PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULES 424 (B) (3) AND 424 (C)
(To Prospectus Dated SEC FILE NO. 333-12073
March 20, 1998)
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NU SKIN ENTERPRISES, INC.
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Nu Skin Enterprises, Inc. (formerly Nu Skin Asia Pacific, Inc.) (the
"Company") has prepared this Prospectus Supplement to update certain information
set forth in the Prospectus dated March 20, 1998 (the "March 1998 Prospectus")
relating to the offering of up to 3,030,000 shares of the Company's Class A
Common Stock, par value $.001 per share (the "Class A Common Stock"), including
the offering by the Company of shares of Class A Common Stock to be issued upon
the exercise of options held by distributors (the "Distributor Options") of the
Company under the NSI Distributor Option Plan. This Prospectus Supplement should
be read in connection with the March 1998 Prospectus. Defined terms used herein
but not otherwise defined shall have the meanings set forth in the March 1998
Prospectus. The information contained in this Prospectus Supplement supplements
and is a part of the section entitled "Plan of Distribution--Distributor
Options"
The date of this Prospectus Supplement is December 31, 1998.
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Distributor Options and Awards
General. As a result of termination or reduction of certain Distributor
Options arising from the failure of certain distributors to maintain required
Executive Pin Levels and/or product returns in January 1998, certain of the
shares underlying those Distributor Options and set aside for issuance under the
NSI Distributor Option Plan were not issued and are not subject to outstanding
Distributor Options (the "Unissued Distributor Option Shares"). Because of
Korean regulatory restrictions, the Company was unable to offer the NSI
Distributor Option Plan to Korean distributors in 1996 and 1997. Accordingly,
the Company has reserved 16,000 of the Unissued Distributor Option Shares (the
"Distributor Award Shares") for award grants to the Company's distributors
resident in South Korea and doing business through its subsidiary, Nu Skin
Korea, Inc. ("NSK"). The Company created this program for distributors resident
in South Korea exclusively in lieu of the Distributor Options offered to the
Company's distributors in many countries in 1996 and 1997. NSK intends to
allocate the Distributor Award Shares to executive distributors who have
achieved executive distributor levels ("Executive Pin Levels") of Gold or higher
under the Global Compensation Plan between January 1, 1999 and August 31, 1999
(the "Qualification Period") and who maintain their pin level through October
31, 1999.
Distributor Award Share Allocation. During the Qualification Period,
existing and new distributors will have the opportunity to qualify for an
allocation of Distributor Award Shares by achieving Executive Pin Levels of Gold
or higher under the Global Compensation Plan as of August 31, 1999 and by
submitting a representation letter to NSK (qualifying distributors are
hereinafter referred to as "Eligible Distributors"). NSK will notify Eligible
Distributors of the results of the allocation of the Distributor Award Shares by
October 31, 1999. Each Eligible Distributor shall have the right to decline his
or her Distributor Award Shares by notice to NSK no later than November 15,
1999. Each Eligible Distributor, who does not decline his or her allocation of
Distributor Award Shares on or before November 15, 1999, will be granted a
number of Distributor Award Shares determined in accordance with the following
formula (because there is a fixed number of Distributor Award Shares available
for this program, the resulting formula and explanations are rather complex):
S * (X/Y) = Number of Distributor Award Shares to be granted to an
Eligible Distributor
Where
S = The fixed number of Distributor Award Shares available,
which is 16,000 Shares
X = C * (P+G) = "Weighted Individual Compensation"
C = Net commissions paid to the Eligible Distributor on sales
volume during the Qualification Period
P = "Executive Pin Level Weighting Factor"
G = "Business Growth Weighting Factor"
Y = Sum of Weighted Individual Compensation paid to all
Eligible Distributors during the Qualification Period =
"Weighted Total Compensation"
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Thus, the number of Distributor Award Shares to be divided among
Eligible Distributors will be determined by multiplying the total number of
Distributor Award Shares available ("S" in the formula above) by the quotient
obtained by dividing the Eligible Distributor's Weighted Individual Compensation
("X" in the formula above, and as defined below) under the Global Compensation
Plan during the Qualification Period, by the sum of the Weighted Individual
Compensation paid to all Eligible Distributors under the Global Compensation
Plan on sales volume during the Qualification Period (the "Weighted Total
Compensation", and "Y" in the formula above). An Eligible Distributor's Weighted
Individual Compensation is equal to total commissions, net of any withholdings,
fines, penalties, or the like, paid to such Eligible Distributor on sales volume
during the Qualification Period ("C" in the formula above) multiplied by the sum
of his or her Executive Pin Level Weighting Factor ("P" in the formula above,
and as defined below) and his or her Business Growth Weighting Factor ("G" in
the formula above, and as defined below).
Executive Pin Level Weighting Factor. An Eligible Distributor's
Executive Pin Level Weighting Factor is the percentage set forth in the table
below opposite the actual Executive Pin Level (i.e., the Eligible Distributor's
Pin Level without consideration of temporary exceptions which may be granted
from time to time) achieved by such Eligible Distributor as of August 31, 1999:
Executive Pin Level as of August 31, 1999 Executive Pin Level Weighting Factor
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Hawaiian Blue Diamond 100%
Blue Diamond 94%
Diamond 86%
Emerald 82%
Ruby 78%
Lapis 74%
Gold 72%
Business Growth Weighting Factor. An Eligible Distributor's Business
Growth Weighting Factor is based on the increase in his or her average monthly
net commissions paid on volume during the Qualification Period. An Eligible
Distributor's Business Growth Weighting Factor is equal to one-third (1/3) of
1%, up to a maximum of 100%, for each 1% increase in average monthly net
commissions paid during the Qualification Period that is greater than actual net
commissions paid during September 1998, (the "Base Month"). The Base Month for a
distributor qualifying as a Gold or higher executive distributor after December
1998 is deemed to be his or her first month as a Gold or higher executive
distributor.
Illustrations. For purposes of illustration, for the eight-month period
ended on August 31, 1999 (the "Illustrative Qualification Period"), the Weighted
Total Compensation (Y) will be assumed to have been W3,000,000,000. An Emerald
level distributor who was paid total commissions (C) of W39,489,600 (or average
monthly commissions of W4,936,200) during the Illustrative Qualification Period
and who had previously been paid commissions of W2,500,000 during such
distributor's Base Month would apply a weighting factor of 115% to such
commissions (computed using the 82% Executive Pin Level Weighting Factor (P) for
an Emerald Level Distributor plus a .33% Business Growth Weighting Factor (G)
based on the 98% increase in average commissions during the Illustrative
Qualification Period over commissions paid during such distributor's Base
Month), resulting in Weighted Individual Compensation (X) of W45,413,040. Such
distributor's allocation of Distributor Award Shares at the end of the
Illustrative Qualification Period would be equal to the quotient of his or her
Weighted Individual Compensation (X = W45,413,040) divided by the Weighted Total
Compensation (Y = W3,000,000,000), multiplied by the total number of Distributor
Award Shares (S = 16,000). Such distributor would therefore be allocated 242
Distributor Award Shares.
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Vesting. For Distributor Award Shares to vest, an Eligible Distributor
will generally be required to maintain, during the period from September 1,
1999, through October 31, 1999 (the "Vesting Period"), the actual Executive Pin
Level he or she achieved by the end of the Qualification Period (the "Qualifying
Executive Pin Level"). If an Eligible Distributor fails to maintain the
Qualifying Executive Pin Level for any month during the Vesting Period, the
number of Distributor Award Shares vested in such Eligible Distributor will be
recalculated at the end of the Vesting Period to be that number of Distributor
Award Shares such Eligible Distributor would have been allocated had he or she
achieved, at the end of the Qualification Period, the lowest Executive Pin Level
held by him or her during the Vesting Period (the "Recalculated Shares"). For
example, if an Eligible Distributor ends the Qualification Period as a Diamond
level distributor with an Executive Pin Level Weighting Factor of 86% and a
Business Growth Weighting Factor of 15%, resulting in a combined weighting
factor for Weighted Individual Compensation of 101%, but during the Vesting
Period the lowest actual Executive Pin Level to which the distributor falls is
Ruby level, which carries an Executive Pin Level Weighting Factor of 78% (the
Business Growth Weighting Factor would remain unchanged), the Weighted
Individual Compensation factor would be reduced to 93%. The difference between
the number of Distributor Award Shares allocated to an Eligible Distributor at
the end of the Qualification Period and the Recalculated Shares, if the amount
of Recalculated Shares is lower, will be forfeited by such Eligible Distributor.
If an Eligible Distributor falls below the Gold Executive Pin Level at any time
during the Vesting Period, all Distributor Award Shares allocated to such
Eligible Distributor will be immediately forfeited. Distributor Award Shares
will not be issued until the end of the applicable vesting period.
Delivery of Distributor Award Shares. Distributor Award Shares vested in
an Eligible Distributor will be delivered in portions beginning December 1999.
The amount will vary from month to month based upon the difference between the
total actual commission payout percentage to the Distributor force as a whole
and the 35% maximum mandated by Korean law, upon receipt of written notice from
NSK, provided the Eligible Distributor maintains an Executive Pin Level of Gold
or higher until the date of receipt.
Upon receipt of the Distributor Award Shares, each Eligible Distributor
who is granted more than 3,000 Distributor Award Shares agrees not to resell in
any given six-month period more than 33% of their Distributor Award Shares.
Certain Factors Impacting Program. The allocation examples presented
above are for illustrative purposes only. There can be no assurance that the
number of Eligible Distributors will remain constant during the Qualification
Period. Given the fixed number of Distributor Award Shares available, the number
of Distributor Award Shares allocable to an Eligible Distributor will decrease
as the total number of Eligible Distributors increases and conversely will
increase as the total number of Eligible Distributors decreases. NSK has
historically experienced periods of significant fluctuations in its total number
of executive distributors and may experience such fluctuations in the future. An
increase in the total number of Eligible Distributors during the Qualification
Period could result in a material reduction in the number of Distributor Award
Shares allocable to an individual Eligible Distributor. The number of
Distributor Award Shares allocable to an Eligible Distributor will also decrease
as the number of Eligible Distributors at higher Executive Pin Levels increases
as a proportion of all Eligible Distributors and conversely will increase as the
number of Eligible Distributors at higher Executive Pin Levels decreases as a
proportion of all Eligible Distributors. There can be no assurance that the
proportion of Eligible Distributors at each Executive Pin Level will remain
constant during the Qualification Period. In addition, the number of Distributor
Award Shares allocable to an Eligible Distributor will decrease as such Eligible
Distributor's compensation decreases as a proportion of total compensation paid
to all Eligible Distributors and conversely will increase as such Eligible
Distributor's compensation increases as a proportion of total compensation paid
to all Eligible Distributors. There can be no assurance that an Eligible
Distributor's compensation will remain constant as a percentage of total
Eligible Distributor compensation during the Qualification Period. Further,
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there can be no assurance that an Eligible Distributor will be able to earn
particular compensation amounts during the Qualification Period.
Regulatory Requirements. The availability of the Distributor Award
Shares in Korea is entirely dependent upon and subject to the Company's ability
to secure any necessary regulatory approvals, qualifications or exemptions. The
Company reserves the right to modify the Plan or allocation of shares in order
to comply with relevant Korean and U.S. regulatory laws including, but not
limited to, the limitation on sponsoring bonuses under the Korean Door-to-Door
Sales Act.
Product Returns. By receiving an allocation of Distributor Award Shares
at the end of the Qualification Period, each Eligible Distributor confirms his
or her agreement to continue to resell or personally consume at least 80% of all
products purchased by such distributor per month. In addition, product returns
during the Qualification or Vesting Periods will reduce commission levels and
may affect distributor pin levels, consequently impacting the number of
Distributor Award Shares received by an Eligible Distributor. In the event of
product returns occurring after the Qualification or Vesting Periods which would
have affected distributor pin levels or qualification for or vesting of
Distributor Award Shares had such product returns been made during the
Qualification or Vesting Periods, NSK and NSI reserve the right to use any
mechanism available to it under the Nu Skin distributor policies and procedures,
as may be amended from time to time, to recoup the value of the Distributor
Award Shares received by a distributor on the Vesting Date in excess of the
value of Distributor Award Shares which would have vested had such returns been
made prior to the Vesting Date.
The Distributor Equity Incentive program is not intended to be an
executive distributor's primary source of income. An executive distributor's
primary income source, i.e., product sales and commissions, will continue to be
based on the efforts of the executive distributor and his or her downline
organization.
Tax Liability. Neither the Company nor NSK make any representations with
respect to the individual tax liability resulting from this program.
Distributors are required to consider and pay all relevant taxes. NSK will
deduct applicable withholding taxes of this stock award. Distributors are urged
to consult his or her own tax advisors with respect to the particular tax
consequences to him or her of the receipt of Distributor Award Shares and the
ownership and the disposition of such shares, including the applicability of any
tax laws to which he or she may be subject as well as with respect to the
possible effects of changes in tax laws in each applicable jurisdiction,
including changes which may be applied retroactively in a manner that could
adversely affect holders of Distributor Award Shares.
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