As filed with the Securities and Exchange Commission on March 24, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NU SKIN ASIA PACIFIC, INC.
(Exact Name of Registrant as Specified in Its Charter)
------------------
Delaware 5122 87-0565309
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
75 West Center Street
Provo, Utah 84601
(801) 345-6100
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Amended and Restated Nu Skin Asia Pacific, Inc.
1996 Stock Incentive Plan
(Full Title of Plan)
Steven J. Lund, President
Nu Skin Asia Pacific, Inc.
75 West Center Street
Provo, Utah 84601
(801) 345-6100
(Name, and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Nolan S. Taylor, Esq. M. Truman Hunt, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P. Nu Skin Asia Pacific, Inc.
1000 Kearns Building 75 West Center Street
136 South Main Street Provo, Utah 84601
Salt Lake City, Utah 84101-1685 (801) 345-6100
(801) 320-6700
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to Registered Registred(1) Offering Price Per Share(2) Aggregate Offering Price(2) Registration Fee
- ------------------------ ------------ --------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C>
Class A Common Stock 196,000 $20.875 $ 4,091,500 $ 1,206.99
par value $.001
3,629,000 23.0625 83,693,812 24,689.67
<FN>
(1) The shares of Class A Common Stock being registered represent (1) 196,000
shares of Class A Common Stock which may be issued upon the exercise of
options outstanding under the Amended and Restated Nu Skin Asia Pacific,
Inc. 1996 Stock Incentive Plan (the "1996 Plan") and (ii) 3,629,000 shares
which are reserved for issuance under the 1996 Plan. Pursuant to Rule 416
promulgated pursuant to the Securities Act of 1933, as amended, this
registration statement also covers such indeterminable number of additional
shares of Class A Common Stock as may be issuable pursuant to antidilution
provisions of the 1996 Plan.
(2) The offering price for those shares which are reserved for issuance under
the 1996 Plan is not currently determinable, and is therefore estimated
pursuant to Rules 457(c) and (h) under the Securities Act of 1933 on the
basis of the average of the high and low sale prices for a shares of Class A
Common Stock as reported on the New York Stock Exchange on March 19, 1998.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
Explanatory Note:
The Reoffer Prospectus which is filed as part of this Registration Statement has
been prepared in accordance with the requirements of Part I of Form S-3 and may
be used for reoffers or resales of the Class A Common Stock of Nu Skin Asia
Pacific, Inc. acquired by an "affiliate" (as such term is defined in Rule 405 of
the General Rules and Regulations under the Securities Act of 1933, as amended)
pursuant to the Amended and Restated Nu Skin Asia Pacific, Inc. 1996 Stock
Incentive Plan.
<PAGE>
REOFFER PROSPECTUS
3,825,000 Shares of Class A Common Stock
[LOGO]
-------------------------
This Reoffer Prospectus (the "Prospectus") relates to reoffers and
resales from time to time by certain affiliates (the "Selling Stockholders") of
Nu Skin Asia Pacific, Inc., a Delaware corporation (the "Company"), of up to an
aggregate of 3,825,000 shares (the "Shares") of Class A Common Stock, par value
$.001 per share, of the Company (the "Class A Common Stock") which in the future
may be issued pursuant to options and awards granted to date and to be granted
under the Amended and Restated Nu Skin Asia Pacific, Inc. 1996 Stock Incentive
Plan (the "1996 Plan") to the Selling Stockholders.
The Selling Stockholders may from time to time sell all or a portion
of their Shares on the New York Stock Exchange (the "NYSE"), on any other
national securities exchange on which the Class A Common Stock is listed or
traded, in the over-the-counter-market, in negotiated transactions or otherwise,
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The Company will
not receive any of the proceeds from the sale of the Class A Common Stock
offered hereby (the "Shares"). The Company will pay all of the expenses
associated with the registration of the Shares and this Prospectus. The Selling
Stockholders will pay the other costs, if any, associated with any sale of the
Shares. See "Plan of Distribution."
The Class A Common Stock is traded on the NYSE under the symbol "NUS."
On March 17, 1998, the last reported sale price of the Class A Common Stock was
$ 24.06 per share.
See "Risk Factors" beginning on page 8 for a discussion of certain
factors which should be considered by prospective purchasers of the securities
offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 24, 1998.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-8 (together with all amendments
and exhibits thereto, the "Registration Statement"), of which this Prospectus is
a part, under the Securities Act with respect to the shares of Class A Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be examined without
charge at, or copies of which may be obtained upon payment of prescribed fees
from, the Commission and its regional offices listed below. Statements made in
this Prospectus as to the contents of any contract, agreement or other documents
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise with the Commission. Each such statement shall be deemed qualified in
its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. The Registration Statement and the exhibits thereto, as well as
any such reports, proxy statements and other information filed by the Company
with the Commission, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2311. Copies of such material also may be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains
a web site at http:\\www.sec.gov which contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. Such reports and other information may also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
INCORPORATION BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended by the Company's Form 10-K/A filed on March 19,
1998; and
(2) The description of the Company's Class A Common Stock as contained
in the Company's Registration Statement on Form 8-A dated November
6, 1996.
All documents and reports filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will furnish without charge, upon written or oral request,
to each person, including any beneficial owner, to whom this Prospectus is
delivered, a copy of any or all of the documents incorporated by reference
herein other than exhibits to such documents (unless such exhibits are
specifically incorporated by
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<PAGE>
reference into such documents). Requests for documents should be directed to Nu
Skin Asia Pacific, Inc., 75 West Center, Provo, UT 84601, Attention: Investor
Relations, telephone number (801) 345-6100.
FORWARD-LOOKING STATEMENTS
Certain statements made herein are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In addition, when used in this Prospectus and the documents incorporated
herein by reference, the words or phrases "will likely result," "expects,"
"intends," "will continue," "is anticipated," "estimates," "projects" and
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Reform Act. Forward-looking statements include plans and
objectives of management for future operations, including plans and objectives
relating to the products and the future economic performance and financial
results of the Company. The forward-looking statements and associated risks set
forth or incorporated by reference herein relate to the: (i) proposed
acquisition of NSI (as defined herein) and certain of its affiliates; (ii)
expansion of the Company's market share in its current markets; (iii) Company's
entrance into new markets; (iv) development of new products and new product
lines tailored to appeal to the particular needs of consumers in specific
markets; (v) stimulation of product sales by introducing new products; (vi)
opening of new offices, walk-in distribution centers and distributor support
centers in certain markets; (vii) promotion of distributor growth, retention and
leadership through local initiatives; (viii) upgrading of the Company's
technological resources to support distributors; (ix) obtaining of regulatory
approvals for certain products, including LifePak; (x) stimulation of product
purchases by inactive distributors through direct mail campaigns; (xi) retention
of the Company's earnings for use in the operation and expansion of the
Company's business; (xii) development of brand awareness and loyalty; (xiii)
enhancing of the Company's Global Compensation Plan (as defined herein); (xiv)
diversifying of the Company's revenue base and markets, (xv) seeking of cost
reductions from vendors; and (xvi) establishment of local manufacturing. All
forward-looking statements involve predictions and are subject to known and
unknown risks and uncertainties, including, without limitation, those discussed
under the caption "Risk Factors" as well as general economic and business
conditions, that could cause actual results to differ materially from historical
earnings and those presently anticipated or projected. Readers should not place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The factors listed under the caption "Risk Factors" could affect
the Company's financial performance and could cause the Company's actual results
for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements. Factors and
risks that might cause such differences include, but are not limited to, (a)
factors related to the Company's reliance upon independent distributors of NSI,
(b) fluctuations in foreign currency values relative to the U.S. dollar, (c)
adverse economic and business conditions in the Company's markets, especially
South Korea and Thailand, (d) the possibility that the proposed acquisition of
NSI and certain of its affiliates may not be consummated, (e) the potential
effects of adverse publicity, including adverse publicity regarding the Company
and other direct selling companies in South Korea and the Company's other
markets, (f) the potential negative impact of distributor actions, (g) seasonal
and cyclical trends, (h) variations in operating results, (i) government
regulation of direct selling activities in the PRC (as defined herein), Malaysia
and other existing and future markets, (j) government regulation of products and
marketing, (k) import restrictions, (l) other regulatory issues, including
regulatory action against the Company or its distributors in any of the
Company's markets and particularly in South Korea, (m) the Company's reliance on
certain distributors, (n) the potential divergence of interests between
distributors and the Company, (o) management of the Company's growth, (p) the
effects on operations of the NSI distributor equity program, (q) the
introduction of the Scion product line in the Philippines and Aloe-mx in Japan,
(r) market acceptance in South Korea and other markets of LifePak, the Company's
core IDN product, (s) the acceptance of new distributor walk-in centers in
Japan, Thailand and Taiwan, (t) acceptance of modifications to the Company's
sales compensation plan in the Philippines, (u) the Company's ability to
renegotiate or adjust vendor relationships, (v) the Company's ability to
establish local manufacturing capability, (w) risks inherent in the importation,
regulation and sale of personal care and nutritional products in the Company's
markets, (x) the Company's ability to successfully enter new markets such as
Poland and Brazil and introduce new products in addition to those already
referenced above, (y) the Company's ability to manage growth and deal with the
possible adverse effect on the Company of the change in the status of Hong Kong,
(z) the potential conflicts of interest between the Company and NSI, (aa)
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<PAGE>
control of the Company by the Original Stockholders (as defined herein), (bb)
the anti-takeover effects of dual classes of common stock, (cc) the Company's
reliance on and the concentration of outside manufacturers, (dd) the Company's
reliance on the operations of and dividends and distributions from the
Subsidiaries, (ee) taxation and transfer pricing issues, (ff) the potential
increase in distributor compensation expense, (gg) product liability issues and
(hh) competition in the Company's existing and future markets. In light of the
significant uncertainties inherent in forward-looking statements, the inclusion
of any such statement should not be regarded as a representation by the Company
or any other person that the objectives or plans of the Company will be
achieved. The Company disclaims any obligation or intent to update any such
factors or forward-looking statements to reflect future events or developments.
See "Risk Factors."
THE COMPANY
Nu Skin Asia Pacific is a rapidly growing network marketing company
involved in the distribution and sale of premium quality, innovative personal
care and nutritional products. The Company is the exclusive distribution vehicle
for NSI in the countries of Japan, Taiwan, Hong Kong (including Macau), South
Korea, Thailand and the Philippines, where the Company currently has operations,
and in Indonesia, Malaysia, the People's Republic of China ("PRC"), Singapore
and Vietnam, where Nu Skin operations have not commenced. The Company's products
are specifically designed for the network marketing distribution channel. The
Company markets its personal care products under the trademark "Nu Skin" and its
nutritional products under the trademark "Interior Design Nutritionals" ("IDN").
The Nu Skin personal care product lines include facial care, body care, hair
care and color cosmetics, as well as specialty products such as sun protection,
oral hygiene and fragrances. The IDN product lines include nutritional
supplements, nutritious and healthy snacks, sports and fitness nutritional
products, health solutions and botanical supplements.
In Japan, Taiwan and Hong Kong, the Company currently offers most of the
Nu Skin personal care products and approximately one-third of the IDN products,
including LifePak, one of the core IDN nutritional supplements. In South Korea,
the Company currently offers approximately one-half of the Nu Skin personal care
products, including most of the Nu Skin core facial and hair care products, and
LifePak. In Thailand and the Philippines, the Company currently offers one-third
of the Nu Skin personal care products, including most of the core facial and
hair care products, and none of the nutritional products. The Company believes
that it can significantly grow its business and attract new customers by
expanding its product offerings in each of its markets to include more of the
existing Nu Skin personal care and IDN products. In addition to expanding its
product offerings with existing Nu Skin personal care and IDN products, the
Company intends to introduce new products tailored to specific markets.
NSI, founded in 1984, is engaged in selling personal care and
nutritional products and, together with its affiliates, comprises one of the
largest network marketing organizations in the world. NSI provides a high level
of support services to the Company, including product development, distributor
support services, marketing and other managerial support services. Management
believes that the Company's relationship with NSI has allowed the Company to
increase revenue and net income at rates that otherwise may not have been
possible. See "Risk Factors--Relationship with and Reliance on NSI; Potential
Conflicts of Interest." On February 27, 1998, the Company entered into a Stock
Acquisition Agreement with the stockholders of NSI and certain affiliates of NSI
to acquire all of the capital stock of NSI and certain affiliates of NSI. See
"Recent Developments."
The Company was incorporated on September 4, 1996. On November 20, 1996,
the stockholders (the "Original Stockholders") of Nu Skin Japan Company, Limited
("Nu Skin Japan"), Nu Skin Taiwan, Inc. ("Nu Skin Taiwan"), Nu Skin Hong Kong,
Inc. ("Nu Skin Hong Kong"), Nu Skin Korea, Inc. ("Nu Skin Korea") and Nu Skin
Personal Care (Thailand), Inc. ("Nu Skin Thailand") contributed their shares of
capital stock to the capital of the Company in exchange for shares of Class B
Common Stock, par value $.001 per share (the "Class B Common Stock"), of the
Company (the "Reorganization"). As a result of the Reorganization, each of the
above-listed companies became a wholly-owned subsidiary of the Company, and,
together with Nu Skin Philippines, Inc., are referred to collectively as the
4
<PAGE>
"Subsidiaries." As used herein, "Nu Skin Asia Pacific" or the "Company" means Nu
Skin Asia Pacific, Inc. and the Subsidiaries, collectively.
The Company's principal executive offices are located at 75 West Center
Street, Provo, Utah 84601, and its telephone number is (801) 345-6100. Nu
Skin(R), Interior Design Nutritionals(TM), IDN(R), a logo consisting of an image
of a gold fountain with the words "Nu Skin" below it, and a logo consisting of
the stylized letters "IDN" in black and red are trademarks on NSI which are
licensed to the Company. The italicized product names used in this Prospectus
are product names and also, in certain cases, trademarks and are the property of
NSI. All other tradenames and trademarks appearing in this Prospectus are the
property of their respective holders.
RECENT DEVELOPMENTS
On February 27, 1998, the Company entered into a Stock Acquisition
Agreement (the "Acquisition Agreement") with the stockholders of NSI and certain
affiliates of NSI (the "NSI Stockholders") to acquire (the "NSI Acquisition")
all of the capital stock of NSI and certain affiliates of NSI (the "Acquired
Entities"). The consideration to be paid by the Company to the NSI Stockholders
will consist of shares of Series A Preferred Stock, par value $.001 per share,
of the Company (the "Series A Preferred Stock") in an amount determined as set
forth below, the assumption of the Acquired Entities' S Distribution Notes (as
defined below) payable to the NSI Stockholders in the amount of approximately
$180 million (taking into account the Acquired Entities' S Distribution Notes in
the amount of approximately $136.2 million as of December 31, 1997 and
additional Acquired Entities' S Distribution Notes covering undistributed
earnings for the period commencing January 1, 1998 and ending on the closing
date of the NSI Acquisition) and, contingent upon NSI and the Company meeting
certain earnings growth targets, up to $25 million in cash per year over the
next four years. In addition, the Acquisition Agreement provides that if the
Acquired Entities' S Distribution Notes for the above-referenced periods do not
equal or exceed $180 million, the Company will pay each NSI Stockholder in cash
or in the form of promissory notes the difference between (i) $180 million and
(ii) the aggregate principal amount of the Acquired Entities' S Distribution
Notes multiplied by each NSI Stockholder's proportional ownership interest in
the outstanding capital stock of NSI. The Acquisition Agreement provides that
the number of shares of Series A Preferred Stock to be delivered to the NSI
Stockholders shall be determined by dividing $70 million by the average closing
price of the Class A Common Stock for the 20 consecutive trading days ending
five trading days prior to the closing of the NSI Acquisition.
Collectively, the NSI Stockholders and their affiliates own beneficially
all of the outstanding shares of the Class B Common Stock. In addition, several
of the NSI Stockholders are directors and/or executive officers of the Company.
Effective as of December 31, 1997, NSI contributed certain assets
relating to the right to distribute NSI products in the United States to Nu Skin
USA, Inc. ("Nu Skin USA"), a newly created corporation wholly owned by the NSI
Stockholders, in exchange for all of the common stock of Nu Skin USA. The Nu
Skin USA common stock was then distributed to the NSI Stockholders. In addition,
effective as of December 31, 1997, NSI and the other Acquired Entities declared
distributions to their then existing stockholders (consisting solely of the NSI
Stockholders) that included all of such Acquired Entities' previously earned and
undistributed S corporation earnings through such date (the "Acquired Entities'
S Corporation Distribution"). As of December 31, 1997, such Acquired Entities'
aggregate undistributed S corporation earnings were approximately $136.2
million. The Acquired Entities' S Corporation Distribution was distributed in
the form of promissory notes due December 31, 2004 and bearing interest at 8.0%
per annum (the "Acquired Entities' S Distribution Notes"). The Acquired
Entities' S Corporation Distribution Notes are held entirely by the NSI
Stockholders. In addition, the Acquired Entities will declare distributions to
then existing stockholders that include all of such Acquired Entities'
previously earned and undistributed S corporation earnings through the date of
closing of the NSI Acquisition. As discussed above, the obligation to repay the
Acquired Entities' S Distribution Notes to the NSI Stockholders will be assumed
by the Company in connection with the NSI Acquisition.
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<PAGE>
The Acquired Entities consist of NSI, Nu Skin International Management
Group, Inc., ("NSIMG") and the NSI affiliates operating in Europe, Australia and
New Zealand, including Nu Skin Europe, Inc.; Nu Skin U.K., Ltd. (domesticated in
Delaware under the name Nu Skin U.K., Inc.); Nu Skin Germany, GmbH (domesticated
in Delaware under the name Nu Skin Germany, Inc.); Nu Skin France, SARL
(domesticated in Delaware under the name Nu Skin France, Inc.); Nu Skin
Netherlands, B.V. (domesticated in Delaware under the name Nu Skin Netherlands,
Inc.); Nu Skin Italy, (SRL) (domesticated in Delaware under the name Nu Skin
Italy, Inc.); Nu Skin Spain, S.L. (domesticated in Delaware under the name Nu
Skin Spain, Inc.); Nu Skin Belgium, N.V. (domesticated in Delaware under the
name Nu Skin Belgium, Inc.); Nu Skin Personal Care Australia, Inc.; Nu Skin New
Zealand, Inc.; Nu Skin Brazil, Ltda. (domesticated in Delaware under the name Nu
Skin Brazil, Inc.); Nu Skin Argentina, Inc.; Nu Skin Chile, S.A. (domesticated
in Delaware under the name Nu Skin Chile, Inc.); Nu Skin Poland Spa.
(domesticated in Delaware under the name Nu Skin Poland, Inc.); and Cedar
Meadows, L.C. The NSI Stockholders continue to own as private entities the NSI
affiliates operating in the United States, Canada, Mexico, Guatemala and Puerto
Rico, including Nu Skin USA, Inc.; Nu Skin Canada, Inc.; Nu Skin Mexico S.A. de
C.V. (domesticated in Delaware under the name Nu Skin Mexico, Inc.); Nu Skin
Guatemala, S.A. (domesticated in Delaware under the name Nu Skin Guatemala,
Inc.); and Nu Skin Puerto Rico, Inc. (collectively, the "Retained Entities").
6
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The following chart illustrates the organizational structure of the
Company and the Retained Entities immediately after the NSI Acquisition.
[CORPORATE ORGANIZATIONAL CHART]
Through its acquisition of NSI, the Company will obtain ownership and
control of the Nu Skin trademarks and tradenames, the Nu Skin Global
Compensation Plan, distributor lists and related intellectual property and
know-how (collectively, the "Intellectual Property"). The Company, through NSI,
intends to continue to license the Intellectual Property and, through NSIMG,
intends to continue to provide management support services to the Acquired
Entities on substantially the same terms as existed prior to the NSI
Acquisition. In connection with the NSI Acquisition, the Company anticipates,
through NSI and NSIMG, entering into new agreements with Nu Skin USA, Inc. and
revised agreements with the other Retained Entities on terms substantially
similar to its agreements with the Acquired Entities, pursuant to which NSI will
continue to license the Intellectual Property and the exclusive right to sell Nu
Skin personal care and nutritional products in the United States, Canada,
Mexico, Guatemala and Puerto Rico to the Retained Entities and NSIMG will
continue to provide management support services to the Retained Entities.
Upon completion of the NSI Acquisition, the Company and its subsidiaries
will own and distribute Nu Skin products in 18 markets worldwide. The Company
will also hold the rights to all future Nu Skin markets.
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RISK FACTORS
An investment in the Class A Common Stock offered hereby involves
special considerations and significant risks, including, but not limited to,
those discussed or referred to below. Prospective investors should carefully
consider the following risks and information in conjunction with the other
information contained in this Prospectus before acquiring shares of Class A
Common Stock. The risk factors set forth below relate to the Company's business
prior to the contemplated NSI Acquisition. Certain of these factors may be
impacted by the proposed NSI Acquisition; however, no assurance can be given
that the NSI Acquisition will be consummated. See "Recent Developments."
Reliance Upon Independent Distributors of NSI
The Company distributes its products exclusively through independent
distributors who have contracted directly with NSI to become distributors.
Consequently, the Company does not contract directly with distributors but
licenses its distribution system and distributor force from NSI. Distributor
agreements with NSI are voluntarily terminable by distributors at any time. The
Company's revenue is directly dependent upon the efforts of these independent
distributors, and any growth in future sales volume will require an increase in
the productivity of these distributors and/or growth in the total number of
distributors. As is typical in the direct selling industry, there is turnover in
distributors from year to year, which requires the sponsoring and training of
new distributors by existing distributors to maintain or increase the overall
distributor force and motivate new and existing distributors. The Company
experiences seasonal decreases in distributor sponsoring and product sales in
some of the countries in which the Company operates because of local holidays
and customary vacation periods. The size of the distribution force can also be
particularly impacted by general economic and business conditions and a number
of intangible factors such as adverse publicity regarding the Company or NSI, or
the public's perception of the Company's products, product ingredients, NSI's
distributors or direct selling businesses in general. Historically, the Company
has experienced periodic fluctuations in the level of distributor sponsorship
(as measured by distributor applications). However, because of the number of
factors that impact the sponsoring of new distributors, and the fact that the
Company has little control over the level of sponsorship of new distributors,
the Company cannot predict the timing or degree of those fluctuations. There can
be no assurance that the number or productivity of the Company's distributors
will be sustained at current levels or increased in the future. In addition, the
number of distributors as a percentage of the population in a given country or
market could theoretically reach levels that become difficult to exceed due to
the finite number of persons inclined to pursue a direct selling business
opportunity. This is of particular concern in Taiwan, where industry sources
have estimated that up to 10% of the population is already involved in some form
of direct selling.
Since distributor agreements are entered into between NSI and
distributors, all of the distributors who generate revenue for the Company are
distributors of NSI. See "--Relationship with and Reliance on NSI; Potential
Conflicts of Interest." Because distributors are independent contractors of NSI,
neither NSI nor the Company is in a position to provide the same level of
direction, motivation and oversight as either would with respect to its own
employees. The Company relies on NSI to enforce distributors policies and
procedures. Although NSI has a compliance department responsible for the
enforcement of the policies and procedures that govern distributor conduct, it
can be difficult to enforce these policies and procedures because of the large
number of distributors and their independent status, as well as the impact of
regulations in certain countries that limit the ability of NSI and the Company
to monitor and control the sales practices of distributors.
Currency Risks
The Company's foreign-derived sales and selling, general and
administrative expenses are converted to U.S. dollars for reporting purposes.
Consequently, the Company's reported earnings are significantly impacted by
changes in currency exchange rates, generally increasing with a weakening dollar
and decreasing with a strengthening dollar. In addition, the Company purchases
inventory from NSI in U.S. dollars and assumes currency exchange rate risk with
respect to such purchases. Local currency in Japan, Taiwan, Hong Kong, South
Korea, Thailand and the Philippines
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is generally used to settle non-inventory transactions with NSI. Given the
uncertainty of the extent of exchange rate fluctuations, the Company cannot
estimate the effect of these fluctuations on its future business, product
pricing, results of operations or financial condition. However, because nearly
all of the Company's revenue is realized in local currencies and the majority of
its cost of sales is denominated in U.S. dollars, the Company's gross profits
will be positively affected by a weakening in the U.S. dollar and will be
negatively affected by a strengthening in the U.S. dollar.
The Company believes that a variety of complex factors impact the value
of local currencies relative to the U.S. dollar including, without limitation,
interest rates, monetary policies, political environments, and relative economic
strengths. The Company has been subject to exceptionally high volatility in
currency exchange rates in certain markets during 1997. In order to partially
offset the anticipated effect of these currency fluctuations, the Company
implemented a price increase on certain of its products of between 5% and 9% on
average in 1997. There can be no assurance that future currency fluctuations
will not result in similar concerns or adversely affect the performance of the
price of the Class A Common Stock. Although the Company tries to reduce its
exposure to fluctuations in foreign exchange rates by using hedging
transactions, such transactions may not entirely offset the impact of currency
fluctuations. Accordingly, in the face of a strengthening of the U.S. dollar,
the Company's earnings will be adversely affected. The Company does not use
hedging transactions for trading or speculative purposes.
Risks Related to the Proposed NSI Acquisition
The Company believes that the proposed NSI Acquisition will offer
opportunities for long-term efficiencies in operations that should positively
affect future results of the combined operations of the Company and the Acquired
Entities. However, no assurances can be given whether or when such efficiencies
will be realized. In addition, the combined companies will be more complex and
diverse than the Company individually, and the combination and continued
operation of their distinct business operations will present difficult
challenges for the Company's management due to the increased time and resources
required in the management effort. While management and the Board of Directors
of the Company believe that the combination can be effected in a manner which
will increase the value of the Company and the Acquired Entities, no assurance
can given that such realization of value will be achieved.
Although the parties to the NSI Acquisition have entered into definitive
agreements, the closing of the NSI Acquisition is subject to the timely
satisfaction of certain conditions contained in the Acquisition Agreement.
Although the Company currently expects that such closing conditions will be
satisfied or waived, there can be no assurance that the closing of the NSI
Acquisition will occur. Such conditions include, among others, the receipt of an
opinion from the Company's independent public accountants with respect to
certain tax matters of the NSI Acquisition, the receipt of all necessary
consents and approvals from governmental officials and other third parties and
the absence of any material adverse change in the business or operations of the
Acquired Entities.
Potential Effects of Adverse Publicity
The size of the distribution force and the results of the Company's
operations can be particularly impacted by adverse publicity regarding the
Company or NSI, or their competitors, including publicity regarding the legality
of network marketing, the quality of the Company's products and product
ingredients or those of its competitors, regulatory investigations of the
Company or the Company's competitors and their products, distributor actions and
the public's perception of NSI's distributors and direct selling businesses
generally.
In 1991 and 1992, NSI was the subject of investigations by various
regulatory agencies of eight states. All of the investigations were concluded
satisfactorily. However, the publicity associated with the investigations
resulted in a material adverse impact on NSI's results of operations. The denial
by the Malaysian government in 1995 of the Company's business permit
applications due to distributor actions resulted in adverse publicity for the
Company. See"--Potential Negative Impact of Distributor Actions." In South
Korea, publicity generated by a coalition
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of consumer groups targeted at a competitor of the Company negatively impacted
the Company's operations in 1997. In addition, the South Korean government and
certain consumer and trade organizations have expressed concerns which have
attracted media attention regarding South Korean consumption of luxury and
foreign products, in general. The Company believes that the adverse publicity
resulting from these claims and media campaigns has adversely affected and may
continue to adversely affect the direct selling industry and the Company's South
Korean operations. See "--Seasonality and Cyclicality; Variations in Operating
Results." The State of Pennsylvania recently filed an action against NSI for
alleged violations of Pennsylvania law relating to activities of Nu Skin
distributors promoting a business called Big Planet. The filing of the action
precipitated certain negative media coverage and may have an impact on the
operations of the Company and its affiliates. There can be no assurance that the
Company will not be subject to adverse publicity in the future as a result of
regulatory investigations or actions, whether of the Company or its competitors,
distributor actions, actions of competitors or other factors, or that such
adverse publicity will not have a material adverse effect on the Company's
business or results of operations. See "--Government Regulation of Direct
Selling Activities," "--Government Regulation of Products and Marketing; Import
Restrictions," "--Other Regulatory Issues" and "--Entering New Markets."
Potential Negative Impact of Distributor Actions
Distributor actions can negatively impact the Company and its products.
From time to time, the Company receives inquiries from regulatory agencies
precipitated by distributor actions. For example, in October 1995, the Company's
business permit applications were denied by the Malaysian government as the
result of activities by certain NSI distributors before required government
approvals could be secured. NSI subsequently terminated the distributorship
rights of some of the distributors involved and elected to withdraw from the
Malaysian market for a period of time. The denial by the Malaysian government of
the Company's business permit applications resulted in adverse publicity for the
Company. See "--Other Regulatory Issues." Distributor activities in other
countries in which the Company has not commenced operations may similarly result
in an inability to secure, or delay in securing, required regulatory and
business permits. In addition, the publicity which can result from a variety of
potential distributor activities such as inappropriate earnings claims, product
representations or improper importation of Nu Skin products from other markets,
can make the sponsoring and retaining of distributors more difficult, thereby
negatively impacting sales. See "--Potential Effects of Adverse Publicity."
Furthermore, the Company's business and results of operations could be adversely
affected if NSI terminates a significant number of distributors or certain
distributors who play a key role in the Company's distribution system. There can
be no assurance that these or other distributor actions will not have a material
adverse effect on the Company's business or results of operations. The recent
action filed by the State of Pennsylvania against the Company resulted from
improper distributor actions. See "--Potential Effects of Adverse Publicity."
Seasonality and Cyclicality; Variations in Operating Results
While neither seasonal nor cyclical variations have materially affected
the Company's results of operations to date, the Company believes that its rapid
growth may have overshadowed these factors. Accordingly, there can be no
assurance that seasonal or cyclical variations will not materially adversely
affect the Company's results of operations in the future.
The direct selling industry in Asia is impacted by certain seasonal
trends such as major cultural events and vacation patterns. For example, sales
are generally affected by local New Year celebrations in Japan, Taiwan, Hong
Kong, South Korea and Thailand, which occur in the Company's first quarter.
Management believes that direct selling in Japan is also generally negatively
impacted during August, when many individuals traditionally take vacations.
Generally, the Company has experienced rapid revenue growth in each new
market from the commencement of operations. In Japan, Taiwan and Hong Kong, the
initial rapid revenue growth was followed by a short period of stable or
declining revenue followed by renewed growth fueled by new product
introductions, an increase in the number of
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active distributors and increased distributor productivity. The Company's
operations in South Korea experienced a significant decline in 1997 which was
due in part to a business cycle common to new markets opened by the Company but
which was due primarily to general economic turmoil and adverse business
conditions. See "--Potential Effects of Adverse Publicity." An additional factor
which the Company believes has contributed to revenue decline in South Korea is
the focus of key distributors on other recently-opened markets, including
Thailand.
In addition, the Company may experience variations in its results of
operations, on a quarterly basis as new products are introduced and new markets
are opened. There can be no assurance that current revenue and productivity
trends will be maintained in any of these markets or that future results of
operations will follow historical performance.
Government Regulation of Direct Selling Activities
Direct selling activities are regulated by various governmental
agencies. These laws and regulations are generally intended to prevent
fraudulent or deceptive schemes, often referred to as "pyramid" or "chain sales"
schemes, that promise quick rewards for little or no effort, require high entry
costs, use high pressure recruiting methods and/or do not involve legitimate
products. In Japan, the Company's distribution system is regulated under the
"Door-to-Door" Sales Law, which requires the submission of specific information
concerning the Company's business and products and which provides certain
cancellation and cooling-off rights for consumers and new distributors.
Management has been advised by counsel that in some respects Japanese laws are
becoming more restrictive with respect to direct selling in Japan. In Taiwan,
the Fair Trade Law (and the Enforcement Rules and Supervisory Regulations of
Multi-Level Sales) requires the Company to comply with registration procedures
and also provides distributors with certain rights regarding cooling-off periods
and product returns. The Company also complies with South Korea's strict
Door-to-Door Sales Act, which requires, among other things, the regular
reporting of revenue, the registration of distributors together with the
issuance of a registration card, and the maintaining of a current distributor
registry. This law also limits the amount of commissions that a registered
multi-level marketing company can pay to its distributors to 35% of revenue in a
given month. In Thailand and the Philippines, general fair trade laws impact
direct selling and multi-level marketing activities.
Based on research conducted in opening its existing markets (including
assistance from local counsel), the nature and scope of inquiries from
government regulatory authorities and the Company's history of operations in
such markets to date, the Company believes that its method of distribution is in
compliance in all material respects with the laws and regulations relating to
direct selling activities of all of the countries in which the Company currently
operates. Many countries, however, including Singapore, one of the Company's
potential markets, currently have laws in place that would prohibit the Company
and NSI from conducting business in such markets. There can be no assurance that
the Company will be allowed to conduct business in each of the new markets or
continue to conduct business in each of its existing markets licensed from NSI.
See "--Entering New Markets."
Government Regulation of Products and Marketing; Import Restrictions
The Company and NSI are subject to or affected by extensive governmental
regulations not specifically addressed to network marketing. Such regulations
govern, among other things, (i) product formulation, labeling, packaging and
importation, (ii) product claims and advertising, whether made by the Company,
NSI or NSI distributors, (iii) fair trade and distributor practices, (iv) taxes,
transfer pricing and similar regulations that affect foreign taxable income and
customs duties, and (v) regulations governing foreign companies generally.
With the exception of a small percentage of revenues in Japan, virtually
all of the Company's sales historically have been derived from products
purchased from NSI. All of those products historically have been imported into
the countries in which they were ultimately sold. The countries in which the
Company currently conducts business impose various legal restrictions on
imports. In Japan, the Japanese Ministry of Health and Welfare ("MOHW") requires
the Company to possess an import business license and to register each personal
care
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product imported into the country. Packaging and labeling requirements are also
specified. The Company has had to reformulate many products to satisfy MOHW
regulations. In Japan, nutritional foods, drugs and quasi-drugs are all strictly
regulated. The chief concern involves the types of claims and representations
that can be made regarding the efficacy of nutritional products. In Taiwan, all
"medicated" cosmetic and pharmaceutical products require registration. In Hong
Kong and Macau, "pharmaceutical" products are strictly regulated. In South
Korea, the Company is subject to and has obtained the mandatory certificate of
confirmation as a qualified importer of cosmetics under the Pharmaceutical
Affairs Law as well as additional product approvals for each of the 45
categories of cosmetic products which it imports. Each new cosmetic product
undergoes a 60-day post-customs inspection during which, in addition to
compliance with ingredient requirements, each product is inspected for
compliance with South Korean labeling requirements. In Thailand, personal care
products are regulated by the Food and Drug Association and the Ministry of
Public Health and all of the Nu Skin personal care products introduced in this
market have qualified for simplified approval procedures under Thai law. In the
Philippines, Nu Skin products are regulated by the Bureau of Food and Drug and
all products introduced in this market have been registered. There can be no
assurance that these or other applicable regulations will not prevent the
Company from introducing new products into its markets or require the
reformulation of existing products.
The Company has not experienced any difficulty maintaining its import
licenses but has experienced complications regarding health and safety and food
and drug regulations for nutritional products. Many products require
reformulation to comply with local requirements. In addition, new regulations
could be adopted or any of the existing regulations could be changed at any time
in a manner that could have a material adverse effect on the Company's business
and results of operations. Duties on imports are a component of national trade
and economic policy and could be changed in a manner that would be materially
adverse to the Company's sales and its competitive position compared to
locally-produced goods, in particular in countries such as Taiwan, where the
Company's products are already subject to high customs duties. In addition,
import restrictions in certain countries and jurisdictions limit the Company's
ability to import products from NSI. In some jurisdictions, such as the PRC,
regulators may prevent the importation of Nu Skin and IDN products altogether.
Present or future health and safety or food and drug regulations could delay or
prevent the introduction of new products into a given country or marketplace or
suspend or prohibit the sale of existing products in such country or
marketplace.
Other Regulatory Issues
As a U.S. entity operating through subsidiaries in foreign
jurisdictions, the Company is subject to foreign exchange control and transfer
pricing laws that regulate the flow of funds between the Subsidiaries and the
Company, as well as the flow of funds to NSI for product purchases, management
services and contractual obligations such as payment of distributor commissions.
The Company believes that it operates in compliance with all applicable customs,
foreign exchange control and transfer pricing laws. However, there can be no
assurance that the Company will continue to be found to be operating in
compliance with foreign customs, exchange control and transfer pricing laws, or
that such laws will not be modified, which, as a result, may require changes in
the Company's operating procedures.
As is the case with most network marketing companies, NSI and the
Company have from time to time received inquiries from various government
regulatory authorities regarding the nature of their business and other issues
such as compliance with local business opportunity and securities laws. Although
to date none of these inquiries has resulted in a finding materially adverse to
the Company or NSI, adverse publicity resulting from inquiries into NSI
operations by certain government agencies in the early 1990's, stemming in part
out of inappropriate product and earnings claims by distributors, materially
adversely affected NSI's business and results of operations. There can be no
assurance that the Company or NSI will not face similar inquiries in the future
which, either as a result of findings adverse to the Company or NSI or as a
result of adverse publicity resulting from the instigation of such inquiries,
could have a material adverse effect on the Company's business and results of
operations. See "--Potential Effects of Adverse Publicity."
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The Subsidiaries are periodically subject to reviews and audits by
various governmental agencies, particularly in new markets, where the Company
has experienced high rates of growth. Recently, the South Korean Ministry of
Trade, Industry and Energy commenced an examination of the largest foreign and
domestic owned network marketing companies in South Korea, including Nu Skin
Korea. The purposes of the examination were stated to be to monitor how
companies are operating and to audit current business practices. In addition, Nu
Skin Korea has been subject to an audit by the South Korean Customs Service.
Management believes that this audit was precipitated largely as a result of Nu
Skin Korea's rapid growth and its position as the largest importer of cosmetics
and personal care products in South Korea as well as by recent South Korean
trade imbalances. The Customs Service reviewed a broad range of issues relating
to the operations of Nu Skin Korea, with a focus on reviewing customs valuation
issues and intercompany payments. Recently, the Customs Service has resolved
certain issues related to its audit without imposing sanctions. The intercompany
payment issue was referred to various other government agencies which have also
recently concluded their reviews and found no wrong-doing and imposed no fines,
sanctions or other restrictions. The import valuation issues, which management
considers to be routine in light of the Company's extensive import and export
activities, were referred to the valuation division of the Customs Service. The
Company continues to believe that its actions have been in compliance in all
material respects with relevant regulations. See "--Potential Negative Impact of
Distributor Actions." Management believes that other major importers of cosmetic
products are also the focus of regulatory reviews by South Korean authorities.
Businesses which are more than 50% owned by non-citizens are not
permitted to operate in Thailand unless they have an Alien Business Permit,
which is frequently difficult to obtain. The Company is currently operating
under the Treaty of Amity and Economic Relations between Thailand and the United
States (the "Treaty of Amity"). Under the Treaty of Amity, an Alien Business
Permit is not required if a Thailand business is owned by an entity organized in
the United States, a majority of whose owners are U.S. citizens or entities.
From time to time, it has been reported that certain Thailand government
officials have considered supporting the termination of the Treaty of Amity.
There can be no assurance that, if the Treaty of Amity were terminated, the
Company would be able to obtain an Alien Business Permit and continue operations
in Thailand.
Based on the Company's and NSI's experience and research (including
assistance from counsel) and the nature and scope of inquiries from government
regulatory authorities, the Company believes that it is in material compliance
with all regulations applicable to the Company. Despite this belief, either the
Company or NSI could be found not to be in material compliance with existing
regulations as a result of, among other things, the considerable interpretative
and enforcement discretion given to regulators or misconduct by independent
distributors. In 1994, NSI and three of its distributors entered into a consent
decree with the United States Federal Trade Commission (the "FTC") with respect
to its investigation of certain product claims and distributor practices,
pursuant to which NSI paid approximately $1 million to settle the FTC
investigation. In August 1997, NSI reached a settlement with the FTC with
respect to certain product claims and its compliance with the 1994 consent
decree pursuant to which settlement NSI paid $1.5 million to the FTC. In
connection with the August 1997 settlement, NSI also voluntarily agreed to
recall and rewrite virtually all of its sales and marketing materials to address
FTC concerns. In February 1998, the State of Pennsylvania filed a lawsuit
against NSI and one of its affiliates Big Planet, Inc. ("Big Planet"), alleging
violations of Pennsylvania law. In early March 1998, NSI and Big Planet agreed
to suspend for 30 days all sales and recruitment efforts related to Big Planet's
potential electricity marketing program. Big Planet also volunteered certain
other restrictions on its business. NSI's primary business of distributing
personal care and nutritional products was unaffected by the lawsuit. These
events were reported in certain media.
Even though neither the Company nor the Subsidiaries has encountered
similar regulatory concerns, there can be no assurances that the Company and the
Subsidiaries will not be subject to similar inquiries and regulatory
investigations or disputes and the effects of any adverse publicity resulting
therefrom. Any assertion or determination that either the Company, NSI or any
NSI distributors are not in compliance with existing laws or regulations could
potentially have a material adverse effect on the Company's business and results
of operations. In addition, in any country or jurisdiction, the adoption of new
laws or regulations or changes in the interpretation of existing laws or
regulations could generate negative publicity and/or have a material adverse
effect on the
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Company's business and results of operations. The Company cannot determine the
effect, if any, that future governmental regulations or administrative orders
may have on the Company's business and results of operations. Moreover,
governmental regulations in countries where the Company plans to commence or
expand operations may prevent, delay or limit market entry of certain products
or require the reformulation of such products. Regulatory action, whether or not
it results in a final determination adverse to the Company or NSI, has the
potential to create negative publicity, with detrimental effects on the
motivation and recruitment of distributors and, consequently, on the Company's
sales and earnings. See "--Potential Effects of Adverse Publicity" and
"--Entering New Markets."
Reliance on Certain Distributors; Potential Divergence of Interests between
Distributors and the Company
The Global Compensation Plan allows distributors to sponsor new
distributors. The sponsoring of new distributors creates multiple distributor
levels in the network marketing structure. Sponsored distributors are referred
to as "downline" distributors within the sponsoring distributor's "downline
network." If downline distributors also sponsor new distributors, additional
levels of downline distributors are created, with the new downline distributors
also becoming part of the original sponsor's "downline network." As a result of
this network marketing distribution system, distributors develop relationships
with other distributors, both within their own countries and internationally.
The Company believes that its revenue is generated from thousands of distributor
networks. However, the Company estimates that, as of December 31, 1997,
approximately 300 distributorships worldwide comprised NSI's two highest
executive distributor levels (Hawaiian Blue Diamond and Blue Diamond
distributors). These distributorships have developed extensive downline networks
which consist of thousands of sub-networks. Together with such networks, these
distributorships account for substantially all of the Company's revenue.
Consequently, the loss of such a high-level distributor or another key
distributor together with a group of leading distributors in such distributor's
downline network, or the loss of a significant number of distributors for any
reason, could adversely affect sales of the Company's products, impair the
Company's ability to attract new distributors and adversely impact earnings.
Under the Global Compensation Plan, a distributor receives commissions
based on products sold by the distributor and by participants in the
distributor's worldwide downline network, regardless of the country in which
such participants are located. The Company, on the other hand, receives revenues
based almost exclusively on sales of products to distributors within the
Company's markets. So, for example, if a distributor located in Japan sponsors a
distributor in Europe, the Japanese distributor could receive commissions based
on the sales made by the European distributor, but the Company would not receive
any revenue since the products would have been sold outside of the Company's
markets. The interests of the Company and distributors therefore diverge
somewhat in that the Company's primary objective is to maximize the amount of
products sold within the Company's markets, while the distributors' objective is
to maximize the amount of products sold by the participants in the distributors'
worldwide downline networks. The Company and NSI have observed that the
commencement of operations in a new country tends to distract the attention of
distributors from the established markets for a period of time while key
distributors begin to build their downline networks within the new country. NSI
is currently contemplating opening operations in additional countries outside of
the Company's markets. To the extent distributors focus their energies on
establishing downline networks in these new countries, and decrease their focus
on building organizations within the Company's markets, the Company's business
and results of operations could be adversely affected. Furthermore, the Company
itself is currently contemplating opening new markets. In the event distributors
focus on these new markets, sales in existing markets might be adversely
affected. There can be no assurance that these new markets will develop or that
any increase in sales in new markets will not be more than offset by a decrease
in sales in the Company's existing markets.
Entering New Markets
As part of its growth strategy, the Company has acquired from NSI the
right to act as NSI's exclusive distribution vehicle in Indonesia, Malaysia, the
PRC, Singapore and Vietnam. The Company has undertaken reviews of the laws and
regulations to which its operations would be subject in Indonesia, Malaysia, the
PRC, Singapore and
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Vietnam. Given existing regulatory environments and economic conditions, the
Company's entrance into Singapore and Vietnam is not anticipated in the short to
mid-term. The regulatory and political climate in the other countries for which
the Company has the right to act as NSI's exclusive distributor is such that a
replication of the Company's current operating structure cannot be guaranteed.
Because the Company's personal care and nutritional product lines are positioned
as premium product lines, the market potential for the Company's product lines
in relatively less developed countries, such as the PRC and Vietnam, remains to
be determined. Modifications to each product line may be needed to accommodate
the market conditions in each country, while maintaining the integrity of the
Company's products. No assurance can be given that the Company will be able to
obtain necessary regulatory approvals to commence operations in these new
markets, or that, once such approvals are obtained, the Company and NSI, upon
which the Company is largely dependent for product development assistance, will
be able to successfully reformulate Nu Skin personal care and IDN product lines
in any of the Company's new markets to attract local consumers.
Each of the proposed new markets will present additional unique
difficulties and challenges. The PRC, for example, has proven to be a
particularly difficult market for foreign corporations due to its extensive
government regulation and historical political tenets, and no assurance can be
given that the Company will be able to establish Nu Skin operations in the PRC
using the Company's business model or otherwise. The Company believes that
entering the PRC may require the successful establishment of a joint venture
enterprise with a Chinese partner and the establishment of a local manufacturing
presence. These initiatives would likely require a significant investment over
time by the Company. The Company believes that the PRC national regulatory
agency responsible for direct selling periodically reviews the regulation of
multi-level marketing. Management is aware of recent media and other reports in
the PRC reporting an increasing desire on the part of senior government officers
to curtail or even abolish direct selling and multi-level marketing activities.
These views may lead to changes in applicable regulations. The Company believes
that PRC regulators are currently not issuing direct selling or multi-level
marketing licenses and may take action restricting or rescinding currently
licensed direct selling businesses. The Company is actively working on these and
other issues including joint ventures and potential marketing alternatives
related to possible Nu Skin operations in the PRC. It is not known when or
whether the Company will be able to implement in the PRC business models
consistent with those used by the Company in other markets. The Company will
likely have to apply for licenses on a province by province basis, and the
repatriation of the Company's profits will be subject to restrictions on
currency conversion and the fluctuations of the government controlled exchange
rate. In addition, because distribution systems in the PRC are greatly
fragmented, the Company may be forced to use business models significantly
different from those used by the Company in more developed countries. The lack
of a comprehensive legal system, the uncertainties of enforcement of existing
legislation and laws, and potential revisions of existing laws could have an
adverse effect on the Company's proposed business in the PRC.
The other potential new markets also present significant regulatory,
political and economic obstacles to the Company. In Singapore, for example,
network marketing is currently illegal and is not permitted under any
circumstances. Although the Company believes that this restriction will
eventually be relaxed or repealed, no assurance can be given that such
regulation will not remain in place and that the Company will not be permanently
prevented from initiating sales in Singapore. In addition, Malaysia has
governmental guidelines that have the effect of limiting foreign ownership of
direct selling companies operating in Malaysia to no more than 30%. There can be
no assurance that the Company will be able to properly structure Malaysian
operations to comply with this policy. In October of 1995, the Company's
business permit applications were denied by the Malaysian government as a result
of activities by certain NSI distributors. Therefore, the Company believes that
although significant opportunities exist to expand its operations into new
markets, there can be no assurance that these or other difficulties will not
prevent the Company from realizing the benefits of this opportunity.
Managing Growth
The Company has experienced rapid growth since operations in Hong Kong
commenced in 1991. The management challenges imposed by this growth include
entry into new markets, growth in the number of employees and distributors,
expansion of facilities necessary to accommodate growth and additions and
modifications to the Company's product
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lines. To manage these changes effectively, the Company may be required to hire
additional management and operations personnel and to improve its operational,
financial and management systems.
Possible Adverse Effect on the Company of the Change in the Status of Hong Kong
The Company has offices and a portion of its operations in Hong Kong.
Effective July 1, 1997, the exercise of sovereignty over Hong Kong was
transferred from the Government of the United Kingdom of Great Britain and
Northern Ireland (the "United Kingdom"), to the government of the PRC pursuant
to the Sino-British Joint Declaration on the Question of Hong Kong (the "Joint
Declaration"), and Hong Kong became a Special Administrative Region ("SAR") of
the PRC. The Joint Declaration provided for Hong Kong to be under the authority
of the government of the PRC but Hong Kong will enjoy a high degree of autonomy
except in foreign and defense affairs, and that Hong Kong be vested with
executive, legislative and independent judicial power. The Joint Declaration
also provides that the current social and economic systems in Hong Kong will
remain unchanged for 50 years after June 30, 1997 and that Hong Kong will retain
the status of an international financial center. Although sales in Hong Kong
accounted for less than 5% of the Company's revenues for the year ended December
31, 1997, Hong Kong serves as the location for the Company's regional offices
and an important base of operations for many of the Company's most successful
distributors whose downline distributor networks extend into other Asian
markets. Any adverse effect on the social, political or economic systems in Hong
Kong resulting from this transfer could have a material adverse effect on the
Company's business and results of operations. Although the Company does not
anticipate any material adverse change in the business environment in Hong Kong
resulting from the 1997 transfer of sovereignty, the Company has formulated
contingency plans to transfer the Company's regional office to another
jurisdiction in the event that the Hong Kong business environment is so
affected.
Relationship with and Reliance on NSI; Potential Conflicts of Interest
NSI has ownership and control of the NSI trademarks, tradenames, the
Global Compensation Plan, the Licensed Property and licenses to the Company
rights to use the Licensed Property in certain markets. NSI and its affiliates
currently operate in 17 countries, excluding the countries in which the Company
currently operates, and will continue to market and sell Nu Skin personal care
and IDN nutritional products in these countries, as well as in additional
countries outside of the Company's markets, through the network marketing
channel. Thus, the Company cannot use the NSI trademarks to expand into other
markets for which the Company does not currently have a license without first
obtaining additional licenses or other rights from NSI. There can be no
assurance that NSI will make any additional markets available to the Company or
that the terms of any new licenses from NSI will be acceptable to the Company.
See "Recent Developments."
NSI has licensed to the Company, through the Subsidiaries, rights to
distribute Nu Skin and IDN products and to use the Licensed Property in the
Company's markets, and NSIMG, an affiliate of NSI, will provide management
support services to the Company and the Subsidiaries, pursuant to distribution,
trademark/tradename license, licensing and sales, and management services
agreements (the "Operating Agreements"). The Company relies on NSI for research,
development, testing, labeling and regulatory compliance for products sold to
the Company under the distribution agreements, and virtually all of the
Company's revenues are derived from products and sales aids purchased from NSI
pursuant to these agreements. NSIMG provides the Company with a variety of
management and consulting services, including, but not limited to, management,
legal, financial, marketing and distributor support/training, public relations,
international expansion, human resources, strategic planning, product
development and operations administration services. Each of the Operating
Agreements (other than the distribution, trademark/tradename license and
licensing and sales agreements for Nu Skin Korea, which have shorter terms), is
for a term ending December 31, 2016, and is subject to renegotiation after
December 31, 2001, in the event that the Original Stockholders and their
affiliates, on a combined basis, no longer beneficially own a majority of the
combined voting power of the outstanding shares of Common Stock of the Company
or of the common stock of NSI. The Company is almost completely dependent on the
Operating Agreements to conduct its business, and in the event NSI is unable or
unwilling to perform its obligations under the Operating Agreements, or
terminates the Operating
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Agreements as provided therein, the Company's business and results of operations
will be adversely affected. See "Recent Developments."
After consummation of the NSI Acquisition, approximately 98% of the
combined voting power of the outstanding shares of Common Stock will be held by
the Original Stockholders and certain of their affiliates. Consequently, the
Original Stockholders and certain of their affiliates will have the ability,
acting in concert, to elect all directors of the Company and approve any action
requiring approval by a majority of the stockholders of the Company. Certain of
the Original Stockholders also own 100% of the outstanding shares of NSI. As a
result of this ownership, and if the NSI Acquisition is not consummated, the
Original Stockholders who are also shareholders of NSI will consider the
short-term and the long-term impact of all stockholder decisions on the
consolidated financial results of NSI and the Company. See "--Control by
Original Stockholders; Anti-Takeover Effects of Dual Classes of Common Stock."
The Operating Agreements were approved by the Board of Directors of the
Company, which was, except with respect to the approval of the Operating
Agreements with Nu Skin Thailand and Nu Skin Philippines, composed entirely of
individuals who were also officers and shareholders of NSI at the time of
approval. The Operating Agreements with Nu Skin Thailand and Nu Skin Philippines
were approved by a majority of the disinterested directors of the Company. In
addition, some of the executive officers of the Company are also executive
officers of NSI. It is expected that a number of the Company's executive
officers will continue to spend a portion of their time on the affairs of NSI,
for which they will continue to receive compensation from NSI.
In view of the substantial relationships between the Company and NSI,
conflicts of interest may exist or arise with respect to existing and future
business dealings, including, without limitation, the relative commitment of
time and energy by the executive officers to the respective businesses of the
Company and NSI, potential acquisitions of businesses or properties, the
issuance of additional securities, the election of new or additional directors
and the payment of dividends by the Company. There can be no assurance that any
conflicts of interest will be resolved in favor of the Company. Under Delaware
and Utah law, a person who is a director of both the Company and NSI owes
fiduciary duties to both corporations and their respective shareholders. As a
result, persons who are directors of both the Company and NSI are required to
exercise their fiduciary duties in light of what they believe to be best for
each of the companies and its shareholders.
Control by Original Stockholders; Anti-Takeover Effect of Dual Classes of Common
Stock
Because of the relationship between the Company and NSI, management
elected to structure the capitalization of the Company in such a manner as to
minimize the possibility of a change in control of the Company without the
consent of the Original Stockholders. Consequently, the shares of Class B Common
Stock enjoy ten to one voting privileges over the shares of Class A Common Stock
until the outstanding shares of Class B Common Stock constitute less than 10% of
the total outstanding shares of Common Stock. After consummation of the
Offerings, and the NSI Acquisition, the Original Stockholders and certain of
their affiliates will collectively own 100% of the outstanding shares of the
Class B Common Stock, representing approximately 98% of the combined voting
power of the outstanding shares of Common Stock. Accordingly, the Original
Stockholders and certain of their affiliates, acting fully or partially in
concert, will have the ability to control the election of the Board of Directors
of the Company and thus the direction and future operations of the Company
without the supporting vote of any other stockholder of the Company, including
decisions regarding acquisitions and other business opportunities, the
declaration of dividends and the issuance of additional shares of Class A Common
Stock and other securities. NSI is a privately-held company, all of the shares
of which are owned prior to consummation of the NSI Acquisition by certain of
the Original Stockholders. As long as the shareholders of NSI prior to
consummation of the NSI Acquisition are majority stockholders of the Company,
assuming they act in concert, third parties will not be able to obtain control
of the Company through purchases of shares of Class A Common Stock.
17
<PAGE>
Adverse Impact on Company Income Due to Distributor Option Program
Prior to the Underwritten Offerings, the Original Stockholders converted
1,605,000 shares of Class B Common Stock to Class A Common Stock and contributed
such shares of Class A Common Stock to the Company. The Company granted to NSI
options to purchase such shares of Class A Common Stock (the "Distributor
Options"), and NSI offered these options to qualifying distributors of NSI. The
Exercise Price for each Distributor Option is $5.75, which is 25% of the initial
price per share to the public of the Class A Common Stock in the Underwritten
Offerings. The Distributor Options vested December 31,1997. The shares of Class
A Common Stock underlying the Distributor Options have been registered pursuant
to Rule 415 under the 1933 Act.
The Company incurred a total pre-tax non-cash compensation expense of
$19.9 million in connection with the grant of the Distributor Options. This
non-cash compensation expense resulted in a corresponding impact on net income
and net income per share.
Reliance on and Concentration of Outside Manufacturers
Virtually all the Company's products are sourced through NSI and are
produced by manufacturers unaffiliated with NSI. The Company currently has
little or no direct contact with these manufacturers. The Company's profit
margins and its ability to deliver its existing products on a timely basis are
dependent upon the ability of NSI's outside manufacturers to continue to supply
products in a timely and cost-efficient manner. Furthermore, the Company's
ability to enter new markets and sustain satisfactory levels of sales in each
market is dependent in part upon the ability of suitable outside manufacturers
to reformulate existing products, if necessary to comply with local regulations
or market environments, for introduction into such markets. Finally, the
development of additional new products in the future will likewise be dependent
in part on the services of suitable outside manufacturers.
The Company currently acquires products or ingredients from sole
suppliers or suppliers that are considered by the Company to be the superior
suppliers of such ingredients. The Company believes that, in the event it is
unable to source any products or ingredients from its current suppliers, the
Company could produce such products or replace such products or substitute
ingredients without great difficulty or prohibitive increases in the cost of
goods sold. However, there can be no assurance that the loss of such a supplier
would not have a material adverse effect on the Company's business and results
of operations.
With respect to sales to the Company, NSI currently relies on two
unaffiliated manufacturers to produce approximately 70% and 80% of its personal
care and nutritional products, respectively. NSI has a written agreement with
the primary supplier of the Company's personal care products that expires at the
end of 2000. An extension to such contract is currently being negotiated. NSI
does not currently have a written contract with the primary supplier of the
Company's nutritional products. The Company believes that in the event that
NSI's relationship with any of its key manufacturers is terminated, NSI will be
able to find suitable replacement manufacturers. However, there can be no
assurance that the loss of either manufacturer would not have a material adverse
effect on the Company's business and results of operations.
Reliance on Operations of and Dividends and Distributions from Subsidiaries
The Company is a holding company without operations of its own or
significant assets other than ownership of 100% of the capital stock of each of
the Subsidiaries. Accordingly, an important source of the Company's income will
be dividends and other distributions from the Subsidiaries. Each of the
Subsidiaries has its operations in a country other than the United States, the
country in which the Company is organized. In addition, each of the Subsidiaries
receives its revenues in the local currency of the country or jurisdiction in
which it is situated. As a consequence, the Company's ability to obtain
dividends or other distributions is subject to, among other things, restrictions
on dividends under applicable local laws and regulations, and foreign currency
exchange regulations
18
<PAGE>
of the country or jurisdictions in which the Subsidiaries operate. The
Subsidiaries' ability to pay dividends or make other distributions to the
Company is also subject to their having sufficient funds from their operations
legally available for the payment of such dividends or distributions that are
not needed to fund their operations, obligations or other business plans.
Because the Company will be a stockholder of each of the Subsidiaries, the
Company's claims as such will generally rank junior to all other creditors of
and claims against the Subsidiaries. In the event of a Subsidiary's liquidation,
there may not be assets sufficient for the Company to recoup its investment in
such Subsidiary.
Taxation Risks and Transfer Pricing
The Company is subject to taxation in the United States, where it is
incorporated, at a statutory corporate federal tax rate of 35.0% plus any
applicable state income taxes. In addition, each Subsidiary is subject to
taxation in the country in which it operates, currently ranging from a statutory
tax rate of 57.9% in Japan to 16.5% in Hong Kong. The Company is eligible to
receive foreign tax credits in the U.S. for the amount of foreign taxes actually
paid in a given period. In the event that the Company's operations in high tax
jurisdictions such as Japan grow disproportionately to the rest of the Company's
operations, the Company will be unable to fully utilize its foreign tax credits
in the U.S., which could, accordingly, result in the Company paying a higher
overall effective tax rate on its worldwide operations.
Because the Subsidiaries operate outside of the United States, the
Company is subject to the jurisdiction of numerous foreign tax authorities. In
addition to closely monitoring the Subsidiaries' locally based income, these tax
authorities regulate and restrict various corporate transactions, including
intercompany transfers. The Company believes that the tax authorities in Japan
and South Korea are particularly active in challenging the tax structures of
foreign corporations and their intercompany transfers. The Company is currently
undergoing a customs audit in South Korea. See "--Government Regulation of
Products and Marketing; Import Restrictions" and "--Other Regulatory Issues."
Although the Company believes that its tax and transfer pricing structures are
in compliance in all material respects with the laws of every jurisdiction in
which it operates, no assurance can be given that these structures will not be
challenged by foreign tax authorities or that such challenges or any required
changes in such structures will not have a material adverse effect on the
Company's business or results of operations.
Increase in Distributor Compensation Expense
Under the Licensing and Sales Agreements (the "Licensing and Sales
Agreements") between each of the Subsidiaries and NSI, the Company, through its
Subsidiaries, is contractually obligated to pay a distributor commission expense
of 42% of commissionable product sales (with the exception of South Korea where,
due to government regulations, the Company uses a formula based upon a maximum
payout of 35% of commissionable product sales). The Licensing and Sales
Agreements provide that the Company is to satisfy this obligation by paying
commissions owed to local distributors. In the event that these commissions
exceed 42% of commissionable product sales, the Company is entitled to receive
the difference from NSI. In the event that the commissions paid are lower than
42%, the Company must pay the difference to NSI. Under this formulation, the
Company's total commission expense is fixed at 42% of commissionable product
sales in each country (except for South Korea). The 42% figure has been set on
the basis of NSI's experience over the past eight years during which period
actual commissions paid in a given year together with the cost of administering
the Global Compensation Plan have ranged between 41% and 43% of commissionable
product sales for such year (averaging approximately 42%). In the event that
actual commissions payable to distributors from sales in the Company's markets
vary from these historical results, whether as a result of changes in
distributor behavior or changes to the Global Compensation Plan or in the event
that NSI's cost of administering the Global Compensation Plan increases or
decreases, the Licensing and Sales Agreements provide that the intercompany
settlement figure may be modified to more accurately reflect actual results.
This could result in the Company becoming obligated to make greater settlement
payments to NSI under the Licensing and Sales Agreements. Such additional
payments could adversely affect the Company's results of operations. Because the
Company licenses the
19
<PAGE>
right to use the Global Compensation Plan from NSI, the structure of the plan,
including commission rates, is under the control of NSI.
Product Liability
The Company may be subject, under applicable laws and regulations, to
liability for loss or injury caused by its products. The Company's Subsidiaries
are currently covered for product liability claims to the extent of and under
insurance programs maintained by NSI for their benefit and for the benefit of
its affiliates purchasing NSI products. Accordingly, NSI maintains a policy
covering product liability claims for itself and its affiliates with a $1
million per claim and $1 million annual aggregate limit and an umbrella policy
with a $40 million per claim and $40 million annual aggregate limit. Although
the Company has not been the subject of material product liability claims and
the laws and regulations providing for such liability in the Company's markets
appear to have been seldom utilized, no assurance can be given that the Company
may not be exposed to future product liability claims, and, if any such claims
are successful, there can be no assurance that the Company will be adequately
covered by insurance or have sufficient resources to pay such claims. The
Company does not currently maintain its own product liability policy.
Competition
The markets for personal care and nutritional products are large and
intensely competitive. The Company competes directly with companies that
manufacture and market personal care and nutritional products in each of the
Company's product lines. The Company competes with other companies in the
personal care and nutritional products industry by emphasizing the value and
premium quality of the Company's products and the convenience of the Company's
distribution system. Many of the Company's competitors have much greater name
recognition and financial resources than the Company. In addition, personal care
and nutritional products can be purchased in a wide variety of channels of
distribution. While the Company believes that consumers appreciate the
convenience of ordering products from home through a sales person or through a
catalog, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. The Company's
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other personal care and nutritional
product companies. There can be no assurance that the Company's business and
results of operations will not be affected materially by market conditions and
competition in the future.
The Company also competes with other direct selling organizations, some
of which have longer operating histories and higher visibility, name recognition
and financial resources. The leading network marketing company in the Company's
existing markets is Amway Corporation and its affiliates. The Company competes
for new distributors on the basis of the Global Compensation Plan and its
premium quality products. Management envisions the entry of many more direct
selling organizations into the marketplace as this channel of distribution
expands over the next several years. The Company has been advised that certain
large, well-financed corporations are planning to launch direct selling
enterprises which will compete with the Company in certain of its product lines.
There can be no assurance that the Company will be able to successfully meet the
challenges posed by this increased competition.
The Company competes for the time, attention and commitment of its
independent distributor force. Given that the pool of individuals interested in
the business opportunities presented by direct selling tends to be limited in
each market, the potential pool of distributors for the Company's products is
reduced to the extent other network marketing companies successfully recruit
these individuals into their businesses. Although management believes that the
Company offers an attractive business opportunity, there can be no assurance
that other network marketing companies will not be able to recruit the Company's
existing distributors or deplete the pool of potential distributors in a given
market.
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<PAGE>
Operations Outside the United States
The Company's revenues and most of its expenses are recognized primarily
outside of the United States. Therefore, the Company is subject to transfer
pricing regulations and foreign exchange control, taxation, customs and other
laws. The Company's operations may be materially and adversely affected by
economic, political and social conditions in the countries in which it operates.
A change in policies by any government in the Company's markets could adversely
affect the Company and its operations through, among other things, changes in
laws, rules or regulations, or the interpretation thereof, confiscatory
taxation, restrictions on currency conversion, currency repatriation or imports,
or the expropriation of private enterprises. Although the general trend in these
countries has been toward more open markets and trade policies and the fostering
of private business and economic activity, no assurance can be given that the
governments in these countries will continue to pursue such policies or that
such policies will not be significantly altered in future periods. This could be
especially true in the event of a change in leadership, social or political
disruption or upheaval, or unforeseen circumstances affecting economic,
political or social conditions or policies. The Company is aware of news
releases in South Korea, for example, reporting comments by political figures
proposing restrictions on foreign direct sellers designed to protect the market
share of local companies. There can be no assurance that such activities, or
other similar activities in the Company's markets, will not result in passage of
legislation or the enactment of policies which could materially adversely affect
the Company's operations in these markets. In addition, the Company's ability to
expand its operations into the new markets for which it has received an
exclusive license to distribute NSI products will directly depend on its ability
to secure the requisite government approvals and comply with the local
government regulations in each of those countries. The Company has in the past
experienced difficulties in obtaining such approvals as a result of certain
actions taken by its distributors, and no assurance can be given that these or
similar problems will not prevent the Company from commencing operations in
those countries. See "--Entering New Markets."
Anti-Takeover Effects of Certain Charter, Contractual and Statutory Provisions
The Board of Directors is authorized, subject to certain limitations, to
issue without further consent of the stockholders up to 25,000,000 shares of
preferred stock with rights, preferences and privileges designated by the Board
of Directors. In addition, the Company's Certificate of Incorporation requires
the approval of 662/3% of the outstanding voting power of the Class A Common
Stock and the Class B Common Stock to authorize or approve certain change of
control transactions. See "Description of Capital Stock--Common Stock--Voting
Rights" and "--Mergers and Other Business Combinations." The Company's
Certificate of Incorporation and Bylaws also contain certain provisions that
limit the ability to call special meetings of stockholders and the ability of
stockholders to bring business before or to nominate directors at a meeting of
stockholders. See "Description of Capital Stock--Other Charter and Bylaw
Provisions." Pursuant to the 1996 Stock Incentive Plan, in the event of certain
change of control transactions the Board of Directors has the right, under
certain circumstances, to accelerate the vesting of options and the expiration
of any restriction periods on stock awards. Finally, the Operating Agreements
with NSI and NSIMG are subject to renegotiation after December 31, 2001 upon a
change of control of the Company. Any of these actions, provisions or
requirements could have the effect of delaying, deferring or preventing a change
of control of the Company. See "Recent Developments."
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "Anti-Takeover Law") regulating
corporate takeovers. The Anti-Takeover Law prevents certain Delaware
corporations, including those whose securities are listed on the New York Stock
Exchange, from engaging, under certain circumstances, in a "business
combination" (which includes a merger of more than 10% of the corporations'
assets) with an "interested stockholder" (a stockholder who, together with
affiliates and associates, within the prior three years owned 15% or more of the
corporation's outstanding voting stock) for three years following the date that
such stockholder became an "interested stockholder," unless the "business
combination" or "interested stockholder" is approved in a prescribed manner. A
Delaware corporation may "opt out" of the Anti-Takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of
21
<PAGE>
incorporation or bylaws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. The Company has not "opted
out" of the provisions of the Anti-Takeover Law.
Absence of Dividends
The Company does not anticipate that any dividends will be declared on
either its Class A Common Stock or its Class B Common Stock in the immediate
future. The Company intends from time to time to re-evaluate this policy based
on its net income and its alternative uses for retained earnings, if any. Any
future declaration of dividends will be subject to the discretion of the board
of directors of the Company (the "Board of Directors") and subject to certain
limitations under the General Corporation Law of the State of Delaware (the
"DGCL"). The timing, amount and form of dividends, if any, will depend, among
other things, on the Company's results of operations, financial condition, cash
requirements and other factors deemed relevant by the Board of Directors. See
"--Reliance on Operations of and Dividends and Distributions from Subsidiaries."
Shares Eligible For Future Sale
Future sales of substantial amounts of the Class A Common Stock in the
public market or the perception that such sales could occur may have an adverse
effect on the market price of the Class A Common Stock. In addition, any future
issuances of Class A Common Stock or other capital stock of the Company could
also be dilutive to investors in the Class A Common Stock. See "Recent
Developments" and "Description of Capital Stock--Preferred Stock--The NSI
Acquisition." As of March 5, 1998, 11,835,737 shares of Class A Common Stock
were outstanding. All of the outstanding shares of Class A Common Stock are
freely tradeable without restriction or further registration under the
Securities Act, unless held by "affiliates" of the Company, as that term is
defined in Rule 144 of the Securities Act ("Rule 144").
An aggregate of 3,825,000 shares of Class A Common Stock have been
reserved for issuance for future option grants and other equity awards under the
1996 Plan. In addition, the Company has filed a registration statement covering
up to an additional 119,930 shares of Class A Common Stock which may be issued
as employee stock bonus awards and up to an additional 1,555,344 shares of Class
A Common Stock which may be issued upon the exercise of options held by
distributors of NSI. In addition, the Company has reserved 250,825 shares of
Class A Common Stock to be issued upon the exercise of a stock option granted to
an executive officer of the Company. The shares of Class A Common Stock
underlying the Distributor Options and the employee stock bonus awards to be
issued pursuant to the Rule 415 Offerings are subject to certain vesting and
resale limitations.
As of March 5, 1998, the number of outstanding shares of Class B Common
Stock was 70,280,759, each share of which is convertible at any time into one
share of Class A Common Stock. All shares of the Class B Common Stock are
"restricted" shares within the meaning of Rule 144 of the Securities Act.
Restricted shares may not be resold in the public market except in compliance
with the registration requirements of the Securities Act or pursuant to an
exemption therefrom, including the exemption provided by Rule 144. The Original
Stockholders have entered into a stockholders agreement (the "Stockholders
Agreement") pursuant to which they agreed not to transfer any shares they own
through November 28, 1998 (the "Initial Lock-up Period") without the consent of
the Company. However, if the NSI Acquisition is consummated, the lock-up period
will automatically be extended until one year following the closing date of the
NSI Acquisition (the "Extended Lock-up Period"). In addition, the Stockholders
Agreement further restricts the number of shares of Class A Common Stock that
may be sold by the Original Stockholders in a public resale pursuant to Rule 144
or any other exempt transaction under the Securities Act for one year following
the last to expire of the Initial Lock-up Period or the Extended Lock-up Period.
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.
22
<PAGE>
USE OF PROCEEDS
All of the Shares are being offered by the Selling Stockholders. The
Company will not receive any of the proceeds from sales of Shares by the Selling
Stockholders.
SELLING STOCKHOLDERS
The Shares covered by this Prospectus are being offered by the Selling
Stockholders who may acquire such Shares pursuant to the 1996 Plan. The Selling
Stockholders named below may resell all, a portion or none of the Shares they
may acquire. The inclusion in the table of the individuals named therein shall
not be deemed to be an admission that any such individuals are "affiliates" of
the Company.
The names of the officers, directors, key employees and affiliates who
may offer Shares hereby in the future, together with the number of Shares which
may be sold by such individuals from time to time, will be updated in
supplements to this Prospectus.
The following table sets forth the name and relationship to the Company
of each Selling Stockholder, the number of shares of Class A and Class B Common
Stock known by the Company to be beneficially owned by each Selling Stockholder
as of March 5, 1998, the number of Shares being offered by each Selling
Stockholder pursuant to this Prospectus and the number of shares of Class A and
Class B Common Stock to be owned after the offering hereby.
<PAGE>
<TABLE>
<CAPTION>
Total
Class A Class B Common
Common Stock(1) Common Stock(1)(2) Stock
---------------------------------------------- ------------------ ----------
Voting
Owned Power
Name and Relationship Prior to To Be Sold To Be Owned After the Owned Prior to and After the
to the Company Offering in Offering Offering After the Offering Offering
- ----------------------- -------- ----------- --------------------- ------------------- ----------
Shares Shares(3) Shares(4) %(4) Shares % %(4)
-------- ---------- -------- ------- ---------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Blake M. Roney(5) -- -- -- 20,414,763 29.0 28.5
Chairman of the Board
Steven J. Lund(6) -- -- -- 4,223,224 6.0 5.9
President, Chief Executive
Officer and Director
Renn M. Patch(7) 40,500 26,000 14,500 * -- -- --
Chief Operating Officer
Corey B. Lindley(8) 40,600 26,000 14,600 * -- -- --
Chief Financial Officer
Michael D. Smith(9) 33,500 19,000 14,500 * -- -- --
Vice President of North Asia
Grant F. Pace(10) 25,500 19,000 6,500 * -- -- --
Vice President of
Southeast Asia and China
M. Truman Hunt(11) 270,325 19,000 251,325 * -- -- --
Vice President of Legal
Affairs and Investor
Relations
Keith R. Halls(12) -- -- -- 894,115 1.3 1.2
Secretary and Director
Takashi Bamba(13) 38,000 25,000 13,000 * -- -- --
President, Nu Skin Japan
John Chou(14) 38,215 25,000 13,215 * -- -- --
President, Nu Skin Taiwan
S.T. Han(15) 8,800 7,000 1,800 * -- -- --
President, Nu Skin Korea
Sandra N. Tillotson(16) -- -- -- 8,554,510 12.2 11.9
Director
Brooke B. Roney(17) -- -- -- 3,425,322 4.9 4.8
Director
Max L. Pinegar(18) 11,300 11,300 * -- -- --
Director
E.J. "Jake" Garn(19) 12,500 10,000 2,500 * -- -- --
Director
Paula Hawkins(20) 12,500 10,000 2,500 * -- -- --
Director
Daniel W. Campbell(21) 12,500 10,000 2,500 * -- -- --
Director
- ----------------------
*Less than 1%
<PAGE>
<FN>
(1) Each share of Class A Common Stock has one vote per share and each share
of Class B common Stock has ten votes per share.
(2) Each share of Class B Common Stock is convertible at any time at the
option of the holder into one share of Class A Common Stock and each share
of Class B Common Stock is automatically converted into one share of Class
A Common Stock upon the transfer of such share of Class B Common Stock to
any person who is not a Permitted Transferee as defined in the Company's
Amended and Restated Certificate of Incorporation.
(3) The number of Shares which may be sold from time to time will be updated
in supplements to this Prospectus, which will be filed with the Commission
in accordance with Rule 424(b) under the Securities Act.
(4) Assumes all Shares offered hereby have been sold.
(5) Includes shares beneficially owned or deemed to be owned beneficially by
Blake M. Roney as follows: 9,340,723 shares of Class B Common Stock
directly and with respect to which he has sole voting and investment
power; 9,340,722 shares of Class B Common Stock indirectly which are held
by his wife Nancy L. Roney; 1,200,000 shares of Class B Common Stock as
co-trustee and with respect to which he shares voting and investment power
with his wife Nancy L. Roney; 357,143 shares of Class B Common Stock as
co-trustee and with respect to which he shares voting and investment power
with his wife Nancy L. Roney; and 176,165 shares of Class B Common Stock
as trustee and with respect to which he has sole voting and investment
power.
(6) Includes shares beneficially owned or deemed to be owned beneficially by
Steven J. Lund as follows: 1,572,376 shares Class B Common Stock directly
and with respect to which he has sole voting and investment power;
1,572,375 indirectly which are held by his wife Kalleen Lund; 897,902
shares of Class B Common Stock as trustee and with respect to which he has
sole voting and investment power; and 180,571 shares of Class B Common
Stock as co-trustee and with respect to which he shares voting and
investment power with his wife Kalleen Lund.
(7) Includes shares beneficially owned or deemed to be owned beneficially by
Renn M. Patch as follows: 4,750 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 9,750
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 26,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
(8) Includes shares beneficially owned or deemed to be owned beneficially by
Corey B. Lindley as follows: 4,850 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 9,750
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 26,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
23
<PAGE>
(9) Includes shares beneficially owned or deemed to be owned beneficially by
Michael D. Smith as follows: 4,750 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 9,750
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 19,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
(10) Includes shares beneficially owned or deemed to be owned beneficially by
Grant F. Pace as follows: 500 shares of Class A Common Stock directly and
with respect to which he has sole voting and investment power; 6,000
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 19,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
(11) Includes shares beneficially owned or deemed to be owned beneficially by
M. Truman Hunt as follows: 500 shares of Class A Common Stock directly and
with respect to which he has sole voting and investment power; 19,000
shares of Class A Common Stock issuable upon the exercise of options
granted to him under the 1996 Plan, which vest 25% per year beginning on
October 20, 1998, the first anniversary of the date of grant; and 250,825
shares of Class A Common Stock subject to an option which is currently
exercisable.
(12) Includes shares beneficially owned or deemed to be owned beneficially by
Keith R. Halls as follows: 281, 629 shares of Class B Common Stock
directly and with respect to which he has sole voting and investment
power; 281,628 shares of Class B Common Stock indirectly which are held by
his wife Anna Lisa Massaro Halls; 50,000 shares of Class B Common Stock as
the manager of a limited liability company and with respect to which he
has sole voting and investment power; 250,000 shares of Class B Common
Stock as trustee and with respect to which he has sole voting and
investment power; and 30,857 shares of Class B Common Stock as co-trustee
and with respect to which he shares voting and investment power with his
wife Anna Lisa Massaro Halls.
(13) Includes shares beneficially owned or deemed to be owned beneficially by
Takashi Bamba as follows: 3,250 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; 9,750
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 25,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
(14) Includes shares beneficially owned or deemed to be owned beneficially by
John Chou as follows: 3,465 shares of Class A Common Stock directly and
with respect to which he has sole voting and investment power; 9,750
shares of Class A Common Stock issued to him as an employee stock bonus
award which will vest ratably, according to its terms, over the remaining
term of the award; and 25,000 shares of Class A Common Stock issuable upon
the exercise of options granted to him under the 1996 Plan, which vest 25%
per year beginning on October 20, 1998, the first anniversary of the date
of grant.
(15) Includes shares beneficially owned or deemed to be owned beneficially by
S.T. Han as follows: 1,800 shares of Class A Common Stock issued to him as
an employee stock bonus award which will vest ratably, according to its
terms, over the remaining term of the award; and 7,000 shares of Class A
Common Stock issuable upon the exercise of options granted to him under
the 1996 Plan, which vest 25% per year beginning on October 20, 1998, the
first anniversary of the date of grant.
(16) Includes shares beneficially owned or deemed to be owned beneficially by
Sandra N. Tillotson as follows: 7,584,743 shares of Class B Common Stock
directly and with respect to which she has sole voting and investment
power; 424,767 shares of Class B Common Stock as trustee and with respect
to which she has sole voting and investment power; 500,000 shares of Class
B Common Stock as manager of a limited liability company and with respect
to which she has sole voting and investment power; and 45,000 shares of
Class B Common Stock as co-trustee and with respect to which she shares
voting and investment power.
(17) Includes shares beneficially owned or deemed to be owned beneficially by
Brooke B. Roney as follows: 1,681,333 shares of Class B Common Stock
directly and with respect to which he has sole voting and investment
power; 1,681,332 shares of Class B Common Stock indirectly, which are held
by his wife Denice R. Roney; and 62,657 shares of Class B Common Stock as
co-trustee and with respect to which he shares voting and investment power
with his wife Denice R. Roney.
(18) Includes shares beneficially owned or deemed to be owned beneficially by
Max L. Pinegar as follows: 1,550 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; and
9,750 shares of Class A Common Stock issued to him as an employee stock
bonus award which will vest ratably, according to its terms, over the
remaining term of the award.
(19) Includes shares beneficially owned or deemed to be owned beneficially by
E.J. "Jake" Garn as follows: 2,500 shares of Class A Common Stock directly
and with respect to which he has sole voting and investment power; and
10,000 shares of Class A Common Stock issuable upon the exercise of
options granted to him under the 1996 Plan, which vest the day before the
Company's 1998 annual stockholders meeting.
(20) Includes shares beneficially owned or deemed to be owned beneficially by
Paula Hawkins as follows: 2,500 shares of Class A Common Stock directly
and with respect to which she has sole voting and investment power;; and
10,000 shares of Class A Common Stock issuable upon the exercise of
options granted to her under the 1996 Plan, which vest the day before the
Company's 1998 annual stockholders meeting.
24
<PAGE>
(21) Includes shares beneficially owned or deemed to be owned beneficially by
Daniel W. Campbell as follows: 2,500 shares of Class A Common Stock
directly and with respect to which he has sole voting and investment
power; and 10,000 shares of Class A Common Stock issuable upon the
exercise of options granted to him under the 1996 Plan, which vest the day
before the Company's 1998 annual stockholders meeting.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time sell all or a portion of
their Shares on the NYSE, on any other national securities exchange on which the
Class A Common Stock is listed or traded, in the over-the-counter-market, in
negotiated transactions or otherwise, at fixed prices, at prevailing market
prices at the time of sale, at varying prices determined at the time of sale or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both.
The Selling Stockholders and any broker-dealers or agents that participate
in the distribution of the Shares offered hereby may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any profit on
the sale of Shares offered hereby by them and any discounts, commissions,
concessions or other compensation received by any such broker-dealer or agent
may be deemed to be underwriting discounts and commissions under the Securities
Act.
The Company will pay all of the expenses associated with the registration
of the Shares and this Prospectus. The Selling Stockholders will pay the other
costs, if any, associated with any sale of the Shares.
LEGAL MATTERS
The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by LeBoeuf, Lamb, Greene & MacRae,
L.L.P., a limited liability partnership including professional corporations,
Salt Lake City, Utah.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Nu Skin Asia Pacific, Inc. Annual Report on Form 10-K, as
amended, for the year ended December 31, 1997 have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on authority of said firm as experts in auditing and accounting.
25
<PAGE>
- ------------------------------------ ------------------------------------
No person is authorized to give
any information or make any
representations other than those
contained in this Prospectus and, if
given or made, such information or 3,825,000 Shares
representations must not be relied
upon as having been authorized by
the Company, any Selling Stockholder
or any other person. This Prospectus
does not constitute an offer to sell
or a solicitation of any offer to
purchase any securities other than [LOGO]
those to which it relates or an
offer to sell or a solicitation of
an offer to purchase any securities
in any jurisdiction where such an
offer or solicitation would be Class A Common Stock
unlawful. Neither the delivery of
this Prospectus nor any distribution
of securities hereunder shall under
any circumstances be deemed to imply
that there has been no change in the
assets, properties or affairs of the
Company since the date hereof or
that the information set forth
herein is correct as of any time
subsequent to the date hereof.
------------------
------------------- PROSPECTUS
------------------
TABLE OF CONTENTS
Page
Available Information..............2
Incorporation by Reference.........2
Forward-Looking Statements.........3
The Company........................4
Recent Developments................5
Risk Factors.......................8
Use of Proceeds...................23
Selling Stockholders..............23
Plan of Distribution..............27
Legal Matters.....................27
Experts...........................27 March 24, 1998
- ------------------------------------ ------------------------------------
II-1
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The information called for in Part I of Form S-8 is included in documents
to be distributed to participants in the Amended and Restated Nu Skin Asia
Pacific, Inc. 1996 Stock Incentive Plan in accordance with the rules of the
Securities and Exchange Commission (the "Commission").
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
The following documents have been filed with the Commission and are
incorporated by reference in this Registration Statement:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended by the Company's Form 10-K/A filed
on March 19, 1998; and
(2) The description of the Company's Class A Common Stock as
contained in the Company's Registration Statement on Form 8-A
dated November 6, 1996.
All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1933, as amended (the
"Exchange Act"), after the date hereof and prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this registration statement to the extent that a
statement contained herein or in any subsequently filed document which is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this registration statement.
Item 4. Description of Securities
Not applicable.
Item 5. Interest of Named Experts and Counsel
Not applicable
Item 6. Indemnification of Directors and Officers
Article 10 of the Company's Certificate of Incorporation and Article 5 of
the Company's Bylaws require indemnification to the fullest extent permitted by
Section 145 of DGCL. Section 145 of the DGCL provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses
II-2
<PAGE>
(including attorneys' fees) incurred in connection with the defense or
settlement of such actions, and the statute requires court approval before there
can be any indemnification where the person seeking indemnification has been
found liable to the corporation. Indemnification provided by or granted pursuant
to Section 145 of the DGCL is not exclusive of other indemnification that may be
granted by a corporation's bylaws, any agreement, any vote of stockholders or
disinterested directors or otherwise. Article 5 of the Company's Bylaws provides
for indemnification consistent with the requirements of Section 145 of the DGCL.
Section 145 of the DGCL also permits a corporation to purchase and maintain
insurance on behalf of directors and officers. Article 5 of the Company's Bylaws
permits it to purchase such insurance on behalf of its directors and officers.
Article 7 of the Company's Certificate of Incorporation provides for, to
the fullest extent permitted by the DGCL, elimination or limitation of liability
of directors to the Company or its stockholders for breach of fiduciary duty as
a director. Section 102(b)(7) of the DGCL permits a corporation to provide in
its certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
breach of a director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve international
misconduct or a knowing violation of law; (iii) for improper payment of
dividends or redemptions of shares; or (iv) for any transaction from which the
director derives an improper personal benefit.
Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits
4.1 Amended and Restated Nu Skin Asia Pacific, Inc. 1996 Stock Incentive
Plan
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding legality
of the securities covered by this Registration Statement
23.1 Consent of Price Waterhouse LLP, independent accountants
23.2 Consent of LeBoeuf, Lamb, Green & MacRae, L.L.P. (included in legal
opinion--see Exhibit 5.1)
24 Power of Attorney (included with the signatures in Part II of this
Registration Statement)
Item 9. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10 (a) (3)
of the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424 (b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
II-3
<PAGE>
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do
not apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15 (d) of the Securities and Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13 (a) or Section 15 (d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15 (d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Provo, State of Utah, on March 23, 1998.
NU SKIN ASIA PACIFIC, INC.
By: /s/ Steven J. Lund
-------------------------------------
Steven J. Lund
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Steven J.
Lund and M. Truman Hunt, acting together or singly, his or her true and lawful
attorney-in-fact and agent with full powers of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all Amendments (including Post-Effective Amendments)
to this Registration Statement and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-8 has been signed below on March 23, 1998 by
the following persons in the capacities indicated.
Signature Title Date
----------- ------- ------
/s/ Blake M. Roney Chairman of the Board March 23, 1998
------------------ of Directors
Blake M. Roney
/s/ Steven J. Lund President and Chief Executive March 23, 1998
------------------ Officer and Director
Steven J. Lund (Principal Executive Officer)
/s/ Corey B. Lindley Chief Financial Officer March 23, 1998
-------------------- (Principal Financial and
Corey B. Lindley Accounting Officer)
/s/ Sandra N. Tillotson Director March 23, 1998
-----------------------
Sandra N. Tillotson
II-5
<PAGE>
Signature Title Date
----------- ------- ------
/s/ Keith R. Halls Director March 23, 1998
------------------
Keith R. Halls
/s/ Brooke B. Roney Director March 23, 1998
-------------------
Brooke B. Roney
/s/ Max L. Pinegar Director March 23, 1998
------------------
Max L. Pinegar
/s/ E.J. "Jake" Garn Director March 23, 1998
--------------------
E.J. "Jake" Garn
/s/ Paula Hawkins Director March 23, 1998
-----------------
Paula Hawkins
/s/ Daniel W. Campbell Director March 23, 1998
----------------------
Daniel W. Campbell
II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
------- -------------------
4.1 Nu Skin Asia Pacific, Inc. Amended and Restated 1996 Stock
Incentive Plan
5.1 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding
legality of the securities covered by this Registration
Statement
23.1 Consent of Price Waterhouse LLP, independent accountants
23.2 Consent of LeBoeuf, Lamb, Green & MacRae, L.L.P. (included in
legal opinion--see Exhibit 5.1)
24 Power of Attorney (included with the signatures in Part II of
this Registration Statement)
II-7
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated February 18, 1998, which appears in
the 1997 Annual Report to Stockholders of Nu Skin Asia Pacific, Inc., which is
incorporated by reference in the Nu Skin Asia Pacific, Inc. Annual Report on
Form 10-K/A for the year ended December 31, 1997. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/Price Waterhouse LLP
Salt Lake City, Utah
March 23, 1998
II-8
AMENDED AND RESTATED
NU SKIN ASIA PACIFIC, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
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.............................................. 9
10. RESTRICTED STOCK AWARDS.............................................. 10
11. GENERAL RESTRICTIONS................................................. 11
12. RIGHTS OF A SHAREHOLDER.............................................. 11
13. RIGHTS TO TERMINATE EMPLOYMENT....................................... 11
14. WITHHOLDING OF TAXES................................................. 11
15. NON-ASSIGNABILITY.................................................... 11
16. NON-UNIFORM DETERMINATIONS........................................... 12
17. ADJUSTMENTS.......................................................... 12
18. AMENDMENT............................................................ 13
19. EFFECT ON OTHER PLAN................................................. 13
20. DURATION OF PLAN..................................................... 13
21. FUNDING OF THE PLAN.................................................. 13
22. PLAN STATUS.......................................................... 14
-i-
<PAGE>
23. GOVERNING LAW........................................................ 14
-ii-
<PAGE>
AMENDED AND RESTATED
NU SKIN ASIA PACIFIC, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE
1.1 The purpose of the Amended and Restated Nu Skin Asia Pacific, Inc.
1996 Stock Incentive Plan (the "Plan") is to provide incentives to specified
individuals whose performance, contributions and skills add to the value of Nu
Skin Asia Pacific, Inc. (the "Company") and its affiliated companies. The
Company also believes that the Plan will facilitate attracting, retaining and
motivating employees, directors and consultants of high caliber and potential.
This Amended and Restated Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan
amends and restates the Nu Skin Asia Pacific, Inc. 1996 Stock Incentive Plan
dated November 21, 1996.
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 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.
-1-
<PAGE>
(f) "Company" means Nu Skin Asia Pacific, Inc.
(g) "Consultant" means any individual who provides services to
the Company as an independent contractor and not as an
Employee 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 other corporate purposes
before adjustments or any discounts applied due to
lack of marketability. The Committee may rely upon
-2-
<PAGE>
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.
(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.
-3-
<PAGE>
(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
(e) make all other determinations necessary or advisable for
the administration of the Plan.
-4-
<PAGE>
4. SHARES SUBJECT TO THE PLAN
4.1 The Shares subject to Awards under the Plan shall not exceed in the
aggregate 4,000,000 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 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:
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(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 not
be less than 85% of the Fair Market Value of a Share on the
day the Option is granted, as determined by the Committee.
Notwithstanding the immediately preceding sentence, the
Award Agreement for a 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) Shares purchased pursuant to an Option Agreement shall be
paid for in full at the time of purchase, either in the form
of cash, common stock of the Company at Fair Market Value,
or a combination thereof, as the Committee shall determine.
(d) Notwithstanding anything herein to the contrary, the
aggregate Fair Market Value (determined as of the time the
Option is granted) of Incentive Stock Options for any
Employee which may become first exercisable in any calendar
year shall not exceed $100,000.
(e) Notwithstanding anything herein to the contrary, no
Incentive Stock Option shall be granted to any individual
if, at the time the Option is to be granted, the individual
owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company unless
at the time such Option is granted the Option Price is at
least 110% of the Fair Market Value of the stock subject to
the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option
is granted.
(f) Each Option Agreement for an Incentive Stock Option shall
contain such other terms, conditions and provisions as the
Committee may determine to
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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, 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.
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<PAGE>
8. STOCK APPRECIATION RIGHTS
8.1 SARs shall be evidenced by Award Agreements for SARs in such form,
and not inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1), as the
Committee shall approve from time to time, which Award Agreements shall contain
in substance the following terms and conditions as discussed in Sections 8.2
through 8.4.
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
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"short-swing" trading liability in connection with an SAR
within the meaning of Section 16(b) of the Exchange Act.
(d) The Committee, in its sole discretion, may establish
different time periods than specified above for any
individual or group of individual Awards.
8.4 Upon exercise of an SAR, payment shall be made within ninety days in
the form of common stock of the Company (at Fair Market Value on the date of
exercise), cash, or a combination thereof, as the Committee may determine.
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
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<PAGE>
Grantee to the Company without payment or any consideration by the Company, and
neither the Grantee nor any successors, heirs, assigns or personal
representatives of such Grantees shall thereafter have any further rights or
interest in such Shares.
10. RESTRICTED STOCK AWARDS
10.1 Restricted Stock Awards under the Plan shall be evidenced by Award
Agreements for Restricted Stock in such form, and not inconsistent with this
Plan, as the Committee shall approve from time to time, which Award Agreements
shall contain in substance the terms and conditions described in Sections 10.2
through 10.6.
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
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restrictions applicable to a Restricted Stock Award made to such Grantee and
unless otherwise provided for herein by this Plan or as provided for in the
Award Agreement for Restricted Stock, all rights to Shares as to which there
remain unlapsed restrictions shall be forfeited by such Grantee to the Company
without payment or any consideration by the Company, and neither the Grantee nor
any successors, heirs, assigns or personal representatives of such Grantee shall
thereafter have any further rights or interest in such Shares.
11. GENERAL RESTRICTIONS
11.1 The Plan and each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
Grantee of an Award with respect to the disposition of Shares, is necessary or
desirable as a condition of, or in connection with the Plan or the granting of
such Award or the issue or purchase of Shares thereunder, the Plan will not be
effective and/or the Award may not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
12. RIGHTS OF A SHAREHOLDER
12.1 The Grantee of any Award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for Shares of
common stock are issued to such Grantee, except for the rights provided in
Section 10 as it pertains to Restricted Stock Awards.
13. RIGHTS TO TERMINATE EMPLOYMENT
13.1 Nothing in the Plan or in any agreement entered into pursuant to
the Plan shall confer upon any Grantee the right to continue in the employment
as an Employee, or service as a 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.
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<PAGE>
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 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
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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 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.
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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.
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.
This Plan is effective as of December 9, 1996.
NU SKIN ASIA PACIFIC, INC.
By: /s/ Steven J. Lund
-------------------
Its: President
ATTEST:
/s/ Keith R. Halls
- -------------------
Its Secretary
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March 24, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Nu Skin Asia Pacific, Inc. Form S-8 Registration Statement
Dear Ladies and Gentlemen:
We have acted as counsel to Nu Skin Asia Pacific, Inc., a Delaware
corporation (the "Company"), in connection with its proposed registration of a
total of 3,825,000 shares of the Company's Class A Common Stock, par value $.001
per share, pursuant to a Registration Statement on Form S-8, none of which are
issued and outstanding as of the date hereof, but which are issuable upon
exercise of options and vesting of awards previously granted and to be granted
in the future under the Nu Skin Asia Pacific, Inc. Amended and Restated 1996
Stock Incentive Plan.
We have examined such corporate records, certificates and other
documents as we have considered necessary for the purposes hereof. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies and the authenticity of the
originals of such copies. As to any facts material to our opinion, we have, when
relevant facts were not independently established, relied upon the aforesaid
records, certificates and documents.
Based on the foregoing, we are of the our opinion that the securities
being registered will, upon receipt by the Company of consideration therefor and
the issuance of such securities, be duly authorized, validly issued, fully paid
and nonassessable.
Our opinion set forth herein is limited in all cases to matters arising
under the Delaware General Corporation Law. We consent to the use of this
opinion as an exhibit to the Registration
<PAGE>
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus that is a part of the Registration Statement. In giving such
consent, we do not thereby concede that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ LeBoeuf, Lamb, Greene & MacRae, L.L.P.
