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. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant | |
Check the appropriate box:
| | Preliminary Proxy Statement | | Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Nu Skin Enterprises, Inc.
(Name of Registrant as Specified in Its Charter)
(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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[GRAPHIC OMITTED] Nu Skin Logo
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
NU SKIN ENTERPRISES, INC.
MAY 4, 1999
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Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Nu Skin Enterprises, Inc., a Delaware corporation (the
"Company"), will be held at 4:00 p.m., local time, on May 4, 1999 at the
corporate offices of the Company, 75 West Center Street, Provo, Utah 84601, for
the following purposes which are more fully described in the Proxy Statement:
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 the Company's Second Amended and Restated 1996 Stock
Incentive Plan, which amends the prior plan to increase the authorized shares
available for issuance under such plan to 8,000,000 shares and to make certain
other changes described in the accompanying Proxy Statement;
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999; and
4. 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 26,
1999 as the record date for determining the stockholders entitled to receive
notice of, and to vote at, the Annual Meeting or any adjournment or postponement
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,
/s/ Blake M. Roney
Blake M. Roney
Chairman of the Board
Provo, Utah, April 5, 1999
[GRAPHIC OMITTED] Nu Skin Logo
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PROXY STATEMENT
NU SKIN ENTERPRISES, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 1999
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SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
Nu Skin Enterprises, Inc. (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the corporate offices of the
Company, 75 West Center Street, Provo, Utah 84601, on May 4, 1999 at 4:00 p.m.,
local time, and at any adjournment or postponement thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. Each
proposal is described in more detail in this Proxy Statement. These proxy
solicitation materials were first sent or given to the Company's stockholders on
or about April 5, 1999.
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:
(1) the election of the nine nominees to the Board of
Directors listed in the proxy;
(2) the approval of the Company's Second Amended and
Restated 1996 Stock Incentive Plan, which amends the
prior plan to increase the number of shares available
for issuance under the plan and to make certain other
changes to the plan as more fully described in this
Proxy Statement; and
(3) the ratification of the selection of
PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending
December 31, 1999.
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.
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).
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The Company will bear the cost of solicitation of proxies. Expenses
include reimbursements 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. The Company's regular employees may further solicit proxies by
telephone or in person, and will not receive additional compensation for such
solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on March 26, 1999
(the "Record Date") are entitled to vote at the Annual Meeting. As of the Record
Date, approximately 33,165,315 shares of the Company's Class A Common Stock and
54,606,905 shares of the Company's Class B Common 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 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. Certain subsidiaries of the Company hold an aggregate of
311,271 shares of the Class A Common Stock. In accordance with the General
Corporate Law of the State of Delaware, these shares may not be voted with
respect to any of the matters presented at the Annual Meeting and shall not be
counted in determining the presence of a quorum.
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 and Class B Common
Stock as of March 10, 1999 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 either the Class A Common Stock or the Class B Common Stock, (ii) each
of the Company's directors, (iii) each of the Company's executive officers whose
names appear in the summary compensation table under the caption "Executive
Compensation," and (iv) all executive officers and directors of the Company as a
group. Unless otherwise indicated in the footnotes to the table, (x) the
business address of the 5% stockholders is 75 West Center Street, Provo, Utah
84601, and (y) the stockholders have direct beneficial ownership and sole
voting and investment power with respect to the shares beneficially owned. 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 Certificate of Incorporation.
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Class A Class B Voting
Common Stock Common Stock Power
------------------- -------------------- -------
Directors, Executive
Officers, 5% Stockholders Number % Number % %
- ------------------------------ --------- ---- ---------- ---- ----
Blake M. and Nancy L. Roney(1) 5,314,244 16.0 16,236,378 29.7 28.9
Nedra D. Roney(2) 3,968,461 12.0 10,305,046 18.9 18.5
Sandra N. Tillotson(3) 2,588,127 7.8 6,967,557 12.8 12.5
Craig S. Tillotson(4) 1,243,006 3.7 3,900,646 7.1 6.9
R. Craig Bryson(5) 1,243,007 3.7 3,855,741 7.1 6.9
Steven J. Lund(6) 918,635 2.8 2,678,085 4.9 4.8
Brooke B. Roney(7) 918,635 2.8 2,675,322 4.9 4.8
Keith R. Halls(8) 118,730 * 279,861 * *
Max L. Pinegar(9) 35,327 * -- -- *
Daniel W. Campbell(10) 15,000 * -- -- *
E.J. "Jake" Garn(10) 15,000 * -- -- *
Paula Hawkins(10) 15,000 * -- -- *
Renn M. Patch(11) 13,400 * -- -- *
Takashi Bamba(12) 12,750 * -- -- *
John Chou(13) 12,965 * -- -- *
Safeco Corporation (14) 1,966,700 5.9 -- -- *
All directors and officers as a 10,265,266 31.0 31,506,639 57.7 56.2
group (17 persons)(15)
*Less than 1%
(1) Includes 2,311,515 shares of Class A Common Stock and 7,601,535 shares of
Class B Common Stock held directly by Blake M. Roney; 2,311,514 shares of
Class A Common Stock and 7,601,535 shares of Class B Common Stock held
directly by Nancy L. Roney; 650,000 shares of Class A Common Stock and
857,143 shares of Class B Common Stock held indirectly by Blake M. and
Nancy L. Roney as co-trustees and with respect to which they share voting
and investment power; 176,165 shares of Class B Common Stock held
indirectly by Blake M. Roney as trustee and with respect to which he has
sole voting and investment power; and 41,215 shares of Class A Common
Stock held indirectly by Blake M. Roney as a director of three of the
Company's private affiliated corporations and with respect to which he may
be deemed to share voting and investment power.
(2) Includes 300,000 shares of Class B Common Stock held indirectly as
co-trustee and with respect to which Ms. Roney shares voting and
investment power.
(3) Includes 250,000 shares of Class A Common Stock held indirectly as trustee
and with respect to which Ms. Tillotson has sole voting and investment
power; 25,000 shares of Class A Common Stock and 20,000 shares of Class B
Common Stock held indirectly as co-trustee and with respect to which she
shares voting and investment power; 500,000 shares of Class B Common Stock
held indirectly as manager of a limited liability company and with respect
to which she has sole voting and investment power; and 41,215 shares of
Class A Common Stock held indirectly as a director of three of the
Company's private affiliated corporations and with respect to which she
may be deemed to share voting and investment power.
(4) Includes 60,000 shares of Class A Common Stock and 52,500 shares of Class
B Common Stock held indirectly as trustee and with respect to which Mr.
Tillotson has sole voting and investment power; 30,000 shares of Class A
Common Stock and 149,766 shares of Class B Common Stock held indirectly as
co-trustee and with respect to which he shares voting and investment
power; and 1,000,000 shares of Class B Common Stock held indirectly as
manager of a limited liability company and with respect to which he has
sole voting and investment power.
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(5) Includes 585,503 shares of Class A Common Stock and 1,892,621 shares of
Class B Common Stock held by Mr. Bryson's wife, Kathleen D. Bryson, with
respect to which he may be deemed to share voting and investment power;
and 72,000 shares of Class A Common Stock and 70,500 shares of Class B
Common Stock held indirectly as co-trustee and with respect to which he
shares voting and investment power with his wife, Kathleen D. Bryson.
(6) Includes 376,210 shares of Class A Common Stock and 1,259,875 shares of
Class B Common Stock held by Mr. Lund's wife, Kalleen Lund, with respect
to which he may be deemed to share voting and investment power; 102,763
shares of Class B Common Stock held indirectly as trustee and with respect
to which he has sole voting and investment power; 125,000 shares of Class
A Common Stock and 55,571 shares of Class B Common Stock held indirectly
as co-trustee and with respect to which he shares voting and investment
power with his wife, Kalleen Lund; and 41,215 shares of Class A Common
Stock held indirectly as a director of three of the Company's private
affiliated corporations and with respect to which he may be deemed to
share voting and investment power.
(7) Includes 423,710 shares of Class A Common Stock and 1,321,332 shares of
Class B Common Stock held by Brooke B. Roney's wife, Denice R. Roney, with
respect to which he may be deemed to share voting and investment power;
30,000 shares of Class A Common Stock and 32,657 shares of Class B Common
Stock held indirectly as co-trustee and with respect to which he shares
voting and investment power with his wife, Denice R. Roney; and 41,215
shares of Class A Common Stock held indirectly as a director of three of
the Company's affiliated corporations and with respect to which he may be
deemed to share voting and investment power.
(8) Includes 50,000 shares of Class B Common Stock held indirectly by Mr.
Halls as the manager of a limited liability company and with respect to
which he has sole voting and investment power; and 15,250 shares of Class
A Common Stock and 15,607 shares of Class B Common Stock held indirectly
as co-trustee and with respect to which he shares voting and investment
power; and 41,215 shares of Class A Common Stock held indirectly as a
director of three of the Company's affiliated corporations and with
respect to which he may be deemed to share voting and investment power.
(9) Includes 9,000 shares of Class A Common Stock which may be acquired by Mr.
Pinegar pursuant to a presently exercisable non-qualified stock option.
(10) Includes 12,500 shares of Class A Common Stock which may be acquired by
each outside director pursuant to presently exercisable non-qualified
stock options granted to each of them.
(11) Includes 6,500 shares of Class A Common Stock which may be acquired by Mr.
Patch pursuant to presently exercisable non-qualified stock options.
(12) Includes 6,250 shares of Class A Common Stock which may be acquired by Mr.
Bamba pursuant to presently exercisable non-qualified stock options.
(13) Includes 6,250 shares of Class A Common Stock which may be acquired by Mr.
Chou pursuant to presently exercisable non-qualified stock options.
(14) The information regarding the number of shares beneficially owned or
deemed to be beneficially owned by Safeco Corporation was taken from a
Schedule 13G filed by that entity with the Securities and Exchange
Commission dated February 11, 1999. The business address of Safeco
Corporation is 4333 Brooklyn Avenue N.E., Seattle, Washington 98185.
(15) Includes 290,575 shares of Class A Common Stock which may be acquired upon
exercise of presently exercisable options. Also, includes 41,215 shares of
Class A Common Stock held indirectly by Blake M. Roney, Sandra N.
Tillotson, Steven J. Lund, Brooke B. Roney and Keith R. Halls as directors
of three of the Company's private affiliated corporations.
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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 11 directors, with
the number being designated by the Board of Directors. The Board of Directors
has currently fixed the authorized number of directors at nine. Each of the
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. With the recent acquisition of Pharmanex, Inc.
("Pharmanex") and the planned acquisition of Big Planet, Inc., a company engaged
in the distribution of telecommunication and Internet products and services
("Big Planet"), as more fully discussed in the Company's Annual Report on Form
10-K for the period ended December 31, 1998, the Board of Directors recently
began considering increasing the number of directors to ten or 11 and adding an
additional one or two board members who have experience in the nutritional
supplement, telecommunications and/or Internet industries. To date, however, the
Company has not identified any person to be nominated as a new director at the
Annual Meeting. If and when an appropriate candidate is identified, it is likely
that the Board of Directors will increase the size of the Board and elect such
candidate as a director to serve until the next annual meeting of stockholders.
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. The nine nominees receiving the highest number of votes will be
elected to serve as directors. Accordingly, 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
below. 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 THAT STOCKHOLDERS VOTE FOR EACH OF THE
NINE NOMINEES TO THE COMPANY'S BOARD OF DIRECTORS.
Set forth below are the name, age and business experience of each of the
nine nominees for election as directors of the Company.
Blake M. Roney, 41, has served as Chairman of the Board since the
Company's inception. Mr. Roney was a founder of Nu Skin International, Inc.
("NSI") in 1984 and served as its Chief Executive Officer and President until
the Company's acquisition of NSI in March 1998. Since the Company's acquisition
of NSI, Mr. Roney has served as Chairman of the Board of the Company and each of
its subsidiaries. He received a B.S. degree from Brigham Young University.
Steven J. Lund, 45, has been President, Chief Executive Officer and a
director of the Company since its inception. Mr. Lund was a founding shareholder
of NSI and served as the Executive Vice President of NSI until the Company's
acquisition of NSI. 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.
Sandra N. Tillotson, 42, has served as a director of the Company since its
inception and as Senior Vice President from May 1998. Ms. Tillotson was a
founding shareholder of NSI and has served as a Vice President of NSI from its
formation. She earned a B.S. degree from Brigham Young University.
Keith R. Halls, 41, has served as Secretary and a director of the Company
since its inception and has
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been a Senior Vice President of the Company since May 1998. Mr. Halls was a
director, Vice President and shareholder of NSI prior to the Company's
acquisition of NSI. Mr. Halls continues to serve as a director of the Company's
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.
Brooke B. Roney, 36, has served as a director of the Company since its
inception. Mr. Roney has been a Senior Vice President of the Company since May
1998. Mr. Roney was a founding shareholder of NSI and served as a Vice President
and director of NSI until the Company's acquisition of NSI.
Max L. Pinegar, 67, has served as a director of the Company since its
inception. Mr. Pinegar served as a Senior Vice President of the Company from May
1998 until his retirement in November 1998. He also served as General Manager of
NSI from 1989 and as Vice President of NSI from 1992 until he retired in
November 1998. He received a B.A. degree from Brigham Young University and an
M.B.A. degree from the University of Utah.
Daniel W. Campbell, 44, 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.
E.J. "Jake" Garn, 66, 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 United States, since 1993. He currently
serves as a director for Morgan Stanley Dean Witter Advisors, a mutual fund
company; United Space Alliance Board, a prime contractor for the space shuttle;
and Franklin Covey & Co., Inc., a provider of time management seminars and
products. 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, 72, 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, since 1988. From 1980 to 1986, Senator Hawkins
was a member of the United States Senate and served on numerous senate
committees.
Blake M. Roney and Brooke B. Roney are brothers. The Company is not aware
of any other family relationships among any directors or executive officers. 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 five meetings during the fiscal year ended
December 31, 1998. 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
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Company's internal controls and internal auditing methods and procedures. The
Audit Committee met three times during 1998.
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 Company's Amended and Restated 1996 Stock
Incentive Plan (the "1996 Stock Incentive Plan"). The Compensation Committee met
five times during 1998.
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 1998.
Compensation of Directors
Each director who does not receive compensation as an officer or employee
of the Company 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 an additional
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, directors may be granted options or stock bonus awards under
the 1996 Stock Incentive Plan. On May 5, 1998, the Company granted each of E.J.
"Jake" Garn, Paula Hawkins and Daniel W. Campbell options to acquire 2,500
shares of Class A Common Stock under the 1996 Stock Incentive Plan. All of such
options vest on the day before the next annual meeting of the stockholders
following the date of grant. All options were granted with an exercise price
equal to the fair market value of the Class A Common Stock on May 5, 1998, the
date of the grant. Each of the non-employee directors of the Company will
receive a similar grant on the date of this year's annual meeting of
stockholders.
Max L. Pinegar, a director of the Company, retired as an employee and
executive officer of the Company in November 1998. Following such retirement,
the Company retained the services of Mr. Pinegar as a consultant at a rate of
$3,000 per month.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and Presidents of the Company's key
subsidiaries as of March 15, 1999 were as follows:
Name Age Position
Blake M. Roney 41 Chairman of the Board
Steven J. Lund 45 President and Chief Executive Officer
Sandra N. Tillotson 42 Senior Vice President
Brooke B. Roney 36 Senior Vice President
Keith R. Halls 41 Senior Vice President and Secretary
Renn M. Patch 49 Chief Operating Officer
Corey B. Lindley 34 Chief Financial Officer
M. Truman Hunt 39 Vice President and General Counsel
William E. McGlashan, Jr. 35 President, Pharmanex
Michael D. Smith 53 Vice President of North Asia
Grant F. Pace 47 Vice President of Southeast Asia and China
Takashi Bamba 63 President, Nu Skin Japan
John Chou 53 President, Nu Skin Taiwan
Set forth below is the business background of each of the executive officers of
the Company. Information on the business background of Blake M. Roney, Steven J.
Lund, Sandra N. Tillotson, Brooke B. Roney and Keith R. Halls is set forth above
under the caption "Election of Directors."
Renn M. Patch has been Chief Operating Officer of the Company since its
inception. From 1992 until March 1998, 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 LL.M. degree from
Georgetown University.
Corey B. Lindley has been the 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. 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 LLP. He earned a B.S.
degree from Brigham Young University and an M.B.A. degree from Utah State
University.
M. Truman Hunt has served as Vice President and General Counsel since May
1998. He served as Vice President of Legal Affairs and Investor Relations from
the Company's inception until May 1998. He also served as Counsel to the
President of NSI from 1994 until 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.
William E. McGlashan, Jr. has served as the President of Pharmanex since
founding the company in February 1994. Prior to joining Pharmanex in October
1993, Mr. McGlashan co-founded Generation Ventures, a firm which initiates and
funds China-related ventures, and served as its Chief Executive Officer. Mr.
McGlashan was the President and co-founder of TRADE, a Bain Capital, Sutter
Hill,
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Greylock and IVP financed company that sells international trade data, from 1991
to 1993. Mr. McGlashan also worked with Bain Capital where he participated in
all aspects of venture and buyout investing. Mr. McGlashan received his B.A.
degree from Yale University and his M.B.A. degree from the Stanford Graduate
School of Business.
Michael D. Smith has been Vice President of North Asia for the Company
since December 1997. Mr. Smith was Vice President of Operations for the Company
from its inception until December 1997. He also served previously as Vice
President of North 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 of 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, Inc. He
received a J.D. degree from Brigham Young University and an M.B.A. degree from
Harvard University.
Takashi Bamba has served as President and/or General Manager of Nu Skin
Japan Company, Ltd. ("Nu Skin Japan") since 1993. Prior to joining Nu Skin Japan
in 1993, Mr. Bamba was President and Chief Executive Officer of Avon Products
Co., Ltd., the publicly-traded Japanese subsidiary of Avon Products, Inc., from
1988 to 1993. He received a B.A. degree from Yokohama National University.
John Chou has served as President and/or General Manager of Nu Skin
Taiwan, Inc. ("Nu Skin Taiwan") since 1991. Prior to joining Nu Skin Taiwan in
1991, he spent 21 years in international marketing and management with 3M Taiwan
Ltd., Amway Taiwan and Universal PR Co. Mr. Chou is the Chairman of the Taiwan
ROC Direct Selling Association. He is also a member of Kiwanis International,
and the Taiwan American Chamber of Commerce. He received a B.A. degree from Tan
Kang University in Taipei, Taiwan.
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, 1996, 1997 and 1998 of those persons who were
the Company's Chief Executive Officer, the other four most highly compensated
executive officers of the Company and the Presidents of the Company's
subsidiaries operating in its two major markets (collectively, the "Named
Officers").
The Company was formed in September 1996, and consequently paid no
compensation to the Named Officers during the first eight months of the fiscal
year ended December 31, 1996. However, salary, bonus and other compensation
presented in the Summary Compensation Table for 1996 includes amounts for the
first eight months of 1996 based on payments by NSI and its affiliates to such
officers for services provided to the affiliates acquired by the Company in
September 1996 as if the Company had been in existence during all of 1996.
During 1996, 1997 and 1998, 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 these subsidiaries. During 1996, 1997 and the first three
months of 1998, Messrs. Lund and Patch were 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 1996, 1997 and the first three months of 1998. These
salaries and bonuses are in addition to any amounts received or accrued during
the relevant periods by these officers from NSI in return for their services to
NSI prior to the acquisition of NSI on March 27, 1998. The amounts shown for
Sandra N. Tillotson, Keith R. Halls and Brooke B. Roney do not include amounts
paid, or accrued, by NSI prior to the Company's acquisition of NSI.
-9-
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------------- -----------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Awards Options Compensation
- --------------------------- ---- -------- ----------- ------------ ---------- ---------- ------------
Steven J. Lund........................... 1998 $815,000 $112,380(1) $ -- -- -- $ --
President and Chief Executive 1997 275,779 227,752(1) -- -- -- --
Officer 1996 259,973 89,345(1) -- -- -- --
Sandra N. Tillotson...................... 1998 375,000 91,682(1) -- -- -- --
Senior Vice President 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
Keith R. Halls........................... 1998 375,000 90,055(1) -- -- -- 4,800 (11)
Senior Vice President and Secretary 1997 -- -- -- -- -- 4,800 (11)
1996 -- -- -- -- -- 4,500 (11)
Brooke B. Roney.......................... 1998 375,000 91,841(1) -- -- -- --
Senior Vice President 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
Takashi Bamba............................ 1998 330,769 27,564(1) -- -- 20,000 3,450 (7)
President, Nu Skin Japan 1997 393,520 180,364(2) 180,364(5) -- 25,000 3,450 (7)
1996 364,138 174,557(2) 195,401(5) 373,750(6) -- 3,297 (7)
John Chou................................ 1998 300,000 100,000(3) 43,727(12) -- 18,000 --
President, Nu Skin Taiwan 1997 253,408 84,469(2) 84,469(8) -- 25,000 --
1996 211,000 56,232(2) 77,897(8) 373,750(6) -- --
Renn M. Patch............................ 1998 229,500 70,172(4) 92,142(9) -- 20,000 4,800 (11)
Chief Operating Officer 1997 148,673 72,819(1) 23,788(10) -- 26,000 4,800 (11)
1996 98,638 20,437(1) 13,800(10) 373,750(6) -- 4,500 (11)
- -------------------------------
(1) Includes a discretionary cash bonus paid to the recipient not pursuant
to a formal bonus plan and a year-end bonus based on a percentage of
salary paid to all employees.
(2) Cash bonus paid during the year reported pursuant to a cash bonus
long-term incentive plan for the Presidents of certain of the Company's
subsidiaries.
(3) Forgiveness of $100,000 of indebtedness. See "Employment Agreements"
below.
(4) Includes cash bonus pursuant to formal incentive plan, a discretionary
$25,000 bonus, a year-end bonus similar to that paid to all employees,
and a $11,000 stock bonus award.
(5) Includes the deferred portion of a bonus accrued during the year
reported pursuant to a cash bonus long-term incentive plan for the
Presidents of certain subsidiaries of the Company and annual lease
payments for an automobile.
(6) Employee stock bonus awards for 13,000 shares of Class A Common Stock
were granted in November 1996 to each of Messrs. Bamba and Chou 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 November
22, 1996 ($28.75) multiplied by the number of shares underlying the
awards. The unvested shares currently held by each such officer had a
value of $153,563 based on the closing sale price of the Class A Common
Stock on December 31, 1998 of $23.625.
(7) Annual premium for pension insurance policy.
-10-
(8) 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.
(9) Includes a tax reimbursement payment of $75,000, accrued deferred
compensation of $12,000 accrued under a deferred compensation plan, and
the cash value of the use of certain NSI-owned property.
(10) Includes deferred compensation accrued during the year pursuant to two
separate deferred compensation plans.
(11) Consists of Company matching contributions under the Company's 401(k)
plan.
(12) Consists of payments of $40,727 with respect to a car provided to Mr.
Chou and certain other perquisites.
The following table sets forth certain information with respect to
grants of stock options pursuant to the 1996 Stock Incentive Plan during fiscal
year 1998 to the Named Officers.
Option Grants in Last Fiscal Year(1)
Potential
Percentage Realizable Value at
of Total Assumed Annual
Options Exercise Rates of Stock Price
Granted to or Base Appreciation
Options Employees Price for Option Term(2)
Granted in Fiscal per Expiration ---------------------
Name (Shares) Year Share Date 5% 10%
- ----------------------------- -------- ---------- -------- ---------- -------- --------
Steven J. Lund .............. 0 -- -- -- -- --
Sandra N. Tillotson.......... 0 -- -- -- -- --
Keith R. Halls............... 0 -- -- -- -- --
Brooke B. Roney.............. 0 -- -- -- -- --
Takashi Bamba ............... 20,000 1.3% $13.91 8/21/08 $174,958 $443,379
John Chou ................... 18,000 1.1 13.91 8/21/08 157,463 399,041
Renn M. Patch ............... 20,000 1.3 13.91 8/21/08 174,958 443,379
- -------------------------------
(1) 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 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 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.
-11-
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, 1998. No options were exercised by any of the Named
Officers in 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
Number of Unexercised Value of Unexercised
Options In-the-Money Options
at December 31, 1998 at December 31, 1998(1)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------- ------------- ----------- -------------
Steven J. Lund ....... 0 0 $ 0 $ 0
Sandra N. Tillotson .. 0 0 0 0
Keith R. Halls........ 0 0 0 0
Brooke B. Roney ...... 0 0 0 0
Takashi Bamba ........ 6,250 38,750 17,188 245,863
John Chou ............ 6,250 36,750 17,188 226,433
Renn M. Patch ........ 6,500 39,500 17,875 247,925
- -------------------------------
(1) Based on the closing sales price of the Class A Common Stock on the New
York Stock Exchange on December 31, 1998 of $23.625.
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 (Yen)43,000,000. 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 a 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 also receives a private insurance plan paid
for by Nu Skin Japan provided the premium for such private insurance plan does
not exceed (Yen)300,000 per year. 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 Incentive Plan per year against the loan
balance. If less than
-12-
$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.
Compensation Plans
The Company has adopted a bonus incentive plan for the Presidents of
certain of its 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 over 10 years or at age 65, whichever occurs first.
The Company has adopted a cash bonus incentive plan for its employees,
including the executive officers of the Company. Under the current cash
incentive plan, an executive officer receives a bonus based on the operating
results of the Company compared to targeted performance measures; however, such
bonus is conditioned upon the executive and his/her department meeting certain
previously established goals. The bonus is measured and paid every six months.
The Company has also, from time to time, paid discretionary cash bonuses to
executives based on local market and individual performance.
The Company also maintains two deferred compensation plans for certain of
its executive officers. Under the first plan, $12,000 is accrued as deferred
compensation each year. The total amount of deferred compensation vests after
the earlier of (i) ten years from the date of employment with the Company, or
(ii) the executive officer attaining the age of 60. Under the second plan, an
amount equal to a set percentage of an executive officer's salary is accrued as
deferred compensation. The total amount of deferred compensation under this plan
vests after the earlier of, (x) 20 years from the date of employment with the
Company, and (y) the executive officer attaining the age of 60. The amount of
deferred compensation has generally been invested in insurance policies on the
lives of the executive officer.
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, 1998.
-13-
Compensation Policy. The Company's policy with respect to executive
compensation has been designed to:
* 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;
* Reward executive officers for the achievement of short-term
operating goals and for the enhancement of the long-term value of
the Company; and
* 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 the Company's current compensation program for
executive officers consist of (i) base salary, (ii) short-term incentives in the
form of cash bonus payments, (iii) long-term incentives in the form of equity
awards, and (iv) 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; and reviewing, establishing and
administering the Company's incentive plans, including determining the
individuals who will receive discretionary bonuses and awards and determining
the timing, pricing and amount of all such bonuses and awards granted.
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. Except as provided below, for the fiscal year ended
December 31, 1998, the Compensation Committee reviewed and approved the base
salary paid by the Company to its executive officers and the Presidents of
certain of its subsidiaries. In reviewing and approving the base salaries paid
to its executive officers, the Committee considers various factors including (i)
salaries provided by similarly sized companies or companies within the Company's
industry; (ii) the nature of each executive officer's responsibilities,
capabilities and contributions; and (iii) the performance of the Company (to the
extent such performance can fairly be attributed or related to each executive
officer's performance). The Compensation Committee does not assign any specific
weights to these factors, but it does place a greater emphasis on the salaries
provided by other companies in order to ensure that the salaries provided by the
Company are competitive and enable the Company to attract and retain qualified
and outstanding executive officers. In connection with this process the
Compensation Committee reviewed and considered a compensation survey prepared
for the Compensation Committee by an independent consulting firm. 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. The salaries for Blake M. Roney, Sandra
N. Tillotson, Keith R. Halls and Brooke B. Roney following the acquisition of
NSI were agreed to by the Special Committee of Directors as part of the
Company's acquisition of NSI. The Committee has reviewed the appropriateness of
the compensation agreed to for these officers on a combined basis, rather than
on an individual basis, after taking into consideration the compensation paid to
the Company's Chief Executive Officer, because of the shared and unique
allocation of responsibilities and contributions among these officers. Blake M.
Roney did not take a salary during most of 1998. He will resume drawing a $1.0
million annual salary in April 1999.
-14-
Annual Incentive Compensation. The Company has established formal
annual incentive plans that provide for cash bonuses based on the achievement of
targeted levels of revenue and operating income. The amount of the bonus that
can be earned under these plans is fixed by a formula and is based on the degree
to which the targeted performance measures have been met or exceeded. In
addition, the percentage of such award that an officer is entitled to receive is
determined based on the degree to which the executive officer has met individual
and department goals. The Compensation Committee also has retained the right to
make discretionary bonuses to officers for extraordinary performance and other
factors. In 1998, the Compensation Committee approved a limited number of
discretionary bonuses based on individual performance and the Company's
performance as measured by revenue and earnings per share during a difficult
economic period in Asia. The Compensation Committee believes its incentive
compensation plans for its officers reward those individuals when the Company
and its stockholders have benefitted from achieving the Company's goals and
targeted objectives, all of which the Compensation Committee believes 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.
Equity Awards. The Company has adopted the 1996 Stock Incentive
Plan that provides the Compensation Committee with the discretion to grant
equity incentive awards to key employees of the Company. The Compensation
Committee has the complete authority to determine the persons to whom awards
will be made and the nature and size of such awards. The 1996 Stock Incentive
Plan provides for options, stock appreciation rights, contingent stock awards
and restricted stock awards. The Compensation Committee determines the number of
awards to be granted and the persons who are to receive such awards on a
subjective basis taking into consideration several factors including the level
of options generally granted by similarly sized companies or companies within
the Company's industry for similar positions, the anticipated value of the
Company's stock if financial and operating targets are met, individual salaries
and individual performance and contribution. The Compensation Committee also
utilizes the services of an independent consulting firm to provide advice
concerning the size and frequency of equity 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. The salary paid by the
Company to Mr. Lund was reviewed and determined in accordance with the policies
set forth above. In particular, the Compensation Committee reviewed and
considered the compensation survey described above and set Mr. Lund's salary at
a level that it believes is commensurate with salaries paid by companies of
comparable size or within the Company's industry. The bonuses paid to Mr. Lund
in 1998 consisted of discretionary bonuses in a total amount of approximately
$68,000, which were awarded based on the subjective determination of the
Compensation Committee as to the individual performance of Mr. Lund, and a
year-end bonus that was consistent with the level of year-end bonuses paid to
all employees. The Compensation Committee elected not to make any equity awards
to Mr. Lund in 1998 because of existing incentives tied to the performance of
the Company.
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
-15-
members and on information requested from management personnel. The Compensation
Committee also regularly seeks input from an independent 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 a Senior Vice President
and 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
1998, Mr. Halls was an executive officer, director and stockholder of NSI, Nu
Skin USA, Inc. ("Nu Skin USA") and various other affiliates of the Company.
During most of fiscal 1998, Mr. Pinegar was an employee and officer of NSI and
the Company. In November 1998, Mr. Pinegar retired and currently serves as a
consultant to the Company. Each of Blake M. Roney, Steven J. Lund, Sandra N.
Tillotson and Brooke B. Roney was an executive officer and a director of NSI, Nu
Skin USA, and other various affiliates of the Company and, prior to these
entities being acquired by the Company, set compensation for themselves and
certain other executive officers of the Company who have been or continue to be
executive officers of NSI, Nu Skin USA or certain of their affiliates. See
"Certain Relationships and Transactions" for information concerning transactions
with these private affiliates, the lease payments paid to a company directly or
indirectly controlled by Blake M. Roney, the repurchase of Class A Common Stock
from Mr. Pinegar and lease payments made to certain affiliated partnerships.
-16-
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,
1998. 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 Company has elected to modify
its peer group to include two companies that distribute nutritional supplements,
Rexall Sundown, Inc. and Nature's Sunshine Products, Inc. No other changes have
been made in the peer group. The publicly traded companies in the new peer group
are Amway Asia Pacific, Ltd., Amway Japan, Ltd., Tupperware Corporation, Revlon,
Inc., Rexall Sundown, Inc., Nature's Sunshine Products, Inc. and Avon Products,
Inc. The Company elected to make this change because of the increase in its
sales of nutritional supplements as a percentage of total revenue. For reference
purposes, the former peer group has been included in the graph as well.
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
AMONG NU SKIN ENTERPRISES, INC.,
PEER GROUP AND BROAD MARKET
[GRAPHIC OMITTED] Line graph of comparison of cumulative total stockholder
return among Nu Skin Enterprises Inc., peer group and broad market
S&P 500 New Peer Old Peer
Measurement Period Company Index Group Index Group Index
- ------------------ ------- -------- ------------ -----------
November 22, 1996 $100.00 $100.00 $100.00 $100.00
December 31, 1996 107.39 98.02 98.83 99.03
December 31, 1997 63.48 130.72 81.74 75.48
December 31, 1998 82.17 168.08 76.06 75.06
-17-
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Acquisition of Nu Skin International, Inc.
On March 27, 1998, the Company acquired all of the capital stock of NSI
and certain affiliates of NSI (collectively, the "Acquired Entities") from the
stockholders of the Acquired Entities (the "NSI Stockholders") pursuant to a
Stock Acquisition Agreement, dated as of February 27, 1998, between the Company
and the NSI Stockholders (the "NSI Acquisition"). The consideration paid by the
Company to the NSI Stockholders consisted of (i) 2,986,663 shares of Series A
Preferred Stock, which were subsequently converted into 2,978,159 shares of
Class A Common Stock after giving effect to the cancellation of 8,504 shares
following an adjustment in the purchase price based on the audited closing
balance sheet of NSI; (ii) long-term notes payable to the NSI Stockholders
totaling approximately $6.2 million; (iii) the assumption of approximately
$171.3 million in notes distributed prior to the NSI Acquisition to all of the
NSI Stockholders as a distribution of all of the Acquired Entities' previously
undistributed "S" corporation earnings (the "S Distribution Notes"); and (iv)
contingent upon NSI and the Company meeting certain earnings growth targets, up
to $25 million in cash per year over four years. On April 4, 1997, the Company
paid the outstanding S Distribution Notes balances together with the related
interest expense due. The nine original stockholders of the Company (the
"Original Stockholders"), which include Blake M. Roney, Steven J. Lund, Sandra
N. Tillotson, Brooke B. Roney and Keith R. Halls, who during 1998 served and
continue to serve as officers and directors of the Company, were among the
holders of the S Distribution Notes. The Company and NSI met the earnings growth
target for 1998 resulting in a payment of $25 million to the NSI Stockholders
which will be made in April 1999.
As set forth below, certain of the NSI Stockholders were directors and/or
executive 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 March 20, 1999
(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 (1)
Blake M. Roney Chairman of the Board and 5% Stockholder 30.3
Steven J. Lund President, Chief Executive Officer, 5.0
Director and 5% Stockholder
Nedra D. Roney 5% Stockholder 25.3
Sandra N. Tillotson Director and 5% Stockholder 14.2
Craig S. Tillotson 5% Stockholder 7.1
R. Craig Bryson 5% Stockholder 7.1
Brooke B. Roney Director 5.0
Keith R. Halls Director 1.0 (2)
- ------------------
(1) Includes consideration, if any, received by the spouses of the listed
individuals in connection with the NSI Acquisition.
(2) Half of all future consideration will go to Mr. Hall's former spouse.
-18-
Acquisition of Nu Skin USA, Inc.
In March 1999, the Company, through a newly wholly owned subsidiary,
acquired certain assets of Nu Skin USA, including cash, equipment, inventory,
intellectual property, marketing materials, contracts related to the network
marketing of NSI's personal care and nutritional products, and approximately
620,000 shares of Class A Common Stock of the Company, in exchange for cash in
the amount of $8.7 million and the assumption of approximately $8.0 million of
Nu Skin USA liabilities. Also in connection with the Nu Skin USA acquisition,
the Company, through NSI, terminated various license agreements and other
intercompany agreements with Nu Skin USA and paid Nu Skin USA a $10,000,000
termination fee. Termination of the license and other agreements allows the
Company to be the exclusive distributor of the Company's products and services
in the United States.
The affiliated stockholders of Nu Skin USA are substantially the same as
the affiliated NSI Stockholders listed above and the total consideration
received by each of such stockholders is substantially the same as the
percentages set forth in the table above.
Operating, License and Distribution Agreements
Prior to the NSI Acquisition. Prior to the NSI Acquisition, NSI licensed
to the Company and its then existing subsidiaries rights to distribute NSI
products and to use certain NSI property in the Company's markets. Nu Skin
International Management Group, Inc. ("NSIMG"), an NSI affiliate, provided
management support services to the Company, and its then existing subsidiaries,
pursuant to distribution, trademark/trade name license, licensing and sales, and
management services agreements (collectively, the "Operating Agreements").
Virtually all of the products sold by the Company were purchased from NSI
pursuant to such Operating Agreements. The Company also manufactured itself, or
through third-party manufacturers, certain products and commercial materials
which it then sold using NSI trademarks or trade names licensed under the
trademark/trade name 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 the management
services agreements.
During the period from January 1, 1998 through the date of the closing of
the NSI Acquisition, NSI and NSIMG charged the Company approximately $37.0
million and $1.1 million, respectively, for goods and services provided to the
Company under the Operating Agreements, and $9.0 million in royalties and
license fees.
The Operating Agreements for countries where the Company operated prior
to the Company's initial public offering were approved by the original Board of
Directors of the Company, which was composed entirely of officers and
shareholders of NSI. In addition, Steven J. Lund and Renn M. Patch 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.
In 1998, 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. During the period from January 1, 1998 through
the closing of the NSI Acquisition, Nu Skin Japan incurred $1.1 million in
royalties under this agreement.
-19-
During 1998, 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 which were acquired in the NSI
Acquisition. Pursuant to these agreements, Nu Skin Hong Kong was paid
approximately $0.4 million by Nu Skin Personal Care Australia, Inc. and Nu Skin
New Zealand, Inc. during the period January 1, 1998 through the closing date of
the NSI Acquisition.
Post-NSI Acquisition. Through the NSI Acquisition, the Company obtained
ownership and control of the Nu Skin trademarks/trade names, the Nu Skin Global
Compensation Plan, distributor lists and related intellectual property and
know-how (collectively, the "Intellectual Property"). Prior to the NSI
Acquisition, NSI contributed certain assets relating to the distribution of Nu
Skin products in the United States to Nu Skin USA, and then distributed the
Common Stock of Nu Skin USA to NSI's existing shareholders (consisting entirely
of the NSI Stockholders). The Company did not acquire Nu Skin USA and certain
other private affiliates operating in North America as part of the NSI
Acquisition and these entities remained privately held (collectively, the
"Retained Entities"). In connection with the NSI Acquisition, the Company,
through NSI and NSIMG, has entered into new agreements with Nu Skin USA and
revised agreements with the Retained Entities on terms substantially 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 these entities and NSIMG provides management support services to the
Retained Entities. These agreements were approved by the Special Committee of
Directors.
During the period from the closing of the NSI Acquisition through
December 31, 1998, NSI and NSIMG charged the Retained Entities approximately
$29.9 million and $0.1 million, respectively, for goods and services provided to
the Retained Entities under these Agreements, and $1.8 million in royalties and
license fees. The Retained Entities also paid approximately $31.3 million in
commissions to the Company's distributors or the Company based on commissionable
sales of products by the Retained Entities during the same period. In addition,
the Company was also reimbursed approximately $6.6 million for expenses incurred
following the NSI Acquisition in connection with services provided to the
Retained Entities, net of any expenses of the Company paid by the Retained
Entities.
Subsequent to the NSI Acquisition, the Company subleased a portion of its
corporate headquarters and warehouse and ancillary facilities to Nu Skin USA.
Under this agreement, the Company subleases a portion of these facilities,
including certain furniture and equipment, to Nu Skin USA for a prorated rent
based on the square footage occupied by the respective Retained Entities. The
current monthly lease rate under this agreement is approximately $145,000. The
Company received lease payments of approximately $1.8 million from Nu Skin USA
in 1998 following the NSI Acquisition.
Prior to the NSI Acquisition, NSI had agreed in principal to the terms of
a License Agreement and Management Services Agreement with Big Planet. Pursuant
to the License Agreement, the Company licensed the use of its distributor force
to Big Planet in the United States for use in distributing Big Planet's
telecommunication and Internet products and services. Under this Agreement, the
Company received a 1.0% licensing fee and an option to acquire the business of
Big Planet at fair market value during a two-year period beginning in November
1998. Under the Management Services Agreement, NSIMG has provided various
services to Big Planet. The final form of these agreements was reviewed and
approved by the Special Committee of Directors.
In 1998, Big Planet was charged approximately $114,000 in licensing fees
and $577,000 for services provided by NSI. In addition, Big Planet was required
to reimburse the Company for $565,000 of expenses incurred by the Company in
connection with services provided to Big Planet.
-20-
Related Party Leases
Headquarters and Distribution Lease Agreements. In connection with the
NSI Acquisition, the Company assumed the leases to its corporate offices,
distribution center and certain other property. The lease for the corporate
offices is a lease with Scrub Oak, Ltd. ("Scrub Oak") and provides for a monthly
fixed rent of $140,000 through the year 2000. Scrub Oak is beneficially owned
directly or indirectly by Blake M. Roney, Nedra D. Roney, Sandra N. Tillotson,
Brooke B. Roney, Steven J. Lund, Keith R. Halls, Kirk V. Roney, Craig S.
Tillotson, R. Craig Bryson and Rick A. Roney (collectively, the "Scrub Oak
Partners"). Nedra D. Roney, Blake M. Roney, Brooke B. Roney, Kirk V. Roney and
Rick A. Roney are siblings. Each of the Scrub Oak Partners receives a portion of
the monthly rent of $140,000 in accordance with their percentage ownership of
Scrub Oak.
The lease for the distribution center is a month-to-month lease between
the Company and Aspen Country, L.L.C. ("Aspen Country"). Aspen Country is
beneficially owned directly or indirectly by Blake M. Roney, Nedra D. Roney,
Sandra N. Tillotson, Brooke B. Roney, Steven J. Lund, Keith R. Halls, Kirk V.
Roney, Craig S. Tillotson, R. Craig Bryson and Rick A. Roney (the "Aspen Country
Partners"). Nedra D. Roney, Blake M. Roney, Brooke B. Roney, Kirk V. Roney and
Rick A. Roney are siblings. The Aspen Country Partners each receive a portion of
the monthly rent of $56,250 in accordance with their percentage ownership of
Aspen Country. The Company also leases certain additional miscellaneous office
and warehouse space from Scrub Oak and Aspen Country. The current monthly
payments under such leases are $36,750.
In 1998, the Company incurred lease charges totaling $2,204,000 and
$819,000, respectively, to Scrub Oak and Aspen Country.
Stockholders Partnership
R. Craig Bryson and Craig S. Tillotson are major stockholders of the
Company and have been distributors of the Company since 1984. Messrs. Bryson and
Tillotson are partners in an entity (the "Partnership") which receives
substantial commissions from the Company, including commissions on sales
generated within the Company's markets. For the fiscal year ended December 31,
1998, total commissions paid to the Partnership on sales originating in the
Company's then open markets were approximately $800,000. By agreement, the
Company 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 the Company's distributor force generally, without
having to focus solely on their own organizations. In addition, Mr. Bryson has a
consulting contract with the Company that pays him $41,667 per month.
Stockholders Agreement
The Original Stockholders of the Company 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, 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 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 16, 1999, the
-21-
Original Stockholders and certain of their affiliates beneficially owned shares
having over 90% of the combined voting power of the outstanding shares of Common
Stock of the Company. The Original Stockholders agreed not to make any public
resale of any shares they own through March 26, 1999 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. In March 1999, all of the
Original Stockholders who are directors or officers of the Company and
substantially all of the other Original Stockholders party to the Stockholders
Agreement agreed to further extend the lock-up period through the end of 1999.
Until March 26, 2000, 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 (as defined in the
Stockholders Agreement) (the "Rule 144 Allotment"). In no event, however, shall
any of the Original 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.
Lease of Airplane
The Company periodically charters air service from an unaffiliated
charter company. This charter company from time to time leases an aircraft from
Arrow Plane, L.C. to provide its charter services. Blake M. Roney, the Chairman
of the Company, and his wife directly or indirectly control Arrow Plane, L.C. In
1998, Arrow Plane, L.C. received payments of $95,083 directly from the Company
and $49,590 of lease payments from the unaffiliated charter company related to
charter services provided to the Company.
Certain Loans
As part of his employment agreement, the Company loaned John Chou, the
President of Nu Skin Taiwan, $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."
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 349,406 shares of Class B Common Stock. The loan is payable on demand
(or in any event by December 31, 2000) 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 (the "Code"). This loan was made in
connection with Ms. Roney's entering into the Stockholders Agreement, as
amended. In 1998, $300,000 in interest was accrued on this loan. As of December
31, 1998, the outstanding principal balance and accrued interest of this loan
was $5,300,000.
-22-
Repurchase of Class B Common Stock
On October 2, 1998, the Company repurchased in a private transaction a
total of 673,854 shares of Class B Common Stock from Nedra D. Roney, a
shareholder of the Company who owns more than 5% of the Company's Class B Common
Stock, at a purchase price of approximately $6,125,000. The Company purchased
all of such shares for $9.09 per share, a discount of 70% to the fair market
value of the Company's stock based on the trading price of the Class A Common
Stock over a period preceding such sale.
On November 30, 1998, the Company repurchased in a private transaction a
total of 34,000 shares from Max L. Pinegar, an officer and director of the
Company, for approximately $814,000. The purchase price was based on the trading
price of the Company's Class A Common Stock at such time.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSALS
Because each of the directors and executive officers of the Company are
eligible to participate in the Second Amended and Restated 1996 Stock Incentive
Plan, they have a direct interest in such proposal. Notwithstanding such
interest, the Board of Directors believes that the approval of the Second
Amended and Restated 1996 Stock Incentive Plan is in the best interest of the
Company and its stockholders because it will strengthen the ability of the
Company to continue to attract, motivate and retain qualified employees,
officers and directors.
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 10% 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 10% 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, 1998 the
Company's officers, directors and greater than 10% beneficial owners complied
with all applicable Section 16(a) filing requirements, except that each of Mark
Adams, Sidney Henderson, William McGlashan, Jr. and Claire Averett, officers of
the Company, filed a late initial report on Form 3 following the acquisition of
NSI and Pharmanex, Brooke B. Roney filed a late report on Form 4 related to the
conversion of the Series A Preferred Stock held by him and Max L. Pinegar
reported two late transactions involving the sale of shares to pay taxes with
respect to the vesting of certain stock awards and a year-end bonus of 500
shares received in December 1997.
-23-
PROPOSAL 2
APPROVAL OF THE SECOND AMENDED AND RESTATED
1996 STOCK INCENTIVE PLAN
The Board of Directors has approved the Second Amended and Restated 1996
Stock Incentive Plan (the "Plan") and is submitting the Plan to the Company's
stockholders for their approval. The Plan includes certain amendments to the
Company's existing stock incentive plan. Since the Company's initial public
offering, the Company has used its existing stock incentive plan, as amended, to
advance the interests of the Company and its stockholders by providing an
incentive to attract, retain and motivate key Company employees to contribute to
the Company's growth and profitability. The Board of Directors believes that the
Company's stock incentive plan is an important factor in attracting and
retaining the high caliber employees essential to the Company's success and in
aligning those individuals' long-term interests with those of the stockholders.
The Plan has been amended and modified:
* to increase by 4,000,000 shares the maximum aggregate number of shares
with respect to which equity incentives may be granted;
* to eliminate the requirement that the option price of a non-qualified
stock option be no lower than 85% of the fair market value on the day the
option is granted;
* to provide option holders greater flexibility in exercising options by
allowing cashless and net exercises, same-day brokered sales, margined
exercises and other methods of exercise approved from time to time by the
Plan Committee (as defined below).
In addition, the Plan has been amended to include a provision expressly
confirming the authority of the Plan Committee to add provisions to stock option
agreements issued pursuant to the Plan providing for the forfeiture of awards
and any gains on awards granted under the Plan if the award recipient takes any
action that is harmful or contrary to the interests of the Company. The Plan
Committee already includes such provisions in many existing awards pursuant to
the broad grant of authority given to the Plan Committee to establish the terms
of the awards.
Summary of the Plan
The following summary of the material terms of the Plan is qualified in
its entirety by the terms of the Plan, a copy of which may be obtained free of
charge from the Company by written request to Charles N. Allen, Director,
Investor Relations, at the address set forth on the last page. A copy of the
Plan has also been filed as an attachment to the form of Proxy Statement filed
with the Securities and Exchange Commission.
Plan Administration. The Plan is administered by the 1996 Stock Incentive
Plan Committee (the "Plan Committee") which consists of the members of the
Compensation Committee of the Board of Directors. The Plan Committee determines,
from time to time, the individuals to whom awards shall be made, the type of
awards, and the amount, size and terms of each award. The Plan Committee makes
all other determinations necessary or advisable for the administration of the
Plan.
Awards. Awards under the Plan may be in the form of options (both
non-qualified stock options ("NQSOs") and incentive stock options ("ISOs")),
contingent stock, restricted stock, and stock appreciation rights ("SARs"), or
such other forms as the Plan Committee in its discretion may deem appropriate.
The maximum number of awards that may be issued to any one person during the
life of the Plan shall be limited to 10% of the shares reserved for issuance
under the Plan. The number of shares
-24-
which may be issued under the Plan as well as the terms of any outstanding
awards may be equitably adjusted by the Plan Committee in the event of a stock
split, stock dividend, recapitalization, merger, consolidation, combination or
similar events. In general, any shares subject to an option or right, which for
any reason expires or is terminated unexercised, shall again be available under
the Plan. No awards may be granted more than ten years after the effective date
of the Plan.
Number of Shares. The Plan originally authorized the issuance of awards
and options for up to 4,000,000 shares under the Plan. After giving effect to
the planned issuance of awards and options to management and key employees of
Big Planet following the planned acquisition of Big Planet, the Company will be
nearing or above the 4,000,000 share limit. In addition to certain existing
restricted stock awards and options of Big Planet to be converted and exchanged
as part of the Big Planet transaction, the Company currently anticipates
granting approximately $4.5 million of restricted stock awards and approximately
1.5 million options as new incentive awards. The vast majority of such options
(approximately 1.2 million) would only vest over the next three years if certain
performance goals are satisfied, or at the end of seven years of continuous
employment. An additional 4,000,000 shares of the Class A Common Stock have been
authorized to be issued pursuant to the Plan, as amended.
Plan Amendment. The Board of Directors may amend the Plan, without
stockholder approval, anytime in any respect unless stockholder approval of the
amendment in question is required under Delaware law, the Code, certain
exemptions from Section 16 of the Securities Exchange Act of 1934, as amended,
any national securities exchange system on which the shares are then listed or
reported, by any regulatory body having jurisdiction with respect to the Plan or
other applicable laws, rules or regulations. No amendment to the Plan may alter
or impair any award granted under the Plan without the consent of the holders
thereof. The Plan may be terminated at any time by the Board of Directors.
Options. The Plan provides for the grant of ISOs to employees and NQSOs
to employees and independent consultants. In the case of ISOs, the exercise
price of an option may not be less than 100% of the fair market value of a share
of Class A Common Stock at the time of grant (or 110% of such fair market value
if the optionee owns more than 10% of the total voting power of all classes of
Company stock outstanding at the time of grant).
With respect to NQSOs, the option price may be less than the fair market
value of a share of common stock. The amendment to eliminate the requirement
that NQSOs be issued with an exercise price no less than 85% of the fair market
value was made to provide the Plan Committee with more flexibility in granting
awards and in connection with assuming outstanding options in acquisitions. The
Company anticipates that generally options would be granted at an exercise price
equal to their fair market value because the issuance of options at a price
below fair market value will result in a charge to earnings. However, in certain
circumstances, such as in connection with the acquisition of a company with
outstanding options, the Company desires the flexibility to issue options at a
price below fair market value where such an action would be in the best
interests of the Company. For example, in the case of an acquisition, the
amendment will allow the Company to issue options in substitution for the
outstanding options of the acquired company at an exercise price equal to the
equivalent exercise price of such existing options (after applying the
appropriate exchange or conversion ratio). In connection with the proposed
acquisition of Big Planet, the Letter of Intent currently contemplates that up
to approximately 1.2 million management incentive options will be granted to
certain key managers at an exercise price equal to, or based upon, the closing
price of the Company's Class A Common Stock on the date prior to the
announcement of the proposed acquisition (approximately $22.3 per share), which
could be less than the price at closing. In the event the trading price on the
date of grant is higher than the exercise price, the Company would be required
to recognize the "discount" as a charge to earnings.
-25-
Options will be exercisable for a term determined by the Plan Committee
provided such exercise shall occur not earlier than six months and not later
than ten years (five years if the optionee owns more than 10% of the total
voting power of all classes of Company Stock outstanding at the time of grant)
after the grant of the option. The aggregate fair market value of ISOs
(determined at the time of grant) granted to an employee which may become first
exercisable in any one calendar year shall not exceed $100,000. If any option is
not granted, exercised or held pursuant to the provisions applicable to an ISO,
it will be considered to be a NQSO to the extent that any or all of the grant is
in conflict with such provisions. The Plan Committee has the power to permit
acceleration of previously determined exercise terms under certain circumstances
and upon such terms and conditions as the Plan Committee deems appropriate.
Contingent Stock. The Plan Committee will determine the amount of
contingent stock to be granted to a participant based on the past or expected
impact the participant has had or can have on the financial well being of the
Company and other factors determined by the Plan Committee to be appropriate. A
participant receiving an award of contingent stock will receive the stock upon
the satisfaction of certain objectives. Contingent stock awards made pursuant to
the Plan will be subject to such terms, conditions and restrictions, including
obtainment of performance objectives, for such period or periods as may be
determined by the Plan Committee at the time of grant. The Plan Committee in its
discretion may permit acceleration of the expiration of the applicable
restriction period with respect to part or all of the award to any participant.
Restricted Stock. The Plan Committee will determine the amount of
restricted stock to be granted to a participant based on the past or expected
impact the participant has had or can have on the financial well being of the
Company and other factors deemed by the Plan Committee to be appropriate.
Restricted stock is issued to the participant subject to forfeiture if certain
objectives are not met. Restricted stock awards made pursuant to the Plan shall
be subject to the terms, conditions and restrictions, including the obtainment
of performance objectives, and for such period or periods as will be determined
by the Plan Committee at the time of grant. The Plan Committee in its discretion
may permit acceleration of the expiration of the applicable restriction period
with respect to part or all of the award to any participant. Shares of
restricted stock may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, for such period provided in the participant's award agreement.
SARs. SARs are rights to receive cash or shares of Company stock, or a
combination thereof, as the Plan Committee may determine in an amount equal to
the excess of (i) the fair market value of the stock with respect to which the
SAR is exercised, or (ii) 100% of the fair market value of such stock at the
time the SAR was granted, less any dividends paid on such shares while the SAR
was outstanding. No cash consideration will be received by the Company for the
grant of any SAR. No SAR may be granted for a period of less than one year or
greater than ten years. SARs may be exercised at such time and subject to such
terms and conditions as are prescribed by the Plan Committee at the time of
grant, subject to certain limitations (including that no SAR shall be
exercisable within one year after the date of grant).
Forfeiture Provisions. The amended Plan confirms that the Plan Committee
may include in any award provisions that will result in the termination or
forfeiture of all outstanding awards and/or the forfeiture of any benefit or
gain received by a participant in the Plan from a previous award in the event of
any forfeiture event. A "forfeiture event" is defined to include: (i) conduct
related to the participant's employment or service for which either criminal or
civil penalties may be sought; (ii) the commission of an act of fraud or
intentional misrepresentation; (iii) embezzlement or misappropriation or
conversion of assets or opportunities of the Company; (iv) accepting employment
with or serving as a consultant, advisor or in any other capacity to, or having
ownership interest in, a person or entity that is in competition with or acting
against the interest of the Company, or soliciting employees or distributors of
the Company; (v)
-26-
disclosing or misusing any confidential or proprietary information of the
Company in violation of the Company's non-disclosure policy or other
non-disclosure agreement with the Company or other duty of confidentiality of
the Company's insider trading policy; or (vi) any and all other actions or
omissions that the Plan Committee determines in its sole judgment are harmful or
contrary to the interests of the Company. The Plan Committee will have broad
discretion in determining what actions are harmful or contrary to the interests
of the Company and which events will lead to forfeiture.
Awards. Because awards under the Plan are granted in the discretion of
the Plan Committee, it is not possible to determine the number of awards that
will be received by officers and directors in the future. All outside directors
are entitled to receive options to acquire 2,500 shares under the Plan at each
Annual Meeting of Stockholders. Each grant of stock options to Messrs. McGlashan
and Chang identified below exceeded the individual 10% limit of the previously
authorized number shares by 50,000 shares. Accordingly, 50,000 of such shares
are subject to cancellation if the amendment is not approved. Set forth below is
a table setting forth the number of options and stock awards received by (i)
each nominee for director, (ii) each of the Named Officers, (iii) each person
who has received 5% or more of such options or awards, (iv) all executive
officers as a group, and (v) all directors who are not executive officers as a
group.
Number of Option Number of
Award Recipient Shares Stock Awards
- ------------------------------------ ------------------- ------------------
Blake M. Roney 0 0
Steven J. Lund 0 0
Sandra N. Tillotson 0 0
Brooke B. Roney 0 0
Keith R. Halls 0 0
Max L. Pinegar 9,000 13,000
Daniel W. Campbell 12,500 2,500
E.J. "Jake" Garn 12,500 2,500
Paula Hawkins 12,500 2,500
Takashi Bamba 45,000 13,000
John Chou 43,000 13,000
Renn M. Patch 46,000 13,500
William E. McGlashan, Jr 450,000(1) 0
Michael Chang 450,000(1) 0
All Executive Officers as a Group 741,000 73,500
All Current Directors who are not
Executive Officers as a Group 46,500 7,500
- ------------------
(1) These options were granted pursuant to employment agreements entered into
in connection with the acquisition of Pharmanex. These options vest only
upon the attainment of certain performance goals over the next three
years or in full at the end of seven years of continuous employment.
-27-
Federal Income Tax Consequences. The Federal income tax consequences of
the Plan depend upon whether a participant receives NQSOs, ISOs, contingent
stock, restricted stock or SARs.
NQSOs. The participant recognizes no taxable income and the Company
receives no deduction when a NQSO is granted. Upon exercise of a NQSO, the
participant recognizes ordinary income and the Company is entitled to a
deduction equal to the difference between the exercise price and the fair market
value of the shares on the date of exercise. The participant recognizes as a
capital gain or loss any subsequent profit or loss realized on the sale or
exchange of any shares disposed of or sold.
ISOs. The participant recognizes no taxable gain or loss when an ISO is
granted or exercised. If the shares acquired upon the exercise of an ISO are
held for at least one year after exercise and two years after grant (the
"Holding Period"), the participant recognizes any gain or loss upon such sale as
long-term capital gain or loss and the Company is not entitled to a deduction.
If the shares are not held for the Holding Period, the gain is ordinary income
to the participant to the extent of the difference between the exercise price
and the fair market value of the Class A Common Stock on the date the option is
exercised and any excess is capital gain. Also, in such circumstances, the
Company is entitled to a deduction equal to the amount of any ordinary income
recognized by the participant.
Restricted Stock or Contingent Stock. A participant granted
restricted stock or contingent stock is not required to include the value of
such shares in income until the first time such participant's rights in the
shares are transferable or are not subject to substantial risk of forfeiture,
whichever occurs earlier, unless such participant timely files an election under
Code Section 83(b) to be taxed on the receipt of the shares. In either case, the
amount of such ordinary income will be equal to the excess of the fair market
value of the shares at the time the income is recognized over the amount (if
any) paid for the shares. The Company is entitled to a deduction in the amount
of the ordinary income recognized by the participant for the Company's taxable
year in which the participant recognizes such income.
SARs. Upon the grant of a SAR, the participant recognizes no taxable
income and the Company receives no deduction. The participant recognizes
ordinary income and the Company is entitled to a deduction at the time of
exercise equal to the cash and the fair market value of shares payable upon such
exercise.
Under certain circumstances, an accelerated vesting or cash out of stock
options, or accelerated lapse of restrictions on other awards, in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code Section
280G. To the extent it is so considered, the participant may be subject to a 20%
excise tax and the Company may be denied a tax deduction.
Vote Required and Board of Directors' Recommendation
Approval of the Plan will require the affirmative vote of a majority of the
total number of votes of outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote. In determining
whether approval of the Plan has received the requisite number of affirmative
votes, abstentions will be counted and will have the same effect as votes
against Proposal 2. Broker non-votes will be considered as unvoted 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 RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE PLAN.
-28-
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of PricewaterhouseCoopers LLP, the Company's independent auditors
for the fiscal year ended December 31, 1998, was selected by the Board of
Directors of the Company to act in the same capacity for the fiscal year ending
December 31, 1999. Representatives of PricewaterhouseCoopers 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 Required and Board of Directors' Recommendation
Ratification of PricewaterhouseCoopers LLP as the Company's independent
auditors will require the affirmative vote of a majority of the total number of
votes of outstanding shares of Common Stock present in person or represented by
proxy at the Annual Meeting and entitled to vote. In determining whether
Proposal 3 has received the requisite number of affirmative votes, abstentions
will be counted and 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 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 RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE COMPANY'S SELECTION OF 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 or 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 2000 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
2000 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 31, 1999 if they are to be considered
for possible inclusion in the Proxy Statement and form of proxy used in
connection with such meeting.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders concerning the operation of the Company
for the fiscal year ending December 31, 1998, including financial statements, is
enclosed with this Proxy Statement.
-29-
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, 1998, as filed with the Securities and Exchange Commission,
without exhibits may be obtained by stockholders without charge by written
request to Charles N. Allen, Director, Investor Relations, Nu Skin Enterprises,
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
/s/ Blake M. Roney
Blake M. Roney
Chairman of the Board
DATED: April 5, 1999
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APPENDIX A - FORM OF PROXY
NU SKIN ENTERPRISES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 4, 1999
The undersigned hereby appoints Steven J. Lund and Keith R. Halls, as
proxies with full power of substitution and hereby authorizes either of them to
act and to vote, as designated on the reverse, all shares of Class A Common
Stock of Nu Skin Enterprises, Inc. (the "Company") the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at the
corporate offices of the Company, 75 West Center Street, Provo, Utah, May 4,
1999 at 4:00 p.m., local time, and at any adjournments or postponements thereof,
upon all matters referred to on this proxy card and described in the
accompanying Proxy Statement, and, at their discretion, upon any other matters
which may properly come before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[ X ] Please mark your votes
as indicated in this example
FOR ALL NOMINEES WITHHOLD AUTHORITY
listed at right to vote for all
(except as marked nominees listed at
to the contrary right
contrary below)
1. Elect members of
the Board of [ ] [ ] Nominees: Blake M. Roney
Directors of the Steven J. Lund
Company Keith R. Halls
Sandra N. Tillotson
Brooke B. Roney
Instructions: To WITHHOLD AUTHORITY to vote for any Max L. Pinegar
individual nominee, draw a line through (or otherwise E.J. "Jake" Garn
strike-out) the nominee's name in the list to the right. Paula Hawkins
Daniel W. Campbell
2. To approve the Company's Second Amended and FOR AGAINST ABSTAIN
Restated 1996 Stock Incentive Plan which amends [ ] [ ] [ ]
the prior plan to increase the authorized shares
available for issuance under such plan to
8,000,000 shares and to make certain other changes
described in the Company's Proxy Statement.
3. To ratify the selection of PriceWaterhouseCoopers FOR AGAINST ABSTAIN
LLP as the Company's independent auditors for the [ ] [ ] [ ]
fiscal year ending December 31, 1999.
Shares represented by all property executed proxies will be voted in accordance
with instructions appearing on this proxy card and in the discretion of the
proxy holders as to any other matters that may properly come before the meeting.
IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR THE PROPOSALS
SET FORTH ABOVE.
(Signature) __________(SEAL) (Signature)__________(SEAL) Dated: ________, 1999
Important: Please sign as name(s) appears on the proxy card. If a joint account,
each joint owner must sign. If signing for a corporation or partnership as
agent, attorney or fiduciary, indicate the capacity in which you are signing.
APPENDIX B - FORM OF SECOND AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
SECOND
AMENDED AND RESTATED
NU SKIN ENTERPRISES, INC.
1996 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
PAGE
1. PURPOSE........................................................... 1
2. DEFINITIONS....................................................... 1
3. ADMINISTRATION.................................................... 4
4. SHARES SUBJECT TO THE PLAN........................................ 5
5. PARTICIPANTS...................................................... 5
6. AWARDS UNDER THE PLAN............................................. 5
7. STOCK OPTIONS..................................................... 5
8. STOCK APPRECIATION RIGHTS......................................... 8
9. CONTINGENT STOCK AWARDS...........................................10
10. RESTRICTED STOCK AWARDS...........................................11
11. GENERAL RESTRICTIONS..............................................12
12. RIGHTS OF A SHAREHOLDER...........................................12
13. RIGHTS TO TERMINATE EMPLOYMENT....................................13
14. WITHHOLDING OF TAXES..............................................13
15. NON-ASSIGNABILITY.................................................13
16. NON-UNIFORM DETERMINATIONS........................................13
17. ADJUSTMENTS.......................................................13
18. AMENDMENT.........................................................14
19. EFFECT ON OTHER PLAN..............................................15
20. DURATION OF PLAN..................................................15
21. FUNDING OF THE PLAN...............................................15
22. PLAN STATUS.......................................................15
23. GOVERNING LAW.....................................................16
-i-
SECOND
AMENDED AND RESTATED
NU SKIN ENTERPRISES, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE
1.1 The purpose of the Second Amended and Restated Nu Skin
Enterprises, Inc. 1996 Stock Incentive Plan (the "Plan") is to provide
incentives to specified individuals whose performance, contributions and skills
add to the value of Nu Skin Enterprises, Inc. (the "Company") and its affiliated
companies. The Company also believes that the Plan will facilitate attracting,
retaining and motivating employees, directors and consultants of high caliber
and potential. This Second Amended and Restated Nu Skin Enterprises, Inc. 1996
Stock Incentive Plan amends and restates the Amended and Restated Nu Skin Asia
Pacific, Inc. 1996 Stock Incentive Plan dated December 9, 1996 and includes
amendments previously adopted by the Board of Directors on February 11, 1999.
1.2 Plan participants shall include those officers, directors,
employees and consultants of the Company and subsidiaries who, in the opinion of
the Committee, are making or are in a position to make substantial contributions
to the Company by their ability and efforts.
2. DEFINITIONS
2.1 For purposes of the Plan, the following terms shall have the
following meanings, unless the context clearly indicates to the contrary.
(a) "Award" means a grant of Restricted Stock,
Contingent Stock, an Option, or an SAR.
(b) "Award Agreement" means the agreement approved by
the Committee evidencing an Award to a Grantee.
(c) "Board" means the Company's Board of Directors.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the members of the Board until
the Compensation Committee of the Board is
appointed, and after the Compensation Committee is
appointed means the members of the Compensation
Committee of the Board, who are "outside
directors" (within the meaning of Section 162(m)
of the Code and any regulations or rulings
promulgated thereunder) to the extent required for
purposes of compliance with such
-1-
Code Section, and "disinterested persons" (within
the meaning of Rule 16b- 3 of the Exchange Act),
to the extent required for compliance with such
Rule. (f) "Company" means Nu Skin Enterprises,
Inc.
(g) "Consultant" means any individual who provides
services to the Company as an independent
contractor and not as an Employee or Director.
(h) "Contingent Stock" means stock which will be
issued to a Grantee upon the attainment of certain
conditions pursuant to Section 9 hereof.
(i) "Director(s)" means a member or the members of the
Board.
(j) "Employee" means any individual who is an employee
of the Company, a Parent or Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(l) "Fair Market Value" of a Share means on, or with
respect to, any given date:
(i) If the Shares are listed on a national
stock exchange, the closing market price
of such Shares as reported on the
composite tape for issues listed on such
exchange on such date or, if no trade
shall have been reported for such date,
on the next preceding date on which
there were trades reported; provided,
that if no such quotation shall have
been made within the ten business days
preceding such date, Fair Market Value
shall be determined under (iii) below.
(ii) If the Shares are not listed on a
national stock exchange but are traded
on the over-the-counter market, the mean
between the closing dealer bid and asked
price of such Shares as reported by the
National Association of Securities
Dealers through their Automated
Quotation System for such date, or if no
quotations shall have been made on such
date, on the next preceding date on
which there were quotations; provided,
that, if such quotations shall have been
made within the ten business days
preceding such date, Fair Market Value
shall be determined under (iii) below.
(iii) If (i) and (ii) do not apply, the Fair
Market Value of a Share shall be
determined without regard to any control
premium or discount for lack of control
(except as otherwise required by Section
422 of the Code) by the Committee in
good faith consistent with the valuation
of the Company as provided by a third
party appraiser for
-2-
other corporate purposes before
adjustments or any discounts applied due
to lack of marketability. The Committee
may rely upon the most recent valuation
(if it is based on a date within 3
months of the valuation date) and there
shall be no requirement to cause a more
recent valuation to be made (except as
may be required for purposes of Section
422 of the Code). If no such valuation
exists, the Committee may engage a third
party appraiser to prepare the
valuation.
(m) "Grantee" means an Employee, Director of the
Company, a Parent or any Subsidiary or Consultant
who has received an Award.
(n) "Incentive Stock Option" shall have the same
meaning as given to the term by Section 422 of the
Code and any regulations or rulings promulgated
thereunder.
(o) "Non-qualified Stock Option" means any Option
granted pursuant to Section 7 which when awarded
by the Committee was not intended to be, or does
not qualify as, an Incentive Stock Option.
(p) "Option" means the right to purchase from the
Company a stated number of Shares at a specified
Option Price. The Option may be granted to an
Employee, Director or Consultant subject to the
terms of this Plan, and such other conditions and
restrictions as the Committee deems appropriate.
Each Option shall be designated by the Committee
to be either an Incentive Stock Option or a
Non-qualified Stock Option. Only Employees may be
granted Incentive Stock Options.
(q) "Option Agreement" means the Award Agreement
pursuant to which an Option is granted under
Section 7.
(r) "Option Price" means the purchase price per Share
under an Option, as described in Section 7.
(s) "Parent" means any corporation (other than the
Company) in an unbroken chain of corporations
ending with the Company if, at the time of the
granting of an Option, each of the corporations
(other than the Company) owns stock possessing 50%
or more of the total combined voting power of all
classes of stock in one of the other corporations
in such chain within the meaning of Section 424(e)
of the Code and any regulations or rulings
promulgated thereunder.
-3-
(t) "Plan" means Amended and Restated Nu Skin Asia
Pacific, Inc. 1996 Stock Incentive Plan, as
evidenced herein and as amended from time to time.
(u) "Restricted Stock" means Shares issued, subject to
restrictions, to a Grantee pursuant to Section 10.
(v) "SAR" means a stock appreciation right which
provides a Grantee a potential right to a payment
based on the appreciation in the fair market value
of a Share granted pursuant to Section 8.
(w) "SEC" means the U.S. Securities and Exchange
Commission.
(x) "Section 16 Person" means a person who is an
"insider" within the meaning of Section 16(b) of
the Exchange Act with respect to transactions
involving equity securities of the Company,
including the Shares.
(y) "Share" means one share of the Company's Class A
common stock, $.001 par value.
(z) "Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company
if, at the time of the granting of the Option,
each of the corporations (other than the last
corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined
voting power of all classes of stock in one of the
other corporations in such chain, within the
meaning of Section 424(f) of the Code and any
regulations or rulings promulgated thereunder.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. The Committee
shall have full and final authority in its discretion to:
(a) conclusively interpret the provisions of the Plan
and to decide all questions of fact arising in its
application;
(b) determine the individuals to whom Awards shall be
made under the Plan;
(c) determine the type of Award to be made to such
individuals and the amount, size and terms of each
Award;
(d) determine the time when Awards will be granted to
such individuals; and
-4-
(e) make all other determinations necessary or
advisable for the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1 The Shares subject to Awards under the Plan shall not exceed in
the aggregate 8,000,000 Shares.
4.2 Shares may be authorized and unissued Shares or treasury Shares.
4.3 Except as provided herein, any Shares subject to an Award, which
Award for any reason expires or is terminated unexercised as to such Shares
shall again be available under the Plan.
5. PARTICIPANTS
5.1 Awards permitted pursuant to this Plan which are Incentive Stock
Options may only be made to Employees (including Directors who are also
Employees). All other Awards permitted pursuant to the Plan may only be made to
Employees, Directors or Consultants.
6. AWARDS UNDER THE PLAN
6.1 Awards under the Plan may be in the form of Options (both
Non-qualified Stock Options and Incentive Stock Options), Contingent Stock,
Restricted Stock, and SARs and any combination of the above.
6.2 The maximum number of Awards that may be awarded to any one
Employee, Director or Consultant during the life of the Plan shall be 10% of the
total Shares reserved for issuance under the Plan.
7. STOCK OPTIONS
7.1 The Committee in its sole discretion shall designate whether an
Option is to be an Incentive Stock Option or a Non-qualified Stock Option. The
Committee may grant both Incentive Stock Options and Non-qualified Stock Options
to the same individual. However, where both an Incentive Stock Option and a
Non-qualified Stock Option are awarded at one time, such Options shall be deemed
to have been awarded in separate grants, shall be clearly identified, and in no
event will the exercise of one such Option affect the right to exercise the
other such Option except to the extent so provided in the Award Agreement as
determined by the Committee.
7.2 Options granted pursuant to the Plan shall be authorized by the
Committee under terms and conditions approved by the Committee, not inconsistent
with this Plan or Exchange Act Rule 16b-3(c), and shall be evidenced by Option
Agreements in such form as the Committee shall
-5-
from time to time approve, which Option Agreements shall contain or shall be
subject to the following terms and conditions, whether or not such terms and
conditions are specifically included therein:
(a) The Option Price of an Incentive Stock Option
shall not be less than 100% of the Fair Market
Value of a Share on the day the Option is granted,
as determined by the Committee. The Option Price
of a Non-qualified Stock Option shall be such
price as determined by the Committee in its
discretion, which price may be more or less than
the Fair Market Value of a Share on the day the
Option is granted. Notwithstanding the immediately
preceding sentence, the Award Agreement for a
Non-qualified Stock Option at the Committee's sole
discretion, may, but need not, provide for a
reduction of the Option Price by dividends paid on
a Share during the period the Option is
outstanding and unexercised, but in no event shall
the Option Price be less than the par value of
such Share.
(b) Each Option Agreement shall state the period or
periods of time, as determined by the Committee,
within which the Option may be exercised by the
Grantee, in whole or in part, provided such period
shall not commence earlier than six months after
the date of the grant of the Option and not later
than ten years after the date of the grant of the
Option. The Committee shall have the power to
permit in its discretion an acceleration of
previously determined exercise terms, subject to
the terms of this Plan, to the extent permitted by
Exchange Act Rule 16b-3(c), and under such
circumstances and upon such terms and conditions
as deemed appropriate and which are not
inconsistent with Exchange Act Rule 16b-3(c)(1).
(c) An Option may be exercised, in whole or in part,
by giving written notice of exercise to the
Company specifying the number of Shares to be
purchased. Shares purchased upon exercise of an
Option shall be paid for in full at the time of
purchase in the form of cash unless the Committee
has adopted rules authorizing a different method
of exercise as set forth below that have not been
rescinded and that apply to the Options being
exercised. The Committee shall have the authority,
as it may determine to be appropriate from time to
time, to adopt rules governing the exercise of
Options that may provide for payment to be made
(i) in Shares already owned by the Grantee having
a Fair Market Value equal to the purchase price,
(ii) by delivery (on a form prescribed by the
Committee) of an irrevocable direction to a
securities broker approved by the Committee to
sell Shares and to deliver all or part of the
sales proceeds to the Company in payment of all or
part of the purchase price and any withholding
taxes, (iii) by the delivery (on a form prescribed
by the Committee) of an irrevocable direction to
pledge Shares to a securities broker or lender
-6-
approved by the Committee as security for a loan
and to deliver all or part of the loan proceeds to
the Company in payment of all or part of the
purchase price and any withholding taxes, or (iv)
such other method or form of consideration as may
be determined to be appropriate by the Committee
consistent with applicable laws, rules and
regulations, including a true cashless or net
exercise procedure. The adoption of such rules by
the Committee shall not provide any Grantee with
any vested right to exercise Options pursuant to
the methods or form of consideration set forth in
such rules. The Committee may rescind any rule
governing the exercise of Options at any time, and
upon such rescission, no Grantee shall have any
further rights to exercise Options pursuant to the
methods or form of consideration set forth in such
rule. In addition, the Committee shall have the
right to provide in any rule adopted pursuant
hereto that (i) such rule shall only apply to
designated Options or grants of Options, (ii) such
rule shall apply to all Options generally, or
(iii) prior Committee approval, which may be
granted or withheld in its sole discretion, shall
be required with respect to such exercise method
or form of consideration. The Committee shall have
no obligation to make the rules applicable to all
Grantees or to all Options. The Committee shall
have no obligation to adopt rules providing for
any of the above methods of exercise or forms of
consideration.
(d) Notwithstanding anything herein to the contrary,
the aggregate Fair Market Value (determined as of
the time the Option is granted) of Incentive Stock
Options for any Employee which may become first
exercisable in any calendar year shall not exceed
$100,000.
(e) Notwithstanding anything herein to the contrary,
no Incentive Stock Option shall be granted to any
individual if, at the time the Option is to be
granted, the individual owns stock possessing more
than 10% of the total combined voting power of all
classes of stock of the Company unless at the time
such Option is granted the Option Price is at
least 110% of the Fair Market Value of the stock
subject to the Option and such Option by its terms
is not exercisable after the expiration of five
years from the date such Option is granted.
(f) Each Option Agreement for an Incentive Stock
Option shall contain such other terms, conditions
and provisions as the Committee may determine to
be necessary or desirable in order to qualify such
Option as an incentive stock option within the
meaning of Section 422 of the Code, or any
amendment thereof, substitute therefor, or
regulation thereunder. Subject to the limitations
of Section 18, and without limiting any provisions
hereof,
-7-
the Committee shall have the power without further
approval to amend the terms of any Option for
Grantees.
7.3 If any Option is not granted, exercised, or held pursuant to the
provisions of the Plan or Section 422 of the Code applicable to an Incentive
Stock Option, it will be considered to be a Non-qualified Stock Option to the
extent that any or all of the grant is in conflict with such provisions.
7.4 An Option may be terminated (subject to any shorter periods set
forth in an individual Option Agreement by the Committee, in its sole
discretion) as follows:
(a) During the period of continuous employment or
service as a Consultant with the Company or
Subsidiary, an Option will be terminated only if
it has been fully exercised or it has expired by
its terms.
(b) In the event of termination of employment as an
Employee or service as a Director or Consultant
for any reason, the Option will terminate upon the
earlier of (i) the full exercise of the Option,
(ii) the expiration of the Option by its terms, or
(iii) except as provided in Section 7.4(c), no
more than one year (three months for Incentive
Stock Options) following the date of employment
termination (or termination of service as a
Director or Consultant) for Non-qualified Stock
Options. For purposes of the Plan, a leave of
absence approved by the Company shall not be
deemed to be termination of employment except with
respect to an Incentive Stock Option as required
to comply with Section 422 of the Code and the
regulations issued thereunder.
(c) If a Grantee's employment as an Employee, or
service as a Director or Consultant, terminates by
reason of death or disability prior to the
termination of an Option, such Option may be
exercised to the extent that the Grantee shall
have been entitled to exercise it at the time of
death or disability, as the case may be, by the
Grantee, the estate of the Grantee or the person
or persons to whom the Option may have been
transferred by will or by the laws of descent and
distribution for the period set forth in the
Option Agreement, but no more than three years
following the date of such death or disability,
provided, however, with respect to an Incentive
Stock Option, such right must be exercised, if at
all, within one year after the date of such death
or disability.
8. STOCK APPRECIATION RIGHTS
8.1 SARs shall be evidenced by Award Agreements for SARs in such
form, and not inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1), as
the Committee shall approve from
-8-
time to time, which Award Agreements shall contain in substance the following
terms and conditions as discussed in Sections 8.2 through 8.4.
8.2 An SAR may be, but is not required to be, granted in connection
with an Option. An SAR shall entitle the Grantee, subject to such terms and
conditions determined by the Committee, to receive, upon surrender of the SAR,
all or a portion of the excess of (i) the Fair Market Value of a specified
number of Shares at the time of the surrender, as determined by the Committee,
over (ii) 100% of the Fair Market Value of such Shares at the time the SAR was
granted less any dividends paid on such Shares while the SAR was outstanding but
unexercised.
8.3 SARs shall be granted for a period of not less than one year nor
more than ten years, and shall be exercisable in whole or in part, at such time
or times and subject to such other terms and conditions as shall be prescribed
by the Committee at the time of grant, subject to the following:
(a) No SAR shall be exercisable, in whole or in part,
during the one year period starting with the date
of grant; and
(b) SARs will be exercisable only during a Grantee's
employment by, or service as a Consultant for, the
Company or a Subsidiary, except that in the
discretion of the Committee an SAR may be made
exercisable for up to three months after the
Grantee's employment, or service as a Director or
Consultant, is terminated for any reason other
than death, retirement or disability. In the event
that a Grantee's employment as an Employee, or
service as a Director or Consultant, is terminated
as a result of death, retirement or disability
without having fully exercised such Grantee's
SARs, the Grantee or such Grantee's beneficiary
may have the right to exercise the SARs during
their term within a period of 6 months after the
date of such termination to the extent that the
right was exercisable at the date of such
termination, or during such other period and
subject to such terms as may be determined by the
Committee. Subject to the limitations of Section
18, the Committee in its sole discretion may
reserve the right to accelerate previously
determined exercised terms, within the terms of
the Plan, under such circumstances and upon such
terms and conditions as it deems appropriate.
(c) The Committee shall establish such additional
terms and conditions, without limiting the
foregoing, as it determines to be necessary or
desirable to avoid "short-swing" trading liability
in connection with an SAR within the meaning of
Section 16(b) of the Exchange Act.
(d) The Committee, in its sole discretion, may
establish different time periods than specified
above for any individual or group of individual
Awards.
-9-
8.4 Upon exercise of an SAR, payment shall be made within ninety days
in the form of common stock of the Company (at Fair Market Value on the date of
exercise), cash, or a combination thereof, as the Committee may determine.
9. CONTINGENT STOCK AWARDS
9.1 Contingent Stock Awards under the Plan shall be evidenced by
Award Agreements for Contingent Stock in such form and not inconsistent with
this Plan as the Committee shall approve from time to time, which Award
Agreements shall contain in substance the terms and conditions described in
Sections 9.2 through 9.5.
9.2 The Committee shall determine the number of Shares subject to a
Contingent Stock Award to be granted to an Employee, Director or Consultant
based on the past or expected impact the Employee, Director or Consultant has
had or can have on the financial well-being of the Company and other factors
deemed by the Committee to be appropriate.
9.3 Contingent Stock Awards made pursuant to this Plan shall be
subject to such terms, conditions, and restrictions, including without
limitation, substantial risks of forfeiture and/or attainment of performance
objectives, and for such period or periods as shall be set forth in the Award
Agreement as determined by the Committee at the time of grant. The Committee
shall have the power to permit, in its discretion, an acceleration of the
expiration of the applicable restriction period with respect to any part or all
of the Award to any Grantee. The Committee shall have the power to make a
Contingent Stock Award that is not subject to vesting or any other contingencies
in recognition of an Employee's, Director's or Consultant's prior service and
financial impact on the Company. During the restriction period, the Grantee
shall not have the rights of a shareholder.
9.4 The Award Agreement for the Contingent Stock Award shall specify
the terms and conditions upon which any restrictions on the right to receive
Shares representing Contingent Stock Awards under the Plan shall lapse, as
determined by the Committee. Upon the lapse of such restrictions, Shares shall
be issued to the Grantee or such Grantee's legal representative.
9.5 In the event of a Grantee's termination of employment as an
Employee, or service as a Director or Consultant, whichever is applicable, for
any reason prior to the lapse of restrictions applicable to a Contingent Stock
Award made to such Grantee and unless otherwise provided for herein by this Plan
or as provided for in the Award Agreement for Contingent Stock, all rights to
Shares as to which there still remain unlapsed restrictions shall be forfeited
by such Grantee to the Company without payment or any consideration by the
Company, and neither the Grantee nor any successors, heirs, assigns or personal
representatives of such Grantees shall thereafter have any further rights or
interest in such Shares.
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10. RESTRICTED STOCK AWARDS
10.1 Restricted Stock Awards under the Plan shall be evidenced by
Award Agreements for Restricted Stock in such form, and not inconsistent with
this Plan, as the Committee shall approve from time to time, which Award
Agreements shall contain in substance the terms and conditions described in
Sections 10.2 through 10.6.
10.2 The Committee shall determine the number of Shares subject to a
Restricted Stock Award to be granted to an Employee, Director or Consultant
based on the past or expected impact the Employee, Director or Consultant has
had or can have on the financial well-being of the Company and other factors
deemed by the Committee to be appropriate.
10.3 Restricted Stock Awards made pursuant to this Plan shall be
subject to such terms, conditions, and restrictions, including without
limitation, substantial risks of forfeiture and/or attainment of performance
objectives, and for such period or periods as set forth in the Award Agreement
as determined by the Committee at the time of grant. The Committee shall have
the power to permit, in its discretion, an acceleration of the expiration of the
applicable restriction period with respect to any part or all of the Award to
any Grantee. Upon issuance of a Restricted Stock Award, Shares will be issued in
the name of the Grantee. During the restriction period, Grantee shall have the
rights of a shareholder for all such Shares of Restricted Stock, including the
right to vote and the right to receive dividends thereon as paid.
10.4 Each certificate evidencing stock subject to Restricted Stock
Awards shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Shares. Any attempt to dispose of Shares of
Restricted Stock in contravention of such terms, conditions and restrictions
shall be ineffective. The Committee may adopt rules which provide that the
certificates evidencing such Shares may be held in custody by a bank or other
institution, or that the Company may itself hold such Shares in custody, until
the restrictions thereon shall have lapsed and may require as a condition of any
Award that the Grantee shall have delivered a stock power endorsed in blank
relating to the Shares of Restricted Stock covered by such Award.
10.5 The Award Agreement for Restricted Stock shall specify the terms
and conditions upon which any restrictions on the right to receive shares
representing Restricted Stock awarded under the Plan shall lapse as determined
by the Committee. Upon the lapse of such restrictions, Shares which have not
been delivered to the Grantee or such Grantee's legal representative shall be
delivered to such Grantee or such Grantee's legal representative.
10.6 In the event of a Grantee's termination of employment as an
Employee, or service as a Director or Consultant, whichever is applicable, for
any reason prior to the lapse of restrictions applicable to a Restricted Stock
Award made to such Grantee and unless otherwise provided for herein by this Plan
or as provided for in the Award Agreement for Restricted Stock, all rights to
Shares as to which there remain unlapsed restrictions shall be forfeited by such
Grantee to the Company without payment or any consideration by the Company, and
neither the Grantee nor any successors, heirs, assigns or personal
representatives of such Grantee shall thereafter have any further rights or
interest in such Shares.
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11. GENERAL RESTRICTIONS
11.1 The Plan and each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
Grantee of an Award with respect to the disposition of Shares, is necessary or
desirable as a condition of, or in connection with the Plan or the granting of
such Award or the issue or purchase of Shares thereunder, the Plan will not be
effective and/or the Award may not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
11.2 The authority of the Committee under Section 3 to include
"forfeiture provisions" in Award Agreements is hereby confirmed. The Committee
may provide in any Award Agreement for the forfeiture of the Awards governed by
such Award Agreement and the benefits derived therefrom, in the event the
Grantee takes actions or engages in conduct that is harmful or contrary to, or
not in the best interests of, the Company. Such forfeiture may include, without
limitation, (a) the cancellation of unexercised Options and/or SARs and the
forfeiture or repayment to the Company of any gain realized from the exercise of
any Options and/or SARs, and (b) forfeiture, or repayment of the value, of any
shares of stock granted as Restricted Stock or Contingent Stock or the
forfeiture or repayment to the Company of any proceeds received from the sale
thereof. The Committee shall have broad discretion in defining what actions and
conduct constitute forfeiture events which may include (i) conduct related to
the Grantee's employment for which either criminal or civil penalties may be
sought, (ii) the commission of an act of fraud or intentional misrepresentation,
(iii) embezzlement or misappropriation or conversion of assets or opportunities
of the Company, (iv) accepting employment with or serving as a consultant,
adviser or in any other capacity to, or having any ownership interest in, a
person or entity that is in competition with or acting against the interest of
the Company, or any solicitation of employees or distributors, in violation of
the Company's Key Employee Covenants or any other agreement, (v) disclosing or
misusing any confidential or proprietary information of the Company in violation
of the Key Employee Covenants, or any other non-disclosure agreement with the
Company or other duty of confidentiality or the Company's insider trading
policy, or (vi) any other actions or conduct of Grantee that the Committee
determines in good faith are harmful or contrary to, or not in the best
interests of, the Company. The Committee shall have broad discretion and
authority to determine the scope, duration and terms of any such forfeiture
provisions. The Committee, or its duly appointed agent, may waive any or all of
the restrictions authorized under this subsection whenever it (or its duly
appointed agent) determines in its sole discretion that such action is in the
best interests of the Company.
12. RIGHTS OF A SHAREHOLDER
12.1 The Grantee of any Award under the Plan shall have no rights as
a shareholder with respect thereto unless and until certificates for Shares of
common stock are issued to such Grantee, except for the rights provided in
Section 10 as it pertains to Restricted Stock Awards.
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13. RIGHTS TO TERMINATE EMPLOYMENT
13.1 Nothing in the Plan or in any agreement entered into pursuant to
the Plan shall confer upon any Grantee the right to continue in the employment
as an Employee, or service as a Director or Consultant, of the Company or a
Subsidiary or affect any right which the Company or its Subsidiary may have to
terminate the employment, or service as a Director or Consultant, of such
Grantee.
14. WITHHOLDING OF TAXES
14.1 Whenever the Company proposes, or is required, to issue or
transfer Shares under the Plan, the Company shall have the right to require the
Grantee to remit to the Company an amount, or a number of shares, sufficient to
satisfy any federal, state and/or local withholding tax requirements prior to
the delivery of any certificate or certificates for such Shares. Whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements.
15. NON-ASSIGNABILITY
15.1 No Award or benefit under the Plan shall be assignable or
transferable by the Grantee thereof except by will or by the laws of descent and
distribution. During the life of the Grantee, such Award shall be exercisable
only by such person or by such person's guardian or legal representative.
16. NON-UNIFORM DETERMINATIONS
16.1 The Committee's determination under the Plan (including, without
limitation, determinations of the persons to receive Awards, the form, amount
and timing of such Awards, the terms and conditions of such Awards and the Award
Agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made by the Committee selectively among
persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such persons are similarly situated.
17. ADJUSTMENTS
17.1 If the Class A Common Stock of the Company is subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue any shares of Class A Common Stock as a stock dividend on its outstanding
Class A Common Stock, the number of shares deliverable upon the exercise or
vesting of any Awards granted hereunder shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
17.2 In the event of a consolidation of the Company, a merger in
which the Company is not the surviving entity, or the sale of all or
substantially all of the Company assets, the
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exercisability of any or all outstanding Awards shall automatically be
accelerated so that such Awards would be exercisable or vested in full
immediately prior to the effective date of such consolidation, merger or asset
sale. However, no such acceleration shall occur if and to the extent any
outstanding Awards are, in connection with such consolidation, merger, or asset
sale, either to be assumed by the successor corporation (or parent thereof or to
be replaced with a comparable Award to purchase shares of the capital stock of
the successor corporation (or a parent thereof). The determination of such Award
comparability shall be made by the Committee, and such determination shall be
final, binding and conclusive. Immediately following any such consolidation,
merger or asset, sale, the Awards, to the extent not previously exercised or
vested, shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with such
consolidation, merger or asset sale. If any outstanding Award hereunder is
assumed in connection with any such consolidation, merger or asset sale, then
such Award shall be appropriately adjusted, immediately after such
consolidation, merger or asset sale, to apply to the number and class of
securities which would have been issuable to the Grantee upon consummation of
such consolidation, merger, or asset sale if the Awards had been exercised or
vested immediately prior to any such transaction, and appropriate adjustment
shall also be made to the exercise price for such Awards, as applicable,
provided the aggregate exercise price shall remain the same. This Plan shall not
in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate, or sell or transfer any part of its business or assets.
17.3 In the event of a recapitalization or reorganization of the
Company (other than a consolidation, merger or asset sale described in Section
17.2 above) pursuant to which securities of the Company or of another entity are
issued with respect to the outstanding shares of the Company's Class A Common
Stock, a Grantee, upon exercising an Award or an Award becoming vested, shall be
entitled to receive for the purchase price paid upon such exercise the
securities the Grantee would have received if the Grantee had exercised the
Award or the Award had vested prior to such recapitalization or reorganization.
18. AMENDMENT
18.1 The Plan may be amended by the Board, without Shareholder
approval, at any time in any respect, unless Shareholder approval of the
amendment in question is required under Delaware law, the Code, any exemption
from Section 16 of the Exchange Act (including without limitation SEC Rule
16b-3) for which the Company intends Section 16 Persons to qualify, any national
securities exchange system on which the Shares are then listed or reported, by
any regulatory body having jurisdiction with respect to the Plan, or any other
applicable laws, rules or regulations.
18.2 The termination or modification or amendment of the Plan shall
not, without the consent of a Grantee, affect a Grantee's rights under an Award
previously granted. Notwithstanding the foregoing, however, the Company reserves
the right to terminate the Plan in whole or in part, at any time and for any
reason, provided that appropriate compensation, as
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determined in the sole and absolute discretion of the Committee, is made to
Grantees with respect to Awards previously granted.
19. EFFECT ON OTHER PLAN
19.1 Participation in this Plan shall not affect a Grantee's
eligibility to participate in any other benefit or incentive plan of the
Company, and any Awards made pursuant to this Plan shall not be used in
determining the benefits provided under any other plan of the Company unless
specifically provided.
20. DURATION OF PLAN
20.1 The Plan shall remain in effect until all Awards under the Plan
have been satisfied by the issuance of Shares or the payment of cash, but no
Awards shall be granted more than ten years after the date the Plan is adopted
by the Company. The Second Amended and Restated 1996 Stock Incentive Plan amends
and restates the Amended and Restated 1996 Stock Incentive Plan, as previously
amended, effective as of March 31, 1999 subject to shareholders approval.
21. FUNDING OF THE PLAN
21.1 This Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under this Plan, and payment of Awards
shall be on the same basis as the claims of the Company's general creditors. In
no event shall interest be paid or accrued on any Award including unpaid
installments of Awards.
22. PLAN STATUS
22.1 This Plan is intended to satisfy the requirements of a 16b-3
plan under the Exchange Act.
22.2 This Plan is intended to qualify as a plan under Rule 701 issued
pursuant to The Securities Act of 1933, as amended.
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23. GOVERNING LAW
23.1 The laws of the State of Delaware shall govern, control and
determine all questions arising with respect to the Plan and the interpretation
and validity of its respective provisions.
NU SKIN ENTERPRISES, INC.
By: _________________________
Its: President
ATTEST:
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Its Secretary
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