SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 001-12421
Nu Skin Enterprises, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0565309
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
75 West Center Street, Provo, Utah 84601
(Address of Principal Executive Offices) (Zip Code)
(801) 345-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
As of May 3, 1999, 33,184,650 shares of the Company's Class A Common Stock,
$.001 par value per share, and 54,606,905 shares of the Company's Class B Common
Stock, $.001 par value per share, were outstanding.
<PAGE>
NU SKIN ENTERPRISES, INC.
1999 FORM 10-Q QUARTERLY REPORT - FIRST QUARTER
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets..................................2
Consolidated Statements of Income............................3
Consolidated Statements of Cash Flows........................4
Notes to Consolidated Financial Statements ...........5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk..17
Part II. Other Information
Item 1. Legal Proceedings...........................................17
Item 2. Changes in Securities.......................................17
Item 3. Defaults upon Senior Securities.............................17
Item 4. Submission of Matters to a Vote of Security Holders.........17
Item 5. Other Information...........................................18
Item 6. Exhibits and Reports on Form 8-K............................18
Signatures...........................................................19
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nu Skin Enterprises, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
ASSETS ------------- ------------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 160,016 $ 188,827
Accounts receivable 14,913 13,777
Related parties receivable 23,070 22,255
Inventories, net 72,706 79,463
Prepaid expenses and other 51,227 50,475
------------- ------------
321,932 354,797
Property and equipment, net 41,932 42,218
Other assets, net 211,886 209,418
------------- ------------
Total assets $ 575,750 $ 606,433
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,275 $ 17,903
Accrued expenses 108,094 132,723
Related parties payable 25,066 25,029
Current portion of long-term debt 52,323 14,545
------------- ------------
201,758 190,200
Long-term debt, less current portion 83,714 138,734
Other liabilities 22,857 22,857
------------- ------------
Commitments and contingencies
Stockholders' equity
Preferred stock - 25,000,000 shares authorized, $.001 par value,
no shares issued and outstanding -- --
Class A common stock - 500,000,000 shares authorized, $.001
par value, 33,172,950 and 33,709,251 shares issued and
outstanding 33 34
Class B common stock - 100,000,000 shares authorized, $.001
par value, 54,606,905 shares issued and outstanding 55 55
Additional paid-in capital 129,386 146,781
Retained earnings 188,899 158,064
Deferred compensation (6,652) (6,688)
Accumulated other comprehensive income (44,300) (43,604)
------------- ------------
267,421 254,642
------------- ------------
Total liabilities and stockholders' equity $ 575,750 $ 606,433
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
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Nu Skin Enterprises, Inc.
Consolidated Statements of Income (Unaudited)
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------- -------------
<S> <C> <C>
Revenue $ 233,751 $ 227,863
Cost of sales 41,017 45,689
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Gross profit 192,734 182,174
------------- -------------
Operating expenses:
Distributor incentives 87,649 83,127
Selling, general and administrative 58,005 48,071
------------- -------------
Total operating expenses 145,654 131,198
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Operating income 47,080 50,976
Other income (expense), net 1,864 2,185
------------- -------------
Income before provision for income taxes
and minority interest 48,944 53,161
Provision for income taxes 18,109 16,405
Minority interest -- 3,081
------------- -------------
Net income $ 30,835 $ 33,675
============= =============
Net income per share (Note 6):
Basic $ .35 $ .41
Diluted $ .35 $ .39
Weighted average common shares outstanding:
Basic 87,706 82,004
Diluted 89,175 86,316
Pro forma data:
Income before pro forma provision for
income taxes and minority interest $ 53,161
Pro forma provision for income taxes (Note 5) 19,563
Pro forma minority interest 1,947
-------------
Pro forma net income $ 31,651
=============
Pro forma net income per share (Note 6):
Basic $ .39
Diluted $ .37
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
Nu Skin Enterprises, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 30,835 $ 33,675
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,217 3,105
Amortization of deferred compensation 686 1,015
Income applicable to minority interest -- 3,081
Changes in operating assets and liabilities:
Accounts receivable (730) (6,448)
Related parties receivable (815) (5,651)
Inventories, net 8,891 (9,709)
Prepaid expenses and other (554) (6,432)
Other assets (399) (3,075)
Accounts payable (1,628) 50
Accrued expenses (32,609) (23,223)
Related parties payable 37 11,295
------------- -------------
Net cash provided by (used in) operating activities 10,931 (2,317)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (3,417) (2,982)
Payments for lease deposits (1,218) (1,502)
Receipt of refundable lease deposits 26 108
------------- -------------
Net cash used in investing activities (4,609) (4,376)
------------- -------------
Cash flows from financing activities:
Payments on long-term debt (14,545) --
Repurchase of shares of common stock (11,766) --
Exercise of distributor and employee stock options 814 --
Termination of Nu Skin USA license fee (10,000) --
Payments to stockholders for notes payable -- (3,722)
------------- -------------
Net cash used in financing activities (35,497) (3,722)
------------- -------------
Effect of exchange rate changes on cash 364 (4,816)
------------- -------------
Net decrease in cash and cash equivalents (28,811) (15,231)
Cash and cash equivalents, beginning of period 188,827 174,300
------------- -------------
Cash and cash equivalents, end of period $ 160,016 $ 159,069
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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1. THE COMPANY
Nu Skin Enterprises, Inc. (the "Company"), is a network marketing
company involved in the distribution and sale of premium quality,
innovative personal care and nutritional products. The Company
distributes Nu Skin brand products in markets throughout the world. The
Company's operations throughout the world are divided into three
segments: North Asia, which consists of Japan and South Korea;
Southeast Asia, which consists of Taiwan, Thailand, Hong Kong
(including Macau), the Philippines, Australia, and New Zealand; and
Other Markets, which consists of the United Kingdom, Austria, Belgium,
Denmark, France, Germany, Italy, Ireland, Poland, Portugal, Spain,
Sweden, the Netherlands, Brazil, the United States (the Company's
subsidiaries operating in these countries are collectively referred to
as the "Subsidiaries") and sales to and license fees from the Company's
other private affiliates.
As discussed in Note 2, the Company completed the NSI Acquisition on
March 26, 1998. Prior to the NSI Acquisition, each of the Subsidiaries
elected to be treated as an S corporation. In connection with the NSI
Acquisition, the Acquired Entities' S corporation status was
terminated, and the Acquired Entities declared distributions to the
stockholders that included all of the Acquired Entities' previously
earned and undistributed taxable S corporation earnings totaling $87.1
million in 1997 and $37.6 million in 1998 (the "S Distribution Notes").
Also in connection with the NSI Acquisition, on December 31, 1997, NSI
carved-out and distributed the net assets of its USA division ("Nu Skin
USA") to the NSI Stockholders. Immediately prior to this distribution,
NSI declared a distribution to the NSI Stockholders that included all
of Nu Skin USA's previously earned and undistributed taxable S
corporation earnings totaling $49.1 million. This distribution and all
other historical transactions of Nu Skin USA are excluded from the
Company's consolidated financial statements for the first quarter of
1998.
As discussed in Note 3, the Company completed the Pharmanex Acquisition
on October 16, 1998, which enhanced the Company's involvement with the
distribution and sale of nutritional products.
In February 1999, the Company announced its intent to acquire Big
Planet, Inc., an Internet-based company that offers Internet
connectivity, e-commerce, telecommunications and other technology
products and services to consumers in North America. The Company also
announced its intent to acquire the Company's remaining affiliates in
Canada, Mexico and Guatemala. As discussed in Note 4, in March 1999, Nu
Skin International, a subsidiary of the Company, terminated its
distribution license and various other license agreements and other
intercompany agreements with Nu Skin USA. Also, in March 1999, through
a newly formed wholly-owned subsidiary, the Company acquired selected
assets of Nu Skin USA.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair statement of the Company's
financial information as of March 31, 1999 and December 31, 1998 and
for the three-month periods ended March 31, 1999 and 1998. The results
of operations of any interim period are not necessarily indicative of
the results of operations to be expected for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on Form
10-K for the year ended December 31, 1998.
2. ACQUISITION OF NU SKIN INTERNATIONAL, INC. AND CERTAIN AFFILIATES
On March 26, 1998, the Company completed the acquisition (the "NSI
Acquisition") of the capital stock of Nu Skin International, Inc.
("NSI"), NSI affiliates operating in Europe, Australia and New
5
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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Zealand and certain other NSI affiliates (the "Acquired Entities") for
$70.0 million in preferred stock and long-term notes payable to the
stockholders of the Acquired Entities (the "NSI Stockholders") totaling
approximately $6.2 million. In addition, contingent upon NSI and the
Company meeting specific earnings growth targets, the Company may pay
up to $25.0 million in cash per year over a four-year period to the NSI
Stockholders. Also, as part of the NSI Acquisition, the Company assumed
approximately $171.3 million in S Distribution Notes and incurred
acquisition costs totaling $3.0 million. The net assets acquired
totaling $90.4 million include net deferred tax liabilities totaling
$7.4 million recorded upon the conversion of the Acquired Entities from
S to C corporations. All contingent consideration paid will be
accounted for as an adjustment to the purchase price and allocated to
the Acquired Entities' assets and liabilities.
The NSI Acquisition was accounted for by the purchase method of
accounting, except for that portion of the Acquired Entities under
common control of a group of stockholders, which portion was accounted
for in a manner similar to a pooling of interests. The common control
group is comprised of the NSI Stockholders who are immediate family
members. The minority interest, which represents the ownership
interests of the NSI Stockholders who are not immediate family members,
was acquired during the NSI Acquisition. Prior to the NSI Acquisition,
a portion of the Acquired Entities' net income, capital contributions
and distributions (including cash dividends and S Distribution Notes)
had been allocated to the minority interest.
For the portion of the NSI Acquisition accounted for by the purchase
method, the Company recorded inventory step-up of $21.6 million and
intangible assets of $34.8 million. During 1998, the inventory step-up
was fully amortized. For the three-month period ended March 31, 1999,
the Company recorded amortization of intangible assets relating to the
NSI Acquisition of $0.7 million. No amortization for these intangible
assets was recorded for the three-month period ended March 31, 1998.
For the portion of the NSI Acquisition accounted for in a manner
similar to a pooling of interests, the excess of purchase price paid
over the book value of the net assets acquired was recorded as a
reduction of stockholders' equity.
In connection with the presentation of the Company's consolidated
financial statements for the first quarter of 1998, the portion of the
NSI Acquisition and the resulting Preferred Stock issued to the common
control group is reflected as if such stock had been issued on the date
of the Company's incorporation on September 4, 1996. On May 5, 1998,
the stockholders of the Company approved the automatic conversion of
the Preferred Stock issued in the NSI Acquisition into 2,986,663 shares
of Class A Common Stock. Under the terms of the NSI Acquisition, the
2,986,663 shares of Class A Common Stock were adjusted down by 8,504
shares in June 1998.
3. ACQUISITION OF PHARMANEX, INC.
On October 16, 1998, the Company completed the acquisition of
privately-held Generation Health Holdings, Inc., the parent company of
Pharmanex, Inc. ("Pharmanex"), for $77.6 million, which consisted of
approximately 4.0 million shares of the Company's Class A Common Stock,
including 261,008 shares issuable upon exercise of options assumed by
the Company (the "Pharmanex Acquisition"). Contingent upon Pharmanex
meeting specific revenue and other requirements, approximately 565,000
of the 4.0 million shares are being held in escrow and will be returned
to the Company if such requirements are not met within one year from
the date of the Pharmanex Acquisition. The contingent shares issued, if
any, will be accounted for as an adjustment to the purchase price and
allocated to the acquired assets and liabilities. Also, as part of the
Pharmanex Acquisition, the Company assumed approximately $34.0 million
in liabilities and incurred acquisition costs totaling $1.3 million.
The net assets acquired totaling $3.6 million include net deferred tax
assets totaling $0.8 million. In connection with the closing of the
Pharmanex Acquisition, the Company paid approximately $29.0 million
relating to the assumed liabilities.
The Pharmanex Acquisition was accounted for by the purchase method of
accounting. The Company recorded inventory step-up of $3.7 million and
intangible assets of $92.4 million. In addition, the Company allocated
$13.6 million to purchased in-process research and development
6
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
based on a discounted cash-flow method reflecting the stage of
completion of the related projects. During 1998, the in-process
research and development amount was fully written off. For the
three-month period ended March 31, 1999, the Company recorded
amortization of intangible assets relating to the Pharmanex Acquisition
of $1.8 million and amortization of inventory step-up relating to the
Pharmanex Acquisition of $1.0 million.
Pro forma results as if the Pharmanex Acquisition had occurred at
January 1, 1998 have not been presented because the results are not
considered material.
4. ACQUISITION OF CERTAIN ASSETS OF NU SKIN USA, INC.
On March 8, 1999, NSI terminated its distribution license and various
other license agreements and other intercompany agreements with Nu Skin
USA, Inc. ("Nu Skin USA") and paid Nu Skin USA a $10.0 million
termination fee. Also, on that same date, through a newly formed
wholly-owned subsidiary, the Company acquired selected assets of Nu
Skin USA and assumed approximately $8.0 million of Nu Skin USA
liabilities.
The acquisition of the selected assets and assumption of liabilities
and the termination of these agreements has been recorded for the
consideration paid, except for the portion of Nu Skin USA which is
under common control of a group of stockholders, which portion will be
recorded at predecessor basis.
5. INCOME TAXES
As a result of the NSI Acquisition described in Note 2, the Acquired
Entities are no longer treated as S corporations for U.S. Federal
income tax purposes. The consolidated statements of income include a
pro forma presentation for income taxes, including the effect on
minority interest, which would have been recorded as if the Acquired
Entities had been taxed as C corporations rather than as S corporations
for the three-month period ended March 31, 1998.
6. NET INCOME PER SHARE
Net income per share and pro forma net income per share are computed
based on the weighted average number of common shares outstanding
during the periods presented. Additionally, diluted earnings per share
data gives effect to all dilutive potential common shares that were
outstanding during the periods presented.
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's Subsidiaries enter into significant transactions with
each other and third parties which may not be denominated in the
respective Subsidiaries' functional currencies. The Company seeks to
reduce its exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of foreign currency
exchange contracts and through certain intercompany loans of foreign
currency. The Company does not use such derivative financial
instruments for trading or speculative purposes. The Company regularly
monitors its foreign currency risks and periodically takes measures to
reduce the impact of foreign exchange fluctuations on the Company's
operating results. Gains and losses on foreign currency forward
contracts and certain intercompany loans of foreign currency are
recorded as other income and expense in the consolidated statements of
income.
At March 31, 1999 and December 31, 1998, the Company held foreign
currency forward contracts with notional amounts totaling approximately
$53.5 million and $46.3 million, respectively, to hedge foreign
currency items. These contracts do not qualify as hedging transactions
and, accordingly, have been marked to market. The net gains on foreign
currency forward contracts were $2.5 million and $1.9 million for the
three-month periods ended March 31, 1999 and 1998, respectively. These
contracts at March 31, 1999 have maturities through September 1999.
7
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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At March 31, 1999 and December 31, 1998, the intercompany loan from Nu
Skin Japan Co., Ltd. ("Nu Skin Japan") to Nu Skin Hong Kong ("Nu Skin
Hong Kong") totaled approximately $55.0 million and $57.3 million,
respectively. The Company recorded exchange gains totaling $ 0.8
million and $0.9 million resulting from this intercompany loan for the
three-month periods ended March 31, 1999 and 1998, respectively.
At March 31, 1999 and December 31, 1998, the intercompany loan from Nu
Skin Japan to the Company totaled approximately $78.2 million and $82.0
million, respectively. There were no exchange gains or losses resulting
from this intercompany loan for the three-month periods ended March 31,
1999 and 1998.
8. REPURCHASE OF COMMON STOCK
During the first quarter of 1999, the Company repurchased approximately
780,000 shares of Class A common stock from Nu Skin USA, open market
repurchases and certain stockholders for approximately $11.8 million.
9. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three-month periods ended March 31, 1999 and 1998, were as follows (in
thousands):
Three Three
Months Ended Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Net income $ 30,835 $ 33,675
Other comprehensive income, net of tax:
Foreign currency translation adjustments (696) (3,746)
------------- -------------
Comprehensive income $ 30,139 $ 29,929
============= =============
10. SEGMENT INFORMATION
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. As described in Note 1, the
Company's operations throughout the world are divided into three
reportable segments: North Asia, Southeast Asia and Other Markets.
Segment data includes intersegment revenue, intersegment profit and
operating expenses and intersegment receivables and payables. The
Company evaluates the performance of its segments based on operating
income. Information as to the operations of the Company in each of the
three segments is set forth below (in thousands):
Three Three
Months Ended Months Ended
March 31,1999 March 31,1998
------------- -------------
Revenue
North Asia $ 173,048 $ 157,073
Southeast Asia 67,781 84,821
Other Markets 67,401 71,987
Eliminations (74,479) (86,018)
------------- -------------
Totals $ 233,751 $ 227,863
============= =============
8
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Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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Operating Income
North Asia $ 28,120 $ 33,042
Southeast Asia 8,732 6,926
Other Markets 4,371 1,332
Eliminations 5,857 9,676
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Totals $ 47,080 $ 50,976
============= =============
As of As of
March 31, December 31,
1999 1998
------------- -------------
Total Assets
North Asia $ 120,482 $ 167,867
Southeast Asia 97,776 110,518
Other Markets 464,766 500,299
Eliminations (107,274) (172,251)
------------- -------------
Totals $ 575,750 $ 606,433
============= =============
Information as to the Company's operation in different geographical
areas is set forth below (in thousands):
Revenue
Revenue from the Company's operations in Japan totaled $169,630, and
$154,573 for the three-month periods ended March 31, 1999 and 1998,
respectively. Revenue from the Company's operations in Taiwan totaled
$28,007 and $34,537 for the three-month periods ended March 31, 1999
and 1998, respectively. Revenue from the Company's operations in the
United States (which includes intercompany revenue) totaled $63,143 and
$69,144 for the three-month periods ended March 31, 1999 and 1998,
respectively.
Long-lived assets
Long-lived assets in Japan were $21,490 and $20,242 as of March 31,
1999 and December 31, 1998, respectively. Long-lived assets in Taiwan
were $2,421 and $2,466 as of March 31, 1999 and December 31, 1998,
respectively. Long-lived assets in the United States were $215,659 and
$213,856 as of March 31, 1999 and December 31, 1998, respectively.
11. NEW ACCOUNTING STANDARDS
Reporting on the Costs of Start-Up Activities
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs
of Start-Up Activities. The statement is effective for fiscal years
beginning after December 15, 1998. The statement requires costs of
start-up activities and organization costs to be expensed as incurred.
The Company has adopted SOP 98-5 for calendar year 1999. The adoption
of SOP 98-5 did not materially affect the Company's consolidated
financial statements.
Accounting for Derivative Instruments and Hedging Activities In June
1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. The statement requires
companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. The accounting for changes
in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. The statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company will adopt SFAS 133 by January 1, 2000. The Company is
currently evaluating the impact the adoption of SFAS 133 will have on
the Company's consolidated financial statements.
9
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Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS
On May 3, 1999, the Company entered into an agreement to acquire Big
Planet, Inc. ("Big Planet"). In addition, the Company plans to acquire
its remaining affiliates in Canada, Mexico and Guatemala in May 1999.
The acquisition of Big Planet is expected to be accounted for by the
purchase method of accounting. The acquisition of the Company's
remaining affiliates in Canada, Mexico and Guatemala is expected to be
recorded for the consideration paid, except for the portion of the
Company's remaining affiliates in Canada, Mexico and Guatemala which is
under common control of a group of stockholders, which portion is
expected to be recorded at predecessor basis.
10
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Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1999 compared to 1998
Revenue increased 2.6% to $233.8 million from $227.9 million for the
three-month period ended March 31, 1999, compared with the same period in 1998.
The increase in revenue resulted primarily from the favorable impact of
strengthening foreign currencies relative to the U.S. dollar during the first
quarter of 1999 compared to the same period in 1998.
Revenue in North Asia, which consists of Japan and South Korea,
increased 10.1% to $173.0 million for the three-month period ended March 31,
1999, from $157.1 million for the same period in 1998. This increase was
primarily due to the revenue increase in Japan of 9.7% for the three-month
period ended March 31, 1999, compared with the same period in 1998. This
increase in revenue in Japan resulted from the strengthening of the Japanese yen
relative to the U.S. dollar during the three-month period ended March 31, 1999,
compared to the same period in 1998. Revenue in Japan for the three-month period
ended March 31, 1999 in Japanese yen remained constant compared to the same
period in 1998 due primarily to the continued economic recession in Japan.
Revenue in South Korea during the three-month period ended March 31, 1999
increased 36.7%, compared to the same period in 1998 as a result of both a
strengthening of the South Korean won and a 22.9% increase in local currency
growth.
Revenue in Southeast Asia, which consists of Taiwan, Thailand, Hong
Kong, the Philippines, Australia and New Zealand, totaled $37.0 million for the
three-month period ended March 31, 1999, a decrease of 19.7% from revenue of
$46.1 million for the same period in 1998. This decrease in revenue resulted
primarily from a decline of 18.9% in revenue in Taiwan. The Company's operations
in Taiwan have continued to suffer the impact of increased competition, and the
PRC's temporary ban on direct selling, where many Taiwanese distributors hoped
to expand their businesses. In addition, the Company's operations in Thailand
and the Philippines have been impacted negatively by the region's economic
recession.
Revenue in the Company's other markets, which include the United
Kingdom, Germany, Italy, the Netherlands, France, Belgium, Spain, Portugal,
Ireland, Austria, Poland, Denmark, Sweden, Brazil, the United States and sales
to and license fees from the Company's remaining private affiliates, decreased
4.0% to $23.7 million for the three-month period ended March 31, 1999, compared
to $24.7 million for the same period in 1998. This modest decrease was primarily
due to increased revenue generated by the Company's North American private
affiliates during the first quarter of 1998 as a result of a successful global
convention held during the first quarter of 1998 which was not repeated during
the first quarter of 1999.
Gross profit as a percentage of revenue was 82.5% for the three-month
period ended March 31, 1999, compared to 79.9% for the same period in 1998. The
increase in the gross profit as a percentage of revenue for the three-month
period ended March 31, 1999 resulted from the strengthening of the Japanese yen
and other Asian currencies relative to the U.S. dollar, higher margin sales to
distributors in the United States following the termination of the Company's
license agreement with Nu Skin USA, local manufacturing efforts and reduced duty
rates. The Company purchases a significant majority of goods in U.S. dollars and
recognizes revenue in local currency and is consequently subjected to exchange
rate risks in its gross margins.
Distributor incentives as a percentage of revenue increased to 37.5%
for the three-month period ended March 31, 1999 from 36.5% for the same period
in 1998. The primary reason for this increase in the first quarter of 1999 was
due to the Company beginning to sell products to distributors in the United
States and paying the requisite commissions related to those sales.
Selling, general and administrative expenses as a percentage of
revenue increased to 24.8% for the three-month period ended March 31, 1999 from
21.1% for the same period in 1998. In dollar terms, selling, general and
administrative expenses increased to $58.0 million for the three-month period
ended March 31, 1999 from $48.1 million for the same period in 1998. This
increase as a percentage of revenue and in dollar terms was due to stronger
foreign currencies in the first quarter of 1999 which resulted in higher
expenses in foreign markets, additional overhead expenses relating to the
operations in the United States and an additional $3.5 million in amortization
resulting from the Company's acquisitions of NSI and Pharmanex.
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<PAGE>
Operating income decreased 7.6% to $47.1 million for the three-month
period ended March 31, 1999 from $51.0 million for the same period in 1998.
Operating margin decreased to 20.1% for the three-month period ended March 31,
1999 from 22.4% for the same period in 1998. The operating income and margin
decreases resulted primarily from the increases in distributor incentives and
selling, general and administrative expenses and was partially offset by the
gross margin improvement during the first quarter of 1999.
Other income remained nearly constant at $1.9 million for the
three-month period ended March 31, 1999 compared to $2.2 million for the same
period in 1998. The Company recognized hedging gains from forward contracts and
intercompany loans in both the first quarters of 1999 and 1998. The hedging
gains and interest income on the Company's cash balances in the first quarter of
1999 were partially offset by the interest expense relating to the Company's
outstanding debt.
Provision for income taxes increased 10.4% to $18.1 million for the
three-month period ended March 31, 1999 from $16.4 million for the same period
in 1998 due to an increase in the effective tax rate from 30.9% during the first
quarter of 1998 to 37.0% for the first quarter of 1999 and is partially offset
by higher income during the first quarter of 1998. This increase in the
effective tax rate is due to NSI and its affiliates being taxed as C
corporations rather than as S corporations during the first quarter of 1999. The
pro forma provision for income taxes presents income taxes as if NSI and its
affiliates had been taxed as C corporations rather than as S corporations for
the three-month period ended March 31, 1998.
Minority interest represents the ownership interest of NSI held by
individuals who are not immediate family members. The minority interest was
purchased as part of the NSI Acquisition on March 26, 1998.
Net income decreased by $2.9 million or 8.6% to $30.8 million for the
three-month period ended March 31, 1999 from $33.7 million for the same period
in 1998 due to the increased distributor incentives, selling, general and
administrative expenses and income taxes. Net income as a percentage of revenue
decreased to 13.2% for the three-month period ended March 31, 1999 from 14.8%
for the same period in 1998.
Liquidity and Capital Resources
Historically, the Company's principal needs for funds have been for
distributor incentives, working capital (principally inventory purchases),
operating expenses, capital expenditures and the development of operations in
new markets. The Company has generally relied entirely on cash flow from
operations to meet its business objectives without incurring long-term debt to
unrelated third parties to fund operating activities.
The Company generates significant cash flow from operations due to
favorable gross margins and minimal capital requirements. Additionally, the
Company does not generally extend credit to distributors but requires payment
prior to shipping products. This process eliminates the need for significant
accounts receivable from distributors. During the first quarter of each year,
the Company pays significant accrued income taxes in many foreign jurisdictions
including Japan. These large cash payments somewhat offset the significant cash
generated in the first quarter. During the three-month period ended March 31,
1999, the Company generated $10.9 million from operations compared to using $2.3
million during the three-month period ended March 31, 1998. This increase in
cash generated from operations primarily related to reduced purchases of
inventory during the first quarter of 1999 compared to the same period in 1998.
As of March 31, 1999, working capital was $120.2 million compared to
$164.6 million as of December 31, 1998. This decrease is primarily due to the
increase at March 31, 1999 in the current portion of long-term debt. Cash and
cash equivalents at March 31, 1999 and December 31, 1998 were $160.0 million and
$188.8 million, respectively.
Capital expenditures, primarily for equipment, computer systems and
software, office furniture and leasehold improvements, were $3.4 million for the
three-month period ended March 31, 1999. In addition, the Company anticipates
additional capital expenditures in 1999 of approximately $35.0 million to
further enhance its infrastructure, including enhancements to computer systems
and software and call-center facilities in order to accommodate anticipated
future growth.
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In March 1998, the Company completed the NSI Acquisition for $70.0
million in preferred stock, which was subsequently converted into Class A common
stock, and long-term notes payable to the stockholders of NSI and such
affiliates totaling approximately $6.2 million. Also, as part of the NSI
Acquisition, the Company assumed approximately $171.3 million in S distribution
notes and incurred acquisition costs totaling $3.0 million. During the second
quarter of 1998, the S distribution notes and long-term notes payable to the NSI
stockholders were paid in full with proceeds from the credit facility described
below. In addition, NSI and the Company met earnings growth targets in 1998
resulting in a contingent payment payable to the NSI stockholders of $25.0
million as of March 31, 1999 and December 31, 1998. Contingent upon NSI and the
Company meeting earnings growth targets over the next three years, the Company
may pay up to $25.0 million in cash in each of the next three years to the NSI
stockholders. The contingent consideration of $25.0 million earned in 1998 was
paid in the second quarter of 1999 and has been accounted for as an adjustment
to the purchase price and allocated to the assets and liabilities of NSI and its
previously private affiliates. Any additional contingent consideration paid over
the next three years, if any, will be accounted for in a similar manner.
In May 1998, the Company and its Japanese subsidiary Nu Skin Japan
entered into a $180.0 million credit facility with a syndicate of financial
institutions for which ABN-AMRO, N.V. acted as agent. This credit facility was
used to satisfy liabilities which were assumed as part of the NSI Acquisition.
The Company borrowed $110.0 million and Nu Skin Japan borrowed the Japanese yen
equivalent of $70.0 million denominated in local currency. Payments totaling
$41.6 million were made during the second quarter of 1998 and payments totaling
$14.5 million were made during the first quarter of 1999 relating to the $180.0
million credit facility. As of March 31, 1999, the balance relating to the
$180.0 million credit facility totaled $136.0 million of which approximately
$52.3 million is due in 2000 and approximately $83.7 million will be due in
2001. The U.S. portion of the credit facility bears interest at either a base
rate as specified in the credit facility or the London Inter-Bank Offer Rate
plus an applicable margin, in the borrower's discretion. The Japanese portion of
the credit facility bears interest at either a base rate as specified in the
credit facility or the Tokyo Inter-Bank Offer Rate plus an applicable margin, in
the borrower's discretion. The maturity date for the credit facility is three
years from the borrowing date, with a possible extension of the maturity date
upon approval of the lenders. The credit facility provides that the amounts
borrowed are to be used for general corporate purposes. The Company is currently
in compliance with all financial and other covenants under the credit facility.
During 1998, the Company entered into a $10.0 million revolving credit agreement
with ABN-AMRO, N.V. Advances are available under the agreement through May 18,
1999 with a possible extension upon approval of the lender. There were no
outstanding balances under this credit facility at March 31, 1999.
During 1998, the board of directors authorized the Company to
repurchase up to $20.0 million of the Company's outstanding shares of Class A
common stock. As of March 31, 1999, the Company had repurchased 997,954 shares
for an aggregate price of approximately $12.2 million. In addition, in March
1999, the board of directors separately authorized and the Company completed the
purchase of approximately 700,000 shares of the Company's Class A common stock
from Nu Skin USA and certain stockholders for approximately $10.0 million.
As part of the Pharmanex Acquisition, the Company assumed
approximately $34.0 million in liabilities and incurred acquisition costs
totaling $1.3 million. The net assets acquired totaling $3.6 million include net
deferred tax assets totaling $0.8 million. In connection with the closing of the
Pharmanex Acquisition, the Company paid approximately $29.0 million relating to
the assumed liabilities.
In March 1999, NSI terminated its distribution license and various
other license agreements and other intercompany agreements with Nu Skin USA and
paid Nu Skin USA a $10.0 million termination fee. The Company also, through a
newly formed wholly-owned subsidiary, acquired selected assets of Nu Skin USA
and assumed approximately $8.0 million of Nu Skin USA's liabilities in March
1999.
The Company has entered into an agreement to acquire its affiliate Big
Planet for an aggregate of approximately $37.0 million, of which approximately
$14.5 million is payable in the form of a promissory note and approximately
$22.5 million is payable in cash. The Company currently expects this transaction
to close by June 30, 1999. The Company has also agreed to loan to Big Planet up
to $7.5 million to fund its operations through the closing of the acquisition.
Big Planet incurred operating losses of approximately $22.0 million in 1998 and
the Company anticipates Big Planet will continue to incur operating losses in
the foreseeable future.
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The Company had related party payables of $25.1 million and $25.0
million at March 31, 1999 and December 31, 1998, respectively. In addition, the
Company had related party receivables of $23.1 million and $22.3 million,
respectively, at those dates. Related party balances outstanding in excess of 60
days bear interest at a rate of 2% above the U.S. prime rate. As of March 31,
1999, no material related party payables or receivables had been outstanding for
more than 60 days.
The Company leases office space and computer hardware under
noncancellable long-term operating leases. Minimum future operating lease
obligations at December 31, 1998 were $29.6 million with minimum obligations for
1999 of $8.9 million.
Management considers the Company to be liquid and able to meet its
obligations on both a short and long-term basis. The Company currently believes
existing cash balances together with future cash flows from operations will be
adequate to fund cash needs relating to the implementation of its strategic
plans.
Year 2000
The Company has developed a comprehensive plan to address Year 2000
issues. In connection with this plan, the Company has established a committee
that is responsible for assessing and testing its systems to identify Year 2000
issues, and overseeing the upgrade or remediation of non-compliant Year 2000
systems. This committee reports on a regular basis to the Company's executive
management team and the audit committee of the board of directors on the
progress and status of the plan and the Year 2000 issues affecting the Company.
To date, the Company has completed a broad scope assessment and audit
of its information technology systems and non-information technology systems to
identify and prioritize potential Year 2000 issues and is currently performing a
micro-based assessment designed to identify specific Year 2000 issues at the
hardware, software and processing levels. Through this process, the Company has
identified potential Year 2000 issues in its information systems, and is in the
process of addressing these issues through upgrades and other remediation. The
Company currently estimates that the cost of all upgrades related to Year 2000
issues, including scheduled upgrades intended primarily to increase efficiencies
within the Company and also address Year 2000 issues, is anticipated to be
approximately $10.0 million through the remainder of 1999, which the Company
anticipates will be funded by cash from operations. To date, the Company has
spent approximately $3.0 million. The Company currently anticipates that it will
complete the micro-based analysis and remediation on all of the Company's
significant in-house systems by the third quarter of 1999. Through the remainder
of 1999, the Company will continue to run broad scope tests of its in-house
systems to confirm that the Company has adequately addressed all Year 2000
issues and continue its work on the systems of the Company's foreign offices.
As part of the Year 2000 plan, the Company is also assessing and
monitoring its vendors and suppliers and other third parties for Year 2000
readiness. To date, the committee has sent questionnaires to these third parties
seeking their assessment and evaluation of their own Year 2000 readiness and has
received responses back from a substantial majority of these third parties.
Members of the committee have already begun follow-up calls to the Company's top
fifty vendors and plan to visit the Company's significant suppliers and vendors
in person for purposes of evaluating their Year 2000 readiness and sharing Year
2000 information. The Company will continue the follow-up with third party
vendors throughout the remainder of 1999.
Based on the Company's evaluation of the Year 2000 issues affecting
the Company, management believes that Year 2000 readiness of the Company's
vendors and suppliers, which is beyond the Company's control, is currently the
most significant area of risk, particularly in its foreign markets. Management
does not believe it is possible at this time to quantify or estimate the most
reasonable worst case Year 2000 scenario. However, the Company is beginning to
formulate contingency plans to limit, to the extent possible, interruption of
the Company's operations arising from the failure of third parties to be Year
2000 compliant as the Company moves forward in the implementation of its Year
2000 plan. The Company will continue to work with third parties as indicated
above to further evaluate and quantify this risk and will continue the
development of contingency plans throughout the remainder of 1999 as this
process moves forward. There can be no assurance, however, that the Company will
be able to successfully identify and develop contingency plans for all Year 2000
issues that could, directly or indirectly, harm its operations, some of
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which are beyond the Company's control. In particular, the Company cannot
predict or evaluate domestic and foreign governments' and utility companies'
preparation for the Year 2000 or the readiness of other third parties (domestic
and foreign) that do not have relationships with the Company, and the resulting
impact that the failure of such parties to be Year 2000 compliant may have on
the economy in general and on its business.
The foregoing discussion of the Year 2000 issues contains
forward-looking statements that represent the Company's current expectations or
beliefs. These forward-looking statements are subject to risks and uncertainties
that could cause outcomes to be different from those currently anticipated
including those risks identified under the heading "Note Regarding
Forward-looking Statements."
Seasonality and Cyclicality
In addition to general economic factors, the direct selling industry
is impacted by seasonal factors and trends such as major cultural events and
vacation patterns. For example, Japan, Taiwan, Hong Kong, South Korea and
Thailand celebrate their respective local New Year in the Company's first
quarter. Management believes that direct selling in Japan and Europe is also
generally negatively impacted during the month of August, which is in the
Company's third quarter, when many individuals traditionally take vacations.
The Company has experienced rapid revenue growth in most of its new
markets from the commencement of operations. In Japan, Taiwan and Hong Kong, the
initial rapid growth was followed by a short period of stable or declining
revenue followed by renewed growth fueled by new product introductions, an
increase in the number of active distributors and increased distributor
productivity. In South Korea, the Company experienced a significant decline in
its 1997 revenue from revenue in 1996 and experienced additional quarterly
sequential declines in 1998. Revenue in Thailand also decreased significantly
after the commencement of operations in March 1997. Management believes that the
revenue declines in South Korea and Thailand were partly due to normal business
cycles in new markets, but were primarily due to volatile economic conditions
and weakened currencies in those markets. Revenue declines in South Korea also
resulted from government and media actions targeted at sellers of foreign and
luxury goods. In addition, the Company may experience variations on a quarterly
basis in its results of operations, as new products are introduced and new
markets are opened. No assurance can be given that the Company's revenue growth
rate in new markets where Nu Skin operations have not commenced will follow this
pattern.
Currency Risk and Exchange Rate Information
A majority of the Company's revenue and many of its expenses are
recognized primarily outside of the United States except for inventory purchases
which are primarily transacted in U.S. dollars from vendors in the United
States. Each subsidiary's local currency is considered the functional currency.
All revenue and expenses are translated at weighted average exchange rates for
the periods reported. Therefore, the Company's reported sales and earnings will
be positively impacted by a weakening of the U.S. dollar and will be negatively
impacted by a strengthening of the U.S. dollar.
Given the uncertainty of exchange rate fluctuations, the Company
cannot estimate the effect of these fluctuations on its future business, product
pricing, results of operations or financial condition. However, because a
majority 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
seeks to reduce its exposure to fluctuations in foreign exchange rates by
creating offsetting positions through the use of foreign currency exchange
contracts and through intercompany loans of foreign currency. The Company does
not use such derivative financial instruments for trading or speculative
purposes. The Company regularly monitors its foreign currency risks and
periodically take measures to reduce the impact of foreign exchange fluctuations
on its operating results.
The Company's foreign currency derivatives are comprised of
over-the-counter forward contracts with major international financial
institutions. As of March 31, 1999, the primary currency for which the Company
had net underlying foreign currency exchange rate exposure was the Japanese yen.
Based on the Company's foreign exchange contracts at March 31, 1999 as discussed
in Note 7 of the notes to the Consolidated Financial Statements, the impact of a
10% appreciation or 10% depreciation of the U.S. dollar
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<PAGE>
against the Japanese yen would not result in significant other income or expense
recorded in the Consolidated Statements of Income.
Outlook
The Company anticipates that stronger foreign currencies in 1999 as
compared to 1998 will positively impact reported revenue in 1999, assuming that
exchange rates remain at current levels. Management believes that the
acquisitions of Pharmanex, Big Planet and Nu Skin operations in the United
States should also positively impact revenue. Earnings in each of the second,
third and fourth quarters of 1998 were negatively impacted due to nonrecurring
charges following our acquisitions during 1998. Management also currently
anticipates gross margin improvement during 1999 due to stronger foreign
currencies, selling products directly to U.S. distributors rather than
recognizing lower margin intercompany revenue, as well as continued local
manufacturing efforts and the resulting reduced duty rates. However, management
also anticipates that distributor incentives as a percentage of revenue will
increase due to paying commissions to U.S. based distributors. Selling, general
and administrative expenses will generally be higher throughout 1999 due to
increased amortization of intangible assets acquired in the acquisitions of
Pharmanex and NSI, as well as stronger foreign currencies. In addition, assumed
overhead related to the acquired U.S. operations will increase the Company's
selling, general and administrative expenses.
Note Regarding Forward-Looking Statements
Certain statements made above in the Liquidity and Capital Resources
section, the Year 2000 section, the Outlook section and Note 12 to the
Consolidated Financial Statements included herein are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). These forward-looking statements involve risks and
uncertainties and are based on certain assumptions that may not be realized.
Actual results and outcomes may differ materially from those discussed or
anticipated. The forward-looking statements and associated risks described in
this filing relate to, among other things, (i) the anticipation of significant
cash flow from operations, (ii) the Company's expectation that it will be able
to rely entirely on cash flow from operations to fund its business objectives
without incurring long-term debt to unrelated third parties, (iii) the Company's
expectation that it will be able to successfully address any Year 2000 related
issues, including with third parties, as more fully described under the Year
2000 section above, (iv) the Company's expectation concerning its ability to
develop viable contingency or back up plans in the event any of its systems or
the systems of its vendors or suppliers are not Year 2000 compliant, (v) the
Company's expectation that it will be able to fund its Year 2000 program from
cash from operations, (vi) management's belief that the Company is liquid and
able to meet its obligations both on a short and long-term basis, (vii) the
anticipation that revenue will be positively impacted by current currency
exchange rates compared to 1998 and recent acquisitions, (viii) the planned
acquisition of Big Planet and introduction of Pharmanex products into its Asian
markets, (ix) management's belief that gross margins will improve, and (x) the
Company's plan to implement forward contracts and other hedging strategies to
manage foreign currency risks.
Important factors and risks that might cause actual results to differ
from those anticipated include, but are not limited to: (a) lower than expected
revenue, revenue growth, cash flow from operations and gross margin improvement
because of adverse economic, business or political conditions, increased
competition, adverse publicity in the Company's markets, particularly Japan and
Taiwan, or the Company's inability, for any reason, to open new markets,
introduce new products, implement its marketing and local sourcing initiatives
and other strategic plans as well as the potential negative effect of
distributor actions such as decreased selling efforts or increased turnover; (b)
variations in operating results including revenue, gross margin and earnings
caused by renewed or sustained weakness of Asian economies, particularly Japan,
and fluctuation in foreign currencies particularly the yen; (c) the risk that
the Company's new business opportunities and new product offerings, including
Pharmanex and Big Planet, will not gain market acceptance or meet the Company's
expectations; (d) the inability to successfully complete the planned acquisition
of Big Planet; (e) the Company's inability to favorably implement forward
contracts and other hedging strategies to manage foreign currency risk; (f)
difficulties in integrating the business of Pharmanex and Big Planet with the
Company's operations; (g) delays in introducing Pharmanex and Big Planet
products as a result of unanticipated problems and the significant laws and
regulations applicable to nutritional supplements and the products and services
offered by Big Planet, which could delay or prevent the Company from introducing
certain of such products into its markets; (h) the inability of the Company to
gain market acceptance of new products; (i) increased expenditures required to
address the Year 2000 issue if
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the Company's technology requirements change or unforseen problems are
discovered; (j) risks that the Company's and its vendors' plans to remedy Year
2000 issues may be inadequate which could result in disruptions of the Company's
business; (k) increased government regulation of direct selling activities and
products in existing and future markets such as the PRC's restrictions on direct
selling; (l) management's inability to effectively manage the Company's growth;
(m) the risk that the Tenth Circuit Court of Appeals could overturn the recent
federal district court ruling allowing the Company to sell Cholestin as a
dietary supplement, which ruling has been appealed by the Food and Drug
Administration; (n) risks inherent in the importation, regulation and sale of
personal care and nutritional products in the Company's markets including
product liability issues; (o) the Company's reliance on and the concentration of
outside manufacturers; (p) taxation and transfer pricing issues, including the
Company's inability to fully use its foreign tax credits; (q) seasonal and
cyclical trends; and (r) unanticipated increases in the costs of supplies of
products. For a more detailed discussion of risks and uncertainties related to
the Company's business, please refer to the Company's Form 10-K for the year
ended December 31, 1998, and any amendments thereto, and other documents filed
by the Company with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 3 of Part I of Form 10-Q is
incorporated herein by reference from the section entitled "Currency Risk and
Exchange Rate Information" in "Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations" of Part I and also in Note 7 to
the Financial Statements contained in Item 1 of Part I.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for
information concerning the legal proceeding entitled Natalie Capone on behalf of
Herself and All Others Similarly Situated v. Nu Skin Canada, Inc., Nu Skin
International, Inc. Blake Roney, et. al.
At the time of the Company's acquisition of Pharmanex, Inc. in the
fourth quarter of 1998, Pharmanex was a party to an action entitled Pharmanex,
Inc. v. Donna Shalala which was filed by Pharmanex with the United States
District Court for the District of Utah, Central Division ("Court") in April
1997 after the Food and Drug Administration informed Pharmanex that it
considered Pharmanex's product, Cholestin, to be a drug. The matter was held in
abeyance pending an issuance of a final decision by the FDA. On May 20, 1998,
the FDA issued a "Final Order" announcing the FDA's decision that it considers
Cholestin to be a "drug" and a "new drug" rather than a dietary supplement. On
June 1, 1998, Pharmanex filed an amended complaint requesting the Court to find
that the FDA decision was contrary to the law. On February 16, 1999, the Court
ruled that Cholestin was not a drug and could be legally sold as a dietary
supplement. The FDA has since appealed to the Tenth Circuit Court of Appeals
seeking to overturn the district court's decision. If the decision is
overturned, the Company will not be able to sell Cholestin without FDA approval.
If Cholestin is determined to be a drug requiring FDA approval, the Company's
sales of Cholestin will decrease and the Company's business will be harmed.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Regulation S-K
Number Description
------ -----------
10.1 Credit Agreement dated May 8, 1998 by and among Nu
Skin Enterprises, Inc, Nu Skin Japan Co. Ltd., the
Lenders named therein and ABN AMRO Bank N.V., as
agent for the Lenders. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998.
10.2 Amendment No. 1 to Credit Agreement dated June 30,
1998
10.3 Amendment No. 2 to Credit Agreement dated February
22, 1999
10.4 Form of Amendment No. 3 to Credit Agreement dated May
10, 1999
10.5 Second Amended and Restated Nu Skin Enterprises, Inc.
1996 Stock Incentive Plan
27.1 Financial Data Schedule - Three Months Ended March
31, 1999
(b) Reports on Form 8-K. The Company filed the following Current
Reports on Form 8-K during the quarterly period ended March 31, 1999:
(i) Current Report on Form 8-K filed February 9, 1999 regarding
the execution of a letter of intent to acquire its affiliate, Big
Planet, Inc., and its private affiliates operating in North
America.
(ii)Current Report on Form 8-K filed March 23, 1999 regarding the
termination of the license agreement with its private affiliate,
Nu Skin USA, Inc., and the acquisition of selected assets of Nu
Skin USA, Inc.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 14th day of
May, 1999.
NU SKIN ENTERPRISES, INC.
By: /s/ Corey B. Lindley
Corey B. Lindley
Its: Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
10.1 Credit Agreement dated May 8, 1998 by and among Nu
Skin Enterprises, Inc, Nu Skin Japan Co. Ltd., the
Lenders named therein and ABN AMRO Bank N.V., as
agent for the Lenders. Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 19998.
10.2 Amendment No. 1 to Credit Agreement dated June 30,
1998
10.3 Amendment No. 2 to Credit Agreement dated February
22, 1999
10.4 Form of Amendment No. 3 to Credit Agreement dated May
10, 1999
10.5 Second Amended and Restated Nu Skin Enterprises, Inc.
1996 Stock Incentive Plan
27.1 Financial Data Schedule - Three Months Ended March
31, 1999
20
AMENDMENT NO. 1
TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment") is entered
into as of the Effective Date (as defined below) by and among:
(1) NU SKIN ENTERPRISES, INC., a Delaware corporation formerly named Nu
Skin Asia Pacific, Inc. ("NSE");
(2) NU SKIN JAPAN CO., LTD., a Japanese corporation ("NSJ");
(3) The financial institutions listed in Schedule I to the Credit
Agreement described below (such financial institutions referred to herein
collectively as "Lenders"); and
(4) ABN AMRO BANK N.V., as agent for Lenders (in such capacity,
"Agent").
RECITALS
A. Certain credit facilities are being provided to NSE and NSJ
(collectively, "Borrowers") upon the terms and subject to the conditions of a
Credit Agreement, dated as of May 8, 1998, by and among Borrowers, Lenders and
Agent (the "Credit Agreement", the terms defined therein being used herein as
therein defined).
B. From time to time in connection with bona fide hedging operations,
Borrowers may request that one or more Lenders or their Affiliates enter into
Rate Contracts and, to induce such Lenders or their Affiliates to enter into
such Rate Contracts, Borrowers requests that such Rate Contracts be entitled to
share ratably in the benefits of any guaranties and security provided for the
credit facilities under the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Amendments to Section I. Interpretation.
(a) The definition of "Credit Documents" in Section I of the
Credit Agreement is hereby amended to add the words ", the Lender Rate
Contracts" after the words "Security Documents".
(b) A definition of "Lender Rate Contract" is hereby added to
Section I of the Credit Agreement as follows:
"Lender Rate Contract" shall mean any Rate Contract entered
into by either Borrower or its Subsidiaries with a Lender or its
Affiliates as permitted by this Agreement.
2. Amendment to Paragraph 2.11 Taxes on Payment. Paragraph 2.11 of the
Credit Agreement is hereby amended to add the following new subparagraph (e):
(e) Lender Rate Contracts. Nothing contained in this Paragraph
2.11 shall override or supercede any term or provision of any Lender
Rate Contract regarding withholding taxes relating to Rate Contracts.
3. Amendments to Section VI Default.
(a) Paragraph 6.01(a) of the Credit Agreement is hereby
amended to add the following new clause (ii) and to renumber former clause (ii)
as clause (iii):
, (ii) fail to make any payment or transfer when due under any Lender
Rate Contract,
(b) A new Paragraph 6.03 is hereby added to the Credit
Agreement as follows:
6.03. Lender Rate Contract Remedies. Notwithstanding any other
provision of this Section VI, each Lender or its Affiliate which has
entered into a Lender Rate Contract shall have the right, with prior
notice to Agent, but without the approval or consent of Agent or any
other Lender, (a) to declare an event of default, termination event or
other similar event thereunder which will result in the early
termination of such Lender Rate Contract, (b) to determine net
termination amounts in accordance with the terms of such Lender Rate
Contract and to set-off amounts between Lender Rate Contracts of such
Lender, and (c) to prosecute any legal action against either Borrower
or its Subsidiaries to enforce net amounts owing to such Lender or its
Affiliate under such Lender Rate Contracts.
4. Amendment to Paragraph 8.05 Successors and Assigns. Subparagraph
8.05(c) of the Credit Agreement is hereby amended to delete the word "and" at
the end of clause (v), to delete the period at the end of clause (vi) and
substitute "; and", and to add the following new clause (vii):
(vii) Any Assignor Lender which is, or which has an Affiliate
which is, a party to a Lender Rate Contract may not make an Assignment
of all of its Commitment or all of its Loans to an Assignee Lender
unless such Assignee Lender or its Affiliate shall also assume all
obligations of such Assignor Lender or its Affiliate with respect to
such Lender Rate Contract.
5. Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all parties hereto shall be
deemed to constitute a complete, executed original for all purposes.
6. Effective Date. This Amendment shall become effective on the date
(the "Effective Date") when Agent has received counterparts of this Amendment
executed by both Borrowers, the Required Lenders and Agent.
7. Reference to and Effect on Credit Documents. On and after the
Effective Date, each reference in the Credit Agreement to "this Agreement,"
"hereof," "herein," and "hereunder" and words of similar import, and each
reference in the other Credit Documents to the Credit Agreement, shall mean and
be a reference to the Credit Agreement as amended by this Amendment. Except as
specifically amended by this Amendment, the Credit Agreement and the other
Credit Documents shall remain in full force and effect and are hereby ratified
and confirmed.
8. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflicts of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the Effective Date.
BORROWERS: NU SKIN ENTERPRISES, INC.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: Chief Financial Officer
Date: June 29, 1998
NU SKIN JAPAN CO., LTD.
By: /s/ Steven J. Lund
Name: Steven J. Lund
Title: Representative Director
Date: June 29, 1998
AGENT: ABN AMRO BANK N.V.
By: /s/ Tamira Treffers-Herrera
Name: Tamira Treffers-Herrera
Title: Vice President & Director
By: /s/ Robert Protass
Name: Robert Protass
Title: Assistant Vice President
Date: June 29, 1998
LENDERS: ABN AMRO BANK N.V.
By: /s/ Tamira Treffers-Herrera
Name: Tamira Treffers-Herrera
Title: Vice President & Director
By: /s/ Robert Protass
Name: Robert Protass
Title: Assistant Vice President
Date: June 29, 1998
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: /s/ Kevin C. Leader
Name: Kevin C. Leader
Title: Vice President
Date: June 22, 1998
BANK ONE, UTAH, NATIONAL ASSOCIATION
By: /s/ Stephen A. Cazier
Name: Stephen A. Cazier
Title: Vice President
Date:
BANQUE NATIONALE DE PARIS
By: /s/ D. Guy Gibb
Name: D. Guy Gibb
Title: Vice President
By: /s/ Jeffery S. Kajisa
Name: Jeffery S. Kajisa
Title: Assistant Vice President
Date:
KEYBANK NATIONAL ASSOCIATION
By: /s/ J.T. Taylor
Name: J.T. Taylor
Title: Vice President
By:
Name:
Title:
Date: June 22, 1998
NATIONSBANK, N.A.
By: /s/ Natalie E. Herbert
Name: Natalie E. Herbert
Title: Vice President
Date: June 25, 1998
UNION BANK OF CALIFORNIA, N.A.
By: /s/ David E. Taylor
Name: David E. Taylor
Title: Vice President
Date:
U.S. BANK, NATIONAL ASSOCIATION
By: /s/ Thomas A. Eshom
Name: Thomas A. Eshom
Title: Vice President
Date: June 26, 1998
ZIONS FIRST NATIONAL BANK
By: /s/ Richard W. Thomsen
Name: Richard W. Thomsen
Title: Vice President
Date: July 6, 1998
AMENDMENT NO. 2
TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "Amendment") is entered
into as of the Effective Date (as defined below) by and among:
(1) NU SKIN ENTERPRISES, INC., a Delaware corporation formerly named Nu
Skin Asia Pacific, Inc. ("NSE");
(2) NU SKIN JAPAN CO., LTD., a Japanese corporation ("NSJ");
(3) The financial institutions listed in Schedule I to the Credit
Agreement described below (such financial institutions referred to herein
collectively as "Lenders"); and
(4) ABN AMRO BANK N.V., as agent for Lenders (in such capacity,
"Agent").
RECITALS
A. Certain credit facilities are being provided to NSE and NSJ
(collectively, "Borrowers") upon the terms and subject to the conditions of a
Credit Agreement, dated as of May 8, 1998, as amended by Amendment No. 1,
effective as of June 30, 1998, by and among Borrowers, Lenders and Agent (the
"Credit Agreement", the terms defined therein being used herein as therein
defined).
B. Borrowers have requested that the amount of the principal payments
due on March 31, 1999, with respect to the U.S. Borrowing and the Japanese
Borrowing be reduced by the amount of the principal prepayments made on June 30,
1998, with respect to the U.S. Borrowing and the Japanese Borrowing.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Amendments to Section II. Credit Facilities.
(a) Subparagraph 2.01(f) and clause (iv)(B) of Subparagraph
2.03(d) of the Credit Agreement are each hereby amended to substitute
"$554,700" in place of "27.77778% of the original principal amount of
the U.S. Borrowing" where such phrase appears opposite the date March
31, 1999.
(b) Subparagraph 2.02(e) and clause (iv)(C) of Subparagraph
2.03(d) of the Credit Agreement are each hereby amended to substitute
"(Y)1,580,000,000" in place of "27.77778% of the original principal
amount of the Japanese Borrowing" where such phrase appears opposite
the date March 31, 1999.
2. Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all parties hereto shall be
deemed to constitute a complete, executed original for all purposes.
3. Effective Date. This Amendment shall become effective on the date
(the "Effective Date") when Agent has received counterparts of this Amendment
executed by both Borrowers, all Lenders and Agent.
4. Reference to and Effect on Credit Documents. On and after the
Effective Date, each reference in the Credit Agreement to "this Agreement,"
"hereof," "herein," and "hereunder" and words of similar import, and each
reference in the other Credit Documents to the Credit Agreement, shall mean and
be a reference to the Credit Agreement as amended by this Amendment. Except as
specifically amended by this Amendment, the Credit Agreement and the other
Credit Documents shall remain in full force and effect and are hereby ratified
and confirmed.
5. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflicts of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the Effective Date.
BORROWERS: NU SKIN ENTERPRISES, INC.
By: /s/ Brian R. Lords
Name: Brian R. Lords
Title: Treasurer
Date: February 8, 1999
NU SKIN JAPAN CO., LTD.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: Auditor
Date: February 8, 1999
AGENT: ABN AMRO BANK N.V.
By: /s/ Tamira Trefers-Herrera
Name: Tamira Treffers-Herrera
Title: Vice President and Director
By: /s/ Robert Protass
Name: Robert Protass
Title: Assistant Vice President
Date:
LENDERS: ABN AMRO BANK N.V.
By: /s/ Tamira Trefers-Herrera
Name: Tamira Treffers-Herrera
Title: Vice President and Director
By: /s/ Robert Protass
Name: Robert Protass
Title: Assistant Vice President
Date:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: /s/ Therese Fontaine
Name: Therest Fontaine
Title: Vice President
Date:
BANK ONE, UTAH, NATIONAL ASSOCIATION
By: /s/ Stephen A. Cazier
Name: Stephen A. Cazier
Title: Vice President
Date: February 22, 1999
BANQUE NATIONALE DE PARIS
By: /s/ Debra Wright
Name: Debra Wright
Title: Vice President
By: /s/ Katherine Wolfe
Name: Katherine Wolfe
Title: Vice President
Date:
KEYBANK NATIONAL ASSOCIATION
By: /s/ Mary K. Young
Name: Mary K. Young
Title: Assistant Vice President
By:
Name:
Title:
Date:
NATIONSBANK, N.A.
By: /s/ Therese Fontaine
Name: Therese Fontaine
Title: Vice President
Date:
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Wanda Headrick
Name: Wanda Headrick
Title: Vice President
Date: February 19, 1999
U.S. BANK, NATIONAL ASSOCIATION
By: /s/ Thomas A. Eshom
Name: Thomas A. Eshom
Title: Vice President
Date: February 17, 1999
ZIONS FIRST NATIONAL BANK
By: /s/ Richard W. Thomsen
Name: Richard W. Thomsen
Title: Vice President
Date: February 9, 1999
AMENDMENT NO. 3
TO CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT (this "Amendment"), dated as
of May 10, 1999, is entered into by and among:
(1) NU SKIN ENTERPRISES, INC., a Delaware corporation ("NSE");
(2) NU SKIN JAPAN CO., LTD., a Japanese corporation ("NSJ");
(3) The financial institutions listed in Schedule I to the
Credit Agreement described below (such financial institutions referred
to herein collectively as "Lenders"); and
(4) ABN AMRO BANK N.V., as agent for Lenders (in such
capacity, "Agent").
RECITALS
A. NSE, NSJ, Lenders and Agent are parties to a Credit Agreement dated
as of May 8, 1998, as amended by Amendment No. 1 to Credit Agreement ("Amendment
No. 1") effective as of June 30, 1998 and Amendment No. 2 to Credit Agreement
("Amendment No. 2") effective as of February 22, 1999 (such Credit Agreement, as
so amended, the "Credit Agreement").
B. NSE and NSJ (collectively, "Borrowers") have requested Lenders and
Agent to (1) amend the Credit Agreement in certain respects and (2) waive an
Event of Default arising under the Credit Agreement as a result of the failure
by NSE to comply with a financial covenant set forth therein.
C. Lenders and Agent are willing so to amend the Credit Agreement and
waive such Event of Default upon the terms and subject to the conditions set
forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Lenders and Agent hereby agree as follows:
1. Definitions, Interpretation. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
2. Amendments to Credit Agreement. Subject to the satisfaction of the
conditions set forth in Paragraph 5 below, the Credit Agreement is hereby
amended as follows:
(a) Paragraph 1.01 is amended by changing the definitions of
the terms "Fixed Charge Coverage Ratio" and "Tangible Net Worth" set
forth therein to read in their entirety as follows:
"Fixed Charge Coverage Ratio" shall mean, with
respect to either Borrower for any period, the ratio,
determined on a consolidated basis in accordance with GAAP,
of:
(a) EBITDA of such Borrower and its
Subsidiaries for such period;
to
(b) The sum of (i) all Interest Expenses of
such Borrower and its Subsidiaries for such period,
plus (ii) the current portion of the long-term
Indebtedness of such Borrower and its Subsidiaries
for such period (excluding, in the case of NSJ,
long-term Indebtedness of NSJ and its Subsidiaries to
NSE and NSE's other Subsidiaries).
"Tangible Net Worth" shall mean, with respect to NSE
or NSJ at any time, the remainder at such time, determined on
a consolidated basis in accordance with GAAP, of:
(a) The total assets of such Borrower and
its Subsidiaries at such time;
minus
(b) The sum (without limitation and without
duplication of deductions) of:
(i) The total liabilities of such
Borrower and its Subsidiaries at such time,
(ii) All reserves of such Borrower
and its Subsidiaries at such time for
anticipated losses and expenses (to the
extent not deducted in calculating total
assets in clause (a) above), and
(iii) The remainder of:
(A) All intangible assets
of such Borrower and its
Subsidiaries at such time (to the
extent included in calculating total
assets in clause (a) above),
including goodwill (including any
amounts, however designated on the
balance sheet, representing the cost
of acquisition of businesses and
investments in excess of underlying
tangible assets), trademarks,
trademark rights, trade name rights,
copyrights, patents, patent rights,
licenses, unamortized debt discount,
marketing expenses, organizational
expenses, non-compete agreements and
deferred research and development;
minus
(B) The lesser of (1) all
intangible assets arising from the
acquisition of NSI and the other
related Persons referred to in
Schedule 5.02(d) (to the extent
included in calculating all
intangible assets in clause
(b)(iii)(A) above) and (2)
$90,000,000.
(b) Subparagraph 5.01(a) is amended by changing clause (vii)
thereof to read in its entirety as follows:
(vii) As soon as available and in no event later than
ninety (90) days after the first day of each fiscal year of
each Borrower, the consolidated plan and forecast of such
Borrower and its Subsidiaries for such fiscal year, including
quarterly cash flow projections and quarterly projections of
such Borrower's compliance with each of the covenants set
forth in Paragraph 5.03;
(c) Subparagraph 5.02(d) is amended by changing clause
(iii)(B) thereof to read in its entirety as follows:
(B) The aggregate consideration paid by
Borrowers and their Subsidiaries for all such
acquisitions (excluding consideration consisting of
the Equity Securities of Borrowers or their
Subsidiaries) does not exceed $25,000,000 in the 1999
fiscal year or any fiscal year thereafter; provided
that any portion of such amount limitation not used
in any year may be carried forward in subsequent
years to increase the amount of such limitation in
such subsequent years until used.
(d) Subparagraph 5.03(b) is amended to read in its entirety as
follows:
(b) Fixed Charge Coverage Ratio. Neither Borrower
shall permit its Fixed Charge Coverage Ratio to be less than
(i) 3.00 to 1.00 for any consecutive four-quarter period
ending on the last day of any fiscal quarter through and
including December 31, 1999 or (ii) 2.25 for any consecutive
four-quarter period ending on the last day of any fiscal
quarter thereafter.
(e) Subparagraph 5.03(d) is amended to read in its entirety as
follows:
(d) Tangible Net Worth. Neither Borrower shall permit
its Tangible Net Worth on any date of determination (such date
to be referred to herein as a "determination date") which
occurs after December 31, 1998 (such date to be referred to
herein as the "base date") to be less than the sum on such
determination date of the following:
(i) Eighty-five percent (85%) of such
Borrower's Tangible Net Worth on the base date;
(ii) Sixty percent (60%) of the sum of such
Borrower's consolidated quarterly net income
(ignoring any quarterly losses and deducting, in the
case of NSJ, dividends paid by NSJ to NSE) for each
quarter after the base date through and including the
quarter ending immediately prior to the determination
date;
(iii) Seventy-five percent (75%) of the Net
Proceeds of all Equity Securities issued by such
Borrower and its Subsidiaries during the period
commencing on the base date and ending on the
determination date; and
(iv) Seventy-five percent (75%) of the
principal amount of all debt securities of such
Borrower and its Subsidiaries converted to Equity
Securities during the period commencing on the base
date and ending on the determination date.
(f) Schedule II is amended by changing the pricing grid set
forth therein to read in its entirety as follows:
APPLICABLE
APPLICABLE APPLICABLE MARGIN
NSE'S MARGIN MARGIN FOR
DEBT/ PRICING FOR FOR JAPANESE
EBITDA PERIOD BASE RATE LIBOR LOAN
RATIO LEVEL PORTIONS PORTIONS PORTIONS
Less Than 0.50 1 0% 0.700% 0.700%
Greater than or
equal to 0.50,
Less than 1.00 2 0% 0.850% 0.850%
Greater than 1.00 3 0% 1.100% 1.100%
3. Waiver. Subject to the satisfaction of the conditions set forth in
Paragraph 5 below, Lenders hereby waive any Event of Default arising under
Subparagraph 6.01(b) of the Credit Agreement as a result of the failure by NSE
to comply with the Tangible Net Worth requirement set forth in Subparagraph
5.03(d) of the Credit Agreement on March 31, 1999, provided that NSE's Tangible
Net Worth on such date was not less than $168,000,000.
4. Representations and Warranties. Each Borrower hereby represents and
warrants to Agent and Lenders that the following are true and correct on the
date of this Amendment and that, after giving effect to the amendments set forth
in Paragraph 2 above and the waiver set forth in Paragraph 3 above, the
following will be true and correct on the Effective Date (as defined below):
(a) The representations and warranties of Borrowers set forth
in Paragraph 4.01 of the Credit Agreement and in the other Credit
Documents are true and correct in all material respects; and
(b) No Default has occurred and is continuing.
(Without limiting the scope of the term "Credit Documents," Borrower expressly
acknowledges in making the representations and warranties set forth in this
Paragraph 4 that, on and after the date hereof, such term includes this
Amendment.)
5. Effective Date. The amendments effected by Paragraph 2 above and the
waiver effected by Paragraph 3 above shall become effective on May 10, 1999 (the
"Effective Date"), subject to receipt by Agent and Lenders on or prior to the
Effective Date of the following, each in form and substance satisfactory to
Agent, the Lenders and their respective counsel:
(a) This Amendment duly executed by Borrowers, Required
Lenders and Agent;
(b) A letter in the form of Exhibit A hereto, dated the
Effective Date and duly executed by all Material Domestic Subsidiaries
of NSE and, in the case of any such Subsidiaries that are organized
under the laws of jurisdictions outside the United States and
domesticated under the laws of Delaware (or any other state of the
United States), by the Delaware (or other state) counterparts of such
Subsidiaries;
(c) An amendment fee for each U.S. Lender equal to one tenth
of one percent (0.10%) of the outstanding principal amount of such
Lender's U.S. Loan on the Effective Date, payable in Dollars;
(d) An amendment fee for each Japanese Lender equal to one
tenth of one percent (0.10%) of the outstanding principal amount of
such Lender's Japanese Loan on the Effective Date, payable in Yen; and
(e) Such other evidence as Agent or any Lender may reasonably
request to establish the accuracy and completeness of the
representations and warranties and the compliance with the terms and
conditions contained in this Amendment and the other Credit Documents.
6. Effect of this Amendment. On and after the Effective Date, each
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby ratified and
affirmed and (b) the execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of the Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
7. Miscellaneous.
(a) Counterparts. This Amendment may be executed in any number
of identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for
all purposes.
(b) Headings. Headings in this Amendment are for convenience
of reference only and are not part of the substance hereof.
(c) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
(d) NSE Guaranty. In its capacity as the guarantor under the
NSE Guaranty, NSE hereby (i) consents to Amendment No. 1, Amendment No.
2 and this Amendment (collectively, the "Amendments"), (ii) agrees that
the Amendments in no way affect or alter the rights, duties, or
obligations of NSE, Agent or Lenders under the NSE Guaranty, (iii)
agrees its consent to the Amendments shall not be construed (A) to have
been required by the terms of the NSE Guaranty or any other document,
instrument or agreement relating thereto or (B) to require the consent
of NSE in its capacity as guarantor in connection with any future
amendment of the Credit Agreement or any other Credit Document.
[The first signature page follows.]
<PAGE>
IN WITNESS WHEREOF, Borrowers, Agent and Lenders have caused this
Amendment to be executed as of the day and year first above written.
BORROWERS: NU SKIN ENTERPRISES, INC.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: CFO
NU SKIN JAPAN CO., LTD.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: Auditor
AGENT: ABN AMRO BANK N.V.
By:
Name:
Title:
By:
Name:
Title:
LENDERS: ABN AMRO BANK N.V.
By:
Name:
Title:
By:
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By:
Name:
Title:
BANK ONE, UTAH, NATIONAL ASSOCIATION
By:
Name:
Title:
BANQUE NATIONALE DE PARIS
By:
Name:
Title:
By:
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By:
Name:
Title:
By:
Name:
Title:
NATIONSBANK, N.A.
By:
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
ZIONS FIRST NATIONAL BANK
By:
Name:
Title:
<PAGE>
EXHIBIT A
GUARANTOR CONSENT LETTER
May 10, 1999
TO: ABN AMRO Bank N.V.,
As Agent for the Lenders under the Credit Agreement referred to below
1. Reference is made to the following:
(a) The Credit Agreement dated as of May 8, 1998 (the "Credit
Agreement") among Nu Skin Enterprises, Inc., ("NSE") Nu Skin Japan Co.,
Ltd. ("NSJ"), the financial institutions listed in Schedule I thereto
("Lenders") and ABN AMRO Bank N.V., as agent for Lenders (in such
capacity, "Agent");
(b) The Guaranty dated as of May 8, 1998 (the "Subsidiary
Guaranty") executed by the undersigned ("Guarantors") in favor of Agent
for the benefit of Lenders;
(c) The Amendment No. 1 to Credit Agreement effective as of
June 30, 1998 ("Amendment No. 1") among NSE, NSJ, Lenders and Agent;
(d) The Amendment No. 2 to Credit Agreement effective as of
February 22, 1999 ("Amendment No. 2") among NSE, NSJ, Lenders and
Agent; and
(e) Amendment No. 3 to Credit Agreement dated as of May 10,
1999 ("Amendment No. 3") among NSE, NSJ, Lenders and Agent.
Unless otherwise defined herein, all capitalized terms used herein shall have
the respective meanings given to those terms in the Credit Agreement.
2. Each Guarantor hereby consents to Amendment No. 1, Amendment No. 2
and Amendment No. 3 (collectively, the "Amendments"). Each Guarantor expressly
agrees that the Amendments shall in no way affect or alter the rights, duties,
or obligations of such Guarantor, Lenders or Agent under the Subsidiary
Guaranty.
3. From and after the date hereof, the term "Credit Agreement" as used
in the Subsidiary Guaranty shall mean the Credit Agreement, as amended by the
Amendments.
4. No Guarantor's consent to the Amendments shall be construed (i) to
have been required by the terms of the Subsidiary Guaranty or any other
document, instrument or agreement relating thereto or (ii) to require the
consent of such Guarantor in connection with any future amendment of the Credit
Agreement or any other Credit Document.
A-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Guarantor Consent
Letter as of the day and year first written above.
NU SKIN JAPAN COMPANY LIMITED,
a Delaware Corporation
By: /s/ Truman Hunt
Name: Truman Hunt
Title: Vice President
NU SKIN JAPAN CO., LTD.,
a Japanese Corporation
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: Auditor
NU SKIN KOREA, INC.,
a Delaware Corporation
By: /s/ Truman Hunt
Name: Truman Hunt
Title: Vice President
NU SKIN KOREA, LTD.,
a South Korean Corporation
By: /s/ Blake M. Roney
Name: Blake M. Roney
Title: Representative Director
NU SKIN INTERNATIONAL, INC.,
a Utah Corporation
By: /s/ Truman Hunt
Name: Truamn Hunt
Title: Vice President
A-2
<PAGE>
NU SKIN TAIWAN, INC.,
a Utah Corporation
By: /s/ Truman Hunt
Name: Truman Hunt
Title: Vice President
NU SKIN HONG KONG, INC.,
a Utah Corporation
By: /s/ Truman Hunt
Name: Truman Hunt
Title: Vice President
A-3
SECOND
AMENDED AND RESTATED
NU SKIN ENTERPRISES, 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.............................................. 10
10. RESTRICTED STOCK AWARDS.............................................. 11
11. GENERAL RESTRICTIONS................................................. 12
12. RIGHTS OF A SHAREHOLDER.............................................. 12
13. RIGHTS TO TERMINATE EMPLOYMENT....................................... 13
14. WITHHOLDING OF TAXES................................................. 13
15. NON-ASSIGNABILITY.................................................... 13
16. NON-UNIFORM DETERMINATIONS........................................... 13
17. ADJUSTMENTS.......................................................... 13
18. AMENDMENT............................................................ 14
19. EFFECT ON OTHER PLAN................................................. 15
20. DURATION OF PLAN..................................................... 15
21. FUNDING OF THE PLAN.................................................. 15
22. PLAN STATUS.......................................................... 15
23. GOVERNING LAW........................................................ 16
<PAGE>
SECOND
AMENDED AND RESTATED
NU SKIN ENTERPRISES, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSE
1.1 The purpose of the Second Amended and Restated Nu Skin Enterprises,
Inc. 1996 Stock Incentive Plan (the "Plan") is to provide incentives to
specified individuals whose performance, contributions and skills add to the
value of Nu Skin Enterprises, Inc. (the "Company") and its affiliated companies.
The Company also believes that the Plan will facilitate attracting, retaining
and motivating employees, directors and consultants of high caliber and
potential. This Second Amended and Restated Nu Skin Enterprises, Inc. 1996 Stock
Incentive Plan amends and restates the Amended and Restated Nu Skin Asia
Pacific, Inc. 1996 Stock Incentive Plan dated December 9, 1996 and includes
amendments previously adopted by the Board of Directors on February 11, 1999.
1.2 Plan participants shall include those officers, directors, employees
and consultants of the Company and subsidiaries who, in the opinion of the
Committee, are making or are in a position to make substantial contributions to
the Company by their ability and efforts.
2. DEFINITIONS
2.1 For purposes of the Plan, the following terms shall have the
following meanings, unless the context clearly indicates to the contrary.
(a) "Award" means a grant of Restricted Stock, Contingent
Stock, an Option, or an SAR.
(b) "Award Agreement" means the agreement approved by the
Committee evidencing an Award to a Grantee.
(c) "Board" means the Company's Board of Directors.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the members of the Board until the
Compensation Committee of the Board is appointed, and after
the Compensation Committee is appointed means the members
of the Compensation Committee of the Board, who are
"outside directors" (within the meaning of Section 162(m)
of the Code and any regulations or rulings promulgated
thereunder) to the extent required for purposes of
compliance with such
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Code Section, and "disinterested persons" (within the
meaning of Rule 16b- 3 of the Exchange Act), to the extent
required for compliance with such Rule.
(f) "Company" means Nu Skin Enterprises, Inc.
(g) "Consultant" means any individual who provides services to
the Company as an independent contractor and not as an
Employee or Director.
(h) "Contingent Stock" means stock which will be issued to a
Grantee upon the attainment of certain conditions pursuant
to Section 9 hereof.
(i) "Director(s)" means a member or the members of the Board.
(j) "Employee" means any individual who is an employee of the
Company, a Parent or Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" of a Share means on, or with respect
to, any given date:
(i) If the Shares are listed on a national stock
exchange, the closing market price of such Shares as
reported on the composite tape for issues listed on
such exchange on such date or, if no trade shall
have been reported for such date, on the next
preceding date on which there were trades reported;
provided, that if no such quotation shall have been
made within the ten business days preceding such
date, Fair Market Value shall be determined under
(iii) below.
(ii) If the Shares are not listed on a national stock
exchange but are traded on the over-the-counter
market, the mean between the closing dealer bid and
asked price of such Shares as reported by the
National Association of Securities Dealers through
their Automated Quotation System for such date, or
if no quotations shall have been made on such date,
on the next preceding date on which there were
quotations; provided, that, if such quotations shall
have been made within the ten business days
preceding such date, Fair Market Value shall be
determined under (iii) below.
(iii) If (i) and (ii) do not apply, the Fair Market Value
of a Share shall be determined without regard to any
control premium or discount for lack of control
(except as otherwise required by Section 422 of the
Code) by the Committee in good faith consistent with
the valuation of the Company as provided by a third
party appraiser for
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other corporate purposes before adjustments or any
discounts applied due to lack of marketability. The
Committee may rely upon the most recent valuation
(if it is based on a date within 3 months of the
valuation date) and there shall be no requirement to
cause a more recent valuation to be made (except as
may be required for purposes of Section 422 of the
Code). If no such valuation exists, the Committee
may engage a third party appraiser to prepare the
valuation.
(m) "Grantee" means an Employee, Director of the Company, a
Parent or any Subsidiary or Consultant who has received an
Award.
(n) "Incentive Stock Option" shall have the same meaning as
given to the term by Section 422 of the Code and any
regulations or rulings promulgated thereunder.
(o) "Non-qualified Stock Option" means any Option granted
pursuant to Section 7 which when awarded by the Committee
was not intended to be, or does not qualify as, an
Incentive Stock Option.
(p) "Option" means the right to purchase from the Company a
stated number of Shares at a specified Option Price. The
Option may be granted to an Employee, Director or
Consultant subject to the terms of this Plan, and such
other conditions and restrictions as the Committee deems
appropriate. Each Option shall be designated by the
Committee to be either an Incentive Stock Option or a
Non-qualified Stock Option. Only Employees may be granted
Incentive Stock Options.
(q) "Option Agreement" means the Award Agreement pursuant to
which an Option is granted under Section 7.
(r) "Option Price" means the purchase price per Share under an
Option, as described in Section 7.
(s) "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company
if, at the time of the granting of an Option, each of the
corporations (other than the Company) owns stock possessing
50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such
chain within the meaning of Section 424(e) of the Code and
any regulations or rulings promulgated thereunder.
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(t) "Plan" means Amended and Restated Nu Skin Asia Pacific,
Inc. 1996 Stock Incentive Plan, as evidenced herein and as
amended from time to time.
(u) "Restricted Stock" means Shares issued, subject to
restrictions, to a Grantee pursuant to Section 10.
(v) "SAR" means a stock appreciation right which provides a
Grantee a potential right to a payment based on the
appreciation in the fair market value of a Share granted
pursuant to Section 8.
(w) "SEC" means the U.S. Securities and Exchange Commission.
(x) "Section 16 Person" means a person who is an "insider"
within the meaning of Section 16(b) of the Exchange Act
with respect to transactions involving equity securities of
the Company, including the Shares.
(y) "Share" means one share of the Company's Class A common
stock, $.001 par value.
(z) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of
the granting of the Option, each of the corporations (other
than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in
such chain, within the meaning of Section 424(f) of the
Code and any regulations or rulings promulgated thereunder.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. The Committee shall
have full and final authority in its discretion to:
(a) conclusively interpret the provisions of the Plan and to
decide all questions of fact arising in its application;
(b) determine the individuals to whom Awards shall be made
under the Plan;
(c) determine the type of Award to be made to such individuals
and the amount, size and terms of each Award;
(d) determine the time when Awards will be granted to such
individuals; and
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(e) make all other determinations necessary or advisable for
the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN
4.1 The Shares subject to Awards under the Plan shall not exceed in the
aggregate 8,000,000 Shares.
4.2 Shares may be authorized and unissued Shares or treasury Shares.
4.3 Except as provided herein, any Shares subject to an Award, which
Award for any reason expires or is terminated unexercised as to such Shares
shall again be available under the Plan.
5. PARTICIPANTS
5.1 Awards permitted pursuant to this Plan which are Incentive Stock
Options may only be made to Employees (including Directors who are also
Employees). All other Awards permitted pursuant to the Plan may only be made to
Employees, Directors or Consultants.
6. AWARDS UNDER THE PLAN
6.1 Awards under the Plan may be in the form of Options (both
Non-qualified Stock Options and Incentive Stock Options), Contingent Stock,
Restricted Stock, and SARs and any combination of the above.
6.2 The maximum number of Awards that may be awarded to any one
Employee, Director or Consultant during the life of the Plan shall be 10% of the
total Shares reserved for issuance under the Plan.
7. STOCK OPTIONS
7.1 The Committee in its sole discretion shall designate whether an
Option is to be an Incentive Stock Option or a Non-qualified Stock Option. The
Committee may grant both Incentive Stock Options and Non-qualified Stock Options
to the same individual. However, where both an Incentive Stock Option and a
Non-qualified Stock Option are awarded at one time, such Options shall be deemed
to have been awarded in separate grants, shall be clearly identified, and in no
event will the exercise of one such Option affect the right to exercise the
other such Option except to the extent so provided in the Award Agreement as
determined by the Committee.
7.2 Options granted pursuant to the Plan shall be authorized by the
Committee under terms and conditions approved by the Committee, not inconsistent
with this Plan or Exchange Act Rule 16b-3(c), and shall be evidenced by Option
Agreements in such form as the Committee shall
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from time to time approve, which Option Agreements shall contain or shall be
subject to the following terms and conditions, whether or not such terms and
conditions are specifically included therein:
(a) The Option Price of an Incentive Stock Option shall not be
less than 100% of the Fair Market Value of a Share on the
day the Option is granted, as determined by the Committee.
The Option Price of a Non-qualified Stock Option shall be
such price as determined by the Committee in its
discretion, which price may be more or less than the Fair
Market Value of a Share on the day the Option is granted.
Notwithstanding the immediately preceding sentence, the
Award Agreement for a Non-qualified Stock Option at the
Committee's sole discretion, may, but need not, provide for
a reduction of the Option Price by dividends paid on a
Share during the period the Option is outstanding and
unexercised, but in no event shall the Option Price be less
than the par value of such Share.
(b) Each Option Agreement shall state the period or periods of
time, as determined by the Committee, within which the
Option may be exercised by the Grantee, in whole or in
part, provided such period shall not commence earlier than
six months after the date of the grant of the Option and
not later than ten years after the date of the grant of the
Option. The Committee shall have the power to permit in its
discretion an acceleration of previously determined
exercise terms, subject to the terms of this Plan, to the
extent permitted by Exchange Act Rule 16b-3(c), and under
such circumstances and upon such terms and conditions as
deemed appropriate and which are not inconsistent with
Exchange Act Rule 16b-3(c)(1).
(c) An Option may be exercised, in whole or in part, by giving
written notice of exercise to the Company specifying the
number of Shares to be purchased. Shares purchased upon
exercise of an Option shall be paid for in full at the time
of purchase in the form of cash unless the Committee has
adopted rules authorizing a different method of exercise as
set forth below that have not been rescinded and that apply
to the Options being exercised. The Committee shall have
the authority, as it may determine to be appropriate from
time to time, to adopt rules governing the exercise of
Options that may provide for payment to be made (i) in
Shares already owned by the Grantee having a Fair Market
Value equal to the purchase price, (ii) by delivery (on a
form prescribed by the Committee) of an irrevocable
direction to a securities broker approved by the Committee
to sell Shares and to deliver all or part of the sales
proceeds to the Company in payment of all or part of the
purchase price and any withholding taxes, (iii) by the
delivery (on a form prescribed by the Committee) of an
irrevocable direction to pledge Shares to a securities
broker or lender
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approved by the Committee as security for a loan and to
deliver all or part of the loan proceeds to the Company in
payment of all or part of the purchase price and any
withholding taxes, or (iv) such other method or form of
consideration as may be determined to be appropriate by the
Committee consistent with applicable laws, rules and
regulations, including a true cashless or net exercise
procedure. The adoption of such rules by the Committee
shall not provide any Grantee with any vested right to
exercise Options pursuant to the methods or form of
consideration set forth in such rules. The Committee may
rescind any rule governing the exercise of Options at any
time, and upon such rescission, no Grantee shall have any
further rights to exercise Options pursuant to the methods
or form of consideration set forth in such rule. In
addition, the Committee shall have the right to provide in
any rule adopted pursuant hereto that (i) such rule shall
only apply to designated Options or grants of Options, (ii)
such rule shall apply to all Options generally, or (iii)
prior Committee approval, which may be granted or withheld
in its sole discretion, shall be required with respect to
such exercise method or form of consideration. The
Committee shall have no obligation to make the rules
applicable to all Grantees or to all Options. The Committee
shall have no obligation to adopt rules providing for any
of the above methods of exercise or forms of consideration.
(d) Notwithstanding anything herein to the contrary, the
aggregate Fair Market Value (determined as of the time the
Option is granted) of Incentive Stock Options for any
Employee which may become first exercisable in any calendar
year shall not exceed $100,000.
(e) Notwithstanding anything herein to the contrary, no
Incentive Stock Option shall be granted to any individual
if, at the time the Option is to be granted, the individual
owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company unless
at the time such Option is granted the Option Price is at
least 110% of the Fair Market Value of the stock subject to
the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such
Option is granted.
(f) Each Option Agreement for an Incentive Stock Option shall
contain such other terms, conditions and provisions as the
Committee may determine to be necessary or desirable in
order to qualify such Option as an incentive stock option
within the meaning of Section 422 of the Code, or any
amendment thereof, substitute therefor, or regulation
thereunder. Subject to the limitations of Section 18, and
without limiting any provisions hereof,
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the Committee shall have the power without further approval
to amend the terms of any Option for Grantees.
7.3 If any Option is not granted, exercised, or held pursuant to the
provisions of the Plan or Section 422 of the Code applicable to an Incentive
Stock Option, it will be considered to be a Non-qualified Stock Option to the
extent that any or all of the grant is in conflict with such provisions.
7.4 An Option may be terminated (subject to any shorter periods set
forth in an individual Option Agreement by the Committee, in its sole
discretion) as follows:
(a) During the period of continuous employment or service as a
Consultant with the Company or Subsidiary, an Option will
be terminated only if it has been fully exercised or it has
expired by its terms.
(b) In the event of termination of employment as an Employee or
service as a Director or Consultant for any reason, the
Option will terminate upon the earlier of (i) the full
exercise of the Option, (ii) the expiration of the Option
by its terms, or (iii) except as provided in Section
7.4(c), no more than one year (three months for Incentive
Stock Options) following the date of employment termination
(or termination of service as a Director or Consultant) for
Non-qualified Stock Options. For purposes of the Plan, a
leave of absence approved by the Company shall not be
deemed to be termination of employment except with respect
to an Incentive Stock Option as required to comply with
Section 422 of the Code and the regulations issued
thereunder.
(c) If a Grantee's employment as an Employee, or service as a
Director or Consultant, terminates by reason of death or
disability prior to the termination of an Option, such
Option may be exercised to the extent that the Grantee
shall have been entitled to exercise it at the time of
death or disability, as the case may be, by the Grantee,
the estate of the Grantee or the person or persons to whom
the Option may have been transferred by will or by the laws
of descent and distribution for the period set forth in the
Option Agreement, but no more than three years following
the date of such death or disability, provided, however,
with respect to an Incentive Stock Option, such right must
be exercised, if at all, within one year after the date of
such death or disability.
8. STOCK APPRECIATION RIGHTS
8.1 SARs shall be evidenced by Award Agreements for SARs in such form,
and not inconsistent with this Plan or Exchange Act Rule 16b-3(c)(1), as the
Committee shall approve from
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time to time, which Award Agreements shall contain in substance the following
terms and conditions as discussed in Sections 8.2 through 8.4.
8.2 An SAR may be, but is not required to be, granted in connection with
an Option. An SAR shall entitle the Grantee, subject to such terms and
conditions determined by the Committee, to receive, upon surrender of the SAR,
all or a portion of the excess of (i) the Fair Market Value of a specified
number of Shares at the time of the surrender, as determined by the Committee,
over (ii) 100% of the Fair Market Value of such Shares at the time the SAR was
granted less any dividends paid on such Shares while the SAR was outstanding but
unexercised.
8.3 SARs shall be granted for a period of not less than one year nor
more than ten years, and shall be exercisable in whole or in part, at such time
or times and subject to such other terms and conditions as shall be prescribed
by the Committee at the time of grant, subject to the following:
(a) No SAR shall be exercisable, in whole or in part, during
the one year period starting with the date of grant; and
(b) SARs will be exercisable only during a Grantee's employment
by, or service as a Consultant for, the Company or a
Subsidiary, except that in the discretion of the Committee
an SAR may be made exercisable for up to three months after
the Grantee's employment, or service as a Director or
Consultant, is terminated for any reason other than death,
retirement or disability. In the event that a Grantee's
employment as an Employee, or service as a Director or
Consultant, is terminated as a result of death, retirement
or disability without having fully exercised such Grantee's
SARs, the Grantee or such Grantee's beneficiary may have
the right to exercise the SARs during their term within a
period of 6 months after the date of such termination to
the extent that the right was exercisable at the date of
such termination, or during such other period and subject
to such terms as may be determined by the Committee.
Subject to the limitations of Section 18, the Committee in
its sole discretion may reserve the right to accelerate
previously determined exercised terms, within the terms of
the Plan, under such circumstances and upon such terms and
conditions as it deems appropriate.
(c) The Committee shall establish such additional terms and
conditions, without limiting the foregoing, as it
determines to be necessary or desirable to avoid
"short-swing" trading liability in connection with an SAR
within the meaning of Section 16(b) of the Exchange Act.
(d) The Committee, in its sole discretion, may establish
different time periods than specified above for any
individual or group of individual Awards.
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8.4 Upon exercise of an SAR, payment shall be made within ninety days in
the form of common stock of the Company (at Fair Market Value on the date of
exercise), cash, or a combination thereof, as the Committee may determine.
9. CONTINGENT STOCK AWARDS
9.1 Contingent Stock Awards under the Plan shall be evidenced by Award
Agreements for Contingent Stock in such form and not inconsistent with this Plan
as the Committee shall approve from time to time, which Award Agreements shall
contain in substance the terms and conditions described in Sections 9.2 through
9.5.
9.2 The Committee shall determine the number of Shares subject to a
Contingent Stock Award to be granted to an Employee, Director or Consultant
based on the past or expected impact the Employee, Director or Consultant has
had or can have on the financial well-being of the Company and other factors
deemed by the Committee to be appropriate.
9.3 Contingent Stock Awards made pursuant to this Plan shall be subject
to such terms, conditions, and restrictions, including without limitation,
substantial risks of forfeiture and/or attainment of performance objectives, and
for such period or periods as shall be set forth in the Award Agreement as
determined by the Committee at the time of grant. The Committee shall have the
power to permit, in its discretion, an acceleration of the expiration of the
applicable restriction period with respect to any part or all of the Award to
any Grantee. The Committee shall have the power to make a Contingent Stock Award
that is not subject to vesting or any other contingencies in recognition of an
Employee's, Director's or Consultant's prior service and financial impact on the
Company. During the restriction period, the Grantee shall not have the rights of
a shareholder.
9.4 The Award Agreement for the Contingent Stock Award shall specify the
terms and conditions upon which any restrictions on the right to receive Shares
representing Contingent Stock Awards under the Plan shall lapse, as determined
by the Committee. Upon the lapse of such restrictions, Shares shall be issued to
the Grantee or such Grantee's legal representative.
9.5 In the event of a Grantee's termination of employment as an
Employee, or service as a Director or Consultant, whichever is applicable, for
any reason prior to the lapse of restrictions applicable to a Contingent Stock
Award made to such Grantee and unless otherwise provided for herein by this Plan
or as provided for in the Award Agreement for Contingent Stock, all rights to
Shares as to which there still remain unlapsed restrictions shall be forfeited
by such Grantee to the Company without payment or any consideration by the
Company, and neither the Grantee nor any successors, heirs, assigns or personal
representatives of such Grantees shall thereafter have any further rights or
interest in such Shares.
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10. RESTRICTED STOCK AWARDS
10.1 Restricted Stock Awards under the Plan shall be evidenced by Award
Agreements for Restricted Stock in such form, and not inconsistent with this
Plan, as the Committee shall approve from time to time, which Award Agreements
shall contain in substance the terms and conditions described in Sections 10.2
through 10.6.
10.2 The Committee shall determine the number of Shares subject to a
Restricted Stock Award to be granted to an Employee, Director or Consultant
based on the past or expected impact the Employee, Director or Consultant has
had or can have on the financial well-being of the Company and other factors
deemed by the Committee to be appropriate.
10.3 Restricted Stock Awards made pursuant to this Plan shall be subject
to such terms, conditions, and restrictions, including without limitation,
substantial risks of forfeiture and/or attainment of performance objectives, and
for such period or periods as set forth in the Award Agreement as determined by
the Committee at the time of grant. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the applicable
restriction period with respect to any part or all of the Award to any Grantee.
Upon issuance of a Restricted Stock Award, Shares will be issued in the name of
the Grantee. During the restriction period, Grantee shall have the rights of a
shareholder for all such Shares of Restricted Stock, including the right to vote
and the right to receive dividends thereon as paid.
10.4 Each certificate evidencing stock subject to Restricted Stock
Awards shall bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Shares. Any attempt to dispose of Shares of
Restricted Stock in contravention of such terms, conditions and restrictions
shall be ineffective. The Committee may adopt rules which provide that the
certificates evidencing such Shares may be held in custody by a bank or other
institution, or that the Company may itself hold such Shares in custody, until
the restrictions thereon shall have lapsed and may require as a condition of any
Award that the Grantee shall have delivered a stock power endorsed in blank
relating to the Shares of Restricted Stock covered by such Award.
10.5 The Award Agreement for Restricted Stock shall specify the terms
and conditions upon which any restrictions on the right to receive shares
representing Restricted Stock awarded under the Plan shall lapse as determined
by the Committee. Upon the lapse of such restrictions, Shares which have not
been delivered to the Grantee or such Grantee's legal representative shall be
delivered to such Grantee or such Grantee's legal representative.
10.6 In the event of a Grantee's termination of employment as an
Employee, or service as a Director or Consultant, whichever is applicable, for
any reason prior to the lapse of restrictions applicable to a Restricted Stock
Award made to such Grantee and unless otherwise provided for herein by this Plan
or as provided for in the Award Agreement for Restricted Stock, all rights to
Shares as to which there remain unlapsed restrictions shall be forfeited by such
Grantee to the Company without payment or any consideration by the Company, and
neither the Grantee nor any successors, heirs, assigns or personal
representatives of such Grantee shall thereafter have any further rights or
interest in such Shares.
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11. GENERAL RESTRICTIONS
11.1 The Plan and each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the Shares subject or related thereto
upon any securities exchange or under any state or federal law, (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
Grantee of an Award with respect to the disposition of Shares, is necessary or
desirable as a condition of, or in connection with the Plan or the granting of
such Award or the issue or purchase of Shares thereunder, the Plan will not be
effective and/or the Award may not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
11.2 The authority of the Committee under Section 3 to include
"forfeiture provisions" in Award Agreements is hereby confirmed. The Committee
may provide in any Award Agreement for the forfeiture of the Awards governed by
such Award Agreement and the benefits derived therefrom, in the event the
Grantee takes actions or engages in conduct that is harmful or contrary to, or
not in the best interests of, the Company. Such forfeiture may include, without
limitation, (a) the cancellation of unexercised Options and/or SARs and the
forfeiture or repayment to the Company of any gain realized from the exercise of
any Options and/or SARs, and (b) forfeiture, or repayment of the value, of any
shares of stock granted as Restricted Stock or Contingent Stock or the
forfeiture or repayment to the Company of any proceeds received from the sale
thereof. The Committee shall have broad discretion in defining what actions and
conduct constitute forfeiture events which may include, without limitation, (i)
conduct related to the Grantee's employment for which either criminal or civil
penalties may be sought, (ii) the commission of an act of fraud or intentional
misrepresentation, (iii) embezzlement or misappropriation or conversion of
assets or opportunities of the Company, (iv) accepting employment with or
serving as a consultant, adviser or in any other capacity to, or having any
ownership interest in, a person or entity that is in competition with or acting
against the interest of the Company, or any solicitation of employees or
distributors, (v) disclosing or misusing any confidential or proprietary
information of the Company in violation of the Key Employee Covenants, or any
other non-disclosure agreement with the Company or other duty of confidentiality
or the Company's insider trading policy, or (vi) any other actions or conduct of
Grantee that the Committee determines in good faith are harmful or contrary to,
or not in the best interests of, the Company. The Committee shall have broad
discretion and authority to determine the scope, duration and terms of any such
forfeiture provisions. The Committee, or its duly appointed agent, may waive any
or all of the restrictions authorized under this subsection whenever it (or its
duly appointed agent) determines in its sole discretion that such action is in
the best interests of the Company.
12. RIGHTS OF A SHAREHOLDER
12.1 The Grantee of any Award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for Shares of
common stock are issued to such Grantee, except for the rights provided in
Section 10 as it pertains to Restricted Stock Awards.
13. RIGHTS TO TERMINATE EMPLOYMENT
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13.1 Nothing in the Plan or in any agreement entered into pursuant to
the Plan shall confer upon any Grantee the right to continue in the employment
as an Employee, or service as a Director or Consultant, of the Company or a
Subsidiary or affect any right which the Company or its Subsidiary may have to
terminate the employment, or service as a Director or Consultant, of such
Grantee.
14. WITHHOLDING OF TAXES
14.1 Whenever the Company proposes, or is required, to issue or transfer
Shares under the Plan, the Company shall have the right to require the Grantee
to remit to the Company an amount, or a number of shares, sufficient to satisfy
any federal, state and/or local withholding tax requirements prior to the
delivery of any certificate or certificates for such Shares. Whenever under the
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements.
15. NON-ASSIGNABILITY
15.1 No Award or benefit under the Plan shall be assignable or
transferable by the Grantee thereof except by will or by the laws of descent and
distribution. During the life of the Grantee, such Award shall be exercisable
only by such person or by such person's guardian or legal representative.
16. NON-UNIFORM DETERMINATIONS
16.1 The Committee's determination under the Plan (including, without
limitation, determinations of the persons to receive Awards, the form, amount
and timing of such Awards, the terms and conditions of such Awards and the Award
Agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made by the Committee selectively among
persons who receive, or are eligible to receive, Awards under the Plan, whether
or not such persons are similarly situated.
17. ADJUSTMENTS
17.1 If the Class A Common Stock of the Company is subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue any shares of Class A Common Stock as a stock dividend on its outstanding
Class A Common Stock, the number of shares deliverable upon the exercise or
vesting of any Awards granted hereunder shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
17.2 In the event of a consolidation of the Company, a merger in which
the Company is not the surviving entity, or the sale of all or substantially all
of the Company assets, the exercisability of any or all outstanding Awards shall
automatically be accelerated so that such
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Awards would be exercisable or vested in full immediately prior to the effective
date of such consolidation, merger or asset sale. However, no such acceleration
shall occur if and to the extent any outstanding Awards are, in connection with
such consolidation, merger, or asset sale, either to be assumed by the successor
corporation (or parent thereof or to be replaced with a comparable Award to
purchase shares of the capital stock of the successor corporation (or a parent
thereof). The determination of such Award comparability shall be made by the
Committee, and such determination shall be final, binding and conclusive.
Immediately following any such consolidation, merger or asset, sale, the Awards,
to the extent not previously exercised or vested, shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with such consolidation, merger or asset sale. If
any outstanding Award hereunder is assumed in connection with any such
consolidation, merger or asset sale, then such Award shall be appropriately
adjusted, immediately after such consolidation, merger or asset sale, to apply
to the number and class of securities which would have been issuable to the
Grantee upon consummation of such consolidation, merger, or asset sale if the
Awards had been exercised or vested immediately prior to any such transaction,
and appropriate adjustment shall also be made to the exercise price for such
Awards, as applicable, provided the aggregate exercise price shall remain the
same. This Plan shall not in any way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate, or sell or transfer any part of its
business or assets.
17.3 In the event of a recapitalization or reorganization of the Company
(other than a consolidation, merger or asset sale described in Section 17.2
above) pursuant to which securities of the Company or of another entity are
issued with respect to the outstanding shares of the Company's Class A Common
Stock, a Grantee, upon exercising an Award or an Award becoming vested, shall be
entitled to receive for the purchase price paid upon such exercise the
securities the Grantee would have received if the Grantee had exercised the
Award or the Award had vested prior to such recapitalization or reorganization.
18. AMENDMENT
18.1 The Plan may be amended by the Board, without Shareholder approval,
at any time in any respect, unless Shareholder approval of the amendment in
question is required under Delaware law, the Code, any exemption from Section 16
of the Exchange Act (including without limitation SEC Rule 16b-3) for which the
Company intends Section 16 Persons to qualify, any national securities exchange
system on which the Shares are then listed or reported, by any regulatory body
having jurisdiction with respect to the Plan, or any other applicable laws,
rules or regulations.
18.2 The termination or modification or amendment of the Plan shall not,
without the consent of a Grantee, affect a Grantee's rights under an Award
previously granted. Notwithstanding the foregoing, however, the Company reserves
the right to terminate the Plan in whole or in part, at any time and for any
reason, provided that appropriate compensation, as
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<PAGE>
determined in the sole and absolute discretion of the Committee, is made to
Grantees with respect to Awards previously granted.
19. EFFECT ON OTHER PLAN
19.1 Participation in this Plan shall not affect a Grantee's eligibility
to participate in any other benefit or incentive plan of the Company, and any
Awards made pursuant to this Plan shall not be used in determining the benefits
provided under any other plan of the Company unless specifically provided.
20. DURATION OF PLAN
20.1 The Plan shall remain in effect until all Awards under the Plan
have been satisfied by the issuance of Shares or the payment of cash, but no
Awards shall be granted more than ten years after the date the Plan is adopted
by the Company. The Second Amended and Restated 1996 Stock Incentive Plan amends
and restates the Amended and Restated 1996 Stock Incentive Plan, as previously
amended, effective as of March 31, 1999 subject to shareholders approval.
21. FUNDING OF THE PLAN
21.1 This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under this Plan, and payment of Awards
shall be on the same basis as the claims of the Company's general creditors. In
no event shall interest be paid or accrued on any Award including unpaid
installments of Awards.
22. PLAN STATUS
22.1 This Plan is intended to satisfy the requirements of a 16b-3 plan
under the Exchange Act.
22.2 This Plan is intended to qualify as a plan under Rule 701 issued
pursuant to The Securities Act of 1933, as amended.
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<PAGE>
23. GOVERNING LAW
23.1 The laws of the State of Delaware shall govern, control and
determine all questions arising with respect to the Plan and the interpretation
and validity of its respective provisions.
NU SKIN ENTERPRISES, INC.
By: /s/ Truman Hunt
Its: Vice President and General Counsel
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-16-
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