SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
SCHEDULE 14
Filed by the Registrant |X| Filed by a Party other than the Registrant | | Check
the appropriate box:
|X| Preliminary Proxy Statement | | Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Nu Skin Asia Pacific, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant) Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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| | Fee paid previously with preliminary materials:
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| | Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[NU SKIN LOGO]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1998
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Nu Skin Asia Pacific, Inc., a Delaware corporation (the "Company"),
will be held at 4:00 p.m., local time, on May 5, 1998 at the Provo Park Hotel,
101 West 100 North, Provo, Utah, for the following purposes:
1. To elect a Board of Directors consisting of nine directors to serve until
the next annual meeting of stockholders or until their successors are duly
elected and qualified;
2. To approve an amendment to the Company's Certificate of Incorporation,
which will change the name of the Company to Nu Skin Enterprises, Inc.;
3. To approve the issuance of up to ________ shares of the Company's Class A
Common Stock upon conversion of the Company's Series A Preferred Stock;
4. To ratify the selection of Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998; and
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 16, 1998 as
the record date for determining the stockholders entitled to receive notice of,
and to vote at, the Annual Meeting or any adjournment thereof.
You are cordially invited to attend the Annual Meeting in person. However,
to ensure your representation at the Annual Meeting, please mark, sign, date and
return the accompanying proxy as promptly as possible in the enclosed
postage-prepaid envelope. If you attend the Annual Meeting you may, if you wish,
withdraw your proxy and vote in person.
By Order of the Board of Directors,
BLAKE M. RONEY
Chairman of the Board
Provo, Utah, March ___, 1998
[NU SKIN LOGO]
75 West Center Street
Provo, Utah 84601
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 1998
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SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
Nu Skin Asia Pacific, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held at the Provo Park Hotel, 101 West 100 North, Provo,
Utah, on May 5, 1998 at 4:00 p.m., local time, and at any adjournment or
postponement thereof (the "Annual Meeting"), for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. These proxy solicitation
materials were first sent or given to the Company's stockholders on or about
March ___, 1998.
As used herein, the "Company" unless the context otherwise indicates, means
Nu Skin Asia Pacific, Inc., including the Subsidiaries. The "Subsidiaries"
collectively means Nu Skin Hong Kong, Inc. ("Nu Skin Hong Kong"), Nu Skin Japan
Company, Limited ("Nu Skin Japan"), Nu Skin Korea, Inc. ("Nu Skin Korea"), Nu
Skin Taiwan, Inc. ("Nu Skin Taiwan"), Nu Skin Personal Care (Thailand) Limited
("Nu Skin Thailand"), Nu Skin Philippines, Inc. (Nu Skin Philippines"), Nu Skin
International, Inc. ("NSI"), Nu Skin International Management Group, Inc.,
("NSIMG"), Nu Skin Personal Care Australia, Inc., Nu Skin New Zealand, Inc., Nu
Skin Europe, Inc., Nu Skin Netherlands, Inc., Nu Skin Netherlands, B.V., Nu Skin
U.K., Inc., Nu Skin U.K., Ltd., Nu Skin Germany, Inc., Nu Skin Germany, GmbH, Nu
Skin Belgium, Inc., Nu Skin Belgium, N.V., Nu Skin France, Inc., Nu Skin France,
SARL, Nu Skin Italy, Inc., Nu Skin Italy, (SRL.), Nu Skin Spain, Inc., Nu Skin
Spain, S.L., Nu Skin Poland Spa., Nu Skin Poland, Inc., Nu Skin Brazil, Inc., Nu
Skin Brazil, Ltda., Nu Skin Argentina, Inc., Nu Skin Chile, Inc., Nu Skin Chile,
S.A. and Cedar Meadows, L.C.
On March ___, 1998, the Company acquired all of the outstanding shares of
capital stock of each of the Subsidiaries except for Nu Skin Hong Kong, Nu Skin
Japan, Nu Skin Korea, Nu Skin Taiwan, Nu Skin Thailand, and Nu Skin Philippines
(collectively, the "Asian Subsidiaries"), which were acquired by the Company on
November 20, 1996. See "Certain Relationships and Transactions--Acquisition of
NSI," "--Operating, License and Distribution Agreements; Certain Effects of the
NSI Acquisition" and "Proposal 3--Approval of Class A Common Stock Issuable Upon
Conversion of Series A Preferred Stock."
All shares represented by each properly executed, unrevoked proxy received
in time for the Annual Meeting will be voted as directed by the stockholder. If
no specific voting instructions are given, the proxy will be voted FOR (i) the
election of the nine nominees for election to the Board of Directors listed in
the proxy, (ii) the approval of an amendment to the Company's Certificate of
Incorporation, which will change the name of the Company to Nu Skin Enterprises,
Inc., (iii) the approval of the issuance of up to ________ shares of the
Company's Class A Common Stock upon conversion of the Company's Series A
Preferred Stock and (iv) the ratification of the selection of Price Waterhouse
LLP as the Company's independent auditors for the fiscal year ending December
31, 1998. If any other matters properly come before the Annual Meeting,
including, among other things, consideration of a motion to adjourn the Annual
Meeting to another time or place, the persons named in the accompanying proxy
will vote on such matters in accordance with their best judgment.
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Any proxy duly given pursuant to this solicitation may be revoked by the
person or entity giving it at any time before it is voted by delivering a
written notice of revocation to the Secretary of the Company, by executing a
later-dated proxy and delivering it to the Secretary of the Company or by
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute a revocation of the proxy).
The Company will bear the cost of solicitation of proxies. Expenses include
reimbursement paid to brokerage firms and others for their expenses incurred in
forwarding solicitation material regarding the Annual Meeting to beneficial
owners of the Company's voting stock. Solicitation of proxies will be made by
mail. Further solicitation of proxies may be made by telephone or oral
communication by the Company's regular employees, who will not receive
additional compensation for such solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to vote at the Annual Meeting. At the Record Date,
__________ shares of the Company's Class A Common Stock, par value $.001 per
share (the "Class A Common Stock"), __________ shares of the Company's Class B
Common Stock, par value $.001 per share (the "Class B Common Stock", and,
together with the Class A Common Stock, the "Common Stock"), and __________
shares of the Company's Series A Preferred Stock, par value $.001 per share (the
"Series A Preferred Stock"), were issued and outstanding. Each outstanding share
of Class A Common Stock will be entitled to one vote and each outstanding share
of Class B Common Stock shall be entitled to ten (10) votes on each matter
submitted to a vote of the stockholders at the Annual Meeting. The Class A
Common Stock and the Class B Common Stock will vote as a single class with
respect to all matters submitted to a vote of the stockholders at the Annual
Meeting. The Series A Preferred Stock generally has no voting rights and no
shares of Series A Preferred Stock are entitled to vote on Proposals 1--4
described herein. See "Proposal 3--Approval of Class A Common Stock Issuable
Upon Conversion of Series A Preferred Stock--Certain Terms of the Series A
Preferred Stock--Voting Rights."
In order to constitute a quorum for the conduct of business at the Annual
Meeting, a majority of the issued and outstanding shares of the Common Stock
entitled to vote at the Annual Meeting must be represented, either in person or
by proxy, at the Annual Meeting. Under Delaware law, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the Annual Meeting, but with respect
to which such broker or nominee is not empowered to vote on a particular
proposal) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock, Class B Common Stock and Series
A Preferred Stock as of March ___, 1998, and as adjusted to give effect to the
issuance of Class A Common Stock upon conversion of the Series A Preferred Stock
assuming that Proposal 3 is approved, by (i) each person (or group of affiliated
persons) who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Class A Common Stock, Class B Common Stock or Series A
Preferred Stock, (ii) each of the Company's directors, (iii) each of the
Company's "Named Executive Officers" (as defined under "Executive
Compensation"), and (iv) all executive officers and directors and director
nominees of the Company as a group. The information in this table assumes (a)
the exercise of all the options to purchase shares of Class A Common Stock (the
"Distributor Options") offered in the Company's non-underwritten offering (the
"Rule 415 Offering") commenced in connection with the Company's initial public
offering, (b) the issuance of the 161,386 stock bonus awards (some of which have
not yet vested) offered by the
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Company in the Rule 415 Offering and the shares of Class A Common Stock
underlying such stock bonus awards, (c) the issuance of the 1,250,000 stock
bonus awards offered by NSI and its affiliates excluding the Company in the Rule
415 Offering and the shares of Class A Common Stock underlying such stock bonus
awards, (d) the exercise by an executive officer of the Company of an option to
purchase 250,825 shares of Class A Common Stock and (e) the exercise by certain
directors and executive officers of unvested non-qualified stock options to
purchase 196,000 shares of Class A Common Stock. The business address of the 5%
stockholders is 75 West Center Street, Provo, Utah, 84601.
After Giving Effect to
Proposal 3(3)
----------------------
Class A Class B Series A Class A
Common Stock(1) Common Stock(1) Preferred Stock Common Stock
--------------- --------------- --------------- ------------
% of % of
% of % of Voting % of % of Voting
Name Shares Class Shares Class Power(2) Shares Class Shares Class Power(2)
- - - - ---------------------- ------ ----- ---------- ------ -------- ------ ----- ------ ----- --------
Blake M. Roney(4) -- -- 20,414,763 29.0 28.5
Nedra D. Roney(5) -- -- 14,213,895 20.2 19.8
Sandra N. Tillotson(6) -- -- 8,554,510 12.7 11.9
Craig S. Tillotson(7) -- -- 4,402,658 6.3 6.1
R. Craig Bryson(8) -- -- 4,918,236 7.0 6.9
Steven J. Lund(9) -- -- 4,223,224 6.0 5.9
Brooke B. Roney(10) -- -- 3,425,322 4.9 4.8
Keith R. Halls(11) -- -- 894,115 1.3 1.2
Max L. Pinegar(12) 14,000 * -- -- *
Daniel W. Campbell(13) 12,500 * -- -- *
E.J. "Jake" Garn(14) 12,500 * -- -- *
Paula Hawkins(15) 12,500 * -- -- *
Renn M. Patch(16) 40,000 * -- -- *
Corey B. Lindley(17) 40,100 * -- -- *
Takashi Bamba(18) 38,000 * -- -- *
John Chou(19) 38,215 * -- -- *
BNASIA, Ltd.(20) -- -- 19,881,455 28.3 27.8
RCKASIA, Ltd.(21) -- -- 4,775,736 6.8 6.7
All directors and office594,117 4.0 37,759,803 53.7 52.7
a group (17 persons) (22)
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*Less than 1%
(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 each share of
Class B Common Stock is automatically converted into one share of Class A
Common Stock upon the transfer of such share of Class B Common Stock to any
person who is not a Permitted Transferee as defined in the Company's
Amended and Restated Certificate of Incorporation.
(2) Each share of Class A Common Stock has one vote per share, each share of
Class B Common Stock has ten votes per share, and each share of Series A
Preferred Stock generally has no voting rights.
(3) This information assumes stockholder approval of Proposal 3 at the Annual
Meeting and conversion of the Series A Preferred Stock into Class A Common
Stock. See "Proposal 3--Approval of Class A Common Stock Issuable Upon
Conversion of Series A Preferred Stock."
(4) Includes shares beneficially owned or deemed to be owned beneficially by
Blake M. Roney as follows: 19,881,455 shares of Class B Common Stock as
general partner of BNASIA, Ltd., a limited partnership, and with respect to
which he shares voting and investment power with his wife Nancy L. Roney as
set forth in footnote 20 below; 357,143 shares of Class B Common Stock as
co-trustee and with respect to which he shares voting and investment power
with his wife Nancy L. Roney; and 176,165 shares of Class B Common Stock as
trustee and with respect to which he has sole voting and investment power.
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(5) Includes shares beneficially owned or deemed to be owned beneficially by
Nedra D. Roney as follows: 13,913,895 shares of Class B Common Stock
directly and with respect to which she has sole voting and investment
power; and 300,000 shares of Class B Common Stock as co-trustee and with
respect to which she shares voting and investment power.
(6) Includes shares beneficially owned or deemed to be owned beneficially by
Sandra N. Tillotson as follows: 7,584,743 shares of Class B Common Stock
directly and with respect to which she has sole voting and investment
power; 424,767 shares of Class B Common Stock as trustee and with respect
to which she has sole voting and investment power; 500,000 shares of Class
B Common Stock as manager of a limited liability company and with respect
to which she has sole voting and investment power; and 45,000 shares of
Class B Common Stock as co-trustee and with respect to which she shares
voting and investment power.
(7) Includes shares beneficially owned or deemed to be owned beneficially by
Craig S. Tillotson as follows: 2,962,912 shares of Class B Common Stock
directly and with respect to which he has sole voting and investment power;
112,500 shares of Class B Common Stock as trustee and with respect to which
he has sole voting and investment power; 327,246 shares of Class B Common
Stock as co-trustee and with respect to which he shares voting and
investment power; and 1,000,000 shares of Class B Common Stock as manager
of a limited liability company and with respect to which he has sole voting
and investment power.
(8) Includes shares beneficially owned or deemed to be owned beneficially by R.
Craig Bryson as follows: 4,775,736 shares of Class B Common Stock as
general partner of RCKASIA, Ltd., a limited partnership, and with respect
to which he shares voting and investment power with his wife Kathleen D.
Bryson as set forth in footnote 21 below; and 142,500 shares of Class B
Common Stock as co-trustee and with respect to which he shares voting and
investment power with his wife Kathleen D. Bryson.
(9) Includes shares beneficially owned or deemed to be owned beneficially by
Steven J. Lund as follows: 3,144,751 shares of Class B Common Stock as
general partner of a limited partnership and with respect to which he
shares voting and investment power with his wife Kalleen Lund; 897,902
shares of Class B Common Stock as trustee and with respect to which he has
sole voting and investment power; and 180,571 shares of Class B Common
Stock as co-trustee and with respect to which he shares voting and
investment power with his wife Kalleen Lund.
(10) Includes shares beneficially owned or deemed to be owned beneficially by
Brooke B. Roney as follows: 3,362,665 shares of Class B Common Stock as
general partner of a limited partnership and with respect to which he
shares voting and investment power with his wife Denice R. Roney; and
62,657 shares of Class B Common Stock as co-trustee and with respect to
which he shares voting and investment power with his wife Denice R. Roney.
(11) Includes shares beneficially owned or deemed to be owned beneficially by
Keith R. Halls as follows: 563,258 shares of Class B Common Stock as
general partner of a limited partnership and with respect to which he
shares voting and investment power with his wife Anna Lisa Massaro Halls;
50,000 shares of Class B Common Stock as the manager of a limited liability
company and with respect to which he has sole voting and investment power;
250,000 shares of Class B Common Stock as trustee and with respect to which
he has sole voting and investment power; and 30,857 shares of Class B
Common Stock as co-trustee and with respect to which he shares voting and
investment power with his wife Anna Lisa Massaro Halls.
(12) Includes shares beneficially owned or deemed to be owned beneficially by
Max L. Pinegar as follows: 1,000 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; and
13,000 shares of Class A Common Stock issued to Mr. Pinegar as an employee
stock bonus award which will vest ratably, according to its terms, over
four years following the date of the award.
(13) Includes shares beneficially owned or deemed to be owned beneficially by
Daniel W. Campbell as follows: 2,500 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment power;
and 10,000 shares of Class A Common Stock issued to Mr. Campbell as a
non-qualified stock option which will vest on the day before the next
annual meeting of stockholders following the date of the grant.
(14) Includes shares beneficially owned or deemed to be owned beneficially by
E.J. "Jake" Garn as follows: 2,500 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; and
10,000 shares of Class A Common Stock issued to Mr. Garn as a non-qualified
stock option which will vest on the day before the next annual meeting of
stockholders following the date of the grant.
(15) Includes shares beneficially owned or deemed to be owned beneficially by
Paula Hawkins as follows: 2,500 shares of Class A Common Stock directly and
with respect to which she has sole voting and investment power; and 10,000
shares of Class A Common Stock issued to Ms. Hawkins as a non-qualified
stock option which will vest the day before the next annual meeting of
stockholders following the date of the grant.
(16) Includes shares beneficially owned or deemed to be owned beneficially by
Renn M. Patch as follows: 1,000 shares of Class A Common Stock directly and
with respect to which he has sole voting and investment power; 13,000
shares of Class A Common Stock issued to Mr. Patch as an employee stock
bonus award which will vest ratably, according to its terms, over four
years following the date of
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the award; and 26,000 shares of Class A Common Stock issued to Mr. Patch as
a non-qualified stock option which will vest ratably, according to its
terms, over four years following the date of the grant.
(17) Includes shares beneficially owned or deemed to be owned beneficially by
Corey B. Lindley as follows: 1,100 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 13,000
of Class A Common Stock issued to Mr. Lindley as an employee stock bonus
award which will vest ratably, according to its terms, over four years
following the date of the award; and 26,000 shares of Class A Common Stock
issued to Mr. Lindley as a non-qualified stock option which vest ratably,
according to its terms, over four years following the date of the grant.
(18) Includes shares beneficially owned or deemed to be owned beneficially by
Takashi Bamba as follows: 13,000 shares of Class A Common Stock issued to
Mr. Bamba as an employee stock bonus award which will vest ratably,
according to its terms, over four years following the date of the award;
and 25,000 shares of Class A Common Stock issued to Mr. Bamba as a
non-qualified stock option which will vest ratably, according to its terms,
over four years following the date of the grant.
(19) Includes shares beneficially owned or deemed to be owned beneficially by
John Chou as follows: 215 shares of Class A Common Stock directly and with
respect to which he has sole voting and investment power; 13,000 shares of
Class A Common Stock issued to Mr. Chou as an employee stock bonus award
which will vest ratably, according to its terms, over four years following
the date of the award; and 25,000 shares of Class A Common Stock issued to
Mr. Chou as a non-qualified stock option which will vest ratably, according
to its terms, over four years following the date of the grant.
(20) Includes 19,881,455 shares of Class B Common Stock owned by BNASIA, Ltd., a
limited partnership of which Blake M. Roney and his wife Nancy L. Roney are
the general partners and who share voting and investment power.
(21) Includes 4,850,736 shares of Class B Common Stock owned by RCKASIA, Ltd., a
limited partnership of which R. Craig Bryson and his wife Kathleen D.
Bryson are the general partners and who share voting and investment power.
(22) Class A Common Stock includes: 250,825 shares subject to a stock option
which has been granted to an executive officer of the Company and which is
exercisable until January 1, 2004; 5,333 shares owned directly by certain
directors and executive officers; and 161,386 shares issued to certain
directors and executive officers as employee stock bonus awards which will
vest ratably, according to their terms, over four years following the date
of the awards; and 196,000 shares issued to certain directors and executive
officers as non-qualified stock options which will vest either ratably,
according to their terms, over four years or, with respect to options held
by non-employee directors, the day before the next annual meeting of
stockholders following the date of grant.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and key managers of the
Subsidiaries as of March __, 1998 were as follows:
Name Age Position
------------------- ---- ------------------------------------------
Blake M. Roney 39 Chairman of the Board
Steven J. Lund 44 President, Chief Executive Officer and
Director
Renn M. Patch 47 Chief Operating Officer
Corey B. Lindley 33 Chief Financial Officer
Michael D. Smith 52 Vice President of North Asia Operations
Grant F. Pace 46 Vice President of Southeast Asia and China
M. Truman Hunt 38 Vice President of Legal Affairs and
Investor Relations
Keith R. Halls 40 Secretary and Director
Takashi Bamba 62 President, Nu Skin Japan
John Chou 51 President, Nu Skin Taiwan
Sandra N. Tillotson 41 Director
Brooke B. Roney 35 Director
Max L. Pinegar 66 Director
E.J. "Jake" Garn 65 Director
Paula Hawkins 71 Director
Daniel W. Campbell 43 Director
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Blake M. Roney has served as Chairman of the Board since the Company's
inception. Prior to the NSI Acquisition, Mr. Roney was a director, the president
and a shareholder of NSI and a director and shareholder of the Subsidiaries and
an executive officer of certain of the Subsidiaries. Since the NSI Acquisition,
Mr. Roney has continued to serve as a director of the Subsidiaries and as an
executive officer of certain of the Subsidiaries. He received a B.S. degree from
Brigham Young University. He is the brother of Brooke B. Roney.
Steven J. Lund has been President, Chief Executive Officer and a Director of
the Company since its inception. Prior to the NSI Acquisition, Mr. Lund was a
director, executive officer and shareholder of NSI and the Subsidiaries. Since
the NSI Acquisition, Mr. Lund has continued to serve as a director of the
Subsidiaries and as an executive officer of certain of the Subsidiaries. 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 Chief Operating Officer of the Company since its
inception. From 1992 until the NSI Acquisition, he served as Vice President of
Global Operations and Assistant General Manager of NSI. From 1991 to 1992, he
served as Director of Government Affairs of NSI. Prior to joining NSI in 1991,
Mr. Patch was associated 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 an L.L.M.
degree from Georgetown University.
Corey B. Lindley has been Chief Financial Officer 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. From 1990 to 1991, he served
as Assistant Director of Finance of NSI. Mr. Lindley is a Certified Public
Accountant. Prior to joining NSI in 1990, 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 Vice President of Operations for the Company since
its inception. He also served previously as Vice President of Asian Operations
for NSI. In addition, 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.
Grant F. Pace has served as Vice President Southeast Asia and China since
December 1997. From 1992 to 1997, he was Regional Vice President-Direct Selling
in the Asian region for Sara Lee and from 1988 to 1997 he was President and
Regional Managing Director, Southeast Asia for Avon Products. He received a J.D.
degree from Brigham Young University and an M.B.A. degree from Harvard
University.
M. Truman Hunt has served as Vice President of Legal Affairs and Investor
Relations since the Company's inception. He also served as Counsel to the
President of NSI from 1994 to 1996. 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 that 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 Secretary and a Director of the Company since
its inception. Prior to the NSI Acquisition, Mr. Halls was a director, general
vice president and shareholder of NSI and a director and shareholder of the
Subsidiaries and an executive officer of certain of the Subsidiaries. Since the
NSI Acquisition, Mr. Halls has continued to serve as a director of the
Subsidiaries and as an executive officer
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of certain of the Subsidiaries. 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 President and/or General Manager of Nu Skin
Japan since 1993. Prior to joining Nu Skin Japan in 1993, 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 17 years at Avon Products, Inc. He received a B.A. degree
from Yokohama National University.
John Chou has served as President and/or General Manager of Nu Skin Taiwan
since 1991. Prior to joining Nu Skin Taiwan in 1991, he spent twenty-one years
in international marketing and management with 3M Taiwan Ltd., Amway Taiwan and
Universal PR Co. 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 B.A. degree from Tan Kang
University in Taipei, Taiwan.
Sandra N. Tillotson has served as a Director of the Company since its
inception. Prior to the NSI Acquisition, Ms. Tillotson was a director, general
vice president and shareholder of NSI and a director and shareholder of the
Subsidiaries and an executive officer of certain of the Subsidiaries. Since the
NSI Acquisition, Ms. Tillotson has continued to serve as a Director of the
Subsidiaries and as an executive officer of certain of the Subsidiaries. She
earned a B.S. degree from Brigham Young University.
Brooke B. Roney has served as a Director of the Company since its inception.
Prior to the NSI Acquisition, Mr. Roney was a director, general vice president
and shareholder of NSI and a director and shareholder of the Subsidiaries and an
executive officer of certain of the Subsidiaries. Since the NSI Acquisition, Mr.
Roney has continued to serve as a director of the Subsidiaries and as an
executive officer of certain of the Subsidiaries. He is the brother of Blake M.
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.
E.J. "Jake" Garn has served as a Director of the Company since March 1997.
Senator Garn has been Vice Chairman of Huntsman Corporation, one of the largest
privately-held companies in the U.S., since 1993. He currently serves as a
director for Dean Witter Funds, John Alden Life Insurance Company and Franklin
Covey & Co., Inc. From 1974 to 1993, Senator Garn was a member of the United
States Senate and served on numerous senate committees. He received a B.A.
degree from the University of Utah.
Paula Hawkins has served as a Director of the Company since March 1997.
Senator Hawkins is the principal of Paula Hawkins & Associates, Inc., a
management consulting company. From 1980 to 1986, Senator Hawkins was a member
of the United States Senate and served on numerous senate committees.
Daniel W. Campbell has served as a Director of the Company since March 1997.
Mr. Campbell has been a Managing General Partner of EsNet, Ltd. since 1994. From
1992 to 1994, Mr. Campbell was the Senior Vice President and Chief Financial
Officer of WordPerfect Corporation and prior to that was a Partner of Price
Waterhouse LLP. He received a B.S. degree from Brigham Young University.
-7-
Blake M. Roney and Brooke B. Roney are brothers. The Company is not aware of
any other family relationships among any director, executive officer or person
nominated to become a director. The Certificate of Incorporation of the Company
contains provisions eliminating or limiting the personal liability of directors
for violations of a director's fiduciary duty to the extent permitted by the
Delaware General Corporation Law.
Board of Directors Meetings and Committees
The Board of Directors held seven meetings during the fiscal year ended
December 31, 1997. Each director attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors held during such period and
the total number of meetings held during such period by all committees of the
Board of Directors on which that director served.
The Company has standing Audit, Compensation and Executive Committees, but
has not established a Nominating Committee. The Audit Committee members are
Daniel W. Campbell and E.J. "Jake" Garn. Mr. Campbell is the Chairman of the
Audit Committee. The Audit Committee's responsibilities include, among other
things, recommending the selection of the Company's independent public
accountants to the Board of Directors, reviewing the activities and the reports
of the independent public accountants, reviewing the independence of the
independent public accountants and examining the adequacy of the Company's
internal controls and internal auditing methods and procedures. The Audit
Committee met three times during 1997.
The Compensation Committee members are Keith R. Halls, Max L. Pinegar, Paula
Hawkins and Daniel W. Campbell. Mr. Halls is the Chairman of the Compensation
Committee. The Compensation Committee's responsibilities include, among other
things, making recommendations to the Board of Directors regarding the salaries,
bonuses and other compensation to be paid to the Company's officers and
administering the 1996 Stock Incentive Plan. The Compensation Committee met five
times during 1997.
The Executive Committee members are Blake M. Roney, Steven J. Lund and Keith
R. Halls. Mr. Roney is the Chairman of the Executive Committee. The duties of
the Executive Committee are, to the extent authorized by the Board of Directors,
to exercise all the powers and authority of the Board of Directors with respect
to the management of the business and affairs of the Company. The Executive
Committee met numerous times during 1997.
Compensation of Directors
Each director who does not receive compensation as an officer or employee of
the Company, NSI or its affiliates is entitled to receive an annual fee of
$25,000 for serving on the Board of Directors, a fee of $1,000 for each meeting
of the Board of Directors or any committee meeting thereof attended and a fee of
$1,000 for each committee meeting attended if such director is the chairperson
of that committee. Each director may be reimbursed for certain expenses incurred
in attending Board of Directors and committee meetings.
In addition, certain directors may be granted options or stock bonus awards
under the 1996 Stock Incentive Plan. On October 20, 1997, the Board of Directors
approved stock bonus awards for E.J. "Jake" Garn, Paula Hawkins and Daniel W.
Campbell of 2,500 shares of Class A Common Stock each under the 1996 Stock
Incentive Plan. All of such shares were immediately vested. Also on October 20,
1997, the Board of Directors ratified stock option grants to E.J. "Jake" Garn,
Paula Hawkins and Daniel W. Campbell to purchase 10,000 shares each of Class A
Common Stock under the 1996 Stock Incentive Plan. All options were granted with
an exercise price equal to the fair market value of the Class A Common Stock on
September 16, 1997, the date the Compensation Committee approved the grants. The
options vest on the day before the next annual meeting of stockholders following
the date of grant.
-8-
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services rendered in all capacities during the fiscal
years ended December 31, 1995, 1996 and 1997 of those persons who were the
Company's chief executive officer or one of the other four most highly
compensated executive officers of the Company or key managers of the
Subsidiaries during the last fiscal year (collectively, the "Named Officers").
The Company was formed in September 1996, and consequently paid no
compensation to the Named Officers during the fiscal year ended December 31,
1995 and during the first eight months of the fiscal year ended December 31,
1996. However, salary, bonus and other compensation is presented in the table
below for 1995 and until September 1996 based on payments by NSI and the
Subsidiaries and from September 1996 through 1997 based on payments by the
Company and the Subsidiaries to the Named Officers as if the Company had been in
existence during all of 1995 and 1996. During 1995, 1996 and 1997, Messrs. Bamba
and Chou were, and continue to be, employed full time as the General Managers
and/or Presidents of Nu Skin Japan and Nu Skin Taiwan, respectively, and
received all of their compensation from the Company through certain of the
Subsidiaries. During 1995, 1996 and 1997, Messrs. Lund and Patch were, and
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 Company and certain Subsidiaries during 1995, 1996 and
1997. During 1995 and 1996, Mr. Lindley was an employee of NSI. The compensation
presented in the table below reflects an allocation of the time spent by Mr.
Lindley providing services to the Company during 1996. These salaries and
bonuses are in addition to any amounts received during the relevant periods by
these officers from NSI in return for their services to NSI.
Summary Compensation Table
Annual Compensation
---------------------------------------------
Long-Term
Other Compensation
Annual Restricted All Other
Name and Principal Position Year Salary Bonus Compensation Stock Awards Compensation
- - - - --------------------------- ---- ------ ----- ------------ ------------- ------------
Steven J. Lund............... 1997 $275,779 $227,752(1) $ -- -- $ --
President and Chief Executive1996 259,973 89,345(1) -- -- --
Officer 1995 236,364 82,529(1) -- -- --
Takashi Bamba................ 1997 393,520 180,364(2) 180,364(3) -- 3,450(5)
President, Nu Skin Japan 1996 364,138 174,557(2) 195,401(3) 401,375(4) 3,297(5)
1995 361,028 105,563(2) 98,063(3) -- 3,297(5)
John Chou.................... 1997 253,408 84,469(2) 84,469(6) -- --
President, Nu Skin Taiwan 1996 211,000 56,232(2) 77,897(6) 401,375(4) --
1995 185,370 75,786(2) 63,730(6) -- --
Corey B. Lindley............. 1997 163,727 89,947(1) 16,373(7) -- 15,582(8)
Chief Financial Officer 1996 62,780 17,288(1) -- 401,375(4) --
1995 -- -- -- -- --
Renn M. Patch................ 1997 148,673 72,819(1) 23,788(7) -- 1,151(8)
Chief Operating Officer 1996 98,638 20,437(1) 13,800(7) 401,375(4) 5,542(8)
1995 97,175 104,765(9) 18,750(10) -- --
- - - - ----------------------
(1) Cash bonus paid to the recipient not pursuant to a formal bonus plan.
(2) Cash bonus paid during the year reported pursuant to a cash bonus long-term
incentive plan for the Presidents of the Subsidiaries.
-9-
(3) Includes deferred portion of a bonus accrued during the year reported
pursuant to a cash bonus long-term incentive plan for the Presidents of the
Subsidiaries and annual lease payments for an automobile.
(4) Employee stock bonus awards for 13,000 shares of Class A Common Stock were
granted in 1996 to each of Messrs. Bamba, Chou and Lindley by the Company
pursuant to the 1996 Stock Incentive Plan and to Mr. Patch by NSI pursuant
to its own stock incentive plan. The awards vest 25% per year beginning in
November 1997. Dividends will be paid only on shares actually issued
pursuant to employee stock bonus awards and only as, when and if declared by
the Company's Board of Directors. Employee stock bonus awards have been
valued for purposes of this table using the closing market price of the
Company's Class A Common Stock on December 31, 1996 (307/8) multiplied by
the number of shares underlying the awards.
(5) Annual premium for pension insurance policy.
(6) Includes deferred portion of a bonus accrued during the year reported
pursuant to a cash bonus long-term incentive plan for the Presidents of the
Subsidiaries and annual payments for an automobile and club dues.
(7) Includes deferred portion of a bonus accrued during the year reported not
pursuant to a formal bonus plan.
(8) Includes compensation in the form of the cash value of the use of certain
NSI-owned property and other perquisites.
(9) Noncash bonus paid to Mr. Patch, not pursuant to a formal bonus plan.
(10)Includes $16,500 of accrued deferred compensation and $2,250 of vested
deferred compensation awarded to Mr. Patch under NSI's deferred compensation
plan.
The following table sets forth certain information with respect to grants of
stock options pursuant to the Nu Skin Asia Pacific, Inc. 1996 Stock Incentive
Plan (the "1996 Stock Incentive Plan") during fiscal year 1997 to the Named
Officers.
Option Grants in Last Fiscal Year(1)
Percentage Potential
of Total Realizable Value at
Options Exercise Assumed Annual
Granted to or Base Rates of Stock Price
Options Employees Price Appreciation
Granted in Fiscal per Expiration for Option Term(2)
Name (Shares) Year Share Date 5% 10%
- - - - ---- -------- ---- ----- ---------- -------- ------
Steven J. Lund ........... 0 -- -- -- -- --
Takashi Bamba ............ 25,000 11.6% $20.875 10/20/07 $328,204 $831,734
John Chou ................ 25,000 11.6 20.875 10/20/07 328,204 831,734
Corey B. Lindley ......... 26,000 12.0 20.875 10/20/07 341,333 865,004
Renn M. Patch ............ 26,000 12.0 20.875 10/20/07 341,333 865,004
- - - - ----------------------
(1) Under the terms of the 1996 Stock Incentive Plan, all options granted become
exercisable in four equal annual installments beginning on the date of
grant. Options are granted for a term of ten years, subject to earlier
termination in certain events. The exercise price is equal to the fair
market value of the Class A Common Stock on the date of grant. The
Compensation Committee and/or the Board of Directors retains or retain
discretion, subject to certain restrictions, to modify the terms of
outstanding options and to reprice outstanding options.
(2) Potential gains are net of the exercise price, but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission, and
do not represent the Company's estimate or projection of the future Class A
Common Stock price. Actual gains, if any, on stock option exercises are
-10-
dependent upon the future financial performance of the Company, overall
market conditions and the option holder's continued employment through the
vesting period. This table does not take into account any actual
appreciation in the price of the Class A Common Stock from the date of
grant.
The following table sets forth certain information with respect to
unexercised options under the 1996 Stock Incentive Plan held by the Named
Officers as of December 31, 1997. No options were exercised by any of the Named
Officers in 1997.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
Value of Unexercised
Number of Unexercised Options In-the-Money Options
at December 31, 1997 at December 31, 1997(1)
----------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - - - -------------------- ----------- ------------- ----------- -------------
Steven J. Lund ..... 0 0 $ 0 $ 0
Takashi Bamba ...... 0 25,000 0 0
John Chou .......... 0 25,000 0 0
Corey B. Lindley ... 0 26,000 0 0
Renn M. Patch ...... 0 26,000 0 0
- - - - ----------------------
(1) Based on the average of the high and low sales price of the Class A Common
Stock on the New York Stock Exchange on December 31, 1997 ($17.31), none of
the unexercised options were in the money.
Employment Agreements
Messrs. Bamba and Chou have entered into employment agreements with Nu Skin
Japan and Nu Skin Taiwan, respectively. Under these agreements, these
individuals are paid an annual salary and receive various other benefits. These
individuals are also entitled to participate in a cash bonus long-term incentive
plan.
Mr. Bamba is employed as the President of Nu Skin Japan at a 1998 annual
salary of approximately $341,000. This salary is subject to annual review. Under
the terms of his employment agreement, Mr. Bamba is entitled to reimbursement of
business-related expenses, the use of an automobile provided by Nu Skin Japan,
and participation in any retirement plan offered by Nu Skin Japan. Mr. Bamba
also 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 (Y)300,000 per year. Under his employment agreement, 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 a 1998 annual
salary of approximately $300,000. Under the terms of his employment agreement,
Mr. Chou received a personal loan in the amount of $1 million. The loan bears no
interest and is payable upon demand if Mr. Chou ceases to be employed by Nu Skin
Taiwan or an affiliate. The loan is to be repaid by applying $100,000 of the sum
earned by Mr. Chou under the Bonus
-11-
Incentive Plan per year against the loan balance. If less than $100,000 is
earned under the Bonus Incentive Plan in a given year, $100,000 is nevertheless
applied against the loan balance. If Mr. Chou is terminated "without cause," any
loan balance will be forgiven. Under the terms of his employment agreement, Mr.
Chou is also 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 August 2002. Under his
employment agreement, Mr. Chou has agreed to certain confidentiality and
non-competition obligations.
Bonus Incentive Plan
The Company has adopted a bonus incentive plan for the Presidents of certain
of the Subsidiaries. Under the current bonus incentive plan, Messrs. Bamba and
Chou are entitled to receive an annual cash bonus based upon the prior year's
operating results of the Subsidiary for which they are responsible. Participants
in this bonus incentive plan are 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 is payable by February 15 of the year following
the year in which the bonus is earned and the remaining one half is deferred and
vests ratably over 10 years or at age 65, whichever occurs first. The Company
has not adopted a formal bonus plan for executives of the Company. The Company
has, from time to time, paid discretionary cash bonuses to executives based on
market and individual performance.
COMPENSATION COMMITTEE REPORT
Notwithstanding anything to the contrary set forth in any of the previous
filings made by the Company under the Securities Act of 1933, as amended, or the
Securities Act of 1934, as amended, that might incorporate future filings,
including, but not limited to, this Proxy Statement, in whole or in part, the
following Compensation Committee Report and the performance graph appearing
herein shall not be deemed to be incorporated by reference into any such future
filings.
This Compensation Committee Report discusses the Company's executive
compensation policies and the basis for the compensation paid to the Company's
executive officers, including its Chief Executive Officer, Steven J. Lund,
during the fiscal year ended December 31, 1997.
Compensation Policy. The Company's policy with respect to executive
compensation has been designed to:
o Adequately and fairly compensate executive officers in relation to their
responsibilities, capabilities and contributions to the Company and in a
manner that is commensurate with compensation paid by companies of
comparable size or within the Company's industry;
-12-
o Reward executive officers for the achievement of short-term operating
goals and for the enhancement of the long-term value of the Company; and
o Align the interests of the executive officers with those of the
Company's stockholders with respect to short-term operating goals and
long-term increases in the price of the Company's Common Stock.
The components of compensation paid to certain executive officers consist of
(a) base salary, (b) incentive compensation in the form of discretionary annual
bonus payments, annual bonus payments and other awards made by the Company
(through the Compensation Committee) under the Company's bonus incentive plan
for the Presidents of certain Subsidiaries and the Nu Skin Asia Pacific, Inc.
1996 Stock Incentive Plan, respectively, and (c) certain other benefits provided
to the Company's executive officers. The Compensation Committee has been
responsible for reviewing and approving cash compensation paid by the Company to
its executive officers and members of the Company's senior management team,
including bonuses and awards made under the aforementioned incentive plans,
selecting the individuals who will receive such bonuses and awards and
determining the timing, pricing and amount of all such bonuses and awards
granted.
As described above, the Company has adopted a bonus incentive plan for the
Presidents of certain of the Subsidiaries. The Company has not yet adopted a
formal bonus incentive plan for other executive officers. During 1997, bonuses
made to executive officers other than the Presidents of certain Subsidiaries
were discretionary and based on achievement of business targets and objectives.
The Company believes its incentive compensation plan for the Presidents of
certain Subsidiaries rewards those individuals when the Company and its
stockholders have benefited from achieving the Company's goals and targeted
objectives, all of which the Compensation Committee feels will dictate, in large
part, the Company's future operating results. The Compensation Committee
believes that its policy of compensating certain of its executive officers with
incentive-based compensation fairly and adequately compensates those individuals
in relation to their responsibilities, capabilities and contribution to the
Company, and in a manner that is commensurate with compensation paid by
companies of comparable size or within the Company's industry. In 1997, the
Compensation Committee engaged the consulting firm of Towers Perrin to review
and evaluate the compensation and incentive plans for the Company's executive
officers. Certain of the recommendations made by Towers Perrin have been
implemented and certain recommendations are still being considered by the
Compensation Committee.
Components of Compensation. The primary components of compensation paid by
the Company to its executive officers and senior management personnel, and the
relationship of such components of compensation to the Company's performance,
are discussed below:
Base Salary. For the fiscal year ended December 31, 1997, the Compensation
Committee reviewed and approved the base salary paid by the Company to its
executive officers and the Presidents of certain Subsidiaries. Annual
adjustments to base salaries are determined based upon a number of factors,
including the Company's performance (to the extent such performance can fairly
be attributed or related to each executive's officer's performance), as well as
the nature of each executive officer's responsibilities, capabilities and
contributions. In addition, for the fiscal year ended December 31, 1997, the
Compensation Committee reviewed the base salaries of its executive officers in
an attempt to ascertain whether those salaries fairly reflect job
responsibilities and prevailing market conditions and rates of pay. The
Compensation Committee believes that base salaries for the Company's executive
officers have been reasonable in relation to the Company's size and performance
in comparison with the compensation paid by similarly sized companies or
companies within the Company's industry.
-13-
Incentive Compensation. As discussed above, a substantial portion of the
compensation paid to the Presidents of certain of the Subsidiaries is in the
form of incentive compensation designed to reward the achievement of operating
goals. Under the terms of the bonus incentive plan for the Presidents of the
Subsidiaries and the Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan, the
Board of Directors and the Compensation Committee have authority, within the
terms of such plans, to select the executive officers and employees who will be
granted bonuses and other awards and to determine the timing, pricing and amount
of any such bonuses or awards.
Other Benefits. The Company maintains certain other plans and arrangements
for the benefit of its executive officers. The Company believes these benefits
are reasonable in relation to the executive compensation practices of other
similarly sized companies or companies within the Company's industry.
Compensation of the Chief Executive Officer. Steven J. Lund, the Company's
President and Chief Executive Officer also served during 1997 as Executive Vice
President of NSI and an officer of certain other Subsidiaries. During 1998, Mr.
Lund will continue to be an executive officer of Nu Skin USA, Inc., an affiliate
of the Company, and a portion of his compensation will be paid by that entity
and certain of its affiliates. During 1997, Mr. Lund received a portion of his
cash compensation from NSI. The amounts set forth in the table above reflect
that portion of Mr. Lund's salary and bonus which is allocated to the Company
based on the relative amount of time spent on the Company's affairs in 1997.
Conclusion. The Compensation Committee believes that the concepts discussed
above further the stockholders' interests and that officer compensation
encourages responsible management of the Company. The Compensation Committee
regularly considers the effect of management compensation on stockholder
interests. In the past, the Board of Directors based its review in part on the
experience of its own members and on information requested from management
personnel. In 1997, the Compensation Committee sought input from Towers Perrin,
an executive compensation and benefits firm regarding the Company's compensation
policies and strategies. In the future, these factors, reports of the
Compensation Committee and discussions with and information compiled by various
independent consultants retained by the Company will be used in determining
officer compensation.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Keith R. Halls
Max L. Pinegar
Paula Hawkins
Daniel W. Campbell
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Keith R. Halls, Daniel W.
Campbell, Paula Hawkins and Max L. Pinegar. Mr. Halls is also the Secretary of
the Company. Mr. Halls has entered into a Stockholders Agreement with the
Company and certain other stockholders of the Company. See "Certain
Relationships and Transactions--Stockholders Agreement." During fiscal 1997, Mr.
Halls was an executive officer, director and stockholder of NSI, and is now an
executive officer, director and stockholder of Nu Skin USA, Inc. and various
other affiliates of the Company. During fiscal 1997, Mr. Pinegar was an employee
of NSI. Several members of the Company's Board of Directors were also directors
of NSI and have set compensation for certain executive officers of the Company
who have been or will
-14-
continue to be executive officers of NSI, Nu Skin USA, Inc. or certain of their
affiliates. See "Certain Relationships and Transactions--Acquisition of NSI,"
"--Operating, License and Distribution Agreements; Certain Effects of the NSI
Acquisition," "Proposal 3--Approval of Class A Common Stock Issuable Upon
Conversion of Series A Preferred Stock" and "Interests of Certain Persons in the
Proposals."
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return (stock price appreciation plus dividends) on the Company's Class A Common
Stock with the cumulative total return of the S&P 500 Index and a market
weighted index of publicly traded peers for the period from November 22, 1996
(the date of the Company's initial public offering) through December 31, 1997.
The graph assumes that $100 is invested in each of the Class A Common Stock, the
S&P 500 Index and the index of publicly traded peers on November 22, 1996 and
that all dividends were reinvested. The publicly traded companies in the peer
group are Amway Asia Pacific, Ltd., Amway Japan, Ltd., Tupperware Corporation,
Revlon, Inc. and Avon Products.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
AMONG NU SKIN ASIA PACIFIC, INC.,
PEER GROUP AND BROAD MARKET
[GRAPHIC OMITTED]
Measurement Period Company S&P 500 Index Peer Group Index
------------------ ------- ------------- ----------------
November 22, 1996 $100.00 $100.00 $100.00
December 31, 1996 107.39 98.02 99.03
December 31, 1997 63.48 130.72 75.48
-15-
CERTAIN RELATIONSHIPS AND TRANSACTIONS
S Corporation Distribution
On November 20, 1996, the stockholders of certain of the Subsidiaries
contributed 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 Class B Common Stock
(the "Reorganization"). Prior to the Reorganization, each such Subsidiary
elected to be treated as an "S" corporation under Subchapter S of the Code and
comparable state tax laws. On November 19, 1996, the S corporation status of
such Subsidiaries was terminated (the "S Termination Date"). Prior to the S
Termination Date, the Company declared a distribution to the then existing
stockholders of the Company (the "Original Stockholders") that included all of
such Subsidiaries' previously earned and undistributed S corporation earnings
through the S Termination Date (the "S Corporation Distribution"). As of the
date of the Reorganization, such Subsidiaries' aggregate undistributed taxable S
corporation earnings were $86.5 million. The S Corporation Distribution was
distributed in the form of promissory notes bearing interest at 6% per annum
(the "S Distribution Notes"). On April 4, 1997, the Company paid the outstanding
S Distribution Notes balances together with the related interest expense due.
The Original Stockholders, which include Messrs. Blake M. Roney, Steven J. Lund
and Keith R. Halls, who during 1997 served and continue to serve as officers and
directors of the Company, were the holders of the S Distribution Notes.
Control By Original Stockholders
As of March __, 1998, approximately ____% of the combined voting power of
the outstanding shares of Common Stock was held by the Original Stockholders and
certain of their affiliates. Consequently, as of such date, the Original
Stockholders and certain of their affiliates 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.
Acquisition of NSI
On March __, 1998, the Company acquired all of the capital stock of NSI and
certain affiliates of NSI (collectively, the "Acquired Entities") from the then
stockholders of the Acquired Entities (the "NSI Stockholders") pursuant to a
Stock Acquisition Agreement, dated as of ____, 1998 (the "Acquisition
Agreement"), between the Company and the NSI Stockholders (the "NSI
Acquisition"). The consideration paid by the Company to the NSI Stockholders
consisted of _________ shares of Series A Preferred Stock, the assumption of the
Acquired Entities' S Distribution Notes (as defined below) payable to the NSI
Stockholders in the amount of approximately $_____ and, contingent upon NSI and
the Company meeting certain earnings growth targets, up to $25 million in cash
per year over the next four years. The Company agreed that in the event the
Acquired Entities' S Distribution Notes did not exceed $180 million, the Company
would pay each NSI Stockholder in cash or in the form of promissory notes the
difference between (i) $180 million and (ii) the aggregate principal amount of
the Acquired Entities' S Distribution Notes multiplied by each stockholder's
proportional ownership interest in the shares of NSI.
Several of the NSI Stockholders were at the time of the NSI Acquisition and
continue to be significant holders of the Class A Common Stock and,
collectively, the NSI Stockholders and their affiliates owned beneficially at
the time of the NSI Acquisition and continue to own beneficially all of the
outstanding shares of the Class B Common Stock. In addition, several of the NSI
Stockholders were directors and/or executive
-16-
officers of the Company at the time of the NSI Acquisition and continue to hold
such positions. The following table sets forth the percentage of the total
consideration received or to be received by the NSI Stockholders in the NSI
Acquisition for each of the NSI Stockholders who is (i) a person known by the
Company to own beneficially more than 5% of the outstanding shares of either the
Class A Common Stock or the Class B Common Stock as of _____, 1998 (a "5%
Stockholder"), (ii) a director of the Company or (iii) a Named Officer.
Percentage of
NSI Acquisition
NSI Stockholder Relationship With the Company Consideration
- - - - ------------------- ---------------------------------------- ---------------
Blake M. Roney Chairman of the Board and 5% Stockholder
Steven J. Lund President, Chief Executive Officer,
Director and 5% Stockholder
Nedra D. Roney 5% Stockholder
Sandra N. Tillotson Director and 5% Stockholder
Craig S. Tillotson 5% Stockholder
R. Craig Bryson 5% Stockholder
Brooke B. Roney Director
Keith R. Halls Director
Effective as of December 31, 1997 and in contemplation of the NSI
Acquisition, NSI contributed certain assets relating to the right to distribute
NSI products in the United States to Nu Skin USA, Inc. ("Nu Skin USA"), a newly
created corporation wholly owned by the NSI Stockholders, in exchange for all of
the common stock of Nu Skin USA, and NSI distributed such common stock to the
NSI Stockholders. In addition, effective as of December 31, 1997, NSI and the
other Acquired Entities declared distributions to their then existing
stockholders (consisting solely of the NSI Stockholders) that included all of
such Acquired Entities' previously earned and undistributed S corporation
earnings through such date and further earnings from January 1, 1998 through the
closing date of the transaction (the "Acquired Entities S Corporation
Distribution"). As of December 31, 1997, such Acquired Entities' aggregate
undistributed S corporation earnings were approximately $___ million. The
Acquired Entities' S Corporation Distribution was distributed in the form of
promissory notes due ________ and bearing interest at ___% per annum (the
"Acquired Entities' S Distribution Notes"). The Acquired Entities' S Corporation
Distribution Notes are held entirely by the NSI Stockholders. As discussed
above, the obligation to repay the S Distribution Notes to the NSI Stockholders
was assumed by the Company in connection with the NSI Acquisition.
The Acquired Entities consist of NSI, Nu Skin International Management
Group, Inc. and the NSI affiliates operating in Europe, Australia and New
Zealand, including Nu Skin Europe, Inc., Nu Skin U.K., Inc., Nu Skin U.K. Ltd.,
Nu Skin Belgium, Inc., Nu Skin Belgium, N.V., Nu Skin France, Inc., Nu Skin
France, SARL, Nu Skin Germany, Inc., Nu Skin Germany, GmbH, Nu Skin Italy, Inc.,
Nu Skin Italy, (SRL), Nu Skin Spain, Inc., Nu Skin Spain, S.L., Nu Skin
Netherlands, Inc., Nu Skin Netherlands, B.V., Nu Skin Personal Care Australia,
Inc., Nu Skin New Zealand, Inc., Nu Skin Brazil, Inc., Nu Skin Brazil, Ltda., Nu
Skin Argentina, Inc., Nu Skin Chile, Inc., Nu Skin Chile, S.A., Nu Skin Poland
Spa., Nu Skin Poland, Inc., and Cedar Meadows, L.C. The NSI Stockholders
continue to own as private entities the NSI affiliates operating in the United
States, Canada, Mexico, Guatemala and Puerto Rico, including Nu Skin USA, Inc.,
Nu Skin Canada, Inc., Nu Skin Mexico, Inc., Nu Skin Mexico S.A. de C.V., Nu Skin
Guatemala, Inc., Nu Skin Guatemala, S.A., Nu Skin Puerto Rico, Inc., and Big
Planet, Inc. (collectively, the "Retained Entities").
-17-
The following chart illustrates the organizational structure of the Company
and the Retained Entities immediately after the NSI Acquisition.
[GRAPHIC OMITTED]
Operating, License and Distribution Agreements; Certain Effects of the NSI
Acquisition
Prior to the NSI Acquisition. Prior to the NSI Acquisition, NSI licensed to
the Company, through the Asian Subsidiaries, rights to distribute NSI products
and to use certain NSI property in the Company's markets. NSIMG, an NSI
affiliate, provided management support services to the Company and the Asian
Subsidiaries, pursuant to distribution, trademark/tradename license, licensing
and sales, and management services agreements with the Asian Subsidiaries
(collectively, the "Operating Agreements"). Virtually all of the products sold
by the Company were purchased from NSI pursuant to distribution agreements. The
Company also manufactures itself, or through third-party manufacturers, certain
products and commercial materials which it then sold using NSI trademarks or
tradenames licensed under trademark/tradename license agreements. In addition,
the Company did not have its own sales or distribution network but licensed the
right to use NSI's distribution network and global distributor compensation plan
pursuant to licensing and sales agreements. NSIMG also provided a broad range of
management, administrative and technical support to the Company pursuant to
management services agreements.
-18-
During the fiscal year ended December 31, 1997, NSI and NSIMG charged the
Company approximately $241.0 million and $7.3 million, respectively, for goods
and services provided to the Company under the Operating Agreements.
The Operating Agreements were approved by the original Board of Directors of
the Company, which was composed entirely of officers and shareholders of NSI. In
addition, two of the executive officers of the Company, including the Chief
Executive Officer, were also executive officers of NSI through the date of the
NSI Acquisition. During 1997 and through the date of the NSI Acquisition, a
portion of such officers' time was spent on the affairs of NSI, for which they
received compensation from NSI, in addition to amounts received from the Company
for services to the Company.
During 1997, 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 the fiscal year ended December 31,
1997, Nu Skin Japan paid NSI $3.7 million in royalties under this agreement.
During 1997, pursuant to wholesale distribution agreements, Nu Skin Hong
Kong distributed certain NSI products to Nu Skin Personal Care Australia, Inc.
and Nu Skin New Zealand, Inc., affiliates of NSI. Pursuant to these agreements,
Nu Skin Hong Kong was paid approximately $4.3 million in 1997 by Nu Skin
Personal Care Australia, Inc. and Nu Skin New Zealand, Inc.
Concurrently with the Company's initial public offering, the Company
purchased from NSI for $25 million, the exclusive rights to distribute NSI
products in Thailand, Indonesia, Malaysia, the Philippines, the People's
Republic of China, Singapore and Vietnam. As of February 1, 1998, the Company
had paid all of this amount. Following the NSI Acquisition, the Company, through
its Subsidiary, NSI, will license to Nu Skin USA, Inc. and other affiliates
operating in Canada, Mexico, Puerto Rico and Guatemala, rights to distribute Nu
Skin products and to use certain intellectual property. NSIMG, a wholly-owned
subsidiary of the Company, will provide management support services to the
Retained Entities. Virtually all of the products sold by the Retained Entities
will be purchased from the Company.
Certain Effects of the NSI Acquisition. Through its acquisition of NSI, the
Company has obtained ownership and control of the Nu Skin trademarks/tradenames,
the Nu Skin Global Compensation Plan, distributor lists and related intellectual
property and know-how (collectively, the "Intellectual Property"). The Company,
through NSI, will continue to license the Intellectual Property and, through
NSIMG, will continue to provide management support services to the Acquired
Entities on substantially the same terms as existed prior to the NSI
Acquisition. In connection with the NSI Acquisition, the Company, through NSI
and NSIMG, has entered into a new agreement with Nu Skin USA, Inc. and revised
agreements with the other Retained Entities on terms similar to its agreements
with the Acquired Entities pursuant to which NSI licenses the Intellectual
Property and the exclusive right to sell Nu Skin personal care and nutritional
products in the United States, Canada, Mexico, Guatemala and Puerto Rico to the
Retained Entities and NSIMG provides management support services to the Retained
Entities. Through its acquisition of NSI, the Company also acquired the rights
to future markets worldwide. Stockholders Partnership
R. 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
-19-
the fiscal year ended December 31, 1997, total commissions paid to the
Partnership on sales originating in the Company's then open markets (Japan,
Taiwan, Hong Kong, South Korea and Thailand) were 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.
Stockholders Agreement
The Original Stockholders entered into a stockholders agreement with the
Company (the "Original Stockholders Agreement") immediately prior to the initial
public offering of the Company's Class A Common Stock in November 1996. Pursuant
to the Original Stockholders Agreement and in order to ensure the qualification
of the Reorganization under Section 351 of the Code, the Original Stockholders
agreed not to transfer any shares through November 28, 1997 without the consent
of the Company except for certain transfers relating to the funding of the
Distributor Options and the grant of employee stock bonus awards.
Effective as of November 28, 1997, the Original Stockholders entered into an
amended and restated stockholders agreement with the Company (the "Stockholders
Agreement"). As of March ___, 1998, the Original Stockholders and certain of
their affiliates beneficially owned shares having approximately ___% of the
combined voting power of the outstanding shares of Common Stock. The Original
Stockholders agreed not to transfer any shares they own through November 28,
1998 (the "Initial Lock-up Period") without the consent of the Company except
for certain transfers relating to the funding of Distributor Options and the
grant of employee stock bonus awards. However, the NSI Acquisition has effected
an automatic extension of the lock-up period until one year following the
closing date of the NSI Acquisition (the "Extended Lock-up Period").
For one year following the last to expire of (i) the Initial Lock-up Period,
and (ii) the Extended Lock-up Period (the "Restricted Resale Period"), all sales
of Shares in a public resale pursuant to Rule 144 or any other exempt
transaction under the Securities Act, shall not exceed in any calendar quarter
an amount determined by multiplying (x) a percentage determined for each
Original Stockholder in accordance with each Original Stockholder's pro-rata
ownership percentage in the Company by (y) the average weekly trading volume for
the Company's Class A Common Stock on the New York Stock Exchange during the
calendar quarter immediately preceding any transfer permitted during the
Restricted Resale Period (the "Rule 144 Allotment"). In no event, however, shall
any Stockholder's Rule 144 Allotment be less than 20,000 shares per calendar
quarter with the exception of certain of the Original Stockholders' controlled
entities identified in the Stockholders Agreement whose Rule 144 Allotment for
any calendar quarter shall be equal to 5% of the shares held by such Original
Stockholder on the date of the Stockholders Agreement. The Original Stockholders
have been granted registration rights by the Company permitting each such
Original Stockholder to register his or her shares of Class A Common Stock,
subject to certain restrictions, on any registration statement filed by the
Company until such Original Stockholder has sold a specified value of shares of
Class A Common Stock.
Certain Loans
As part of his employment agreement, the Company loaned Mr. Chou $1
million. The loan bears no interest and is payable upon demand if Mr. Chou
ceases to be employed by Nu Skin Taiwan or an affiliate. The loan is to be
repaid by applying $100,000 of the sum earned by Mr. Chou under the Bonus
Incentive Plan per year against the loan balance. If less than $100,000 is
earned under the Bonus Incentive Plan in a given year, $100,000 is nevertheless
applied against the loan balance. If Mr. Chou is terminated "without cause," any
loan balance will be forgiven. See "Executive Compensation--Employment
Agreements."
-20-
On December 10, 1997, the Company loaned $5 million (the "Original Principal
Amount") to Nedra D. Roney. This loan is secured by a pledge by Ms. Roney of
three hundred forty-nine thousand four hundred six (349,406) shares of Class B
Common Stock. The loan is payable on demand with interest on the Original
Principal Amount at the statutory rate on the date of the loan as set forth
under the Internal Revenue Code of 1986, as amended. This loan was made in
connection with Ms. Roney's entering into the Stockholders Agreement, as
amended.
Repurchase of Class B Common Stock
On December 10, 1997, the Company repurchased in a series of private
transactions a total of 1,067,529 shares of Class B Common Stock from certain of
the Original Stockholders as follows: 281,615 shares from Kirk V. Roney; 281,614
shares from Melanie K. Roney; 214,286 shares from Rick A. Roney; 214,286 shares
from Burke F. Roney; 20,964 shares from Park R. Roney and 54,764 shares from The
MAR Trust. The Company purchased all of such shares for $14.31 per share, a
purchase price based on seventy percent (70% ) of the December 9, 1997 closing
price of the Company's Class A Common Stock as reported on the New York Stock
Exchange. These shares were repurchased in connection with the execution by such
Original Stockholders of the Stockholders Agreement and converted to Class A
Common Stock upon purchase by the Company
INTERESTS OF CERTAIN PERSONS IN THE PROPOSALS
The NSI Stockholders own beneficially all of the shares of Series A
Preferred Stock for which stockholder approval is being sought to convert such
shares into shares of Class A Common Stock. See "Proposal 3--Approval of Class A
Common Stock Issuable upon Conversion of Series A Preferred Stock" and "Security
Ownership of Certain Beneficial Owners and Management." Several of the NSI
Stockholders are significant holders of the Class A Common Stock and,
collectively, the NSI Stockholders and their affiliates own beneficially all of
the outstanding shares of the Class B Common Stock. In addition, several of the
NSI Stockholders are directors and/or officers of the Company. See "Certain
Relationships and Transactions."
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own beneficially more than
ten percent of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of the
Company's equity securities. Officers, directors and greater than ten percent
beneficial owners are required to furnish the Company with copies of all Section
16(a) reports they file.
Based solely upon a review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that during the fiscal year ended December 31, 1997 the
Company's officers, directors and greater than ten percent beneficial owners
complied with all applicable Section 16(a) filing requirements, except that each
of Messrs. Bamba, Chou, Lindley, Patch, and Smith did not timely report on Form
5 the grant of stock bonus awards made in 1996 and Mr. Pace filed a late Form 3
in connection with his commencement of employment with the Company.
-21-
PROPOSAL 1
ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders and hold office
until their successors are duly elected and qualified at the next Annual Meeting
of Stockholders. The Company's Bylaws provide that the Board of Directors will
consist of a minimum of five and a maximum of eleven directors, with the number
being designated by the Board of Directors. During 1997, Max E. Esplin and Kirk
V. Roney resigned as members of the Board of Directors, and the resulting
vacancies were not filled. As a result of these vacancies, the board of
Directors has currently fixed the authorized number of directors at nine.
Each of the nine nominees for election to the Board of Directors is
currently serving as a director of the Company and was elected to his or her
present term of office by the stockholders of the Company. Set forth below are
the names of the nine nominees for election as directors of the Company. For a
description of the backgrounds of the nominees, see "Directors and Executive
Officers of the Company." Each of the nominees first became a director of the
Company in the year set forth in his or her background description herein and
has continually served as a director of the Company since that date.
Blake M. Roney
Steven J. Lund
Keith R. Halls
Sandra N. Tillotson
Brooke B. Roney
Max L. Pinegar
E.J. "Jake" Garn
Paula Hawkins
Daniel W. Campbell
Vote and Recommendation
Directors will be elected by a favorable vote of a plurality of the shares
of voting stock present and entitled to vote, in person or by proxy, at the
Annual Meeting. Abstentions or broker non-votes as to the election of directors
will not affect the election of the candidates receiving the plurality of votes.
Unless instructed to the contrary, the shares represented by proxies will be
voted FOR the election of the nine nominees named above as directors. Although
it is anticipated that each nominee will be able to serve as a director, should
any nominee become unavailable to serve, proxies will be voted for such other
person or persons as may be designated by the Company's Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NINE NOMINEES TO
THE COMPANY'S BOARD OF DIRECTORS.
PROPOSAL 2
ADOPTION OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
The Board of Directors of the Company has unanimously adopted, subject to
stockholder approval, an amendment to the Company's Certificate of
Incorporation, which will change the name of the Company to Nu Skin Enterprises,
Inc. A copy of the amendment to the Certificate of Incorporation is set forth in
Appendix "A" to this Proxy Statement. The stockholders are asked to approve this
amendment to the Certificate of Incorporation.
-22-
Subsequent to the NSI Acquisition, the Company's business encompasses not
only the Asia-Pacific region, but also Europe, South America, Australia and New
Zealand. Accordingly, the Board of Directors believes that it is in the
Company's best interest to change the Company's name to a name which more
appropriately reflects the current global businesses and operations of the
Company.
Vote and Recommendation
The affirmative vote of a majority of the voting power of the outstanding
shares of the Company's Common Stock present and entitled to vote, either in
person or by proxy, at the Annual Meeting is required to approve the proposed
amendment to the Certificate of Incorporation. Abstentions as to this Proposal 2
will have the same effect as votes against Proposal 2. Broker non-votes,
however, will be treated as unvoted for purposes of determining approval of
Proposal 2 and will not be counted as votes for or against Proposal 2. Properly
executed, unrevoked Proxies will be voted FOR Proposal 2 unless a vote against
Proposal 2 or abstention is specifically indicated in the proxy.
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL
OF THE PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL 3
APPROVAL OF CLASS A COMMON STOCK ISSUABLE
UPON CONVERSION OF SERIES A PREFERRED STOCK
On March __, 1998, the Company issued _________ shares of Series A Preferred
Stock to the NSI Stockholders as partial consideration for the NSI Acquisition.
See "Certain Relationships and Transactions--The NSI Acquisition" and
"--Operating, License and Distribution Agreements; Certain Effects of the NSI
Acquisition." Several of the NSI Stockholders were at the time of the NSI
Acquisition and continue to be directors of the Company, executive officers of
the Company and/or the beneficial owners of more than 5% of the voting power
outstanding and more than 5% of the number of outstanding shares of the
Company's Common Stock. See "Certain Relationships and Related Transactions
- - - - --NSI Acquisition" and "Interest of Certain Persons in Matters to be Voted
Upon." Because of these relationships, Rule 312.03(b) of the New York Stock
Exchange requires stockholder approval be obtained prior to the issuance to the
NSI Stockholders of Class A Common Stock in exchange for the Series A Preferred
Stock. The Certificate of Designation setting forth the terms of the Series A
Preferred Stock (the "Certificate of Designation") provides that the Series A
Preferred Stock cannot be converted into Class A Common Stock until the holders
of Common Stock approve such issuance of Class A Common Stock upon conversion of
the Series A Preferred Stock or the requirements of the New York Stock Exchange
are otherwise satisfied to permit conversion thereof. Accordingly, Proposal 3
asks the holders of Common Stock to approve the issuance of shares of Class A
Common Stock upon conversion of the Series A Preferred Stock.
Vote and Recommendation
The affirmative vote of a majority of the voting power of the outstanding
shares of the Company's Common Stock present and entitled to vote, either in
person or by proxy, at the Annual Meeting is required to approve Proposal 3,
provided that the total votes cast represent more than 50% in interest of all
shares of Common Stock entitled to vote on Proposal 3. Abstentions as to this
Proposal 3 will have the same effect as votes against Proposal 3. Broker
non-votes, however, will be treated as unvoted for purposes of determining
approval of
-23-
Proposal 3 and will not be counted as votes for or against Proposal 3. Properly
executed, unrevoked Proxies will be voted FOR Proposal 3 unless a vote against
Proposal 3 or abstention is specifically indicated in the proxy.
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSAL AND RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ISSUANCE OF UP TO __________ SHARES OF
CLASS A COMMON STOCK UPON CONVERSION OF THE SERIES A PREFERRED STOCK.
Certain Terms of the Series A Preferred Stock
Dividends. Prior to September 30, 1998, the holders of the Series A
Preferred Stock will share equally in any dividends declared, paid or set apart
for payment on the Common Stock or any other class or series of stock of the
Company ranking, as to dividends, on a parity with or junior to the Series A
Preferred Stock. At any time after September 30, 1998, if the holders of Common
Stock do not approve Proposal 3 and the requirements of the New York Stock
Exchange are not otherwise satisfied to permit conversion of the Series A
Preferred Stock to Class A Common Stock on or before such date, the holders of
the Series A Preferred Stock will be entitled to cash dividends after that date
at the rate of $____ per share per annum (the "Cumulative Dividends"). These
Cumulative Dividends must be paid in full before any dividends can be paid on
securities ranking junior to the Series A Preferred Stock (including the Common
Stock). The Cumulative Dividends will be payable in quarterly installments on
each March 31, June 30, September 30 and December 31, commencing December 31,
1998. The Cumulative Dividends will accrue (whether or not declared) from
September 30, 1998 and accrued Cumulative Dividends will accumulate to the
extent not paid in a quarterly dividend period.
Liquidation Preference. The Series A Preferred Stock has a liquidation
preference of $____ per share (the "Preference Value"). Upon the liquidation,
dissolution or winding up of the Company, holders of the Series A Preferred
Stock are entitled to the Preference Value per share of the Series A Preferred
Stock plus any accrued and unpaid dividends on the Series A Preferred Stock
(collectively, the "Series A Liquidation Preference") prior to any payment being
made to holders of the Common Stock or any stock of the Company junior to the
Series A Preferred Stock. In the event there are sufficient assets to pay the
full Series A Liquidation Preference, any remaining assets will first be
distributed to the holders of the Common Stock in a total amount equal to the
Series A Liquidation Preference and will thereafter be distributed to the
holders of the Common Stock and the holders of the Series A Preferred Stock pro
rata based on the number of shares held by each holder. The sale of all or
substantially all of the assets of the Company or the consolidation or merger of
the Company with another entity is deemed to be a liquidation, dissolution or
winding up of the Company for purposes of the Series A Liquidation Preference.
Optional Redemption by the Company. As noted above, the Series A Preferred
Stock may be redeemed by the Company at its option in whole, but not in part, at
any time after September 30, 1998, if the stockholders do not approve Proposal 3
or the requirements of the New York Stock Exchange are not otherwise satisfied
to permit conversion of the Series A Preferred Stock to Class A Common Stock on
or before such date. If these redemption provisions were triggered, the
redemption price per share would be equal to the lesser of (i) $______ or (ii)
60% of average of the last sales prices per share of the Class A Common Stock of
the Company on the New York Stock Exchange for the 20 consecutive trading days
ending September 25, 1998. The redemption price would be payable 25% in cash on
the redemption date and the remaining 75% in promissory notes. The principal on
the promissory notes would be payable in three equal annual installments on the
anniversary of the redemption date in each of the next three succeeding years,
with interest on the unpaid principal balance payable at a rate per annum equal
to the short term applicable federal rate as defined in the Internal Revenue
Code of 1986, as amended.
-24-
Voting Rights. Holders of Series A Preferred Stock generally have no voting
rights. However, a vote or consent of 66 2/3% of the outstanding Series A
Preferred Stock is required in order for the Company to issue any class or
series of stock ranking prior to or on a parity with the Series A Preferred
Stock with respect to dividends or distribution of assets upon liquidation or
for the Company to amend its Certificate of Incorporation so as to materially
and adversely affect the rights and preferences of the Series A Preferred Stock.
In addition, holders of Series A Preferred Stock will have the right to elect
two new members of the Board of Directors if the right to receive Cumulative
Dividends has been triggered and such Cumulative Dividends are in arrears in an
amount equal to or greater than six quarterly Cumulative Dividends.
Automatic Conversion. Upon approval of this Proposal 3 by the holders of
Common Stock, the outstanding shares of Series A Preferred Stock will be
automatically converted into Class A Common Stock at the Conversion Ratio (as
defined in the Certificate of Designation) then in effect. The Conversion Ratio
is initially one share of Class A Common Stock per share of Series A Preferred
Stock, and is subject to adjustment for dilutive issuances of securities.
Certain Effects of the Conversion of the Series A Preferred Stock
If the Series A Preferred Stock is converted into Class A Common Stock,
______ shares of Class A Common Stock would be issued, increasing the
outstanding shares of Class A Common Stock to _________. The impact of the
conversion on the ownership interests of management of the Company and certain
beneficial owners of the Company's Common Stock is set forth under "Security
Ownership of Certain Beneficial Owners and Management." The following table
illustrates the pro forma effect of the issuance of the shares of Class A Common
Stock on the financial position and results of operations of the Company for the
three months and the year ended December 31, 1997 as if the shares of Class A
Common Stock were issued and outstanding at the beginning of the quarter and the
year, respectively, as compared to the actual results of the same periods.
Three Months Ended Year Ended
December 31, 1997 December 31, 1997
------------------- -------------------
Actual Pro-Forma Actual Pro-Forma
------ --------- ------ ---------
Net Income $ $ $ $
Basic Earnings Per Share $ $ $ $
Diluted Earnings Per Share $ $ $ $
Series A Preferred Stock $ $ $ $
Stockholders' Equity $ $ $ $
Right to Redeem the Class A Common Stock Issuable Upon Conversion of Series A
Preferred Stock
If the holders of Common Stock approve this Proposal 3, the Company will
have the right to redeem the Class A Common Stock issued upon conversion of the
Series A Preferred Stock pursuant to the Acquisition Agreement. Subject to the
limitations described below, the prices for such redemption will initially be
$___ per share and will increase on each anniversary date of the issuance as
follows:
-25-
Date Redemption Price
---- ----------------
Issuance $
First Anniversary
Second Anniversary
Third Anniversary
Fourth Anniversary
Fifth Anniversary
The redemption right expires on the sixth anniversary of the issuance of the
Class A Common Stock upon conversion of the Series A Preferred Stock. In order
for the redemption right to be exercised, the redemption price must be no more
than [100]% of the average of the last sales prices per share of the Class A
Common Stock of the Company on the New York Stock Exchange for the 20
consecutive trading days ending on the date of the redemption. In addition, in
order for such redemption right to be exercised, at least two-thirds (2/3) of
the independent members of the Company's Board of Directors must approve the
redemption after consideration of relevant alternate cash investments available
to the Company at that time.
Reasons for Seeking Stockholder Approval
The _______ shares of Series A Preferred Stock outstanding represent only a
small percentage of the total outstanding shares of capital stock of the
Company. The Board of Directors wishes to eliminate the administrative
inconvenience to the Company of maintaining a small class of preferred stock in
addition to the Common Stock.
The Certificate of Designation and Delaware law further provide that the
holders of the Series A Preferred Stock will vote as a class on certain
amendments to the Certificate of Incorporation and certain further issuances of
preferred stock. The Board of Directors wishes to remove the ability of the
holders of the Series A Preferred Stock to block such an amendment or issuance
which is supported by the Board of Directors and the holders of the Common
Stock.
If the holders of Common Stock do not approve Proposal 3, and the
requirements of the New York Stock Exchange are not otherwise satisfied on or
before September 30, 1998, the holders of the Series A Preferred Stock will also
be entitled to cash dividends when, as and if declared by the Board of Directors
from and after that date at the rate of $____ per share per annum. The Board of
Directors believes that it is in the best interest of the Company to have the
flexibility to choose whether to retain earnings for the continued growth and
development of its business or to distribute earnings through cash dividends.
Furthermore, although the Company does not currently pay any dividends on its
Common Stock, and has no intention at the present time to do so, in the event
that the Company were to elect to pay dividends on its Common Stock, its ability
to pay such dividends would be limited by its obligation to first pay any
accrued but unpaid Cumulative Dividends on the Series A Preferred Stock. Such
limitation could adversely effect the Common Stock holders in the event the
Company had insufficient liquidity to both pay such Cumulative Dividends and the
dividend on the Common Stock.
-26-
In the event of a liquidation, dissolution or winding up of the Company, the
holders of the Series A Preferred Stock are also entitled to receive the Series
A Liquidation Preference prior to the distribution of any assets to the Common
Stock holders. After the Series A Liquidation Preference is paid to the Series A
Preferred Stock holders, the Common Stock holders would receive an equal amount
(the "Common Liquidation Preference"), and then any additional assets will be
distributed pro rata among the Common and Series APreferred Stock holders. Any
distribution of assets to the Common Stock holders in the event of such a
liquidation, dissolution or winding up will therefore be reduced by the amount
of the Series A Liquidation Preference and any distribution of assets beyond the
amount necessary to pay the Series A Liquidation Preference and the Common
Liquidation Preference will have to be shared by the holders of Common Stock
with the holders of Series A Preferred Stock. In addition, because the sale of
all or substantially all of the assets of the Company or the consolidation or
merger of the Company with another entity is deemed to be a liquidation,
dissolution or winding up of the Company for purposes of the Series A
Liquidation Preference, this may have the effect of limiting the Company's
ability to merge with other entities or to reorganize. The Board of Directors
believes that it is in the best interest of the Common Stock holders to remove
the limiting effect the Series A Preferred Stock may have on such transactions.
For the reasons set forth above, the Board of Directors believes that it is
in the best interests of the Company and its stockholders to convert the
outstanding Series A Preferred Stock into Class A Common Stock.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of Price Waterhouse LLP, the Company's independent auditors for the
fiscal year ended December 31, 1997, was selected by the Board of Directors of
the Company to act in the same capacity for the fiscal year ending December 31,
1998. Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they so
decide and will be available to respond to appropriate questions.
Vote and Recommendation
The affirmative vote of a majority of the voting power of the outstanding
shares of the Company's Common Stock present and entitled to vote, either in
person or by proxy, at the Annual Meeting is required to ratify the selection of
the Company's independent auditors. Abstentions as to this Proposal 4 will have
the same effect as votes against Proposal 4. Broker non-votes, however, will be
treated as unvoted for purposes of determining approval of Proposal 4 and will
not be counted as votes for or against Proposal 4. Properly executed, unrevoked
Proxies will be voted FOR Proposal 4 unless a vote against Proposal 4 or
abstention is specifically indicated in the proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION OF
THE COMPANY'S INDEPENDENT AUDITORS.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters to be brought before the Annual Meeting. If other matters are
properly brought before the Annual Meeting or any adjournment of postponement
thereof, it is intended that the persons named in the enclosed proxy will have
discretionary authority to vote on such matters in accordance with their best
judgment acting together or separately.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be directed to the attention of the
Secretary of the Company, at the address of the Company set forth on the first
page of this Proxy Statement, by December ____, 1998 if they are to be
considered for possible inclusion in the Proxy Statement and form of proxy used
in connection with such meeting.
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ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders concerning the operation of the Company
for the fiscal year ending December 31, 1997, including financial statements, is
enclosed herewith.
ANNUAL REPORT TO SECURITIES AND EXCHANGE COMMISSION
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as filed with the Securities and Exchange Commission, without
exhibits may be obtained by stockholders without charge by written request to
Charles N. Allen, Nu Skin Asia Pacific, Inc., 75 West Center Street, Provo, Utah
84601. Exhibits will be provided upon written request and payment of an
appropriate processing fee.
By Order of the Board of Directors,
BLAKE M. RONEY
Chairman of the Board
DATED: March ___, 1998
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APPENDIX A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Nu Skin Asia Pacific, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of Nu Skin Asia Pacific, Inc. duly
adopted a resolution setting forth a proposed amendment of the Certificate of
Incorporation of the corporation, declaring the proposed amendment to be
advisable and in the best interest of the corporation and its stockholders, and
directing that the proposed amendment be considered at the next annual meeting
of the stockholders of the corporation. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that Paragraph 1. of the Certificate of Incorporation of the
Company is hereby amended, subject to stockholder approval, to read in its
entirety as follows:
"1. The name of the corporation is Nu Skin Enterprises, Inc. (the
"Corporation")."
SECOND: That thereafter, pursuant to resolution of its Board of Directors
and upon the vote of its stockholders at the 1998 Annual Meeting of
Stockholders, the necessary number of shares as required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Steven J. Lund, President and Chief Executive Officer, and attested by
Keith R. Halls, Secretary, this ____ day of April 1998.
NU SKIN ASIA PACIFIC, INC.
By:
STEVEN J. LUND
President and Chief Executive Officer
ATTEST:
KEITH R. HALLS
Secretary
