<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
July 16, 1996
NUTRITION FOR LIFE INTERNATIONAL, INC.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas
---------------------------------------------
(State or other jurisdiction of incorporation)
0-26362 76-0416176
------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
9101 Jameel, Suite 180, Houston, TX 77040
------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (713) 460-1976
--------------
___________________________________________________________________
(Former address, if changed since last report)
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
------------
On July 16, 1996, Nutrition For Life International, Inc.(the "Company")
entered into an Assurance of Voluntary Compliance (the "AVC") with the Attorney
General of the State of Illinois (the "Attorney General"). In April, 1996 the
Attorney General filed suit against the Trudeau Marketing Group, Inc., Kevin
Trudeau, and Jules Lieb, People v. Trudeau (the "Civil Suit"). The Company was
-----------------
not named as a defendant in the Civil Suit and it is noted in the Assurance of
Voluntary Compliance that no allegations of wrongdoing have been made against
the Company. The allegations in the Civil Suit concerned the practices of
certain independent distributors in the sale of the Company's products and in
the recruiting of the Company's independent distributors.
Although the Company was not a party to the Civil Suit, the Company's
management viewed the Civil Suit as an opportunity to discuss the Company's
marketing program and to resolve confusion surrounding the program. The AVC
preserves two of the most popular options for the Company's distributors: the
Order Assurance Program ("OAP") and the ability of a new distributor to become
an executive distributor the day that he or she enrolls by generating at least
$1,000 in sales volume and by joining the OAP and Master Developer Series.
Under the AVC, the Company will maintain its same executive level
qualifications, but, to aid clarification, it will no longer use the "instant
executive" designation.
Among other things, the Company has agreed in the AVC to: (a) create an
official explanation of the Company's marketing and compensation plan and to
prohibit distributors from creating their own explanations of how the marketing
and compensation plan works; (b) make clear that there are no mandatory
purchases of product; (c) create a World Wide Web site with information on the
Company and its distribution system and update it periodically, including a
distributor information bulletin which will provide executive distributors'
earnings disclosures; (d) publicize the Company's long-standing repurchase
policy; (e) make clear that an executive distributor cannot earn bonuses or
commissions unless they are engaged in the sale of product at retail, including
procedures to verify retail sales; (f) take additional steps to encourage
executive distributors to redeem OAP certificates for product so that executive
distributors are not merely collecting OAP certificates in order to earn
commissions, with limits as to the number of OAP certificates; (g) take further
steps to train executive distributors who are meeting hosts to stress compliance
with the Company's policies and procedures, including an emphasis that
recruiting and sales literature which is not approved by the Company
2
<PAGE>
may not be distributed at recruiting meetings and that the official Company
marketing compensation plan explanation must be reviewed before a person becomes
a distributor; and (h) monitor meetings and sanction distributors who violate
the Company's policies and procedures. The Company also contributed $115,000 to
the Illinois Fund for Consumer Enforcement and Education.
The foregoing is a summary only of the AVC, the full text of which has
been filed as an exhibit to this Report. Statements made in this Report as to
the contents of the AVC are not necessarily complete, and each such statement is
qualified in its entirety by reference to the AVC.
The Company has entered into substantially similar agreements with the
states of Michigan, Missouri, New Jersey, Hawaii, Idaho, Kentucky and
Pennsylvania. In connection with those agreements the Company made aggregate
contributions of $60,000. The Company expects to enter into agreements with
other states in the future.
The Company has been informed that Mr. Trudeau signed a consent decree
resolving the pending lawsuit with the Attorney General and entered into a
settlement agreement with the Illinois Secretary of State resolving an earlier
cease and desist order. The Company was also informed that Mr. Lieb entered
into an Assurance of Voluntary Compliance.
Item 7. Financial Statements and Exhibits
---------------------------------
(c) Exhibits
A. Assurance of Voluntary Compliance for the State of Illinois,
dated July 16, 1996
Signatures
Pursuant to the requirements 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.
NUTRITION FOR LIFE INTERNATIONAL, INC.
Dated: July 30, 1996 By: /s/ DAVID P. BERTRAND
-----------------------------
David P. Bertrand, President
3
<PAGE>
STATE OF ILLINOIS )
)
COUNTY OF COOK )
IN THE MATTER OF: CPC NO.
NUTRITION FOR LIFE INTERNATIONAL, INC., AVC NO.
A TEXAS CORPORATION,
RESPONDENT.
ASSURANCE OF VOLUNTARY COMPLIANCE
---------------------------------
1. JAMES E. RYAN, Attorney General of Illinois (hereinafter the
"Attorney General"), by and for the State of Illinois, has authority to enter
into and accept this Assurance of Voluntary Compliance ("AVC") pursuant to 815
ILCS 505/6.1 (1994).
2. NUTRITION FOR LIFE INTERNATIONAL, INC. (hereinafter referred to as
"NFLI"), is a Texas corporation, which is engaged in the trade or commerce of
offering for sale and selling health care and other products to consumers in
Illinois and elsewhere through a multilevel sales force of independent
Distributors.
3. The provisions of this AVC shall apply to NFLI, and all Persons
whom NFLI has authority to bind, including any successors. This AVC applies to
NFLI's conduct with respect to Illinois consumers and Distributors. NFLI will
conduct itself in a consistent manner in other states. This AVC is intended to
be a document with practical application. Both parties agree that, as
circumstances and the law change, they may propose modifications to this
agreement and the other party will not unreasonably withhold consent thereto.
1
<PAGE>
BACKGROUND FACTS AND CIRCUMSTANCES
----------------------------------
4. On or about April 17, 1996, the Attorney General filed suit
against The Trudeau Marketing Group, Inc., Kevin Mark Trudeau and Jules Leib
(hereinafter the "Defendants"), People v. Trudeau, 96 CH 3856 in the Circuit
-----------------
Court of Cook County (hereinafter the "Civil suit").
5. The Civil Suit did not name NFLI as a defendant and no allegations
of wrongdoing have been made against NFLI. The allegations in the Civil Suit
concern the practices of certain Distributors in the sale of NFLI Products and
in the recruiting of NFLI Distributors.
6. Following the filing of the Civil Suit, NFLI approached the
Illinois Attorney General and offered to enter into this AVC voluntarily, in
order to assure itself that its policies and practices and its independent
Distributor's policies and practices conform to Illinois law and fairly protect
the interests of consumers.
7. The Attorney General, by entering into this AVC, is not approving
or endorsing NFLI, its independent Distributors, or its business practices.
DEFINITIONS
-----------
8. As used in this AVC:
(a) "Compensation" means any payment of money, including but not
limited to any bonus, commission, override, profit, rebate or other
consideration which a Distributor may earn or receive;
(b) "Derivative Income" means Compensation derived by a Qualified
Executive Distributor as a result of Sales by Executive Distributors in the
Qualified Executive
2
<PAGE>
Distributor's Downline and does not include Retail Profit or income earned on a
Distributor's own Sales to his Downline or to an End User. (It is one of the
purposes of this AVC to ensure that Distributors do not receive Derivative
Income unless they are actively making Sales to End Users.);
(c) "Distribution System" means the specific business practices
of NFLI and its participants, including but not limited to NFLI's Policies and
Procedures, Marketing or Sales Plan, Sales Compensation Plan, Compensation Plan
or Program, and Distributor Agreement;
(d) "Distributor" means any Person authorized by contract to
sell NFLI Products and Sales aids, and to offer NFLI distributorships, or
otherwise recruit and sponsor other to become Distributors;
(e) "Downline" means any Executive Distributor who is in the
marketing plan positioned below another Executive Distributor and who generates
Derivative Income for that Executive Distributor;
(f) "Each" shall include the collective as well as the
singular, and shall mean "all," "any," and "every," and these terms shall be
interchangeable;
(g) As to any Distributor, "End User" means any Person (i) as
to whom the Distributor earns Retail Profit on the Sale of Product; and (ii) who
is not in that Distributor's Downline; and (iii) with respect to whom that
Distributor earns no Derivative Income; and (iv) who is not an Executive
Distributor;and (v) who has purchased no more than a cumulative total of $1,500
of Product at the time of the purchase;
3
<PAGE>
(h) "Executive Distributor" means any Distributor who has met
any of the NFLI cumulative purchase requirements to achieve the executive level
according to the NFLI MCP;
(i) "Marketing and Compensation Plan Explanation" ("MCPE")
means any material which explains the NFLI marketing and compensation plan
("MCP");
(j) "NFLI" means Nutrition For Life International, Inc. its
successors and assigns;
(k) "NFLI MCPE" means an official MCPE used, produced and
approved by NFLI to explain its marketing and compensation plan ("MCP");
(l) "Person" means any individual, proprietorship, operation,
firm, partnership, incorporated or unincorporated association, or any other
legal or commercial entity, or the general public at large, whether or not a
resident of Illinois;
(m) "Products" shall mean all products sold by NFLI except for
Recruiting Aids;
(n) "Qualified Executive Distributor" means any Executive
Distributor who has then met the NFLI requirements under the NFLI MCP to receive
Compensation based on the sale of NFLI Products made by any Distributor in the
Executive Distributor's Downline organization, including but not limited to the
requirement that the Executive Distributor make certain Retail Sales to End
Users and described in this AVC;
(o) "Recruiting Aids" means any recruiting aid, sales and/or
marketing aid, including video tapes, audio tapes, flyers, booklets, print
advertisements, slides, flip charts, labels, signs, banners, promotional items,
Internet postings, brochures or posters.
4
<PAGE>
(p) "Resalable Product" shall be defined as provided in the
NFLI policy and procedure manual which provides, among other things, that food
and skin care items will not be refunded after 90 days from the date of
purchase;
(q) "Retail Profit" means Compensation earned by a Distributor
by reason of their own sale of Product to an End User;
(r) "Retail Sales" means a Sale to an End User on which a
Distributor earns Retail Profit;
(s) "Sales" shall include purchases as retail, preferred
customer price or at wholesale by an End User or Executive Distributor,
including purchases made directly by the End User from the company for which a
Distributor is entitled to credit or Compensation;
(t) "SMH" or "Sanctioned Meeting Host" means any Person who is
presenting the MCP at an official NFLI recruiting meeting that is publicized by
NFLI in its official meeting schedule;
(u) "Upline" means, with respect to any Distributor, those
Distributors positioned above a Distributor who may earn and receive Derivative
Income based upon a Distributor's wholesale purchases and Retail Sale of NFLI
Products; and
(v) "Verification" means, with respect to Products sold to an
End User, the requirement that the Distributor provide a signed statement which
includes the End User's name and telephone number (if available), the type,
amount and retail cost of the Product or Product package sold to the End User,
and that to the best of the Distributor's knowledge, the End User is purchasing
the Product for his or her own use.
5
<PAGE>
COMPENSATION POLICY
-------------------
9. NFLI, whether acting directly or indirectly, will enforce a
policy of refraining from:
(a) Adopting, implementing or enforcing, in the NFLI Distribution
System any policy or practice whereby NFLI shall pay commissions, bonuses,
rebates, or any other type of Compensation to any Executive Distributor which is
not based in part on the Sale of NFLI Products to End Users subject to
Verification;
(b) Representing, directly or by implication, that multilevel or
network marketing businesses, including specifically the NFLI MCP, offer or
provide Distributors the opportunity or ability to make substantial income or
profit as a result of wholesale or Retail Sales activities by leveraging the
time of other Persons, or from multiplication, duplication or geometrical
increases in the number of participants at lower functional levels of
distribution without making clear: (i) that not all NFLI participants earn
Derivative Income in the NFLI Plan; and (ii) that no one can be guaranteed
success as a NFLI Distributor; and (iii) that NFLI publishes the document
referred to in paragraph 17; and (iv) that NFL has an Internet World Wide Web
site containing information that may be useful in understanding the past
business performance of NFLI Executive Distributors;
(c) Representing anticipated or potential NFLI Product Sales figures
or monthly or annual Sales commission or bonus figures other than the actual
Sales experience of the speaker, without making clear the information specified
in subpoints (i), (ii) and (iii) of the preceding subparagraph.
6
<PAGE>
(d) Making any unfair, deceptive or misleading representations,
directly or indirectly, whether by affirmative statements, implications or
omissions, that Persons electing to participate in NFLI will earn substantial
sums of money;
(e) Representing in an unfair, deceptive or misleading manner, any
prospective or potential NFLI Product Sales commission figures; and
(f) Displaying any particular monthly or annual Sales commission
figures, check, tax form or similar record without making clear the information
specified in subpoints (i), (ii) and (iii) of paragraph 9(b).
10. NFLI, by its execution of this AVC, hereby officially adopts the
following policies and will promptly take action to implement these policies:
(a) The official NFLI MCPE will clearly explain the NFLI MCP,
including all the means for qualifying as an Executive Distributor, that all
Product volume qualifications are cumulative, and, therefore, that a Distributor
is not required to make a one-time purchase of Product in any specified amount
(i.e., a one-time $1,000 Product purchase) in order to qualify as an Executive
Distributor;
(b) For recruiting purposes, no one may use, produce, market or
distribute any MCPE's or portion thereof other than the official NFLI MCPE;
(c) No person may become a Distributor for NFLI unless they affirm, in
writing, that they have read and understood the NFLI MCPE; and
(d) No one may create or use a Distributor agreement other than the
official NFLI Distributor agreement and commencing 90 days after entry of this
AVC, no one may become a Distributor unless they sign the official NFLI
Distributor agreement.
7
<PAGE>
INSTANT EXECUTIVE PROGRAM
---------------------------
11. The designation "Instant Executive" will no longer be used and
NFLI will only maintain executive programs that comply with the Retail Sale to
End User rule as set forth in paragraph 21 and that do not include a mandatory
initial purchase of $500 or more. Executives who are part of the NFLI Executive
Compensation program, who obtained executive status by participation in the
"Instant Executive Program" prior to the date of this AVC shall be allowed to
maintain their Executive Distributor status, subject to all existing NFLI
policies and procedures and subject to all changes in the NFLI program agreed to
by NFLI in this AVC.
O.A.P. PROGRAM
----------------
12. The Order Assurance Program (hereinafter referred to as "OAP")
will include the following guidelines and policies:
(a) It is NFLI policy that Distributors may not make purchases or
receive certificates merely to earn bonuses;
(b) NFLI will encourage Distributors to redeem their certificates for
Products and may devise Product purchase packages to encourage the same;
(c) OAP shall remain a wholly optional program;
(d) Effective 180 days after the entry of this AVC (so as to provide
time for computer programming at NFLI), a Distributor will not receive
additional certificates and shall be given 30 days notice that their OAP status
will be suspended if: (i) four monthly unredeemed OAP certificates are issued
consecutively to the Distributor for a maximum credit of four times the OAP
enrollment level; or (ii) the Distributor has accumulated unredeemed
8
<PAGE>
certificates with a total face value of six times the Distributor's then
designated OAP amount. However, the foregoing suspension and notice
requirements shall not apply if the Distributor redeems one or more of the
issued certificates, or notifies NFLI that he is accumulating toward a "big
ticket" item;
(e) NFLI may sell product to a Distributor who is ineligible for
additional OAP certificates; and
(f) Upon cancellation of a distributorship, certificates and products
purchased with certificates will be treated as any other product for refund
purposes.
REPURCHASE POLICY
-----------------
13. NFLI will continue its policy of repurchasing from any canceling
Distributor, who releases NFLI of all claims relating to their distributorship
in the NFLI program, any resalable NFLI Products in the Distributor's possession
by paying no less than 90% of the purchase price paid to NFLI (retaining no more
than 10% as a restocking fee). Subject to presentation of reasonable proof of
purchase and subject to the Distributor's prior representations regarding
compliance with the "70% rule" set forth in paragraph 20(c), there shall be no
limit upon the volume or dollar amount of Product which may be returned for
repurchase by a Distributor. NFLI will not deduct from the repurchase price any
commissions, bonuses or other Compensation paid to Upline participants on Sales
of Products which are returned by a Distributor pursuant to this policy, but may
deduct any commissions the returning Distributor earned as a result of the
Product purchases which are returned and may deduct the Upline any bonuses paid
to the Upline on Products returned by
9
<PAGE>
resigning Distributors. Nothing in this AVC shall prevent NFLI from offering a
Product buy back policy (or other policy) which is more favorable to
Distributors.
14. NFLI will discontinue any recruiting aids which may be found to be
not in conformance with this AVC.
15. NFLI will include an expanded statement of their Product buy back
policy in their Product order form and in the NFLI policy and procedure manual.
RECRUITING MEETINGS
---------------------
16. Within 60 days of the entry of this AVC, NFLI will provide
training to its "Sanctioned Meeting Hosts" ("SMH"). The training will emphasize
compliance with the AVC and the stated policies of NFLI and this AVC. Notice of
the training sessions will be provided to each SMH and to the Attorney General
at least one week in advance. Each SMH will be responsible for compliance with
the terms of this AVC at any NFLI Recruiting Meeting they conduct, including:
(a) Having at hand, for inspection and review by a Distributor or
potential Distributor, copies of the NFLI MCPE and every disclosure document
required by this AVC;
(b) Making clear, in a meaningful way, once during the presentation of
the MCP and once as the meeting is drawing near to closing, that NFLI policy
prohibits use of Distributor-produced MCPEs, that only the sanctioned NFLI MCPE
is available for inspection, and that any other MCPEs should be destroyed;
10
<PAGE>
(c) Announcing, in a meaningful way, during each meeting, that any
references to the MCP during the meeting are necessarily incomplete and that any
potential Distributor must review the NFLI MCPE before registering; and
(d) Making clear twice during the presentation that a person can
become a Distributor solely by purchasing one success kit (which currently costs
$35).
POTENTIAL SATURATION AND EARNINGS INFORMATION
---------------------------------------------
17. NFLI will provide each new Distributor with a written statement,
in a form that the Person may keep (which may, but need not, be the NFLI MCPE),
including the following (based on the most current available figures to be
updated at least annually):
(a) The total number of NFLI Distributors;
(b) The percentage of Distributors who are at each level;
(c) For each level of Distributorship:
(i) The lowest monthly Derivative Income earned;
(ii) The average monthly Derivative Income earned;
(iii) The highest monthly Derivative Income earned; and
(d) That updated information is available in NFLI's quarterly
announcements.
18. NFLI will provide the information specified in the preceding
paragraph to all NFLI Executive Distributors on no less than an annual basis, by
mailing the information to the address to which NFLI sends Compensation payments
or other documents and will make the information available for review on the
NFLI Internet World Wide Web site established pursuant the next paragraph.
11
<PAGE>
19. NFLI will establish and maintain a NFLI World Wide Web site at
which all information required to be made available to Distributors in this AVC
is published. The information will be updated no less often than annually.
Nothing in this AVC shall prevent NFLI from publishing additional information at
the Internet Web site. NFLI shall provide notice of the Uniform Resource
Locator for the Internet Web site and the name, mailing address and telephone
number of the service provider for the Web site to the Attorney General within
60 days of the date of this AVC.
PRODUCT SALES
-------------
20. To avoid "inventory loading" and promote retail selling, NFLI will
continue the following policies:
(a) No Product purchase or other payments in excess of the price of
the Distributor Success Kit (which currently sells for $35), will be required to
qualify as an independent NFLI Distributor;
(b) The product volumes to qualify for Executive Distributor status
will remain cumulative (i.e., $1,500 as of 1996); and
(c) No repeat orders will be accepted unless the Distributor affirms
that 70% of prior Product purchases have been employed to build, promote and
facilitate Retail Sales of NFLI Products.
21. In addition, as to all Persons qualifying as an Executive
Distributor on or after the first month which commenses more than thirty (30)
days after execution of this Agreement (and not including continuous
qualification that commenced prior to this AVC), effective with bonuses and
commissions otherwise due the month thereafter, the Executive
12
<PAGE>
Distributor will not qualify as a Qualified Executive Distributor (and will not
receive bonuses or commissions on Downline sales), unless within the preceding
one month period the Executive distributor has made at least five (5) Retail
Sales to End Users, subject to Verification, or within the preceding two month
period has made ten (10) Retail Sales to End Users, subject to Verification.
22. Every three months, for a period of six (6) months after entry of
this AVC, NFLI will select at random two percent (2%) of those Qualified
Executive Distributors in Illinois receiving Derivative Income, and will require
them to verify compliance with the Retail Sales to End Users requirement
described above. Thereafter, each third month NFLI shall select at random one
percent (1%) of those Illinois Qualified Executive Distributors receiving
Derivative Income, and shall require these Distributors to verify compliance
with the policy referred to in paragraph 21 hereinabove.
23. Each three months, for a period of six (6) months after entry of
this AVC, NFLI will provide to the Attorney General the substance and results of
this Verification program. Thereafter, for the next three (3) years, the
Attorney General may request this information as often as four times per
calendar year.
24. NFLI will regularly encourage its Distributors to register and
collect Illinois Retailer's Occupation Tax on their Retail Sales.
ENFORCEMENT
-----------
25. NFLI will adopt, implement, maintain and enforce within its
Distribution System policies and practices prohibiting any Distributor from
engaging in any of the practices prohibited by this AVC.
13
<PAGE>
26. NFLI will assign a full-time employee to seek out, monitor and
review Distributor recruitment efforts and ensure compliance with this AVC and
other similar AVC or compliance agreements. Such employee will be authorized to
institute disciplinary action, if required, consistent with the terms of this
AVC and NFLI policy.
27. NFLI will adopt, maintain and implement a policy whereby NFLI
undertakes to monitor official NFLI Recruiting Meetings on a regular and
systematic basis, including use of unannounced attendance of NFLI monitors.
28. Consistent with NFLI's policies and guidelines for cancellation,
NFLI will augment the program for disciplinary action which curtails potential
marketing abuses by independent NFLI Distributors and include the following:
(a) On the first occasion that a Distributor is found to be in
violation of any terms and conditions of this AVC, NFLI shall issue a formal,
written warning to the Distributor;
(b) On the occasion of a second violation of the terms and conditions
of this AVC, NFLI shall suspend the Distributor's rights to commissions,
bonuses or overrides and the right to sponsor other Distributors for one (1)
month; and
(c) On the occasion of a third violation of the terms and conditions
of this AVC, NFLI may proceed to terminate the violator's distributorship.
MISCELLANEOUS PROVISIONS
------------------------
29. NFLI will refrain from making any statement, whether express or
implied, directly or through its NFLI SMHs, stating that the Illinois Attorney
General, the
14
<PAGE>
State of Illinois or any other government entity has condoned or approved the
business of NFLI or multilevel marketing in general.
30. Not later than thirty days (30) after entry of this AVC, NFLI
shall cause to be delivered to each NFLI Executive Distributor in Illinois a
written statement, in the form attached hereto, summarizing and explaining the
terms of this AVC. NFLI shall absorb all expenses associated with the
dissemination of this written statement.
31. NFLI shall fully advise all present and future management
officials of the contents and requirements of this AVC.
32. NFLI shall incorporate within its existing or future training
meetings and seminar programs a program which shall emphasize compliance with
NFLI's rules and policies consistent with this AVC.
33. NFLI and its successors and assigns shall notify the Attorney
General not more than thirty (30) days after any change in NFLI, such as
dissolution, assignment or sale resulting in the emergence of successor
corporations, the creation or dissolution of subsidiaries, or any other change
in the corporation or in the NFLI Distribution System which may affect
compliance obligations arising out of this AVC. However, consistent with NFLI's
fiduciary obligations, it shall not be required to make disclosure to the
Attorney General of confidential information which may affect the value of its
stock, prior to public announcement and public announcement may constitute
notice to the Attorney General and will use its best efforts to provide those
announcements to the Attorney General. On the anniversary date of this AVC and
each year for three years after entry of this AVC, NFLI will report to the
Attorney General on its compliance with the requirements of this AVC. Its report
will
15
<PAGE>
include, but will not be limited to, any instructions given to employees or
participants regarding compliance with the provisions of this AVC, any notices
provided to participants in connection with the terms of this AVC, and any
statement as to changes or amendments made to the NFLI distribution systems.
34. The Attorney General will keep such reports and their contents, or
any report, document or other information provided under this section strictly
confidential, and the Attorney General shall not disclose any such notification,
information, document, or report, or the contents of any of the foregoing,
except to the extent the Attorney General in good faith believes such disclosure
must be made to enforce the terms of this AVC, or as otherwise required by state
law or court order.
NOTICE PROVISIONS
-----------------
35. IT IS FURTHER AGREED that all notices, statements, and accountings
required by this AVC shall be sent by certified mail, postage prepaid to the
following:
If to the Attorney General:
Office of the Illinois Attorney General
Consumer Fraud Bureau
Attn.: Janice M. Parker, Esq.
Assistant Attorney General
100 West Randolph, 12th Floor
Chicago, Illinois 60601
If to NFLI:
Jana Mitcham
Executive Vice President
Nutrition For Life International
9101 Jameel Street
Houston, Texas 77040
16
<PAGE>
and
Kirkpatrick W. Dilling, Esq.
Dilling and Dilling
150 North Wacker Drive
Suite 1242
Chicago, Illinois 60606
and
David J. Bradford, Esq.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
SEVERABILITY
------------
36. In the event that any of the provisions of this AVC are found
unenforceable for any reason, that portion shall be severed from the remainder
and such finding will not affect the force and validity of the remaining
provisions.
EFFECTIVE DATE
--------------
37. Except as specified herein, this Assurance of Voluntary Compliance
will take effect immediately upon its signing by the parties.
STATE PROJECTS AND COURT ORDERED DISTRIBUTION
FUND FOR CONSUMER ENFORCEMENT AND EDUCATION
---------------------------------------------
NFLI voluntarily agrees to make payment to the State Project and Court
Ordered Distribution Fund for Consumer Enforcement and Education on the amount
of $100,000.00 Payment shall be in the form of a check made payable to the
"Attorney General of the State of Illinois," within ten days of entry of this
Consent Decree by the Court. The Attorney General shall cause the payment to be
deposited in the State Project and Court Ordered Fund for Consumer Enforcement
and Education and shall use the payment for law
17
<PAGE>
enforcement activity and consumer educational programs associated with the
enforcement of the Consumer Fraud Act. NFLI will not be entitled to further
accounting regarding the money deposited into the Fund.
AUTHORIZATION
-------------
38. The undersigned representative for each party certifies that he is
fully authorized by the party he represents to enter into the terms of this AVC
and to legally bind the party he represents to the AVC.
AGREED: AGREED:
JAMES E. RYAN, NUTRITION FOR LIFE
ATTORNEY GENERAL BY AND FOR INTERNATIONAL, INC.
THE STATE OF ILLINOIS
BY: /s/ Charles G. Fergus BY: /s/ David Bertrand
----------------------- -------------------
Charles G. Fergus President
Chief, Consumer Fraud Bureau
DATED: July 16, 1996 DATED: July 16, 1996
-------------- -------------
18
<PAGE>
July XX, 1996
Dear Distributors:
We are excited to announce that Nutrition For Life and the Office of
the Illinois Attorney General have entered into an agreement that resolves the
Attorney General's pending lawsuit against the Trudeau Marketing Group and will
protect the rights of all Nutrition For Life distributors.
Although Nutrition For Life is not a party to the lawsuit brought by
the Illinois Attorney General, we viewed the lawsuit as an opportunity to enter
into a "voluntary compliance agreement." These agreements have been entered into
by many successful multi-level marketing companies to ensure that they and the
states agree on policies.
Our agreement with Illinois will provide an important foundation for
the future continued success of Nutrition For Life because it will help protect
the rights of all Nutrition For Life distributors and consumers. We believe the
various protections and options provided in this agreement will make Nutrition
For Life an even more attractive program for distributors and consumers. This
letter explains some of the important features of the agreement. Anyone
interested in obtaining a copy of the full agreement can do so by contacting our
office.
The key features of the agreement include Nutrition For Life's
commitment to:
. Create an official explanation of its marketing and compensation
plan and to prohibit distributors from creating their own official
explanations of how the marketing and compensation plan works.
While distributors may provide an overview or summary of the
marketing compensation plan, it is important that they provide
new distributors with a copy of the official Nutrition For Life
explanation and ensure that new distributors understand the
official plan.
. Make clear that there are no mandatory purchases of product. We
intend to continue the three different options for becoming an
executive: $1,500 in personal group product volume; $1,200 in
personal group product volume while enrolling in the OAP Program;
or $1,000 in personal group product volume while enrolling in the
Master Developer and OAP Programs. These qualifications will not
change. However, to make it clear that distributors can take as
much time as they desire or become an executive right away, at
their option, we will eliminate any references to an "instant
executive."
<PAGE>
PAGE 2
. Create a World Wide Web site with information on Nutrition For
Life and its distribution system and update it periodically. We
also agreed to generate a distributor information bulletin which
will provide earnings disclosures.
. Publicize our long-standing repurchase policy. Under that policy,
if you leave your distributorship, all resalable products may be
returned (food products and skin care items are not resalable
after 90 days) less a restocking fee. We do not deduct for any
downline bonuses paid on these purchases.
. Make clear that an executive should not earn bonuses or
commissions unless they are engaged in the sale of product at
retail. Commencing with bonuses due in October, 1996, an
executive will not be entitled to bonuses and commissions unless
he or she can personally verify that he or she has made five
retail sales in the preceding 30 days or ten retail sales in the
preceding 60 days.
. Take additional steps to encourage executives to redeem OAP
certificates for product so that executives are not merely
collecting OAP certificates in order to earn commissions. We also
agreed to limit the number of OAP certificates that we would send
to any executive to four consecutive certificates at their full
designated OAP amount or to a total value of certificates equal to
six times the designated OAP amounts.
. Take further steps to train executives who give meetings to stress
compliance with our policies and procedures. In particular,
meeting hosts will emphasize that recruiting and sales literature
which is not approved by Nutrition For Life may not be distributed
at the meeting and that the official Nutrition For Life marketing
compensation plan explanation must be reviewed before becoming an
executive distributor.
. Monitor meetings and to sanction distributors who violate NFLI
policies and procedures. These violations only injure the
reputation of NFLI and harm the interests of the overwhelming
majority of distributors who do comply with NFLI's policies and
procedures.
We believe that you will agree that these safeguards will help NFLI in
its business and improve the value of your distributorship.
Our agreement with the Attorney General is a sign that our
organization has matured and is on the map. We have seized this opportunity to
ensure that as we continue to grow, we do so on a very sound foundation. In
appreciation of the highly professional, thoughtful and practical approach taken
by the Illinois Attorney General in discharging their obligations to ensure that
consumers and distributors alike are protected, we agreed to make a contribution
to the Illinois Consumer Education Fund.
<PAGE>
PAGE 3
We at NFLI are delighted with the execution of the voluntary
compliance agreement. We now look forward to focusing our energies on continuing
the dynamic growth and success of our business.
Sincerely,
David Bertrand
President
