will fully disclose
and explain that the prospective Independent Distributor need purchase only
an at-cost Starter Kit (which does not contain commissionable product) to
apply for Independent Distributor status.
L. I will make no specific earnings representations or income guarantees, nor
will I display actual or photocopied commission checks in promotional
materials, business opportunity advertising, or any other formal or forum
when presenting the Nu Skin Sales Compensation Plan to prospective
Independent Distributors.
M. I certify the accuracy of all information provided by me in this Distributor
Agreement and agree that the provision of false or misleading information
authorizes Nu Skin at its election to declare this agreement void from its
inception.
NU SKIN AGREES AS FOLLOWS:
A. Nu Skin agrees to promptly pay any commission due to the Independent
Distributor under the terms and conditions of the Nu Skin Sales Compensation
Plan.
B. Nu Skin agrees to provide the Distributor with a 100% refund for the
merchandise, but only if it is returned to Nu Skin within fourteen days of
this application with a written notice of termination. After fourteen days
from the date of this application, a 90% refund is available for the
merchandise, Nu Skin may deduct the amount of paid to the distributor for
such dealing and the diminished value of the commodities if the value of the
retrieved commodities is diminished.
MISCELLANEOUS PROVISIONS:
A. An Independent Distributor who wishes to terminate this Agreement must submit
written notification of intent to terminate his/her independent
distributorship to Nu Skin. This Agreement will terminate on the date Nu
Skin receives the Independent Distributor's written notice.
B. This Agreement may be modified from time to time at Nu Skin's discretion. Nu
Skin agrees to give thirty (30) days notice of any such modification.
C. The effective date of this Agreement shall be the date it is received and
accepted at the headquarters of Nu Skin Provo, Utah, USA.
D. This Agreement may not be transferred or otherwise assigned without the prior
written consent of Nu Skin. Which consent shall not be unreasonably
withheld.
E. If any provision of this Agreement, the Sales Compensation Plan, or the
Policies & Procedures is unenforceable, the remainder of the above agreements
will be unaffected and will remain fully enforceable by law.
F. The headquarters of Nu Skin is located at 75 West Center Street, Provo, Utah
84606 USA.
G. This is an integrated agreement which also includes terms and conditions
found in the Policies & Procedures and the Compensation Plan and applicable
supplementary materials for any optional program.
Exhibit 10.17
NU SKIN ASIA PACIFIC, INC.
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
PAGE
----
1. PURPOSE ......................................................... 1
2. DEFINITIONS ..................................................... 1
3. ADMINISTRATION .................................................. 4
4. SHARES SUBJECT TO THE PLAN ...................................... 4
5. PARTICIPANTS .................................................... 5
6. AWARDS UNDER THE PLAN ........................................... 5
7. STOCK OPTIONS ................................................... 5
8. STOCK APPRECIATION RIGHTS ....................................... 8
9. CONTINGENT STOCK AWARDS ......................................... 9
10. RESTRICTED STOCK AWARDS ......................................... 10
11. GENERAL RESTRICTIONS ............................................ 11
12. RIGHTS OF A SHAREHOLDER ......................................... 11
13. RIGHTS TO TERMINATE EMPLOYMENT .................................. 11
14. WITHHOLDING OF TAXES ............................................ 11
15. NONASSIGNABILITY ................................................ 11
16. NON-UNIFORM DETERMINATIONS ...................................... 12
17. ADJUSTMENTS ..................................................... 12
18. AMENDMENT ....................................................... 12
19. EFFECT ON OTHER PLAN ............................................ 12
20. DURATION OF PLAN ................................................ 13
21. FUNDING OF THE PLAN ............................................. 13
22. PLAN STATUS ..................................................... 13
23. GOVERNING LAW ................................................... 13
NU SKIN ASIA PACIFIC, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE
1.1 The purpose of the Nu Skin Asia Pacific, Inc. 1996 Stock Incentive
Plan (the "Plan") is to provide incentives to specified individuals whose
performance, contributions and skills add to the value of Nu Skin Asia Pacific,
Inc. (the "Company") and its affiliated companies. The Company also believes
that the Plan will facilitate attracting, retaining and motivating employees and
consultants of high caliber and potential.
1.2 Plan participants shall include those officers, employees and
consultants of the Company and subsidiaries who, in the opinion of the
Committee, are making or are in a position to make substantial contributions to
the Company by their ability and efforts.
2. DEFINITIONS
2.1 For purposes of the Plan, the following terms shall have the
following meanings, unless the context clearly indicates to the contrary.
(a) "Award" means a grant of Restricted Stock, Contingent Stock,
an Option, or an SAR.
(b) "Award Agreement" means the agreement approved by the Committee
evidencing an Award to a Grantee.
(c) "Board" means the Company's Board of Directors.
(d) "Code" means that Internal Revenue Code of 1986, as amended.
(e) "Committee" means the members of the Board until the
Compensation Committee of the Board is appointed, and after the
Compensation Committee is appointed means the members of the
Compensation Committee of the Board, who are "outside directors"
(within the meaning of Section 162(m) of the Code and any
regulations or rulings promulgated thereunder) to the extent
required for purposes of compliance with such Code Section, and
"disinterested persons" (within the meaning of Rule 16b-3 of the
Exchange Act), to the extent required for compliance with such
Rule.
(f) "Company" means Nu Skin Asia Pacific, Inc.
(g) "Consultant" means any individual who provides services to the
Company as an independent contractor and not as an Employee.
(h) "Contingent Stock" means stock which will be issued to a Grantee
upon the attainment of certain conditions pursuant to Section 9
hereof.
(i) "Directors" means the members of the Board.
(j) "Effective Date" means September 5, 1996.
(k) "Employee" means any individual who is an employee of the
Company, a Parent or Subsidiary.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" of a Share means on, or with respect to, any
given date:
(i) If the Shares are listed on a national stock exchange,
the closing market price of such Shares as reported on
the composite tape for issues listed on such exchange on
such date or, if no trade shall have been reported for
such date, on the next preceding date on which there
were trades reported; provided, that if no such
quotation shall have been made within the ten business
days preceding such date, Fair Market Value shall be
determined under (iii) below.
(ii) If the Shares are not listed on a national stock
exchange but are traded on the over-the-counter market,
the mean between the closing dealer bid and asked price
of such Shares as reported by the National Association
of Securities Dealers through their Automated Quotation
System for such date, or if no quotations shall have
been made on such date, on the next preceding date on
which there where quotations; provided, that, if such
quotations shall have been made within the ten business
days preceding such date, Fair Market Value shall be
determined under (iii) below.
(iii) If (i) and (ii) do not apply, the Fair Market Value of a
Share shall be determined without regard to any control
premium or discount for lack of control (except as
otherwise required by Section 422 of the Code) by the
Committee in good faith consistent with the valuation of
the Company as provided by a third party appraiser for
other corporate purposes before adjustments or any
discounts applied due to lack of marketability. The
Committee may rely upon the most recent valuation (if it
is based on a date within 3 months of the valuation
date) and there shall be no requirement to cause a more
recent valuation to be made (except as may be required
for purposes of Section 422 of the Code).
2
If no such valuation exists, the Committee may engage a third
party appraiser to prepare the valuation.
(n) "Grantee" means an Employee or Consultant who has received an Award.
(o) "Incentive Stock Option" shall have the same meaning as given to the
term by Section 422 of the Code and any regulations or rulings
promulgated thereunder.
(p) "Nonqualified Stock Option" means any Option granted pursuant to Section
7 which when awarded by the Committee was not intended to be, or does
not qualify as, an Incentive Stock Option.
(q) " Option means the right to purchase from the Company a stated number of
Shares at a specified Option Price. The Option may be granted to an
Employee or Consultant subject to the terms of this Plan, and such other
conditions and restrictions as the Committee deems appropriate. Each
Option shall be designated by the Committee to be either an Incentive
Stock Option or a Nonqualified Stock Option. Only Employees may be
granted Incentive Stock Options.
(r) "Option Agreement" means the Award Agreement pursuant to which an Option
is granted under Section 7.
(s) "Option Price" means the purchase price per Share under an Option, as
described in Section 7.
(t) "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the
granting of an Option, each of the corporations (other than the Company)
owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain
within the meaning of Section 424(e) of the code and any regulations or
rulings promulgated thereunder.
(u) "Plan" means Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan, as
evidenced herein and as amended from time to time.
(v) "Restricted Stock" means Shares issued, subject to restrictions, to a
Grantee pursuant to Section 10.
3
(w) "SAR" means a stock appreciation right which provides a Grantee
a potential right to a payment based on the appreciation in the
fair market value of a Share granted pursuant to Section 8.
(x) "SEC" means the U.S. Securities and Exchange Commission.
(y) "Section 16 Person" means a person who is an "insider" within
the meaning of Section 16(b) of the Exchange Act with respect to
transactions involving equity securities of the Company,
including the Shares.
(z) "Share" means one share of the Company's Class A common stock,
$.001 par value.
(aa) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations (other than the
last corporation) in the unbroken chain owns stock possessing
50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain, within the
meaning of Section 424(f) of the Code and any regulations or
rulings promulgated thereunder.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. The Committee shall
have full and final authority in its discretion to:
(a) conclusively interpret the provisions of the Plan and to decide
all questions of fact arising in its application;
(b) determine the individuals to whom Awards shall be made under the
Plan;
(c) determine the type of Award to be made to such individuals and
the amount, size and terms of each Award;
(d) determine the time when Awards will be granted to such
individuals; and
(e) make all other determinations necessary or advisable for the
administration of the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1 The Shares subject to Awards under the Plan shall not exceed in the
aggregate 5,000,000 Shares.
4
4.2 Shares may be authorized and unissued Shares or treasury Shares.
4.3 Except as provided herein, any Shares subject to an Award, which
Award for any reason expires or is terminated unexercised as to such Shares
shall again be available under the Plan.
5. PARTICIPANTS
5.1 Awards permitted pursuant to this Plan which are Incentive Stock
Options may only be made to Employees. All other Awards permitted pursuant to
the Plan may only be made to Employees or Consultants.
6. AWARDS UNDER THE PLAN
6.1 Awards under the Plan may be in the form of Options (both
Nonqualified Stock Options and Incentive Stock Options), Contingent Stock,
Restricted Stock, and SARs and any combination of the above.
6.2 The maximum number of Awards that may be awarded to any one Employee
or Consultant during the life of the Plan shall be 10% of the total Shares
reserved for issuance under the Plan.
6.3 The maximum number of Awards that may be awarded during the calendar
year to any Employee or Consultant is 10% of the total Shares reserved for
issuance under the Plan.
7. STOCK OPTIONS
7.1 The Committee in its sole discretion shall designate whether an Option
is to be an Incentive Stock Option or a Nonqualified Stock Option. The
Committee may grant both Incentive Stock Options and Nonqualified Stock Options
to the same individual. However, where both an Incentive Stock Option and a
Nonqualified Stock Option are awarded at one time, such Options shall be deemed
to have been awarded in separate grants, shall be clearly identified, and in no
event will the exercise of one such Option affect the right to exercise the
other such Option except to the extent so provided in the Award Agreement as
determined by the Committee.
7.2 Options granted pursuant to the Plan shall be authorized by the
Committee under terms and conditions approved by the Committee, not inconsistent
with this Plan or Exchange Act Rule 16b-3(c), and shall be evidenced by Option
Agreements in such form as the Committee shall from time to time approve, which
Option Agreements shall contain or shall be subject to the following terms and
conditions, whether or not such terms and conditions are specifically included
therein:
(a) The Option Price of an Incentive Stock Option shall not be less
than 100% of the Fair Market Value of a Share on the day the
Option is granted, as
5
determined by the Committee. The Option Price of a Nonqualified
Stock Option shall not be less than 85% of the Fair Market Value
of a Share on the day the Option is granted, as determined by the
Committee. Notwithstanding the immediately preceding sentence,
the Award Agreement for a Nonqualified Stock Option at the
Committee's sole discretion, may, but need not, provide for a
reduction of the Option Price by dividends paid on a Share during
the period the Option is outstanding and unexercised, but in no
event shall the Option Price be less than the par value of such
Share.
(b) Each Option Agreement shall state the period or periods of time,
as determined by the Committee, within which the Option may be
exercised by the Grantee, in whole or in part, provided such
period shall not commence earlier than six months after the date
of the grant of the Option and not later than ten years after the
date of the grant of the Option. The Committee shall have the
power to permit in its discretion an acceleration of previously
determined exercise terms, subject to the terms of this Plan, to
the extent permitted by Exchange Act Rule 16b-3(c), and under
such circumstances and upon such terms and conditions as deemed
appropriate and which are not inconsistent with Exchange Act Rule
16b-3(c)(1).
(c) Shares purchased pursuant to an Option Agreement shall be paid
for in full at the time of purchase, either in the form of cash,
common stock of the Company at Fair Market Value, or a
combination thereof, as the Committee shall determine.
(d) Notwithstanding anything herein to the contrary, the aggregate
Fair Market Value (determined as of the time the Option is
granted) of Incentive Stock Options for any Employee which may
become first exercisable in any calendar year shall not exceed
$100,000.
(e) Notwithstanding anything herein to the contrary, no Incentive
Stock Option shall be granted to any individual if, at the time
the Option is to be granted, the individual owns stock possessing
more than 10% of the total combined voting power of all classes
of stock of the Company unless at the time such Option is granted
the Option Price is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the date such
Option is granted.
(f) Each Option Agreement for an Incentive Stock Option shall contain
such other terms, conditions and provisions as the Committee may
determine to be necessary or desirable in order to qualify such
Option as an incentive stock option within the meaning of Section
422 of the Code, or any amendment thereof, substitute therefor,
or regulation thereunder. Subject to the limitations
6
of Section 18, and without limiting any provisions hereof, the
Committee shall have the power without further approval to amend
the terms of any Option for Grantees.
7.3 If any Option is not granted, exercised, or held pursuant to the
provisions of the Plan or Section 422 of the Code applicable to an Incentive
Stock Option, it will be considered to be a Nonqualified Stock Option to the
extent that any or all of the grant is in conflict with such provisions.
7.4 An Option may be terminated (subject to any shorter periods set forth
in an individual Option Agreement by the Committee, in its sole discretion) as
follows:
(a) During the period of continuous employment or service as a
Consultant with the Company or Subsidiary, an Option will be
terminated only if it has been fully exercised or it has expired
by its terms.
(b) In the event of termination of employment as an Employee or
service as a Consultant for any reason, the Option will terminate
upon the earlier of (i) the full exercise of the Option, (ii) the
expiration of the Option by its terms, or (iii) except as
provided in Section 7.4(c), no more than one year (three months
for Incentive Stock Options) following the date of employment
termination (or termination of service as a Consultant) for
Nonqualified Stock Options. For purposes of the Plan, a leave of
absence approved by the Company shall not be deemed to be
termination of employment except with respect to an Incentive
Stock Option as required to comply with Section 422 of the Code
and the regulations issued thereunder.
(c) If an Grantee's employment as an Employee, or service as a
Consultant, terminates by reason of death or disability prior to
the termination of an Option, such Option may be exercised to the
extent that the Grantee shall have been entitled to exercise it
at the time of death or disability, as the case may be, by the
Grantee, the estate of the Grantee or the person or persons to
whom the Option may have been transferred by will or by the laws
of descent and distribution for the period set forth in the
Option Agreement, but no more than three years following the date
of such death or disability, provided, however, with respect to
an Incentive Stock Option, such right must be exercised, if at
all, within one year after the date of such death or disability.
8. STOCK APPRECIATION RIGHTS
8.1 SARs shall be evidenced by Award Agreements for SARs in such form, and
not inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1), as the
Committee shall approve from time to time, which Award Agreements shall contain
in substance the following terms and conditions as discussed in Sections 8.2
through 8.4.
7
8.2 An SAR may be, but is not required to be, granted in connection with
an Option. An SAR shall entitle the Grantee, subject to such terms and
conditions determined by the Committee, to receive, upon surrender of the SAR,
all or a portion of the excess of (i) the Fair Market Value of a specified
number of Shares at the time of the surrender, as determined by the Committee,
over (ii) 100% of the Fair Market Value of such Shares at the time the SAR was
granted less any dividends paid on such Shares while the SAR was outstanding but
unexercised.
8.3 SARs shall be granted for a period of not less than one year nor more
than ten years, and shall be exercisable in whole or in part, at such time or
times and subject to such other terms and conditions as shall be prescribed by
the Committee at the time of grant, subject to the following:
(a) No SAR shall be exercisable, in whole or in part, during the one
year period starting with the date of grant; and
(b) SARs will be exercisable only during a Grantee's employment by,
or service as a Consultant for, the Company or a Subsidiary,
except that in the discretion of the Committee an SAR may be made
exercisable for up to three months after the Grantee's
employment, or service as a Consultant, is terminated for any
reason other than death, retirement or disability. In the event
that a Grantee's employment as an Employee, or service as a
Consultant, is terminated as a result of death, retirement or
disability without having fully exercised such Grantee's SARs,
the Grantee or such Grantee's beneficiary may have the right to
exercise the SARs during their term within a period of 6 months
after the date of such termination to the extent that the right
was exercisable at the date of such termination, or during such
other period and subject to such terms as may be determined by
the Committee. Subject to the limitations of Section 18, the
Committee in its sole discretion may reserve the right to
accelerate previously determined exercised terms, within the
terms of the Plan, under such circumstances and upon such terms
and conditions as it deems appropriate.
(c) The Committee shall establish such additional terms and
conditions, without limiting the foregoing, as it determines to
be necessary or desirable to avoid "short-swing" trading
liability in connection with an SAR within the meaning of Section
16(b) of the Exchange Act.
(d) The Committee, in its sole discretion, may establish different
time periods than specified above for any individual or group of
individual Awards.
8.4 Upon exercise of an SAR, payment shall be made within ninety days in
the form of common stock of the Company (at Fair Market Value on the date of
exercise), cash, or a combination thereof, as the Committee may determine.
8
9. CONTINGENT STOCK AWARDS
9.1 Contingent Stock Awards under the Plan shall be evidenced by Award
Agreements for Contingent Stock in such form and not inconsistent with this Plan
as the Committee shall approve from time to time, which Award Agreements shall
contain in substance the terms and conditions described in Sections 9.2 through
9.5.
9.2 The Committee shall determine the number of Shares subject to a
Contingent Stock Award to be granted to an Employee or Consultant based on the
past or expected impact the Employee or Consultant has had or can have on the
financial well-being of the Company and other factors deemed by the Committee to
be appropriate.
9.3 Contingent Stock Awards made pursuant to this Plan shall be subject to
such terms, conditions, and restrictions, including without limitation,
substantial risks of forfeiture and/or attainment of performance objectives,
and for such period or periods as shall be set forth in the Award Agreement as
determined by the Committee at the time of grant. The Committee shall have the
power to permit, in its discretion, an acceleration of the expiration of the
applicable restriction period with respect to any part or all of the Award to
any Grantee. The Committee shall have the power to make a Contingent Stock
Award that is not subject to vesting or any other contingencies in recognition
of an Employee's or Consultant's prior service and financial impact on the
Company. During the restriction period, the Grantee shall not have the rights
of a shareholder.
9.4 The Award Agreement for the Contingent Stock Award shall specify the
terms and conditions upon which any restrictions on the right to receive Shares
representing Contingent Stock Awards under the Plan shall lapse, as determined
by the Committee. Upon the lapse of such restrictions, Shares shall be issued
to the Grantee or such Grantee's legal representative.
9.5 In the event of a Grantee's termination of employment as an Employee,
or service as a Consultant, whichever is applicable, for any reason prior to the
lapse of restrictions applicable to a Contingent Stock Award made to such
Grantee and unless otherwise provided for herein by this Plan or as provided for
in the Award Agreement for Contingent Stock, all rights to Shares as to which
there still remain unlapsed restrictions shall be forfeited by such Grantee to
the Company without payment or any consideration by the Company, and neither the
Grantee nor any successors, heirs, assigns or personal representatives of such
Grantees shall thereafter have any further rights or interest in such Shares.
10. RESTRICTED STOCK AWARDS
10.1 Restricted Stock Awards under the Plan shall be evidenced by Award
Agreements for Restricted Stock in such form, and not inconsistent with this
Plan, as the Committee shall approve from time to time, which Award Agreements
shall contain in substance the terms and conditions described in Sections 10.2
through 10.6.
9
10.2 The Committee shall determine the number of Shares subject to a
Restricted Stock Award to be granted to an Employee or Consultant based on the
past or expected impact the Employee or Consultant has had or can have on the
financial well-being of the Company and other factors deemed by the Committee to
be appropriate.
10.3 Restricted Stock Awards made pursuant to this Plan shall be subject to
such terms, conditions, and restrictions, including without limitation,
substantial risks of forfeiture and/or attainment of performance objectives, and
for such period or periods as set forth in the Award Agreement as determined by
the Committee at the time of grant. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the Award to any Grantee.
Upon issuance of a Restricted Stock Award, Shares will be issued in the name of
the Grantee. During the restriction period, Grantee shall have the rights of a
shareholder for all such Shares of Restricted Stock, including the right to vote
and the right to receive dividends thereon as paid.
10.4 Each certificate evidencing stock subject to Restricted Stock Awards
shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Shares. Any attempt to dispose of Shares of
Restricted Stock in contravention of such terms, conditions and restrictions
shall be ineffective. The Committee may adopt rules which provide that the
certificates evidencing such Shares may be held in custody by a bank or other
institution, or that the Company may itself hold such Shares in custody, until
the restrictions thereon shall have lapsed and may require as a condition of any
Award that the Grantee shall have delivered a stock power endorsed in blank
relating to the Shares of Restricted Stock covered by such Award.
10.5 The Award Agreement for Restricted Stock shall specify the terms and
conditions upon which any restrictions on the right to receive shares
representing Restricted Stock awarded under the Plan shall lapse as determined
by the Committee. Upon the lapse of such restrictions, Shares which have not
been delivered to the Grantee or such Grantee's legal representative shall be
delivered to such Grantee or such Grantee's legal representative.
10.6 In the event of a Grantee's termination of employment as an Employee,
or service as a Consultant, whichever is applicable, for any reason prior to the
lapse of restrictions applicable to a Restricted Stock Award made to such
Grantee and unless otherwise provided for herein by this Plan or as provided for
in the Award Agreement for Restricted Stock, all rights to Shares as to which
there remain unlapsed restrictions shall be forfeited by such Grantee to the
Company without payment or any consideration by the Company, and neither the
Grantee nor any successors, heirs, assigns or personal representatives of such
Grantee shall thereafter have any further rights or interest in such Shares.
11. GENERAL RESTRICTIONS
11.1 The Plan and each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, (ii) the
10
consent or approval of any government regulatory body, or (iii) an agreement by
the Grantee of an Award with respect to the disposition of Shares, is necessary
or desirable as a condition of, or in connection with the Plan or the granting
of such Award or the issue or purchase of Shares thereunder, the Plan will not
be effective and/or the Award may not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
12. RIGHTS OF A SHAREHOLDER
12.1 The Grantee of any Award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for Shares of
common stock are issued to such Grantee, except for the rights provided in
Section 10 as it pertains to Restricted Stock Awards.
13. RIGHTS TO TERMINATE EMPLOYMENT
13.1 Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any Grantee the right to continue in the employment as an
Employee, or service as a Consultant, of the Company or a Subsidiary or affect
any right which the Company or its Subsidiary may have to terminate the
employment, or service as a Consultant, of such Grantee.
14. WITHHOLDING OF TAXES
14.1 Whenever the Company proposes, or is required, to issue or transfer
Shares under the Plan, the Company shall have the right to require the Grantee
to remit to the Company an amount, or a number of shares, sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. Whenever under the
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements.
15. NONASSIGNABILITY
15.1 No Award or benefit under the Plan shall be assignable or transferable
by the Grantee thereof except by will or by the laws of descent and
distribution. During the life of the Grantee, such Award shall be exercisable
only by such person or by such person's guardian or legal representative.
16. NON-UNIFORM DETERMINATIONS
16.1 The Committee's determination under the Plan (including, without
limitation, determinations of the persons to receive Awards, the form, amount
and timing of such Awards, the terms and conditions of such Awards and the Award
Agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made by the Committee selectively among
persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such persons are similarly situated.
11
17. ADJUSTMENTS
17.1 In the event of any change in the outstanding common stock of the
Company by reason of a reorganization, a stock dividend, recapitalization,
merger, consolidation, split-up, combination, exchange of Shares or the like,
the Committee shall adjust the number of Shares of common stock which may be
issued under the Plan and shall provide for an equitable adjustment of any
outstanding Award or Shares issuable pursuant to an outstanding Award under this
Plan.
18. AMENDMENT
18.1 The Plan may be amended by the Board, without Shareholder approval, at
any time in any respect, unless Shareholder approval of the amendment in
question is required under Delaware law, the Code, any exemption from Section 16
of the Exchange Act (including without limitation SEC Rule 16b-3) for which the
Company intends Section 16 Persons to qualify, any national securities exchange
system on which the Shares are then listed or reported, by any regulatory body
having jurisdiction with respect to the Plan, or any other applicable laws,
rules or regulations.
18.2 The termination or modification or amendment of the Plan shall not,
without the consent of a Grantee, affect a Grantee's rights under an Award
previously granted. Notwithstanding the foregoing, however, the Company
reserves the right to terminate the Plan in whole or in part, at any time and
for any reason, provided that appropriate compensation, as determined in the
sole and absolute discretion of the Committee, is made to Grantees with respect
to Awards previously granted.
19. EFFECT ON OTHER PLAN
19.1 Participation in this Plan shall not affect a Grantee's eligibility to
participate in any other benefit or incentive plan of the Company, and any
Awards made pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided.
20. DURATION OF PLAN
20.1 The Plan shall remain in effect until all Awards under the Plan have
been satisfied by the issuance of Shares or the payment of cash, but no Awards
shall be granted more than ten years after the date the Plan is adopted by the
Company.
21. FUNDING OF THE PLAN
21.1 This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under this Plan, and payment of Awards
shall be on the same basis as the claims of the Company's general creditors. In
no event shall interest be paid or accrued on any Award including unpaid
installments of Awards.
12
22. PLAN STATUS
22.1 This Plan is intended to satisfy the requirements of a 16b-3 plan
under the Exchange Act.
22.2 This Plan is intended to qualify as a plan under Rule 701 issued
pursuant to The Securities Act of 1933, as amended.
23. GOVERNING LAW
23.1 The laws of the State of Delaware shall govern, control and determine
all questions arising with respect to the Plan and the interpretation and
validity of its respective provisions.
NU SKIN ASIA PACIFIC, INC.
By___________________________________
Its President
ATTEST:
___________________________
Its Secretary
13
EXHIBIT 10.20
MUTUAL INDEMNIFICATION AGREEMENT
This Mutual Indemnification Agreement (the "Agreement") is entered
into as of ____________, 1996 by and between Nu Skin Asia Pacific, Inc., a
Delaware corporation ("Nu Skin") and Nu Skin International, Inc., a Utah
corporation ("NSI").
R E C I T A L S:
A. WHEREAS, NSI has entered into certain agreements listed on
Schedule A attached hereto (the "Distribution and License Agreements") with Nu
Skin Japan, Inc., Nu Skin Taiwan, Inc., Nu Skin Hong Kong, Inc., and Nu Skin
Korea, Inc. (collectively the "Asian Entities"); and
B. WHEREAS, the stockholders of the Asian Entities currently intend
to enter into a Contribution Agreement whereby they will contribute their shares
of capital stock in the Asian Entities to Nu Skin in exchange for Nu Skin Class
B Common Stock in a transaction intended to be tax free under Section 351 of the
Internal Revenue Code of 1986, as amended, (the "Reorganization"); and
C. WHEREAS, the Reorganization is intended to close contingent on and
simultaneous with the contemplated initial public offering of Nu Skin (the
"IPO"); and
D. WHEREAS, the Asian Entities, Nu Skin and NSI desire that the
Distribution and License Agreements be amended and restated contingent upon and
simultaneous with the IPO; and
E. WHEREAS, Nu Skin and NSI desire to enter into this Agreement to
establish mutual obligations of indemnification in accordance with the terms and
conditions hereof;
NOW THEREFORE, in consideration for the mutual covenants and
obligations of the parties set forth herein and in consideration for the
foregoing premises and other good and valuable consideration, the receipt and
sufficient of which are hereby acknowledged, it is hereby agreed as follows:
1. Indemnification of Nu Skin by NSI.
---------------------------------
NSI hereby agrees to indemnify and hold Nu Skin harmless from and
against any and all liabilities, claims, charges, damages, costs and expenses
(including reasonable attorneys' fees and court costs) incurred by or assessed
against Nu Skin (i) arising out of or related to the business and operations of
the Asian Entities and relating to acts, omissions, facts or circumstances
occurring prior to the date of the Reorganization; (ii) arising out of or
related to any breach by NSI of any covenant, obligation, representation or
warranty under any of the Distribution and License Agreements; or (iii) arising
out of or related to any breach by NSI of any covenant, obligation,
representation or warranty under this Agreement; or (iv) arising out of any
litigation regarding the foregoing.
2. Indemnification of NSI by Nu Skin.
--------------------------------
Nu Skin hereby agrees to indemnify and hold harmless NSI from and
against any and all liabilities, claims, charges, damages, costs and expenses
(including reasonable attorneys' fees and court cots) incurred by or assessed
against NSI (i) arising out of or related to the business and operations of the
Asian Entities and relating to acts, omissions, facts or circumstances occurring
from and after the closing date of the Reorganization; or (ii) arising out of or
related to any breach by Nu Skin of any covenant, obligation, representation or
warranty under any of the Distribution and License Agreements; or (iii) arising
out of or related to any breach by Nu Skin of any covenant, obligation,
representation or warranty under this Agreement; or (iv) arising out of any
litigation regarding the foregoing.
3. Representations and Warranties of NSI.
-------------------------------------
NSI represents and warrants that as of the date hereof, there are no
matters or claims pending or threatened against NSI or the Asian Entities that
would give rise to indemnification in favor of Nu Skin under this Agreement.
4. Engagement of Counsel; Advancement of Costs.
--------------------------------------------
At any time a claim is brought against any party hereto that would
entitle such party to indemnification hereunder (the "Indemnified Party"), such
Indemnified Party shall notify the other party (the "Indemnifying Party") of
such claim in writing and shall be entitled to select counsel and defend against
such claim at the Indemnifying Party's sole cost and expense. The Indemnifying
Party shall promptly pay on demand all amounts owing hereunder to the
Indemnified Party including expenses and costs of investigation, negotiation and
defense, as such amounts are incurred by the Indemnified Party.
5. General Terms.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Utah without giving effect to any conflicts of law
rules of such state. This Agreement may only be modified or amended in writing
and only if such modification or amendment is signed by the parties hereto. In
the event of a breach hereof by any party, the other party shall be entitled to
recover its costs and expenses of enforcing this Agreement, including, without
limitation, reasonable attorneys' fees and court costs. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other agreements or understandings of the
parties with respect thereto.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
NU SKIN ASIA PACIFIC, INC. NU SKIN INTERNATIONAL, INC.
By: _______________________________ By: ____________________________
Its: _______________________________ Its: ____________________________
-2-
Exhibit 21.1
----
List of Subsidiaries
NU SKIN JAPAN, INC. - a domesticated Delaware Corporation with dual residence in
the United States and Japan operating in Japan under the name Nu Skin
Japan Company, Limited
NU SKIN TAIWAN, INC.
NU SKIN KOREA, INC. - a domesticated Delaware corporation with dual residence in
the United States and South Korea operating in South Korea under the
name of Nu Skin Korea Company, Limited
NU SKIN HONG KONG, INC.
NU SKIN THAILAND PERSONAL CARE, INC.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 10, 1996
relating to the combined financial statements of Nu Skin Asia Pacific, Inc.,
which appears in such Prospectus. We also consent to the references to us under
the headings "Experts" and "Selected Combined Financial Information" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Combined Financial Information".
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Salt Lake City, Utah
September 13, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 10, 1996
relating to the balance sheet of Nu Skin Asia Pacific, Inc., which appears in
such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Salt Lake City, Utah
September 13, 1996
Exhibit 23.3
[LETTERHEAD OF GRANT THORNTON HONG KONG]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Nu Skin Hong Kong, Inc.
We have audited the accompanying balance sheet of Nu Skin Hong Kong, Inc. - Hong
Kong Branch as of September 30, 1993, and the related statements of earnings,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the management of the branch. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nu Skin Hong Kong, Inc. - Hong
Kong Branch as of September 30, 1993, and the results of its operations and its
cash flows for the year then ended, in conformity with United States generally
accepted accounting principles.
/s/ Grant Thornton
Hong Kong
April 14, 1994 (except for Notes 2 and 8,
as to which the date is August 30, 1996)
1
Exhibit 23.4
[LETTERHEAD OF GRANT THORNTON HONG KONG]
September 11, 1996
Board of Directors
Nu Skin Hong Kong, Inc.
Room 2503 Windsor House
311 Gloucester Road
Causeway Bay
Hong Kong
Gentlemen
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We refer to our audit report, dated April 14, 1994 on the financial statements
of Nu Skin Hong Kong, Inc. - Hong Kong Branch as of September 30, 1993 and for
the year then ended, except for notes 2 and 8 to these financial statements as
to which the date is August 30, 1996.
We consent to the use of the aforementioned report in the Registration Statement
and Prospectus of Nu-Skin Asia, Inc.
Very truly yours
/s/ Grant Thornton
GRANT THORNTON
