<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
(RULE 13C-100)
TRANSACTION STATEMENT UNDER SECTION 13(E) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13E-3 THEREUNDER
AMWAY ASIA PACIFIC LTD.
(Name of Issuer)
NEW AAP LIMITED
APPLE HOLD CO., L.P.
AMWAY ASIA PACIFIC LTD.
RICHARD M. DEVOS, JR.
STEPHEN A. VAN ANDEL
(Names of Persons Filing Statement)
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class of Securities)
G0352M 10 8
(CUSIP Number of Securities)
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CRAIG N. MEURLIN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
AMWAY CORPORATION
7575 FULTON STREET EAST
ADA, MICHIGAN 49355
(616) 787-6000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
COPY TO:
THOMAS C. DANIELS, ESQ.
JONES, DAY, REAVIS & POGUE
NORTH POINT
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114
(216) 586-3939
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This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C or Rule 13e-3(c) [sec.240.13e-3(c)]
under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [X] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ ]
Check the following box if the filing is a final amendment reporting the results
of the transaction: [ ]
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$26,014,572.00 $5,202.91
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</TABLE>
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
AMOUNT PREVIOUSLY PAID: $5,202.91 FILING PARTY: NEW AAP LIMITED
FORM OR REGISTRATION NO: SCHEDULE 14D-1 DATE FILED: NOVEMBER 18, 1999
Page 1 of 4 Pages
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<PAGE> 2
INTRODUCTION
This Rule 13e-3 transaction statement on Schedule 13E-3 (this "Schedule
13E-3") is being filed jointly by New AAP Limited, a Bermuda corporation ("New
AAP"), Apple Hold Co., L.P., a Bermuda limited partnership ("Apple Hold Co."),
Amway Asia Pacific Ltd., a Bermuda corporation ("AAP"), Richard M. DeVos, Jr.
and Stephen A. Van Andel pursuant to Section 13(e) of the Securities Exchange
Act of 1934 (the "Exchange Act") and Rule 13e-3 thereunder in connection with a
proposed amalgamation (the "Amalgamation") of New AAP and AAP pursuant to a
Tender Offer and Amalgamation Agreement, dated November 15, 1999 (the
"Amalgamation Agreement"), among AAP, New AAP and Apple Hold Co.
In the Amalgamation and pursuant to the terms and conditions set forth in
the Amalgamation Agreement, New AAP and AAP will amalgamate, with AAP continuing
as the amalgamated company. At the effective time of the Amalgamation, each
issued and outstanding share of common stock, $.01 par value per share, of AAP
(the " Common Stock"), other than Common Stock held by New AAP, Apple Hold Co.,
the principal shareholders of AAP or shareholders exercising their appraisal
rights, will be exchanged into the right to receive from the amalgamated company
$18.00 in cash and will automatically be canceled and retired and will cease to
exist.
The information in the Proxy Statement, including all annexes thereto, is
hereby expressly incorporated herein by reference in response to all the items
of this Schedule 13E-3, except as otherwise set forth below.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Proxy Statement of AAP, dated March 30, 2000.
(a)(2) Form of Letter of Transmittal.*
(a)(3) Form of Proxy Card.
(a)(4) Form of Trustee Direction Form from the 401(K) Trustee.
(b) Credit Agreement, dated as of December 10, 1999, among Apple
Hold Co., New AAP, N.A.J. Co., Ltd., ALAP Hold Co., Ltd.,
the banks party thereto and Morgan Guaranty Trust Company of
New York, Tokyo Branch (incorporated herein by reference to
Exhibit (a)(3) of the Schedule 13E-3 of New AAP filed with
the Commission on November 18, 1999 and amended on December
13, 1999, December 17, 1999 and December 27, 1999 (the
"Offer Schedule 13E-3")).
(c)(1) Form of Fairness Opinion of Goldman, Sachs & Co., dated
November 15, 1999 (included as Annex A to the Proxy
Statement).
(c)(2) Presentation Materials of Goldman Sachs & Co., dated
November 15, 1999 (incorporated herein by reference to
Exhibit (b)(2) of the Offer Schedule 13E-3).
(c)(3) Presentation Materials of Morgan Stanley & Co., dated
September 21, 1999 (incorporated herein by reference to
Exhibit (b)(3) of the Offer Schedule 13E-3).
(c)(4) Presentation Materials of J.P. Morgan, dated September 21,
1999.
(d)(1) Tender Offer and Amalgamation Agreement, dated November 15,
1999, between AAP, New AAP and Apple Hold Co. (included as
Annex B to the Proxy Statement).
(d)(2) Shareholder and Voting Agreement, by and among Apple Hold
Co., New AAP and certain shareholders of AAP, dated November
15, 1999 (incorporated herein by reference to Exhibit (c)(2)
of the Schedule 14D-1 of New AAP filed with the Commission
on November 18, 1999 and amended on December 13, 1999,
December 17, 1999 and December 27, 1999).
(d)(3) First Amended and Restated Limited Partnership Agreement of
Apple Hold Co., dated as of November 12, 1999 (incorporated
herein by reference to Exhibit 1 of AAP's Schedule 13D filed
with the Commission on December 27, 1999 (the "Schedule
13D")).
(d)(4) Operating Agreement of AP New Co., LLC, dated as of November
12, 1999 (incorporated herein by reference to Exhibit 2 of
the Schedule 13D).
(d)(5) Agreement Regarding Jumpstart Entities, among Amway
Corporation, AP New Co., LLC, ALAP Hold Co., Ltd., Apple
Hold Co., Jay Van Andel Trust, RDV Corporation, Jay Van
Andel, Stephen Van Andel, David Van Andel, Richard DeVos,
Jr. and Douglas DeVos, dated as of December 16, 1999
(incorporated by herein reference to Exhibit 3 of the
Schedule 13D).
(f) Bermuda Law Regarding Appraisal Rights (included as Annex C
to the Proxy Statement).
(g) Not applicable.
(h) Not applicable.
(i) Amway Asia Pacific's Annual Report on Form 20-F for the
fiscal year ended August 31, 1999.
(j) Consent of KPMG LLP.
</TABLE>
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* To be filed by amendment.
2
<PAGE> 3
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: March 30, 2000 NEW AAP LIMITED
By: /s/ CRAIG N. MEURLIN
---------------------------------------
Name: Craig N. Meurlin
Title: Vice President, Assistant
Secretary
By: APPLE HOLD CO., L.P.
By: AP NEW CO., LLC., its general partner
By: AMWAY CORPORATION, its Manager
By: /s/ CRAIG N. MEURLIN
--------------------------------
Name: Craig N. Meurlin
Title: Manager
AMWAY ASIA PACIFIC LTD.
By: /s/ CRAIG N. MEURLIN
--------------------------------
Name: Craig N. Meurlin
Title: Vice President, General Counsel
and Assistant Secretary
RICHARD M. DEVOS, JR.
/s/ RICHARD M. DEVOS, JR.
-----------------------------------------
STEPHEN A. VAN ANDEL
/s/ STEPHEN A. VAN ANDEL
-----------------------------------------
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
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(a)(1) Proxy Statement of AAP, dated March 30, 2000.
(a)(2) Form of Letter of Transmittal.*
(a)(3) Form of Proxy Card.
(a)(4) Form of Trustee Direction Form from the 401(K) Trustee.
(b) Credit Agreement, dated as of December 10, 1999, among Apple
Hold Co., New AAP, N.A.J. Co., Ltd., ALAP Hold Co., Ltd.,
the banks party thereto and Morgan Guaranty Trust Company of
New York, Tokyo Branch (incorporated herein by reference to
Exhibit (a)(3) of the Schedule 13E-3 of New AAP filed with
the Commission on November 18, 1999 and amended on December
13, 1999, December 17, 1999 and December 27, 1999 (the
"Offer Schedule 13E-3")).
(c)(1) Form of Fairness Opinion of Goldman, Sachs & Co., dated
November 15, 1999 (included as Annex A to the Proxy
Statement).
(c)(2) Presentation Materials of Goldman Sachs & Co., dated
November 15, 1999 (incorporated herein by reference to
Exhibit (b)(2) of the Offer Schedule 13E-3).
(c)(3) Presentation Materials of Morgan Stanley & Co., dated
September 21, 1999 (incorporated herein by reference to
Exhibit (b)(3) of the Offer Schedule 13E-3).
(c)(4) Presentation Materials of J.P. Morgan, dated September 21,
1999.
(d)(1) Tender Offer and Amalgamation Agreement, dated November 15,
1999, between AAP, New AAP and Apple Hold Co. (included as
Annex B to the Proxy Statement).
(d)(2) Shareholder and Voting Agreement, by and among Apple Hold
Co., New AAP and certain shareholders of AAP, dated November
15, 1999 (incorporated herein by reference to Exhibit (c)(2)
of the Schedule 14D-1 of New AAP filed with the Commission
on November 18, 1999 and amended on December 13, 1999,
December 17, 1999 and December 27, 1999).
(d)(3) First Amended and Restated Limited Partnership Agreement of
Apple Hold Co., dated as of November 12, 1999 (incorporated
herein by reference to Exhibit 1 of AAP's Schedule 13D filed
with the Commission on December 27, 1999 (the "Schedule
13D")).
(d)(4) Operating Agreement of AP New Co., LLC, dated as of November
12, 1999 (incorporated herein by reference to Exhibit 2 of
the Schedule 13D).
(d)(5) Agreement Regarding Jumpstart Entities, among Amway
Corporation, AP New Co., LLC, ALAP Hold Co., Ltd., Apple
Hold Co., Jay Van Andel Trust, RDV Corporation, Jay Van
Andel, Stephen Van Andel, David Van Andel, Richard DeVos,
Jr. and Douglas DeVos, dated as of December 16, 1999
(incorporated by herein reference to Exhibit 3 of the
Schedule 13D).
(f) Bermuda Law Regarding Appraisal Rights (included as Annex C
to the Proxy Statement).
(g) Not applicable.
(h) Not applicable.
(i) Amway Asia Pacific's Annual Report on Form 20-F for the
fiscal year ended August 31, 1999.
(j) Consent of KPMG LLP.
</TABLE>
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* To be filed by amendment.
4
<PAGE> 1
Exhibit (a)(1)
AMWAY LOGO
AMWAY ASIA PACIFIC LTD.
38/F The Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong Kong
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NOTICE OF SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 2000
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March 30, 2000
TO THE SHAREHOLDERS OF AMWAY ASIA PACIFIC LTD.:
The Special General Meeting of Shareholders of Amway Asia Pacific Ltd. will
be held in the Seminar Room at Amway Asia Pacific's offices located at 38/F, The
Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong Kong, on April 27, 2000, at
10:00 a.m. for the following purposes:
- To approve the tender offer and amalgamation agreement, dated November
15, 1999, among Amway Asia Pacific, New AAP Limited, a Bermuda
corporation, and Apple Hold Co., L.P., a Bermuda limited partnership.
Approval of the tender offer and amalgamation agreement will constitute
approval of the amalgamation contemplated thereby, in which Amway Asia
Pacific and New AAP will amalgamate, with Amway Asia Pacific continuing
as the amalgamated company.
- To transact such other business as may properly come before the meeting
or any adjournments thereof.
The board of directors has fixed the close of business on March 15, 2000 as
the record date for determining shareholders entitled to notice of and to vote
at the special meeting or any adjournment thereof.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE RETURN ENVELOPE AS
PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU
LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER
DESCRIBED IN THE ATTACHED PROXY STATEMENT.
By Order of the Board of Directors,
/s/ Craig N. Meurlin
Craig N. Meurlin
Vice President, General Counsel
and Assistant Secretary
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTION, PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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ENFORCEABILITY OF CIVIL LIABILITIES......................... ii
SOLICITATION AND REVOCATION OF PROXIES...................... 1
SUMMARY OF MATERIAL TERMS AND QUESTIONS AND ANSWERS ABOUT
THE AMALGAMATION.......................................... 2
OUTSTANDING STOCK AND VOTING RIGHTS......................... 4
PROPOSAL: APPROVAL OF TENDER OFFER AND AMALGAMATION
AGREEMENT AND AMALGAMATION................................ 4
SPECIAL FACTORS............................................. 4
Background of and Reasons for the Amalgamation......... 4
Recommendation of the Special Committee and the
Disinterested Directors............................... 8
Reasons for the Recommendation of the Special Committee
and the Disinterested Directors....................... 9
Opinion of Financial Advisor to the Special
Committee............................................. 11
Position of New AAP, Apple Hold Co. and Messrs. Van
Andel and DeVos Regarding Fairness of the
Amalgamation.......................................... 15
Financial Advisors to Purchasers....................... 16
Certain Projections.................................... 19
Approval of Shareholders............................... 20
United States Federal Income Tax Consequences.......... 20
MARKET AND DIVIDEND INFORMATION............................. 21
FINANCIAL INFORMATION....................................... 23
THE COMPANIES............................................... 23
Amway Asia Pacific..................................... 23
New AAP Limited........................................ 24
Directors and Officers................................. 25
THE AMALGAMATION............................................ 28
The Tender Offer and Amalgamation Agreement............ 28
Interests of Certain Persons........................... 28
Transactions and Agreements Concerning the Shares...... 29
Accounting Treatment of the Amalgamation............... 31
Regulatory Approvals................................... 31
Certain Effects of the Amalgamation.................... 32
Fees and Expenses...................................... 32
APPRAISAL RIGHTS IN THE AMALGAMATION........................ 32
OWNERSHIP OF SHARES......................................... 33
OTHER MATTERS............................................... 33
Legal Proceedings...................................... 33
Proxy Solicitations.................................... 34
ANNEX A FAIRNESS OPINION.................................... A-1
ANNEX B TENDER OFFER AND AMALGAMATION AGREEMENT............. B-1
ANNEX C APPRAISAL RIGHTS UNDER BERMUDA LAW.................. C-1
</TABLE>
i
<PAGE> 3
ENFORCEABILITY OF CIVIL LIABILITIES
New AAP and Amway Asia Pacific are Bermuda corporations. After the
amalgamation, substantially all the assets and operations of Amway Asia Pacific,
as the continuing amalgamated company, will continue to be located, and
substantially all of its revenues will continue to be derived, outside the
United States. New AAP and Amway Asia Pacific have appointed CT Corporation
System, New York, New York, as their agent to receive service of process with
respect to any action brought against them in any federal or state court in the
United States arising from the amalgamation of Amway Asia Pacific and New AAP.
However, it may not be possible for investors to enforce outside the United
States judgments against New AAP or Amway Asia Pacific obtained in the United
States in any of these actions, including actions predicated upon the civil
liability provisions of the United States federal and state securities laws. In
addition, after the amalgamation several directors and several officers of Amway
Asia Pacific, as the continuing amalgamated company, will not be United States
residents, and all or a substantial portion of the assets of such persons are or
may be located outside the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon these
persons, or to enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the United
States federal and state securities laws. New AAP and Amway Asia Pacific have
been advised by their Bermuda counsel, Conyers Dill & Pearman, that there is
uncertainty as to whether the courts of Bermuda would
- recognize judgments of United States courts obtained against Amway Asia
Pacific, New AAP or these persons predicated upon the civil liability
provisions of the United States federal or state securities laws; or
- enforce in original actions brought in Bermuda liabilities against Amway
Asia Pacific, New AAP or these persons predicated upon the United States
federal or state securities laws.
ii
<PAGE> 4
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PROXY STATEMENT
------------------------------------
SOLICITATION AND REVOCATION OF PROXIES
The board of directors of Amway Asia Pacific Ltd., a Bermuda corporation,
is soliciting proxies to be used at the Special General Meeting of Shareholders
of Amway Asia Pacific to be held on April 27, 2000 and any adjournments thereof.
Any holder of shares of common stock, par value U.S.$.01 per share, of
Amway Asia Pacific giving a proxy, has the power to revoke it prior to its
exercise by notice of revocation to the secretary of Amway Asia Pacific in
writing, by voting in person at the special meeting or by execution of a
subsequent proxy, provided that action is taken in sufficient time to permit the
necessary examination and tabulation of the subsequent proxy or revocation
before the vote is taken at the special meeting.
The presence at the special meeting, in person or by proxy, of the holders
of a majority of the outstanding shares will constitute a quorum for the
transaction of business at the special meeting. The tender offer and
amalgamation agreement, dated as of November 15, 1999, among Amway Asia Pacific,
New AAP Limited, a Bermuda corporation, and Apple Hold Co., L.P., a Bermuda
limited partnership and the parent of New AAP, and the amalgamation of Amway
Asia Pacific and New AAP, with Amway Asia Pacific continuing as the amalgamated
company as contemplated by the tender offer and amalgamation agreement, must be
approved by the holders of at least three-fourths of the shares represented at a
meeting at which a quorum is present. If any shareholder withholds authority to
vote for the tender offer and amalgamation agreement, then that shareholder's
shares will not be considered in determining the votes cast for the tender offer
and amalgamation agreement.
Employees of Amway Asia Pacific's affiliate, Amway Corporation, a Michigan
corporation, who participate in the Amway Corporation Profit Sharing and 401(k)
Plan, may vote shares of common stock equivalent to the value of the interest
credited to their account in the plan by instructing Fidelity Management Trust
Company, the trustee of the plan, pursuant to the voting direction form being
mailed with this proxy statement to plan participants. The trustee will vote the
shares of common stock in accordance with duly executed instructions received by
April 20, 2000. Each participant may revoke previously given voting instructions
by April 20, 2000 by filing with the trustee a written notice to that effect or
a duly executed voting direction form bearing a date subsequent to the date of
his or her previously delivered voting instruction form. The trustee will not
vote shares of common stock for which it has received no directions from plan
participants.
The expense of preparing, printing and mailing this proxy statement will be
borne by Amway Asia Pacific.
This proxy statement, the attached notice of special meeting and the
accompanying proxy card are being mailed to shareholders on or about March 30,
2000.
<PAGE> 5
SUMMARY OF MATERIAL TERMS AND
QUESTIONS AND ANSWERS ABOUT THE AMALGAMATION
Q: WHAT ARE THE MATERIAL TERMS OF THE AMALGAMATION? (SEE PAGE 28)
A: The following is a summary of the material terms of the amalgamation:
- Pursuant to the tender offer and amalgamation agreement, New AAP and
Amway Asia Pacific will amalgamate, with Amway Asia Pacific
continuing as the amalgamated company. For more information, see
"The Amalgamation."
- At the effective time of the amalgamation, each issued and
outstanding share of common stock of Amway Asia Pacific, other than
common stock held by New AAP, Apple Hold Co., the principal
shareholders or shareholders exercising their appraisal rights, will
be exchanged into the right to receive from the amalgamated company
$18.00 in cash and will automatically be canceled and retired and
will cease to exist.
- Shareholders who vote against the amalgamation and give notice to
the Supreme Court of Bermuda within one month after the date of this
proxy statement will be entitled to receive cash in an amount that
the court determines is the fair value of Amway Asia Pacific common
stock. For more information, see "Appraisal Rights" and Annex C.
- The effective time of the amalgamation is expected to be the end of
April 2000. For more information, see "The Amalgamation."
Q: WHAT IS NEW AAP?
A: New AAP is a Bermuda corporation and wholly owned subsidiary of Apple Hold
Co., L.P. Apple Hold Co. is a Bermuda limited partnership that is controlled by
the principal shareholders of Amway Asia Pacific. (See page 24)
Q: WHY ARE NEW AAP AND AMWAY ASIA PACIFIC PROPOSING TO AMALGAMATE?
A: The principal shareholders have decided to take Amway Asia Pacific private
by acquiring for $18.00 per share in cash all of the Amway Asia Pacific shares
owned by the public shareholders. The amalgamation is the second step in the
going private transaction. The first step was a tender offer by New AAP to
purchase all outstanding shares of Amway Asia Pacific common stock. The tender
offer was completed on December 17, 1999. As a result of the tender offer, the
principal shareholders of Amway Asia Pacific, indirectly through Apple Hold Co.,
beneficially own 97.4% of the shares of Amway Asia Pacific. Because the
principal shareholders, indirectly through Apple Hold Co., beneficially own
97.4% of the shares of Amway Asia Pacific and because Apple Hold Co. owns all of
the shares of New AAP, approval of the tender offer and amalgamation agreement
is assured. (See page 4)
Q: WHAT WILL AMWAY ASIA PACIFIC SHAREHOLDERS RECEIVE?
A: Upon completion of the amalgamation, Amway Asia Pacific shareholders will
receive $18.00 in cash in exchange for each share of Amway Asia Pacific common
stock. (See page 28)
Q: WHEN DO YOU EXPECT THE AMALGAMATION TO BE COMPLETED?
A: Currently, New AAP and Amway Asia Pacific expect to complete the
amalgamation by the end of April 2000. (See page 28)
Q: WHAT ARE THE EFFECTS OF THE AMALGAMATION?
A: Following completion of the amalgamation, the shares of Amway Asia Pacific
common stock will be delisted from the Australian Stock Exchange Limited and the
New York Stock Exchange and will be deregistered under the Securities Exchange
Act of 1934. (See page 32)
2
<PAGE> 6
Q: WHAT ACTION HAS THE BOARD OF DIRECTORS OF AMWAY ASIA PACIFIC TAKEN WITH
RESPECT TO THE AMALGAMATION?
A: On November 15, 1999, the board of directors of Amway Asia Pacific (with
Messrs. Richard M. DeVos, Jr., Douglas L. DeVos and Stephen A. Van Andel not
participating) unanimously (1) determined that the tender offer and amalgamation
are fair to, and in the best interests of, the public shareholders and (2)
approved the tender offer and amalgamation agreement. (See page 8)
Q: WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE
AMALGAMATION?
A: If you are a United States citizen or resident, the conversion of your
shares to cash will generally cause you to recognize a capital gain or loss
equal to the difference between the amount of cash received in the amalgamation
and your adjusted tax basis for the shares exchanged therefore. Under United
States federal income tax backup withholding rules, United States federal income
tax withholding of 31% may apply to you as described in this proxy statement. If
you are not a United States citizen or resident, the conversion of your shares
to cash should generally result in no United States tax consequences. (See page
20)
Q: WHAT WAS THE CLOSING SALES PRICE OF MY SHARES OF COMMON STOCK ON THE NEW
YORK STOCK EXCHANGE PRIOR TO THE ANNOUNCEMENT OF THESE TRANSACTIONS?
A: On November 12, 1999, the last full trading day prior to the public
announcement of the tender offer, the closing sales price of the common stock as
reported on the NYSE was $11.75 per share. On March 27, 2000, a recent
practicable date prior to the date of this proxy statement, the closing sales
price of the common stock as reported on the NYSE was $17.75 per share. (See
page 21)
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should continue to hold your stock certificates until Amway Asia
Pacific sends you a letter of transmittal. You will not receive this letter of
transmittal until after the special meeting has occurred. The letter of
transmittal will explain how to exchange your Amway Asia Pacific stock
certificates for cash. (See page 34)
Q: HOW DO I VOTE?
A: After you have carefully read this proxy statement, mail your signed proxy
card or voting instructions, as the case may be, as soon as possible so that
your shares will be represented and voted at the special meeting. You may also
vote in person at the Amway Asia Pacific special meeting. (See page 1)
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker how to
vote. Your broker should mail information to you that will explain how to give
voting instructions to your broker. Please provide instructions to your broker
on how to vote your shares. If you do not instruct your broker how to vote, your
shares will not be voted. If you do not vote or give instructions to your broker
to vote against the tender offer and amalgamation agreement, you may not
exercise your appraisal rights. (See page 1)
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED AND DATED PROXY CARD?
A: Yes. If you hold shares of Amway Asia Pacific common stock, you may revoke
your proxy by delivering a notice of revocation to the secretary of Amway Asia
Pacific before the special meeting or by execution of a subsequent proxy,
provided that action is taken in sufficient time to permit revocation before the
vote is taken. You may also revoke your proxy by voting in person at the special
meeting. (See page 1)
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have more questions about the amalgamation, you should contact:
Director of Investor Relations
Amway Asia Pacific Ltd.
1 (616) 787-8688
3
<PAGE> 7
OUTSTANDING STOCK AND VOTING RIGHTS
Shareholders of record as of the close of business on March 15, 2000 will
be entitled to vote at the special meeting. As of March 15, 2000 there were
outstanding 56,441,960 shares of common stock, $0.01 par value per share,
entitled to vote at the special meeting, with each share entitling the holder of
record on that date to one vote.
PROPOSAL: APPROVAL OF TENDER
OFFER AND AMALGAMATION AGREEMENT AND AMALGAMATION
Both the tender offer and the amalgamation are provided for in the tender
offer and amalgamation agreement. Under that agreement, New AAP agreed to
conduct a cash tender offer for all outstanding shares of common stock of Amway
Asia Pacific at $18.00 per share. Following the completion of the tender offer,
New AAP and Amway Asia Pacific agreed to amalgamate, with each public
shareholder of Amway Asia Pacific receiving $18.00 per share in cash. The tender
offer was completed on December 17, 1999. As a result of the tender offer, the
principal shareholders of Amway Asia Pacific, along with certain corporations,
trusts, foundations and other entities established by or for the benefit of the
principal shareholders and their respective families, indirectly through Apple
Hold Co., beneficially own 97.4% of the shares of Amway Asia Pacific common
stock. As a result of the amalgamation, the principal shareholders, indirectly
through Apple Hold Co., will own 100% of the shares of common stock.
A special committee, comprised of Eoghan M. McMillan, Jack C.K. So and John
C.C. Chan, each an independent, non-employee member of the board of directors of
Amway Asia Pacific, was formed for the purpose of evaluating the terms of the
tender offer and the amalgamation. On November 12, 1999, the special committee
unanimously (1) determined that the tender offer and amalgamation are fair to,
and in the best interests of, the holders of shares, other than shares owned by
the principal shareholders, indirectly through Apple Hold Co., and (2)
recommended that the board of directors of Amway Asia Pacific (with Messrs.
Richard M. DeVos, Jr., Douglas L. DeVos and Stephen A. Van Andel not
participating) approve the tender offer and amalgamation agreement.
On November 15, 1999, the disinterested directors of the board unanimously
(1) determined that the tender offer and amalgamation are fair to, and in the
best interests of, the public shareholders and (2) approved the tender offer and
amalgamation agreement.
THE DISINTERESTED DIRECTORS RECOMMEND A VOTE FOR THE APPROVAL OF THE TENDER
OFFER AND AMALGAMATION AGREEMENT AND THE AMALGAMATION CONTEMPLATED THEREBY.
SPECIAL FACTORS
BACKGROUND OF AND REASONS FOR THE AMALGAMATION
Over the last several years, a variety of alternatives have been considered
by the principal shareholders and Amway Asia Pacific management to increase
shareholder value, while at the same time enhance the operations, results and
business prospects of Amway Asia Pacific. Of particular focus was the relatively
illiquid and, at times, volatile market for the common stock. For example,
during the second half of 1996, Amway Asia Pacific considered a possible
secondary offering in an effort to improve liquidity and expand ownership of
shares of common stock by investors. After consideration of this proposal, Amway
Asia Pacific's board of directors, in January 1997, authorized Amway Asia
Pacific to conduct a secondary offering. After submission of a registration
statement to the Securities and Exchange Commission, Amway Asia Pacific's board
of directors decided to delay this secondary offering due to deterioration in
the market conditions. Following the delay of the proposed secondary offering,
Amway Asia Pacific authorized open market repurchases by Amway Asia Pacific of
shares of common stock valued up to $50 million in the hope that this action
would create value for shareholders.
Also considered was a realignment of Amway Asia Pacific with other Amway
Corporation affiliates either by means of the combination of Amway Asia Pacific
with other Amway markets or the acquisition by Amway Asia Pacific of other Amway
affiliates in the region. In particular, beginning in April 1997, Amway Asia
Pacific,
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representatives of Amway and financial and legal advisors reviewed the
possibility of forming a holding company that would own both Amway Japan
Limited, a Japanese corporation and a publicly held affiliate of Amway, and
Amway Asia Pacific. In January 1998, there was a discussion regarding the
possible creation of a holding company to acquire both Amway Asia Pacific and
Amway Japan at a meeting of Amway Asia Pacific's board of directors. Following a
presentation in April 1998 by financial advisors regarding a proposed holding
company structure, this alternative was rejected as not feasible because of
certain legal, structural and tax issues and accounting concerns.
Starting in June of 1997, the Asian currency crisis impacted a number of
Amway Asia Pacific's markets, particularly Malaysia, Thailand and Taiwan and to
a lesser extent Australia and New Zealand. This crisis exacerbated the concerns
regarding share value, market volatility and lack of liquidity for shareholders.
In March of 1998, representatives of Amway Asia Pacific and Amway, as well as
legal, tax and financial advisors, met to discuss alternatives to address share
value, market volatility, lack of liquidity and Amway Asia Pacific's operating
results. In order to address operating results, Amway Asia Pacific adopted more
stringent cost cutting programs, as well as an expansion of local sourcing
opportunities. Further, compounding the market volatility and adversely
affecting operating results was the ban in China on direct selling in the spring
of 1998. Following the discussions in March of 1998, an alternative that was
considered was whether shareholder value might be best served by taking Amway
Asia Pacific private. As a private company, Amway Asia Pacific would have
greater flexibility to invest in its future, realign the business relationship
with Amway and other Amway affiliates and allow senior management of Amway and
Amway Asia Pacific to focus on the long-term interests of Amway Asia Pacific
without concern for the impact that any action might have on operating results
or share price in the short-term. In addition, a going private transaction would
minimize the impact of the legal, structural and tax issues and accounting
concerns associated with the transactions previously considered as well as
reduce costs through the elimination of public company status.
Throughout 1998, senior executives of Amway Asia Pacific and Amway, along
with their financial, legal, tax and accounting advisors worked on various
aspects of a potential going private transaction focusing, in particular, on
legal, structural, tax, accounting and other regulatory issues. During the
second calendar quarter of 1998, representatives of Amway and Morgan Stanley &
Co. Incorporated had discussions regarding the financing of the transaction.
These earlier efforts did not result in any specific proposal or range of
proposals being made to Amway Asia Pacific by or on behalf of the principal
shareholders, Amway or any other controlled company. From August through October
1998, representatives of Amway on behalf of the principal shareholders and its
legal and financial advisors began to have discussions with J.P. Morgan
Securities Inc. regarding various financing options for a going private
transaction. A decision was made not to proceed at that time.
In July and August of 1999, senior executives of Amway and Morgan Stanley
prepared a strategic and financial analysis of a proposed going private
transaction as a part of a broad based realignment of entities controlled by the
principal shareholders, including Amway, Amway Japan and Amway Asia Pacific. The
proposed transaction was presented to the principal shareholders on August 11
and August 20. Following these meetings, the principal shareholders instructed
senior executives of Amway to continue to analyze going private transactions
involving Amway Japan and Amway Asia Pacific. In addition, Morgan Stanley and
J.P. Morgan were retained following these meetings by the principal shareholders
to advise them on, and to explore opportunities for, a potential transaction and
financing alternatives for this transaction.
On behalf of the principal shareholders, senior executives of Amway, Morgan
Stanley, J.P. Morgan, Jones Day, Reavis & Pogue as legal advisors, and White &
Case LLP as tax advisors, met in Chicago on September 2, 1999, to discuss
various aspects of a potential transaction, including financing, structures, due
diligence and other issues.
On September 10, 1999, senior executives of Amway met with the independent
members of the board of directors of Amway Asia Pacific to discuss a potential
going private transaction. At this meeting, the participants discussed, among
other things, the rationale for the transaction, the desirability of
establishing a special committee of independent directors of Amway Asia Pacific
to consider the transaction, the need for independent legal and financial
advisors and other business issues.
Senior executives of Amway and their legal and financial advisors,
including Morgan Stanley, J.P. Morgan, Jones Day and White & Case, met in Tokyo
the week of September 13, 1999 to conduct due diligence, to review
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a broad range of issues involved in a going private transaction, including
legal, tax, accounting, regulatory and financing, and to discuss process issues.
In addition, these representatives had telephone conferences with certain other
senior executives of Amway Asia Pacific. Amway Asia Pacific's five-year
financial projections were shared with the financial advisors at this time.
The principal shareholders met on September 21, 1999, in Ada, Michigan to
review the status of a potential transaction with their financial advisors. At
this meeting, Morgan Stanley and J.P. Morgan reviewed preliminary financial and
strategic conclusions. Based on a discounted cash flow analysis, a review of
comparable companies and precedent transactions, and a trading analysis, Morgan
Stanley and J.P. Morgan discussed with the principal shareholders and senior
executives of Amway possible financial terms of a going private transaction.
Following this meeting, the principal shareholders concluded that a going
private transaction was the best way to enhance shareholder value and to
implement the various changes believed necessary to effect a long term
improvement in the operating results of Amway and all of its affiliates,
including Amway Asia Pacific. As a result, the principal shareholders instructed
senior executives of Amway and their advisors to continue working towards a
potential going private transaction.
On September 29, 1999, a representative of Amway and Eoghan McMillan, a
director of Amway Asia Pacific and proposed chairman of the special committee
(as described below), had a telephone conversation regarding the decision of the
principal shareholders to proceed with the transactions and discussed with Mr.
McMillan the retention of independent legal and financial advisers for the
special committee. Following these discussions, Amway Asia Pacific and New AAP
executed a confidentiality agreement related to the going private transaction.
On October 2, 1999, the board of directors of Amway Asia Pacific formed the
special committee, comprised of Eoghan M. McMillan, Jack C.K. So and John C.C.
Chan, each an independent, non-employee member of the board of directors of
Amway Asia Pacific. The special committee was formed for the purpose of
evaluating the terms of any proposed going private transaction and was empowered
to review, evaluate and, if deemed appropriate, negotiate on behalf of Amway
Asia Pacific the terms of a possible transaction and to report its actions and
conclusions to the board of directors. The special committee further was
authorized to retain independent legal and financial advisors in connection with
the performance of its mandate.
During the week of October 4, 1999, Mr. McMillan contacted Goldman, Sachs &
Co. and Cleary, Gottlieb, Steen & Hamilton to discuss retention of these firms
by Amway Asia Pacific to assist the special committee in analyzing the proposed
transaction. Goldman Sachs met with the special committee, Mr. McMillan and
senior executives of Amway Asia Pacific during the week of October 11 to conduct
financial due diligence.
In September and October 1999, senior executives of Amway, in consultation
with the principal shareholders' tax and legal advisors, addressed structural
issues and the terms of the proposed loans to New AAP to fund a cash tender
offer by New AAP to purchase all the outstanding shares of Amway Asia Pacific's
common stock.
On October 13, 1999, representatives of the principal shareholders
delivered to Mr. McMillan a written proposal informing Amway Asia Pacific that
the principal shareholders were interested in discussing a transaction to
acquire all the publicly traded shares of Amway Asia Pacific. This written
proposal indicated that the principal shareholders would propose to purchase the
shares of Amway Asia Pacific common stock for $15.50 per share.
On October 15, 1999, the special committee met with representatives of
Goldman Sachs, Cleary and Conyers Dill & Pearman, Bermuda counsel to Amway Asia
Pacific, to discuss their duties under applicable law with respect to the
proposal and appropriate procedures for responding to it.
On October 20, 1999, the special committee met, together with
representatives of Goldman Sachs, Cleary and Conyers Dill. At this meeting,
representatives of Goldman Sachs summarized the results of their due diligence
review and presented certain preliminary analyses they had performed with
respect to Amway Asia Pacific and the shares of Amway Asia Pacific common stock.
Later the same day, a representative of Goldman Sachs communicated to a
representative of Morgan Stanley that at that time and based on preliminary
analysis, the special committee was continuing to review the proposal and were
not prepared to provide a response to the proposal. Goldman Sachs reported to
Morgan Stanley that the special committee wanted more time to consider the
proposal in order, among other things, to allow Amway Asia Pacific to review
with the special committee projections of Amway Asia Pacific's future financial
results. Following the discussion with Goldman Sachs,
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Morgan Stanley consulted with the representatives of the principal shareholders
and their advisors and management of Amway Asia Pacific had discussions with Mr.
McMillan and Goldman Sachs regarding the projections.
On October 22, 1999, the special committee met by teleconference with
representatives of Goldman Sachs and Cleary. Goldman Sachs reported on its
conversation with Morgan Stanley and reviewed certain further preliminary
analyses they had performed taking into account certain information received
during conversations with the special committee and representatives of Amway.
On October 27, 1999, advisers to the principal shareholders, senior
executives of Amway, Jones Day and White & Case met in Washington, D.C. to
address structural, tax, accounting and regulatory issues relating to the
proposed transaction. Among the structural issues discussed during this meeting
and in follow-up discussions was the desirability of a voting and shareholder
agreement among the principal shareholders relating to the amalgamation of Amway
Asia Pacific and New AAP.
On October 27, 1999, the special committee met via teleconference, together
with representatives of Goldman Sachs and Cleary. Goldman Sachs reviewed its
preliminary valuation and financial analyses. After discussing these analyses,
the special committee directed Goldman Sachs to inform the principal
shareholders that the special committee would be prepared to consider a revised
offer price of $18.00 per share.
On October 28, 1999, representatives of Goldman Sachs delivered to
representatives of Morgan Stanley the special committee's response to the
proposal, indicating the special committee was initially willing to consider the
proposal if the principal shareholders would consider a purchase price of $18.00
per share. Morgan Stanley consulted with representatives of the principal
shareholders and their advisers in order to prepare a response to the special
committee's reply.
While negotiations regarding the offer price continued, the representatives
of the principal shareholders and the special committee and their respective
advisors negotiated and finalized the terms of the tender offer and amalgamation
agreement.
On November 11, 1999, the principal shareholders delivered to Mr. McMillan
a written offer meeting the $18.00 per share price proposed by the special
committee on October 28, 1999. The written offer was conditioned upon acceptance
by the disinterested directors of the board of directors of Amway Japan of an
offer proposal made to it by the principal shareholders on the same day.
On November 12, 1999, the special committee met via teleconference to
discuss the revised proposal, together with representatives of Goldman Sachs,
Cleary and Conyers Dill. Based upon the financial and valuation analyses which
Goldman Sachs had performed with respect to the proposal and previously
presented to the special committee, Goldman Sachs expressed an oral opinion as
of the date of the meeting that the $18.00 in cash proposed to be received by
the public shareholders in the tender offer and the amalgamation or an
alternative transaction pursuant to the amalgamation agreement, is fair from a
financial point of view to the holders. See " -- Opinion of Financial Advisor to
the Special Committee." Following discussion, the special committee then adopted
a resolution stating that the special committee had determined that the tender
offer and the amalgamation are fair to and in the best interests of the public
shareholders, and further resolved to recommend to the board of directors that
it approve the tender offer and amalgamation agreement and recommend that the
public shareholders accept the tender offer and tender their shares in response
to the offer. Goldman Sachs delivered its written opinion dated November 15,
1999 confirming its oral opinion.
Immediately following the November 12, 1999 special committee meeting, the
board of directors of Amway Asia Pacific (without the participation of Messrs.
Richard M. DeVos, Jr., Douglas L. DeVos and Stephen A. Van Andel), held a
meeting via teleconference, together with representatives of Goldman Sachs,
Cleary and Conyers Dill. Mr. McMillan described the background of the written
offer to the other disinterested directors and reported on the special
committee's recommendation with regard to the written offer. Following this
report, representatives of Cleary reviewed the terms of the tender offer and
amalgamation agreement submitted with the written offer leading to the proposal,
representatives of Conyers Dill reviewed the legal standards applicable to their
deliberations under Bermuda law and representatives of Goldman Sachs presented
the financial and valuation analyses which they had performed with respect to
the written offer and informed the disinterested directors that
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it had given its oral fairness opinion to the special committee. The meeting of
the board of directors was then adjourned and reconvened on November 15, 1999.
At the reconvened meeting in Hong Kong on November 15, 1999 at 6:30 a.m.
(Hong Kong time), after further discussion, the disinterested directors
unanimously determined that the tender offer and amalgamation are fair to and,
in the best interest, of the public shareholders, approved the tender offer and
amalgamation agreement and resolved to recommend that the public shareholders
accept the offer and tender their shares in response to the offer. See "--
Recommendation of the Special Committee and the Disinterested Directors and
Reasons for the Recommendation" for a description of certain of the material
factors considered by the disinterested directors in connection with their
recommendation.
On November 15, 1999, Amway Asia Pacific, New AAP and Apple Hold Co.
entered into a tender offer and amalgamation agreement providing for the
proposed cash tender offer, to be followed by the amalgamation or an alternative
transaction in which public shareholders would receive $18.00 per share in cash.
On November 18, 1999, New AAP commenced the tender offer. The purchase
price for each share of common stock purchased in the offer was $18.00 in cash.
The tender offer expired at 12:00 midnight, New York City time, on December 17,
1999.
New AAP purchased in the tender offer an aggregate of 8,181,756 shares of
common stock, including 1,128,580 shares from charitable foundations established
by certain of the principal shareholders. Prior to the consummation of the
tender offer, the principal shareholders, other than the charitable foundations
that tendered their shares pursuant to the tender offer, contributed 46,814,950
shares to Apple Hold Co. As a result of the tender offer, the principal
shareholders, as limited partners of Apple Hold Co. indirectly beneficially own
97.4% of the shares.
The total amount of funds required to purchase all 8,181,756 shares and pay
estimated related fees and expenses was approximately $168,900,000. All of those
funds were borrowed from Morgan Guaranty Trust Company of New York, Tokyo Branch
and other banks and financial institutions under an unsecured term loan credit
agreement dated as of December 10, 1999 among New AAP, certain of New AAP's
affiliates, Morgan Guaranty and other banks and financial institutions.
The tender offer was the first step in the going private transaction by
Amway Asia Pacific. The amalgamation is the second step. In order to approve the
tender offer and amalgamation agreement, the holders of at least three-fourths
of the shares represented at a meeting of shareholders of Amway Asia Pacific at
which a majority of the outstanding shares are present in person or by proxy
must vote in favor of the tender offer and amalgamation agreement. Because the
principal shareholders, indirectly through Apple Hold Co., hold more than
three-fourths of the outstanding shares of Amway Asia Pacific and Apple Hold Co.
owns all of the shares of New AAP, approval of the tender offer and amalgamation
agreement by the shareholders of Amway Asia Pacific and the sole shareholder of
New AAP is assured.
At a meeting on February 21, 2000, the board of directors of Amway Asia
Pacific set the record date for the special general meeting of shareholders.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE DISINTERESTED DIRECTORS
As described below, the special committee unanimously (1) determined that
the tender offer and amalgamation are fair to, and in the best interests of, the
public shareholders and (2) recommended to the disinterested directors that they
approve the tender offer and amalgamation agreement.
The disinterested directors have unanimously (1) determined that the tender
offer and amalgamation are fair to, and in the best interests of, the public
shareholders and (2) approved the tender offer and amalgamation agreement.
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REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE DISINTERESTED
DIRECTORS
The special committee considered the following material factors, among
others, in connection with making its determinations and recommendations:
- The opinion of Goldman Sachs, the independent financial advisor to the
special committee, that, as of November 15, 1999, the purchase price in
cash to be received by the public shareholders in the tender offer and
the amalgamation or the compulsory purchase of the remaining shares
pursuant to Section 103 of the Bermuda Companies Act of 1981 contemplated
by the tender offer and amalgamation agreement is fair from a financial
point of view to the holders and the financial and valuation analyses
presented by Goldman Sachs to the special committee in connection with
its opinion. The public shareholders are urged to read Goldman Sachs'
opinion in its entirety, which is attached as Annex A to this proxy
statement.
- The then current and historical market prices for the shares and the fact
that the $18.00 per share in cash represented a premium of approximately
53.2% over the per share closing price of the shares on November 12,
1999, the last trading day prior to the public announcement of execution
of the tender offer and amalgamation agreement and approximately 67.2%
over the average price of the shares over the 52-week period prior to
November 12, 1999. The special committee also noted that $18.00 per share
represents a multiple of 39.2x 1999 EBIT and 81.4x 1999 net income.
- The relatively low trading volume of the shares and the fact that the
public float for the shares prior to the tender offer consisted of only
approximately 15% of the outstanding shares. The special committee
considered the uncertainty, in the absence of the tender offer, that the
public shareholders would have the opportunity in the foreseeable future
to sell their shares in the open market for prices equal to or in excess
of $18.00 per share.
- The principal shareholders' stated unwillingness to sell their shares to
a third party, as well as the commercial relationships between Amway Asia
Pacific and Amway, factors effectively precluding a sale of control of
Amway Asia Pacific or another transaction that might be more favorable to
Amway Asia Pacific and the public shareholders. In view of these factors,
the special committee and Goldman Sachs were not authorized to, and did
not, solicit, nor did Amway Asia Pacific receive, third party indications
of interest to acquire Amway Asia Pacific as a whole or any of its
businesses, nor did they give any significant consideration to
theoretical prices which a hypothetical third party purchaser might be
willing to pay to acquire Amway Asia Pacific.
- The commercial relationships between Amway Asia Pacific and Amway and the
value to the principal shareholders of consummating the tender offer and
the amalgamation, including greater flexibility to invest in Amway Asia
Pacific, to realign Amway Asia Pacific's business relationship with Amway
and to allow senior management of Amway and Amway Asia Pacific to focus
on long-term interests without the short-term influence of the equity
markets.
- The recent and historical results of operations and financial condition
and the business strategy and prospects of Amway Asia Pacific and recent
and historical economic, political and other developments in the direct
distribution industry and in the countries in which Amway Asia Pacific
conducts its business. In particular, with respect to Amway Asia
Pacific's business prospects, the special committee considered Amway Asia
Pacific's potential for expansion into new and within existing markets,
especially China, and the opportunities and risks associated with those
markets. The special committee also considered the volatility of Amway
Asia Pacific's financial results in recent periods related to its
dependence on Asian regional markets.
- The fact that consummation of the transaction will preclude the public
shareholders from participating in any future growth of Amway Asia
Pacific. In the view of the special committee, however, this loss of
opportunity is adequately reflected in the purchase price of $18.00 per
share.
- The negotiations between the special committee and its representatives
and the principal shareholders and their representatives, including that
the negotiations that resulted in (1) an increase from the initial
proposed price of $15.50 per share at which New AAP was prepared to
acquire the shares, to $18.00 per share and (2) the special committee's
belief, confirmed by Goldman Sachs in their discussions with
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Morgan Stanley, that the $18.00 per share price was the highest price that
could likely be obtained from the principal shareholders under the
circumstances.
- The terms and conditions of the tender offer and amalgamation agreement
and the structure of the transaction generally, including that (1) the
transaction includes a first-step cash tender offer, enabling public
shareholders who accepted the tender offer to liquidate their investment
in Amway Asia Pacific without waiting for the amalgamation to be
consummated, (2) public shareholders who did not tender their shares
pursuant to the tender offer will receive in the amalgamation the same
cash price per share paid by New AAP in the tender offer (unless they
elect to exercise appraisal rights under Bermuda law), (3) the tender
offer and the amalgamation are not subject to any significant conditions
and in particular that there is no financing condition attached to either
the tender offer or the amalgamation and (4) without the consent of the
special committee, New AAP may not reduce the $18.00 per share in cash,
impose additional conditions to the tender offer or amend or modify any
other term of the tender offer in a manner adverse to the holders of the
shares.
- The availability of appraisal rights under Bermuda law pursuant to which
public shareholders who did not accept the tender offer and properly
dissent from the amalgamation may have the fair value of their shares
judicially determined.
In reaching their determinations referred to above, the disinterested
directors considered the following factors, each of which, in the view of the
disinterested directors, supported their determinations: (1) the recommendations
of the special committee; (2) the factors referred to above considered by the
special committee; and (3) the fact that the purchase price of $18.00 per share
in cash and the terms and conditions of the tender offer and amalgamation
agreement were the result of negotiations among the special committee and the
principal shareholders and their respective advisors.
The disinterested directors, including the members of the special
committee, also believe that the tender offer and the amalgamation are
procedurally fair because, among other things: (1) the special committee
consisted of three independent directors who are not employees of Amway Asia
Pacific or affiliated with the principal shareholders and were appointed by the
directors to represent the interests of the public shareholders; (2) the special
committee retained and received advice from independent legal counsel; and (3)
the special committee retained an independent financial advisor, Goldman Sachs,
and received financial advice and assistance from Goldman Sachs in evaluating
and negotiating a potential transaction with New AAP, as well as an opinion from
Goldman Sachs.
The disinterested directors and the special committee recognized that
neither the tender offer nor the amalgamation was structured to require the
approval of a majority of the shareholders of Amway Asia Pacific, excluding the
principal shareholders and that the principal shareholders currently have
sufficient voting power to approve the amalgamation without the affirmative vote
of any other shareholders of Amway Asia Pacific.
The foregoing discussion of the information and factors considered by the
special committee and the disinterested directors, respectively, is not meant to
be exhaustive, but includes the material factors considered by each body in
reaching its conclusions and recommendations. In view of the variety of factors
considered in reaching their determinations, neither the special committee nor
the disinterested directors found it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
their respective conclusions and recommendations. In addition, individual
members of each body may have given different weights to different factors.
The opinions, views, beliefs and recommendations of the disinterested
directors, including members of the special committee, and of their advisors and
other individuals that made statements to them, do not purport to be the only
possible views on the tender offer and the amalgamation and no one view is
presented here as objectively correct. Except for the recommendation made by the
disinterested directors, no person or entity, including the legal or financial
advisors to the special committee, is making any recommendation to the public
shareholders as to whether they should vote to approve the tender offer and
amalgamation agreement. Although the disinterested directors have made a
recommendation, the adequacy, fairness and acceptability of the tender offer is
for each public shareholder to decide. Consequently, the disinterested directors
strongly urge the public shareholders to consider all available information.
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The special committee was not asked to consider and did not consider any
matters that may have arisen subsequent to November 12, 1999 in making its
recommendation to the disinterested directors.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Goldman Sachs acted as financial advisor to the special committee. On
November 12, 1999, Goldman Sachs delivered to the special committee its oral
opinion, subsequently confirmed in writing as of November 15, 1999, that as of
those respective dates the purchase price of $18.00 per share in cash to be
received by the public shareholders in the tender offer and the amalgamation or
compulsory purchase of remaining shares under Section 103 of the Bermuda
Companies Act of 1981 as contemplated by the tender offer and amalgamation
agreement is fair from a financial point of view to the holders.
THE FULL TEXT OF THE GOLDMAN SACHS OPINION, DATED AS OF NOVEMBER 15, 1999,
WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS
CONSIDERED IN, AND THE LIMITATIONS ON, THE REVIEW UNDERTAKEN IN CONNECTION WITH
ITS OPINION, IS ATTACHED HERETO AS ANNEX A. The Goldman Sachs opinion was
provided for the information and assistance of the special committee in
connection with its consideration of the tender offer and the transactions
contemplated by the tender offer and amalgamation agreement. It is does not
constitute a recommendation to you as to whether or not you should vote in
respect of the tender offer and amalgamation agreement and the amalgamation
contemplated thereby. The summary of the Goldman Sachs opinion below is
qualified by its full text. You should read the Goldman Sachs opinion in its
entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things:
the tender offer and amalgamation agreement; Annual Reports to Shareholders and
Annual Reports on Form 20-F of Amway Asia Pacific for the five fiscal years
ended August 31, 1998; certain interim reports to shareholders and Quarterly
Reports on Form 6-K of Amway Asia Pacific; certain other communications from
Amway Asia Pacific to its shareholders; and certain internal financial analyses
and forecasts for Amway Asia Pacific prepared by its management. Goldman Sachs
also held discussions with members of the senior management of Amway Asia
Pacific regarding its past and current business operations, financial condition
and future prospects. In addition, Goldman Sachs reviewed the reported price and
trading activity for the shares, compared certain financial and stock market
information for Amway Asia Pacific with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations and performed other studies and
analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed with the consent of the special committee that the internal
financial forecasts prepared by the management of Amway Asia Pacific were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of Amway Asia Pacific. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Amway Asia
Pacific or any of its subsidiaries and Goldman Sachs was not furnished with any
evaluation or appraisal. Goldman Sachs noted that the principal shareholders own
a majority of the shares, and that the principal shareholders informed Goldman
Sachs and the special committee that the principal shareholders would not sell
their shares to any third party. Accordingly, Goldman Sachs was not requested to
solicit, and did not solicit, interest from other parties with respect to an
acquisition of or other business combination with Amway Asia Pacific. Goldman
Sachs' opinion, as well as its analyses summarized below, reflect only the
financial data and other information that was available to Goldman Sachs as of
November 15, 1999, and have not been updated to reflect any subsequent
developments or data.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the special
committee. Some of the summaries of the financial analyses include information
presented in tabular format. The tables must be read together with the text
accompanying each summary.
Review of Summary Financial Information. Goldman Sachs reviewed certain
historical financial information for Amway Asia Pacific for the years ended
August 31, 1994 through 1999, and estimates prepared by Amway Asia Pacific's
management, in conjunction with the SEC Reporting and Investor Relations Group
of Amway, of Amway Asia Pacific's financial performance for the years ended
August 31, 2000 through 2004.
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Historical Stock Price Performance. Goldman Sachs reviewed the historical
closing stock prices and trading volume of the shares for the period December
15, 1993 (the date of Amway Asia Pacific's initial public offering) through
October 29, 1999, and for the three-year, one-year and six-month periods ended
October 29, 1999. Goldman Sachs observed that the closing stock prices for
shares have declined gradually from a high of $49.50 on January 21, 1997 to an
historic low of $7.125 on April 22, 1999. Over the one-year period ending
October 29, 1999 the shares traded between a high of $14.375 on July 26, 1999
and a low of $7.125 on April 22, 1999. Goldman Sachs also reviewed the indexed
stock price of the shares against a composite of two selected comparable public
companies in Asia, a composite of six selected comparable public companies in
the United States, and a composite of five selected comparable public companies
in Japan.
Future Trading Range Analysis. Assuming a range of forward price to
earnings ratios (20-30x) in four years' time and Amway Asia Pacific's estimated
2004 earnings per share, Goldman Sachs calculated a range of potential future
stock prices for Amway Asia Pacific in November 2003. Assuming required annual
returns to equity investors of 10% to 14% (assuming 2% in annual dividend yield
with the remainder consisting of annual share price appreciation), Goldman Sachs
calculated the present value of these potential future stock prices. The
analysis indicated a range of $8.40 to $14.57 per share. Goldman Sachs also
observed that, if an investor were to invest in the shares today at $18.00 per
share, and exited the investment in November 2003 at today's forward price to
earnings ratio (25x on Amway Asia Pacific's estimated 2000 earnings per share)
as applied to Amway Asia Pacific's current estimated 2004 earnings per share,
the annual return to the investor would be approximately (0.1)% over the next
four-year period. In addition, Goldman Sachs also observed that if an investor
were to invest in the shares today at $18.00 per share, either Amway Asia
Pacific's forward price earnings ratio or its estimated 2004 earnings per share
at time of exit in November 2003 must be greater by approximately 60% than
current levels for the investor to obtain an annual return of 12% (assuming 2%
annual dividend yield) over the next four-year period.
Historical Public Market Valuation Performance. Based on historical prices
and reported EBIT and net debt, Goldman Sachs observed the market's valuation of
Amway Asia Pacific, as defined by enterprise value as a multiple of last fiscal
year EBIT, to have a mean of 14.8x over the last 5 years. Similarly, Goldman
Sachs observed the historical equity multiple of International Broker Estimate
System's projected one-year forward EPS to have a mean of 23.9x over the same
period. Amway Asia Pacific's historical dividend yield reflected a mean of 3.4%
over the same period.
Transaction Premiums. Goldman Sachs observed that, based on the proposed
price per share of Amway Asia Pacific common stock of $18.00, the following
premiums were applicable as of November 10, 1999:
<TABLE>
<CAPTION>
PERIOD TRANSACTION PREMIUM
------ -------------------
<S> <C>
November 10 market price................................... 55.7%
52-Week Average............................................ 67.2%
52-Week High............................................... 24.7%
52-Week Low................................................ 152.6%
All-Time High.............................................. (63.6)%
</TABLE>
Goldman Sachs compared the premium over the November 10, 1999 closing price
with premiums paid in selected tender offers in Japan, Asia and the United
States, and selected minority buyouts in the United States (measured as premium
over closing price one day prior to announcement). Mean premiums paid in recent
Asia tender offers were 23.0% (median 18.2%) for transactions including
Australia and New Zealand, which accounted for 75.6% of total Asia deals, and
8.6% (median 6.1%), excluding Australia and New Zealand. Premiums paid in recent
Japanese transactions ranged from a high of 95.2% to a low of 3.3%, with a mean
of 30.2% and a median of 18.5%. Mean premiums paid in recent United States
tender offers and selected minority buyout transactions were 29.2% (median
33.5%) and 26.0% (median 21.4%), respectively. Additionally, in the case of
minority buyout offers which were increased subsequent to the initial offer, the
mean increase was 10.9% (median 8.5%).
12
<PAGE> 16
Discounted Cash Flow Analysis. Based on estimates provided by Amway Asia
Pacific management, Goldman Sachs performed a discounted cash flow analysis for
the years ended August 31, 2000 to 2004. Using a range of discount rates of 10%
to 14%, based on an estimated cost of capital for Amway Asia Pacific, and a
range of terminal multiples of 2004 EBIT of 10x to 20x, Goldman Sachs calculated
a range of net present values of estimated future cash flows of Amway Asia
Pacific as of November 30, 1999. Based on these parameters, Goldman Sachs
calculated the enterprise value of Amway Asia Pacific to range from $368 million
to $806 million and its equity value per share to range from $8.36 to $16.12.
Comparison of Selected Companies. Goldman Sachs reviewed and compared
certain financial information relating to Amway Asia Pacific to corresponding
financial information, ratios and public market multiples of the fifteen
comparable public companies (eight in the United States, two in Asia and five in
Japan): Amway Japan Limited, Avon Products, Inc., Nu Skin Enterprises, Inc.,
Tupperware Corporation, Thomas Nelson, Inc., Herbalife International, Inc.,
Rexall Sundown, Inc., Nature's Sunshine Products, Inc., USANA, Inc., Cosway
Corporation Berhad, Amway (Malaysia) Holdings Berhad, Avon Products Co., Ivy
Cosmetics Corporation, Noevir and Shaklee Japan. Among other analyses, for each
of the comparison companies, Goldman Sachs calculated the ratio of their
enterprise value as of November 10, 1999 to their respective revenues, EBITDA
and EBIT during the most recent 12-month period and the ratios of their stock
prices as of November 10, 1999 to projected earnings per share for years 2000
and 2001. Results of those analyses are summarized as follows:
ENTERPRISE VALUE MULTIPLES
<TABLE>
<CAPTION>
REVENUES EBITDA EBIT
-------- ------ ----
<S> <C> <C> <C>
Amway Asia Pacific.......................................... 1.1x 13.9x 20.7x
U.S. Comparables:
Low....................................................... 0.2x 1.8x 2.3x
High...................................................... 1.5 11.3 12.7
Mean...................................................... 0.8 5.6 7.1
Median.................................................... 0.8 5.6 6.5
Asia Comparables:
Low....................................................... 1.1x 14.3x 21.0x
High...................................................... 2.9 20.7 21.6
Mean...................................................... 2.0 17.5 21.3
Median.................................................... 2.0 17.5 21.3
Japan Comparables:
Low....................................................... 0.5x 3.0x 3.6x
High...................................................... 1.5 11.5 26.4
Mean...................................................... 0.8 8.1 13.0
Median.................................................... 0.7 10.1 10.7
</TABLE>
P/E MULTIPLES*
<TABLE>
<CAPTION>
2000E 2001E
----- -----
<S> <C> <C>
Amway Asia Pacific:......................................... 46.3x 17.8x
U.S. Comparables:
Low....................................................... 6.5x 1.5x
High...................................................... 15.5 12.6
Mean...................................................... 10.1 7.7
Median.................................................... 10.1 8.2
</TABLE>
13
<PAGE> 17
<TABLE>
<CAPTION>
2000E 2001E
----- -----
<S> <C> <C>
Asia Comparables:
Low....................................................... 19.2x 15.9x
High...................................................... 19.2 15.9
Mean...................................................... 19.2 15.9
Median.................................................... 19.2 15.9
Japan Comparables:
Low....................................................... 8.7x 15.3x
High...................................................... 32.5 15.3
Mean...................................................... 23.4 15.3
Median.................................................... 29.1 15.3
</TABLE>
- ---------------
* Fiscal year-end except for United States companies, for which data has been
calendarized.
Goldman Sachs' comparative analysis also included a comparison of
International Broker Estimate System's estimated five-year earnings per share
rates, and comparisons of historical annual sales growth, EBIT margins for the
most recent 12-month period and return on common equity. The results of the
analyses are summarized as follows:
- The International Broker Estimate System's estimated five-year projected
earnings per share growth for the comparison companies ranged from 2.0%
to 20.0%, with a median of 13.3% and mean of 11.5%, compared to 17.5% for
Amway Asia Pacific.
- Historical annual sales growth for the comparison companies ranged from
(4.8)% to 99.3%, with a mean of 18.3% and median 9.4%, compared to (3.9)%
for Amway Asia Pacific.
- EBIT margins for the comparison companies ranged from 1.8% to 17.5%, with
a mean of 11.0% and a median of 11.9%, compared to 5.2% for Amway Asia
Pacific, down from a peak of 18.8% in 1993.
- Return on common equity for the comparison companies ranged from (0.3)%
to 55.6%, with a mean of 19.1% and median of 17.8%, compared to 8.5% for
Amway Asia Pacific.
Comparison of Selected Transactions. Goldman Sachs reviewed certain
publicly available information relating to three selected transactions in the
direct sales industry from 1992 to 1999. The premiums over the market price (one
day prior to announcement) in the transactions were 39%, 28% and 19.1%,
respectively, compared to 55.7% for Amway Asia Pacific (premium over November
10, 1999 closing price). Ratio of offer price to the 52-week high ranged from
(41)% to (0)% and to 52-week low from 127% to 60%, compared to 24.7% and 152.6%
for Amway Asia Pacific. Enterprise value as a multiple of last 12-month sales,
EBIT and net income for each transaction, and comparable figures for Amway Asia
Pacific, are as follows:
<TABLE>
<CAPTION>
AMWAY
TRANSACTION A TRANSACTION B TRANSACTION C ASIA PACIFIC
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
EV Multiple of Sales.................... 0.2x 1.2x 1.1x 2.1x
EV Multiple of EBIT..................... 5.0 9.6 12.9 39.2
EV Multiple of Net Income............... 10.7 15.8 24.7 81.4
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Goldman Sachs opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of each of these analyses in their totality
and did not attribute any particular weight to any analysis or factor considered
by it; rather Goldman Sachs made its determination as to fairness on the basis
of its experience and professional judgment, after considering the results of
all these analyses. No company or transaction used in the above analyses as a
comparison is directly comparable to Amway Asia Pacific, the tender offer by New
AAP or the amalgamation. The analyses were prepared solely for the purpose of
Goldman Sachs' providing its opinion to the
14
<PAGE> 18
special committee as to the fairness from a financial point of view of the
purchase price of $18.00 per share in cash to be received by the public
shareholders in the tender offer and the amalgamation as contemplated by the
tender offer and amalgamation agreement and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by those analyses. Because the analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their advisors, neither the special committee nor
Goldman Sachs assumes responsibility if future results are different from those
forecast. Goldman Sachs was not asked to consider and has not independently
considered, any developments that have occurred, or any financial data or other
information that have become available, since November 15, 1999.
As described above, Goldman Sachs' opinion to the special committee was one
of many factors taken into consideration by the special committee in making its
determination to recommend the approval of the tender offer and amalgamation
agreement and by the disinterested directors in their determination to approve
the tender offer and amalgamation agreement. This summary is not a complete
description of the analysis performed by Goldman Sachs. You should read the
entire opinion of Goldman Sachs in Annex A.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes.
Goldman Sachs may from time to time effect transactions and hold
securities, including derivative securities, of Amway Asia Pacific for its own
account and for the accounts of its customers in the course of its normal
trading activity. As of November 11, 1999, which was the last trading day prior
to the rendering of its opinion, Goldman Sachs did not hold any positions in the
securities.
Pursuant to a letter agreement dated October 8, 1999, the special committee
engaged Goldman Sachs to act as its financial advisor. Pursuant to the letter
agreement, Amway Asia Pacific agreed to pay Goldman Sachs a fee totaling
$2,000,000 for its opinion and role as financial advisor to the special
committee, upon delivery of its opinion. In addition, Amway Asia Pacific has
agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses,
including the fees and expenses of Goldman Sachs' attorneys, and to indemnify
Goldman Sachs and certain related persons against various liabilities, including
certain liabilities under the United States federal securities laws, arising out
of its engagement.
POSITION OF NEW AAP, APPLE HOLD CO. AND MESSRS. VAN ANDEL AND DEVOS REGARDING
FAIRNESS OF THE AMALGAMATION
Each of New AAP, Apple Hold Co. and Messrs. Stephen A. Van Andel and
Richard M. DeVos, Jr. believe that the consideration to be received by the
public shareholders pursuant to the amalgamation is fair. New AAP, Apple Hold
Co. and Messrs. Van Andel and DeVos base this belief on the following facts: (i)
the fact that the special committee concluded that the amalgamation is fair to,
and in the best interests of, the public shareholders, (ii) notwithstanding the
fact that Goldman Sachs' opinion was provided solely for the information and
assistance of the special committee and that New AAP and Apple Hold Co. are not
entitled to rely on the opinion, the fact that the special committee received an
opinion from Goldman Sachs the date prior to the announcement of the tender
offer that the $18.00 per share in cash received by the holders of shares
pursuant to the tender offer and in the amalgamation or compulsory purchase was
fair to the public shareholders, (iii) the historical and projected financial
performance of Amway Asia Pacific, (iv) New AAP's and Apple Hold Co.'s
assessment of future economic conditions in the Asia-Pacific region, (v) the
consideration that was paid in the tender offer and to be paid in the
amalgamation represents a premium of 53.2% over the closing price for November
12, 1999, the last full trading day prior to public announcement of the tender
offer, and (vi) the amalgamation will provide consideration to be paid to the
holders of shares entirely in cash.
In addition, New AAP, Apple Hold Co. and Messrs. Van Andel and DeVos
believe that the amalgamation is procedurally fair because, among other things:
(1) the special committee consisted of three independent directors who are not
employees of Amway Asia Pacific or affiliated with the principal shareholders
and were appointed by the directors to represent the interests of the public
shareholders; (2) the special committee retained and received
15
<PAGE> 19
advice from independent legal counsel; and (3) the special committee retained an
independent financial advisor, Goldman Sachs, and received financial advice and
assistance from Goldman Sachs in evaluating and negotiating a potential
transaction with New AAP, as well as an opinion from Goldman Sachs.
New AAP, Apple Hold Co. and Messrs. Van Andel and DeVos did not find it
practicable to assign, nor did it assign, relative weights to the individual
factors considered in reaching these conclusions as to fairness of the
amalgamation.
FINANCIAL ADVISORS TO PURCHASERS
When used in the " - Morgan Stanley" and " - J.P. Morgan" sections, the
term "purchasers" means collectively New AAP, Apple Hold Co. and Messrs. Van
Andel and DeVos.
Morgan Stanley. Pursuant to an engagement letter dated September 1, 1999,
Morgan Stanley was engaged as financial advisor to the purchasers in connection
with the cash tender offer and the amalgamation for the outstanding public
shares of Amway Asia Pacific by New AAP. At a meeting on September 21, 1999,
Morgan Stanley made a presentation to the purchasers regarding certain issues
surrounding the transactions. The purpose of the presentation was to provide
guidance on the process for the cash tender offer and the amalgamation and to
provide financial advice on the equity valuation of Amway Asia Pacific but not
on the fairness of the consideration that might be offered for shares of Amway
Asia Pacific. For the purposes of the presentation, Morgan Stanley:
- reviewed certain publicly available financial statements and other
information of Amway Asia Pacific;
- reviewed certain internal financial statements and other financial and
operating data concerning Amway Asia Pacific prepared by the management
of Amway Asia Pacific;
- analyzed certain financial projections prepared by the management of
Amway Asia Pacific;
- discussed the past and current operations and financial condition and the
prospects of Amway Asia Pacific with senior executives of Amway Asia
Pacific;
- reviewed the reported prices and trading activity for the common stock of
Amway Asia Pacific;
- compared the financial performance of Amway Asia Pacific and the prices
and trading activity of the common stock with that of certain other
comparable publicly-traded companies and their securities; and
- reviewed other transactions (mostly in the United States) in which a
majority shareholder acquired all of the outstanding minority shares.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by Morgan Stanley. With
respect to the financial projections, Morgan Stanley assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of Amway Asia Pacific. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of Amway Asia Pacific. Its analysis was necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of, September 20, 1999.
Based on financial analysis including comparable company analysis,
discounted cash flow analysis and analysis of precedent transactions, it
discussed a per share offer of $15.00 for Amway Asia Pacific.
The preparation of the presentation was a complex process and is not
necessarily susceptible to a partial analysis or summary description. In its
presentation, Morgan Stanley considered the results of all of its analyses as a
whole and did not attribute any particular weight to any particular analysis or
factor. Furthermore, Morgan Stanley believes that selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its presentation. In addition, Morgan Stanley may have
given various analyses and factors more or less weight than other analyses and
factors and may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Amway Asia Pacific.
16
<PAGE> 20
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to the industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Amway Asia Pacific.
Any estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than suggested by the estimates. The analyses do not purport
to be appraisals or to reflect the prices at which Amway Asia Pacific might
actually trade in a public market or in a private sale or merger transaction.
Morgan Stanley provided advice to the purchasers during negotiations;
however, Morgan Stanley did not recommend any specific consideration to Amway
Asia Pacific or that any specific consideration constituted the only appropriate
consideration for the transaction. In addition, as described above, Morgan
Stanley's presentation to the purchasers was one of the many factors taken into
consideration by the purchasers in making their decision to proceed with the
transaction. The presentation did not contain and Morgan Stanley did not deliver
any opinion relating to the fairness of the consideration offered for the shares
of Amway Asia Pacific.
Consequently, the Morgan Stanley analyses as described above should not be
viewed as determinative of the opinion of the purchasers with respect to the
value of Amway Asia Pacific or the fairness of the consideration offered. The
purchase price for all of the outstanding publicly traded shares of Amway Asia
Pacific was determined through arm's-length negotiations between the purchasers
and Amway Asia Pacific and was approved by the disinterested directors of Amway
Asia Pacific's board of directors.
The purchasers engaged Morgan Stanley to advise them on strategic
alternatives and to provide Morgan Stanley's advice because of its experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment banking
business, is continually engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwriting,
competitive bidding, secondary distributions of listed and unlisted securities,
private placements and valuation for estate, corporate and other purposes.
Pursuant to the engagement letter, Morgan Stanley provided financial
advisory services in connection with the transaction, and the purchasers agreed
to pay Morgan Stanley a customary fee in connection therewith. The purchasers
also agreed to reimburse Morgan Stanley for its expenses incurred in performing
its services. In addition, the purchasers agreed to indemnify Morgan Stanley and
its affiliates, their respective directors, officers, agents and employees, and
each person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws related to or arising out of Morgan Stanley's engagement
and any related transactions.
J.P. Morgan. Pursuant to an engagement letter dated September 1, 1999, J.P.
Morgan was also engaged as a financial advisor to the purchasers in connection
with the cash tender offer for the outstanding public shares of Amway Asia
Pacific. At a meeting on September 21, 1999, J.P. Morgan made a presentation to
the purchasers regarding certain issues surrounding the transaction. The purpose
of the presentation was to provide guidance on the process for the cash tender
offer and the amalgamation and to discuss certain ranges of possible values for
the equity valuation of Amway Asia Pacific. The presentation's purpose was not
to discuss and it did not discuss the fairness of the consideration that might
be offered for the shares of Amway Asia Pacific.
For the purposes of the presentation, J.P. Morgan:
- Reviewed certain publicly available financial statements and information
concerning the business of Amway Asia Pacific and of certain other
companies engaged in businesses comparable to Amway Asia Pacific;
- Reviewed certain internal analyses and forecasts concerning Amway Asia
Pacific prepared by the management of Amway Asia Pacific;
- Reviewed the stock price performance and trading activity for the common
stock of Amway Asia Pacific;
- Reviewed publicly available terms of certain transactions involving
companies in which a majority shareholder acquired all of the outstanding
minority shares; and
17
<PAGE> 21
- Held discussions with senior executives of Amway Asia Pacific with
respect to the past and current business operations of Amway Asia
Pacific, the financial condition and future prospects and operations of
Amway Asia Pacific, and certain other matters they believed necessary or
appropriate.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or was
furnished to J.P. Morgan by Amway Asia Pacific or the purchasers or otherwise
reviewed by J.P. Morgan, and does not assume any responsibility or liability
therefor. J.P. Morgan did not conduct any valuation or appraisal of any assets
or liabilities, nor have any such valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management as
to the expected future results of operations and financial condition of Amway
Asia Pacific to which such analyses or forecasts relate. J.P. Morgan's analysis
was necessarily based on economic, market and other conditions in effect on, and
the information made available to, J.P. Morgan as of September 20, 1999.
The preparation of the presentation was a complex process and is not
necessarily susceptible to a partial analysis or summary description. In its
discussions, J.P. Morgan considered the results of all of its analyses as a
whole and did not attribute any particular weight to any particular analysis or
factor. Furthermore, J.P. Morgan believes that selecting any portion of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its presentation. In addition, J.P. Morgan may have given
various analyses and factors more or less weight than other analyses and factors
and may have deemed various assumptions more or less than other assumptions, so
that the discussions of the ranges of valuations resulting from any particular
analysis described above should not be taken to represent J.P. Morgan's views of
the actual equity values of Amway Asia Pacific.
In performing its analyses, J.P. Morgan made numerous assumptions with
respect to the industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Amway Asia Pacific.
Any estimates contained in J.P. Morgan's analysis are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than suggested by such estimates. The analyses do not purport to be
appraisals or to reflect the prices at which Amway Asia Pacific might actually
trade in a public market or in a private sale or merger transaction.
J.P. Morgan did not provide advice to the purchasers in the negotiations
with Amway Asia Pacific and its advisors. Hence, the analyses performed by J.P.
Morgan as described above should not be viewed as determinative of the opinion
of the purchasers with respect to the value of Amway Asia Pacific or the
fairness of the consideration offered. The purchase price for all of the
outstanding publicly traded shares of Amway Asia Pacific was determined through
arm's length negotiations and was approved by Amway Asia Pacific's disinterested
directors. The presentation did not contain and J.P. Morgan did not render any
opinion relating to the fairness of the consideration to be offered for the
shares of Amway Asia Pacific.
The purchasers engaged J.P. Morgan to advise them on strategic alternatives
and to provide J.P. Morgan's advice because of its experience and expertise.
J.P. Morgan is an internationally renowned investment banking and advisory firm.
J.P. Morgan, as part of its investment banking business, is continually engaged
in the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwriting, competitive bidding, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
In the ordinary course of their businesses, J.P. Morgan's affiliates may
actively trade the debt and equity securities of Amway Asia Pacific for its own
account or for the accounts of customers and, accordingly, J.P. Morgan may at
any time hold long or short positions in the securities.
Pursuant to the engagement letter with the purchasers, J.P. Morgan provided
financial advisory services in connection with the transaction, and the
purchasers agreed to pay J.P. Morgan a customary fee in connection therewith.
Morgan Guaranty Trust Company of New York, acting through its Tokyo branch, an
affiliate of J.P. Morgan, provided New AAP with financing for the purchase of
the shares of Amway Asia Pacific. Morgan Guaranty also received customary fees
in connection for its services as defined by a separate agreement between Morgan
Guaranty and New AAP. The purchasers also agreed to reimburse J.P. Morgan for
its expenses incurred
18
<PAGE> 22
in performing its services. In addition, the purchasers agreed to indemnify J.P.
Morgan and its affiliates, their respective directors, officers, agents and
employees against certain liabilities and expenses, including certain
liabilities under the federal securities laws related to or arising out of J.P.
Morgan's engagement and any related transactions.
CERTAIN PROJECTIONS
The following is a summary of Amway Asia Pacific financial projections
provided to financial advisors:
Key Assumptions
- The projections were updated in October 1999 to reflect any changes in
the outlook for each region in light of fourth quarter FY1999 results;
- FY 2000 figures have been produced on a bottom-up, product-by-product,
cost item-by-cost item basis by local management of each affiliate
according to the annual budgeting process;
- FY2001-FY2004 figures for each affiliate have been produced in the
ordinary course of business. FY2000 plan is extrapolated, using
year-on-year net sales growth and margin ratios as key drivers. Foreign
exchange rates and effective tax rates are assumed constant post FY2000.
The projections are prepared based on extensive consultations with each
local management as to their operating environments, as well as
reflecting historical experience in other affiliates worldwide;
- FY2000-FY2004 figures (in US$ terms) assume a steady recovery from the
1998 -- 1999 economic downturn with no fundamental changes in distributor
base, product line, cost structure, regulatory environment;
- Australia: 8% recovery in net sales in 2000, steady growth
thereafter (2.2% CAGR), regaining pre-decline 1998 levels in
2004. EBIT margin erodes to 7.6% in 2003 but recovers to 8.8% in
2004.
- New Zealand: 7% recovery in net sales in 2000, steady growth
thereafter (5.0% CAGR) but still 20% down on pre-decline 1997
levels in 2004. EBIT margin increases from 0.6% in 2000 to 2.7%
in 2004.
- Malaysia: 8% recovery in net sales in 2000, steady growth
thereafter (5.0% CAGR) but still 19% down on pre-decline 1997
levels in 2004. EBIT margin declines slightly from 13.6% in 2000
to 13.0% in 2004.
- Thailand: 12% recovery in net sales in 2000, steady growth
thereafter (6.9% CAGR) but still 28% down on pre-decline 1997
levels in 2004. EBIT margin increases slightly from 6.8% in 2000
to 7.9% in 2004.
- Hong Kong: 10% recovery in net sales in 2000, steady growth
thereafter (6.0% CAGR), regaining pre-decline 1997 levels in
2004. EBIT margin improves from -2.0% in 2000 to 1.5% in 2004.
- Taiwan: continuing decline in net sales in 2000, flat in 2001.
Steady recovery thereafter (4.5% CAGR) but still down 21% on
pre-decline 1997 levels in 2004. EBIT margin kept largely
constant around 5.5%.
- China: 115% recovery in net sales in 2000, steady recovery
thereafter (12.5% CAGR). Pre-decline 1997 levels only regained in
2004. EBIT margin declines from 7.3% in 2000 to 6.5% in 2004.
- No significant capital expenditures are assumed beyond China and
recurring maintenance items. Working capital requirement largely flat.
19
<PAGE> 23
Exchange Rate Assumptions
<TABLE>
<CAPTION>
FY97 FY98 FY99 FY2000-04
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Australian Dollar..................................... 1.293 1.519 1.575 1.493
New Zealand Dollar.................................... 1.452 1.751 1.882 1.818
Malaysian Ringgit..................................... 2.531 3.714 3.800 3.800
Thai Baht............................................. 26.463 41.317 37.360 38.000
China Renminbi........................................ 8.296 8.281 8.278 8.300
Hong Kong Dollar...................................... 7.739 7.743 7.751 7.800
Taiwan Dollar......................................... 27.652 32.391 32.655 33.300
</TABLE>
- ---------------
* Source: Amway Asia Pacific Ltd.
AMWAY ASIA PACIFIC HISTORICAL AND PROJECTED
INCOME STATEMENT (US$ IN MILLIONS)
<TABLE>
<CAPTION>
AUGUST 31, 2000-
---------------------------------------------------------------------------- 2004
1997A 1998A 1999A 2000E 2001E 2002E 2003E 2004E CAGR
------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales Australia............. 121.8 124.2 107.4 115.6 119.1 119.1 122.5 126.0 2.2%
New Zealand................... 29.3 22.7 17.9 19.2 20.8 21.6 22.5 23.4 5.0%
China......................... 178.0 68.3 55.5 120.0 138.0 151.8 167.0 192.0 12.5%
Taiwan........................ 164.8 141.9 122.6 114.1 114.1 118.1 124.0 130.2 3.4%
Hong Kong..................... 34.4 31.4 25.5 28.0 29.4 30.8 33.0 35.3 6.0%
Malaysia...................... 135.2 94.7 83.5 90.0 94.5 99.2 104.2 109.4 5.0%
Thailand...................... 181.6 104.3 89.2 100.0 110.0 115.5 121.3 130.4 6.9%
------ ------ ------ ------ ------ ------ ------ ------ ----
Net Sales....................... 845.2 587.6 501.5 586.9 625.8 656.2 694.5 746.6 6.2%
Total Cost of Sales............. (313.3) (257.2) (216.5) (251.0) (265.4) (277.6) (293.0) (313.7) 5.7%
------ ------ ------ ------ ------ ------ ------ ------ ----
Gross Profit.................... 531.9 330.4 285.0 336.0 360.4 378.6 401.4 432.9 6.5%
Total Operating Expenses........ (383.3) (305.1) (258.7) (293.5) (311.8) (331.2) (352.5) (376.9) 6.5%
------ ------ ------ ------ ------ ------ ------ ------ ----
EBIT............................ 148.6 25.3 26.3 42.5 48.6 47.4 48.9 56.1 7.2%
Other Income -- Net........... 24.9 11.0 7.4 3.8 3.5 5.4 5.3 5.6
Interest Expense.............. (0.2) (1.3) (0.9) (0.8) 0.0 0.0 0.0 0.0
Income Before MI & Taxes...... 173.3 35.0 32.8 45.5 52.1 52.8 54.2 61.6 7.9%
------ ------ ------ ------ ------ ------ ------ ------ ----
Income Taxes.................. (54.9) (23.5) (13.3) (14.7) (15.3) (15.8) (16.8) (18.9)
Minority Interest............. (14.3) (10.0) (7.1) (4.8) (5.0) (5.1) (5.2) (5.4)
Net Income.................... 104.0 1.5 12.5 26.1 31.8 31.8 32.2 37.3 9.3%
====== ====== ====== ====== ====== ====== ====== ====== ====
Depreciation.................... 13.0 13.5 12.8 13.3 14.5 16.9 17.9 20.0
Decrease in Working Capital..... 25.9 (6.8) 6.5 13.0 11.7 14.9 16.6 13.6
Capital Expenditures............ (27.8) (33.1) (13.0) (15.6) (20.0) (16.5) (16.9) (15.8)
Net Sales Growth................ (30.5)% (14.6)% 17.0% 6.6% 4.8% 5.8% 7.5%
Gross Margin.................... 62.9% 56.2% 56.8% 57.2% 57.6% 57.7% 57.8% 58.0%
EBIT Margin..................... 17.6% 4.3% 5.2% 7.2% 7.8% 7.2% 7.0% 7.5%
Depreciation / Sales............ 1.5% 2.3% 2.5% 2.3% 2.3% 2.6% 2.6% 2.7%
Capital
Expenditures / Depreciation... 2.1x 2.5x 1.0x 1.2x 1.4x 1.0x 0.9x 0.8x
</TABLE>
APPROVAL OF SHAREHOLDERS
The tender offer and amalgamation agreement must be approved by the holders
of at least three-fourths of the shares of common stock represented at a meeting
of shareholders of Amway Asia Pacific at which a majority of the outstanding
shares of common stock are present in person or by proxy. Because the principal
shareholders, indirectly through Apple Hold Co., beneficially own 97.4% of the
outstanding shares of Amway Asia Pacific and because Apple Hold Co. owns all of
the outstanding shares of New AAP, approval of the tender offer and amalgamation
agreement is assured.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General. The following discussion addresses the United States federal
income taxation of public shareholders who are United States persons (i.e.,
United States citizens or residents, United States corporations, United States
estates or trusts subject to United States tax on all of their income regardless
of source) who have shares converted pursuant to the amalgamation. The following
discussion does not address the tax consequences to a person who holds, directly
or indirectly, 10% or more of the shares. Non-United States persons should
generally have no United States tax consequences as a result of the conversion
of shares into cash. Non-United States
20
<PAGE> 24
persons and 10% shareholders are urged to consult their own tax advisors
regarding the tax considerations incident to a sale of shares pursuant to the
tender offer and amalgamation agreement.
In addition, this summary does not address the United States tax treatment
of certain types of United States public shareholders (e.g., individual
retirement and other tax-deferred accounts, life insurance companies and tax-
exempt organizations) or of persons other than United States public
shareholders, all of whom may be subject to tax rules that differ significantly
from those summarized below.
The discussion below, as it relates to United States federal income tax
consequences, is based upon the provisions of the Internal Revenue Code of 1986,
as amended, and regulations, rulings and judicial decisions thereunder as of the
date of this proxy statement, and these authorities may be repealed, revoked or
modified so as to result in United States federal income tax consequences
different from those discussed below. Each United States public shareholder is
advised to consult his or her own tax advisor with respect to federal, state,
local and foreign tax law consequences of the conversion of shares pursuant to
the tender offer and amalgamation agreement.
The conversion of shares into cash pursuant to the tender offer and
amalgamation agreement will generally be taxable transactions to United States
public shareholders for federal income tax purposes under the Internal Revenue
Code, and may also be taxable transactions under applicable state, local and
foreign tax laws.
Tax Treatment of Proceeds from Conversion. The conversion of shares into
cash pursuant to the tender offer and amalgamation agreement or to the exercise
of appraisal rights by a United States public shareholder will be accorded sale
or exchange treatment for federal income tax purposes and gain or loss (rather
than dividend income) will be recognized by a tendering United States public
shareholder. Any gain or loss recognized will be equal to the difference between
the amount of cash received in the exchange and the United States public
shareholder's adjusted tax basis in the shares purchased. Provided that the
shares constitute a capital asset in the hands of the United States public
shareholder and have a holding period of more than one year, this gain or loss
generally will be long-term capital gain or loss.
Backup Withholding. Under United States federal income tax backup
withholding rules, 31% of the gross proceeds payable to a public shareholder
pursuant to the tender offer and amalgamation agreement must be withheld and
remitted to the United States Treasury if the holder or other payee does not
provide its taxpayer identification number, employer identification number or
social security number to the paying agent and certify that the number is
correct, or if the Internal Revenue Service notifies the paying agent that the
identification number is incorrect or that backup withholding should be imposed
with respect to a particular holder. Certain holders (including, among others,
all corporations and certain non-resident alien individuals) are not subject to
these backup withholding and reporting requirements.
Transmittal. In order for a foreign individual to qualify as an exempt
recipient, that individual must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. These statements may be
obtained from the paying agent.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. EACH PERSON IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE AMALGAMATION, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
MARKET AND DIVIDEND INFORMATION
The principal market for the shares of common stock is the New York Stock
Exchange, these shares having been traded since December 14, 1993. The common
stock is also listed on the Australian Stock Exchange Limited, these shares
having been listed on the ASX since December 23, 1993. The high and low sales
prices of
21
<PAGE> 25
Amway Asia Pacific's shares of common stock on the NYSE and the ASX during each
fiscal quarterly period shown is set forth in the following tables. Amway Asia
Pacific's fiscal year ends August 31 in each year.
<TABLE>
<CAPTION>
NYSE
-------------
HIGH LOW
---- ---
<S> <C> <C>
FY 1998
First Quarter..................................... $34 $19 1/2
Second Quarter.................................... 22 15/16 15 3/4
Third Quarter..................................... 2 11/16 12 15/16
Fourth Quarter.................................... 16 1/2 9 3/6
FY 1999
First Quarter..................................... $13 3/16 $ 8 1/4
Second Quarter.................................... 13 1/2 7
Third Quarter..................................... 14 1/2 6 7/8
Fourth Quarter.................................... 14 15/16 9 15/16
FY 2000
First Quarter (through November 12, 1999, the last
full trading day before public announcement of
the tender offer............................... $13 3/8 $10 7/8
First Quarter (after November 12, 1999)........... 18 17
Second Quarter.................................... 18 17 3/16
Third Quarter (through March 27, 2000)............ 17 7/8 17 5/16
</TABLE>
On November 12, 1999, the last full trading day prior to the public
announcement of the tender offer, the closing sales price of the common stock as
reported on the NYSE was $11.75. On December 16, 1999, the last full day of
trading prior to the expiration of the tender offer, the closing sales price of
the common stock on the NYSE was $17.94. On March 27, 2000, a recent practicable
date prior to the date of this proxy statement, the closing sales price of the
common stock as reported on the NYSE was $17.75.
<TABLE>
<CAPTION>
ASX
--------------------
HIGH LOW
---- ---
<S> <C> <C>
FY 1998
First Quarter................................... AU$46.50 AU$36.50
Second Quarter.................................. 36.00 26.00
Third Quarter................................... 32.51 23.00
Fourth Quarter.................................. 28.50 19.50
FY 1999
First Quarter................................... AU$21.00 AU$14.50
Second Quarter.................................. 21.00 12.00
Third Quarter................................... 20.80 11.80
Fourth Quarter.................................. 24.00 15.90
FY 2000
First Quarter (through November 15, 1999, the
last full trading day before public
announcement of the tender offer)............. AU$18.50 AU$17.00
First Quarter (after November 15, 1999)......... 30.00 21.30
Second Quarter.................................. 27.30 25.60
Third Quarter (through March 24, 2000).......... 27.50 26.10
</TABLE>
On November 15, 1999, the last full day of trading prior to the public
announcement of the tender offer, the closing sales price of the common stock as
reported on the ASX was AU$17.50. On December 16, 1999, the last full day of
trading prior to the expiration of the tender offer, the closing sales price of
the common stock as reported on the ASX was AU$26.60. On March 24, 2000, a
recent practicable date prior to the date of this proxy statement, the closing
sales price of the common stock as reported on the ASX was AU$27.20. Holders of
common stock are urged to obtain a current market quotation for the common
stock.
22
<PAGE> 26
Amway Asia Pacific's board of directors suspended Amway Asia Pacific's
quarterly dividend on October 14, 1998, because of adverse economic conditions
in Amway Asia Pacific's markets at that time, declining profitability and
uncertainty as to whether either of these two factors would improve. For the
fiscal year ended August 31, 1998, Amway Asia Pacific paid dividends to its
shareholders in the amount of $0.88 per share. The Amway Asia Pacific board of
directors has regularly reviewed Amway Asia Pacific's ability to pay a quarterly
dividend and based on the continuation of weak profitability and the need to use
cash flow in China has not reinstated the dividend. Amway Asia Pacific has no
plans to pay dividends prior to the consummation of the amalgamation. Further,
after the amalgamation, Amway Asia Pacific, as the amalgamated company, will be
subject to the terms of a credit agreement that, among other things, will
indirectly restrict its ability to pay dividends through financial covenants.
FINANCIAL INFORMATION
For financial information regarding Amway Asia Pacific, please refer to
Amway Asia Pacific's Annual Report on Form 20-F for the fiscal year ended August
31, 1999 which is incorporated herein by reference.
The ratio of earnings to fixed charges of Amway Asia Pacific was 12.3 and
10.5 for the fiscal years ended August 31, 1999 and 1998, respectively. This
ratio was computed by dividing income before income taxes and minority interest
plus fixed charges by the fixed charges. Fixed charges consist of interest
expense and that portion of operating lease rental expense that is
representative of the interest factor. The book value per share of Amway Asia
Pacific as of August 31, 1999 was $3.44, which was computed by dividing
shareholders' equity by the number of shares of common stock outstanding at the
balance sheet date.
THE COMPANIES
AMWAY ASIA PACIFIC
Amway Asia Pacific, a Bermuda corporation, was incorporated in September
1993. The principal executive offices of Amway Asia Pacific and of each of its
officers and directors are currently located at 38/F The Lee Gardens, 33 Hysan
Avenue, Causeway Bay, Hong Kong. The business telephone number of Amway Asia
Pacific is (852) 2969-6333. For information regarding Amway Asia Pacific, please
refer to Amway Asia Pacific's Annual Report on Form 20-F for the fiscal year
ended August 31, 1999 which is incorporated herein by reference.
Amway Asia Pacific is subject to the informational filing requirements of
the Securities Exchange Act of 1934 and, in accordance therewith, is required to
file periodic reports and other information with the Securities and Exchange
Commission relating to its business, financial condition and other matters.
Information as of particular dates concerning Amway Asia Pacific's directors and
officers, their remuneration, stock options granted to them, the principal
holders of Amway Asia Pacific's securities and any material interest of these
persons in transactions with Amway Asia Pacific is required to be disclosed in
periodic reports filed with the Securities and Exchange Commission. These
reports and other information can be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at it's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Information regarding the public reference facilities may be
obtained from the Securities and Exchange Commission by telephoning
1-800-SEC-0330. Copies of these materials may also be obtained by mail from the
Public Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Certain reports and
other information concerning Amway Asia Pacific may also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
23
<PAGE> 27
The following table sets forth the citizenship of each of Amway Asia
Pacific's directors and executive officers as of December 1, 1999:
<TABLE>
<CAPTION>
NAME POSITION CITIZENSHIP
---- -------- -----------
<S> <C> <C>
Stephen A. Van Andel Chairman, Director United States
Richard M. DeVos, Jr. Vice Chairman, Director United States
Douglas L. DeVos President, Director United States
Eoghan M. McMillan Director United Kingdom
Jack C.K. So. Director United Kingdom
John C.C. Chan Director China
L.H. Choong Director Malaysia
Eva Cheng Executive Vice President; Director Hong Kong, China
Lynn Lyall Chief Financial Officer, Vice United States
President and Treasurer
Lawrence M. Call Vice President United States
Craig N. Meurlin Vice President, General Counsel and United States
Assistant Secretary
John C. Brockman Vice President, Distributor United States
Relations
Percy Chin Vice President, General Canada
Manager - East China
Patrick Hau Vice President, General Manager - Australia
National Operations
Audie Wong Vice President, General Canada
Manager - North China
Martin Liou General Manager -- Taiwan Taiwan
Low Han Kee Regional Manager -- Malaysia Malaysia
Preecha Prakobkit General Manager -- Thailand Thailand
Peter Williams General Manager -- Australia New Zealand
Betty Yeung General Manager -- South China Canada
John C.R. Collis Secretary United Kingdom
</TABLE>
During the last five years, none of the directors or officers of Amway Asia
Pacific have been convicted in a criminal proceeding, excluding traffic
violations or similar misdemeanors; or a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws, or finding of any violation of federal or state securities laws.
NEW AAP LIMITED
New AAP was incorporated under the laws of Bermuda in October 1999 for the
purpose of acquiring all publicly held shares of Amway Asia Pacific and has no
operating history. New AAP has not engaged in activities other than those
incidental to its formation and capitalization, the preparation and consummation
of the tender offer and the consummation of the amalgamation. The principal
executive offices of New AAP and each of its officers and directors are
currently located at 7575 Fulton Street, East, Ada, Michigan 49355. New AAP's
business telephone number is (616) 787-6000.
In December 1999, New AAP completed its offer to purchase at $18.00 per
share in cash all the outstanding shares of common stock of Amway Asia Pacific.
New AAP acquired 8,181,756 shares of common stock in the tender offer, which
represents 14.5% of the outstanding shares. The shares were purchased with funds
borrowed under a $700,000,000 unsecured term loan credit agreement with Morgan
Guaranty and Trust Company of New York, Tokyo branch, and other banks and
financial institutions, dated December 10, 1999. In December 1999, New AAP
borrowed approximately $168,900,000 under the credit agreement, all of which
remains outstanding. Borrowings under the credit agreement bear interest at the
London Interbank offered rate plus 6.35%. Further, New AAP has guaranteed
approximately $510,000,000 borrowed by N.A.J. Co., Ltd., a Japanese corporation
and an affiliate of New AAP, under the credit agreement and as a result, New AAP
is jointly and severally liable for an aggregate amount of approximately
$678,900,000. New AAP is scheduled to make its first payment of
24
<PAGE> 28
principal and interest under the credit agreement on December 21, 2000. Annual
principal payments are then scheduled to be made on December 21st of 2001, 2002,
2003 and 2004 with the remaining principal to be paid on December 21, 2005.
Interest will be paid semi-annually beginning June 21, 2001. New AAP estimates
that the total amount of funds to pay for the purchase price of the shares of
common stock of Amway Asia Pacific acquired in the amalgamation will be
approximately $26.0 million, all of which will be from funds borrowed under the
credit agreement. Following the amalgamation, the amalgamated company may be
required to dedicate a substantial portion of its cash flows from operations to
pay principal and interest under the credit agreement. Further, after the
amalgamation, Amway Asia Pacific, as the amalgamated company, will be subject to
the terms of the credit agreement that, among other things, will indirectly
restrict its ability to pay dividends through financial covenants.
DIRECTORS AND OFFICERS
The executive officers and directors of New AAP are Craig N. Meurlin and
Lawrence M. Call. Messrs. Meurlin and Call are United States citizens.
Craig N. Meurlin has been a director and Vice President and Assistant
Secretary of New AAP since its formation in October 1999. Mr. Meurlin has
also been Vice President, General Counsel and Assistant Secretary of Amway
Asia Pacific since 1993. Mr. Meurlin is Senior Vice President, General
Counsel and Secretary of Amway and has held these positions since 1993.
Prior to that, Mr. Meurlin was a partner in the law firm of Jones, Day,
Reavis & Pogue. Mr. Meurlin holds a Bachelors of Arts degree from the
University of Vermont and a Juris Doctor from the University of Virginia.
Lawrence M. Call has been a director and President of New AAP since
its formation in October 1999. Mr. Call has also been Vice President of
Amway Asia Pacific since its formation in 1993. Mr. Call served as Chief
Financial Officer and Treasurer of Amway Asia Pacific until July 1, 1999.
He has served as Chief Financial Officer of Amway from 1991 to January
2000. Prior to joining Amway, Mr. Call had been Treasurer of PPG
Industries, a manufacturer of flat glass, fiberglass, coatings, resins
industrial and special chemicals, since 1984. Before becoming Treasurer of
PPG Industries, he had held various other financial control positions with
PPG Industries. Prior to that, Mr. Call spent 15 years in public accounting
with Deloitte, Haskins and Sells (the predecessor to Deloitte and Touche).
He is a Certified Public Accountant and holds a Bachelor's degree from
Loyola University.
Apple Hold Co., a Bermuda limited partnership, was formed in November 1999
for the purpose of facilitating the tender offer and amalgamation by New AAP.
Apple Hold Co. has no operating history. Hold Co. directly owns 46,814,950
shares, representing 82.9% of the outstanding shares of common stock. The
principal executive offices of Apple Hold Co. are currently located at One East
First Street, Suite 1600, Reno, Nevada 89501 and its business telephone number
is (616) 787-6000. The general partner of Apple Hold Co. is AP New Co., LLC and
the limited partners are the principal shareholders of Amway Asia Pacific.
AP New Co., LLC, a Nevada limited liability company, was formed in
September 1999. AP New Co. has no operating history. The principal executive
offices of AP New Co. are currently located at One East First Street, Suite
1600, Reno, Nevada 89501 and its business telephone number is (616) 787-6000. AP
New Co. is managed by Amway.
Amway Corporation, a Michigan corporation, was formed in 1959. Amway sells
and distributes, directly or through its affiliates, consumer products in the
personal care, nutrition and wellness, home care and home tech product lines.
The business address of Amway and of each of the officers and directors of Amway
are located at 7575 Fulton Street East, Ada, Michigan 49355. Amway's business
telephone number is (616) 787-6000. All of the officers and directors of Amway
are United States citizens. Amway is owned by the principal shareholders. The
following persons are officers and directors of Amway:
Stephen A. Van Andel has been Chairman of Amway since 1995 and was a
member of the Policy Board of Amway from 1992 through August 31, 1999. He
has been on the board of directors of Amway since September 1, 1999. Mr.
Van Andel has also been Chairman of Amway Asia Pacific since January 1995
and a Director since 1994. Mr. Van Andel was Vice Chairman of Amway Japan
Limited from November 1994 through November 30, 1999. Mr. Van Andel was
Chairman of the Executive Committee of Amway
25
<PAGE> 29
and Vice President -- Corporate Affairs of Amway from 1993 to 1995. He was
appointed Vice President -- Marketing of Amway in 1988 and in 1991, became
Vice President Americas. Prior to 1988, Mr. Van Andel held various
administrative and management positions with Amway. He holds a Bachelor's
degree from Hillsdale College and a Master's of Business Administration
from Miami University. Mr. Van Andel is also a director of Michigan
National Bank Corp.
Richard M. DeVos, Jr. has been President of Amway since 1993 and was a
member of the Policy Board of Amway from 1992 through August 31, 1999. He
has been on the board of directors of Amway since September 1, 1999. He has
also been Vice Chairman of Amway Asia Pacific since October 1999 and was
President of Amway Asia Pacific from January 1995 to October 1999. He has
been a Director of Amway Asia Pacific since 1994. Mr. DeVos was Chairman of
Amway Japan Limited from November 1994 through November 30, 1999. Mr. DeVos
was President and Chief Executive Officer of the Orlando Magic Ltd. from
1991 to 1993. He is Chairman of the Windquest Group, a multi-company
management group which he founded in 1989. Prior to that, Mr. DeVos was
Vice President -- International of Amway since 1984. Previously, he held
various research and development, manufacturing, distribution, marketing,
finance, public relations and government affairs positions with Amway. Mr.
DeVos holds a Bachelor of Business Administration degree from Northwood
University and has attended the Executive Study Program at the Wharton
School of the University of Pennsylvania. He is also a director of Old Kent
Financial Corporation.
Douglas L. DeVos has been Senior Vice President and Chief Operating
Officer, Classic of Amway since January 2000 and was Senior Vice
President -- Asia Pacific Region, Global Distributor Relations of Amway
from June 1998 to January 2000 and director of Amway since September 1999.
Mr. DeVos has been Chairman of Amway Japan Limited since November 30, 1999.
Mr. DeVos has been President of Amway Asia Pacific since October 1999. Mr.
DeVos has also been a director of Amway Asia Pacific since April 14, 1999.
He was appointed Vice President, North American Sales, of Amway in 1993 and
became Senior Vice President, Managing Director -- Americas of Amway from
1996 to 1998. Prior to 1993, Mr. DeVos held various administrative and
management positions with Amway. He holds a Bachelor of Science degree from
Purdue University Krannert School of Management. Mr. DeVos is a director of
Amway Japan Limited.
Lynn Lyall has served as Vice President and Chief Financial Officer of
Amway since January 2000, and served as Vice President of Finance of Amway
from July 1, 1999 through January 2000. Mr. Lyall has also been Chief
Financial Officer, Vice President and Treasurer of Amway Asia Pacific since
July 1, 1999. Prior to joining Amway, he had been Executive Vice President
and Chief Financial Officer of Blockbuster Entertainment, Inc. since 1997.
Before becoming Chief Financial Officer of Blockbuster, Mr. Lyall held
various financial positions with Cadbury Schweppes, PLC from 1990 until
1997. He also held financial positions with Bordo Citrus Products, Inc.,
Kraft, Inc. and Coca-Cola Company. Prior to that, Mr. Lyall spent six years
in public accounting with Arthur Andersen & Co. He is a certified Public
Accountant and holds a Bachelor's degree and a Master's degree in
management from Northwestern University.
Craig N. Meurlin has been the Senior Vice President, General Counsel
and Secretary of Amway and has held these positions since 1993. Mr. Meurlin
has also been a director and Vice President and Assistant Secretary of New
AAP since its formation in October 1999. Mr. Meurlin has been Vice
President, General Counsel and Assistant Secretary of Amway Asia Pacific
since 1993. Prior to that, Mr. Meurlin was a partner in the law firm of
Jones, Day, Reavis & Pogue. Mr. Meurlin holds a Bachelors of Arts degree
from the University of Vermont and a Juris Doctor from the University of
Virginia.
Pamela L. Linton has been Vice President of Global Human Resources at
Amway since 1997. Prior to joining Amway, she was Vice President of Human
Resources for Lorin Industries. She also spent eleven years with Baxter
Healthcare where she was Director of Human Resources providing support to
the Technology, Global Businesses Groups and Baxter Management Institutes.
Ms. Linton holds a Bachelor of Science degree from Michigan State
University and a Master of Business Administration degree from Lake Forest
College Graduate School of Management.
Al Koop has been the Senior Vice President and Chief Operating
Officer, Supply Chain of Amway since January 2000. Mr. Koop joined Amway in
1965 and has held many positions within Amway including Director of
Regional Distribution Centers, Managing Director of the Americas and Europe
and Vice
26
<PAGE> 30
President of International Distribution and Facilities Planning. Mr. Koop
holds a Bachelor's degree in Marketing and Economics from Ferris State
University in Big Rapids, Michigan.
David Van Andel has been the Senior Vice President and Chief Operating
Officer, Innovations of Amway since January 2000 and was Senior Vice
President -- Americas and Europe at Amway, overseeing business activities
for Amway North America, 22 European and 11 Latin American affiliates,
prior to that time. Mr. Van Andel is also a director of Amway. Mr. Van
Andel has held numerous positions within Amway including Senior Vice
President of Operations, Vice President of Manufacturing and Operations and
Director of Regional Distribution Centers. Mr. Van Andel is also Chairman
of the Van Andel Research Institute and is a member of the Board of the
United States Chamber of Commerce. Mr. Van Andel is a graduate of Hope
College, Holland, Michigan.
Jay Van Andel is a director and the co-founder of Amway. He has also
been the Senior Chairman of Amway since 1995. Prior to that time, Mr. Van
Andel was the Chairman of Amway. He attended Calvin College, Morningside
College, Pratt Business School and Yale University Aviation Cadet School.
Mr. Van Andel is a trustee of the Heritage Foundation and a trustee of the
Citizen's Research Council of Michigan. Mr. Van Andel has also been the
sole trustee of the Jay Van Andel Trust since its inception in August 1978.
Under the trust, Mr. Van Andel has sole voting and dispositive power. The
Jay Van Andel Trust is a member of AP New Co. and has shared voting and
dispositive power with respect to 54,996,706 shares of Amway Asia Pacific
common stock.
Richard M. DeVos, Sr. is a director and the co-founder and former
president of Amway. Amway was founded in 1959 and is one of the world's
largest direct selling companies. In 1991, Mr. DeVos and his family
acquired the Orlando Magic, the National Basketball Association's franchise
in Orlando, Florida. Mr. DeVos currently serves as Chairman for the Orlando
Magic. Mr. DeVos is a graduate of Calvin College in Grand Rapids. He was
also awarded a Doctor of Letters from Hope College in 1982.
Daniel G. DeVos is Vice President -- Corporate Affairs of Amway and he
has been a member of the board of directors of Amway since September 1999.
Mr. DeVos is currently Chairman, President and Chief Executive Officer of
DP/Fox Landquest, which is a multi-company management firm. He serves as
President and Chief Executive Officer as of the following minor league
sports franchises: Grand Rapids Griffins, Grand Rapids Rampage and the
Kansas City Blades. For the Orlando Magic, Mr. DeVos is currently Vice-
Chair of the Governing Board. Mr. DeVos holds a degree from Northwood
University.
Nan Van Andel is Vice President -- Creative Resources, Inc. of Amway
and has been a member of the board of directors of Amway since September
1999. She has been employed at Amway for 24 years in many positions and
departments including finance, warehousing, manufacturing, creative and
selling products as an Amway distributor. Ms. Van Andel is also
Chairwoman -- Amway's Easter Seal Campaign. She is a graduate of Calvin
College and Grand Valley State University.
Barb Van Andel-Gaby is Vice President -- Corporate Affairs of Amway
and has been a member of the board of directors of Amway since September
1999. She previously held the position of Vice President -- Amway
Properties with Amway Asia Pacific. Prior to joining Amway, she was in the
Marketing Department of Marriott Corporation Hotel Division. She is a
member of many professional and charitable organizations including the
National Association of Corporate Directors and the board of directors of
Capital Research Center. Ms. Van Andel-Gaby received her Bachelor's degree
from Hope College and a Master of Business Administration degree from
Indiana University.
Suzanne C. DeVos VanderWeide currently serves as Vice
President -- Corporate Affairs and as a member of the board of directors of
Amway. Previously she served as Director of Health & Beauty Marketing and
the Management Training Program. Ms. VanderWeide is actively involved in
many community organizations in both Orlando and her hometown of Grand
Rapids, including serving on the Board of the Orlando Magic. She is
Chairman of the Orlando Magic Youth Foundation, Chairperson for DeVos
Children's Hospital Committee and Director of the Michigan Chapter of
Operation Smile. Ms. VanderWeide holds a Bachelor of Arts degree in
Business Administration from Hope College.
During the last five years, none of the directors or officers of New AAP or
Amway have been convicted in a criminal proceeding, excluding traffic violations
or similar misdemeanors; or a party to any judicial or
27
<PAGE> 31
administrative proceeding that resulted in a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws, or finding of any violation of federal or state
securities laws.
THE AMALGAMATION
THE TENDER OFFER AND AMALGAMATION AGREEMENT
The tender offer and amalgamation agreement provides for, among other
things, Amway Asia Pacific to amalgamate with New AAP, with Amway Asia Pacific
continuing as the amalgamated company. Following consummation of the
amalgamation, the name of the surviving corporation will be "Amway Asia Pacific
Ltd." The memorandum of association and the bye-laws of the surviving
corporation will be the current versions of the memorandum of association and
bye-laws of Amway Asia Pacific. Further, the officers and directors of the
surviving corporation will be the current officers and directors of Amway Asia
Pacific.
The tender offer and amalgamation agreement provides that at the effective
time of the amalgamation, all shares of Amway Asia Pacific, other than those
held by New AAP, Apple Hold Co. or the principal shareholders, will be canceled
in consideration for payment of $18.00 per share in cash upon surrender of each
certificate formerly representing Amway Asia Pacific shares. There will be
deducted from the amalgamation consideration any United States backup or other
applicable withholding taxes which may be required to be withheld. Except for
shares of Amway Asia Pacific held by New AAP, Apple Hold Co. or the principal
shareholders, all shares of Amway Asia Pacific at the effective time of the
amalgamation will no longer be outstanding and will automatically be canceled
and retired and will cease to exist. The shares of common stock of Amway Asia
Pacific held by New AAP will be canceled. Each holder of a certificate
representing these shares will no longer have any rights with respect to the
shares, except the right to receive the amalgamation consideration upon
surrender of the certificates or, in the case of a dissenting shareholder, the
right to be paid the fair value of his or her shares.
At the effective time of the amalgamation, each issued and outstanding
share of New AAP common stock will be converted into and become one fully paid
and nonassessable share of common stock of the amalgamated company (i.e., Amway
Asia Pacific). Therefore, as a result of the amalgamation, Apple Hold Co. will
directly own 100% of the amalgamated company, Amway Asia Pacific. Currently, New
AAP and Amway Asia Pacific expect to complete the amalgamation by the end of
April 2000.
Pursuant to the tender offer and amalgamation agreement, at the effective
time of the amalgamation, all issued and outstanding warrants, options and other
rights to acquire securities of Amway Asia Pacific will be converted into rights
to receive cash valued in accordance with the Black-Scholes option pricing
method. A copy of the tender offer and amalgamation agreement is attached to
this proxy statement as Annex B.
INTERESTS OF CERTAIN PERSONS
In considering the recommendations of the disinterested directors of Amway
Asia Pacific, based upon the recommendation of the special committee, with
respect to the tender offer and amalgamation agreement, shareholders should know
that certain officers and directors of Amway Asia Pacific have interests in
connection with the tender offer and amalgamation agreement which may present
them with actual or potential conflicts of interest. Craig N. Meurlin, Amway
Asia Pacific's vice president, general counsel and assistant secretary is a
director and vice president and assistant secretary of New AAP and Lawrence M.
Call, Amway Asia Pacific's vice president, is a director and president of New
AAP. Also, the officers and directors of Amway Asia Pacific beneficially own
4,000 shares of Amway Asia Pacific common stock and 245,662 shares of Amway Asia
Pacific common stock pursuant to stock option agreements. The stock option
agreements will be terminated by Amway Asia Pacific prior to consummation of the
amalgamation and these officers and directors will receive cash for these
options valued in accordance with the Black-Scholes option pricing method.
28
<PAGE> 32
As of March 15, 2000, the following individuals have options to acquire
shares or own shares of common stock of Amway Asia Pacific as follows:
<TABLE>
<CAPTION>
OPTIONS TO COMMON
NAME POSITION ACQUIRE SHARES STOCK
---- -------- -------------- ------
<S> <C> <C> <C>
Stephen A. Van Andel........ Chairman, Director 26,666 (1)
Richard M. DeVos, Jr........ Vice Chairman, Director 26,666 (1)
Eoghan M. McMillan.......... Director 11,000 2,000
Jack C.K. So. .............. Director 11,000 2,000
John C.C. Chan.............. Director 8,000
L.H. Choong................. Director 33,000
Eva Cheng................... Executive Vice President; Director 53,333
Lawrence M. Call............ Vice President 23,333
Craig N. Meurlin............ Vice President, General Counsel and 13,333
Assistant Secretary
Percy Chin.................. Vice President, General Manager -- East 5,333
China
Patrick Hau................. Vice President, General Manager -- National 6,333
Operations
Audie Wong.................. Vice President, General Manager -- North 6,667
China
Martin Liou................. General Manager -- Taiwan 2,333
Low Han Kee................. Regional Manager -- Malaysia 5,666
Preecha Prakobkit........... General Manager -- Thailand 6,666
Peter Williams.............. General Manager -- Australia 4,000
Betty Yeung................. General Manager -- South China 2,333
</TABLE>
- ---------------
(1) Messrs. Van Andel and DeVos, as principal shareholders of Amway Asia
Pacific, directly or indirectly, control Apple Hold Co. and New AAP. See
"Ownership of Shares."
The disinterested directors and the special committee were aware of these
interests and considered them, among other matters.
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
As of September 30, 1999, the principal shareholders beneficially owned
47,943,530 shares of common stock of Amway Asia Pacific, constituting
approximately 85% of all shares of common stock issued and outstanding on that
date. Pursuant to the tender offer, which commenced on November 18, 1999 and
expired on December 17, 1999, the principal shareholders tendered an aggregate
of 1,128,580 shares of common stock. The tender offer was conducted by New AAP,
which acquired 8,181,756 shares of common stock of Amway Asia Pacific in the
tender offer. Immediately prior to the consummation of the tender offer, the
principal shareholders contributed 46,814,950 shares of common stock to Apple
Hold Co. As a result, Apple Hold Co. owns 97.4% of the Amway Asia Pacific
shares.
29
<PAGE> 33
The following table sets forth the number of shares of common stock
beneficially owned by the principal shareholders prior to the commencement of
the tender offer and after giving effect to the tender offer.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OWNED AS OF OWNED AS OF
SEPTEMBER 30, 1999 MARCH 15, 2000
SHAREHOLDER (PRE-TENDER OFFER) (AFTER TENDER OFFER)
----------- ------------------ --------------------
<S> <C> <C>
Jay Van Andel Trust....................................... 12,315,145
Subtrust Under Paragraph 3 of JVA Trust................... 11,092,330
Jay and Betty Van Andel Foundation........................ 564,290
Richard & Helen DeVos Foundation.......................... 564,290
Helen J. DeVos Article I Trust............................ 3,835,882
Richard M. DeVos, Jr. Article II Trust.................... 200,528
Daniel G. DeVos Article II Trust.......................... 200,528
Suzanne DeVos-VanderWeide Article II Trust................ 200,528
Douglas L. DeVos Article II Trust......................... 200,528
RDV Capital Management L.P. III........................... 1,000,000
Richard M. DeVos, Jr. 1995 Christmas Trust................ 1,955,184
Daniel G. DeVos 1995 Christmas Trust...................... 1,955,184
Suzanne DeVos-VanderWeide 1995 Christmas Trust............ 1,955,185
Douglas L. DeVos 1995 Christmas Trust..................... 1,955,185
New AAP Limited........................................... 8,181,756
Apple Hold Co., L.P....................................... 46,814,950
TOTAL..................................................... 47,943,530 54,996,706
</TABLE>
In response to the tender offer, except for 4,000 shares of common stock
held by two directors, the officers and other directors of Amway Asia Pacific
tendered all of their shares of common stock, representing an aggregate of 9,200
shares. Currently, the officers and directors of Amway Asia Pacific beneficially
own 4,000 shares of common stock and 245,662 shares of common stock pursuant to
stock option agreements. These stock option agreements will be terminated by
Amway Asia Pacific prior to consummation of the amalgamation and these officers
and directors will receive cash for their options valued in accordance with the
Black-Scholes option pricing method.
Apple Hold Co., the parent of New AAP, is governed by a first amended and
restated limited partnership agreement dated as of November 12, 1999. Under the
partnership agreement, all authority for dealing with shares, including the
right to vote the shares and to dispose of the shares is vested in the general
partner, AP New Co, LLC. AP New Co. is governed by an operating agreement dated
as of November 12, 1999. Under the operating agreement, all management rights,
power and authority, including rights to exercise AP New Co.'s authority as
general partner of Apple Hold Co., are vested in the manager or managers of AP
New Co. Amway is the sole manager of AP New Co. Amway can be removed as manager
only with the unanimous approval of the members of AP New Co. which are RDV
Corporation and the Jay Van Andel Trust.
Amway, Apple Hold Co., AP New Co., and several principal shareholders
entered into an agreement that prohibits the parties from taking various actions
without approval of both of the members of AP New Co., including, without
limitation, the sale or transfer or other disposition by Apple Hold Co. or New
AAP of an interest in the common stock. The agreement also covers procedures to
be followed by the parties in connection with Amway Asia Pacific shareholder
meetings, including the placement of items on the agenda of any meeting of
shareholders, and the voting of shares. The agreement also provides an
arrangement under which the members of AP New Co. may have a right to direct how
Amway Asia Pacific shares owned or controlled by Apple Hold Co. are voted if
there is an imbalance in the number of shares owned or controlled by the DeVos
or Van Andel families and their affiliates.
30
<PAGE> 34
In addition, the principal shareholders, Apple Hold Co. and New AAP have
entered into a shareholder and voting agreement, dated November 15, 1999.
Pursuant to the shareholder agreement, the principal shareholders agreed, among
other things, to cause Apple Hold Co. and New AAP, as the case may be, to vote,
and the principal shareholders, Apple Hold Co. and New AAP have agreed to vote
their shares in favor of the amalgamation. Because the principal shareholders,
indirectly through Apple Hold Co., beneficially own 97.4% of the outstanding
shares of Amway Asia Pacific and because Apple Hold Co. owns all of the
outstanding shares of New AAP, approval of the tender offer and amalgamation
agreement and the amalgamation is assured.
The principal shareholders of Amway Corporation and related family members
own 97.4% of the outstanding shares of common stock of Amway Asia Pacific.
Approximately 73% of Amway Asia Pacific's fiscal 1999 net sales were derived
from the distribution of products purchased from Amway. In addition, Amway has
granted each of Amway Asia Pacific's affiliates the exclusive right to use and
market the Amway trademark and individual product trademarks pursuant to various
contracts between Amway and Amway Asia Pacific's affiliates. Amway also provides
a broad range of management, administrative and technical assistance to Amway
Asia Pacific and its affiliates pursuant to various support services agreements
with the Amway Asia Pacific and each of its affiliates. Finally, Amway licensed
to Amway Asia Pacific the right to use the previously existing distributor lists
in Hong Kong and Taiwan. During fiscal 1999, pursuant to agreements between
Amway and Amway Asia Pacific and its affiliates, Amway Asia Pacific and its
affiliates paid Amway a total of $113.6 million for the purchase of products.
Amway, Amway Asia Pacific and each of its affiliates have also entered into
agreements pursuant to which Amway, on the one hand, and Amway Asia Pacific
and/or its affiliates (other than Amway Asia Pacific's Hong Kong branch and
Taiwan affiliate), on the other hand, each agreed to provide certain
indemnification rights to the other. Each agreed to be responsible for those
liabilities, known or unknown, that were incurred by it or originated with it.
For example, any tax liabilities properly attributable to Amway or any of its
subsidiaries (other than Amway Asia Pacific and its affiliates) are the
responsibility of Amway. In addition, in the event Amway Asia Pacific disposes
of stock of its subsidiaries, Amway Asia Pacific has agreed to pay Amway an
indemnity, on an after-tax basis, with respect to any United States federal
income tax liability incurred by Amway resulting from gain recognition
agreements between Amway and the U.S. Internal Revenue Service that were entered
into in connection with a reorganization by Amway Asia Pacific. Amway retained
liabilities associated with Amway Asia Pacific's Hong Kong branch.
No provision has been made by Amway Asia Pacific, New AAP or Apple Hold Co.
to grant unaffiliated shareholders access to their corporate files or to obtain
counsel or appraisal services at their expense.
ACCOUNTING TREATMENT OF THE AMALGAMATION
The amalgamation of Amway Asia Pacific and New AAP will be treated as a
combination of entities under common control and accounted for similar to a
pooling of interests. The acquisition of the minority shares outstanding is
accounted for using the purchase method of accounting in accordance with
generally accepted accounting principles.
REGULATORY APPROVALS
In connection with the amalgamation, Amway Asia Pacific, New AAP, Apple
Hold Co., and Messrs. Richard M. DeVos, Jr. and Stephen A. Van Andel will file a
Schedule 13E-3 transaction statement under Section 13(e) of the Exchange Act
that contains information with respect to the amalgamation. The Schedule 13E-3
may be examined and copies may be obtained from the Securities and Exchange
Commission at the same places and in the same manner as set forth in "The
Companies -- Amway Asia Pacific."
After the amalgamation has been approved by the Amway Asia Pacific
shareholders and the New AAP shareholders, Amway Asia Pacific, as the
amalgamated company, will apply to the Bermuda Registrar of Companies to
register the amalgamation and a certificate of amalgamation will be issued to
Amway Asia Pacific soon thereafter.
Amway Asia Pacific is not aware of any approval or other action by any
government or governmental, administrative or regulatory authority or agency,
domestic or foreign, that would be required for the amalgama-
31
<PAGE> 35
tion or of any license or regulatory permit that appears to be material to its
business that might be adversely affected by the amalgamation.
Should any other approval or other action be required, Amway Asia Pacific
currently contemplates that it will seek the approval or other action. Amway
Asia Pacific cannot predict whether it may determine that it is required to
delay the payment for the shares upon conversion pursuant to the tender offer
and amalgamation agreement pending the outcome of any matter. There can be no
assurance that any approval or action, if needed, would be obtained or would be
obtained without substantial conditions.
CERTAIN EFFECTS OF THE AMALGAMATION
After the consummation of the amalgamation, all shares of Amway Asia
Pacific, other than shares held by Apple Hold Co. or the principal shareholders,
will be canceled and will cease to exist. Following the amalgamation, the
officers and directors of the surviving corporation will be the then current
officers and directors of Amway Asia Pacific.
As of March 15, 2000, Amway Asia Pacific had issued and outstanding
56,441,960 shares of common stock held by approximately 1,737 holders of record.
The principal shareholders hold, indirectly through Apple Hold Co., 54,996,706
shares of common stock, representing 97.4% of the issued and outstanding shares
of common stock.
NYSE and ASX Delisting. After consummation of the amalgamation, the shares
of common stock will be delisted from the NYSE and the ASX.
Exchange Act Deregistration. The shares of common stock of Amway Asia
Pacific are currently registered under the Securities Exchange Act of 1934.
Amway Asia Pacific will terminate registration under the Exchange Act as soon as
possible after consummation of the amalgamation.
FEES AND EXPENSES
The following table sets forth the expenses incurred or estimated to be
incurred in connection with the amalgamation:
<TABLE>
<S> <C>
Filing Fees................................................. $ 0
Accounting and Legal Fees and Expenses...................... $67,000
Printing and Mailing........................................ $15,000
Miscellaneous............................................... $ 8,000
-------
Total*...................................................... $90,000
=======
</TABLE>
- ---------------
* In connection with the tender offer, financial advisory fees and related
expenses of approximately $5,925,000 were incurred by Amway Asia Pacific and
New AAP.
APPRAISAL RIGHTS IN THE AMALGAMATION
At the effective time of the amalgamation, other than shares held by Apple
Hold Co. or the principal shareholders, each holder of a certificate will no
longer have any rights with respect to the shares, except the right to receive
the amalgamation consideration upon surrender of the certificates or, in the
case of a dissenting shareholder, the right to be paid the fair value of his or
her shares. Under Bermuda law, a dissenting shareholder is entitled to be paid
the fair value of his or her shares. In order to exercise appraisal rights, a
shareholder must not vote in favor of the amalgamation and must within one month
after the date of this proxy statement, apply to the Supreme Court of Bermuda to
appraise the fair value of his or her shares. There are no statutory rules
prescribing the process of appraisal by the court and it is generally considered
that the court will apply the general common law with a view to determining the
fair market value of the shares. For the complete text of appraisal rights under
Bermuda law, see Annex C to this proxy statement.
32
<PAGE> 36
OWNERSHIP OF SHARES
The following table sets forth certain information, as of December 31,
1999, as to the security ownership of those persons owning of record or known to
Amway Asia Pacific to be the beneficial owner of more than 10% of the common
stock and the common stock ownership of Amway Asia Pacific's officers and
directors as a group. All information with respect to beneficial ownership has
been furnished by the respective 10% beneficial owner, officer or director, as
the case may be. Unless otherwise indicated, the persons named below have sole
voting and investment power with respect to the number of shares of common stock
set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF SHARES
NAMES AND ADDRESSES COMMON STOCK OF COMMON STOCK
OF BENEFICIAL OWNERS BENEFICIALLY OWNED BENEFICIALLY OWNED
-------------------- ------------------- --------------------
<S> <C> <C>
New AAP Limited.......................................... 8,181,756(1) 14.5%
7575 Fulton Street,
East Ada, MI 49355
Apple Hold Co., L.P...................................... 54,996,706(2) 97.4%
7575 Fulton Street,
East Ada, MI 49355
All officers and directors as a group (14 persons)....... 249,662(3) *
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Acquired pursuant to the tender offer by New AAP to purchase all of the
outstanding shares of AAP which commenced on November 18, 1999 and expired
on December 17, 1999. New AAP is wholly owned by Apple Hold Co.
(2) Includes 8,181,756 shares (14.5%) of common stock held by its wholly-owned
subsidiary, New AAP. The limited partners of Apple Hold Co. are corporations
and trusts formed by or for the benefit of the DeVos and Van Andel families.
The general partner is AP New Co., LLC, a Nevada limited liability company,
the sole manager of which is Amway Corporation.
(3) Includes issued and outstanding options to purchase common stock. Pursuant
to the tender offer and amalgamation agreement, all issued and outstanding
options to purchase common stock will be converted into rights to receive
cash in accordance with the Black-Scholes option pricing method and will
require surrender of all options by the holders as of the effective date of
the amalgamation. In addition, Richard M. DeVos, Jr., Stephen A. Van Andel
and Douglas L. DeVos are executive officers of Amway, the sole manager of AP
New Co., the general partner of Apple Hold Co., and therefore beneficially
own 54,966,706 (97.4%) shares of common stock.
OTHER MATTERS
LEGAL PROCEEDINGS
On December 8, 1999, Robert Fisher commenced a purported class action
lawsuit in the Superior Court of the State of California, County of San Mateo,
captioned Fisher, et al. v. Amway Asia Pacific, Ltd., et al., No. 411303. The
complaint, which names as defendants Amway Asia Pacific, its officers and
directors and New AAP, alleges that the purchase price offered to the public
shareholders in connection with the tender offer was unfair and that in pursuing
the tender offer, defendants engaged in various manipulative and deceptive acts
and practices in breach of their fiduciary duties to the public shareholders.
The complaint seeks an injunction prohibiting defendants from proceeding with
the tender offer or, alternatively, rescission of the tender offer to the extent
already completed, unspecified damages, costs and attorneys' fees and other
relief. This action has been removed to the United States District Court,
Northern District of California and was assigned No. C00-00199 MEJ. Plaintiff
has moved to remand the action back to state court, and the parties are
currently briefing the motion.
On December 16, 1999, Robert F. Wardrop, II, commenced a purported class
action lawsuit in the United States District Court for the Southern District of
New York captioned Wardrop, et al. v. Amway Asia Pacific Ltd.,
33
<PAGE> 37
et al., No. 99 Civ. 12093. The complaint, which names as defendants Amway Asia
Pacific, its officers and directors and New AAP, alleges that defendants
violated Section 14(e) of the Exchange Act, and Rules 14D-1 and 14D-9
promulgated pursuant thereto, by misrepresenting in the offer to purchase that
the purchase price offered to the public shareholders was fair. The complaint
seeks an injunction prohibiting the defendants from proceeding with the tender
offer or, alternatively, rescission of the tender offer to the extent already
completed or rescissory damages, costs and attorneys' fees and other relief.
Plaintiff has moved to be appointed lead plaintiff. Defendants have not opposed
this motion.
PROXY SOLICITATIONS
Amway Asia Pacific will bear the costs of soliciting proxies from its
shareholders. In addition to the use of the mails, proxies may be solicited by
the directors, officers and employees of Amway Asia Pacific by personal
interview, telephone or telegram. These directors, officers and employees will
not be additionally compensated for the solicitation, but may be reimbursed for
out-of-pocket expenses incurred. Arrangements will also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of common stock held of record
by these persons, and Amway Asia Pacific will reimburse these brokerage houses,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred.
Amway Asia Pacific is not presently aware of any business to be acted upon
at the special meeting other than as described in the notice of special meeting.
If, however, any other matter properly comes before the special meeting, the
proxy holders will vote proxies in accordance with their discretion.
March 30, 2000
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY; THEREFORE, SHAREHOLDERS
ARE URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY IN THE REPLY ENVELOPE
PROVIDED WHETHER OR NOT THEY PLAN TO ATTEND THE SPECIAL MEETING.
34
<PAGE> 38
ANNEX A
FAIRNESS OPINION
PERSONAL AND CONFIDENTIAL
November 15, 1999
Special Committee of the Board of Directors
Amway Asia Pacific, Ltd.
38/F, The Lee Gardens
33 Hysan Avenue
Causeway Bay, Hong Kong
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than the Controlling Shareholders (as defined below))
of the outstanding shares of Common Stock, par value US$.01 per share (the
"Shares"), of Amway Asia Pacific, Ltd. (the "Company") of the US$18.00 per Share
in cash (the "Acquisition Price") to be received by such holders in the Tender
Offer and the Amalgamation or the Compulsory Acquisition (each as defined below)
pursuant to the Tender Offer and Amalgamation Agreement, dated as of November
15, 1999, among Apple Hold Co., L.P. ("Hold Co."), New AAP Limited ("Buyer") and
the Company (the "Agreement"). The Agreement provides for a tender offer (the
"Tender Offer") for all of the Shares, other than Shares owned by the DeVos and
Van Andel families and their affiliates (the "Controlling Shareholders"),
pursuant to which Buyer will pay the Acquisition Price for each Share accepted.
Buyer is an entity controlled and beneficially owned directly and indirectly by
the Controlling Shareholders of the Company, who currently beneficially own
84.9% of the Shares in the aggregate. The Agreement further provides that
following completion of the Tender Offer, the Company will be amalgamated with
Buyer, with the Company continuing as the amalgamated company (the
"Amalgamation"), and each outstanding Share (other than Shares already owned by
Hold Co. or the Controlling Shareholders) will be converted into the right to
receive the Acquisition Price. The Agreement also provides, however, that if
following Buyer's purchase of Shares pursuant to the Tender Offer Buyer has
purchased in the Tender Offer and/or owns a sufficient number of Shares
compulsorily to acquire the remaining outstanding Shares from the remaining
public holders of Shares pursuant to the Bermuda Companies Act of 1981, as
amended (the "Act"), the Company and Buyer may not consummate the Amalgamation
and instead Buyer will purchase the remaining outstanding Shares from the
remaining public holders of Shares pursuant to the Act for the Acquisition Price
(the "Compulsory Acquisition").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as financial advisor to the Special
Committee of the Board of Directors in connection with, and having participated
in certain of the negotiations leading to, the Agreement. Goldman, Sachs & Co.
also provides a full range of financial advisory and securities services and, in
the course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 20-F of the
Company for the five fiscal years ended August 31, 1998; certain interim reports
to stockholders and Quarterly Reports on Form 6-K of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial and stock market information
for the Company with similar information for certain other companies the
A-1
<PAGE> 39
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the internal financial forecasts prepared by the
management of the Company have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
and liabilities of the Company or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. We note that the Controlling
Shareholders own a majority of the Shares, and that the Controlling Shareholders
have represented to Goldman Sachs and the Special Committee of the Board of
Directors of the Company that the Controlling Shareholders will not sell their
Shares to any third party. Accordingly, we were not requested to solicit, and
did not solicit, interest from other parties with respect to an acquisition of
or other business combination with the Company. Our advisory services and the
opinion expressed herein are provided for the information and assistance of the
Special Committee of the Board of Directors of the Company in connection with
its consideration of the transactions contemplated by the Agreement and such
opinion does not constitute a recommendation as to whether or not any holder of
Shares should tender such Shares in connection with such transaction or should
vote in respect of the Amalgamation.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
US$18.00 per Share in cash to be received by the holders of Shares (other than
the Controlling Shareholders) in the Tender Offer and the Amalgamation or the
Compulsory Acquisition is fair from a financial point of view to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
A-2
<PAGE> 40
ANNEX B
TENDER OFFER AND AMALGAMATION AGREEMENT
TENDER OFFER AND AMALGAMATION AGREEMENT
DATED
NOVEMBER 15, 1999
AMONG
AMWAY ASIA PACIFIC, LTD.,
APPLE HOLD CO., L.P.
AND
NEW AAP LIMITED
B-1
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
ARTICLE I INTERPRETATION.............................................. B-5
ARTICLE II THE OFFER AND AMALGAMATION.................................. B-5
2.1 The Offer................................................... B-5
2.2 Company Actions............................................. B-6
ARTICLE III THE AMALGAMATION; CONVERSION OF SHARES...................... B-6
3.1 The Amalgamation............................................ B-6
3.2 Conversion of Capital Stock................................. B-7
3.3 Exchange of Certificates.................................... B-7
3.4 Effective Time.............................................. B-8
3.5 Closing..................................................... B-8
3.6 Directors and Officers of the Amalgamated Company........... B-9
3.7 Further Assurances.......................................... B-10
ARTICLE IV SECTION 103 TRANSACTION..................................... B-10
4.1 Section 103 Transaction..................................... B-10
4.2 Option of Purchaser......................................... B-10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... B-10
5.1 Organization and Qualification.............................. B-10
5.2 Capitalization of the Company............................... B-10
5.3 Power and Authority......................................... B-11
5.4 Recommendations............................................. B-11
5.5 Consents and Approvals; No Violation........................ B-11
5.6 Information Supplied........................................ B-11
5.7 Brokers and Finders......................................... B-12
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER................. B-12
6.1 Organization................................................ B-12
6.2 Power and Authority......................................... B-12
6.3 Consent and Approvals; No Violation......................... B-12
6.4 Information Supplied........................................ B-12
6.5 Purchaser's Operations...................................... B-12
6.6 Capitalization.............................................. B-12
6.7 Financing................................................... B-12
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF HOLD CO................... B-13
7.1 Organization................................................ B-13
7.2 Authority Relative to this Agreement........................ B-13
7.3 Consent and Approvals; No Violation......................... B-13
7.4 Hold Co.'s Operations....................................... B-13
7.5 Capitalization.............................................. B-13
7.6 Financing................................................... B-13
ARTICLE VIII ADDITIONAL COVENANTS........................................ B-13
8.1 Consents and Approvals...................................... B-13
8.2 Additional Actions.......................................... B-13
8.3 Shareholders Approval....................................... B-14
8.4 Indemnification, Exculpation And Insurance.................. B-14
ARTICLE IX CONDITIONS.................................................. B-15
9.1 Conditions to each Party's Obligations...................... B-15
ARTICLE X TERMINATION................................................. B-15
10.1 Termination................................................. B-15
10.2 Effect of Termination....................................... B-16
</TABLE>
B-2
<PAGE> 42
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
ARTICLE XI GENERAL PROVISIONS.......................................... B-16
11.1 Amendment and Modification.................................. B-16
11.2 Nonsurvival of Representations and Warranties............... B-16
11.3 Notices..................................................... B-16
11.4 Definitions; Interpretation................................. B-17
11.5 Specific Performance........................................ B-17
11.6 Counterparts................................................ B-17
11.7 Entire Agreement; No Third Party Beneficiaries.............. B-17
11.8 Severability................................................ B-18
11.9 Governing Law............................................... B-18
11.10 Assignment.................................................. B-18
11.11 Extension; Waiver........................................... B-18
11.12 Procedure For Termination, Amendment, Extension Or Waiver... B-18
11.13 Announcements............................................... B-18
</TABLE>
B-3
<PAGE> 43
TENDER OFFER AND AMALGAMATION AGREEMENT
This Tender Offer and Amalgamation Agreement (this "Agreement") is made the
15th day of November 1999, by and among Amway Asia Pacific Ltd., a company
incorporated under the laws of Bermuda having its registered office at Clarendon
House, Church Street, Hamilton, Bermuda (the "Company"), Apple Hold Co., L.P., a
Bermuda limited partnership ("Hold Co.") controlled by the Principal
Shareholders (as defined herein), and New AAP Limited, a company incorporated
under the laws of Bermuda having its registered office at Clarendon House,
Church Street, Hamilton, Bermuda ("Purchaser").
RECITALS
WHEREAS, the special committee formed by the Board of Directors of the
Company (the "Special Committee") comprised exclusively of directors of the
Board of Directors not affiliated with the Principal Shareholders (as defined
below) has considered and acted upon a proposal received from Purchaser, which
is a wholly owned subsidiary of Hold Co. and an entity controlled and
beneficially owned, directly and indirectly, by the principal shareholders of
the Company (the "Principal Shareholders"), to acquire from all shareholders of
the Company (the "Shareholders"), all the outstanding shares of Common Stock,
$.01 par value per share (the "Company Common Stock" or the "Shares"), of the
Company (the "Acquisition");
WHEREAS, the Principal Shareholders have advised the Special Committee that
Purchaser intends to commence the Acquisition by first conducting a tender offer
(the "Offer") for all of the outstanding Shares;
WHEREAS, the Principal Shareholders have informed Purchaser that they will
not tender their Shares in response to the Offer, but such Principal
Shareholders will transfer their Shares ("Non-Tendered Shares") to Hold Co.
contemporaneously with the consummation of the Offer;
WHEREAS, in furtherance of the Acquisition, after the consummation of the
Offer and subject to Section 4.1, the Company and Purchaser will amalgamate (the
"Amalgamation"), and the Company will continue as the amalgamated company (the
"Amalgamated Company");
WHEREAS, if at any time after consummation of the Offer, Purchaser and Hold
Co. own, in the aggregate, 95 percent or more of the outstanding shares of the
Company Common Stock, then in such event Purchaser may, if it elects to do so in
lieu of the Amalgamation, compulsorily purchase the remaining Shares from the
remaining Shareholders pursuant to Section 103 of the Bermuda Companies Act of
1981, as amended (the "Act") at a price equal to the Amalgamation Consideration
(as defined below);
WHEREAS, having received the advice of financial and legal advisors, and
following negotiation of the terms of the Offer and this Agreement, the Special
Committee has unanimously determined that the Offer and the Amalgamation are
fair to, and in the best interests of, the holders of Shares, other than
Non-Tendered Shares (the "Public Shareholders"), and has advised the Board of
Directors of the Company that it has made such determination;
WHEREAS, the Board of Directors of the Company other than those who have
any interest in any proceedings of the Board of Directors with respect to the
transactions contemplated by this Agreement, who currently are Messrs. Richard
M. DeVos, Douglas L. DeVos, Jr., and Stephen A. Van Andel (the "Disinterested
Directors") (based upon the recommendation of the Special Committee) has
unanimously approved the Acquisition, upon the terms and subject to the
conditions set forth in this Agreement, and has unanimously adopted resolutions
approving this Agreement and recommending that the Public Shareholders accept
the Offer and tender their Shares in response to the Offer;
WHEREAS, the Board of Directors of Purchaser has approved the Offer and the
Amalgamation, upon the terms and subject to the conditions set forth in this
Agreement and has adopted resolutions approving this Agreement;
WHEREAS, the general partner of Hold Co., the sole shareholder of
Purchaser, has approved this Agreement and the Acquisition, upon the terms and
subject to the conditions hereinafter described; and
WHEREAS, except as otherwise contemplated by this Agreement, the Principal
Shareholders have agreed, and Hold Co. has agreed that after transfer to it of
the Non-Tendered Shares by the Principal Shareholders, not to
B-4
<PAGE> 44
dispose of or otherwise transfer the Non-Tendered Shares, and Purchaser has
agreed not to dispose of or otherwise transfer any Shares purchased by it in the
Offer ("Purchased Shares"), in either case prior to consummation of the
Amalgamation or the transaction described in Article IV, as the case may be, and
the Principal Shareholders have agreed, and the Principal Shareholders have
agreed to cause Hold Co. and Purchaser, as the case may be, to vote, and Hold
Co. and Purchaser, as the case may be, have agreed to vote the Non-Tendered
Shares and Purchased Shares in favor of the Amalgamation or the transaction
described in Article IV, as the case may be, on the terms and subject to the
conditions set forth in the Shareholder and Voting Agreement (the "Shareholder
Agreement") in the form of Exhibit A attached hereto, which Shareholder
Agreement is being executed and delivered simultaneously with the execution and
delivery of this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
INTERPRETATION
In this Agreement unless the context otherwise acquires:
(a) references to statutory provisions shall be construed as references to
those provisions as amended or re-enacted or as their application is modified by
other provisions from time to time and shall include references to any
provisions of which they are re-enactments (whether with or without
modification);
(b) references to the singular shall include the plural and vice versa and
references to the masculine shall include the feminine and/or neuter and vice
versa; and
(c) references to persons shall include companies, partnerships,
associations and bodies of persons, whether incorporated or unincorporated.
ARTICLE II
THE OFFER AND AMALGAMATION
2.1 THE OFFER.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article X, then (i) on or after the date of execution of this
Agreement, but in any event not later than November 15, 1999, Purchaser and the
Company shall publicly announce the Offer and (ii) Purchaser shall, as promptly
as possible, but in no event later than five Business Days (for purposes of this
Agreement, such term having the meaning given the Rule 14d-1 under the
Securities Exchange Act of 1934 (the "Exchange Act")) after the date of such
public announcement, commence (within the meaning of Rule 14d-2 under the
Exchange Act), the Offer to purchase all of the issued and outstanding Shares at
a price per share of U.S. $18.00, in cash (the "Offer Price"). Purchaser may
withhold and deduct amounts from such payments in accordance with Section
2.1(c). The Offer shall be made pursuant to an Offer to Purchase (the "Offer to
Purchase") and related Letter of Transmittal (the "Letter of Transmittal")
containing terms and conditions consistent with this Agreement. The obligation
of Purchaser to commence the Offer, conduct and consummate the Offer and accept
for payment, and pay for, any Shares properly tendered and not withdrawn
pursuant to the Offer shall not be subject to any conditions other than changes
in applicable laws that have the effect of making the Offer unlawful. Purchaser
expressly reserves the right, subject to compliance with the Exchange Act, to
modify the terms of the Offer except that, without the express written consent
of the Company, as authorized by the Special Committee, Purchaser shall not (i)
reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price,
(iii) change the form of consideration payable in the Offer or (iv) amend,
alter, add or waive any term of the Offer in any manner adverse to the holders
of the Shares. Purchaser shall as soon as practicable after the expiration date
of the Offer, accept for payment, and pay for all Shares validly tendered and
not properly withdrawn pursuant to the Offer.
(b) On the date of commencement of the Offer, Purchaser shall file with the
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1, as supplemented or amended from time to time (the "Schedule
14D-1"), and Schedule 13E-3, as supplemented or amended from time to time (the
B-5
<PAGE> 45
"Schedule 13E-3"), with respect to the Offer, which shall contain the Offer to
Purchase and the Letter of Transmittal, summary advertisement and any other
ancillary documents and instruments pursuant to which the Offer will be made
(such Schedule 14D-1, the Schedule 13E-3 and the documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"). Purchaser agrees to take all
necessary steps to cause the Schedule 14D-1 and Schedule 13E-3 to be filed with
the SEC and the Offer Documents to be disseminated to holders of Shares, in each
case, as and to the extent required by applicable U.S. Federal securities laws.
Purchaser shall make all filings necessary in accordance with the laws of
Australia. The Company and its counsel, as well as the Special Committee and
their counsel, shall be given reasonable opportunity to review and comment upon
the Offer Documents prior to their filing with the SEC and prior to
dissemination to the Shareholders. Purchaser shall consider all comments in good
faith. Purchaser agrees to provide the Company, the Special Committee and their
counsel any comments Purchaser may receive from the SEC or its staff with
respect to the Offer Documents promptly after the receipt of such comments.
(c) Purchaser shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the Offer such amounts as may be
required to be deducted and withheld with respect to the payment of such
consideration under the Internal Revenue Code of 1986, as amended, or any other
tax under any provision of state, local or foreign tax law; provided, however,
that Purchaser shall promptly pay any amounts deducted and withheld hereunder to
the applicable governmental authority, shall promptly file all tax returns and
reports required to be filed in respect of such deductions and withholding, and
shall promptly provide to the Company proof of such payment and a copy of all
such tax returns and reports.
2.2 COMPANY ACTIONS.
(a) The Company hereby consents to the Offer.
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer, as supplemented or amended from time to time
(the "Schedule 14D-9"), containing the recommendation of the Board of Directors
consisting of the Disinterested Directors described in Section 5.4(b) and shall
mail the Schedule 14D-9 to the Shareholders. The Company agrees to take all
steps necessary to cause the Schedule 14D-9 to be filed with the SEC and
disseminated to the Shareholders simultaneously with the Offer Documents, in
each case, as and to the extent required by applicable U.S. Federal securities
laws. Purchaser shall be given reasonable opportunity to review and comment upon
the Schedule 14D-9 prior to its filing with the SEC or dissemination to the
Shareholders, and the Company shall consider such comments in good faith. The
Company agrees to provide Purchaser any comments the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments.
(c) In connection with the Offer and the Amalgamation, the Company shall
cause its transfer agent and its depositary to furnish Purchaser promptly with
mailing labels containing the names and addresses of the record holders of
Shares as of a recent date and of those persons becoming record holders
subsequent to such date, together with copies of all lists of Shareholders,
security position listings and computer files and all other information in the
Company's possession or control regarding the beneficial owners of Shares, and
shall furnish to Purchaser such information and assistance, including updated
lists of shareholders, security position listings and computer files, as
Purchaser may reasonably request in communicating the Offer to the Shareholders.
Purchaser shall use such labels and other information solely to effect the
Amalgamation and the Acquisition.
ARTICLE III
THE AMALGAMATION;
CONVERSION OF SHARES
3.1 THE AMALGAMATION.
(a) At the time the Amalgamation becomes effective pursuant to the Act (the
"Effective Time") Purchaser and the Company shall amalgamate on the terms and
subject to the conditions hereof and in accordance with Part VII of the Act. The
Company and Purchaser shall consummate the Amalgamation pursuant to which (i)
Purchaser and the Company shall amalgamate with the Company continuing as the
Amalgamated Company and (ii) all the
B-6
<PAGE> 46
rights, privileges, immunities, powers and franchises of Purchaser and the
Company shall be those of the Amalgamated Company.
(b) Following the consummation of the Amalgamation, (i) the name of the
Amalgamated Company shall be "Amway Asia Pacific Ltd.", (ii) the Memorandum of
Association of the Amalgamated Company shall be that of the Company and (iii)
the Bye-laws of the Amalgamated Company shall be those of the Company.
3.2 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the
Amalgamation and without any action on the part of Purchaser, the Company or the
holders of any shares of Company Common Stock or Purchaser's common stock, U.S.
$.01 par value per share ("Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share of Purchaser
Common Stock shall be converted into and become one (1) fully paid and
nonassessable share of common stock of the Amalgamated Company.
(b) Conversion of Shares. Each issued and outstanding share of Company
Common Stock (excluding shares of Company Common Stock owned by Hold Co. or the
Principal Shareholders, which shall remain outstanding) shall be canceled in
consideration for a payment in cash to the holder thereof of an amount equal to
the Offer Price, or if the Offer Price is increased, such increased price,
without interest (the "Amalgamation Consideration"), upon surrender of the
certificate formerly representing such shares of Company Common Stock in the
manner provided in Section 3.3 provided, that shares of Company Common Stock
owned by Purchaser shall not receive the Amalgamation Consideration. There will
be deducted from the Amalgamation Consideration paid to each holder any U.S.
backup or other applicable withholding taxes which may be required to be
withheld. Except for shares of Company Common Stock owned by Hold Co., all
shares of Company Common Stock (excluding shares issued pursuant to subsection
(a) of this Section 3.2), at the Effective Time, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the Amalgamation
Consideration therefor upon the surrender of such certificate in the manner
prescribed in Section 3.3, without interest.
(c) Stock Options. At the Effective Time and pursuant to the terms
governing warrants, options and other rights to acquire Company Securities (as
defined in Section 5.2(a)), all issued and outstanding warrants, options and
other rights to acquire Company Securities (as defined in Section 5.2(a)) shall
be converted into rights to receive cash in accordance with the Black-Scholes
Option Pricing Model and will require in connection therewith the surrender of
all awards to acquire Company Securities as of the Effective Time. No holder of
any such warrant, option or other right shall be entitled to receive
consideration in the form of Company Securities from the Company by virtue of
the Acquisition.
(d) Shares of Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, in connection with the Amalgamation (if it becomes
effective), holders of shares of Company Common Stock shall have rights pursuant
to Section 106 of the Act, provided such holders comply with the provisions of
such Section. For purposes of applying the foregoing provisions of the Act, the
date of the corporate action triggering the obligation to provide notice of
dissenters rights to the holders of shares of Company Common Stock shall be the
date on which notice of the shareholder's meeting to approve the Amalgamation is
deemed to be received by such holders.
3.3 EXCHANGE OF CERTIFICATES.
(a) Paying Agent. Purchaser shall designate a bank or trust company to act
as agent for the holders of shares of Company Common Stock in connection with
the Amalgamation (the "Paying Agent") to receive the funds to which holders of
shares of Company Common Stock shall become entitled pursuant to Section 3.2(b).
Purchaser shall deposit with the Paying Agent cash in an amount equal to the
product of (i) the number of shares of Company Common Stock required to be
converted pursuant to Section 3.2(b), multiplied by (ii) the Amalgamation
Consideration. The deposit made by Purchaser pursuant to the preceding sentence
is hereinafter referred to as the "Payment Fund." The Paying Agent shall cause
the Payment Fund to be (i) held for the benefit of the holders of shares of
Company Common Stock, and (ii) promptly applied to making the payments provided
for in Section 3.2(b). The Payment Fund shall not be used for any purpose that
is not provided for herein. Such funds shall be invested by the Paying Agent as
directed by Purchaser.
B-7
<PAGE> 47
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose shares of Company Common Stock will have been converted pursuant to
Section 3.2 into the right to receive the Amalgamation Consideration (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent and shall be in such form and have such other
provisions as Purchaser and the Company may reasonably specify) and related
materials, including, without limitation, a Substitute Form W-9 and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Amalgamation Consideration. Upon surrender of a Certificate
for cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Purchaser, together with such letter of transmittal and related
materials, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Amalgamation Consideration for each share of
Company Common Stock formerly represented by such Certificate and the
Certificate so surrendered shall forthwith be canceled. If payment of the
Amalgamation Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Amalgamation Consideration to a person other than the registered
holder of the Certificate surrendered or shall have established to the
satisfaction of Amalgamated Company that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 3.3, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Amalgamation Consideration in cash, without
interest, as contemplated by this Section 3.3.
(c) Termination of Fund; No Liability. At any time following twelve months
after the Effective Time, the Amalgamated Company shall be entitled to require
the Paying Agent to deliver to it any funds, including any interest received
with respect thereto, which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Amalgamated Company, subject to
abandoned property, escheat or other similar laws, only as general creditors
thereof with respect to the Amalgamation Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, neither the Amalgamated Company nor the Paying Agent shall be
liable to any holder of a Certificate for Amalgamation Consideration delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(d) Lost Certificates. In the event any Certificates shall have been lost,
stolen or destroyed, the Paying Agent shall pay in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, the Amalgamation Consideration, if any, as may be
required pursuant to Section 3.2(b); provided, however, that Purchaser may, in
its discretion and as a condition precedent to the payment thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct against any claim that may be made against
Purchaser, the Amalgamated Company or the Paying Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
(e) Investment of Payment Fund. The Paying Agent will invest the cash in
the Payment Fund, as directed by Purchaser, on a daily basis. Any interest and
other income resulting from investments will be paid to Purchaser.
3.4 EFFECTIVE TIME. On the date of Closing (as defined in Section 3.5),
the parties will cause appropriate documents as required under the Act to be
filed with the Registrar of Companies (the "Registrar of Companies"). The
Amalgamation will become effective when the certificate of amalgamation is
issued by the Registrar of Companies. The time the Amalgamation becomes
effective shall be referred to as the "Effective Time".
3.5 CLOSING. The Closing of the Amalgamation (the "Closing") will take
place at 9:00 a.m., Cleveland time, on a date to be specified by the parties,
which shall be as soon as practicable following the satisfaction or waiver of
the conditions set forth in Article IX (or on such other date as Purchaser and
the Company may agree), but in any event no later than the second Business Day
after satisfaction or waiver of all of the conditions set forth in Article IX
hereof (the "Closing Date"), at the offices of Jones, Day, Reavis & Pogue, North
Point, 901
B-8
<PAGE> 48
Lakeside Avenue, Cleveland, Ohio 44114-1190, unless another date or place is
agreed to in writing by the parties hereto.
3.6 DIRECTORS AND OFFICERS OF THE AMALGAMATED COMPANY. The names and
addresses of the persons proposed to be directors and officers of the
Amalgamated Company are as follows:
<TABLE>
<CAPTION>
NAME POSITION ADDRESS CITY, STATE
---- -------- ------- -----------
<S> <C> <C> <C>
Stephen A. Van Andel Chairman, Director 7685 Leonard, N.E. Ada, Michigan 49301
Richard M. DeVos, Jr. President, Director 2003 Hillsboro, S.E. Grand Rapids, Michigan 49546
Douglas L. DeVos Director 2020 Devonwood, SE Grand Rapids, Michigan 49546
Eoghan M. McMillan Director C-58 Repulse Bay Apartments, Repulse Bay, Hong Kong
101 Repulse Bay Road
Jack C.K. So Director 402A Villa Verde, Hong Kong
16 Guildford Road
John C.C. Chan Director Flat A, 7th Floor, Hong Kong
Glory Heights,
52 Lyttelton Road
Lai-Huat Choong Director 7, Jalan Turi, 59100 Kuala Lumpur, Malaysia
Bukit Bandaraya
Eva Cheng Executive Vice Block 1-A, 33rd Floor, Hong Kong
President; Director Clovelly Court;
12 May Road,
Mid-levels
Lynn Lyall Chief Financial 1755 Park Trail, NE Grand Rapids, MI 49525
Officer, Vice
President and
Treasurer
Lawrence M. Call Vice President 38 Campau Circle, NW Grand Rapids, Michigan 49503
Craig N. Meurlin Vice President, 6525 Donnegal Lane, SE Grand Rapids, Michigan 49546
General Counsel and
Assistant Secretary
John C. Brockman Vice President, 7425 Kenrob, SE Grand Rapids, Michigan 49546
Distributor Relations
Percy Chin Vice President, Suite 1103, Shangai, PRC; 200030
General Chun Lan Apartment,
Manager -- East China Magnolia Garden,
50 Pu Hui Tang Road
Patrick Hau Vice President, Flat 7B, Dynasty Court, Hong Kong
General Tower 5,
Manager -- National 23 Old Peak Road
Operations
Audie Wong Vice President, Villa 418 Beijing, PRC 100103
General Manager -- Beijing Riviera, No. 1,
North China Xiang Jiang Bei Road,
Chaoyang District
Martin Liou General Manager -- No. 5, Lane 3, Taoyuan, Taipei R.O.C.
Taiwan Chun-Pou 5th St.
Low Han-Kee Regional Manger -- 16, Jalan SS26/3; 47301, Selangor, Malaysia
Malaysia Petaling Jaya
Preecha Prakobkit General Manager -- 335 Lad Prao 101 Bangkapi, Bangkok 10240
Thailand Thailand
Peter Williams General Manager -- 25 Cadwells Road, Sydney, Australia 2156
Australia Kenthurst
Betty Yeung General Manager -- 923 King's Road, Quarry Bay, Hong Kong
South China 9/Floor,
Ritz Mansion
</TABLE>
B-9
<PAGE> 49
<TABLE>
<CAPTION>
NAME POSITION ADDRESS CITY, STATE
---- -------- ------- -----------
<S> <C> <C> <C>
John C.R. Collis Secretary "Saltcoats," Warwick WK06, Bermuda
10 Keith Hall Road
</TABLE>
3.7 FURTHER ASSURANCES. If, at any time after the Effective Time, any
further action is necessary or desirable to consummate the Amalgamation, to
carry out the purposes of this Agreement or to vest the Amalgamated Company with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Purchaser, the officers and directors
of the Company and Purchaser are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
ARTICLE IV
SECTION 103 TRANSACTION
4.1 SECTION 103 TRANSACTION. Notwithstanding anything stated or
contemplated in this Agreement to the contrary and in particular notwithstanding
Article III, the Company and Purchaser need not amalgamate if at any time after
consummation of the Offer, Purchaser and Hold Co. own, in the aggregate, 95
percent or more of the outstanding shares of the Company Common Stock. In such
event, Purchaser may, if it elects to do so in lieu of the Amalgamation,
compulsorily purchase the remaining outstanding Shares from the remaining Public
Shareholders pursuant to Section 103 of the Act for a per share consideration
equal to the Amalgamation Consideration. In the event the Shares of the
remaining Shareholders are purchased pursuant to Section 103 of the Act, such
remaining Public Shareholders will have the rights granted to them in accordance
with Section 103 of the Act, including dissenters' rights.
4.2 OPTION OF PURCHASER. If, as a result of or following the Offer,
Purchaser is able to effect the transaction set forth in Sections 4.1, Purchaser
shall elect, in its sole discretion, whether to implement such transaction or to
effect the Amalgamation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Hold Co. as follows:
5.1 ORGANIZATION AND QUALIFICATION. The Company has been duly incorporated
and is validly existing as a corporation under the laws of Bermuda.
5.2 CAPITALIZATION OF THE COMPANY.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 110,000,000 shares of Common Stock. All outstanding shares of
capital stock of the Company have been validly issued, and are fully paid and
nonassessable. As of the date hereof, there are 448,500 shares of Common Stock
subject to issuance upon exercise of outstanding options, warrants, or other
rights to purchase capital stock of the Company from the Company. Except as set
forth above, there are outstanding (A) no shares of capital stock or other
securities of the Company, (B) no securities of the Company convertible into or
exchangeable for shares of capital stock or securities of the Company, (C) no
options, subscriptions, warrants, convertible securities, calls or other rights
to acquire from the Company, and no obligation of the Company to issue, deliver
or sell, any capital stock, securities or securities convertible into or
exchangeable for capital stock or securities of the Company, and (D) no equity
equivalents, performance shares, interests in the ownership or earnings of the
Company or other similar rights issued by the Company (the items referred to in
clauses (A)-(D) are referred to herein as "Company Securities"). As of the date
hereof, (i) there are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any Company Securities, (ii) no agreement, other
document or other obligation that grants or imposes on any Company Securities
any right, preference, privilege or restriction with respect to the transactions
contemplated hereby, including, without limitation, any rights of first refusal,
(iii) there are no bonds, debentures, notes or other indebtedness having general
voting rights (or convertible into securities having such rights) of the Company
issued and outstanding and (iv) the Company is not a party or bound to, and to
the Company's
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knowledge there are no other, voting agreements, lock-up agreements or similar
agreements or arrangements restricting or affecting outstanding Company
Securities.
(b) All issued and outstanding warrants, options and other rights to
acquire Company Securities will, as of or prior to the Effective Time, be
substituted for such alternative consideration as the Board of Directors of the
Company may in good faith determine to be equitable under the circumstances
surrounding the Acquisition and will require in connection therewith the
surrender of all awards to acquire Company Securities as of the Effective Time.
No holder of any such warrant, option or other right shall be entitled to
receive consideration in the form of Company Securities from the Company by
virtue of the Acquisition.
5.3 POWER AND AUTHORITY. The Company has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company.
5.4 RECOMMENDATIONS.
(a) On November 15, 1999, the Special Committee received an opinion from
its financial advisor, Goldman, Sachs & Co. ("Goldman") to the effect that the
Offer Price to be received by the Public Shareholders in the Offer and the
Amalgamation Consideration or the consideration to be received in the compulsory
acquisition pursuant to Section 103 of the Act pursuant to this Agreement is
fair from a financial point of view to the Public Shareholders. A complete and
correct signed copy of such opinion will be delivered to Purchaser for purposes
of inclusion in the Offer Documents. At a meeting duly called and held on
November 15, 1999, the Special Committee duly, validly and unanimously (i)
determined that the Offer and the Amalgamation are fair to, and in the best
interests of, the Public Shareholders, (ii) recommended to the Board of
Directors that the Board of Directors approve, authorize and adopt this
Agreement, the Amalgamation and the other transactions contemplated hereby, and
(iii) resolved to recommend that the Public Shareholders accept the Offer and
tender their Shares in response to the Offer.
(b) The Board of Directors consisting of the Disinterested Directors, at a
meeting duly called and held on November 15, 1999, based, among other things, on
the recommendation of the Special Committee, unanimously (i) determined that the
Offer and the Amalgamation are fair to, and in the best interests of, the Public
Shareholders, (ii) approved, authorized and adopted this Agreement, the
Amalgamation and the other transactions contemplated hereby, (iii) resolved to
recommend that the Public Shareholders accept the Offer and tender their Shares
in response to the Offer, and (iv) took the action required to cause all issued
and outstanding warrants, options and other rights to acquire Company Securities
to be substituted for rights to acquire consideration other than Company
Securities, as of or prior to the Effective Time.
5.5 CONSENTS AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby and the performance by the Company of its obligations hereunder will not:
(a) conflict with or violate any provision of the Company's Memorandum of
Association or Bye-laws; or
(b) require on the part of the Company any consent, approval, order,
authorization or permit of, or registration, filing or notification to, any
Governmental Authority (as hereinafter defined), except for (i) the filing with
the SEC of such reports under the Exchange Act as may be required in connection
with this Agreement (including, without limitation, the Schedule 14D-9), and the
transactions contemplated hereby, (ii) the filing of the Articles of
Amalgamation with the Registrar of Companies, and (iii) such additional actions
or filings which, if not taken or made, would not, singly or in the aggregate,
have a material adverse effect on the condition, financial or otherwise, the
earnings, business affairs or business prospects of the Company or the
consummation of the transactions contemplated by this Agreement.
5.6 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company specifically for use in the Offer Documents will, at the
time filed with the SEC or as of the date mailed to the Shareholders, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
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5.7 BROKERS AND FINDERS. Except for payments required to be made to
Goldman, the Company will not or has not, directly or indirectly, become
obligated to pay any person or entity any brokerage fee, finder's fee,
investment banking fee or agent's fee as a result of the entering into of this
Agreement or any of the transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company and Hold Co. as follows:
6.1 ORGANIZATION. Purchaser is a company duly incorporated and is validly
existing as a corporation under the laws of Bermuda. Purchaser is a wholly owned
subsidiary of Hold Co.
6.2 POWER AND AUTHORITY. Purchaser has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby on the part of Purchaser
have been duly and validly authorized by its board of directors and its sole
shareholder and no other corporate proceedings on the part of Purchaser are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Purchaser.
6.3 CONSENT AND APPROVALS; NO VIOLATION. The execution and delivery by
Purchaser of this Agreement do not, and the consummation of the transactions
contemplated hereby and the performance by Purchaser of its obligations
hereunder will not:
(a) conflict with or violate any provision of Purchaser's Memorandum of
Association or Bye-laws; or
(b) require on the part of Purchaser any consent, approval, order,
authorization or permit of, or registration, filing or notification to, any
Governmental Authority (as hereinafter defined), except for (i) the filing by
Purchaser with the SEC of such reports under the Exchange Act as may be required
in connection with this Agreement (including, without limitation, the Schedule
14D-1 and the Schedule 13E-3), and the transactions contemplated hereby and (ii)
such additional actions or filings which, if not taken or made, would not,
singly or in the aggregate, have a material adverse effect on the condition,
financial or otherwise, the earnings, business affairs or business prospects of
Purchaser or the consummation of the transactions contemplated by this
Agreement.
6.4 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Purchaser or the Principal Shareholders specifically for use in the
Schedule 14D-9 will, at the time filed with the SEC or as of the date mailed to
the Shareholders, contain any untrue statement of a material fact or will omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances in which they
are made, not misleading.
6.5 PURCHASER'S OPERATIONS. Purchaser was incorporated solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than to facilitate
the transactions contemplated hereby.
6.6 CAPITALIZATION. All of the capital stock of Purchaser has been duly
and validly issued and is held of record and owned beneficially solely by Hold
Co.
6.7 FINANCING. Purchaser has, or will have as of the date of consummation
of the Offer, all funds necessary to purchase all Shares accepted for payment in
the Offer. Purchaser has, or will have as of the date of
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consummation of the Amalgamation or the transaction contemplated by Section 4.1,
all funds necessary to consummate the applicable transaction.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF HOLD CO.
Hold Co. represents and warrants to the Company and Purchaser as follows:
7.1 ORGANIZATION. Hold Co. is a limited partnership duly organized,
validly existing and in good standing under the laws of Bermuda.
7.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Hold Co. has all requisite
limited partnership power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby on the part of Hold Co. have been duly and validly authorized by the
general partner of Hold Co. and no other limited partnership proceedings on the
part of Hold Co. are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Hold Co.
7.3 CONSENT AND APPROVALS; NO VIOLATION. The execution and delivery of
this Agreement does not, and the consummation of the transactions contemplated
hereby and the performance by Hold Co. of its obligations hereunder will not:
(a) conflict with any provision of the certificate of formation of Hold
Co.; or
(b) require on the part of Hold Co. any consent, approval, order,
authorization or permit of, or registration, filing or notification to, any
Governmental Authority (as hereinafter defined) or any third party.
7.4 HOLD CO.'S OPERATIONS. Hold Co. was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or conducted any operations other than to facilitate the
transactions contemplated hereby.
7.5 CAPITALIZATION. All of the partnership interests of Hold Co. have been
duly and validly issued and are held of record and owned beneficially solely by
the Principal Shareholders.
7.6 FINANCING. Purchaser has, or will have as of the date of consummation
of the Offer, all funds necessary to purchase all Shares accepted for payment in
the Offer. Purchaser has, or will have as of the date of consummation of the
Amalgamation or the transaction contemplated by Section 4.1, all funds necessary
to consummate the applicable transaction.
ARTICLE VIII
ADDITIONAL COVENANTS
The parties hereto further agree as follows:
8.1 CONSENTS AND APPROVALS. The parties hereto shall cooperate with each
other and use commercially reasonable efforts to promptly prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, to obtain as promptly as practicable all permits, consents, approvals
and authorizations of all third parties ("Third Party Approvals") and Bermuda,
U.S. Federal, state and local governmental and any foreign governmental agencies
and authorities ("Governmental Authority") which are necessary or advisable to
consummate the transactions contemplated by this Agreement ("Governmental
Approvals" and, together with Third Party Approvals, "Approvals"), and to comply
with the terms and conditions of all such Approvals.
8.2 ADDITIONAL ACTIONS. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, to consummate and make
effective the Offer, the Amalgamation and the other transactions contemplated by
this Agreement.
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8.3 SHAREHOLDERS APPROVAL. The Company shall, as soon as practicable after
the consummation of the Offer, take all steps necessary (a) to duly call, give
notice of, convene and hold a meeting of the Shareholders (the "Shareholder
Meeting") for the purpose of securing the approval by the Shareholders
("Shareholder Approval") of the Amalgamation or (b) to the extent Purchaser
elects under Section 4.2 to pursue the transaction described in Sections 4.1, to
effect such transaction as has been so elected.
8.4 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) The Company agrees that all rights to indemnification and exculpation
(including the advancement of expenses) from liabilities for acts or omissions
occurring at or prior to the Effective Time (including with respect to the
transactions contemplated by this Agreement) existing now or at the Effective
Time in favor of the current or former directors or officers of the Company (the
"Indemnified Parties") as provided in the Company Memorandum of Association, the
Company Bye-Laws and any indemnification agreements (each as in effect on the
date hereof) shall be assumed by the Amalgamated Company in the Amalgamation,
without further action, as of the Effective Time and shall survive the
Amalgamation and shall continue in full force and effect without amendment,
modification or repeal for a period not less than the statute of limitations
applicable to such matters; provided, however, that if any claims are asserted
or made during the continuance of such period, all rights to indemnification
(and to advancement of expenses) hereunder in respect of any such claims shall
continue, without diminution, until disposition of any and all such claims.
(b) To the extent paragraph (a) shall not serve to indemnify and hold
harmless an Indemnified Party, for a period of six years from and after the
Effective Time, the Amalgamated Company shall indemnify, defend and hold
harmless the Indemnified Parties against all losses, claims, damages, costs,
expenses (including reasonable attorneys' fees and expenses), liabilities or
judgments of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation (an "Action") arising out of or pertaining to such
individuals' services, prior to the Effective Time, as directors, officers or
employees of the Company, including, without limitation, matters based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case to the full
extent permitted by applicable law.
(c) The Amalgamated Company shall (i) maintain for a period of not less
than six years from the Effective Time the Company's current directors' and
officers' insurance and indemnification policy to the extent that it provides
coverage for events occurring prior to the Effective Time (the "D&O Insurance"),
for all persons who are directors or officers of the Company on the date of this
Agreement (the "Insured Parties") or (ii) cause to be provided coverage no less
advantageous to the Insured Parties than the D&O Insurance, in each case so long
as the annual premium therefor would not be in excess of 150% of the last annual
premium paid for the D&O Insurance prior to the date of this Agreement (such
150% amount, the "Maximum Premium"). If the existing D&O Insurance expires, is
terminated or canceled during such six-year period, the Amalgamated Company will
use all reasonable efforts to cause to be obtained as much D&O Insurance as can
be obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium.
(d) The provisions of this Section 8.4 shall survive the consummation of
the Acquisition and are intended to be for the benefit of, and will be
enforceable by, each indemnified or insured party, his or her heirs and his or
her representatives and (ii) are in addition to, and not in substitution for,
any other rights to indemnification or contribution that any such person may
have by contract or otherwise. The Company or the Amalgamated Company, as
applicable, shall pay the reasonable expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Parties in enforcing rights to
which such Indemnified Parties are entitled under the provisions of this Section
8.4.
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ARTICLE IX
CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
the parties to effect the Amalgamation or the transaction contemplated by
Article IV, as the case may be, shall be subject to the satisfaction or waiver,
on or prior to the Closing Date, of the following conditions:
(a) Shareholder Approval. Unless the transaction contemplated by Article IV
is consummated in lieu of the Amalgamation, prior to consummation of the
Amalgamation, this Agreement and the Amalgamation shall have been approved by
the Shareholders required by and in accordance with applicable law.
(b) Governmental Approvals. Other than the filing of the Articles of
Amalgamation in accordance with the Act, all Governmental Approvals required to
be obtained and all material filings, notices or declarations with or to
Governmental Authorities required to be made by the parties and their
Subsidiaries, officers, directors and affiliates in order to consummate the
Amalgamation or the transaction contemplated by Article IV, as the case may be,
shall have been obtained or made, and no such approval shall contain any
conditions, limitations or restrictions, other than any deviation from the
foregoing that does not have and may not reasonably be expected to have a
material adverse effect on the ability of each of the Company or Purchaser, as
the case may be, to perform its obligations under this Agreement or to
consummate the Amalgamation or the transaction contemplated by Article IV, as
the case may be.
(c) Legal Action; Statutes. No governmental entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order which is in effect and has the effect of making the
Amalgamation or the transaction contemplated by Article IV, as the case may be,
illegal or prohibits the Company or Purchaser from consummating the Amalgamation
or the transaction contemplated by Article IV.
(d) Closing of Tender Offer. Purchaser shall have (i) commenced the Offer
pursuant to Article II hereof and (ii) purchased, pursuant to the terms and
conditions of such Offer, all Shares duly tendered and not withdrawn; provided,
however, that Purchaser shall not be entitled to rely on the condition in this
Section 9.1(d) if Purchaser shall have failed to commence the Offer or purchase
Shares pursuant to the Offer in breach of its obligations under this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement and the Offer may be terminated and the
Amalgamation or transaction contemplated by Article IV may be abandoned at any
time prior to the Effective Time, whether before or after Shareholder Approval
thereof:
(a) By Mutual Consent. By mutual consent of Purchaser or Hold Co. on the
one hand and the Company acting through the Board of Directors consisting of the
Disinterested Directors on the other.
(b) By Purchaser or the Company. By Purchaser or the Company, if any
governmental entity enacts, issues, promulgates, enforces or enters any statute,
rule, regulation, injunction or other order which is in effect and has the
effect of making the Offer, the Amalgamation or the transaction contemplated by
Article IV, as the case may be, illegal or prohibits Purchaser from buying
Shares in the Offer or prohibits the Company or Purchaser from consummating the
Amalgamation or otherwise prohibits, directly or indirectly, consummation of the
transactions contemplated by this Agreement, including the transaction
contemplated by Article IV or if the conditions to consummation of the Offer or
the Amalgamation cannot be satisfied; provided, however, that the right to
terminate this Agreement under this Section 10.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of , or resulted directly or indirectly in, the failure of such
condition to occur on or before the Effective Time.
(c) By the Company: By the Company (acting through the Board of Directors
consisting of the Disinterested Directors), if Purchaser (A) fails to commence
the Offer within five Business Days of the public announcement by Purchaser and
the Company of the Offer, or (B) fails to pay for Shares pursuant to the Offer
in accordance with Section 2.1(a) hereof.
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10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 10.1 above, written notice thereof shall forthwith be
given to the other parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement (except as to those portions of the
Acquisition which, at the date of termination, have been consummated) shall
forthwith become null and void and there shall be no liability or obligation on
the part of the parties hereto or their respective officers, directors or
employees, except to the extent arising under applicable law and for willful
breach hereof.
ARTICLE XI
GENERAL PROVISIONS
11.1 AMENDMENT AND MODIFICATION. Subject to applicable law and subject to
Section 11.12, this Agreement may be amended, modified and supplemented in any
and all respects by written agreement of the parties hereto; provided, however,
that after approval of this Agreement by the Shareholders, no such amendment,
modification or supplement shall reduce or change the form of the Amalgamation
Consideration.
11.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive, in the case of
the Offer, the date upon which the Offer is consummated, in the case of the
Amalgamation, the Effective Time, and, in the case of the transaction described
in Article IV, the date upon which such transaction is consummated. This Section
11.2 shall not limit any covenant or agreement of the parties hereto which by
its terms contemplates performance after (a) the date of consummation of the
Offer, (b) the Effective Time or (c) the date of consummation of the transaction
described in Article IV.
11.3 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(which is confirmed), telex or delivery by an overnight express courier service
(delivery, postage or freight charges prepaid), or on the fourth day following
deposit in the mail (if sent by registered or certified mail, return receipt
requested, delivery, postage or freight charges prepaid), addressed to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to the Company:
Special Committee
c/o Amway Asia Pacific, Ltd.
38/F The Lee Gardens
33 Hysan Avenue
Causeway Bay
Hong Kong
Attention: Eoghan McMillan
Telephone: 852/2506-1806
Facsimile: 852/2524-9902
E-mail: [email protected]
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470
Attention: Daniel S. Sternberg, Esq.
Telephone: 212/225-2630
Facsimile: 212/225-3999
E-mail: [email protected]
(b) If to Hold Co.:
Apple Hold Co., L.P.
7575 Fulton Street East
Ada, Michigan 49355
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<PAGE> 56
Attention: Craig N. Meurlin, Esq.
Telephone: 616/787-8305
Facsimile: 616/787-5623
E-mail: [email protected]
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telephone: 216/586-3939
Facsimile: 216/579-0212
E-mail: [email protected]
(c) If to Purchaser:
New AAP Limited
7575 Fulton Street East
Ada, Michigan 49355
Attention: Craig N. Meurlin, Esq.
Telephone: 616/787-8305
Facsimile: 616/787-5623
E-mail: [email protected]
with a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telephone: 216/586-3939
Facsimile: 216/579-0212
E-mail: [email protected]
11.4 DEFINITIONS; INTERPRETATION. When a reference is made in this
Agreement to an Article or Section, such reference shall be to an Article or
Section in this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
11.5 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of Bermuda having jurisdiction,
this being in addition to any other remedy to which they are entitled at law or
in equity.
11.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. Except for that
certain Confidentiality Agreement, dated as of September 29, 1999, between the
Company and ALAP Hold Co., Ltd., a Nevada limited partnership, which shall apply
to the Purchaser as if it were a party thereto, this Agreement (including the
documents and the instruments referred to herein and therein) (a) constitutes
the entire agreement and supersedes all prior
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agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) with the exception of Section
8.4(d) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
11.8 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
11.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Bermuda and with respect to the transactions
contemplated hereby the parties hereby irrevocably submit to the non-exclusive
jurisdiction of the courts of Bermuda.
11.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by, the parties and their respective
successors and assigns.
11.11 EXTENSION; WAIVER. Subject to Section 11.12, at any time prior to the
Effective Time, the parties hereto, by action taken or authorized by, in the
case of the Company, the Board of Directors consisting of its Disinterested
Directors, in the case of Purchaser, its board of directors or, in the case of
Hold Co., a partner, member or authorized officer, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other parties hereto contained herein or
in any document delivered pursuant hereto or (iii) subject to Section 11.1,
waive compliance with any of the agreements or conditions of the other parties
hereto contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
11.12 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 10.1, an amendment of this
Agreement pursuant to Section 11.1 or an extension or waiver pursuant to Section
11.11 or other action required or permitted to be taken pursuant to this
Agreement shall, in order to be effective, require in the case of Purchaser,
action by its board of directors or a duly authorized designee thereof, require
in the case of the Company, action by its Board of Directors consisting of its
Disinterested Directors or a duly authorized designee thereof, or require in the
case of Hold Co., action by a partner, member or authorized officer; provided,
however, the affirmative vote of a majority of the Board of Directors consisting
of the Disinterested Directors shall be required in order for the Company or the
Board of Directors to act to (i) amend or terminate this Agreement, (ii)
exercise or waive any of Company's rights or remedies under this Agreement,
(iii) extend the time for performance of Hold Co.'s or Purchaser's respective
obligations under this Agreement or (iv) take any action to amend or otherwise
modify the Company's Articles of Association or Bye-Laws (each as in effect on
the date hereof).
11.13 ANNOUNCEMENTS. None of the Company, Hold Co. or Purchaser shall make
any public announcement of the terms or existence of this Agreement without the
consent of the other parties hereto, unless required by law.
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<PAGE> 58
IN WITNESS WHEREOF, Hold Co., Purchaser, and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
<TABLE>
<S> <C>
AMWAY ASIA PACIFIC, LTD.: APPLE HOLD CO., L.P.:
By: AP New Co., LLC,
as general partner
By: /s/ Eva Cheng By: /s/ Craig N. Meurlin
Name: Eva Cheng Name: Craig N. Meurlin
Title: Director and Executive Title: Manager
Vice President
NEW AAP LIMITED
By: /s/ Lawrence M. Call
Name: Lawrence M. Call
Title: President
</TABLE>
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<PAGE> 59
ANNEX C
APPRAISAL RIGHTS UNDER BERMUDA LAW
106. SHAREHOLDER APPROVAL
(1) The directors of each amalgamating company shall submit the
amalgamation agreement for approval to a meeting of the holders of shares of the
amalgamating company of which they are directors and, subject to subsection (4),
to the holders of each class of such shares.
(2) A notice of a meeting of shareholders complying with section 75 shall
be sent in accordance with that section to each shareholder of each amalgamating
company, and shall
(a) include or be accompanied by a copy or summary of the amalgamation
agreement; and
(b) subject to subsection 2A, state --
(i) the fair value of the shares as determined by each amalgamating
company; and
(ii) that a dissenting shareholder is entitled to be paid the fair
value of his shares.
(2A) Notwithstanding subsection 2(b)(ii), failure to state the matter
referred to in that subsection does not invalidate an amalgamation.
(3) Each share of an amalgamating company carries the right to vote in
respect of an amalgamation whether or not it otherwise carries the right to
vote.
(4) The holders of shares of a class of shares of an amalgamating company
are entitled to vote separately as a class in respect of an amalgamation if the
amalgamation agreement contains a provision which would constitute a variation
of the rights attaching to any such class of shares for the purposes of section
47.
(4A) The provisions of the bye-laws of the company relating to the holding
of general meetings shall apply to general meetings and class meetings required
by this section provided that, unless the bye-laws otherwise provide, the
resolution of the shareholders or class must be approved by a majority vote of
three-fourths of those voting at such meeting and the quorum necessary for such
meeting shall be two persons at least holding or representing by proxy more than
one-third of the issued shares of the company or the class, as the case may be,
and that any holder of shares present in person or by proxy may demand a poll.
(5) An amalgamation agreement shall be deemed to have been adopted when it
has been approved by the shareholders as provided in this section.
(6) Any shareholder who did not vote in favour of the amalgamation and who
is not satisfied that he has been offered fair value for his shares may within
one month of the giving of the notice referred to in subsection (2) apply to the
Court to appraise the fair value of his shares.
(6A) Subject to subsection (6B), within one month of the Court appraising
the fair value of any shares under subsection (6) the company shall be entitled
either--
(a) to pay to the dissenting shareholder an amount equal to the value
of his shares as appraised by the Court; or
(b) to terminate the amalgamation in accordance with subsection (7).
(6B) Where the Court has appraised any shares under subsection (6) and the
amalgamation has proceeded prior to the appraisal then, within one month of the
Court appraising the value of the shares, if the amount paid to the dissenting
shareholder for his shares is less than that appraised by the Court the
amalgamated company shall pay to such shareholder the difference between the
amount paid to him and the value appraised by the Court.
(6C) No appeal shall lie from an appraisal by the Court under this section.
(6D) The costs of any application to the Court under this section shall be
in the discretion of the Court.
C-1
<PAGE> 60
(7) An amalgamation agreement may provide that at any time before the issue
of a certificate of amalgamation the agreement may be terminated by the
directors of an amalgamating company, notwithstanding approval of the agreement
by the shareholders of all or any of the amalgamating companies.
C-2
<PAGE> 1
Exhibit (a)(3)
AMWAY ASIA PACIFIC LTD.
PROXIES SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL GENERAL MEETING OF SHAREHOLDERS ON APRIL 27, 2000
The undersigned holder of shares of common stock of Amway Asia Pacific
Ltd. hereby appoints Douglas L. DeVos and Stephen A. Van Andel, and each of
them, as proxies of the undersigned, with full power of substitution, to act and
to vote for and in the name, place and stead of the undersigned at the Special
General Meeting of Shareholders of Amway Asia Pacific to be held in the Seminar
Room at Amway Asia Pacific's offices located at 38/F, The Lee Gardens, 33 Hysan
Avenue, Causeway Bay, Hong Kong, at 10:00 a.m. (Hong Kong time) on Thursday,
April 27, 2000, and at any and all adjournments thereof, according to the number
of votes and as fully as the undersigned would be entitled to vote if personally
present at such meeting with respect to the proposal listed on the reverse side
and in accordance with their discretion on all other matters that properly come
before the Special General Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR APPROVAL OF THE TENDER OFFER AND AMALGAMATION
AGREEMENT AND THE AMALGAMATION CONTEMPLATED THEREBY AND IN THE DISCRETION OF THE
PROXIES ON ALL OTHER MATTERS.
(Continued, and to be dated and signed, AMWAY ASIA PACIFIC LTD.
on the other side) P.O. BOX 11115
NEW YORK, NY 10203-0115
<PAGE> 2
The disinterested directors of the Board of Directors recommend a vote for the
approval of the tender offer and amalgamation agreement and the amalgamation
contemplated thereby.
1. Proposal to approve the tender offer FOR AGAINST ABSTAIN
and amalgamation agreement, dated
November 15, 1999, among Amway Asia
Pacific, New AAP Limited and
Apple Hold Co., L.P., and the
amalgamation contemplated thereby.
This proxy should be dated, signed by the shareholder as his or her name appears
hereon, and returned promptly in the enclosed envelope. Joint owners should each
sign personally, and trustees, and others signing in a representative capacity
should indicate the capacity in which they sign.
Dated:_______________________ , 2000
____________________________________
Signature of Shareholder
____________________________________
Signature of Shareholder
VOTES MUST BE INDICATED BY AN (X) IN
BLACK OR BLUE INK.
PLEASE MARK, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENVELOPE
PROVIDED.
<PAGE> 1
Exhibit (a)(4)
- Please fold and detach card at perforation before mailing -
AMWAY ASIA PACIFIC LTD.
In conjunction with the Special Meeting of Shareholders of Amway Asia
Pacific Ltd. (the "Company") to be held on April 27, 2000, or any adjournment
thereof, the undersigned, a participant in the Amway Corporation Profit Sharing
and 401(k) Plan (the "Plan"), hereby instructs Fidelity Management Trust Company
("Fidelity") as trustee of the Plan to vote the shares of Common Stock of the
Company credited to the participant's individual account under the Plan as
follows on the reverse side of this card.
NOTE: In order to have the aforesaid shares voted, this Voting Instruction Card
must be returned on or before April 20, 2000. Fidelity will not vote shares for
which it has received no direction from Plan participants.
MARK BOX AT RIGHT IF ADDRESS CHANGE HAS [ ]
BEEN NOTED ON LEFT OF THIS CARD.
PLEASE VOTE, DATE, SIGN AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Date
-------------------------------
------------------------------------------------
------------------------------------------------
Please sign this Voting Instruction Card exactly
as your name appears.
- Please fold and detach card at perforation before mailing -
PLEASE VOTE BY FILLING IN THE BOXES BELOW.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Proposal to approve the tender offer and amalgamation agreement, dated [ ] [ ] [ ]
November 15, 1999, among Amway Asia Pacific, New AAP Limited and
Apple Hold Co., L.P., and the amalgamation contemplated thereby.
</TABLE>
<PAGE> 1
Exhibit (c)(4)
SEPTEMBER 21, 1999 CONFIDENTIAL
- --------------------------------------------------------------------------------
PROJECT POWERHOUSE
PRESENTATION TO THE BOARD OF DIRECTORS
JP MORGAN
<PAGE> 2
This presentation was prepared exclusively for the benefit and internal use of
Acorn in order to indicate, on a preliminary basis, the feasibility of a
possible transaction or transactions and does not carry any right of publication
or disclosure to any other party. This presentation is incomplete without
reference to, and should be viewed solely in conjunction with, the oral briefing
provided by J.P. Morgan. Neither this presentation nor any of its contents may
be used for any other purpose without the prior written consent of J.P. Morgan.
The information in this presentation is based upon management forecasts and
reflects prevailing conditions and our views as of this date, all of which are
accordingly subject to change. In preparing this presentation, we have relied
upon and assumed, without independent verification, the accuracy and
completeness of all information available from public sources or which was
provided to us by or on behalf of Acorn or which was otherwise reviewed by us.
In addition, our analyses are not and do not purport to be appraisals of the
assets, stock, or business of Acorn, Apple of Juniper.
JP MORGAN
<PAGE> 3
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- - Juniper ADRs
- - Shareholder information
JPMORGAN
1
<PAGE> 4
J.P. MORGAN USED A NUMBER OF APPROACHES TO EVALUATE APPLE AND JUNIPER
- --------------------------------------------------------------------------------
- - Discounted cash flow analysis
- - Comparable trading multiples
- - Premiums paid in other go-private transactions involving minority squeeze
outs
- - Historical stock price performance
- - Analysis of trading momentum
- - Review of synergies created by combination
- - Strategic benefits from undertaking Mothership transaction
JPMORGAN
2
<PAGE> 5
TRADITIONAL VALUATION APPROACHES PROVIDE A PLATFORM FOR THE OVERALL ANALYSIS
- --------------------------------------------------------------------------------
Discounted cash flow - Economic trends Comparable trading
- Market trends multiples
- Competitive issues
ADVANTAGES
- - Values the business based on expected future cash flows
- - Projections capture long-term improvements in profitability in newer
markets
- - Riskiness of cash flows captured in weighted average cost-of-capital (WACC)
- - Free cash flow is after capital requirements (capex and WC needs)
ISSUES
- - Changing competitive/industry dynamics affect key margin assumptions
- - Several regions are in a turnaround and/or growth stage
- - Valuation is highly sensitive to terminal value assumptions
ADVANTAGES
- - Provides an indication of how public market investors value similar public
companies
- - Primarily based on forward-looking multiples
- - Multiples focus on: FV/EBIT, FV/EBITDA, P/E 2000-2001
- - Provides an indication of the value and risk in the industry
ISSUES
- - Few pure comparables
- - Other direct sales companies are good benchmark
- - Other potentially relevant comparables do not bear the same business or
geographic risk
Synergies from Apple and Juniper combination
--------------------------------------------
Strategic benefits of Mothership
JPMORGAN
3
<PAGE> 6
UNDER BOTH APPROACHES, J.P. MORGAN CONSIDERED SEVERAL COMPONENTS OF VALUE
- --------------------------------------------------------------------------------
Geographical - Analyzed Apple and Juniper businesses by country
- Company assumptions based on local market dynamics
Business - Projections highly sensitive to direct marketing
business risk (i.e., China's restrictions on direct
selling practices)
- Adjusted cost of capital based upon country and
business risk
JPMORGAN
4
<PAGE> 7
J.P. MORGAN REVIEWED A NUMBER OF PEER GROUPS FOR PUBLIC TRADING MULTIPLES
ANALYSIS
- --------------------------------------------------------------------------------
DIRECT SELLING PEERS
- - Most comparable peer group reflecting dynamics of global direct selling
industry
- Product diversity
- Similar distribution processes
- Many lack global scale
- Avon most comparable company
- Large business risk
SEGMENT COMPETITORS
CATALOGUE
- - Similar distribution system
- - Lack of product similarity
- - Less business risk with more control over product distribution
COSMETICS PEERS
- - Similar products
- - Different distribution systems
- - Higher multiples than direct selling industry due to less product/business
cycle distribution risk
JPMORGAN
5
<PAGE> 8
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - APPLE
- Market information
- Trading valuation
- Discounted cash flow
- - JUNIPER
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- - Juniper ADRs
- - Shareholder information
JPMORGAN
6
<PAGE> 9
Apple - One-year stock price performance
Graph displaying indexed share price performance for Amway Asia Pacific (AAP)
from 9/17/98 to 9/17/99 versus the Hang Seng Index and the Australian All
Ordinaries Index. Graph highlights 52 week high of $14.94, 52 week low of $6.88
and 90 day average of $12.85
Source: IDD Information Services
JPMORGAN
7
<PAGE> 10
Apple - Three-year stock price performance
Similar graph as on page 7 except that the period is now 3 years and there are
no highlighted sections on graph
Source: IDD Information Services
JP MORGAN
8
<PAGE> 11
Apple performance versus peers
Similar graph as on page 7 except that a straight peer index for AAP is added.
Index includes Avon Products, Nature's Sunshine, Nu Skin, Usana and Herbalife
Source: IDD Information Services
JPMORGAN
9
<PAGE> 12
SHARES TRADED ANALYSIS - APPLE
- --------------------------------------------------------------------------------
THOUSANDS OF SHARES TRADED, EXCEPT DAILY AVERAGE AND CUMULATIVE FIGURES, US$
3 MONTHS
Volume data Stock price data
------------------------ ------------------
Daily avg. 16,066 High $14.44
Cumulative 706,900 Low $12.31
Avg. $13.39
$12-$13 134
$13-$14 469.2
$14-$15 104
6 MONTHS
Volume data Stock price data
------------------------ ------------------
Daily avg. 30,767 High $14.44
Cumulative 3,969,000 Low $7.13
Avg. $11.16
$7-$9 1,034
$9-$11 315
$11-$13 1,340
$13-$15 1,281
12 MONTHS
Volume data Stock price data
------------------------ -----------------
Daily avg. 34,392 High $14.44
Cumulative 8,701,300 Low $7.13
Avg. $10.42
$7-$9 2,607
$9-$11 2,637
$11-$13 2,036
$13-$15 1,420
18 MONTHS
Volume data Stock price data
------------------------ ------------------
Daily avg. 45,562 High $20.00
Cumulative 17,359,200 Low $7.13
Avg. $12.26
$7-$9 2,710
$9-$11 3,448
$11-$13 3,164
$13-$15 5,240
$15-$17 2,194
$17-$19 341
$19-$21 263
JPMORGAN
10
<PAGE> 13
PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
US$
<TABLE>
<CAPTION>
BUYOUT PRICE
--------------------------------------------------------------------------------------------------
VALUE $12.00 $13.00 $14.00 $15.00 $16.00 $17.00 $18.00 $19.00 $20.00
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premium to:
9/17/99 close $11.75 2.1% 10.6% 19.1% 27.7% 36.2% 44.7% 53.2% 61.7% 70.2%
52-week high(1) $14.94 (19.7%) (13.0%) (6.3%) 0.4% 7.1% 13.8% 20.5% 27.2% 33.9%
52-week low(2) $6.88 74.5% 89.1% 103.6% 118.2% 132.7% 147.3% 161.8% 176.4% 190.9%
30-day average $12.60 (4.7%) 3.2% 11.1% 19.1% 27.0% 35.0% 42.9% 50.8% 58.8%
90-day average $12.85 (6.6%) 1.2% 9.0% 16.7% 24.5% 32.3% 40.1% 47.9% 55.6%
180-day average $11.16 7.5% 16.5% 25.4% 34.4% 43.3% 52.3% 61.3% 70.2% 79.2%
360-day average $10.45 14.9% 24.4% 34.0% 43.6% 53.1% 62.7% 72.3% 81.9% 91.4%
2 year average $14.15 (15.2%) (8.1%) (1.1%) 6.0% 13.1% 20.1% 27.2% 34.2% 41.3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) July 26, 1999
(2) April 22, 1999
JPMORGAN
11
<PAGE> 14
DIRECT SELLING COMPARABLE COMPANY VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY VALUE FIRM VALUE
----------------------------------------- -----------------------
PROJ. PROJ. PROJ. PROJ. PROJ. PROJ. LONG- FY2PE/
2000 2001 2000 2001 2000 2001 TERM LT
COMPANY EBIT EBIT EBITDA EBITDA EARNINGS EARNINGS GROWTH GROWTH
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Usana 5.1x 3.6x 4.5x 3.3x 8.5x 6.0x 27.0% 0.2
Tupperware 10.8 9.8 7.2 6.6 12.7 11.4 11.0% 1.0
Nu Skin 7.1 6.2 6.4 5.6 10.7 9.1 18.5% 0.5
Herbalife(1) 2.1 2.1 1.7 1.7 6.2 6.1 NA NA
Avon Products 13.5 11.8 12.2 10.8 21.2 18.4 15.0% 1.2
Nature's Sunshine 4.3 3.8 3.7 3.3 7.9 6.9 NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN 6.1x 5.0x 5.5x 4.4x 9.6x 8.0x 16.8% 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
JUNIPER 9.0x 8.4x 7.8x 7.4x 20.0x 18.8x 6.0% 3.1
APPLE 15.0x 8.2x 11.4x 7.0x 25.5x 14.3x 17.5% 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Apple financial values $40.0 $49.5 $53.3 $63.9 $27.9 $38.0
IMPLIED FIRM VALUE USING:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN $243.1 $245.9 $290.6 $284.1 $219.8 $255.4
USING AVON PRODUCTS MULTIPLE $541.4 $584.0 $652.0 $688.6 $543.3 $652.5
- ----------------------------------------------------------------------------------------------------------------------------------
Net debt ($160.2) ($160.2) ($160.2) ($160.2) ($160.2) ($160.2)
Minority interest valuation(2) $112.8 $112.8 $112.8 $112.8 $112.8 $112.8
IMPLIED EQUITY VALUE USING:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN $290.4 $293.3 $337.9 $331.4 $267.1 $302.8
USING AVON PRODUCTS MULTIPLE $588.7 $631.3 $699.3 $735.9 $590.6 $699.8
- ----------------------------------------------------------------------------------------------------------------------------------
Shares for valuation 56.4 56.4 56.4 56.4 56.4 56.4
IMPLIED PER SHARE VALUE USING:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN $5.15 $5.20 $5.99 $5.88 $4.74 $5.37
USING AVON PRODUCTS MULTIPLE $10.44 $11.19 $12.40 $13.05 $10.47 $12.41
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equity and firm valuation based upon pre-going private announcement share
prices as of close on September 13,1999
(2) Minority interest in Apple Malaysia calculated using the closing price of
9.00 MYR and an exchange rate of 3.7997 MYR/USD on 47.6 MM shares
JPMORGAN
12
<PAGE> 15
DCF FORECAST ASSUMPTIONS - APPLE
- --------------------------------------------------------------------------------
FROM AUG-2000 THROUGH AUG-2004
<TABLE>
<CAPTION>
- -------------------------------------------------------- -----------------------------------------------
SALES CAGR AVERAGE EBITDA MARGIN
- -------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
Australia 4.2% Australia 9.3%
New Zealand 5.2% New Zealand 6.4%
China 11.2% China 13.3%
Hong Kong 5.0% Hong Kong 1.4%
Taiwan 3.4% Taiwan 6.3%
Malaysia 5.7% Malaysia 15.3%
Thailand 6.2% Thailand 8.5%
- -------------------------------------------------------- -----------------------------------------------
- -------------------------------------------------------- -----------------------------------------------
AVERAGE EBIT MARGIN CAPEX/SALES
- -------------------------------------------------------- -----------------------------------------------
Australia 8.0% Australia 0.9%
New Zealand 4.1% New Zealand 2.1%
China 6.2% China 6.6%
Hong Kong (0.3%) Hong Kong 2.4%
Taiwan 5.5% Taiwan 0.8%
Malaysia 14.3% Malaysia 1.8%
Thailand 7.6% Thailand 1.0%
- -------------------------------------------------------- -----------------------------------------------
</TABLE>
JPMORGAN
13
<PAGE> 16
DCF FORECAST - APPLE
- --------------------------------------------------------------------------------
$ MILLIONS
<TABLE>
<CAPTION>
PROJECTED
-----------------------------------------------------------------------------
AUG-99 AUG-00 AUG-01 AUG-02 AUG-03 AUG-04
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $497.6 $582.9 $626.6 $661.6 $700.7 $742.5
% growth (15.3%) 17.2% 7.5% 5.6% 5.9% 6.0%
Gross profit 281.1 334.5 362.2 383.0 406.3 430.5
% margin 56.5% 57.4% 57.8% 57.9% 58.0% 58.0%
SG&A 259.8 294.5 312.7 334.5 355.6 375.7
% of sales 52.2% 50.5% 49.9% 50.6% 50.8% 50.6%
EBITDA 33.4 53.3 63.9 65.3 68.6 74.9
% margin 6.7% 9.1% 10.2% 9.9% 9.8% 10.1%
EBIT 21.3 40.0 49.5 48.5 50.7 54.8
% margin 4.3% 6.9% 7.9% 7.3% 7.2% 7.4%
Net Income 11.6 27.9 38.0 36.7 37.8 38.0
% margin 2.3% 4.8% 6.1% 5.5% 5.4% 5.1%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
14
<PAGE> 17
DCF VALUATION - APPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUG-00 AUG-01 AUG-02 AUG-03 AUG-04
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total sales $582.9 $626.6 $661.6 $700.7 $742.5
% growth 17.2% 7.5% 5.6% 5.9% 6.0%
EBIT 40.0 49.5 48.5 50.7 54.8
Taxable EBIT margin % 6.9% 7.9% 7.3% 7.2% 7.4%
Taxes 13.9 14.0 13.7 14.6 18.6
rate % 34.8% 28.3% 28.3% 28.9% 33.9%
- ----------------------------------------------------------------------------------------------------------------------------
EBIAT 26.1 35.5 34.7 36.0 36.2
+ depreciation 13.3 14.5 16.9 17.9 20.0
+ (increase) NWI 12.3 6.4 4.7 5.2 5.4
+ capex (18.4) (15.5) (13.0) (17.5) (15.5)
Less: flows prior to September 15, 1999 1.3
- ----------------------------------------------------------------------------------------------------------------------------
Free cash flows for discounting 31.9 40.8 43.2 41.7 46.1
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE EQUITY VALUE (1),(2)
EBITDA 7.5x 8.0x 8.5x EBITDA 7.5x 8.0x 8.5x
- ----------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WACC WACC
10.0% $510 $534 $557 10.0% $558 $581 $604
10.5% $501 $524 $546 10.5% $548 $571 $594
11.0% $491 $514 $536 11.0% $539 $561 $583
11.5% $482 $504 $526 11.5% $530 $552 $573
12.0% $474 $495 $516 12.0% $521 $542 $564
- ----------------------------------------------- -------------------------------------------
EQUITY VALUE/SHARE(1)
EBITDA 7.5x 8.0x 8.50x
- ------------------------------------------
<C> <C> <C> <C>
WACC
10.0% $9.89 $10.30 $10.71
10.5% $9.72 $10.12 $10.53
11.0% $9.55 $9.95 $10.34
11.5% $9.39 $9.78 $10.16
12.0% $9.23 $9.61 $9.99
- ------------------------------------------
</TABLE>
(1) Minority interest in Apple Malaysia calculated using the closing price of
9.00 MYR and an exchange rate of 3.7997 MYR/USD on 47.6 MM shares
(2) Removal of net debt of ($160.2) and minority interest of $112.8
JPMORGAN
15
<PAGE> 18
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- - Juniper ADRs
- - Shareholder information
JPMORGAN
16
<PAGE> 19
Juniper - one-year share price performance
Graph displaying indexed share price performance for Amway Japan OTC shares from
9/17/98 to 9/17/99 versus the Nikkei 225 Index. Graph highlights 52 week high of
1,430 Yen, 52 week low of 900 Yen, and 90 day average of 1,215 Yen
52-week high: (Yen)1,430
90-day average: (Yen)1,215
52-week low: (Yen)900
Source: IDD Information Services
JPMORGAN
17
<PAGE> 20
Juniper - three-year share price performance
Similar graph as on page 17 except that the period is now 3 years and there are
no highlighted sections on graph
Source: IDD Information Services
JPMORGAN
18
<PAGE> 21
Juniper performance versus peers
Similar graph as on page 17 except that 3 straight peer indices for Amway Japan
have been added: Catalogue shopping (Senshukai, Cecile, Nissen, Mutow and
Simree), Direct selling (Charle, Shaklee, Noevir, Avon Products Japan), and
Retail cosmetics (Kao, Lion and Shiseido)
19
<PAGE> 22
SHARES TRADED ANALYSIS - JUNIPER
- --------------------------------------------------------------------------------
THOUSANDS OF SHARES TRADED, EXCEPT DAILY AVERAGE AND CUMULATIVE FIGURES
3 MONTHS
Volume data Stock price data
- ------------------------------ ------------------------------
Daily avg. 79,984 High (Yen) 1,310
Cumulative 5,324,000 Low (Yen) 1,090
Avg. (Yen) 1,214
1,000-(Yen) 1,100 (Yen)1,100-(Yen)1,200 (Yen) 1,200-(Yen)1,300
691 4,493 140
6 MONTHS
Volume data Stock price data
- ------------------------------ ------------------------------
Daily avg. 103,944 High (Yen) 1,310
Cumulative 13,837,000 Low (Yen) 1,000
Avg. (Yen) 1,180
<TABLE>
1,000-(Yen) 1,100 (Yen)1,100-(Yen)1,200 (Yen) 1,200-(Yen)1,300 (Yen) 1,300-(Yen) 1,400
<S> <C> <C> <C>
3,673 3,468 6,556 140
</TABLE>
12 MONTHS
Volume data Stock price data
- ------------------------------ ------------------------------
Daily avg. 99,665 High (Yen) 1,420
Cumulative 26,117,000 Low (Yen) 915
Avg. (Yen) 1,193
<TABLE>
<CAPTION>
(Yen)-900-(Yen) 1,000 1,000-(Yen) 1,100 (Yen)1,100-(Yen)1,200 (Yen) 1,200-(Yen)1,300 (Yen) 1,300-(Yen)1,400 (Yen) 1,400-(Yen)1,500
<S> <C> <C> <C> <C> <C>
393 7,464 5,312 11,143 1,740 65
</TABLE>
18 Months
Volume data Stock price data
- ------------------------------ ------------------------------
Daily avg. 85,807 Stock price data
Cumulative 33,784,000 High (Yen) 2,380
Low (Yen) 915
Avg. (Yen) 1,357
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(Yen)900-(Yen)1,000 (Yen)1,000-(Yen)1,100 (Yen)1,100-(Yen)1,200 (Yen)1,200-(Yen)1,300
393 7,464 5,312 11,174
(Yen)1,300-(Yen)1,400 (Yen)1,400-(Yen)1,500 (Yen)1,500-(Yen)1,600 (greater than)(Yen)1,600 (Yen)1,700-(Yen)1,800
1,989 1,310 2,182 909 601
(Yen)1,800-(Yen)1,900 (Yen)1,900-(Yen)2,000 (Yen)2,000-(Yen)2,100 (Yen)2,100-(Yen)2,200 (Yen)2,200-Q(Yen)2,300
527 632 812 344 72
(Yen)2,300-(Yen)2,400
63
</TABLE>
Source: IDD Information Services
JPMORGAN
20
<PAGE> 23
PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
(Yen)
<TABLE>
<CAPTION>
BUYOUT PRICE
---------------------------------------------------------------------------
VALUE (Yen)1,200 (Yen)1,300 (Yen)1,400 (Yen)1,500 (Yen)1,600 (Yen)1,700
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Premium to:
9/17/99 close 1,090 10.1% 19.3% 28.4% 37.6% 46.8% 56.0%
52-week high(1) 1,430 (16.1%) (9.1%) (2.1%) 4.9% 11.9% 18.9%
52-week low(2) 900 33.3% 44.4% 55.6% 66.7% 77.8% 88.9%
30-day average 1,202 (0.1%) 8.2% 16.5% 24.8% 33.1% 41.5%
90-day average 1,215 (1.2%) 7.0% 15.2% 23.5% 31.7% 39.9%
180-day average 1,181 1.6% 10.1% 18.5% 27.0% 35.5% 43.9%
360-day average 1,209 (0.7%) 7.5% 15.8% 24.1% 32.3% 40.6%
2 year average 1,771 (32.2%) (26.6%) (20.9%) (15.3%) (9.6%) (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
BUYOUT PRICE
-------------------------------------
(Yen)1,800 (Yen)1,900 (Yen)2,000
- ------------------------------------------------------------------
<S> <C> <C> <C>
Premium to:
9/17/99 close 65.1% 74.3% 83.5%
52-week high(1) 25.9% 32.9% 39.9%
52-week low(2) 100.0% 111.1% 122.2%
30-day average 49.8% 58.1% 66.4%
90-day average 48.2% 56.4% 64.6%
180-day average 52.4% 60.9% 69.3%
360-day average 48.9% 57.2% 65.4%
2 year average 1.7% 7.3% 13.0%
- -----------------------------------------------------------------
</TABLE>
(1) November 5, 1998
(2) October 6, 1998
JPMORGAN
21
<PAGE> 24
TRADING COMPANY VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
$USMM
FIRM VALUE/ EQUITY VALUE/
-------------------------------------------------------------- -------------------------------
PROJ 1999 PROJ 2000 PROJ 1999 PROJ 2000
COMPANY PROJ 1999 EBIT PROJ 2000 EBIT EBITDA EBITDA EARNINGS EARNINGS
- ----------------------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Senshukai_C 28.8x 26.2x 14.0x 13.3x 59.2x 53.8x
Cecile_P 23.9 NA 20.2 NA 43.8 NA
Nissen_C 58.3 29.2 19.4 14.6 NA 13.8
Mutow_C 12.8 11.4 8.9 8.2 18.5 16.5
Shaklee_P 9.7 9.6 7.6 7.5 28.0 27.7
Simree_P 11.3 10.8 9.1 8.7 8.7 8.3
Noevir_P 14.3 12.0 8.4 7.5 41.2 34.8
Avon Products (Japan)_P 22.1 17.2 11.5 10.0 61.2 36.6
Kao_C 21.3 19.4 12.0 11.3 39.9 36.0
Lion_C 12.3 11.4 5.3 5.1 26.2 24.3
Shiseido_C 15.7 12.5 10.3 8.9 49.6 39.3
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN 15.7x 12.3x 10.3x 8.8x 40.6x 31.3x
- ----------------------------------------------------------------------------------------------------------------------------------
JUNIPER 9.0x 8.4x 7.8x 7.4x 20.0x 18.8x
APPLE 15.0x 8.2x 11.4x 7.0x 25.5x 14.3x
- ----------------------------------------------------------------------------------------------------------------------------------
Juniper financial values $157.4 $129.3 $174.9 $153.0 $80.7 $71.9
Implied firm value using:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN $2,471.4 $1,583.3 $1,801.6 $1,346.4 $3,121.5 $2,097.1
- ----------------------------------------------------------------------------------------------------------------------------------
Net debt ($150.8) ($150.8) ($150.8) ($150.8) ($150.8) ($150.8)
IMPLIED EQUITY VALUE USING:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN (US$MM) $2,622.2 $1,734.1 $1,952.4 $1,497.2 $3,272.3 $2,247.9
MEDIAN (JP(Yen)MM) (Yen)280,054 (Yen)185,209 (Yen)208,522 (Yen)159,907 (Yen)349,485 (Yen)240,080
- ----------------------------------------------------------------------------------------------------------------------------------
Shares for valuation 144.0 144.0 144.0 144.0 144.0 144.0
IMPLIED PER SHARE VALUE USING:
- ----------------------------------------------------------------------------------------------------------------------------------
MEDIAN (US$MM) $18.20 $12.04 $13.55 $10.39 $22.72 $15.61
MEDIAN (JP(YEN)MM) (Yen)1,944 (Yen)1,286 (Yen)1,448 (Yen)1,110 (Yen)2,426 (Yen)1,667
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Based on 106.8 JPY/USD exchange rate
JPMORGAN
22
<PAGE> 25
DCF FORECAST - JUNIPER
- --------------------------------------------------------------------------------
$ MILLIONS
<TABLE>
<CAPTION>
FROM AUG-2000 THROUGH AUG-2004 PROJECTED
- ---------------------------------------------------------------------- --------------------
<S> <C>
Sales CAGR 3.5%
Gross profit margin 69.2
SG&A as % of sales 56.8
EBITDA margin 14.4
EBIT margin 12.7
Depreciation/sales 1.8
Capex/sales 1.4
- ---------------------------------------------------------------------- --------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
---------------------------------------------------------------------------------------
AUG-99 AUG-00 AUG-01 AUG-02 AUG-03 AUG-04
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,279.2 $1,250.0 $1,293.8 $1,339.0 $1,385.9 $1,434.4
% growth (15.4%) (2.3%) 3.4% 3.4% 3.4% 3.4%
Gross profit 876.2 873.9 892.7 923.9 956.3 989.7
% margin 68.5% 69.9% 69.0% 69.0% 69.0% 69.0%
SG&A 719.7 745.4 738.0 754.0 771.2 794.9
% of sales 56.3% 59.6% 57.0% 56.3% 55.6% 55.4%
EBITDA 174.9 153.0 179.2 194.2 220.2 224.5
% margin 13.7% 12.2% 13.9% 14.5% 15.9% 15.6%
EBIT 157.4 129.3 155.5 170.5 196.4 200.7
% margin 12.3% 10.3% 12.0% 12.7% 14.2% 14.0%
Net income 80.7 71.9 86.4 94.8 109.2 111.7
% margin 6.3% 5.8% 6.7% 7.1% 7.9% 7.8%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
23
<PAGE> 26
DCF VALUATION - JUNIPER
- --------------------------------------------------------------------------------
US$ MILLIONS
<TABLE>
<CAPTION>
AUG-2000 AUG-2001 AUG-2002 AUG-2003 AUG-2004 AUG-2005 AUG-2006
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total sales $1,250.0 $1,293.8 $1,339.0 $1,385.9 $1,434.4 $1,484.6 $1,536.6
% growth (2.3%) 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
EBIT 129.3 155.5 170.5 196.4 200.7 203.1 211.1
Taxable EBIT margin % 10.3% 12.0% 12.7% 14.2% 14.0% 13.7% 13.7%
Taxes 58.2 70.0 76.7 88.4 90.3 91.4 95.0
EBIT tax rate % 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0%
- -----------------------------------------------------------------------------------------------------------------------------------
EBIAT 71.1 85.5 93.8 108.0 110.4 111.7 116.1
+ depreciation 23.8 23.8 23.8 23.8 23.8 23.8 23.8
+ (increase) decrease in NWI (17.2) 9.9 3.7 5.9 1.7 0.9 2.2
+ (capital expenditures) (35.0) (15.0) (15.0) (15.0) (15.0) (15.0) (15.0)
Less: flows prior to September 13, 1999 1.7
- -----------------------------------------------------------------------------------------------------------------------------------
Free cash flows for discounting 40.9 104.1 106.2 122.7 120.9 121.4 127.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE (US$MM) EQUITY VALUE (US$MM)
Sales g 1.5% 2.0% 2.5% Sales g 1.5% 2.0% 2.5%
- ----------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WACC WACC
7.0% $1,892 $2,043 $2,228 7.0% $2,061 $2,212 $2,397
8.0% $1,605 $1,708 $1,830 8.0% $1,775 $1,877 $1,999
9.0% $1,395 $1,468 $1,553 9.0% $1,564 $1,638 $1,723
10.0% $1,234 $1,288 $1,350 10.0% $1,403 $1,458 $1,520
11.0% $1,106 $1,148 $1,195 11.0% $1,275 $1,317 $1,364
- ----------------------------------------------- ---------------------------------------------
EQUITY VALUE/SHARE (US$)
Sales g 1.5% 2.0% 2.5%
---------------------------------------------
<C> <C> <C> <C>
WACC
7.0% $14.31 $15.36 $16.64
8.0% $12.32 $13.03 $13.88
9.0% $10.86 $11.37 $11.96
10.0% $9.74 $10.12 $10.55
11.0% $8.85 $9.14 $9.47
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIRM VALUE (JP(Yen)MM) EQUITY VALUE (JP(Yen)MM)
Sales g 1.5% 2.0% 2.5% Sales g 1.5% 2.0% 2.5%
- ------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WACC WACC
7.0% (Yen)202,038 (Yen)218,182 (Yen)237,914 7.0% (Yen)220,113 (Yen)236,257 (Yen)255,989
8.0% (Yen)171,445 (Yen)182,418 (Yen)195,385 8.0% (Yen)189,520 (Yen)200,493 (Yen)213,460
9.0% (Yen)148,969 (Yen)156,826 (Yen)165,892 9.0% (Yen)167,044 (Yen)174,901 (Yen)183,967
10.0% (Yen)131,748 (Yen)137,596 (Yen)144,223 10.0% (Yen)149,823 (Yen)155,671 (Yen)162,297
11.0% (Yen)118,126 (Yen)122,609 (Yen)127,619 11.0% (Yen)136,201 (Yen)140,684 (Yen)145,694
- ------------------------------------------------ -------------------------------------------------
EQUITY VALUE/SHARE (JP(Yen))
Sales g 1.5% 2.0% 2.5%
----------------------------------------------
<S> <C> <C> <C>
WACC
7.0% (Yen)1,528 (Yen)1,640 (Yen)1,777
8.0% (Yen)1,316 (Yen)1,392 (Yen)1,482
9.0% (Yen)1,160 (Yen)1,214 (Yen)1,277
10.0% (Yen)1,040 (Yen)1,081 (Yen)1,127
11.0% (Yen)946 (Yen)977 (Yen)1,011
----------------------------------------------
</TABLE>
Note: Assumes exchange rate of 106.8 USD/JPY
JPMORGAN
24
<PAGE> 27
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- --------------------------------------------------------------------------------
- - CASE STUDIES
- --------------------------------------------------------------------------------
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- - Juniper ADRs
- - Shareholder information
JPMORGAN
25
<PAGE> 28
MH MILLENIUM HOLDINGS LLC TENDER OFFER FOR
HERBALIFE INTL. INC.
Acquiror MH Millenium Holdings
Target Herbalife Inc.
Tender offer agent DLJ
Period From 9/14/99 to 10/15/99
Offer price $17.00
Total shareholders NA
Target # of shares to be 11.6 million A and B shares
purchase d (40.7% of total shares)
Conditions Majority of A and B shares
Price before ann. A shares $12.00
B shares $9.16
Prior 1 mo. avg. price $12.48 A shares
$9.32 B shares
Stock price range during NA
tender offer
5-yr low/high range $7.00-$36.88 A shares
$6.63-$26.75 B shares(1)
Prior 1 mo. average daily 20,286 A shares
volume 29,276 B shares
Volume on day after 416,400 A shares
announcement 902,700 B shares
Shares tendered NA
Shares purchased NA
Acquiror pre-tender offer 55.4% A shares
ownership 59.0% B shares
Acquiror post-tender offer NA
ownership
- - Offer represented a significant premium to both one year and three year
trading values. At preannouncement prices, the offer represents a 85.6%
premium to the Class B share price and a 41.7% premium to the Class A share
price
- - Currently, Mark Hughes, owns 55.4% of the outstanding Class A shares and
59.0% of the Class B shares
- - Given the unsatisfactory share price performance, Mark Hughes decided that
Herbalife would have greater flexibility to invest in geographical markets
which require greater lead-time and investment in infrastructure to produce
excess shareholder returns
- - Herbalife will begin to operate in both China and India within the next two
years. The company feels these two new markets will be less able to deliver
the immediate rapid growth which public markets require
(1) Since inception December 15, 1997
<PAGE> 29
MH Millenium Holdings LLC tender offer for Herbalife Intl. Inc. (cont'd)
Graph displaying stock price of Herbalife class A and B shares for the Last
Twelve Months prior to transaction announcement date. Graph also highlights
offer price. Graph displaying stock price of Herbalife class A shares for the
three years prior to transaction announcement date. Graph also highlights offer
price.
27
<PAGE> 30
SHOWA DENKO K.K. TENDER OFFER FOR SDS BIOTECH
- --------------------------------------------------------------------------------
Acquiror Showa Denko K.K (Japan)
Target SDS Biotech K.K (OTC)
Tender offer agent Nomura Securities
Period From 4/2/98 to 4/22/98 (20days)
Offer price (Yen) 1,550
Total shareholders 229
Target # of shares to be 5,931,000 shares
purchased (66.2% of shares outstanding)
Conditions Minimum 4.91 mil. shares tendered
Price before ann. (Yen)890 (implies a 72.4% premium)
Prior 1 mo avg. price (Yen)913 (implies a 69.8% premium)
Stock price range during (Yen)1,500 to (Yen)1,520
tender offer
5-yr low/high range (Yen)835 to (Yen)3,100
Prior 1 mo. average daily 1,333
volume
Volume on day after 6,000
announcement
Shares tendered 5,716,000 shares (63.8%)
Shares purchased 5,716,000 shares (63.8%, of which
54.8% from Novartis)
Acquiror pre-tender offer 33.8%
ownership
Acquiror post-tender offer 97.59%
ownership
- - Showa Denko acquired an additional 63.8% of SDS Biotech through a tender
offer
- Purchase included 54.8% stake owned by Novartis AG, which was primary
objective
- Remaining shares were held mainly by Japanese banks
- - Showa Denko intends to establish an integrated production/sale enterprise
for agrochemicals and increase flexibility of management
- The company had historically supplied raw ingredients for SDS's
fungicide and herbicides but had not marketed its own agricultural
chemicals
- SDS Biotech will transfer the businesses of agrochemicals, veterinary
pharmaceuticals and public health products that have been imported
from Novartis for resale
JP MORGAN
28
<PAGE> 31
SDS biotech stock price performance
Same two graphs as on page 27, but for SDS Biotech shares
29
<PAGE> 32
NCR'S TENDER OFFER FOR NCR JAPAN
- --------------------------------------------------------------------------------
Acquiror NCR Corp.
Target NCR Japan (TSE 1st Section)
Tender offer agent Nomura Securities
Period From 4/20/98 to 6/3/98 (45 days)
Offer price (Yen)607
Total shareholders 11,145
Target # of shares to be 66 million shares (30% of shares
purchased outstanding)
Conditions Minimum 33 mil. shares tendered
Price before ann. (Yen)480 (implies a 26.5% premium)
Prior 1 mo avg. price (Yen)450 (implies a 34.9% premium)
Stock price range during (Yen)574 to (Yen)600
tender offer
5-yr low/high range (Yen)358 to (Yen)1,600
Prior 1 mo. average daily 200,870
volume
Volume on day after 1,774,000
announcement
Shares tendered 59,700,000
Shares purchased 59,700,000
Acquiror pre-tender offer 70%
ownership
Acquiror post-tender offer 97.14%
ownership
- - NCR Japan is NCR's largest subsidiary and was also the only regional unit
whose shares are publicly traded
- - NCR intends to divide global operations by product rather than by country
in order to streamline business decisions
- - NCR Japan will be delisted from the Tokyo and Osaka stock exchanges
- - The offer price was 607 yen, an approximate 26.5 percent premium over the
close prior to the tender offer announcement
- - NCR used Nomura Securities to the chagrin of Nikko Securities, NCR Japan's
lead underwriter
JP MORGAN
30
<PAGE> 33
NCR Japan stock price performance
Same two graphs as on page 27, but for NCR Japan shares
JP MORGAN
31
<PAGE> 34
NCR Japan trading history
Graph displaying the daily traded volume for NCR Japan shares by price for five
years prior to transaction annoucement. Graph highlights volume weighted average
share price of 1,085 Yen and offer price of 607 Yen
32
<PAGE> 35
NCR Japan histrorical trading information
Graph displaying the annual stock price range of NCR Japan from 1989 to 1998
(thru tender offer annoucement date). Graph highlights tender offer price of 607
Yen. Graph displaying the annual shares traded volume for NCR Japan from 1991 to
1998 (thru tender offer annoucement date).
33
<PAGE> 36
TI GROUP'S TENDER OFFER FOR JAPAN MARINE TECHNOLOGIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------- ---------------------------------------------
Acquiror TI Group PLC (U.K.)
- ----------------------------------- ---------------------------------------------
Target Japan Marine Technologies (OTC)
- ----------------------------------- ---------------------------------------------
Tender offer agent Jarding Fleming, Nomura Securities
- ----------------------------------- ---------------------------------------------
Period From 4/21/98 to 5/20/98 (30 days)
- ----------------------------------- ---------------------------------------------
Offer price (Yen)580
- ----------------------------------- ---------------------------------------------
Total shareholders 1,189
- ----------------------------------- ---------------------------------------------
Target # of shares to be purchased 4,886,000 shares
(49.9% of shares outstanding)
- ----------------------------------- ---------------------------------------------
Conditions Minimum of 17% tendered
- ----------------------------------- ---------------------------------------------
Price before ann. (Yen)370 (implies a 56.8% premium)
- ----------------------------------- ---------------------------------------------
Prior 1 mo. avg. price (Yen)357 (implies a 62.5% premium)
- ----------------------------------- ---------------------------------------------
Stock price range during tender (Yen)562 to (Yen)575
offer
- ----------------------------------- ---------------------------------------------
5-yr low/high range (Yen)310 to (Yen)4,150
- ----------------------------------- ---------------------------------------------
Prior 1 mo. average daily volume 5,083
- ----------------------------------- ---------------------------------------------
Volume on day after announcement 228,000
- ----------------------------------- ---------------------------------------------
Shares tendered 3,858,000
- ----------------------------------- ---------------------------------------------
Shares purchased 3,858,000
- ----------------------------------- ---------------------------------------------
Acquiror pre-tender offer 50.1%
ownership
- ----------------------------------- ---------------------------------------------
Acquiror post-tender offer 89.6%
ownership
- ----------------------------------- ---------------------------------------------
</TABLE>
- - Offer represented a significant premium to recent trading values, but it was
still considerably lower than historical highs of close to (Yen)4,000
- - TI Group indicated that it would not purchase any shares if less than 17%
tender as TI Group wished to achieve 67%, the level of ownership necessary
to exert "negative" control through veto rights
- - TI Group intends to accelerate the growth of its marine division by
providing a stronger foothold in the Far East
- Prefers to reduce holdings by Japanese financial institutions which TI
Group has deemed unstable
- TI Group was motivated to launch this offer due to the success of its
Japanese subsidiary
JP MORGAN
34
<PAGE> 37
Japan Marine Technology Stock Price Performance
Same graphs as on page 27, but for Japan Marine Technology.
JP MORGAN
35
<PAGE> 38
Japan Marine Technology Historical Trading Information
Same graph as on page 33, but for Japan Marine Technology. Graph highlights
volume weighted average share price of 2,142 Yen and offer price of 580Yen
36
<PAGE> 39
Japan Marine Techonology Historical Trading Information
Graph displaying the annual stock price range of Japan Marine Techonology from
1990 to 1998 (thru tender offer annoucement date). Graph highlights tender offer
price of 580 Yen. Graph displaying the annual shares traded volume for Japan
Marine Techonology from 1993 to 1998 (thru tender offer annoucement date).
37
<PAGE> 40
JAPAN TOBACCO'S TENDER OFFER FOR TORII PHARMACEUTICAL
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------- ----------------------------------------------
Acquiror Japan Tobacco
- ----------------------------------- ----------------------------------------------
Target Torii Pharmaceutical
- ----------------------------------- ----------------------------------------------
Tender offer agent Nomura Securities
- ----------------------------------- ----------------------------------------------
Period From 11/2/98 to 11/24/98
- ----------------------------------- ----------------------------------------------
Offer price (Yen)2,681
- ----------------------------------- ----------------------------------------------
Total shareholders 3,658
- ----------------------------------- ----------------------------------------------
Target # of shares to be purchased 16 million shares (55.56% of
shares outstanding)
- ----------------------------------- ----------------------------------------------
Conditions Minimum of 14,695,000
Maximum of 16,000,000
- ----------------------------------- ----------------------------------------------
Price before ann. (Yen)2,490 (implies a 7.7% premium)
- ----------------------------------- ----------------------------------------------
Prior 1 mo. avg. price (Yen)2,310 (implies a 16.1% premium)
- ----------------------------------- ----------------------------------------------
Stock price range during tender (Yen)2,600 to (Yen)2,680
offer
- ----------------------------------- ----------------------------------------------
5-yr low/high range (Yen)1,430 to (Yen)3,440
- ----------------------------------- ----------------------------------------------
Prior 1 mo. average daily volume 11,735
- ----------------------------------- ----------------------------------------------
Volume on day after announcement 52,600
- ----------------------------------- ----------------------------------------------
Shares tendered 15,398,800
- ----------------------------------- ----------------------------------------------
Shares purchased 15,398,800
- ----------------------------------- ----------------------------------------------
Acquiror pre-tender offer 0.0%
ownership
- ----------------------------------- ----------------------------------------------
Acquiror post-tender offer 53.47%
ownership
- ----------------------------------- ----------------------------------------------
</TABLE>
- - Japan Tobacco's acquisition of a controlling interest in Torii
Pharmaceutical is a significant step for JT in enhancing its pharmaceutical
business and diversifying its portfolio of businesses which has been
predominantly dependent upon tobacco products (98 percent)
- - Asahi Beer acquired its interest in Torii Pharmaceutical in 1988 at a time
when beer companies were looking to invest in other high growth businesses.
However, faced with high leverage, Asahi Beer initiated a strategic
restructuring of its business, including the sale of its stake in Fosters in
1997 and the sale of its Torii holdings
- - The offer price was 2,681 yen, an approximate 7.7 percent premium over the
close price prior to the tender offer announcement
JP MORGAN
38
<PAGE> 41
Torii Pharmaceutical's Stock Price Performance
Same two graphs as on page 27, but for Torii Pharmaceutical.
39
<PAGE> 42
MANNESMAN'S TENDER OFFER FOR UCHIDA HYDRAULICS
- --------------------------------------------------------------------------------
- ----------------------------------- --------------------------------------
Acquiror Mannesman Rexroth AG
- ----------------------------------- --------------------------------------
Target Uchida Hydraulics
- ----------------------------------- --------------------------------------
Tender offer agent Daiwa Securities
- ----------------------------------- --------------------------------------
Period From 2/1/99 to 3/4/99
- ----------------------------------- --------------------------------------
Offer price (Yen)200
- ----------------------------------- --------------------------------------
Total shareholders 3,237
- ----------------------------------- --------------------------------------
Target # of shares to be purchased 15,089,750 shares
(49.5% of shares outstanding)
- ----------------------------------- --------------------------------------
Conditions None
- ----------------------------------- --------------------------------------
Price before ann. (Yen)201 (implies 0.5% discount)
- ----------------------------------- --------------------------------------
Prior 1 mo. avg. price (Yen)161 (implies 24.2% premium)
- ----------------------------------- --------------------------------------
Stock price range during tender (Yen)164 to (Yen)221
offer
- ----------------------------------- --------------------------------------
5-yr low/high range (Yen)131 to(Yen)749
- ----------------------------------- --------------------------------------
Prior 1 mo. average daily volume 3,105
- ----------------------------------- --------------------------------------
Volume on day after announcement 148,000
- ----------------------------------- --------------------------------------
Shares tendered 5,744,611
- ----------------------------------- --------------------------------------
Shares purchased 5,744,611
- ----------------------------------- --------------------------------------
Acquiror pre-tender offer 50.50%
ownership
- ----------------------------------- --------------------------------------
Acquiror post-tender offer 68.49%
ownership
- ----------------------------------- --------------------------------------
- - Rexroth first acquired 25% of Uchida Hydraulics in 1978 and increased its
stake to 50.5% in 1997 through new issuance
- - Initially, president of Uchida (Mr. Uchida, founder's son) was against the
idea of TOB, as he believed that the Uchida's business may deteriorate if it
were to become 100% subsidiary of Germany company
- - Rexroth replaced Mr. Uchida with new President in March 1999
- - Rexroth wished to make Uchida a 100% owned subsidiary, but achieved only
68.49% ownership after tender offer
JP MORGAN
40
<PAGE> 43
Uchida Hydraulics' Stock Price Performance
Same two graphs as on page 27, but for Uchida Hydraulics.
41
<PAGE> 44
C&W'S TENDER OFFER FOR IDC
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- ----------------------------------- ---------------------------------------------------
Acquiror Cable & Wireless (C&W)
- ----------------------------------- ---------------------------------------------------
Target International Digital Communications (IDC)
- ----------------------------------- ---------------------------------------------------
Tender offer agent Schroder Securities
- ----------------------------------- ---------------------------------------------------
Period Closed on June 16, 1999
- ----------------------------------- ---------------------------------------------------
Offer price (Yen)110,577
- ----------------------------------- ---------------------------------------------------
Total shareholders 141
- ----------------------------------- ---------------------------------------------------
Target # of shares to be purchased 82.3%
- ----------------------------------- ---------------------------------------------------
Conditions NA
- ----------------------------------- ---------------------------------------------------
Price before ann. NA
- ----------------------------------- ---------------------------------------------------
Prior 1 mo. avg. price NA
- ----------------------------------- ---------------------------------------------------
Stock price range during tender NA
offer
- ----------------------------------- ---------------------------------------------------
5-yr low/high range NA
- ----------------------------------- ---------------------------------------------------
Prior 1 mo. average daily volume NA
- ----------------------------------- ---------------------------------------------------
Volume on day after announcement NA
- ----------------------------------- ---------------------------------------------------
Shares tendered 80.0%
- ----------------------------------- ---------------------------------------------------
Shares purchased 80.0%
- ----------------------------------- ---------------------------------------------------
Acquiror pre-tender offer ownership 17.7%
- ----------------------------------- ---------------------------------------------------
Acquiror post-tender offer
ownership 97.7%
- ----------------------------------- ---------------------------------------------------
</TABLE>
- - Cable & Wireless gained 97.69 percent of IDC, becoming the first foreign
company to own a Japanese telecommunications provider outright
- - The move concludes a rare hostile takeover bid in Japan, in which C&W
competed against NTT, the world's largest phone company
- - Of IDC's 141 shareholders, 134 accepted C&W's offer of (Yen)110,577 a share,
valuing IDC at (Yen)69 billion
- IDC's major shareholders included Toyota Motor Corp and Itochu Corp,
each of which owned 17.7 percent and AirTouch Communications which owned
10 percent
- - C&W plans to integrate IDC into its worldwide operations and sees IDC as a
key strategic plank in its focus on data and IP services for business
customers in Japan
- - C&W is further exploring Japan-options with operators such as DDI and TTNet
JP MORGAN
42
<PAGE> 45
SUMMARY OF JAPANESE TENDER OFFER CASE STUDIES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Acquiror Showa Denko K.K (Japan) NCR Corp. TI Group PLC (U.K.) Japan Tobacco
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Target SDS Biotech K.K (OTC) NCR Japan (TSE 1st Japan Marine Torii Pharmaceutical
Section) Technologies (OTC)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Tender offer agent Nomura Securities Nomura Securities Jarding Fleming, Nomura Securities
Nomura Securities
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Period From 4/2/98 to 4/22/98 From 4/20/98 to 6/3/98 From 4/21/98 to From 11/2/98 to 11/24/98
(20 days) (45 days) 5/20/98 (30 days)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Offer price (Yen) 1,550 (Yen)607 (Yen)580 (Yen)2,681
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Total shareholders 229 11,145 1,189 3,658
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Target # of shares to be 5,931,000 shares 66 million shares (30% 4,886,000 shares 16 million shares
purchased (66.2% of shares of shares outstanding) (49.9% of shares (55.56% of
outstanding) outstanding) shares outstanding)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Conditions Minimum 4.91 MM shares Minimum 33 MM shares Minimum of 17% tendered Minimum of 14,695,000
tendered tendered Maximum of 16,000,000
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Price before ann. (Yen)890 (implies a 72.4% (Yen)480 (implies a 26.5% (Yen)370 (implies a (Yen)2,490 (implies a
premium) premium) 56.8% premium) 7.7% premium)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Prior 1 mo avg. price (Yen)913 (implies a (Yen)450 (implies a 34.9% (Yen)357 (implies a (Yen)2,310 (implies a
69.8% premium) premium) 62.5% premium) 16.1% premium)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Stock price range during (Yen)1,500 to (Yen)1,520 (Yen)574 to (Yen)600 (Yen)562 to (Yen)575 (Yen)2,600 to (Yen)2,680
tender offer
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
5-yr low/high range (Yen)835 to (Yen)3,100 (Yen)358 to (Yen)1,600 (Yen)310 to (Yen)4,150 (Yen)1,430 to (Yen)3,440
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Prior 1 mo. average daily 1,333 200,870 5,083 11,735
volume
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Volume on day after 6,000 1,774,000 228,000 52,600
announcement
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Shares tendered 5,716,000 shares (63.8%) 59,700,000 3,858,000 15,398,800
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Shares purchased 5,716,000 shares 59,700,000 3,858,000 15,398,800
(63.8%, of which
54.8% from Novartis)
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Acquiror pre-tender offer 33.8% 70% 50.1% 0.0%
ownership
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
Acquiror post-tender offer 97.59% 97.14% 89.6% 53.47%
ownership
- ------------------------------ ------------------------- ------------------------- ------------------------ ------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------------ ------------------------ -------------------------
Acquiror Mannesman Rexroth AG Cable & Wireless (C&W)
- ------------------------------ ------------------------ -------------------------
Target Uchida Hydraulics International Digital
Communications (IDC)
- ------------------------------ ------------------------ -------------------------
Tender offer agent Daiwa Securities Schroder Securities
- ------------------------------ ------------------------ -------------------------
Period From 2/1/99 to 3/4/99 Closed on June 16, 1999
- ------------------------------ ------------------------ -------------------------
Offer price (Yen)200 (Yen)110,577
- ------------------------------ ------------------------ -------------------------
Total shareholders 3,237 141
- ------------------------------ ------------------------ -------------------------
Target # of shares to be 15,089,750 shares 82.31 percent
purchased (49.5% of shares
outstanding)
- ------------------------------ ------------------------ -------------------------
Conditions None NA
- ------------------------------ ------------------------ -------------------------
Price before ann. (Yen)201 (implies 0.5% NA
discount)
- ------------------------------ ------------------------ -------------------------
Prior 1 mo avg. price (Yen)161 (implies 24.2% NA
premium)
- ------------------------------ ------------------------ -------------------------
Stock price range during (Yen)164 to (Yen)221 NA
tender offer
- ------------------------------ ------------------------ -------------------------
5-yr low/high range (Yen)131 to (Yen)749 NA
- ------------------------------ ------------------------ -------------------------
Prior 1 mo. average daily 3,105 NA
volume
- ------------------------------ ------------------------ -------------------------
Volume on day after 148,000 NA
announcement
- ------------------------------ ------------------------ -------------------------
Shares tendered 5,744,611 499,199
- ------------------------------ ------------------------ -------------------------
Shares purchased 5,744,611 499,199
- ------------------------------ ------------------------ -------------------------
Acquiror pre-tender offer 50.50% 17.69 %
ownership
- ------------------------------ ------------------------ -------------------------
Acquiror post-tender offer 68.49% 97.69 %
ownership
- ------------------------------ ------------------------ -------------------------
</TABLE>
JP MORGAN
43
<PAGE> 46
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
3/7/72- The Bendix Corporation Jidosha Kiki (7237) 97,300 (Yen)1,725 (Yen)1,652
4/6/72
12/13/75- Okinawa Elecric Power Okinawa Haiden (private) 198000, NA NA
1/12/76 Chuo Haiden (private) 219440
1/23/90- Orix Orix Ichioka (8813) 415,374 (Yen)3,670 (Yen)4,000
2/22/90
2/28/91- Gadelius Fuso Donetsu Industries 1,973,737 NA NA
3/22/91 (private)
3/1/91- New Home Credit Kokusai Kogyo (9231) 21,329,000 (Yen)1,470 (Yen)1,470
3/21/91
3/20/91- Daiei Maruetsu (8178) 26,931,000 (Yen)2,046 (Yen)1,970
4/9/91
3/20/91- Daiei Chujitsuya (8271) 37,887,000 (Yen)2,700 (Yen)2,810
4/9/91 Maruetsu
9/14/92- Avon Beauty Products, Avon Products (OTC) 5,727,000 (Yen)560 (Yen)470
11/2/92 Avon International
Operations
10/20/92- Mitsubishi Chemical Emoto Industry (7948) 3,528,000 (Yen)1,480 (Yen)1,700
11/9/92
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION DESCRIPTION
PERIOD DISCOUNT
<S> <C> <C>
3/7/72- 4.4% Increase ownership
4/6/72
12/13/75- NA Merger
1/12/76
1/23/90- (8.3%) Wholly own as a 100%
2/22/90 subsidiary
2/28/91- NA Friendly acquisition
3/22/91
3/1/91- 0.0% Seize target's shares
3/21/91 through execution of
collateral rights
3/20/91- 3.9% Strengthen retail
4/9/91 business
3/20/91- (3.9%) Strengthen retail
4/9/91 business
9/14/92- 19.1% Increase ownership
11/2/92
10/20/92- (12.9%) Purchase from a major
11/9/92 shareholder to
strengthen
relationships
</TABLE>
JP MORGAN
44
<PAGE> 47
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
2/22/93- Nippon Steel Europe B.V. Nippon Steel 30,560 (Yen)180,000 (Yen)660,000
3/15/93 Semiconductor (OTC)
3/23/93- Kenjiro Nakamura Sakura Rubber (5189) 1,226,000 (Yen)355 (Yen)339
4/12/93
9/23/93- Electronic Data Systems Japam Systems (9758) 7,667,000 (Yen)369 (Yen)841
10/13/93
3/4/94- Wada Management Co., Ltd. Marumitsu (8256) 6,881,000 (Yen)800 (Yen)940
3/24/94
5/10/95- Glaxo Welcome plc Welcome plc 14,843 (pound)7.22 (pound)10.69
6/21/95
2/2/96- Ajinomoto Roussel Uclaf SA Morishita Roussel 5,928,920 (Yen)640 NA
2/22/96 (private)
3/18/96- Knorr AG (BASF) Hokuriku Phamaceutical 18,980,000 (Yen)1,450 (Yen)1,820
4/8/96 (4546)
8/28/96- JAC.Shigeru Watanabe AM Japan (8047) 2,148,000 (Yen)575 (Yen)894
9/17/96
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION
PERIOD DISCOUNT DESCRIPTION
<S> <C> <C>
2/22/93- (72.7%) Acquire
3/15/93 management control
3/23/93- 4.7% Purchase from a
4/12/93 major shareholder
to strengthen
business
background
9/23/93- (56.1%) Own 100% to
10/13/93 conduct
restructuring
3/4/94- (14.9%) Purchase from a
3/24/94 major shareholder
for capital
alliance
5/10/95- (32.5%) Wholly own as a
6/21/95 100% subsidiary
2/2/96- NA Merger
2/22/96
3/18/96- (20.3%) Acquire
4/8/96 management control
8/28/96- (35.7%) Purchase from
9/17/96 target's parent
for cooperative
alliance
</TABLE>
JP MORGAN
45
<PAGE> 48
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
9/25/96- Ono Soko Royal Electric (6593) 2,041,000 (Yen)2,350, (Yen)2,050
10/15/96 Common Equity, CB 364 SFr55,000
SFr CB per
SFr50,000
12/26/96- Kinugawa Rubber Teito Rubber (5188) 1,200,000 (Yen)300 NA
1/15/97 Industrial, Calsonic
2/25/97- Honen Co. Nikka Fats & Oils (2603) 1,740,000 (Yen)173 (Yen)228
3/18/97
3/19/97- Long Valley River Kita no Kazoku (private)
4/22/97
7/2/97- Yoji Takahashi, Rainbow Orika (3570)
7/22/97 Development
5/29/97- Kyokuichi Corp. Yahagi Steel (5544) 15,650,000 (Yen)237 (Yen)634
7/22/97
7/18/97- Namura Shipbuilding Orii (6283) 2,829,000 (Yen)600 (Yen)720
8/7/97
7/30/97- Hayao Nakayama (Sega CEO), Lease Denshi (9816) 2,009,000 (Yen)430 (Yen)400
8/19/97 NA International, Haruki
Nakayama, Ado Denshi,
Kazuo Kanayama (Ado CEO)
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION
PERIOD DISCOUNT DESCRIPTION
<S> <C> <C>
9/25/96- (12.8%) Participate in the
10/15/96 management
12/26/96- NA Purchase from the
1/15/97 largest shareholder
to restructure target
2/25/97- (24.1%) Purchase to
3/18/97 strengthen business
relationship
3/19/97-
4/22/97
7/2/97- Purchase from a
7/22/97 major shareholder
5/29/97- (62.6%) Purchase from
7/22/97 largest shareholder
to start new business
7/18/97- (16.7%) Purchase from
8/7/97 largest shareholder
to improve group's
technology
7/30/97- 7.5% Purchase from a
8/19/97 major shareholder
</TABLE>
JP MORGAN
46
<PAGE> 49
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
9/2/97- Toyota Motor USK (1796) 188,700 (Yen)1,000 (Yen)900
9/24/97
9/26/97- Kinki Nippon Railway Dai-Nippon Construction 3,300,000 (Yen)270 (Yen)234
10/16/97 (1836)
11/26/97- Kanematsu Unidux (9897) 1,310,000 (Yen)700 (Yen)405
12/16/97
12/24/97- Audi Fahren Tokyo KK (8297) (Yen)39 NA
2/12/98
4/2/98- Showa Denko SDS Biotech (4952) 5,931,000 (Yen)1,550 (Yen)1,510
4/22/98
4/20/98- NCR Holdings NCR Japan (6953) 59,707,012 (Yen)607 (Yen)480
6/3/98
4/21/98- TI Group plc Japan Marine Technologies 3,858,000 (Yen)580 (Yen)370
5/20/98 (6348)
5/27/98- Gurmet Kineya Genki Sushi (9828) 3,000,000 (Yen)1,500 (Yen)1,411
6/16/98
7/29/98- Naoyuki Toriumi (Honmoku Sari (9958) 4,543,000 (Yen)30 (Yen)115
8/18/98 Building Service CEO)
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION DESCRIPTION
PERIOD DISCOUNT
<S> <C> <C>
9/2/97- 11.1% Construct business
9/24/97 alliance thru capital
and management
participation
9/26/97- 15.4% Improve the level of
10/16/97 share holding
11/26/97- 72.8% Strengthen relations
12/16/97 among group companies
12/24/97- NA Reorganization of the
2/12/98 group
4/2/98- 2.6% Acquire management
4/22/98 control
4/20/98- 26.5% Wholly own as a 100%
6/3/98 subsidiary
4/21/98- 56.8% Construct and
5/20/98 strengthen business
alliance
5/27/98- 6.3% Strengthen and expand
6/16/98 business alliance
7/29/98- (73.9%) Hitachi Credit
8/18/98 virtually acquired
Sali through its
nonbank Fiji Kikaku
</TABLE>
JP MORGAN
47
<PAGE> 50
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
10/15/98 Sanko Co., Ltd Tensho Electric 6,313,000 (Yen)205 (Yen)105
Industries (6776)
10/30/98 Japan Tabacco Torii Pharmaceutical 1,600,000,000 (Yen)2,680 (Yen)2,500
(4551)
10/8/98 Autobacs Seven Auto Halloes (7547) 3,000,000 (Yen)284 (Yen)315
8/28/98 Toyota Motor Daihatsu (7262) 71,450,000 (Yen)519 (Yen)486
10/30/98- Bank of Tokyo-Mitsubishi Ryoko Securities (private) 6,000,000 (Yen)150 NA
11/19/98
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION
PERIOD DISCOUNT DESCRIPTION
<S> <C> <C>
10/15/98 95.2% Purchase from a major
shareholder, Asahi
Chemical. Acquire
management control to
restructure Tensho
and also transfer
technology to Sanko
10/30/98 7.2% Purchase from a major
shareholder, Kirin,
and acquire
management control to
strengthen
phermaceutical
operation
10/8/98 (9.8%) Acquire to strengthen
retail business in
Hokkaido area
8/28/98 6.8% Acquire to construct
business alliance in
Toyota group
10/30/98- NA Acquire to strengthen
11/19/98 closer relationship
and develop
involvement of BoTM
group in securities
business
</TABLE>
JP MORGAN
48
<PAGE> 51
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
11/10/98- Komatsu Komatsu Zenoah (7204) 11,000,000 (Yen)300 (Yen)244
11/30/98
11/30/98-1/4/99 United Micro Electronics Nippon Steel Semiconductor 30,560 (Yen)50,000 (Yen)147,000
Corp., Golden Global Inc. (6939, Nippon Foundry)
2/1/99- Mannesman Uchida Hydraulics (6389) 5,744,461 (Yen)200 (Yen)201
3/4/99
2/16/99- Rohm Apollo Electric (6978) 4,039,000 (Yen)973 (Yen)675
3/8/99
4/1/99- 4/21/99 Emplus, Makoto Yokota Norita Optical 2,614,000 (Yen)125 (Yen)270
5/7/99- Cable&Wireless IDC (private) 499,199 (Yen)110,577 NA
6/16/99
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION
PERIOD DISCOUNT DESCRIPTION
<S> <C> <C>
11/10/98- 23.0% Integrating R&D /
11/30/98 production
11/30/98-1/4/99 (66.6%) Nippon Steel to
divest its foundry
business
2/1/99- (0.5%) Wholly own as a 100%
3/4/99 subsidiary
2/16/99- 44.1% Strengthen mfg. and
3/8/99 sales
4/1/99- 4/21/99 (53.7%) Own as a subsidiary
5/7/99- NA Enhancement of Japan
6/16/99 option / integrating
IP services
</TABLE>
JP MORGAN
49
<PAGE> 52
HISTORICAL JAPANESE TENDER OFFER TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
TENDER OFFER ACQUIROR ACQUIREE TOTAL AMOUNT TENDER PRICE MARKET PRICE
PERIOD (TICKER)
<S> <C> <C> <C> <C> <C>
4/30/99- Sumitomo Heavy Osaka Chain & Machinery 8,200,000 (Yen)77 (Yen)100
(6372)
5/10/99- 6/9/99 Ryoshoku Saitama Shuruihanbai 560,000 (Yen)2,225 NA
(private)
6/1/99 Nemic Lamda Nippon Electric Industry 23,836,332 (Yen)75 (Yen)335
(6510)
6/1/99- 7/12/99 Kowa Nagoya Kanko Hotel 1,238,111 (Yen)500 NA
(private)
7/14/99 Granspec Int'l Sumikura Industrial (6114) 10,116,000 (Yen)260 (Yen)749
8/23/99-9/13/99 Four individuals Shugakusya (9634) Tbd (Yen)395 (Yen)1,400
(Yotsuya Academy)
8/26/99- 9/16/99 Nippon Mitsub Oil Corp. Koa Oil (5006) Tbd (Yen)360 (Yen)348
</TABLE>
<TABLE>
<CAPTION>
TENDER OFFER PREMIUM/ TRANSACTION
PERIOD DISCOUNT DESCRIPTION
<S> <C> <C>
4/30/99- (23.0%) Own as a subsidiary
5/10/99- 6/9/99 NA Strengthen
distribution
capabilities
6/1/99 (77.6%) Strengthen telecom
equipment business
6/1/99- 7/12/99 NA Rescue Nagoya Kanko
7/14/99 (65.3%) Acquisition from
Hirose
8/23/99-9/13/99 (71.8%) Acquisition by the
competitor
8/26/99- 9/16/99 (3.4%) Strengthen refinery
business
</TABLE>
JP MORGAN
50
<PAGE> 53
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- --------------------------------------------------------------------------------
- - GO-PRIVATE PREMIUMS
- --------------------------------------------------------------------------------
- - Juniper ADRs
- - Shareholder information
JP MORGAN
51
<PAGE> 54
PREMIUMS PAID IN SELECTED GOING PRIVATE TRANSACTIONS
- --------------------------------------------------------------------------------
JANUARY 1, 1990, TO DATE(1)
<TABLE>
<CAPTION>
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9/13/99 MH Millenium Holding Herbalife Intl. Inc. Cash
6/29/99 Denitz Media LTD Adscene PLC Cash
9/8/98 Investor Group PEC Israel Economic Corp. Cash
7/7/98 Dexter Corp. Life Technologies, Inc. Cash
(Dexter)
3/5/98 Xerox XLConnect Solutions Cash
9/18/97 Orion Capital Corp. Guaranty National Cash
8/29/97 Rexel SA (PPR) Rexel, Inc. Cash
6/26/97 Rhone-Poulenc SA Rhone-Poulenc Rorer Cash
6/20/97 Waste Management Wheelabrator Technologies Cash
6/3/97 FH Faulding Faulding Cash
6/2/97 Anthem (Blue Cross/Blue Acordia Cash
Shield)
5/22/97 Texas Industries Chaparral Steel Cash
5/14/97 Enron Corp. Enron Global P & P Stock
3/3/97 American Financial Group American Finl. Entps. Cash election
2/25/97 Petrofina SA Fina Cash
2/18/97 Sun Healthcare Contour Medical Cash election
1/28/97 Monsanto Calgene Cash
1/13/97 Zurich Versicherungs GmbH Zurich Reinsurance Centre Cash
1/21/97 Mafco Holdings Mafco Consolidated Cash
12/17/96 Allmerica Financial Allmerica Property & Casualty Cash election
12/6/96 Sears Roebuck MaxServ Cash
10/10/96 Renco Group WCI Steel Cash
8/26/96 Conseco Bankers Life Stock
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS (%) PAID
TRANSACTION VALUE OVER UNAFFECTED PRICE(2)
----------------- ------------------------
DATE ANNOUNCED % ACQ. $MM INITIAL BID FINAL BID
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
9/13/99 40.7% $197.6 85.6% 85.6%
6/29/99 44.4 42.0 70.5 70.5
9/8/98 19.0 87.3 8.8 8.8
7/7/98 48.0 453.2 17.9 17.9
3/5/98 20.0 66.7 15.1 15.1
9/18/97 22.7 128.5 23.9 23.9
8/29/97 49.4 300.0 9.5 26.3
6/26/97 40.5 4,217.6 16.5 22.8
6/20/97 33.0 854.9 16.5 28.2
6/3/97 38.0 77.2 9.1 22.7
6/2/97 33.2 172.8 11.5 11.5
5/22/97 15.0 66.7 15.2 25.3
5/14/97 48.0 422.9 7.6 13.7
3/3/97 17.0 85.1 48.0 48.0
2/25/97 14.6 264.0 18.5 18.5
2/18/97 34.7 35.2 47.8 47.8
1/28/97 45.4 242.1 45.0 60.0
1/13/97 34.0 319.0 18.5 18.5
1/21/97 15.0 116.9 41.9 23.5
12/17/96 40.6 798.6 (0.9) 12.8
12/6/96 47.6 30.1 45.9 67.6
10/10/96 16.0 56.5 29.0 29.0
8/26/96 11.5 146.1 10.5 10.5
- ----------------------------------------------------------------
</TABLE>
(1) As of 9/17/99
(2) Bid price over share price one week prior to announcement
Source: Securities Data Corporation, SEC and other public filings
JP MORGAN
52
<PAGE> 55
PREMIUMS PAID IN SELECTED GOING PRIVATE
TRANSACTIONS (CONT'D)
JANUARY 1, 1990, TO DATE(1)
<TABLE>
<CAPTION>
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8/26/96 State of North Carolina North Carolina Railroad Cash
8/8/96 Chemed Corp. Roto-Rooter Cash
7/3/96 Gold Kist Golden Poultry Cash
5/27/96 Novartis AG SyStemix Cash
9/26/95 SCOR SA SCOR US Cash
8/25/95 Berkshire Hathaway GEICO Cash
5/19/95 BIC SA Bic Cash
4/5/95 Club Mediterranee SA Club Med Cash
4/7/95 AT&T (McCaw Cellular) LIN Broadcasting Cash
2/7/95 WMX Technologies Rust International Cash
12/28/94 Fleet Financial Fleet Mortgage Group Cash
12/22/94 ZENECA Group PLC Salick Health Care Cash
11/2/94 PacifiCorp Pacific Telecom Cash
9/8/94 GTE Contel Cellular Cash
8/24/94 Dole Food Castle & Cooke Homes Cash
7/29/94 Foundation Health Intergroup Healthcare Stock
7/28/94 WMX Technologies Chemical Waste Mgmt. Cash
6/6/94 Ogden Corp. Ogden Projects, Inc. Stock
3/1/94 National Intergroup, Inc. Foxmeyer Corp. Stock
2/17/94 EW Scripps Co. Scripps Howard Broadcasting Stock
1/7/94 Holderbank Holnam Inc. Cash
10/13/93 Medco Medical Marketing Group Cash
4/26/93 Triarc Companies, Inc. Southeastern Public Service Stock
2/22/93 Torchmark Corp. United Investors Mgt. Cash
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS (%) PAID
TRANSACTION VALUE OVER UNAFFECTED PRICE(2)
----------------- ------------------------
DATE ANNOUNCED % ACQ. $MM INITIAL BID FINAL BID
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
8/26/96 25.0 70.8 161.4 161.4
8/8/96 45.1 100.5 12.3 12.3
7/3/96 25.0 52.1 50.0 50.0
5/27/96 31.2 93.6 47.8 69.6
9/26/95 20.0 54.9 24.4 35.6
8/25/95 49.0 2,347.0 23.1 23.1
5/19/95 22.0 218.9 1.4 12.5
4/5/95 33.0 153.40 14.8 39.9
4/7/95 47.8 3,117.6 (24.1) (6.0)
2/7/95 3.6 50.5 19.1 39.1
12/28/94 19.0 190.0 18.5 18.5
12/22/94 50.0 234.0 37.3 49.6
11/2/94 13.0 159.0 15.5 23.7
9/8/94 10.0 254.3 21.6 37.8
8/24/94 17.0 79.0 25.8 41.6
7/29/94 37.4 255.7 74.5 90.7
7/28/94 21.4 397.4 (3.3) 8.9
6/6/94 15.8 110.3 17.6 17.6
3/1/94 19.5 79.7 11.3 9.1
2/17/94 14.0 118.8 6.8 6.8
1/7/94 5.0 52.0 15.5 15.5
10/13/93 45.8 156.7 (15.6) (8.0)
4/26/93 29.0 86.0 63.8 63.8
2/22/93 16.0 205.8 9.4 12.1
- -----------------------------------------------------------------
</TABLE>
(1) As of 9/17/99
(2) Bid price over share price one week prior to announcement
Source: Securities Data Corporation, SEC and other public filings
JP MORGAN
53
<PAGE> 56
PREMIUMS PAID IN SELECTED GOING PRIVATE
TRANSACTIONS (CONT'D)
- --------------------------------------------------------------------------------
JANUARY 1, 1990, TO DATE(1)
<TABLE>
<CAPTION>
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11/13/92 Rust Intl (WMX) Brand Cos. Cash Election
8/17/92 Leucadia National Corp. Phlcorp. Stock
7/1/92 Loral Corp. Loral Aerospace Corp. Stock
3/2/92 W.R. Grace & Co. Grace Energy Corp. Cash
2/24/92 Unocal Corp. Unocal Exploration Corp. Stock
10/16/91 Time Warner American TV & Comm. Cash
9/18/91 Arkla, Inc. Arkla Exploration Co. Stock
5/1/91 Tele-Communications, Inc. United Artists Entertainment Stock
3/1/91 Air & Water Technologies? Metcalf & Eddy Cos. Stock
2/8/91 LAC Minerals LTD Bond International Gold Stock
2/6/91 Broken Hill Property Co. Hamilton Oil Corp. Cash
1/3/91 Murphy Oil Corp. Ocean Drilling & Exploration Stock
11/12/90 US West US West Newvector Group Stock
10/23/90 Ogden Corp. ERC Environ. & Energy Svcs Cash
10/8/90 Western Gas Resources Western Gas Processors Stock
7/31/90 Freeport-McMoRan, Inc. Freeport-McMoran Oil & Gas Stock
7/19/90 Caesars World, Inc. Ceasars New Jersey, Inc. Cash
7/12/90 Paramount Communications, Inc. TVX Broadcast Group Cash
7/6/90 Renault Mack Trucks Cash
5/17/90 Kansas City Southern DST Systems, Inc. Cash
Industries, Inc.
3/19/90 LPL Acquisition Corp. LPL Technologies, Inc. Cash
3/2/90 American Express Co. Shearson Lehman Bros Stock
3/2/90 Intermark, Inc. Triton Group Ltd. Stock
1/24/90 Imetal S.A. Copperweld Corp. Cash
Mean
Median
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS (%) PAID
TRANSACTION VALUE OVER UNAFFECTED PRICE(2)
----------------- ------------------------
DATE ANNOUNCED % ACQ. $MM INITIAL BID FINAL BID
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
11/13/92 44.0 185.6 13.6 13.6
8/17/92 37.0 139.9 15.2 15.2
7/1/92 41.0 198.3 4.0 4.0
3/2/92 17.0 77.3 34.7 55.1
2/24/92 4.0 117.7 18.3 18.3
10/16/91 18.0 1,699.5 67.5 67.5
9/18/91 18.0 92.6 28.7 28.7
5/1/91 46.0 486.4 (7.5) (7.5)
3/1/91 18.0 51.0 16.7 16.7
2/8/91 35.3 149.6 82.9 110.6
2/6/91 49.9 296.5 21.2 21.2
1/3/91 39.0 389.6 24.1 24.1
11/12/90 19.0 436.8 53.9 53.9
10/23/90 38.8 30.0 40.5 44.1
10/8/90 48.0 130.3 (15.0) (15.0)
7/31/90 18.5 46.2 42.7 42.7
7/19/90 13.4 49.1 45.5 49.3
7/12/90 17.0 61.3 50.0 90.0
7/6/90 40.0 70.8 19.0 19.0
5/17/90 12.9 39.0 24.4 40.9
3/19/90 49.0 187.6 31.5 37.0
3/2/90 39.0 361.2 18.6 18.6
3/2/90 48.4 48.1 16.9 16.9
1/24/90 44.4 149.6 29.2 41.7
29.6% $328.4 27.0% 33.0%
31.2% $139.9 18.6% 23.7%
- -----------------------------------------------------------------
</TABLE>
(1) As of 9/17/99
(2) Bid price over share price one week prior to announcement
Source: Securities Data Corporation, SEC and other public filings
JP MORGAN
54
<PAGE> 57
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- --------------------------------------------------------------------------------
- - JUNIPER ADRS
- --------------------------------------------------------------------------------
- - Shareholder information
JP MORGAN
55
<PAGE> 58
Juniper ADRs
Table
Graph displaying 52-week stock price performance for the Juniper ADRs with daily
traded volumes
<TABLE>
<CAPTION>
BROKERAGE FIRM ADRS TRADED BROKERAGE FIRM UNDERLYING SHARES TRADED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merrill Lynch 3,384,000 Merrill Lynch 11,507,000
Donaldson, Lufkin & Jenrette 1,988,000 Lehman Brothers 2,740,000
Knight/Trimark Group 1,972,000 Morgan Stanley 2,183,000
Jefferies & Company 418,000 Goldman, Sachs 2,176,000
SG Cowen Securities 347,000 Dresdner Kleinwort Benson 787,000
Salomon Smith Barney 157,000 TIR Securities 348,000
ING Baring Furman Selz 120,000 Jefferies & Company 274,000
Arnhold and S. Bleichroeder 115,000 ING Baring Furman Selz 234,000
McDonald & Company Securities 112,000 Salomon Smith Barney 143,000
Others 913,000 Others 155,000
Total 19,053,000 Total 41,094,000
- ----------------------------------------------------------------------------------------------------------------------------------
52 weeks to date
Source: Autex
</TABLE>
JP MORGAN
56
<PAGE> 59
ADRS OUTSTANDING
- --------------------------------------------------------------------------------
JUNIPER
ADRS ISSUED VS. FOREIGN SHARES
(1 underlying share equals 2 ADRs)
7/31/98 24,290
8/31/98 22,048
9/30/98 21,971
10/31/98 22,113
11/30/98 21,166
12/31/98 21,339
1/31/99 21,358
2/28/99 20,413
3/31/99 16,492
4/30/99 16,874
5/31/99 17,105
6/30/99 17,048
7/31/99 17,086
8/31/99 16,928
Source: Morgan Guaranty Trust Company
JP MORGAN
57
<PAGE> 60
HOLDERS OF JUNIPER ADRS BY STYLE
- --------------------------------------------------------------------------------
INVESTMENT APPROACH
(%)
[PIE GRAPH]
Deep Value 45%
GARP 17%
Core value 11%
Others 27%
TURNOVER
(%)
[PIE GRAPH]
Low 54%
Moderate 39%
High 7%
- - CORE VALUE
- The focus of these investors is on buying securities at relatively low
valuations on an absolute basis or in relation to the market or
historical levels
- Value portfolios typically exhibit below-average P/E, P/B and
price-to-cash flow multiples
- - DEEP VALUE
- This style is a more extreme version of value investing that is
characterized by holding the stocks of companies with extremely low
valuation measures
- Often these companies are particularly out-of-favor or in industries
that are out-of-favor
- Some investors in this category are known for agitating for changes such
as new management, the sale of assets or a spin-off
- - GARP (GROWTH AT A REASONABLE PRICE)
- - GARP investors try and build their portfolios with securities that are
trading at a discount to the market, but are expected to grow at higher than
the market average
Source: Morgan Guaranty Trust Company
JP MORGAN
58
<PAGE> 61
SHAREHOLDER LIST OF JUNIPER ADRS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Change
in
Filing Shares Value Previous Change Value
Rank Name Date Held % O/S ($MM) Filing Date in Shares % Change ($MM) Style Turnover
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Orbis Investment Management Jun-99 1,479,100 0.5 7.4 Mar-99 46,300 3.2 0 Deep Low
Ltd. Value
2 Capital Research & Jun-99 581,250 0.2 2.9 Mar-99 0 0 0 Core Mod
Management Value
3 Fidelity Management & Jun-99 355,000 0.1 1.8 Mar-99 105,000 42 0 GARP Mod
Research
4 Royce & Associates, Inc. Jun-99 234,500 0.1 1.2 Mar-99 0 0 0 Deep Mod
Value
5 MacKay-Shields Financial Jun-99 227,148 0.1 1.1 Mar-99 0 0 0 GARP High
Corporation
6 World Asset Management Jun-99 212,104 0.1 1.1 Mar-99 0 0 0 Index Mod
7 JMG Capital Partners, L.P. Mar-99 108,749 0 0.5 Dec-98 108,749 N/A 0 Specialty High
8 Financial & Investment Jun-99 78,245 0 0.4 Mar-99 -3,855 -4.7 0 Growth High
Management Group
9 Merrill Lynch & Company Inc. Jun-99 73,787 0 0.4 Mar-99 603 0.8 0 Specialty Mod
10 Boston Partners Asset Jun-99 46,100 0 0.2 Mar-99 18,400 66.4 0 Deep High
Management, L.P. Value
11 Gabelli Asset Management Jun-99 35,641 0 0.2 Mar-99 5,000 16.3 0 GARP Mod
Company
12 Shufro, Rose & Ehrman Mar-99 26,574 0 0.1 Dec-98 -900 -3.3 0 Deep Mod
Value
13 Goldman Sachs Asset Jun-99 12,500 0 0.1 Mar-99 0 0 0 Core Mod
Management Growth
14 Connor Clark & Company Ltd. Jun-99 12,000 0 0.1 Dec-98 12,000 N/A 0 Core Low
Value
15 Lyon Street Asset Mar-99 11,250 0 0.1 Dec-98 11,250 N/A 0 Income Low
Management Company Value
16 Northern Trust Global Jun-99 10,000 0 0.1 Mar-99 10,000 N/A 0 Core Low
Investments Growth
17 Donaldson, Lufkin & Jenrette Jun-99 200 0 0 Mar-99 0 0 0 Specialty High
</TABLE>
<TABLE>
<CAPTION>
Rank Name City State Country
<S> <C> <C> <C> <C>
1 Orbis Investment Management Hamilton Bermuda
Ltd.
2 Capital Research & Los Angeles CA United States
Management
3 Fidelity Management & Boston MA United States
Research
4 Royce & Associates, Inc. New York NY United States
5 MacKay-Shields Financial New York NY United States
Corporation
6 World Asset Management Birmingham MI United States
7 JMG Capital Partners, L.P. Los Angeles CA United States
8 Financial & Investment Sutton's Bay MI United States
Management Group
9 Merrill Lynch & Company Inc. New York NY United States
10 Boston Partners Asset Boston MA United States
Management, L.P.
11 Gabelli Asset Management Rye NY United States
Company
12 Shufro, Rose & Ehrman New York NY United States
13 Goldman Sachs Asset New York NY United States
Management
14 Connor Clark & Company Ltd. Toronto Canada
15 Lyon Street Asset Grand Rapids MI United States
Management Company
16 Northern Trust Global Chicago IL United States
Investments
17 Donaldson, Lufkin & Jenrette New York NY United States
</TABLE>
Source: 13F
JP MORGAN
59
<PAGE> 62
AGENDA
- --------------------------------------------------------------------------------
- - J.P. Morgan's approach to valuation
- - Apple
- Market information
- Trading valuation
- Discounted cash flow
- - Juniper
- Market information
- Trading multiples
- Discounted cash flow
- - Case studies
- Herbalife transaction
- Japanese go-private transactions
- - Go-private premiums
- - Juniper ADRs
- --------------------------------------------------------------------------------
- - SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
JP MORGAN
60
<PAGE> 63
TOP 19 APPLE INSTITUTIONAL SHAREHOLDERS
- --------------------------------------------------------------------------------
TOP 19 13f INSTITUTIONS AND FOREIGN FUNDS
<TABLE>
<CAPTION>
FUND SHARES HELD REPORTED
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PPM America 1,117,000 Jun-99
ING Bank Verre Oosten Fonds 700,000 Dec-98
Cazenove Pacific Portfolio 65,100 Nov-98
Fidelity 52,000 Jun-99
World Asset Management 42,400 Jun-99
Comerica 41,800 Jun-99
Morgan Stanley Dean Witter 30,942 Jun-99
Prudential Securities 26,600 Jun-99
Citigroup 26,567 Jun-99
Gabelli Funds 24,000 Jun-99
C. Blair Asset Management 20,500 Jun-99
Caxton Associates 14,800 Jun-99
BCO Fjarran Ostern 12,000 Jun-99
Invesco Capital Management 3,000 Jun-99
Westport Resources 2,600 Dec-98
Merchantile Bank 2,000 Jun-99
Legg Mason Wood Walker 1,000 Jun-99
Fleet Financial 570 Jun-99
Bear, Stearns 300 Jun-99
--------------------
Total 2,183,179
% of total outstanding 3.9%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All institutions over 100 shares listed
Source: CDA/Spectrum
JP MORGAN
61
<PAGE> 64
JUNIPER SHAREHOLDER PROFILE
AS OF FEBRUARY 28, 1999
<TABLE>
<CAPTION>
# OF SHARES HELD
SHAREHOLDER NAME (THOUSAND SHARES) OWNERSHIP %
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jay Van Andel Trust 27,614 19.17
Japan HC 1 Inc. 25,787 17.90
RDV AJL Holdings Inc. 24,868 17.26
HDV AJL Holdings Inc. 20,510 14.24
Moxley & Co. 10,247 7.11
R.& H. Devos Foundation 2,620 1.81
RDV GRIT Holding Inc. 2,396 1.66
RDV Capital Management LP2 2,296 1.59
J.& B.V. Andel Foundation 1,987 1.37
HDV GRIT Holding Inc. 1,550 1.07
-------------------------------------------------------------------
Top 10 total 119,877 83.23
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Company reports
JP MORGAN
62
<PAGE> 65
JUNIPER SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
AS OF AUGUST 1998
EQUITY OWNERSHIP BY UNIT
[PIE GRAPH]
1-4 (8,239) 1.06%
5-9 (2,442) 1.01%
10-49 (3,796) 4.18%
50-99 (207) 0.89%
100-499 (132) 1.70%
500-999 (22) 1.05%
1000- (44) 90.11%
TOTAL = 100%
# OF SHAREHOLDERS BY UNIT
[PIE GRAPH]
1-4 55.36%
5-9 16.41%
10-49 25.51%
50-99 1.39%
100-499 0.89%
500-999 0.15%
1000- 0.30%
TOTAL = 14,882
SHARHOLDERS
JP MORGAN
63
<PAGE> 66
JUNIPER SHAREHOLDER INFORMATION (CONT'D)
- --------------------------------------------------------------------------------
AS OF AUGUST 1998
EQUITY OWNERSHIP BY SHAREHOLDER
(%,# OF HOLDERS)
[PIE GRAPH]
Foreign Company 89.9% (146)
Individual 7.% (14,438)
Fin. Institution 1.5% (38)
Other domestic company 1.2% (244)
Securities house 0.0% (16)
TOTAL = 100%
# OF SHAREHOLDERS BY TYPE OF SHAREHOLDER
# OF SHAREHOLDERS
[PIE GRAPH]
Foreign entities 1% (146)
Individuals 97% (14,438)
Fin. institutions 0% (38)
Other Japanese entities 2% (244)
Securities houses 0% (16)
TOTAL = 14,882 SHAREHOLDERS
64
<PAGE> 1
Exhibit (i)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
F O R M 2 0 - F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
COMMISSION FILE NUMBER 1-12548
AMWAY ASIA PACIFIC LTD.
(Exact name of Registrant as specified in its charter)
BERMUDA
(Jurisdiction of incorporation or organization)
38/F THE LEE GARDENS
33 HYSAN AVENUE
CAUSEWAY BAY, HONG KONG
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
Name of each exchange
Title of each class on which registered
Common Stock, par value New York Stock Exchange
U.S.$0.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT.
None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION
PURSUANT TO SECTION 15(d) OF THE ACT.
Common Stock, par value U.S.$0.01 per share.
This Annual Report consists of 73 pages.
<PAGE> 2
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Outstanding as of
Title of class August 31, 1999
-------------- -----------------
Common Stock, U.S. $0.01 par 56,441,960 shares
value per share
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 ___
-----
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 Item 18 X
----- ---
<PAGE> 3
In addition to historical information, this Annual Report on Form 20-F
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(the "Exchange Act"). All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and known
uncertainties. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the sections entitled "Description of Business-Government Regulation,"
"Description of Business--Risks and Uncertainties" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Outlook and -
Forward Looking Statements." Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof. In addition to the disclosure contained herein, readers
should carefully review any disclosure of risks and uncertainties contained in
other documents the Company has filed or will file from time to time with the
Securities and Exchange Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Amway Asia Pacific Ltd., a Bermuda corporation (the "Company"), was
incorporated in 1993. The Company, directly or through controlled affiliates, is
the exclusive distribution vehicle for Amway Corporation ("Amway") in Australia,
Brunei, China (the mainland, the Hong Kong Special Administrative Region, Macau
and Taiwan), Malaysia, New Zealand, and Thailand. References to the Company
include the Company's controlled affiliates where the context so requires.
References herein to "China" refer exclusively to the mainland of China. The
Company offers products principally in four core Amway product lines: Personal
Care, Nutrition & Wellness, Home Care and Home Tech. It also offers catalog
products in certain markets and Other Products and Services.
The Company believes the Amway Sales and Marketing Plan (the "Sales
Plan") is fundamental to the Company's operations. In China, the Sales Plan and
the Company's overall mode of operations are different than in its other
markets. These differences are described below in "-- China Operations". The
discussion of the Sales Plan and the Company's business below and as set forth
in " - Distribution" does not include China's operations unless specifically
referenced.
Under the Sales Plan, the Company sells products exclusively to or
through its distributors, who are independent contractors or agents and are not
employees of the Company or Amway. The Sales Plan offers individuals the
opportunity to establish their own business as independent Amway distributors
selling directly to customers. Amway's direct selling method involves a high
level of personal service, including the demonstration and convenient delivery
of a broad range of consumer products, generally to a distributor's personal
contacts and relatives. Distributors develop a larger business by sponsoring new
distributors into their organization and/or by establishing separate
distributorships in other Amway or Company markets internationally. The
sponsoring of new distributors creates multiple levels of "downline"
distributors in the direct selling structure which the Company believes is vital
to its sales prospects and continued success. See "--Distribution."
In connection with the initial public offering of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), in December 1993 (the
"Offering"), Amway and the Company effected a reorganization in which (i) the
Amway affiliates, through which operations were conducted in five of the nine
countries that constitute the Company's current markets, became subsidiaries of
the Company, (ii) Amway's Hong Kong operations became a branch of the Company
and (iii) a partnership in which the Company is a partner with a 99% economic
interest acquired the Thailand operations. In addition, the Company acquired
from Amway Japan Limited ("AJL") AJL's interest in Amway (China) Co. Ltd.
("Amway China"), the joint venture company which has the exclusive rights to
manufacture and distribute Amway-trademarked products in China (subject to local
governmental requirements). After the Company consummated these transactions,
Amway distributed the stock of the Company to Amway's stockholders, which
consist of certain trusts and foundations established by or for the benefit of
the founders of Amway, Richard M.
3
<PAGE> 4
DeVos and Jay Van Andel, and their families (which actions, together with
related actions, are referred to herein collectively as the "Reorganization").
After the Company consummated the Reorganization, it completed an initial public
offering of 9,085,000 shares of Common Stock (a 16.8% interest).
As a result of governmental policies in Malaysia that set forth certain
local ownership requirements for foreign companies, the Company's Malaysia
affiliate ("Amway Malaysia") was required to reduce its foreign equity ownership
to 51.0% with the remaining 49.0% being divested to Malaysian investors and the
Malaysian public (of which 35% must be held by Bumiputras, the indigenous
population of Malaysia. Common shares of Amway Malaysia are listed on the Kuala
Lumpur Stock Exchange.
TENDER OFFER AND AMALGAMATION
On November 18, 1999, New AAP Limited, a corporation organized under
the laws of Bermuda ("New AAP"), commenced a tender offer to purchase all of the
outstanding shares of the Company's common stock, $.01 par value per share (the
"Common Stock"), for $18.00 per share, in cash (the "Offer"). The Offer expired
on December 17, 1999. New AAP is wholly owned by Apple Hold Co., L.P. ("Apple"),
a Bermuda partnership and an entity controlled and beneficially owned by the
DeVos and Van Andel families and certain corporations, trusts and other entities
established by or for the benefit of such families (the "Principal
Shareholders"). Other than an aggregate of 1,128,580 shares tendered by certain
charitable foundations established by the Principal Shareholders, the Principal
Shareholders did not tender any shares in response to the Offer. In connection
with the consummation of the Tender Offer, the Principal Shareholders
contributed their remaining shares of Common Stock to Apple.
The Offer was made pursuant to a Tender Offer and Amalgamation
Agreement, dated November 15, 1999, among New AAP, Apple and the Company (the
"Amalgamation Agreement"). The Amalgamation Agreement provided for, among other
things, New AAP first to conduct the Offer and then for the Company and New AAP
to amalgamate (the "Amalgamation") with the Company continuing as the surviving
company. In addition, in connection with the Offer, the Principal Shareholders
entered into a Shareholder and Voting Agreement, dated November 15, 1999 (the
"Shareholder Agreement"). Pursuant to the Shareholder Agreement, the Principal
Shareholders have agreed, and Apple agreed, after the transfer of the shares of
Common Stock of the Company by the Principal Shareholders to Apple, not to
dispose of or otherwise transfer their shares, and New AAP has agreed not to
dispose of or otherwise transfer any shares transferred to it by the Principal
Shareholders or shares purchased by it in the Offer, in either case, prior to
the consummation of the Amalgamation. Pursuant to the Offer, New AAP purchased
approximately 14.5% of the Company's outstanding shares, and as a result of the
Offer, the Principal Shareholders beneficially own 97.4% of the Company's Common
Stock, directly or indirectly.
The Amalgamation is the second and final step in the transaction
between New AAP and the Company. The Company's Board of Directors has called an
extraordinary meeting of shareholders to be held on April 27, 2000, to consider
the Amalgamation. Because the Principal Shareholders, directly or indirectly
through Apple, beneficially own 97.4% of the outstanding shares of the Company
and because Apple holds all of the outstanding shares of New AAP, approval of
the Amalgamation by the shareholders is assured. At the effective time of the
Amalgamation, which will be April 27, 2000, upon surrender of their shares,
shareholders (other than Apple) will receive $18 per share in cash. Dissenting
shareholders will have appraisal rights under the Bermuda Companies Act of 1981,
as amended, pursuant to which they may apply to the Supreme Court of Bermuda to
appraise the fair value of their shares.
PRODUCTS
The Company, directly or through its controlled affiliates, distributes
more than 280 different products in four core product lines: Personal Care,
Nutrition & Wellness, Home Care and Home Tech. Not all of the products in each
line are available in all of the Company's nine markets. In China, the Company,
as of August 31, 1999, marketed more than 40 products from the Nutrition and
Wellness, Personal Care and Home Care lines. In China, all of the products
distributed are manufactured in China by the Company's China affiliate. The four
core product lines are supplemented in Australia, New Zealand and certain other
markets by catalog sales and the distribution of certain other products and
services. In computing the number of products, differences in size, color,
fragrance and flavor are not considered; as a consequence, the number of stock
keeping units associated with the products the Company distributes is much
larger
4
<PAGE> 5
than the number of products. Approximately 73% of the Company's fiscal 1999 net
sales were derived from the distribution of products purchased from Amway.
Almost all products offered through catalogs are not Amway manufactured
products. In addition, each of the affiliates also markets a limited number of
locally sourced products including starter kits (except in China), business
support materials and products targeted for individual markets. Except in China,
all of the Company's products are sold only through the Company's distributors;
customers may not order products directly from the Company and direct response
mass media are not used to solicit orders. In China, products are sold directly
by the Company through sales representatives and in retail shops available to
the general public; in addition, individuals may sign up to be privileged
customers, which allow them to purchase products at a discount.
Sales
The Company principally sells consumer products, in three Asia Pacific
geographic regions - Australia/New Zealand, Malaysia/Thailand and Greater China.
Set forth below is the dollar amount of net sales by product line for each of
the periods indicated.
NET SALES BY PRODUCT LINE
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1997 1998 1999
-----------------------------------------------
<S> <C> <C> <C>
Personal Care $241,121 $149,384 $139,768
Nutrition & 146,518 112,681 $113,585
Wellness
Home Care 130,617 89,727 $72,599
Home Tech 127,601 99,130 $72,330
Catalog Products 68,920 64,353 $59,486
Other Products and Services 130,389 72,304 $43,707
-------- -------- --------
Total $845,166 $587,579 $501,475
======== ======== ========
</TABLE>
Core Product Lines
Personal Care Line. Amway's Personal Care line includes the Artistry(R)
line of cosmetic and skin care products, hair care products, hand and body
lotions, bath and shower soaps, deodorants, oral care products, sun care
products and fragrances.
Nutrition & Wellness Line. Amway's Nutrition & Wellness line consists
of nutrient rich food supplements, including vitamins and minerals, produced by
the Nutrilite division of Amway ("Nutrilite"). Many of the raw materials used to
make Nutrilite supplements are grown and harvested on Nutrilite owned and
operated farms including 600 acres in the San Jacinto Valley in California,
1,600 acres in Washington State and acerola cherry plantations in Brazil and
Mexico. Many products in the Nutrition & Wellness line are strictly regulated in
certain of the Company's markets; as a result, the Company's affiliates in New
Zealand, Australia and Thailand have only a limited range of Nutrition &
Wellness products available. The planned expansion of the Company's
manufacturing plant in Guangzhou, China will produce certain Nutrition &
Wellness products for sale in China. See "--Government Regulation - China Direct
Selling Regulations".
Home Care Line. The Amway Home Care line consists of a broad range of
concentrated laundry care products (such as Amway's SA8(R) brand products),
household cleaners (such as Amway's L.O.C (R) brand products), glass, metal,
floor and car care products and air fresheners. Many of the products in Amway's
Home Care line are offered in concentrated form, reducing the amount of
packaging which must be created and discarded. High concentration levels also
reduce the Company's shipping costs and reduce the amount of space that the
products use in the Company's warehouses and in consumer's homes.
Home Tech Line. The Amway Home Tech line includes Amway Queen(R)
cookware, home environmental products (such as water and air treatment systems),
food preparation and storage systems, vacuum cleaners, gourmet kitchen knives,
cleavers and shears, and home and motor vehicle alarm systems.
5
<PAGE> 6
Catalog and Other Products and Services
Catalog Products. Catalogs are used principally in the Company's more
established markets to offer additional products to existing customers. Catalogs
featuring a smaller number of products are also used in newer markets to
generate distributor interest without detracting from the four core Amway
product lines. Almost all items available through catalogs are not Amway
manufactured products and typically have lower profit margins than core product
lines. Because of the method for calculating performance bonuses, bonuses to
distributors on catalog products are lower than bonuses on core line products.
Catalog merchandise includes clothing, gourmet food and jewelry. The catalogs
used in different jurisdictions are tailored to the local market and offer
varying assortments of products. Currently, catalogs with a greater number of
products are used widely in Australia and New Zealand; smaller catalogs are used
in Malaysia, Taiwan and Thailand. Like all of the Company's products, catalog
products are sold only through the Company's distributors; customers may not
order catalog products directly from the Company and direct response mass media
are not used to solicit catalog orders.
Other Products and Services. The other products and services category
include starter kits (which include certain Amway products in Australia and New
Zealand) and business support materials such as motivational audio and
videotapes and written materials. Individuals are required to purchase starter
kits in order to become distributors. The purpose of the starter kit is to
acquaint new distributors with the Sales Plan, the Rules of Conduct and Code of
Ethics, which regulate distributors' conduct and performance bonus programs, and
to provide product descriptions. Net sales of other products include the net
sales of all products included in starter kits in Australia, and New Zealand
and, prior to July 21, 1998, included net sales of the products included in
starter kits in China. Since the Company began operating in China under its new
mode of operations in July, 1998, it no longer sells starter kits in that
market. See "--China Operations". The Company also derives revenues from the
annual renewal fees paid by distributors electing to renew their status as
distributors. Other than purchasing the starter kit and paying the annual
renewal fees, distributors are not required to make any payments to or purchases
from the Company as a condition to obtaining or maintaining distributor status.
Product Strategy and Development
Each Company affiliate manages its product mix by selecting those
products available in Amway's global portfolio of products that the affiliate
believes will positively impact performance in its market. The products
available in each particular market depend on a variety of factors including the
length of time the Company has been in the market, local preferences and local
regulatory requirements. Generally, newer markets offer fewer products than
established markets. In newer markets, the Company typically offers products
that allow for regular contact between distributor and consumer, that are easy
to demonstrate and that are relatively inexpensive. As distributors in a market
become more established and experienced, it has been the Company's strategy to
gradually introduce a broader range of products, including more complex and more
expensive products. The local affiliates' merchandising personnel, working with
the marketing staff of Amway, actively participate in the product development
process and in managing their local portfolio of products. Local regulatory
structures can also affect the rate and type of new product introductions. For
example, many of the Company's Nutrition & Wellness line products are regulated
under food and drug laws in the Company's countries of operation. As part of its
product marketing strategy, the Company also uses brochures, limited time
special pricing offers, multipack and multiproduct special pricing, gift packs
and other promotional techniques.
The introduction of new products and product improvements are an
integral part of the product marketing strategy and the Company believes it
enhances distributor sponsoring activity. The Company plans to systematically
introduce additional Amway products which address the particular needs and
preferences of each market. Amway (including Nutrilite) maintains an extensive
research and development center with research and quality assurance laboratories
currently staffed by approximately 600 people at Amway, including those at
Amway's Nutrilite locations, focused on the development and improvement of
meaningfully differentiated, quality products. Although Amway is generally
responsible for research, development, testing, labeling and regulatory
compliance for new products and product improvements, the Company's affiliates
and distributors are encouraged to suggest ideas for new products and product
improvements. The Company also develops and introduces specialized products
designed to meet the needs or preferences of particular markets such as home and
motor vehicle security systems sold in Australia and mooncakes and fruitcakes
sold in Malaysia.
6
<PAGE> 7
DISTRIBUTION
Distributors. The Sales Plan is fundamental to the Company's
operations. Under the Sales Plan, the Company sells products exclusively to or
through its distributors, who are independent contractors (and, in the case of
Australia, independent agents) and not employees of the Company or Amway. The
Sales Plan creates a multi-level direct selling structure under which
individuals have the opportunity to establish their own businesses with a
minimal cost of entry. In order to become a distributor, a person must be
sponsored by an existing distributor, and sign a standard Distributorship
Agreement, which is subject to Company approval. See " - China Operations" for
the different mode of operations in that market. As is typical of direct
selling, there is a high rate of turnover among distributors. The Company's net
sales are directly dependent upon the efforts of its distributors and any growth
in future sales volume will require increased productivity by the distributors
and/or growth in the number of distributors.
The following table sets forth the approximate number of the Company's
core distributor force for the fiscal years shown. The Company defines its core
distributor force as those distributors who have renewed their distributorships
within the past fiscal year.
CORE DISTRIBUTOR FORCE
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
China(1) -- 24,000 80,000 50,000 43,000
Hong Kong/Macau 58,000 52,000 45,000 42,000 38,000
Taiwan 181,000 179,000 178,000 166,000 141,000
- ------------------------------------------------------------------------------------------
GREATER CHINA REGION TOTAL 239,000 255,000 303,000 258,000 222,000
Malaysia(2) 80,000 95,000 115,000 123,000 137,000
Thailand 94,000 117,000 143,000 147,000 124,000
- ------------------------------------------------------------------------------------------
MALAYSIA-THAILAND REGION TOTAL 174,000 212,000 258,000 270,000 261,000
Australia 80,000 71,000 88,000 95,000 100,000
New Zealand 17,000 17,000 18,000 23,000 18,000
- ------------------------------------------------------------------------------------------
97,000 88,000 106,000 118,000 118,000
AUSTRALIA-NEW ZEALAND REGION
TOTAL
==========================================================================================
COMPANY TOTAL 510,000 555,000 667,000 646,000 601,000
</TABLE>
- --------------
(1) Fiscal year 1996 reflects a limited number of renewals due to the April
1995 startup date which resulted in a renewal base of only five months;
fiscal years 1998 and 1999 reflects a change in the classification of
distributors, which resulted in lower renewals. See " - China Operations."
(2) Includes Brunei's core distributor force for fiscal 1996 through fiscal
1999.
Except in Australia, distributors purchase products at wholesale from
the Company or from the distributor who sponsored them and sell the products
directly to consumers at either Company established prices or based on suggested
retail prices. In Australia, distributors are independent agents who do not take
title to products for resale to consumers. Instead, the distributors in
Australia, in their capacities as independent agents, arrange for sales of
products
7
<PAGE> 8
directly by the Company to the consumer and/or arrange for delivery of products
to distributors they have sponsored. For their services, the independent agents
in Australia receive a commission on products they retail comparable to the
retail profit on the same product sold to distributors for resale in other
countries. Except where prohibited by law from imposing resale price
restrictions, the Company's rules do not permit distributors and their downline
distributors to mark up the price of products sold to their downline
distributors. Distributors in all of the Company's markets also buy products for
their personal use.
Amway's direct selling method involves a high level of personal
service, including the demonstration and convenient delivery of a broad range of
consumer products, generally to a distributor's personal contacts and relatives.
Under the Amway Code of Ethics and Rules of Conduct, distributors are not
permitted to make any unwarranted claims about Amway products. The Company does
not, and its rules do not permit distributors to, sell products to or through
retail stores (except in China) or through direct mail solicitation or other
direct marketing mass media, to supply Amway products to others for purposes of
resale (except to their downline distributors), or to make exaggerated claims
regarding the benefits of being a distributor. See " - China Operations."
Distributors are also prohibited from selling Amway or Company products to other
than their personally-sponsored distributors or customers, and from using their
downline distributors (other than their personally sponsored distributors) for
the sale of products other than Amway or Company manufactured, licensed or
distributed products. The Company discourages door-to-door sales or other
"cold-calling" techniques.
The overall core distributor force decreased in fiscal 1999 primarily
because of declines in the core distributor force in Thailand and Taiwan. In
addition, in China the number of sales representatives declined as a result of
the change in mode of operations in that market at the beginning of fiscal 1999,
which included a reclassifiction of certain distributors as privileged
customers. See "--China Operations."
Sponsoring. The Company relies on its existing distributors to sponsor
and to assist in the training and motivation of new distributors. Existing
distributors identify persons who they believe might be interested in
participating in the Sales Plan and invite them to a presentation regarding the
Sales Plan. A person interested in becoming a distributor must be formally
sponsored by an existing distributor and, like all distributors, must sign a
standard Distributorship Agreement, which is subject to Company approval.
The sponsoring of new distributors creates levels in the direct selling
structure. Persons whom a distributor sponsors are referred to as "downline" or
"sponsored" distributors. If downline distributors also sponsor, they create
additional levels in the structure, but their downline distributors remain part
of the same distribution line as their original sponsors. Because of the
structure of the Company's distribution system under which distributors can
develop larger businesses by sponsoring new distributors into their
organization, the Company's sales are concentrated within, and consequently
dependent upon, a relatively small number of distributor lines of sponsorship.
See "--Risks and Uncertainties--Our results are impacted by the actions of a
relatively small number of distributors."
The Company has generally experienced increases and decreases in the
sponsoring of new distributors in its markets (as measured by distributor
applications) over various time periods. The Company believes these increases
and decreases in part reflect the tendency of distributors to focus on
sponsoring efforts for limited periods and then to focus on other activities.
Rapid decreases in sponsoring activities can also be precipitated by adverse
publicity regarding direct sales generally or the Company or Amway in
particular. See "--Risks and Uncertainties--Our sales are affected by sponsoring
levels; many factors, adverse publicity in particular, impact sponsoring." For
the 1999 fiscal year, as compared to the prior fiscal year, sponsoring decreased
significantly in all of the Company's markets, except for Malaysia and Hong
Kong, where sponsoring increased, and China, which experienced only a slight
decline.
In addition, sponsoring may be impacted by local government regulatory
activity. As part of the Chinese government's oversight of direct selling in
China and its concerns with illegal and unethical pyramid companies and the
social unrest that erupted in the wake of such misconduct, in April 1998, the
Chinese government issued a new directive that required an immediate cessation
of direct selling activities by all direct selling companies. All direct selling
activities in China, including sponsoring, were halted until the Company resumed
operations in China under its new mode of operation on July 21, 1998. See
"--Government Regulation - China Direct Selling Regulations."
Sponsoring is not required and distributors are not paid by the Company
for sponsoring activities as such; however, products contained in starter kits
may contribute to performance bonuses earned by the sponsoring
8
<PAGE> 9
distributor. However, distributors have an incentive to engage in sponsoring and
an economic interest in their downline distributors' success because, as
described below, performance bonuses are available based in part on purchases of
downline distributors.
Distributors are not limited to a particular sales territory in their
sales or sponsoring activities; however, additional requirements apply if a
distributor proposes to sponsor individuals outside a distributor's country of
operation. Principally for legal reasons, such as import, labeling and
registration laws, the Company does not allow distributors to export products.
However, Amway encourages international sponsoring of new distributors and
allows distributors to establish "second distributorships," which are new,
separate distributorships in one or more additional Amway or Company markets.
Distributors that are internationally sponsored purchase products from the Amway
affiliate in the country or territory in which such distributors reside. Sales
resulting from such international sponsoring outside the Company's markets,
however, are not included in the Company's net sales. The Company believes that
international sponsoring has been integral to the successful opening and growth
of several of its markets in the past and that international sponsoring was
integral to the successful opening of the China market. International sponsoring
can, however, have temporary or permanent adverse effects on sponsoring levels
in distributors' home markets. For example, the Company believes that the
sponsoring decline in fiscal years 1995 through 1997 in Taiwan and Hong Kong was
due to the distributor leaders' focus on building their businesses in China. In
addition, certain of Amway's distributor leaders have created international
distributor organizations, or networks, that are independent of Amway and the
Company. These networks are designed to assist in motivating and training
distributors and frequently include Amway distributors from all over the world.
The international sponsor can earn bonuses based in part upon the performance of
the distributors they have internationally sponsored.
Distributors' Sales Incentives. Under the Sales Plan, distributors
receive compensation in the form of their own direct retail profit and through
various available bonuses and awards based on their own purchases of products
and the purchases of their downline distributors. See " - China Operations" for
the different mode of operations in that market.
A distributor's retail profit is the difference between the price the
distributor pays for the products and the price at which the distributor resells
the products which in the Company's markets averages approximately 30%. In the
case of Australia, retail "profit" is in the form of a commission since the
Australian distributors are independent agents. In addition to retail profit or
commission, distributors and others in their line of distribution are eligible
to receive bonuses based upon the sales to their downline distributors (or in
the case of Australia, sales arranged by their downline distributors).
Performance bonuses and awards are paid according to a schedule
established by Amway based on the volume and costs of the products the Company
sells to (or, in the case of Australia, through) distributors. These performance
bonuses currently range from 3% to a maximum of 21% of the combined cost of
products purchased by (or in the case of Australia, through) distributors and
their downline distributors, depending on their combined volume. The higher the
volume, the higher the percentage of the performance bonus. The level of volume
needed to achieve the different percentages of performance bonuses varies by
country due to different product mixes being available and other economic
factors, including inflation rates. Pursuant to the multi-level structure of the
Sales Plan, a portion of a distributor's performance bonus must be shared, under
the same bonus schedule, with the downline distributors whose performance
contributed to such distributor's bonus.
Once a distributor reaches the maximum performance bonus level, higher
levels of achievement are attainable, including additional bonuses, one-time
incentive awards and additional recognition. In addition to cash and public
recognition, trips and other prizes are also awarded. Many of these higher
levels of achievement are based on the number of lines of distributors that a
distributor has established which achieve the maximum performance bonuses. In
this manner, the Sales Plan seeks to foster entrepreneurial spirit, to provide
monetary and non-monetary recognition for achievement and to reward persons
building organizations producing high levels of sales. Distributors must
requalify each year for each of these bonuses (except for one-time incentive
awards). The requirement for annual requalifications can lead to increased sales
activity early in a fiscal year as distributors are motivated to get a quick
start on requalification and late in a fiscal year as distributors are motivated
to achieve requalification.
Distribution Facilities; Payment. The Company distributes products to
distributors through the use of public and private package delivery services,
its own fleet of delivery vehicles and in certain areas through merchandising or
9
<PAGE> 10
"pick-up" centers open only to distributors. The Company maintains warehouse
facilities for products prior to shipping, pick up or delivery. In China, the
Company's product distribution centers were converted to shops when the Company
resumed its business in July 1998 under its new mode of operation. These shops
are open to the general public for retail sales of the Company's products. See
"-- China Operations." Generally, distributors pay in full for their purchases
by cash or check at the time of their order but no later than receipt of
products. The Company from time to time does offer payment plans for the
purchase of big-ticket items. Qualified distributors are permitted to use an
electronic payment system in Taiwan, which permits payments to be made within
five days. In Malaysia, qualified distributors may make payment five days after
the date of order for out-of-town deliveries. In China, payments by check are
accepted for customer delivery orders, but delivery is made only upon
confirmation of payment.
Returns. Although each of the Company's affiliates has a slightly
different guarantee policy, generally all products distributed by the Company,
including starter kits, (other than certain third party manufactured and locally
sourced products distributed by the Company's Malaysia, Taiwan and Thailand
affiliates) are covered by the Amway Satisfaction Guarantee. Under the Amway
Satisfaction Guarantee, consumers have a reasonable period of time (generally at
least 90 days) to determine whether such products are satisfactory. If not, the
unused portion can be returned to the Company for a refund, replacement or
credit on future purchases. In addition, the Sales Plan contains a "buy-back"
policy under which sponsoring distributors are required to purchase currently
marketable Amway products from their downline distributors who voluntarily
resign their distributor status and leave the business. Normally, such
repurchases are made at the withdrawing downline distributor's original cost,
less any performance bonuses already received, less a handling charge not to
exceed 10% of the cost of the returned products. Returns under both the Amway
Satisfaction Guarantee and the distributor buy-back policy are subject to
various written rules and conditions. The Company's net expenses under these
arrangements have generally not been material. A high rate of starter kit
returns did, however, contribute to the decline in China net sales during the
fourth quarter of fiscal 1997. Under the original money-back guarantee,
distributors could return their kits for a full refund for one year after the
date of purchase, even after use of all of the products in the kits. Effective
June 1, 1997 through September 30, 1998, in order to address abuses occurring in
China, the Company refined its return policy in China for products and starter
kits purchased after that date to eliminate the refund for empty containers,
reduce the refund for the return of used products, including products in the
starter kits, and add a significant handling charge for all returns. On October
1, 1998, the China affiliate adopted a further revision to its return policy and
implemented a stricter return policy which provides for a full cash refund for
products returned within 10 days of purchase and a partial refund or credit for
those products returned within 30 days of purchase.
CHINA OPERATIONS
In response to illegal and unethical pyramid schemes of other companies
and ensuing social unrest in China, the difficult regulatory environment in that
market during fiscal 1998 escalated to the point that the Chinese government
banned all direct selling activities on April 18, 1998. To comply with this
directive, the Company proposed a new mode of operations in China which was
approved by the Chinese government in July 1998. This new mode of operations
differs from how the Company operates in its other markets. The Company resumed
operations in China under its new mode of operations on July 21, 1998. See " -
Government Regulation--China Direct Selling Regulations."
Under this new mode of operations, the Company's product distribution
centers located in 14 provinces and four direct municipalities were converted to
retail shops where customers can buy the Company's products at retail prices.
For a nominal fee, customers can become privileged customers who are eligible to
buy products at a discount. Many of the Company's former distributors who
purchased products principally for their own use have become privileged
customers. Similar to distributors in the Company's other markets, a team of
non-employee sales representatives promotes the Company's products and provides
services to customers. These services include introducing, demonstrating and
delivering the products to their customers. A significant number of the
Company's formerly active distributors have accepted the Company's invitation to
become sales representatives.
Sales representatives may sponsor individuals to become privileged
customers. Only sales representatives are paid bonuses by the Company; these
bonuses, however, are based on their personal purchases. In addition, those
sales representatives who perform services to train and help privileged
customers and other sales representatives are also compensated for their
services. Generally, sales representatives in China do not earn income from the
resale of the
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<PAGE> 11
Company's products, as title to the products passes directly from the Company to
the customer. In some instances, however, sales representatives may obtain a
business license whereby they will be permitted to buy products from the Company
and resell to customers at the retail price established by the Company, thereby
enabling them to earn income from the markup on those products.
The Company's core distributor force in China for the fiscal year ended
August 31, 1999 is comprised of sales representatives and does not include
privileged customers. In fiscal 1998, the Company's core distributor force was
those former distributors who could have renewed their distributorships during
such fiscal year and who accepted the Company's invitation to become a sales
representative under the Company's new mode of operations. This reclassification
of the Company's core distributor force in China, and the turmoil in that market
during fiscal 1998, resulted in a decline in the number of the core distributor
force in China as compared to fiscal 1997. See "--Distribution--Distributors"
and " - Government Regulation - China Direct Selling Regulations."
The Company experienced a slow start under its new mode of operations
effective in July 1998, until April, 1999, when it implemented the China
Business Revitalization Program, which was designed to make the Amway business
opportunity more attractive and tailored to the environment in China. The China
Business Revitalization Program was focused on (i) simplifying the business,
lowering the cost of entry and increasing compensation opportunities; (ii)
accelerating new product launches; (iii) reducing prices significantly on a
large portion of Home Care and toiletry products; and (iv) strengthening Amway
China's image through advertising and various public relations projects. The
Company believes this program has been a key driver of resumed sales growth in
China in the second half of fiscal 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
COMPETITION
The Company faces significant competition in all of its markets both in
the products sold and in the recruiting of independent sales persons. Competing
consumer products in personal care, nutrition and wellness, home care and home
tech are available from a wide variety of sources including retail, specialty,
department and discount stores and mail order companies, some of which have
greater financial resources and virtually all of which offer a greater variety
of brands than the Company. Competing consumer products in various product lines
are also available from other direct sales companies. Such products are also
manufactured and marketed by numerous well known multinational firms and
national enterprises in the countries in which the Company operates.
The Company believes that the principal bases of competition with
respect to its products are quality, price, convenience and selection. Although
the Company believes that the consumers of the types of products that the
Company distributes have lower cost and wider selection alternatives, the
Company also believes that the products which the Company distributes are
competitive on the bases of quality and convenience of purchase. The Company
does not seek to be a low cost or discount supplier of products. Instead, it
seeks to provide meaningfully differentiated products with quality, value,
service and the Amway Satisfaction Guarantee that support the comparatively
higher prices the Company suggests (and where permitted by law sets) for the
retail prices of its products. The Company believes that its person-to-person
direct selling structure also creates the opportunity for competitive customer
service.
The Company also competes with other direct selling organizations to
recruit independent sales persons. Other direct selling organizations may or may
not have product lines that compete with the products which the Company
distributes. The Company believes that the principal bases of competition in
recruiting independent sales persons are reputation, perceived opportunity for
financial success, quality and range of products for sale.
SOURCES OF SUPPLY
Amway products are principally produced by Amway at its worldwide
manufacturing plant in Ada, Michigan and by Amway's Nutrilite division at its
plants in Buena Park and Lakeview, California. All products currently sold in
China are produced at the Company's manufacturing facility in Guangzhou, China.
The Company is in the final stages of expanding its manufacturing capabilities
in China, which it expects to be complete in April 2000. See "--Government
Regulation - China Direct Selling Regulations" and "Description of Property."
Certain products such as Amway Queen(R) cookware, and vacuum cleaners are
produced to Amway specifications by third-party manufacturers
11
<PAGE> 12
and purchased by Amway for resale to the Company. Catalog and branded
merchandise is generally purchased directly from the manufacturer.
RELATIONSHIP WITH AMWAY
The Company, as the distribution vehicle for Amway in the Asia Pacific
markets in which the Company operates, has and will continue to have a number of
contractual relationships with Amway. The continuation of these contractual
relationships with Amway is essential to the conduct of the Company's business.
Trademark License Agreements. Pursuant to Trademark License Agreements
with the Company and each of the Company's affiliates (other than Amway China,
which is covered by a different agreement), Amway has granted to each affiliate
an exclusive right to use in its market the Amway trademark and the individual
product trademarks used on Amway products. In addition to the exclusive use of
the trademark on Amway sourced products in their countries of operation, the
Company's affiliates also have the right to use, after obtaining Amway's prior
approval, the Amway trademark in connection with locally sourced products or
Amway formulated products manufactured by the affiliate or by others under
contract with the affiliate.
Use of the trademarks is royalty free (the value of the trademarks is
included in the export price of products purchased from Amway), except in
connection with locally sourced products or Amway formulated products
manufactured by the affiliate or by others under contract with the affiliate, in
which case Amway may charge a royalty of up to 8% of the net sales of such
products; such net sales are reduced by twenty-five percent of the selling price
to cover bonuses paid by the Company or the affiliate. Amway is responsible for
defects in the products it manufactures. Each affiliate may, at its own expense,
provide additional guarantees on Amway sourced products and bears the risk of
all guarantees on any locally sourced or manufactured products. With respect to
locally manufactured products based upon an Amway formula, Amway is responsible
only for defects in the formula or related Amway technical advice; the affiliate
is responsible for manufacturing defects.
Product Purchase Agreements. Pursuant to Product Purchase Agreements
between Amway and each of the Company's affiliates (other than Amway China,
which is covered by a different agreement), each affiliate has the right to
select the Amway products it desires to purchase from the menu of products Amway
makes available to its international affiliates subject to unavailability due to
local regulatory requirements. Purchases are evidenced by purchase orders which
are subject to rejection by Amway only if it does not have available production
capacity sufficient to fill the order. In determining whether it has the
production capacity to meet an affiliate's order, Amway is required to treat
each of the Company's affiliates on a parity with other comparable Amway
affiliates based on net sales.
Prices for the products are governed by a price schedule which Amway
establishes from time to time based upon a policy that is required to be
consistently applied to the Company's affiliates on a parity with Amway
affiliates (provided that the prices for those affiliates paying in local
currency are impacted by market specific exchange rates). That policy uses a
U.S. dollar cost plus base price subject to local market variances if
determined, based upon independent studies, to be necessary to comply with U.S.
and foreign tax laws. Amway has the right to modify this policy; however, any
such modification will be consistently applied to the Company's affiliates on a
parity with Amway affiliates. Amway is required to give the Company's affiliates
at least 30 days advance notice of any change in pricing. Each affiliate also
pays freight, handling and customs duties. Amway can determine whether it will
be paid in U.S. dollars or the local currency of the affiliate. Currently, Amway
is paid in local currency by the Company's Australian and New Zealand
affiliates; the other affiliates pay in U.S. dollars. Effective January 1, 2000,
Amway increased export prices to the Company by a weighted average of
approximately 1.3% (excluding the implicit local currency to U.S. dollar
exchange rate increase on products sold to the Australian and New Zealand
affiliates). The Company expects the impact of this cost increase to be
immaterial to the Company's fiscal 2000 financial statements.
Amway indemnifies the Company and its affiliates in respect of any
defect in, or any harm caused by, any product purchased from Amway under the
Product Purchase Agreements provided that this indemnification does not apply to
any failure to comply with local regulatory requirements in countries other than
the one to which Amway shipped the product. Under the Product Purchase
Agreements, Amway is required to maintain product liability insurance with
respect to products that each of the Company's affiliates purchase from Amway.
Each Product Purchase
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<PAGE> 13
Agreement also provides that each Company affiliate contracting with Amway
thereunder is to be a named insured on such product liability policies, having
its own independent rights under such policies.
Support Services Agreements. Amway provides various administrative
support services for the Company and its affiliates. Support services provided
include executive management, legal, accounting, tax, treasury, investor
relations, marketing, insurance, inventory control and human resources. Through
fiscal 1993, these services were provided at Amway's fully allocated cost.
Effective September 1, 1993 through August 31, 1997, Amway eliminated certain
charges for services provided to the Company's affiliates. Pursuant to Amended
and Restated Support Services Agreements between each of the Company's
affiliates and Amway, effective September 1, 1997, Amway instituted direct and
indirect charges for these support services, including information and
telecommunication systems, as part of the effort to manage the overall growth in
costs of these services.
In addition, the Company reimbursed Amway for the services of certain
of its officers pursuant to the Support Services Agreements and such
reimbursement will continue under the Amended and Restated Support Services
Agreements.
The Company has the right to discontinue receiving any of such services
or to terminate the Amended and Restated Support Services Agreements at any time
upon six months notice to Amway. Amway agrees to make available to the Company
and its affiliates all services that Amway provides to its other international
affiliates. If Amway determines to discontinue any service to all of its
international affiliates, it will provide six months notice to the Company.
General Provisions. Each of the Trademark License Agreements and
Product Purchase Agreements is for a term ending on August 31, 2010, and is
subject to renegotiation after December 31, 1998, in the event that members of
the families of, or trusts or foundations established by or for the benefit of,
Richard M. DeVos or Jay Van Andel on a combined basis no longer beneficially own
a majority of the voting stock of the Company. Such renegotiation is to promote
the protection of the Amway trademarks and product quality, as well as to ensure
the confidentiality of Amway trade secrets. Each of the Amended and Restated
Support Services Agreements terminates on August 31, 2010.
Distributor List License Agreements. In connection with the transfer of
assets of Amway's Hong Kong affiliate to a branch of the Company and the assets
of Amway's Taiwan affiliate to a subsidiary of the Company in the
Reorganization, Amway did not transfer the then current distributor lists in
Hong Kong or Taiwan but instead licensed them to the Company. In each case, the
royalty arrangements were set based upon an independent valuation at 3.75% and
5%, respectively, of net sales. These licenses are for 10-year and 6-year terms,
respectively, subject to renewal at the option of the Company at a price to be
determined based on an independent valuation done at that time of the remaining
value of the distributor lists. Each of the distributor list license agreements
was amended effective August 31, 1994, to reflect the Company's agreement to
execute promissory notes with respect to royalty payments for fiscal 1995 and
1996; such agreements were amended a second time effective July 31, 1995 to
reflect the Company's execution of promissory notes with respect to royalty
payments for fiscal 1997, 1998 and 1999. See Note 10 to the Consolidated
Financial Statements. The Company prepaid these promissory notes in full on
February 27, 1997.
Amway has granted the Company an extension of the license with respect
to the Taiwan distributor list. This license expired in November 1999. Pursuant
to the extension, the Company is not obligated to pay royalties for such license
until a valuation of the list is completed. At such time, the Company may elect
to purchase the distributor list or continue the royalty arrangement based on
the remaining fair market value of the list for an additional five-year term. If
the Company elects the second alternative, royalties will be payable from the
termination date of the prior agreement.
China Technical Agreement. Amway is providing technical assistance to
Amway China pursuant to a Technology Inducement and Trademark License Contract
(the "China Technical Agreement") in connection with the operation of its
manufacturing facility in Guangzhou. The China Technical Agreement also grants
Amway China the exclusive right to manufacture and sell Amway licensed products
in accordance with the Sales Plan in China. Amway China has the exclusive right
to use certain Amway trademarks in China.
Under the China Technical Agreement, Amway furnished to Amway China
technical information, including formulations, specifications and operating and
instruction manuals necessary to establish manufacturing processes for
13
<PAGE> 14
Amway products in China. Amway China's technical personnel also have the right
to study the manufacturing and sale of Amway products at other Amway plants and
places of business and Amway technical personnel assisted in Amway China's
initial setup of manufacturing operations. Amway China may request ongoing
technical assistance and service from Amway in connection with the manufacture
of Amway products in China on a per diem fee basis, plus reasonable
transportation and living expenses.
Under the China Technical Agreement, Amway China is obligated to pay a
royalty of 5% of the net sales price (less distributor incentives) from the sale
of Amway products manufactured in China. The China Technical Agreement has a
term of 10 years from the date of initial production of Amway products at Amway
China's manufacturing plant.
Amway has agreed to indemnify Amway China for any liability it may
incur in consequence of direct and ordinary damages to third parties which are
proven to have been proximately caused by the willful misconduct or negligence
of Amway or its employees. Except for liability for patent infringement, Amway
China has agreed to indemnify Amway for any other liabilities incurred in
connection with the sale of Amway licensed products, including liabilities for
indirect, special or consequential damages resulting from the Amway licensed
products sold by Amway China.
During fiscal 2000, the Company's China affiliate and Amway expect to
terminate the China Technical Agreement and execute a Technology Import and
Inducement Agreement (the "TIIA") and a Trademark License Agreement (the "TLA").
These agreements would be applicable to all products manufactured by or for
Amway China, including those to be manufactured in the planned expansion of
manufacturing operations in Guangzhou. See "Government Regulation - China Direct
Selling Regulations." It is anticipated that under the TIIA Amway will continue
to furnish Amway China with all of the technical information necessary to
establish and maintain manufacturing processes for Amway products in China, as
well as the broader scope and level of technical information required for
production of Artistry(R) skin care and Nutrition & Wellness products at the
expanded manufacturing operations in Guangzhou. Under the TIIA, Amway China will
be obligated to pay a royalty based on the gross revenues from the sale of
products to distributors less bonuses, freight and returns.
Under the TLA, Amway China will continue to hold the exclusive right to
use in China the Amway trademark and the individual product trademarks for all
current and future Amway products. Amway China will be obligated to pay a
royalty based on the gross revenues from the sale of products to distributors
less bonuses, freight and returns.
It is expected that Amway will provide a broader range of technical and
other rights and services to the Company under the proposed TIIA and TLA in
contrast to the China Technical Agreement currently in effect, which the Company
will require for operation of the planned expansion of its Guangzhou operations.
The royalty rates to be charged pursuant to the TIIA and TLA will therefore
likely increase from the rate charged under the China Technical Agreement.
Both of these agreements will require the approval of the appropriate
Chinese governmental authorities prior to implementation.
INTELLECTUAL PROPERTY
The continuation of the Trademark License Agreements with Amway is
essential to the conduct of the Company's business. Amway is responsible for
filing, maintaining and defending the trademarks and other intellectual property
licensed to the Company and its affiliates. Amway is entitled to retain any
damages awarded in any such defense.
Amway's policy is to secure trademark registrations for the Amway
trademark in all core product lines and any other relevant product and service
classifications, as well as to register a basic portfolio of product trademarks.
Where applicable, Amway also chooses and registers foreign language equivalents
of the Amway trademark; it has either filed or perfected such registrations in
the PRC, Taiwan and Thailand. Where possible, Amway's policy is to perfect
patent filings in each relevant country for products or components, particularly
in the Amway Home Tech product line.
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<PAGE> 15
Australia, New Zealand, Hong Kong, Macau, Malaysia, Brunei, Taiwan and
Thailand are all participants in the major international conventions for the
protection of intellectual property or have laws that provide for the protection
of intellectual property according to generally recognized international
business standards. The Company considers these laws and conventions to be
adequate for the protection of the intellectual property it licenses. China has
laws that provide for the protection of intellectual property and is a signatory
to many of the major international conventions applicable to intellectual
property. Although the Company considers these laws and conventions to be
adequate for the protection of intellectual property it licenses, there is no
assurance that it will be able to obtain timely and equitable enforcement of
such laws and conventions.
GOVERNMENT REGULATION
The Company operates in each jurisdiction pursuant to various
regulatory frameworks. In certain jurisdictions the Company is subject to
specific statutes regulating, and in some instances requiring licensing of,
direct selling companies. These laws and regulations are generally intended to
prevent fraudulent or deceptive schemes often referred to as "pyramid" or "chain
sales" schemes which promise quick rewards for little or no effort, require high
entry costs, use high pressure recruiting methods and/or do not involve
legitimate products. See "--Risks and Uncertainties."
In addition, the Company's operations and the activities of
distributors are also regulated in several markets by fair trade laws which
broadly cover such areas as resale price maintenance, price discrimination and
misleading and deceptive conduct. Some of the Company's products, particularly
vitamins, dietary supplements and cosmetics, are subject to drug, cosmetic,
health, sanitation, labeling and other regulations in the Company's markets.
Finally, although the Company's distributors are not employees of the Company,
some jurisdictions have attempted either to make the Company responsible for
certain payments of, or to withhold from distributors payments for, social
service or tax obligations.
Import/Export and Foreign Ownership. In addition to these regulatory
schemes, the Company operates in accordance with company (and in the case of
China, the Sino-foreign co-operative joint venture law), trade, tax and foreign
investment laws of each jurisdiction. Requirements regarding the balancing of
foreign exchange receipts and expenditures, inward and outward remittance of
foreign currency, opening of bank accounts at home and abroad and currency to be
used for settlement of payment are imposed on the Company's China operations
through various regulations. China currently imposes significant restrictions
and tariffs on imports and such restrictions may affect the Company's ability to
introduce additional products in China. Regulations issued by the State
Administration for Industry and Commerce ("SAIC") permit direct selling
companies to sell only those products manufactured by them in the China. See
"--China Direct Selling Regulations." Thailand also places a high customs tax on
the importation of luxury goods, and the Company must maintain a customs license
with the Thailand Customs Department. The Treaty of Amity between Thailand and
the United States allows an exemption for U.S. owned entities from the Alien
Business Law, which would otherwise allow the Thailand Ministry of Commerce to
only approve foreign ownership of a business if (i) such business is majority
Thai owned, (ii) the entity in question does not compete with a Thailand company
and (iii) foreign currency is not transferred to Thailand. The Company has
structured its Thailand affiliate to meet the tests for U.S. ownership under the
Treaty of Amity. The Malaysia Foreign Investment Committee regulates through
administrative guidelines all acquisitions of Malaysian businesses, properties
and assets by foreign interests. In particular, levels of foreign and Bumiputra
investment are highly regulated. See "--General." Australia and New Zealand both
impose various customs duties on imported goods. The Company currently has, and
is required to maintain, the consent of the Overseas Investment Commission to
carry on business in New Zealand. Australian law also imposes restrictions on
direct or indirect foreign ownership of Australian entities.
China Direct Selling Regulations. On April 21, 1998, the Chinese
government issued a new directive that required an immediate cessation of direct
selling activities by all direct selling companies because of the Chinese
government's concerns with illegal and unethical pyramid schemes of other
companies and the social unrest that erupted in the wake of such misconduct.
This directive did not apply to direct selling in the Special Administrative
Region of Hong Kong or any other markets in which the Company operates. Although
the directive was not targeted at the Company's operations in China, it applied
to all direct selling companies. In compliance with the directive, the Company
promptly ceased accepting distributor applications and limited sales to
distributors for self-consumption only.
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<PAGE> 16
On June 18, 1998, the Ministry of Foreign Trade and Economic
Cooperation (MOFTEC), SAIC and the State Bureau for Internal Trade (BIT) jointly
issued Guidelines which provided the basis for major foreign direct selling
companies to change their mode of operations while retaining the right to use a
non-employee sales force to promote products and to service customers. The
Company, along with other direct selling companies in China, engaged in
extensive discussions with the Chinese government after this directive was
issued in order to determine future acceptable methods of operation in that
market. The Company received approval for a revised plan of operation from the
Chinese national government and resumed operations on July 21, 1998. See " -
China Operations."
On January 10, 1997, the SAIC issued regulations governing direct
selling activities. These regulations, which are still applicable to companies
with an approved new mode of operations, provide that direct selling companies
may sell only products manufactured by them in the China. Amway China had been
permitted to import certain Personal Care and Home Care products from Amway in
1996 and 1997 for test marketing and perhaps for eventual manufacture in China.
In order to continue to offer its current product selection and eventually a
wider range of Amway products, the Company is in the final stages of expanding
its manufacturing facility in Guangzhou, China. The Company manufactures
Artistry(R) skin care and Nutrition & Wellness products at this expanded
facility. The Company has decided not to pursue the construction of a
manufacturing facility in Shanghai because products can be made available in the
market more quickly through the expansion of the Guangzhou facility than from
the construction of an entire new facility.
Chinese Environmental Protection. Amway China's manufacturing
operations are subject both to Chinese national and local environmental
protection laws and regulations which currently impose a graduated schedule of
fees for the discharge of waste substances, require the payment of fines for
pollution and provide for the closure by the Chinese government of any facility
which fails to comply with orders requiring it to cease or cure certain
behaviors causing environmental damage. In particular, the Environmental
Protection Law imposes certain requirements on Amway China to ensure that proper
evaluation has been conducted and standards are set in respect of atmospheric
conditions, surface water, industrial waste, gas discharge, effluent discharge
and industrial noise at Amway China's manufacturing plant. Amway China has
established environmental protection systems to treat certain of its waste
materials and to safeguard against accidents. Amway China believes its
environmental protection facilities and systems are adequate for it to comply
with the existing national and local environmental protection regulations.
However, there can be no assurance that the Chinese national or local
authorities will not impose additional regulations which would require
additional expenditure on environmental matters.
Sales of Locally Made Products in Malaysia. The Malaysian government
has previously indicated certain minimum sales requirements with regard to
products made in Malaysia. The Company's Malaysian affiliate, however, in fiscal
1999 was the first multilevel direct selling company to receive a three year
direct selling license renewal from the government and such license renewal did
not include any local manufacturing requirements. The Company continues to work
to increase its local manufacturing and packaging in Malaysia in accordance with
the desires of the Malaysian government. The Company is aware that the
government may impose additional conditions or regulations as the government
deems appropriate and is committed to continually work with the government to
reach a satisfactory resolution with regard to any such additional conditions or
regulations that may be imposed.
EMPLOYEES
At August 31, 1999, the Company had approximately 2,100 employees. The
Company's Australia and China affiliates have union employees; the Company has
no other union employees and no collective bargaining agreements. The Company
does not expect the labor unions pursuant to which Australian and Chinese
employees are organized to have any material impact on the Company's operations.
The Company considers its employee relations to be excellent. The distributors
are independent contractors (and, in the case of Australia, independent agents)
and are not employees of the Company.
RISKS AND UNCERTAINTIES
Doing business as a direct sales company in China continues to have
regulatory risks associated with it. The regulatory environment in China
continues to pose a risk to our operations. The Chinese government (at the
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<PAGE> 17
national, provincial and local levels) continues to monitor activities of direct
sales companies, particularly those which are deemed to involve what the
government considers to be illegal or unethical pyramid schemes. If abuses are
found, even if they do not involve the Company, the government may choose to
impose restrictions on all direct sales companies, even those not involved in
illegal or unethical schemes. Any restrictions could materially, adversely
affect our operations and financial results. In addition, our sales
representatives in China are independent contractors. We do not exercise control
over their activities to the same extent that we would employees. If the Chinese
government alleges that our sales representatives have acted inappropriately, it
could impose restrictions on our operations, including, for example, meetings of
the sales representatives. There is also a new Chinese governmental requirement
for salesmen examinations which will go into effect at the end of 2000. We do
not yet know how this requirement will affect us, but it may limit sales
representatives' activities until they pass the examination.
The regulatory environment in China is also affected by the state of
Sino-United States relations. For example, any escalation of the issues
surrounding Taiwan and its return to Chinese rule could, depending on the U.S.
response, result in adverse action against us because we are considered an
American company in China. Failure of the United States to enact permanent
normal trade relations status with China could also result in adverse actions
against us.
Our business is subject to the uncertain economy in the Asia Pacific
region. Our sales have declined in large part because of lower consumer demand
caused by the economic downturn in most of Asia. In contrast to fiscal 1998,
however, in fiscal 1999 Amway Asia Pacific's overall net sales were not
significantly impacted by currency devaluations in Asia. Amway Asia Pacific's
margins declined, however, because of currency devaluations in Malaysia and
Taiwan, as a result, their purchases of products from Amway were more expensive.
The lower consumer demand in our markets means that it is unlikely that we can
raise prices to our distributors to cover the higher product costs.
The decline in the average value of the local currencies in some of our
markets, relative to the U.S. dollar, in fiscal 1999 was not nearly as
significant as the declines experienced in fiscal 1998. The Thai baht, however,
strengthened relative to the U.S. dollar and more than offset these declines so
that we did not experience an adverse exchange impact on our results. We believe
the economies in the region are still under pressure, however, as governments
implement policies designed to restore growth. While some economic growth has
resumed in most markets, the local economies are still not at the levels
experienced prior to July 1997. We remain concerned that the Chinese government
will devalue the yuan to support that country's exports. Such a devaluation
could, we believe, trigger a new wave of devaluations in the region and further
economic turmoil, resulting in lower local currency sales as consumer demand
would falter even more. Further devaluations against the U.S. dollar would also
negatively impact translated sales results.
Our results are impacted by the actions of a relatively small number of
distributors. Under the Sales Plan, our distributor leaders grow their
businesses by developing lines of sponsorship through bringing others into their
organizations. While these distributor organizations are large and complex,
there are relatively few lines of sponsorship and distributor leaders. The
distributor leaders often form organizations independent of Amway Asia Pacific
that motivate and train the members of their lines of sponsorship. These
distributor leaders significantly influence their organizations through
motivational rallies and seminars; these activities positively impact our sales.
Although, one of Amway Asia Pacific's primary business goals is to maintain
strong and effective relationships with the distributor leadership, there can be
no assurance that such relationships will be maintained. Amway Asia Pacific's
sales could also decline if we lose a significant distributor leader and would
decline if a large number of other distributors in an organization left as well.
Distributor leaders can also impact a subsidiary's results of
operations by moving from one market to another or expanding operations within a
market. This occurred in Taiwan and Hong Kong after the China market opened in
April 1995. As Taiwan and Hong Kong distributor leaders worked on opening and
growing their businesses in China, sales in their home markets dropped. As we
opened in ten new provinces within China in the fourth quarter of fiscal 1997,
our distributors expanded their operations as well. Our distributors' ability to
focus on business-building was hampered by our large geographic area of
operations and limited resources, which caused a decline in Amway Asia Pacific's
results in the fourth quarter of fiscal 1997. We do not currently plan any
further geographic expansion, either in China or other parts of Asia, although
our distributors may participate in new
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markets opened by Amway which could adversely affect our results. We believe our
Taiwan and Hong Kong distributor leaders have resumed intensive business
building activities in China as growth in that market and this could adversely
affect results in their home markets.
Our sales are affected by sponsoring levels; many factors, adverse
publicity in particular, impact sponsoring. We distribute products exclusively
through our distributors and, in China, through our sales representatives. Our
net sales, therefore, are directly dependent on maintaining and building our
core distributor force. Like other direct selling companies, a large number of
our distributors do not renew their distributorships each year. To increase our
sales, sponsoring must increase and/or distributors must increase their
productivity. Distributor motivation and leadership are the two primary factors
which impact sponsoring, our ability to retain distributors and in turn, our
sales. Geographic expansion, economic conditions, government regulations,
adverse publicity and the perception of Amway, Amway Asia Pacific and direct
selling generally all impact distributor motivation and leadership. Over time,
we have experienced increases and decreases in sponsoring but we cannot predict
the timing or extent of these changes because of the many factors at work. We
cannot be assured that we will be able to increase our distributors or their
productivity. In addition, we may be unable to increase distributors beyond a
certain point as there is a finite number of persons interested in having a
direct selling business.
Adverse publicity may result from certain distributor activities. In
particular, some distributor leaders, through their own independent
organizations, distribute motivational audio and video tapes and written
material without our prior review and approval. Negative publicity may arise
from the sales of such materials. While our prior review and approval is
required in certain instances under the Sales Plan, we cannot closely monitor
our distributors as we would our employees. We do communicate with distributor
leaders and attempt to enforce the Sales Plan and the Amway Code of Ethics and
Rules of Conduct to avoid circumstances leading to negative publicity. If
necessary, we terminate distributors who violate our rules. It is possible that
negative publicity will adversely affect our results.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has one manufacturing facility in the PRC, located in
Guangzhou, Guangdong province, which was opened on January 18, 1995. The Company
is in the final stages of expanding this manufacturing plant; as a result of
this expansion, production of Artistry(R) skin care and Nutrition & Wellness
products began in fiscal 1999. See "Description of Business - Government
Regulation - China Direct Selling Regulations." In addition, the Company has
office facilities for its officers and employees and distribution centers and
warehouses for the storage and distribution of its products located throughout
its markets. The following table summarizes, as of August 31, 1999, the number
of owned and leased offices and distribution center/warehouses in each country
in which the Company currently has sales activities:
<TABLE>
<CAPTION>
Owned Leased
Pickup or Pickup or
Distribution Distribution
Offices Center/Warehouse Offices Center/Warehouse
<S> <C> <C> <C> <C>
Australia (1)........... 1 1 1 2
PRC (2)................. 2 1 7 45
Malaysia (1)(3)......... - 3 - 7
New Zealand (1)......... 1 1 - -
Taiwan (1).............. - - 1 5
Thailand (1)............ - - - 20
</TABLE>
- --------------------------------
(1) Certain distribution centers/warehouses in these countries include office
space.
(2) Reflects Amway China's land use rights (for a 50-year term) with respect to
its manufacturing facility; includes facilities in Hong Kong and Macau.
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<PAGE> 19
(3) Includes facilities in Brunei.
The Company believes that its facilities are in good condition and that
it has sufficient capacity to meet its current operational requirements.
ITEM 3. LEGAL PROCEEDINGS
On December 8, 1999, Robert Fisher commenced a purported class action
lawsuit in the Superior Court of the State of California, County of San Mateo,
captioned FISHER, ET AL. V. AMWAY ASIA PACIFIC, LTD., ET AL., No. 411303. The
complaint, which names as defendants the Company, its officers and directors and
New AAP, alleges that the purchase price offered to the Company's public
shareholders in connection with New AAP's cash tender offer was unfair and that
in pursuing the cash tender offer, defendants engaged in various manipulative
and deceptive acts and practices in breach of their fiduciary duties to the
Company's public shareholders. The complaint seeks an injunction prohibiting
defendants from proceeding with the cash tender offer or, alternatively,
rescission of the cash tender offer to the extent already completed, unspecified
damages, costs and attorneys' fees and other relief. This action has been
removed to the United States District Court, Northern District of California and
was assigned No. C 00-00199 MEJ.
On December 16, 1999, Robert F. Wardrop, II, commenced a purported
class action lawsuit in the United States District Court for the Southern
District of New York captioned WARDROP, ET AL. V. AMWAY ASIA PACIFIC LTD., ET
AL, No. 99 Civ. 12093. The complaint, which names as defendants the Company, its
officers and directors and New AAP, alleges that defendants violated Section
14(e) of the Exchange Act, and Rules 14D-1 and 14D-9 promulgated pursuant
thereto, by misrepresenting in the Offer to Purchase that the purchase price
offered to the Company's public shareholders was fair. According to plaintiffs,
the statement that the purchase price was fair was false or misleading because
defendants allegedly failed to consider the impact on the Company's future of
the agreement between China and the United States, under which the United States
agreed to support China's entry into the World Trade Organization. The complaint
seeks an injunction prohibiting the defendants from proceeding with the cash
tender offer or, alternatively, rescission of the cash tender offer to the
extent already completed or rescissory damages, costs and attorneys' fees and
other relief.
The Company is a party to certain other routine litigation incidental
to its business, none of which is currently expected to have a material adverse
effect on the Company's financial condition or results of operations.
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ITEM 4. CONTROL OF REGISTRANT
The following table sets forth certain information, as of December 31,
1999, as to the security ownership of those persons owning of record or known to
the Company to be the beneficial owner of more than 10% of the Common Stock and
the Common Stock ownership of the Company's officers and directors as a group.
All information with respect to beneficial ownership has been furnished by the
respective 10% beneficial owner, officer or director, as the case may be. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to the number of shares of Common Stock set forth opposite
their names.
Names and Addresses Number of Shares of Percentage of Shares
of Beneficial Owners Common Stock of Common Stock
Beneficially Owned Beneficially Owned
-------------------- ------------------- --------------------
New AAP Limited 8,181,756(1) 14.5%
7575 Fulton Street, East
Ada, MI 49355
Apple Hold Co., L.P. 54,996,706(2) 97.4%
7575 Fulton Street, East
Ada, MI 49355
All officers and directors as a group 220,661(3) *
(14 persons)
*Less than one percent (1%).
(1) Acquired pursuant to the Offer, see "Description of Business - Tender
Offer." New AAP is wholly owned by Apple Hold Co., L.P.
(2) Includes 8,181,756 shares (14.5%) of Common Stock held by its wholly-owned
subsidiary, New AAP Limited. The limited partners of Apple Hold Co., L.P.
are corporations and trusts formed by or for the benefit of the DeVos and
Van Andel families; the general partner is AP New Co., LLC, a Nevada
limited liability company, the sole manager of which is Amway Corporation.
(3) Includes issued and outstanding options to purchase Common Stock. Pursuant
to the Amalgamation Agreement, all issued and outstanding options to
purchase Common Stock shall be converted into rights to receive cash in
accordance with the Black-Scholes Option Pricing Model and will require
surrender of all such options by the holders thereof as of the effective
date of the Amalgamation. See "Description of Business - Tender Offer." In
addition, Richard M. DeVos, Jr., Stephen A. Van Andel and Douglas L. DeVos
are executive officers of Amway, the sole manager of AP New Co., the
general manager of Apple, and therefore beneficially own 54,966,706 (97.4%)
shares of Common Stock.
ITEM 5. NATURE OF TRADING MARKET
The principal market for the shares of Common Stock is the New York
Stock Exchange (the "NYSE"), such shares having traded on the NYSE since
December 14, 1993. The Common Stock is also listed on the Australian Stock
Exchange Limited (the "ASX"), such shares having been listed on the ASX since
December 23, 1993.
On February 1, 2000, there were 56,441,960 shares of Common Stock
outstanding, of which 56,213,286 shares were held by 971 U.S. record holders.
The high and low sales prices of the Company's shares of Common Stock
on the NYSE and the ASX at the end of each fiscal quarterly period during the
last two fiscal years is set forth below in the following table.
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<TABLE>
<CAPTION>
NYSE
-------------------------
HIGH LOW
---------- ------
<S> <C> <C>
FY 1998 First Quarter $34 $19 1/2
Second Quarter 22 15/16 15 3/4
Third Quarter 21 1/16 12 15/16
Fourth Quarter 16 1/2 9 3/16
FY 1999 First Quarter 13 3/16 8 1/4
Second Quarter 13 1/2 7
Third Quarter 14 1/2 6 7/8
Fourth Quarter 14 15/16 9 15/16
ASX
HIGH LOW
---- ---
FY 1998 First Quarter AU$46.50 AU$36.50
Second Quarter
36.00 26.00
Third Quarter
32.51 23.00
Fourth Quarter
28.50 19.50
FY 1999 First Quarter AU$21.00 AU$14.50
Second Quarter
21.00 12.00
Third Quarter
20.80 11.80
Fourth Quarter
24.00 15.90
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority. The transfer of shares between
persons regarded as resident outside Bermuda for exchange control purposes and
the issuance of shares to or by such persons may be effected without specific
consent under the Bermuda Exchange Control Act of 1972 and regulations
thereunder. Issuance and transfers of shares involving any person regarded as
resident in Bermuda for exchange control purposes require specific prior
approval under the Bermuda Exchange Control Act of 1972.
Owners of shares of Common Stock that are ordinarily resident outside
Bermuda are not subject to any restrictions on the exercise of rights to hold or
vote their shares. Because the Company has been designated as a non-resident for
Bermuda exchange control purposes, there are no restrictions on its ability to
transfer funds in and out of Bermuda or to pay dividends to United States
residents who are holders of the Common Stock, other than in respect of local
Bermuda currency.
21
<PAGE> 22
In accordance with Bermuda law, share certificates may be issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example, as trustee), certificates may, at the
request of the applicant, record the capacity in which the applicant is acting.
Notwithstanding the recording of any such special capacity, the Company is not
bound to investigate or incur any responsibility in respect of the proper
administration of any such trust. The Company will take no notice of any trust
applicable to any of its shares whether or not it had notice of such trust.
As an "exempted company," the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudans, but
as an exempted company the Company may not participate in certain business
transactions, including (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature, (ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda, (iii) the acquisition of securities created or issued by, or any
interest in, any local company or business, other than certain types of Bermuda
government securities or securities of another "exempted" company, partnership
or other corporation resident in Bermuda but incorporated abroad or (iv) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.
In addition to having no restrictions on the degree of foreign
ownership, the Company is subject neither to taxes on its income or dividends
nor to any foreign exchange controls in Bermuda. In addition, there is no
capital gains tax in Bermuda, and profits can be accumulated by the Company, as
required, without limitation.
As a result of the Company's ownership of its Australian affiliate, the
Foreign Acquisitions and Takeovers Act of 1975 (Australia) purports to apply to
sales of shares of Common Stock of the Company. As a result of the application
of this statute, changes in interests in the Company by non-Australian persons
may be subject to review and approval by the Australian Treasurer. The statute
provides for prior voluntary notification of any acquisition which would result
in one non-Australian person or group of associated non-Australian persons
controlling 15% or more of the outstanding shares of Common Stock. In addition,
the statute provides for prior notification of any acquisition by associated
non-Australian persons resulting in foreign persons controlling, in the
aggregate, 40% or more of total voting power or ownership.
ITEM 7. TAXATION
BERMUDA TAXATION
At the date hereof, there is no Bermuda income, corporation or profits
tax, withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its stockholders other than
stockholders ordinarily resident in Bermuda. The Company is not subject to stamp
or other similar duty on the issue, transfer or redemption of its shares of
Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act of 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares, debentures or
other obligations of the Company until March 28, 2016, except insofar as such
tax applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares of Common Stock at a rate not exceeding U.S.$26,500 per annum.
22
<PAGE> 23
UNITED STATES TAXATION
Taxation of Stockholders
The general discussion below relates to the United States federal
income taxation of a United States person (i.e., a United States citizen or
resident, a United States corporation, a United States partnership, or an estate
or trust subject to United States tax on all of its income regardless of source
(a "U.S. Investor")) holding shares of Common Stock. The following discussion
does not address the tax consequences to a person who holds (or will hold),
directly or indirectly, 10% or more of the Common Stock (a "10% Stockholder").
In addition, this summary does not address the United States tax treatment of
certain types of U.S. Investors (e.g., individual retirement and other
tax-deferred accounts, life insurance companies and tax-exempt organizations) or
of persons other than U.S. Investors, all of whom may be subject to tax rules
that differ significantly from those summarized below. The discussion below, as
it relates to U.S. tax consequences, is based upon the provisions of the Code
and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in U.S. federal income tax consequences different from those discussed
below.
A U.S. Investor receiving a distribution on the Common Stock will be
required to include such distribution in gross income as a taxable dividend to
the extent such distribution is paid from earnings and profits of the Company as
determined under United States federal income tax law. Distributions in excess
of the earnings and profits of the Company will first be treated, for United
States federal income tax purposes, as a nontaxable return on capital to the
extent of (and reduction of) the U.S. Investor's basis in the Common Stock and
then as gain from the sale or exchange of a capital asset, provided that the
Common Stock constitutes a capital asset in the hands of the U.S. Investor.
Dividends received on the Common Stock will not be eligible for the corporate
dividends received deduction.
Distributions with respect to the Common Stock that are taxable as
dividends in the United States will generally constitute income from sources
outside the United States for purposes of determining the limitation on the
allowable foreign tax credit. The overall limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income.
For this purpose, dividends distributed by the Company to U.S. Investors (who
are not 10% Stockholders) will generally constitute "passive income" or, in the
case of certain U.S. Investors, "financial services income."
With certain exceptions, gain or loss on the sale or exchange of the
Common Stock will be treated as capital gain or loss (if the Common Stock is
held as a capital asset). Such capital gain or loss will be long-term capital
gain or loss if the U.S. Investor has held the Common Stock for more than one
year at the time of the sale or exchange. Gain, if any, will generally be U.S.
source gain.
Various provisions contained in the Code impose special taxes in
certain circumstances on non-United States corporations and their stockholders.
The following is a summary of certain provisions which could have an adverse
impact on the Company and the U.S. Investors. There is currently no reciprocal
tax treaty between Bermuda and the United States affecting the Company or its
stockholders.
Personal Holding Companies
Sections 541 through 547 of the Code relate to the classification of
certain companies (including foreign corporations) as personal holding companies
("PHCs") and the consequent taxation of such corporations on their undistributed
personal holding company income. A PHC is a corporation (i) more than 50% of the
stock of which is owned, directly or indirectly, by five or fewer individuals at
least one of which is a U.S. resident or citizen and (ii) which receives 60% or
more of gross income, as specifically adjusted, from certain passive sources.
For purposes of this gross income test, income of a foreign corporation means
generally only income derived from U.S. sources or income that is effectively
connected with a U.S. trade or business.
More than 50% of the shares of Common Stock are owned, directly or
indirectly, by five or fewer individuals, at least one of whom is a U.S.
resident or citizen. However, since the Company will derive most or all of its
income from foreign sources that will not be effectively connected with a U.S.
trade or business, the Company believes that it does not satisfy the foregoing
income test and therefore will not be classified as a PHC.
23
<PAGE> 24
Foreign Personal Holding Companies
Sections 551 through 558 of the Code relate to foreign personal holding
companies ("FPHCs") and impute undistributed income of certain foreign
corporations to United States persons who are stockholders of such corporations.
A foreign corporation will be classified as a FPHC if (i) five or fewer
individuals, who are United States citizens or residents, directly or indirectly
own more than 50% of the corporation's stock (measured either by voting power or
value) (the "stockholder test") and (ii) the corporation receives at least 60%
of its gross income (regardless of source), as specifically adjusted, from
certain passive sources (the "income test"). After a corporation becomes a FPHC,
the income test percentage for each subsequent taxable year is reduced to 50%.
If the Company were to be classified as a FPHC, a portion of its
undistributed income would be imputed to each of its U.S. Investors who held the
Company's stock on the last day of the calendar year. Such income would be
taxable to such persons as a dividend, even if no cash dividend is actually
paid. U.S. Investors who dispose of their Common Stock prior to such date would
not be subject to tax under these rules. If the Company were to become a FPHC,
U.S. Investors who acquire Common Stock from decedents would be denied the
step-up of the income tax basis for such Common Stock to fair market value at
the date of death which would otherwise have been available and instead would
have a tax basis equal to the lower of the fair market value or the decedent's
basis.
Richard M. DeVos and Jay Van Andel, who are United States citizens,
directly or indirectly own a beneficial interest of more than 50% of the Common
Stock for purposes of the FPHC rules. Accordingly, the stockholder test will be
met. Because the Company derives most of its gross income from the distribution
of Amway products in Australia and Hong Kong and such income is not considered
passive income, the Company does not satisfy the foregoing income test and
therefore is not an FPHC.
Passive Foreign Investment Companies
Through December 31, 1997, if 75% or more of the gross income of the
Company (including the pro rata gross income of any company of which the Company
is considered to own 25% or more of the stock by value) in a taxable year is
passive income, or if the average percentage of assets (generally determined
based upon adjusted tax basis) of the Company (including the pro rata value of
the assets of any company of which the Company is considered to own 25% or more
of the stock by value) in a taxable year which produce or are held for the
production of passive income is at least 50%, the Company would be classified as
a "passive foreign investment company" ("PFIC") for that taxable year. Non-tax
exempt U.S. Investors are taxed on gain from the sale of PFIC stock and certain
distributions from PFICs (generally distributions in excess of average
distributions to such shareholders by the PFIC in the prior three years) by
being treated as if such amounts were received ratably during the period the
U.S. Investor held the shares and treating such amounts as ordinary income. The
amount allocated to each year (other than the current year) is subject to tax at
the maximum marginal tax rate in effect for that year plus an interest charge
calculated as though the U.S. Investor actually owed and failed to pay tax on
the amount of income allocated to each prior year. The application of this
system may result in significantly higher U.S. taxes on a U.S. Investor's
distributions and gain from the sale of PFIC stock. If the Company were to
become a PFIC, U.S. Investors who acquire Common Stock from decedents could be
denied the step-up of the income tax basis for such Common Stock to fair market
value at the date of death which would otherwise have been available and instead
could have a tax basis equal to the lower of the fair market value or the
decedent's basis. The Company does not expect to be a PFIC because it believes
that it can manage its business so as to avoid PFIC status.
The Company will notify U.S. Investors in the event that the Company is
treated as a PFIC for any taxable year to enable U.S. Investors to consider
whether to elect to treat the Company as a qualified electing fund ("QEF") for
United States federal income tax purposes. The result of the QEF election is
that an electing U.S. Investor avoids the tax treatment generally applicable to
PFICs discussed above. Instead, a shareholder of a QEF is required, for each
taxable year, to include in income a pro rata share of the ordinary earnings of
the QEF as ordinary income and a pro rata share of the next capital gain of the
QEF as long-term capital gain. The Company intends to comply with the reporting
requirements necessary for a U.S. Investor to make a QEF election, and will
report such information to U.S. Investors as may be required to make such a QEF
election effective. If a shareholder makes a QEF election and such election
applies for all years that such shareholder has held the stock, gain on the sale
of such stock would be characterized as capital gain (provided the stock is held
a capital asset) and the denial of bases step-up at death described above would
not apply.
24
<PAGE> 25
Effective January 1, 1998, if 75% or more of the gross income of the
Company (including the pro rata gross income of any company of which the Company
is considered to own 25% or more of the stock by value) in a taxable year is
passive income, or if the average percentage of assets (generally determined
based upon fair market value) of the Company (including the pro rata value of
the assets of any company of which the Company is considered to own 25% or more
of the stock by value) in a taxable year which produce or are held for the
production of passive income is at least 50%, the Company would be classified as
a PFIC for that taxable year.
Because the fair market value of the Company's active assets is
expected to remain greater than 50% of the fair market value of the Company's
total assets and the active income of the Company is expected to continue to
exceed 25% of the Company's gross income, the Company believes it will not
satisfy the foregoing asset and income tests, and therefore will not be
classified as PFIC after January 1, 1998.
Controlled Foreign Corporations
Sections 951 through 964 and Section 1248 of the Code relate to
controlled foreign corporations ("CFC") and impute some portion of undistributed
income to 10% Stockholders and convert into dividend income some portion of
gains on dispositions of shares which would otherwise qualify for capital gain
treatment. The CFC provisions only apply if 10% Stockholders, who are also
United States persons, own, in the aggregate, more than 50% (measured by voting
power or value) of the shares of a foreign corporation. Certain trusts and
foundations established by or for the benefit of Richard DeVos and Jay Van Andel
and their families who are considered 10% Stockholders are deemed to own more
than 50% of the Common Stock and the Company is a CFC. However, the income
imputation rules referred to for CFCs above would only apply with respect to 10%
Stockholders.
UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING
The receipt of dividends on the Common Stock by a holder of the Common
Stock (i) made by mail or wire transfer to an address in the United States, (ii)
made by a paying agent, broker or other intermediary in the United States or
(iii) made by a United States broker or a "United States-related" broker to such
holder outside the United States may be subject to United States information
reporting requirements. Holders of Common Stock who are not United States
persons ("non-U.S. holders") generally would be exempt from these reporting
requirements, but may be required to comply with certification and
identification procedures in order to prove their exemption. Treasury
regulations currently in effect do not require backup withholding with respect
to dividends paid by a foreign corporation such as the Company.
The payment of the proceeds of the disposition of Common Stock by a
holder to or through the United States office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31% unless
the holder either certifies its status as a non-U.S. holder under penalties of
perjury or otherwise establishes an exemption. The payment of the proceeds of
the disposition by a holder of Common Stock to or through a non-U.S. office of a
broker will generally not be subject to backup withholding and information
reporting. Information reporting (but not backup withholding) may apply,
however, to such a holder who sells a beneficial interest in Common Stock
through a non-United States branch of a United States broker, or through a
non-United States office of a "United States-related" broker, in either case
unless the holder establishes an exemption or the broker has documentary
evidence in its files of the holder's status such as a non-U.S. holder (and the
broker has no actual knowledge to the contrary). For purposes of these rules, a
"United States-related" broker is a broker or other intermediary that is a
controlled foreign corporation for United States federal income tax purposes or
that is a person 50% or more of the gross income from all sources of which, over
a specified three-year period, is effectively connected with a United States
trade or business.
Any amounts withheld under the backup withholding rules from a payment
to a holder will be refunded (or credited against the holder's United States
federal income tax liability, if any) provided that the required information is
furnished to the United States Internal Revenue Service.
25
<PAGE> 26
ITEM 8. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(U.S. DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED AUGUST 31,
INCOME STATEMENT DATA: 1999 1998 1997 1996 1995
---------- -------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Historical
Net sales . . . . . . . . . . . . . $ 501,475 $ 587,579 $ 845,166 $ 716,757 $ 718,279
Cost of sales . . . . . . . . . . 216,455 257,220 313,287 269,377 273,970
------------ -------------- -------------- -------------- -------------
285,020 330,359 531,879 447,380 444,309
------------ -------------- -------------- -------------- -------------
Distributor incentives . . . . . . 128,815 157,018 219,111 186,092 187,863
Distribution expenses . . . . . . . 37,774 45,199 49,662 40,777 37,842
Selling and administrative
expenses . . . . . . . . . . . . 92,104 102,849 114,523 93,367 90,849
------------ -------------- -------------- -------------- -------------
Total operating expenses . . . . . . 258,693 305,066 383,296 320,236 316,554
------------ -------------- -------------- -------------- -------------
Operating income . . . . . . . . . 26,327 25,293 148,583 127,144 127,755
------------ -------------- -------------- -------------- -------------
Other income - net . . . . . . . . 6,504 9,683 24,707 19,781 12,512
------------ -------------- -------------- -------------- -------------
Income before income taxes and
minority interest . . . . . . . . 32,831 34,976 173,290 146,925 140,267
Income taxes . . . . . . . . . . . 13,294 23,508 54,909 55,709 44,963
------------ -------------- -------------- -------------- -------------
Income before minority interest . . 19,537 11,468 118,381 91,216 95,304
Minority interest in net income
of consolidated subsidiaries . . . 7,062 10,015 14,350 8,983 5,422
------------ -------------- -------------- -------------- -------------
Net income . . . . . . . . . . . . $ 12,475 $ 1,453 $ 104,031 $ 82,233 $ 89,882
============ ============== =============== ============== =============
Basic and diluted earnings
per share . . . . . . . . . . . $ 0.22 $ 0.03 $ 1.76 $ 1.37 1.50
============ ============== =============== ============== =============
Dividends per share (4) . . . . . . $ - $ 0.88 $ .84 $ 1.02 0.64
============ ============== =============== ============== =============
Weighted average number of
shares outstanding (000's) . . . 56,442 56,442 59,124 60,039 60,013
============ ============== =============== ============== =============
Weighted average number of
shares outstanding including
the effect of dilutive
securities (000's) . . . . . . . 56,442 56,446 59,176 60,097 60,103
============ ============== =============== ============== =============
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
(U.S. DOLLARS IN THOUSANDS)
BALANCE SHEET DATA: AUGUST 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Working Capital . . . . . . . . . . $ 113,203 $ 102,128 $ 186,477 $ 315,970 $ 260,951
. .
Total assets . . . . . . . . . . . 366,079 387,073 520,143 617,391 529,338
Long-term debt (less current
maturities) . . . . . . . . . . - - - 16,308 23,987
Total shareholders' equity . . . . 194,388 176,098 252,484 364,216 329,616
OTHER DATA: AUGUST 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ----
Number of core distributors
(1) (2) . . . . . . . . . . . . . 601,000 646,000 667,000 555,000 510,000
Number of direct distributors
(2) (3) . . . . . . . . . . . . . 6,165 6,725 7,437 7,096 7,052
YEARS ENDED AUGUST 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ----
Gross margin . . . . . . . . . . . 56.8% 56.2% 62.9% 62.4% 61.9%
Operating margin . . . . . . . . . 5.2% 4.3% 17.6% 17.7% 17.8%
Net income margin . . . . . . . . . 2.5% 0.2% 12.3% 11.5% 12.5%
</TABLE>
(1) Includes total number of distributorships (including direct
distributorships) or sales representatives in the case of China (see
Description of Business--China Operations), in force from the prior fiscal
year which were renewed for the fiscal year shown. Number of distributors
are rounded to the nearest thousand. The number for each fiscal year does
not reflect the total number of distributors for such fiscal year because
it does not include new distributors who enrolled during such fiscal year.
(2) Multiple persons in the same household (such as a married couple) who are
distributors are considered a single distributorship.
(3) "Direct distributors" are distributors who have achieved a significant
level of performance for a specified period.
(4) In fiscal 1996, the Company paid total regular dividends of $0.70 per share
and a special dividend of $0.32 per share. No dividends have been paid
since the fourth quarter of fiscal 1998.
27
<PAGE> 28
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements (including Notes thereto), "Description of
Business--Government Regulation and -Risks and Uncertainties" and other
information included elsewhere in this Annual Report.
BACKGROUND
The Company, organized in 1993, completed its initial public offering
of 9,085,000 shares of Common Stock on December 21, 1993. The Company is a
Bermuda corporation which, directly or indirectly through controlled affiliates,
is the exclusive distribution vehicle for Amway in Australia, Brunei, China (the
mainland, the Hong Kong Special Administrative Region, Taiwan and Macau),
Malaysia, New Zealand and Thailand. References herein to "China" refer
exclusively to the mainland of China. Each affiliate is wholly owned, except
Malaysia, in which the Company has a 51.7% ownership equity position (see Note
15 in the Consolidated Financial Statements), and Thailand, a partnership in
which the Company is a general partner with a 99.0% economic interest.
In the fourth quarter of fiscal 1998, the Company changed its mode of
operation in China in response to a China government directive. As part of the
change in operations, the Company's China affiliate sells product primarily to
sales representatives and privileged customers. See "Description of
Business--China Operations." In Australia, distributors are independent agents
who arrange for sales of products directly by the Company to the consumer and/or
arrange for delivery of products to distributors they have sponsored. See
"Description of Business--Distribution." Unless otherwise noted, any references
to the Company's distributors within this Management's Discussion and Analysis
of Financial Condition and Results of Operations includes sales representatives
in China and sales agents in Australia.
OVERVIEW
Substantially all of the Company's revenues are derived from the sale
of a broad range of consumer products to or through distributors. The Company
also receives revenues from the sale of starter kits to new distributors and
other business support materials to existing distributors and from distributor
renewal fees, except in China where such fees are not charged. See "Description
of Business--China Operations." The Company recognizes sales when products are
shipped to or through distributors as well as privileged customers in China.
The Company's affiliates record net sales in currencies other than the
U.S. dollar. The Company's financial statements are expressed in U.S. dollars.
Revenues and expenses are translated from local currencies into U.S. dollars at
average currency exchange rates. Accordingly, fluctuations in currency exchange
rates can have a material beneficial or adverse effect on net sales when
calculated on a U.S. dollar basis. See "--Foreign Currency Exchange Rate
Information and Market Risk" and "Description of Business--Risks and
Uncertainties-- Our business is subject to the economic and political turmoil
occurring in the Asia Pacific Region."
The Company's net sales are directly dependent upon the efforts of its
distributors. Any growth in future sales volume will require growth in the
number of distributors and/or increased productivity by the distributors.
Historically, the Company has experienced periodic increases and decreases in
the level of sponsoring in its markets (as measured by distributor
applications); however, because of the number of factors that impact sponsoring,
the Company cannot predict the timing or degree of these occurrences in the
future. As is typical of direct selling, there is a high turnover in
distributors from year to year which requires the sponsoring and training of new
distributors by existing distributors in order to maintain or increase the
overall distributor force. Sales levels, sponsoring activities and distributor
retention levels are impacted by changes in the level of distributor motivation
and the development of distributor leadership, which in turn can be affected by
a number of tangible factors including governmental policies or regulations
regarding the direct selling industry, general economic conditions, and a number
of intangible factors such as adverse publicity and the perception of Amway, the
Company and direct selling generally. Reported net sales are also impacted by a
variety of other factors, such as pricing, exchange rate fluctuations, product
28
<PAGE> 29
improvements, product promotions and the introduction of major new products
which tend to stimulate distributor interest and thus sales.
The Company's most significant expense is cost of sales. Approximately
70% of the Company's cost of sales for fiscal 1999 was represented by the cost
of products purchased from Amway and the related costs for freight, handling,
duties and taxes as well as the cost of transporting these products from the
point of entry to a local warehouse. For fiscal 1998, Amway sourced products and
related costs accounted for approximately 65% of its cost of sales. The increase
for fiscal 1999 primarily reflects increases in the cost of products purchased
from Amway and changes in product mix. Amway periodically establishes a price
schedule for the products purchased from Amway based upon a U.S. dollar "cost
plus" base price calculation and an implicit local currency to U.S. dollar
exchange rate for those markets billed in local currency (currently Australia
and New Zealand only). Amway has the right to modify its prices at any time on
at least 30 days advance notice, provided that any change in the U.S. dollar
"cost plus" base price component must be made on a consistent basis for all
Amway affiliates. In fiscal 1999, Amway raised its "cost plus" base prices for
products purchased by the Company's affiliates by approximately 3.7% effective
September 1, 1998. Given the currency volatility in the Asia Pacific region, the
Company and Amway have been reviewing on a quarterly basis the implicit exchange
rate in the pricing of products purchased from Amway by the Australian and New
Zealand affiliates based on an assessment of current and future economic and
business conditions in the United States as well as in Australia and New
Zealand, forward foreign exchange expectations, market conditions with respect
to the Company's products and other factors. Effective September 1, 1998, in
addition to the increase in the cost-plus base prices, Amway increased the
implicit local currency to U.S. dollar exchange rates for Australia and New
Zealand by approximately 5.4% and 5.3%, respectively; effective December 1,
1998, Amway increased the implicit local currency to U.S. dollar exchange rates
for Australia and New Zealand an additional 3.0% and 1.7%, respectively; and on
March 1, 1999, the implicit exchange rates were increased by an additional 3.2%
for Australia and 3.6% for New Zealand due to additional devaluation. Beginning
in fiscal 2000, the Company and Amway will review the exchange rate in the
pricing of products purchased from Amway by the Australian and New Zealand
affiliates three times per year, with any resulting price changes becoming
effective on the first day of September, January and May. Resulting from such
review, effective September 1, 1999, prices on products purchased from Amway
were decreased 3.1% for Australia and increased 3.7% for New Zealand. See
"Description of Business--Relationship with Amway". Also included in cost of
sales is a royalty (5% of net sales less distributor incentives) paid by the
Company's China affiliate to Amway for the right to manufacture Amway products
in China.
The most significant component of the Company's operating expenses is
distributor incentives, which are principally in the form of bonus payments to
distributors based on performance. Distributors earn incentives based on the
purchases of consumer products by them and their downline distributors. Bonuses
are not paid on business support materials, as such items are intended for use
by the distributors rather than for resale to consumers. Distributor incentives
are paid by the Company based on a schedule set by Amway under the Sales Plan
and are tied to the volume and value of products purchased by the distributors.
In China, sales representatives' compensation is also based on the services
provided by them to the Company. See "Description of Business--China
Operations."
Other operating expenses consist of distribution expenses and selling
and administrative expenses. Distribution expenses include the costs associated
with having products available for, and delivering products to, distributors and
privileged customers. These include the costs of warehouse and distribution
facilities. Selling and administrative expenses include, in addition to
corporate staff overhead and royalty expense on distributor lists, the costs of
motivational sales meetings, product demonstration seminars and product fairs,
training sessions, distributor leadership seminars and business promotions
meetings. Corporate image advertising, civic events and promotional activities
are also classified as selling and administrative expenses. In addition,
pursuant to the Amended and Restated Support Services Agreements between Amway,
the Company and its affiliates, Amway provides information systems, executive
management, investor relations services and certain administrative support
services including legal, accounting, tax, treasury, marketing, insurance,
inventory control and human resources services to the Company. The Company pays
Amway for such services based on the internal labor and other direct and
indirect costs incurred by Amway in providing such services. The Company also
pays Amway software license fees and maintenance charges with respect to
information systems provided by Amway. See Note 10 to the Consolidated Financial
Statements and "Description of Business--Relationship with Amway--Support
Services Agreement."
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<PAGE> 30
The Company is not taxed in Bermuda where it is incorporated or in Hong
Kong (except with respect to the operations of the Hong Kong affiliate) where
its headquarters are located. Each Company affiliate is subject to taxation in
the country in which it operates. Currently, the statutory tax rates in the
Company's markets range from a high of 36% in Australia to a low of 7.5% in
China. The Malaysian government suspended the income tax on business-related
income in that country for the 1999 tax year which, for the Company's Malaysia
affiliate, is the Company's 1999 fiscal year. Income taxes in Malaysia resumed
effective for fiscal 2000 at the expected statutory tax rate of 28%. See
"--Results of Operations--Income Taxes." In China, the current tax laws, which
apply to calendar years, allow the Company's China affiliate to pay no tax on
profits for the two calendar years beginning in the year that an accumulated
profit was realized; thereafter, the China affiliate is subject to special
reduced rates of 7.5% for three years, 10.0% for the subsequent three years and
15% thereafter. Such an accumulated profit was realized by the Company's China
affiliate during the 1997 calendar year; therefore, the Company's China
affiliate was not subject to tax on profits in 1997 and 1998. The Company's
China affiliate operated at a loss for the 1998 calendar year and therefore the
Company did not receive any benefit from this tax holiday for calendar 1998. The
China tax laws allow for losses to be carried forward for up to five years. A
7.5% statutory tax rate applied for the 1999 calendar year and the Company
recorded a tax benefit at August 31, 1999, in line with its expectation that a
portion of the China affiliate's fiscal 1999 loss will be used to offset future
taxable earnings at that affiliate. See "Description of Business--Government
Regulation--China Direct Selling Regulations" and "--Results of
Operations--Income Taxes." Dividends from the Company's subsidiaries in Taiwan
and Thailand are subject to withholding taxes at the rates of 20% and 10%,
respectively.
FISCAL 1999
Summary. The Asian economic crisis continued to have a significant
negative impact on the Company's business during fiscal 1999, particularly in
the first half of the fiscal year, as the significant decline in purchasing
power in many of the Company's markets contributed to the decline in the
Company's overall sales volume. Local currencies in several of the Company's
markets, which significantly weakened in comparison to the U.S. dollar during
fiscal 1997 and 1998, recovered to some degree in the first quarter of fiscal
1999 and remained relatively steady throughout the remainder of the fiscal year,
leading to a slightly positive impact on reported U.S. dollar sales for fiscal
1999 as compared to fiscal 1998. Sales momentum in China was slow to recover
after the Company was permitted to resume operations in July 1998 following the
government's directive in April 1998 to cease all direct selling activities. The
negative effects of the ban, and the adverse publicity which accompanied the
ban, were severe and pervasive, making the Company's efforts to recruit sales
representatives and privileged customers extremely difficult in that market,
particularly in the first half of fiscal 1999. Midway through the third quarter
of fiscal 1999, the China Business Revitalization Program, designed to make the
Amway business opportunity more attractive and tailored to the environment in
China, was launched. This program proved successful in attracting sales
representatives and helped to generate a higher level of sales in that market in
the second half of fiscal 1999 as compared to the same period in fiscal 1998.
The Company generated an increase in operating profit in fiscal 1999 as compared
to fiscal 1998 due primarily to the impact of the China Business Revitalization
Program and efforts to control costs in China and other markets.
Core Distributor Force; Sponsoring. At August 31, 1999, the Company had
a core distributor force of approximately 601,000 independent distributors
(those distributors who had renewed their distributorships from the prior fiscal
year), a decrease compared to the August 31, 1998 level of 646,000. This
decrease was primarily due to the decline in core distributor force in Thailand
and Taiwan. The core distributor force in Malaysia and Australia increased for
fiscal 1999 due to the distributor benefit program in Malaysia (see "--Results
of Operations") and due to the larger base of distributors carrying over from
the previous year in both markets. In China, the number of sales representatives
declined as a result of the change in the mode of operations in China at the
beginning of fiscal 1999, which included a reclassification of certain
distributors as privileged customers.
For fiscal 1999, as compared to fiscal 1998, overall sponsoring
declined as a result of a decrease in all of the Company's markets except
Malaysia and Hong Kong, which recorded strong increases in sponsoring. The
decreases were largely due to the economic conditions in Asia. In Australia,
there was a difficult comparison to the prior year when distributor enthusiasm
in that market was high following the implementation of direct fulfillment in
fiscal 1998. The increase in Malaysia reflected distributor enthusiasm for the
new Distributor Benefit Program and successful promotions on big ticket items
used to attract new distributors together with the stabilization of the
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<PAGE> 31
Malaysia economy. In China, the enthusiasm generated by the China Business
Revitalization Program and the easing of the criteria to become a sales
representative in that market led to an increase in sponsoring in the second
half of fiscal 1999 as compared to the same period of fiscal 1998.
RESULTS OF OPERATIONS
NET SALES BY COUNTRY
The table below sets forth net sales information in U.S. dollars for
each of the countries in which the Company has operations for the periods shown.
<TABLE>
<CAPTION>
NET SALES BY COUNTRY
(U.S. DOLLARS IN THOUSANDS)
% CHANGE % CHANGE % CHANGE
FISCAL FROM FISCAL FROM FISCAL FROM
COUNTRY 1999 FISCAL 1998 1998 FISCAL 1997 1997 FISCAL 1996
- ------------- ------- ---------- ------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
China............................. $ 55,452 (18.8)% $ 68,304 (61.6)% $178,008 182.9%
Hong Kong (1)..................... 25,468 (18.9) 31,412 (8.8) 34,435 (10.4)
Taiwan............................ 122,594 (13.6) 141,920 (13.9) 164,783 (15.3)
------- ------- -------
GREATER CHINA REGION.............. 203,514 (15.8) 241,636 (35.9) 377,226 27.5
Malaysia / Brunei (2)............. 83,459 (11.9) 94,706 (30.0) 135,244 21.3
Thailand.......................... 89,171 (14.5) 104,326 (42.5) 181,574 8.3
------- ------- -------
MALAYSIA-THAILAND REGION.......... 172,630 (13.3) 199,032 (37.2) 316,818 13.5
Australia......................... 107,386 (13.6) 124,232 2.0 121,796 4.9
New Zealand....................... 17,945 (20.9) 22,679 (22.7) 29,326 14.2
------- ------- -------
AUSTRALIA-NEW ZEALAND REGION...... 125,331 (14.7) 146,911 (2.8) 151,122 6.6
------- ------- -------
Total Net Sales................... $501,475 (14.7) $587,579 (30.5) $845,166 17.9%
======== ======== ========
<FN>
(1) Includes Macau.
(2) Brunei, included in the results of Malaysia since its acquisition by
Malaysia on April 30, 1996, is immaterial to the comparisons.
</TABLE>
The table below sets forth the change in local currency net sales for
each of the countries in which the Company has operations for fiscal 1999 and
1998 as compared to the previous fiscal year.
CHANGE IN LOCAL CURRENCY NET SALES BY COUNTRY
---------------------------------------------
% INCREASE (DECREASE)
FROM THE PRIOR FISCAL YEAR
FISCAL FISCAL
1999 1998
---- ----
COUNTRY
- -----------------
China...................................... (18.8) (61.7)
Hong Kong (1).............................. (18.8) (8.7)
Taiwan..................................... (12.9) 0.9
Malaysia/Brunei (2)........................ (9.8) 2.8
Thailand................................... (22.7) (10.3)
Australia.................................. (10.4) 19.8
New Zealand................................ (15.0) (6.7)
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<PAGE> 32
(1) Includes Macau.
(2) Sales are denominated in more than one local currency. Any fluctuation in
the exchange rates between the currencies in this market were immaterial to
the calculation of percentage change in local currency sales.
Specific Components of Income and Expense Represented as a Percentage of Net
Sales.
The following table sets forth the percentage of net sales represented
by the specific components of income and expense for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Net sales (1)....................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 43.2 43.8 37.1
----- ----- -----
.................................................... 56.8 56.2 62.9
----- ----- -----
Distributor incentives.............................. 25.7 26.7 25.9
Distribution expenses............................... 7.5 7.7 5.9
Selling and administrative expenses................. 18.4 17.5 13.6
----- ----- -----
Total operating expenses
.................................................... 51.6 51.9 45.4
----- ----- -----
Operating income.................................... 5.2 4.3 17.6
Other income - net.................................. 1.3 1.6 2.9
----- ----- -----
Income before income taxes and minority interest.... 6.5 6.0 20.5
Income taxes........................................ 2.7 4.0 6.5
----- ----- -----
Income before minority interest..................... 3.9 2.0 14.0
Minority interest in net income of consolidated
subsidiaries...................................... 1.4 1.7 1.7
----- ----- -----
Net income.......................................... 2.5% 0.2% 12.3%
===== ===== =====
<FN>
(1) Figures in this table may not add due to rounding.
</TABLE>
Fiscal 1999 Compared to Fiscal 1998
Net Sales. Net sales of $501.5 million for fiscal 1999 decreased $86.1
million (14.7%) from net sales of $587.6 million for fiscal 1998, reflecting
double-digit declines in all the Company's markets. Although net sales declined
for the year, net sales increased 9.2% for the fourth quarter of fiscal 1999 as
compared to the fourth quarter of fiscal 1998 reflecting increases in China and,
to a lesser extent, Malaysia. This increase in the Company's net sales for the
fourth quarter reflects a favorable comparison with the prior year, when the
government ban on direct selling in China (see "Description of Business--China
Operations") and the Asian economic crisis severely impacted the Company's
results.
Net sales in the Greater China region for fiscal 1999 were $203.5
million, a decrease of 15.8% from fiscal 1998. Net sales in China declined 18.8%
for fiscal 1999 reflecting the slow restart in that market, particularly in the
first half of fiscal 1999, under the new mode of operations. Under this mode of
operations, distributors worked with a revised sales plan and shifted the
emphasis of their work from business opportunity and network development to
product sales and customer service. In addition, during that period of
transition, sales representatives approached the rebuilding of their businesses
with a cautious attitude due to public uncertainty regarding direct selling
companies in China. The sales trend in China significantly improved in the
fourth quarter of fiscal 1999 when net sales in that market were approximately
double that of each of the previous three quarters of fiscal 1999. This fourth
quarter increase in China sales reflected the positive impact of the China
Business Revitalization Program. This program, which was launched midway through
the third quarter of fiscal 1999, has attracted an increased number of sales
representatives and has generated increased sales as compared to sales levels
prior to implementation of the program. These increased sales are primarily the
result of new product introductions and increased unit volume of certain Home
Care and Toiletry products on which prices were reduced by 30% to 40% as part of
the Revitalization Program. The increase in unit volume of these Home Care and
Toiletry products, together with recent decreases in
32
<PAGE> 33
import duties on raw materials and consumption taxes related to these products,
has been sufficient to cause an increase in gross profit on these products since
the inception of the Program, notwithstanding the decrease in prices for such
products. The transition to local manufacturing in China required by Chinese
regulations and the high level of promotional activity in the first half of
fiscal 1999 resulted in some of the Company's more popular products becoming
temporarily sold out near the end of the second quarter of fiscal 1999. The
products were again made available during the second half of fiscal 1999 and
contributed to the improved sales trend in China in the fourth quarter. The
year-to-year net sales comparison in China was negatively impacted by the
reduction in the sales return reserve of $4.3 million in the fourth quarter of
fiscal 1998 compared to a reduction in the sales return reserve of $1.5 million
in the first quarter of fiscal 1999. Fiscal 1999 net sales in Taiwan declined
13.6% compared to fiscal 1998 primarily due to the much weakened purchasing
power in Taiwan, particularly for high ticket items, such as the Air Treatment
System which was introduced in fiscal 1998, and increased competitive pressure
in the market. The effect of translating local currency sales into U.S. dollars
at weaker exchange rates compared to those in effect during the prior year also
had a negative impact on the U.S. dollar sales comparison in Taiwan.
Net sales in the Malaysia-Thailand region were $172.6 million for
fiscal 1999, a decrease of 13.3% compared to fiscal 1998. This decrease
primarily reflects the more difficult economic environment and decline in
purchasing power in both Malaysia and Thailand, particularly in the first half
of fiscal 1999. The region's sales comparison for the year was positively
impacted by the strengthening of the Thai baht, in relation to the U.S. dollar,
partially offset by the negative impact of the devaluation of the Malaysian
ringgit. In Malaysia, the full year sales decline was moderated by increased net
sales in the fourth quarter of fiscal 1999 as compared to the fourth quarter of
fiscal 1998. This increase for the fourth quarter in Malaysia was primarily due
to successful promotional activity for higher priced items and the launch of the
Air Treatment System in July 1999, increased applications as a result of the
introduction of the distributor benefit program in January 1999 and a
stabilization in local economic conditions.
Net sales in the Australia-New Zealand region were $125.3 million for
fiscal 1999, a decrease of 14.7% compared to fiscal 1998 reflecting a difficult
comparison with the strong results in fiscal 1998 when direct fulfillment, a
direct ordering program was launched in Australia and a special incentive trip
was offered to distributors. The adverse economy in New Zealand and the
departure of a major distributor leader in that market also had a negative
impact on fiscal 1999 sales for the region. The region's sales comparison for
the year was also negatively impacted by the effect of translating both
Australia's and New Zealand's local currency sales into U.S. dollars at weaker
exchange rates compared to those in effect during the prior year.
Price increases had a positive impact on fiscal 1999 net sales in each
of the Company's markets except China, which had an overall price decrease in
association with the China Business Revitalization Program. The Company's fiscal
1999 net sales would have declined approximately 18% as compared to fiscal 1998
without these price changes.
Gross Profit. Gross profit, as a percentage of sales, increased in
fiscal 1999 to 56.8% from 56.2% in fiscal 1998. The fiscal 1998 gross margin
reflects a charge of $12.3 million for excess and obsolete inventory in China,
due to the ban on direct selling which began in April 1998. In fiscal 1999,
gross margin includes a $2.0 million write back made in the fourth quarter of
that 1998 reserve reflecting the positive results of the China Revitalization
Program. Excluding the impact of the $12.3 million reserve in fiscal 1998 and
the subsequent $2.0 million partial write back of that reserve in fiscal 1999,
gross profit as a percent of sales decreased from 58.3% in fiscal 1998 to 56.4%
in fiscal 1999 due principally to the higher cost of U.S. dollar purchases from
Amway, primarily in Malaysia and Taiwan, resulting from these countries' weaker
currencies relative to the U.S. dollar.
Expenses. Operating expenses decreased $46.4 million (15.2%) to $258.7
million for fiscal 1999 primarily due to the decrease in distributor incentives
resulting from the Company's lower sales level. The decline in selling and
administrative expenses and distribution expenses also contributed to the
overall decline in operating expenses for the year. Distribution expenses
declined primarily reflecting lower costs in China due to a reduction in
distribution employees and lower infrastructure costs and a favorable comparison
with the prior year with respect to Australia, when the launch of that market's
direct fulfillment initiative resulted in higher costs. Selling and
administrative expenses declined primarily due to management restructuring and a
significant reduction in employee and other variable costs in China. Lower
distributor incentive trip costs, particularly in Australia and Malaysia, and
the benefit of promotional funds provided to Malaysia and Thailand by Amway also
contributed to the decline in operating expenses.
33
<PAGE> 34
As a percentage of sales, operating expenses declined in fiscal 1999 to
51.6% from 51.9% in fiscal 1998. This decrease primarily reflects a change in
the special sales bonus program in Australia and Taiwan and the restructure of
the distribution system in China.
Operating Income. Operating income of $26.3 million for fiscal 1999
increased $1.0 million (4.1%) from operating income of $25.3 million for fiscal
1998 primarily due to the decline in operating expenses substantially offset by
the decline in gross profit caused by the decline in sales. As a percentage of
sales, operating margin increased to 5.2% in fiscal 1999 from 4.3% in fiscal
1998 reflecting the increase in gross margin and the decline in operating
expenses as a percentage of sales.
Other Income - Net. Other income - net for fiscal 1999 decreased $3.2
million (32.8%) to $6.5 million. This decrease was primarily due to lower net
interest income as a result of lower average cash balances and the $3.1 million
VAT refund in China in fiscal 1999 compared to the $5.2 million VAT refund in
the prior year. These unfavorable factors were partially offset by the
comparative impact of the fiscal 1998 write-off of certain expenditures related
to the previously planned Shanghai manufacturing facility. Other income includes
realized and unrealized foreign currency exchange losses of $3.3 million for
fiscal 1999 and $3.9 million in fiscal 1998.
Income Taxes. Income taxes for fiscal 1999 decreased $10.2 million
(43.4%) compared to fiscal 1998 primarily due to a tax holiday applicable to
fiscal 1999 business income in Malaysia. The effective tax rate decreased to
40.5% for fiscal 1999 from 67.2% for fiscal 1998 primarily due to the tax
holiday in Malaysia and the $0.8 million tax credit recorded in China in fiscal
1999 compared to fiscal 1998 when China recorded a net loss for which no
corresponding tax benefit was recorded.
Net Income. Net income for fiscal 1999 of $12.5 million ($0.22 per
share) increased $11.0 million from $1.5 million ($0.03 per share) for fiscal
1998 primarily due to operating income remaining steady despite the lower sales
level and the lower income tax expense in fiscal 1999. As a percentage of sales,
net income for fiscal 1999 increased to 2.5% from 0.2% primarily due to the
lower effective tax rate, the increase in gross margin and the decline in
operating expenses as a percentage of sales.
Fiscal 1998 Compared to Fiscal 1997
Net Sales. Net sales of $587.6 million for fiscal 1998 decreased $257.6
million (30.5%) from net sales of $845.2 million for fiscal 1997. This decrease
was primarily due to the effect of translating sales into U.S. dollars from
local currencies that have devalued relative to the U.S. dollar since July 1997
(see "--Foreign Currency Exchange Rate Information and Market Risk"), and due to
the difficult operating environment in China. See "Description of
Business--China Operations." The negative impact of currency devaluations came
primarily from the Malaysia-Thailand region but also from the Australia-New
Zealand region and Taiwan. Approximately 60% of the Company's sales decline was
due to this effect of translating sales into U.S. dollars at weaker local
currency exchange rates. Excluding China, an average of 30 new or improved
products were introduced in each region. For the total Company, new or improved
products introduced within the past 24 months represented over 20 percent of
total sales in fiscal 1998.
Net sales in the Greater China region for fiscal 1998 were $241.6
million, a decrease of 35.9% from fiscal 1997. This decline was primarily driven
by the 61.6% decrease in net sales in China primarily due to the three-month ban
on direct selling activities in China, effective April 21, 1998 and the negative
impact of the stringent regulatory environment in China prior to the ban. Net
sales in China were positively impacted by the lower rate of product and starter
kit returns experienced in fiscal 1998 as compared to fiscal 1997 as a result of
the revised return policy. See "Description of Business--China Operations." In
the fourth quarter of fiscal 1998, a significant portion of China's sales was
the result of promotions to reduce excess inventory that had built up in advance
of the sales ban and a $4 million reduction of the sales return reserve to
reflect the lower rate of returns. Fiscal 1998 net sales in Taiwan declined
13.9% compared to fiscal 1997 due to the effect of translating local currency
sales into U.S. dollars at weaker exchange rates compared to those in effect
during the prior year; sales increased 0.9% in local currency terms. See
"Description of Business--Risks and Uncertainties--Our business is subject to
the economic and political turmoil occurring in the Asia Pacific Region."
34
<PAGE> 35
Net sales in the Malaysia-Thailand region were $199.0 million for
fiscal 1998, a decrease of 37.2% compared to fiscal 1997. This decrease reflects
the significant devaluation of the Malaysian ringgit and the Thai baht in
relation to the U.S. dollar as compared to the same period of fiscal 1997. Local
currency net sales for fiscal 1998 increased 2.8% in Malaysia compared to fiscal
1997 primarily due to the introduction of new Nutrition & Wellness products and
the increase in that market's core distributor force. In Thailand, the 10.3%
decline in local currency net sales was primarily due to lower demand resulting
from the adverse economic environment in that country. See "Description of
Business--Risks and Uncertainties--Our business is subject to the economic and
political turmoil occurring in the Asia Pacific Region."
Net sales in the Australia-New Zealand region were $146.9 million for
fiscal 1998, a decrease of 2.8% compared to fiscal 1997 primarily due to the
devaluation of the local currencies in that region in relation to the U.S.
dollar as compared to fiscal 1997. In Australia, local currency sales for fiscal
1998 increased 19.8% compared to fiscal 1997. This local currency sales increase
reflects, in part, the efforts of Australia's larger core distributor force,
which grew 24% in fiscal 1997 and 8% in fiscal 1998. Growth in sales of Catalog
products in Australia also had a significant impact on that market's net sales
for fiscal 1998, while continued strong sales of new Nutrition & Wellness
products introduced in the second quarter of fiscal 1998 and the impact of the
new Home Shopping Delivery program further improved Australia's net sales. In
New Zealand, the 6.7% decline in local currency net sales reflects the decline
in distributor sponsoring and low consumer confidence in the economy in that
market. New Zealand's fiscal 1998 net sales comparison to the prior year was
also negatively impacted by the launch of the Water Treatment System in the
first quarter of fiscal 1997.
Price increases did not have a material effect on the Company's net
sales for fiscal 1998.
Gross Profit. Gross profit, as a percentage of sales, decreased in
fiscal 1998 to 56.2% from 62.9% in fiscal 1997. This decrease primarily reflects
the higher cost of U.S. dollar purchases from Amway in Thailand, Malaysia and
Taiwan resulting from the negative impact of weaker local currencies against the
U.S. dollar. The lower gross profit percentage also reflects the third quarter
charge to cost of sales of $12.3 million for excess and obsolete inventory in
China as a result of the impact of the government's ban on direct selling
activities in that market. See "Description of Business--China Operations."
Expenses. Operating expenses decreased $78.2 million (20.4%) to $305.1
million for fiscal 1998. This decrease was primarily due to the effect of
translating local currency expenses into U.S. dollars at exchange rates that
reflect weaker local currencies than a year ago in all markets except China and
Hong Kong, as well as the decrease in distributor incentives in China resulting
from the lower sales levels. Eliminating the effects of translation to U.S.
dollars, operating expenses increased at rates ranging from 7% to 29% (as
expressed in the respective local currencies) in all the Company's markets
except China and Thailand; the largest percentage increase was in Australia due
to increased distributor incentives in support of the higher sales level in that
market. As a percentage of sales, operating expenses increased in fiscal 1998 to
51.9% from 45.4% in fiscal 1997, primarily as a result of the lack of absorption
of operating expenses in China at that market's lower sales level.
Operating Income. Operating income of $25.3 million for fiscal 1998
decreased $123.3 million (83.0%) from operating income of $148.6 million for
fiscal 1997 primarily due to the significant decline in sales volume in China
and the significant negative impact of foreign exchange rate fluctuations on
sales and gross margin, primarily in Malaysia and Thailand. As a percentage of
sales, operating margin decreased to 4.3% in fiscal 1998 from 17.6% in fiscal
1997 primarily due to the lack of absorption of operating expenses in China at
that market's lower sales level. The decline in gross margin percentage,
primarily in Thailand, and the $12.3 million charge for excess and obsolete
inventory in China also contributed to the operating margin decline.
Other Income - Net. Other income - net for fiscal 1998 decreased $15.0
million (60.8%) to $9.7 million. This decrease was primarily due to the decline
in interest income due to the lower cash balances principally related to the
share repurchase in fiscal 1997 and the reduction in net operating cash flow in
fiscal 1998. Realized and unrealized foreign currency exchange transaction
losses in fiscal 1998 of $3.9 million, compared to $2.6 million in fiscal 1997,
also contributed to the decline in other income - net. During the fourth
quarter, the Company recorded a write-off of certain expenditures related to the
previously planned Shanghai manufacturing facility (see "--Liquidity and Capital
Resources") in the amount of $2.6 million. In addition, the Company received a
nontaxable
35
<PAGE> 36
VAT refund in China of $5.2 million in fiscal 1998 compared to $6.5 million in
fiscal 1997. Fiscal 1999 will be the final year that the Company will be
eligible to receive this VAT refund in China.
Income Taxes. Income taxes for fiscal 1998 decreased $31.4 million
(57.2%) compared to fiscal 1997 primarily due to the Company's 79.8% decline in
pre-tax income. The effective tax rate increased from 31.7% for fiscal 1997 to
67.2% for fiscal 1998 primarily due to the loss in China in fiscal 1998 with no
corresponding tax benefit, compared to non-taxable income in China in fiscal
1997. See "Description of Business--Government Regulation--China Tax Issues."
Income taxes benefited in fiscal 1998 from the liquidation of Amway Asia Pacific
Enterprises Inc. in November 1997 which resulted in the reversal of personal
holding company taxes accrued for that entity for the 1997 calendar year. Income
taxes were also decreased by lower dividend withholding taxes from the reduced
earnings in certain markets.
Net Income. Net income for fiscal 1998 of $1.5 million ($0.03 per
share) decreased $102.6 million (98.6%) from $104.0 million ($1.76 per share)
for fiscal 1997 as a result of the factors described above. As a percentage of
sales, net income for fiscal 1998 decreased from 12.3% to 0.2% primarily due to
the lower gross margin percentage and the lack of absorption of operating
expenses in China at that market's lower sales level.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1999, the Company had cash and cash equivalents of $151.6
million, a decrease of $5.5 million since August 31, 1998. Uses of cash and cash
equivalents were $13.0 million in capital expenditures (discussed below), the
net $12.4 million purchase of investments, $11.3 million in dividends paid by
the Malaysia affiliate to minority shareholders and $8.3 million net payments on
short-term borrowings. These uses of cash were partially offset by the $33.1
million provided by operating activities which primarily reflected the $12.5
million of net income and the non-cash nature of depreciation and amortization
expenses of $12.8 million, the $2.2 million invested by the other partner in a
joint venture in Australia (discussed below) and the $3.8 million positive
impact of the translation of local currency cash and cash equivalents held at
the Company's foreign affiliates into U.S. dollars at more favorable foreign
currency exchange rates as compared to the exchange rates at the beginning of
fiscal 1999. See "--Foreign Currency Exchange Rate Information and Market Risk."
In the third quarter of fiscal 1999, the Company's Australia affiliate
entered a joint venture for the purpose of selling insurance and other financial
products to and through distributors. The other party to the joint venture
contributed $2.2 million to the newly formed company, Amway Financial Services
Holdings Pty Ltd ("AFS"). Based on the joint venture agreement, in accordance
with Generally Accepted Accounting Principles in the United States, the joint
venture partner's interest in AFS is reflected in the Company's consolidated
financial statements as a minority interest in a subsidiary.
Historically, the Company has maintained significant working capital
levels. At August 31, 1999, the Company's working capital of $113.2 million had
increased from working capital of $102.1 million at August 31, 1998, primarily
because working capital generated from operations was more than sufficient to
cover the cash used for capital expenditures and dividends paid by a subsidiary
to minority shareholders and because working capital was positively impacted by
the effect of exchange rate fluctuations on the translation of working capital
items.
Of the $13.0 million in capital expenditures for fiscal 1999, $9.6
million was for the expansion of the Company's operations in China. Capital
expenditures for fiscal 2000 are expected to be approximately $32.1 million,
including $24.3 million for expansion in China. The expansion in China includes
the expansion of the Guangzhou manufacturing facility where new Artistry and
Nutrition & Wellness products for that market are being produced. The Company is
in the final stages of this manufacturing expansion, which is expected to be
completed in the third quarter of fiscal 2000, in coordination with the China
market's new product launch plan. In addition to the $32.1 million of fiscal
2000 estimated capital expenditures, the Company's Malaysia affiliate has
authorized $9.1 million for new regional distribution centers and construction
of a new distribution center and headquarters building in Malaysia. The Company
does not currently expect to begin significant spending on these capital
projects in Malaysia until after fiscal 2000, except for approximately $0.6
million to be used in fiscal 2000 for the purchase of a regional distribution
center. The capital expenditures in Malaysia will be funded using the proceeds
of its public offering completed in August 1996. The Company's other capital
expenditures, including the capital
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<PAGE> 37
expenditures for China expansion, are expected to be funded from the Company's
cash on hand and, if necessary, bank borrowing.
The China affiliate is expected to continue its short-term borrowing
position through fiscal 2000. The China affiliate maintained a credit facility
of $18.1 million and had outstanding borrowings of $10.3 million against this
credit facility as of August 31, 1999. The parent Company is expected to
continue to help fund the manufacturing facility expansion in China during
fiscal 2000. The parent Company, which receives most of its cash from dividends
received from its affiliates, maintained short-term bank borrowings during most
of the first six months of fiscal 1999 but paid the balance of such borrowings
in February 1999. Although the parent Company plans to maintain its $25.0
million credit facility, it does not expect to borrow against this credit
facility in fiscal 2000 and has no other plans for incurring indebtedness prior
to the amalgamation with New AAP Limited that is planned in connection with the
recent tender offer. See "Description of Business--General."
The Company did not pay a dividend during fiscal 1999 because of
continued uncertainties with respect to business conditions in the region and
the need for the Company to retain its cash for planned capital needs and to
cover the operating losses experienced in China through the third quarter of
fiscal 1999.
Approximately 40% of the Company's cash and short-term investments at
August 31, 1999 were held by the Company's Malaysia affiliate. Minority
shareholders own 48.3% of this affiliate. Of the total cash and investments held
by the Malaysia affiliate, approximately $11.7 million represents the remaining
proceeds from the Malaysia affiliate's public offering and is primarily
dedicated to future capital requirements of the Malaysia affiliate. The Malaysia
affiliate obtained regulatory approval to amend that affiliate's Memorandum and
Articles of Association to authorize the affiliate to repurchase up to 10% of
its outstanding common stock or 9,997,000 shares, for a maximum aggregate price
of Malaysian ringgit 100 million, subject to certain regulatory limitations.
This action was approved by the Malaysia affiliate's shareholders at its January
12, 1998 annual shareholders' meeting. As of August 31, 1999, the Malaysia
affiliate had repurchased and cancelled 1,365,000 of its shares in fiscal 1998
on the open market at an aggregate price of Malaysian ringgit 8.6 million. These
repurchases were funded by the Malaysia affiliate's available cash on hand, not
including the proceeds from the public offering, and internally generated funds
and any future repurchases would be funded by cash on hand and, depending on
future operations, internally generated funds.
Pursuant to the Amalgamation Agreement, all issued and outstanding
options to purchase Common Stock shall be converted into rights to receive cash
in accordance with the Black-Scholes Option Pricing Model and will require
surrender of all such options by the holders thereof as of the effective date of
the Amalgamation. The Company will pay an aggregate amount of $1.1 million in
connection with the surrender of such options.
OUTLOOK
The Company believes sales growth will resume in fiscal 2000 due to
significantly improved results in China. The Company's new mode of operation is
gaining wider acceptance in China and expanded product offerings in that market
are being well received. The number of sales representatives also is increasing
and this is a key indicator of future growth. See "Description of
Business--Risks and Uncertainties".
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not historical facts
are forward looking statements. These forward looking statements involve risks
and uncertainties with respect to the Company's markets. With respect to
operations in China, these risks and uncertainties include the ability of the
Company to manage effectively issues associated with the modification and
refinement of its marketing plan and its distribution system. The Company is
still in the process of obtaining the necessary approvals from certain provinces
and cities for all aspects of its new mode of operations, including the use of
independent sales agents. In addition, the Company is also trying to obtain
licenses for new cities and branches. Obtaining these approvals and licenses
involves regular discussions with national, provincial and city government
officials; the Company believes that it has good relations with governmental
officials, but there can be no assurance that the approvals and licenses will be
obtained. In addition, operations can always be adversely affected by new or
existing government regulations, or interpretations thereof, or by other
governmental action. In addition, risks and uncertainties in China include: (i)
the possibility of increased government scrutiny of and regulations regarding
the direct selling industry; (ii) the Company's ability to source
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<PAGE> 38
materials necessary to achieve portions of its fiscal 2000 product launch
schedule; and (iii) the possibility that because of the Company's relationship
with Amway Corporation, a U.S. company, the Company can be affected by changes
in the US - China relationship.
In addition, the forward looking statements contained herein are
subject to other risks and uncertainties with respect to the Company's markets,
which could cause results to differ materially such as, without limitation, a
worsening of economic turmoil in the Company's markets, such as the occurrence
of further adverse currency volatility in the markets in which the Company
operates, the creation of adverse government regulations or the occurrence of
adverse government action in the Company's markets related to either the
Company's Sales and Marketing Plan or its products, import or price restrictions
in any of the Company's markets, the possibility of adverse publicity directed
at the Company in its markets, the difficulty in passing on the full impact of
the cost increases to distributors, given the economic situation in the
Company's markets and a deterioration of the Company's positive relationship
with its distributor leadership. The most significant uncertainty, with respect
to currencies that impact the Company, is whether the Chinese yuan will be
devalued against the dollar; in addition to its impact on operations in China,
that could in turn lead to further weakening of other Asian currencies. See
"Description of Business--Risks and Uncertainties."
INFLATION
Inflation has not had a significant effect upon the Company's business.
FOREIGN CURRENCY EXCHANGE RATE INFORMATION AND MARKET RISK
The consolidated financial statements of the Company are prepared in
U.S. dollars in accordance with U.S. generally accepted accounting principles
("U.S. GAAP"). Transactions at the Company are predominantly accounted for in
U.S. dollars. However, all affiliates of the Company operate outside of the
United States and each affiliate accounts for transactions in its local currency
and holds cash and short-term investments in its local currency, except as noted
below.
From the fourth quarter of fiscal 1997, the effect of translating local
currency amounts into U.S. dollars had a negative impact on the reported
financial results of the Company until the second quarter of fiscal 1999. For
the second, third and fourth quarters of fiscal 1999, comparative translated
results received a benefit from the strengthening of certain local currencies in
relation to the U.S. dollar as compared to the same periods of fiscal 1998. The
following table shows the approximate effective weighted average exchange rates
used, in accordance with U.S. GAAP, to translate the seven primary foreign
currencies in which the Company operates into U.S. dollars for the Company's
consolidated statements of income for fiscal years 1999 and 1998.
<TABLE>
<CAPTION>
Weighted Average Exchange Rate
(Local Currency per U.S. dollar)
-------------------------------- Percentage Change *
Year ended August 31, ----------------------------
--------------------------------
From 1998 From 1997
1999 1998 1997 to 1999 to 1998
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Chinese yuan ............................. 8.28 8.28 8.30 -- --
Hong Kong dollar ......................... 7.75 7.74 7.74 -- --
New Taiwan dollar ........................ 32.65 32.39 27.65 (1%) (15%)
Malaysia ringgit ......................... 3.80 3.71 2.53 (2%) (32%)
Thai baht ............................... 37.36 41.32 26.46 11% (36%)
Australian dollar ........................ 1.58 1.52 1.29 (4%) (15%)
New Zealand dollar ....................... 1.88 1.75 1.45 (7%) (17%)
</TABLE>
* Percentage change is calculated on the rates expressed as U.S. dollar per
local currency.
Since the beginning of the fourth quarter of fiscal 1997, when the
significant devaluation began, through the end of fiscal 1998, five of the seven
primary foreign currencies devalued against the U.S. dollar to various degrees
between 25% and 38%. During this time, the devaluations of the Thai baht and the
Malaysian ringgit had
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<PAGE> 39
the largest negative impact on the Company in regard to this market risk while
the New Taiwan dollar and Australian dollar also had a negative impact. During
the first quarter of fiscal 1999, the Thai baht, Australian dollar, New Zealand
dollar and New Taiwan dollar all strengthened to varying degrees between 7% and
16% against the U.S. dollar while the Chinese yuan, Hong Kong dollar and
Malaysia ringgit remained relatively unchanged. All seven of the currencies have
remained relatively steady since the first quarter of fiscal 1999. Despite this
recent relative stability, the volatility of these currencies relative to the
U.S. dollar continues to represent a risk of loss to the Company in the near
term.
Foreign Currency Exchange Rate Risk on Cash and Short-term Investments.
The Company's cash is primarily generated and held in seven different foreign
currencies by the Company's various affiliates. Of the Company's $162.0 million
of cash and short-term investments at August 31, 1999, approximately $45.2
million was held in U.S. dollars primarily at the Malaysia, China and Taiwan
affiliates and the parent company, while the remaining balance was held in local
currencies. Because the Company's consolidated financial statements are reported
in U.S. dollars, this local currency cash and investments balance is exposed to
the fluctuations of foreign currency exchange rates. The effect of this market
risk can impact the U.S. dollar fair value of these assets as well as the
Company's consolidated cash flows. In estimating the extent of market risk to
the Company's cash and investments the Company analyzed recent data with respect
to historical and potential fluctuations in the seven primary foreign currencies
in which such instruments are held compared to the U.S. dollar. Certain
currencies have experienced little or no devaluation against the U.S. dollar,
while the other currencies, as discussed above, have fluctuated significantly
over the past two and a half years. These exchange rate fluctuations were then
weighted by the amount of cash and investments held in the respective currency
and a hypothetical 10% adverse change in the overall foreign currency exchange
rate was determined to reasonably reflect an overall possible near-term change
in such rates. The potential loss in fair value of the Company's cash and
investments held at August 31, 1999 which would result if such a hypothetical
10% adverse change in foreign currency rates occurred would be approximately
$11.7 million. If such an adverse change in foreign currency exchange rates
occurs, a significant portion of the impact would be reflected in other
comprehensive income and as a translation adjustment to stockholders' equity on
the Company's balance sheet; in addition, it would also impact the Company's
consolidated statement of cash flows.
Other Foreign Currency Exchange Rate Risk. In accordance with U.S.
GAAP, transaction related currency exchange gains or losses are reflected in net
income; while the translation adjustments, resulting from the translation of
assets and liabilities at current exchange rates as of the balance sheet date,
are reflected in other comprehensive income and recorded as a separate component
of stockholders' equity. The Company's transaction related currency exchange
gains or losses are primarily the result of exchange rate fluctuations on U.S.
dollar transactions with Amway, including any gains or losses on foreign
currency forward contracts used, in certain cases, to hedge these transactions
as discussed below. All of the Company's subsidiaries, except Australia and New
Zealand, pay for their purchases of products from Amway in U.S. dollars and bear
the risk of foreign currency exchange fluctuations. Australia and New Zealand
pay for their purchases of products from Amway in local currencies, thereby
transferring the immediate risk of foreign currency exchange rate fluctuations
to Amway. Transaction related currency exchange gains/(losses), in U.S. dollars
in thousands, during each of the last three fiscal years are as follows:
YEARS ENDED AUGUST 31: GAIN/(LOSS)
---------------------- ------------
1999 ......................................... $ (3,315)
1998 ......................................... (3,914)
1997 ......................................... (2,554)
The Company does not currently hedge currency exchange rate
fluctuations that affect the translation of the Company's financial statements
into U.S. dollars. However, certain of the Company's affiliates have taken
actions to minimize the Company's foreign currency transaction exposure on U.S.
dollar liabilities and future U.S. dollar transactions. These actions include
entering forward contracts or holding U.S. dollars where it is economically
viable and where local regulations allow. To the extent that these U.S. dollar
deposits and forward contracts relate to existing liabilities, the Company's
foreign currency exchange rate risk on income and cash flow with respect to
these liabilities is effectively hedged. To the extent that these U.S. dollar
deposits and forward contracts relate to future U.S. dollar transactions, the
Company's cash flow on these transactions is effectively hedged; but until the
future transaction occurs, the Company's earnings are exposed to foreign
currency exchange rate risk because a fluctuation in the exchange rate will
create a gain or loss on the hedge instrument with no offsetting effect on
earnings from an underlying transaction. For example, in fiscal 1999, the
Company recorded a foreign currency
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<PAGE> 40
exchange loss of $3.3 million, primarily due to losses on forward contracts in
Thailand and on U.S. dollar deposits in Taiwan as those markets' local
currencies strengthened against the U.S. dollar since the beginning of the
fiscal year.
At August 31, 1999, the Company held U.S. dollar deposits or forward
contracts as hedges on future transactions totaling $19.2 million at all of the
Company's affiliates except Australia and New Zealand. In estimating the extent
of foreign currency exchange rate risk on the Company's earnings related to
these hedges, the Company analyzed recent data with respect to historical and
potential fluctuations in the foreign currencies in which these U.S. dollar
purchases are made. These exchange rate fluctuations were then weighted by the
amount of U.S. dollar deposits and forward contracts held to hedge future
transactions in the respective currency and a hypothetical 10% adverse change in
the overall foreign currency exchange rate was determined to reasonably reflect
an overall possible near-term change in such rates. An adverse change as it
applies in this case would be a strengthening of the local currency against the
U.S. dollar. The potential negative impact on the Company's after-tax earnings
related to these hedges which would result if such a hypothetical 10%
strengthening in foreign currency rates occurred would be approximately $1.3
million.
The above calculations reflect the immediate impact of hypothetical
point-in-time adjustments to exchange rates and is provided pursuant to the
requirements of the rules and regulations of the Securities and Exchange
Commission. It does not reflect the on-going operational effects on the Company
of such changes in exchange rates. Due to the number of currencies involved, the
constantly changing exposure in these currencies and the fact that all foreign
currencies do not react in the same manner against the U.S. dollar, the
Company's actual exposure to this market risk is difficult to quantify and there
can be no assurance that these quantifications of the risk would reflect actual
results.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted three new accounting pronouncements during fiscal
1999, which have impacted the presentation of the Company's consolidated
financial statements. The Company also plans to adopt Statement of Financial
Accounting Standards No. 133 (as amended by Statement No. 137), "Accounting for
Derivative Instruments and Hedging Activities" which will impact on the
Company's consolidated financial statements in future fiscal years. See Note 3
of Notes to the Consolidated Financial Statements.
YEAR 2000
The Company's information technology ("IT") systems and certain non-IT
systems did not experience any significant difficulties with the onset of Year
2000. Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the Year 2000 issue.
In addition, the Company is not aware of any significant Year 2000 or similar
problems that have arisen for its suppliers or customers. The total cost of the
Company's remediation efforts was approximately $3.3 million, including internal
costs. This total cost consisted of approximately $1.1 of expenses, of which
approximately $1.0 is reflected in fiscal 1999 results with the remainder to be
recorded in fiscal 2000, and $2.2 of capital additions related to the
remediation effort.
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<PAGE> 41
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
(a) The following table sets forth certain information regarding the
Company's directors and executive officers as of February 1, 1999:
<TABLE>
<CAPTION>
DIRECTOR/EXECUTIVE
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Stephen A. Van Andel 44 Chairman, Director 1994
Richard M. DeVos, Jr. 44 Vice Chairman, Director 1994
Douglas L. DeVos 35 President, Director 1999
Eoghan M. McMillan 64 Director 1994
Jack C.K. So 54 Director 1994
John C.C. Chan 56 Director 1996
L.H. Choong 52 Director 1993
Eva Cheng 47 Executive Vice President; 1993
Director
Lynn Lyall 46 Chief Financial Officer, Vice 1999
President and Treasurer
Lawrence M. Call 57 Vice President 1993
Craig N. Meurlin 47 Vice President, General 1993
Counsel and Assistant
Secretary
John C. Brockman 56 Vice President, Distributor 1997
Relations
Percy Chin 44 Vice President, General 1996
Manager - East China
Patrick Hau 48 Vice President, General 1996
Manager - National Operations
Audie Wong 47 Vice President, General 1995
Manager - North China
Martin Liou 42 General Manager - Taiwan 1997
Low Han Kee 40 Regional Manager - Malaysia 1997
Preecha Prakobkit 51 General Manager - Thailand 1997
Peter Williams 46 General Manager - Australia 1997
Betty Yeung 51 General Manager - South China 1997
John C.R. Collis 41 Secretary 1993
</TABLE>
41
<PAGE> 42
Stephen A. Van Andel, age 44, has been Chairman of the Company since
January 1995 and a Director since 1994. Since January 1995, Mr. Van Andel has
been Vice Chairman of Amway Japan Limited. Mr. Van Andel has been Chairman of
Amway since 1995 and was a member of the Policy Board of Amway from 1992 through
August 31, 1999. He has been on the Board of Directors of Amway since September
1, 19999. He has been on the Board of Directors of Amway since September 1,
1999. Mr. Van Andel was Chairman of the Executive Committee of Amway and Vice
President - Corporate Affairs of Amway from 1993 to 1995. He was appointed Vice
President - Marketing of Amway in 1988 and in 1991, became Vice President -
Americas. Prior to 1988, Mr. Van Andel held various administrative and
management positions with Amway. He holds a Bachelor's Degree from Hillsdale
College and a Master's of Business Administration from Miami University. Mr. Van
Andel is also a director of Michigan National Bank Corp.
Richard M. DeVos, Jr., age 44, has been a Director of AAP since 1994
and Vice Chairman since October 15, 1999. He served as president from January
1995 through October 15, 1999. Since January 1995, Mr. DeVos has been Chairman
of Amway Japan Limited. He has been President of Amway since 1993 and was a
member of the Policy Board of Amway from 1992 through August 31, 1999. He has
been on the Board of Directors of Amway since September 1, 1999. Mr. DeVos was
president and Chief Executive Officer of the Orlando Magic Ltd. from 1991 to
1993. He is Chairman of the Windquest Group, a multi-company management group
which he founded in 1989. Prior to that, Mr. DeVos was Vice president -
International of Amway since 1984. Previously,. He held various research and
development, manufacturing, distribution, marketing, finance, public relations
and government affairs positions with Amway. Mr. DeVos holds a Bachelor of
Business Administration Degree from Northwood University and has attended the
Executive Study Program at the Wharton School of the University of Pennsylvania.
He is also a director of Old Kent Financial Corporation.
Douglas L. DeVos, age 35, has been a director of AAP since April 14,
1999 and President since October 15, 1999. Since June 1998, Mr. DeVos has been
Senior Vice President - Asia Pacific Region, Global Distributor Relations of
Amway and was a member of the Policy Board of Amway from 1989 to August 31,
1999. Mr. DeVos has been on the Board of Directors of Amway since September 1,
1999. He was appointed Vice President, North American Sales, of Amway in 1993
and became Senior Vice President, Managing Director - Americas of Amway from
1996 to 1998. Prior to 1993, Mr. DeVos held various administrative and
management positions with Amway. He holds a bachelor of Science Degree from
Purdue University Krannert School of Management. Mr. DeVos is also a director of
Amway Japan Limited.
Eoghan M. McMillan, age 64, has been a director of the Company and the
Chairman of the Compensation Committee and a member of the Audit Committee since
1994. Mr. McMillan has also been chairman of the Company's Special Committee
since October 1999. Mr. McMillan is a director of Rodamco N.V. and Chairman of
Rodamco B.V., both incorporated in the Netherlands, and Chairman of Rodamco
Pacific Management Ltd. Prior thereto, he practiced with Arthur Andersen & Co.
since 1959 and served as Country Managing Partner for its practices in Hong Kong
and China from 1979 until September 1993 and as Regional Managing partner for
Southeast Asia for most of this period. From 1989 to 1992, Mr. McMillan was
Chairman of the Hong Kong Futures Exchange and a director of its wholly-owned
subsidiary, Hong Kong Futures Exchange Clearing Corporation. He is a Certified
Public Accountant, a Fellow of the Chartered Association of Certified
Accountants in the United Kingdom and a Fellow of the Hong Kong Society of
Accountants. Mr. McMillan was appointed by the Hong Kong government as a
Director of the Board of Hong Kong Securities Clearing Company Limited. He is
also a director of Vitasoy International Holdings Ltd., Sun Hung Kai Development
(China) Ltd., Shangri-la Asia Ltd., Land Development Corporation, Pengursan
Danaharta Nasional Berhad, Huan He Pacific Limited and several other entities in
which Rodamco holds investments, principally in countries in the Asia Pacific
region.
Jack C. K. So, age 54, has been a director of the Company and the
Chairman of the Audit Committee and a member of the Compensation Committee since
1994. He has also been a member of the Company's Special Committee since October
1999. Mr. So is Chairman of the Hong Kong Mass Transit Railway Corporation and
has held such position since 1995. From 1992 to 1995, he served as Managing
Director of Sun Hung Kai Development (China) Ltd. Previously, Mr. So served as
Executive Director of the Hong Kong Trade Development Council since 1985. Prior
to that, he spent seven years in the private sector and held various senior
posts in stock brokering, trade and banking. Before joining the private sector,
Mr. So served as Administrative Officer and held significant positions in
various departments of the Hong Kong government. Mr. So holds a Bachelor's
Degree from the University of Hong Kong.
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<PAGE> 43
John C.C. Chan, age 56, has been a director of the Company and a member
of the Compensation and Audit Committees since 1996. Mr. Chan has also been a
member of the Company's Special Committee since October 1999. Since 1993, Mr.
Chan has been Managing Director of The Kowloon Motor Bus Company, one of the
largest privately owned and operated bus companies in the world. He served in
many governmental positions in Hong Kong from 1967 to 1993. Mr. Chan is a
director of Hang Seng Bank Limited, a member of the Council of the Stock
Exchange of Hong Kong, Chairman of the Hong Kong Securities Clearing Company
Limited. He holds degrees in English literature and management studies from the
University of Hong Kong.
L.H. Choong, age 52, has been a Director of AAP since its formation in
1993. He was an Executive Vice President of the Company from 1993 to 1998 and
held the positions of Managing Director of Amway (Malaysia) Sdn. Bhd. From 1981
to 1998 and Amway (Thailand) Limited from 1987 through August 31, 1997. He
joined Amway(Malaysia) Sdn. Bhd. In 1978. He joined Amway (Malaysia) Sdn. Bhd.
in 1978. Before joining Amway (Malaysia) Sdn. Bhd., Mr. Choong held various
marketing, sales and product management positions with ESSO Malaysia Berhad,
Diethelm (Malaysia) Sdn. Bhd. and Colgate-Palmolive (Malaysia) Sdn. Bhd. He
holds a Bachelor's Degree from the University of Malaya.
Eva Cheng, age 47, has been Executive Vice President and a Director of
the Company since its formation in 1993. Ms. Cheng serves as Managing Director
of the Greater China Region. She joined Amway International, Inc. in 1977 and
was named General Manager of the Hong Kong operation in 1980, serving as
Managing Director of its Hong Kong and Taiwan operations from 1987 to 1993.
Prior to joining Amway, Ms. Cheng worked in various executive officer positions
in the Hong Kong government. She has a Bachelor's Degree and a Master's of
Business Administration from the University of Hong Kong.
Lynn Lyall, age 46, has been Chief Financial Officer, Vice President
and Treasurer of AAP since July 1, 1999. Mr. Lyall has also served as Vice
President of Finance of Amway since July 1, 1999. Prior to joining Amway, he had
been Executive Vice President and Chief Financial Officer of Blockbuster
Entertainment, Inc. since 1997. Before becoming Chief Financial Officer of
Blockbuster, Mr. Lyall held various financial positions with Cadbury Schweppes,
PLC from 1990 until 1997. He also held financial positions with Bordo Citrus
Products, Inc., Kraft, Inc. and Coca-Cola Company. Prior to that, Mr. Lyall
spent six years in public accounting with Arthur Anderson & Co. He is a
Certified Public Accountant and holds a Bachelor's Degree and a Master's of
Management Degree from Northwestern University.
Lawrence M. Call, age 57, Vice President, served as Chief Financial
Officer, Vice President and Treasurer of the Company from its formation in 1993
to October of 1999. Mr. Call has also served as Chief Financial Officer of Amway
since 1991. Prior to joining Amway, Mr. Call had been Treasurer of PPG
Industries, a manufacturer of flat glass, fiberglass, coatings, resins
industrial and special chemicals, since 1984. Before becoming Treasurer of PPG
Industries, Mr. Call had held various other financial control positions with PPG
Industries. Prior to that, Mr. Call spent 15 years in public accounting with
Deloitte, Haskins and Sells (the predecessor to Deloitte and Touche). Mr. Call
is a Certified Public Accountant and holds a Bachelor's Degree from Loyola
University.
Craig N. Meurlin, age 47, has been Vice President, General Counsel and
Assistant Secretary of the Company since 1993. Mr. Meurlin is Senior Vice
President, General Counsel and Secretary of Amway and has held such positions
since 1993. Prior to that, he was a partner in the law firm of Jones, Day,
Reavis & Pogue. Mr. Meurlin holds a Bachelor's of Arts Degree from the
University of Vermont and a Juris Doctor from the University of Virginia.
John C. Brockman, age 56, is Vice President - Distributor Relations of
the Company and has held such position since October 29, 1997. Mr. Brockman is
also Director of Worldwide Sale Plan Administration for Amway Corporation. He
joined Amway in 1973 as a coordinator in the Meeting and Travel Department and
was promoted to Manager of that department in 1975. Mr. Brockman was named
Regional Manager for Amway's Western Sales Region in 1977, and in November of
1981 was promoted to the position of Director - International Sales, holding
such position until his promotion to his current position. He holds a Bachelor's
Degree in Business Administration from the University of Southern California.
Percy Chin, age 44, is Vice President and General Manager of Amway
(China) Co. Ltd. - East China and has held such position since January 1996. Mr.
Chin joined Amway China in 1992 as financial controller and was
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<PAGE> 44
promoted to Regional Director of Finance and Administration in 1995. Prior to
joining Amway, he held the position as Director of Finance at Heinz China, China
Dyeing Holding Ltd., and with the Canadian Government - Department of Education.
Mr. Chin is a member of Canadian Certified Management Accountants and holds
Bachelor's Degrees in Science and Communication from the University of
Saskatchewan, Canada.
Patrick Hau, age 48, is Vice President and General Manager -- National
Operations of Amway (China) Co. Ltd. Mr. Hau joined Amway Hong Kong in 1987 as
Financial Controller, serving as General Manager from 1991 to 1996. Prior to
joining the Company, he was employed as financial controller at Pearl & Dean
Ltd. in Hong Kong and Australia and was a tax consultant with Price Waterhouse
and a tax officer of the Inland Revenue Department. Mr. Hau holds a diploma in
Business Studies from Hong Kong Polytechnic, a post-graduate diploma in
Accounting & Finance from the New South Wales Institute of Technology, and a
Master's of Business Administration Degree from Oklahoma City University. He is
a member of the Hong Kong Society of Accountants, the Chartered Association of
Certified Accountants, the Australia Society of Accountants and the Chartered
Institute of Secretaries & Administrators.
Audie Wong, age 47, is Vice President and General Manager of Amway
(China) Co. Ltd. - North China and has held such position since May 1997. Mr.
Wong joined Amway Hong Kong in 1981 as Marketing Coordinator and was promoted to
Marketing Manager in 1986. From 1991 to 1994, Mr. Wong was General Manager of
Amway Taiwan and served as General Manager of South China from 1994 until April
1997. He holds a Bachelor of Arts Degree from State University of New York at
Buffalo, a Master's Degree from the University of Oregon and a Master's of
Business Administration from the University of Oklahoma City.
Martin Liou, age 42, is General Manager of Amway Taiwan Company,
Limited and has held such position since May 1997. Mr. Liou joined Amway Taiwan
in 1985 as Distribution Manager, becoming Distribution Director of the Greater
China Region in 1994. In 1995, he assumed dual roles, Operations Director for
Amway Taiwan and Director of Planning and Development for Greater China, which
he held until March 1997 when he assumed the responsibilities as Deputy General
Manager of Amway Taiwan. Prior to joining Amway Taiwan, he was Production
Supervisor for ISI Company. Mr. Liou is a member of the Taiwan Direct Selling
Association and holds a Bachelor's Degree in Chemical Engineering from National
Taiwan University.
Low Han Kee, age 40, is General Manager of Amway (Malaysia) Sdn. Bhd.
and has held such position since 1993. Mr. Low joined Amway Malaysia in 1990 as
Divisional Manager, Finance & Administration. Prior to joining Amway Malaysia,
he worked for fifteen years in various financial positions for companies listed
on the Kuala Lumpur Stock Exchange. From 1984 to 1985, Mr. Low worked for First
Allied Corporation Berhad and as Group Chief Accountant for Mulpha International
Trading Corporation Berhad from 1985 to 1990. Mr. Low is a Certified Public
Accountant and a member of The Malaysian Association of Certified Public
Accountants.
Preecha Prakobkit, age 51, is General Manager of Amway (Thailand) Ltd.
and has held such position since 1990. Mr. Prakobkit joined Amway Thailand in
1988 as Sales and Marketing Manager and was promoted to Sales Manager in 1990.
Prior to joining Amway Thailand, he worked as Marketing Manager for the Mall
Department Store and Product Manager for Philips Electrical Company. Mr.
Prakobkit is the Secretary General of the Thai Direct Selling Association and
holds a Bachelor's Degree in Marketing from Walter E. Heller School of Business.
Peter Williams, age 46, is General Manager of Amway of Australia and
has held such position since June 1997. Mr. Williams joined Amway of New Zealand
in March 1988 as the Northern Region Sales Manager and was promoted to National
Sales Manager in November 1988. He became General Manager in 1996, serving until
his promotion to his current assignment at Amway of Australia. Prior to joining
Amway of New Zealand, Mr. Williams worked for Enzed Fluid Connectors as Export
Sales Manager in the Middle East and as London Branch Manager for Extraman/OPS.
He has been an Executive Member of the New Zealand Direct Selling Association.
Mr. Williams attended Northcote College and holds a Diploma in Business
(Marketing) from the University of Auckland.
Betty Yeung, age 51, is General Manager of Amway (China) Co. Ltd. -
South China and has held such position since May 1997. Mrs. Yeung joined Amway
Hong Kong as Marketing Coordinator in 1979, and was promoted to Sales/Marketing
Manager in 1980 and Sales/Public Relations Manager in 1985. She joined Amway
Canada as Distributor Relation Manager in 1991. Mrs. Yeung rejoined Amway China
in 1994 as Director of External Affairs and was appointed Director of Sales,
South China in 1996 and National Sales Director in 1997.
44
<PAGE> 45
Prior to joining Amway Hong Kong, Mrs. Yeung worked at Rediffusion Co. in
customer service related positions. She holds a Bachelor's Degree from the
Chinese University of Hong Kong and a Diploma in Management Studies from Hong
Kong Polytechnic.
John C.R. Collis, age 41, is an attorney at Conyers, Dill & Pearman,
Hamilton, Bermuda.
There exists no arrangement or understanding between any director and
any other person pursuant to which such director was elected. Each director and
executive officer serves until their successors are elected and qualified.
There exists no family relationship between any director or executive
officer of the Company and any other director or executive officer of the
Company.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of cash compensation (including bonuses) paid by
the Company during the fiscal year ended August 31, 1999, to all directors and
officers of the Company as a group totaled approximately $4.5 million.
The Company has not made any material payments or accruals for
pension, retirement and other such benefits for directors and officers of the
Company as a group during the fiscal year ended August 31, 1999.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
As of December 1, 1999, the Company's directors and officers as a group
have been granted options to purchase Common Stock under the Company's Long-Term
Incentive Plan, as described in the following table:
DATE OF GRANT OPTIONS GRANTED EXERCISE PRICE OPTIONS EXERCISED
- ------------- --------------- -------------- -----------------
December 15, 1993 160,000 $18.00 100,000
January 18, 1995 59,000(1) 33.00 18,718
July 1, 1996 4,000(2) 30.13 5,499
October 23, 1996 55,000(3) 34.38 - 0 -
July 9, 1997 44,500(4) 46.44 - 0 -
======== ========
TOTAL 322,500 124,217
(1) An additional 17,000 options were granted to certain key employees of the
Company or its affiliates on such date at the same exercise price.
(2) An additional 20,000 options were granted to certain key employees of the
Company or its affiliates on such date at the same exercise price.
(3) An additional 2,000 options were granted to a key employee of an affiliate
of the Company on such date at the same exercise price.
(4) An additional 48,000 options were granted to certain key employees of the
Company or its affiliates on such date at the same exercise price.
Such options become exercisable over a period of three years commencing
on the first anniversary of the date of grant and will expire no later than 10
years after the date of grant.
In addition, as of December 1, 1999, the Company has granted, pursuant
to the Company's Long-Term Incentive Plan, 9,000 shares of restricted stock at a
purchase price equal to the par value of the Common Stock, all of which have
vested as of December 1, 1999.
As of November 1, 1998, the Company's outside directors as a group have
been granted awards with respect to the Common Stock under the Company's Outside
Director Long-Term Award Plan, as described in the following table:
45
<PAGE> 46
DATE OF GRANT AWARDS GRANTED EXERCISE PRICE AWARDS EXERCISED
- ------------- -------------- -------------- ----------------
January 8, 1995 15,000 (1) $33.00 - 0 -
January 10, 1996 6,000 35.38 - 0 -
April 10, 1996 5,000 31.62 - 0 -
January 15, 1997 9,000 42.25 - 0 -
TOTAL 35,000 - 0 -
(1)Awards with respect to 5,000 shares of Common Stock expired in
September 1996.
Such awards become exercisable over a period of three years commencing
on the first anniversary of the date of grant and will expire no later than 10
years after the date of the grant.
Pursuant to the Tender Offer Agreement, all issued and outstanding
options to purchase Common Stock shall be converted into rights to receive cash
in accordance with the Black-Scholes Option Pricing Model and will require
surrender of all such options by the holders thereof as of the effective date of
the Amalgamation.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Pursuant to the Offer, the Principal Shareholders, which include
Richard M. DeVos, Jr., Stephen A. Van Andel and Douglas L. DeVos, who are all
executive officers of the Company, own 97.4% of the Company's Common Stock. See
"Description of Business - Tender Offer."
The principal shareholders of Amway and related family members own
97.4% of the outstanding shares of Common Stock. Approximately 73% of the
Company's fiscal 1999 net sales were derived from the distribution of products
purchased from Amway. In addition, Amway has granted each of the Company's
affiliates the exclusive right to use and market the Amway trademark and
individual product trademarks pursuant to various contracts between Amway and
the Company's affiliates. Amway also provides a broad range of management,
administrative and technical assistance to the Company and its affiliates
pursuant to various support services agreements with the Company and each of the
Company's affiliates. Finally, Amway licensed to the Company the right to use
the previously existing distributor lists in Hong Kong and Taiwan. During fiscal
1999, pursuant to agreements between Amway and the Company and its affiliates,
the Company and its affiliates paid Amway a total of $113.6 million for the
purchase of products. See "Description of Business - Relationship with Amway"
and Note 10 to Consolidated Financial Statements.
In connection with the Reorganization, Amway, the Company and each of
its affiliates entered into agreements pursuant to which Amway, on the one hand,
and the Company and/or its affiliates (other than the Company's Hong Kong branch
and Taiwan affiliate), on the other hand, each agreed to provide certain
indemnification rights to the other. Each agreed to be responsible for those
liabilities, known or unknown, that were incurred by it or originated with it.
For example, any tax liabilities properly attributable to Amway or any of its
subsidiaries (other than the Company and its affiliates) are the responsibility
of Amway. In addition, in the event the Company disposes of stock of its
subsidiaries, the Company has agreed to pay Amway an indemnity, on an after-tax
basis, with respect to any U.S. federal income tax liability incurred by Amway
resulting from gain recognition agreements between Amway and the U.S. Internal
Revenue Service that were entered into in connection with the Reorganization.
Amway retained liabilities associated with the Company's Hong Kong branch.
46
<PAGE> 47
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
Not applicable
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable (See Item 18).
ITEM 18. FINANCIAL STATEMENTS
See Consolidated Financial Statements (including Notes thereto)
attached hereto.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as a part of
this Report.
(a) Financial Statements
See accompanying Index to Consolidated Financial Statements.
(b) Exhibits
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMWAY ASIA PACIFIC LTD.
(Registrant)
Date: February 29, 2000 By: /s/ Craig N. Meurlin
--------------------
Name: Craig N. Meurlin
Title: Vice President, General Counsel
and Assistant Secretary
48
<PAGE> 49
AMWAY ASIA PACIFIC LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE IN
FORM 20-F
---------
Consolidated financial statements and independent auditors' report:
Independent auditors' report . . . . . . . . . . . . . . . . F-1
Consolidated balance sheets at August 31, 1999 and 1998 . . . F-2
Consolidated statements of income for the years ended
August 31, 1999, 1998 and 1997 . . . .. . . . . . . . . . . F-3
Consolidated statements of shareholders' equity and comprehensive
income for the years ended August 31, 1999, 1998 and 1997 . F-4
Consolidated statements of cash flows for the years ended
August 31, 1999, 1998 and 1997 . . . . . . . . . . . . . . F-5
Notes to consolidated financial statements . . . . . . . . . F-7
Financial statement schedules for the years ended
August 31, 1999, 1998 and 1997:
II - Valuation and qualifying accounts . . . . . . . . . S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes
thereto.
49
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Amway Asia Pacific Ltd.:
We have audited the consolidated financial statements of Amway Asia Pacific Ltd.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amway Asia Pacific
Ltd. and subsidiaries as of August 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Detroit, Michigan
October 1, 1999, except as to Note 20, which is as of December 17, 1999.
F-1
<PAGE> 51
<TABLE>
<CAPTION>
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED BALANCE SHEETS
August 31, 1999 and 1998
(U.S. dollars in thousands, except per share amounts)
1999 1998
--------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ....................................................... $ 151,630 $ 157,157
Short-term investments (note 4) ................................................ 10,414 143
Accounts receivable, net of allowance for doubtful accounts
of $2,475 and $2,144, respectively ............................................ 13,963 21,264
Inventories (note 5) ........................................................... 62,128 75,104
Prepaid expenses and other current assets (notes 10 and 12) .................... 12,402 23,234
--------- ---------
Total current assets ................................................ 250,537 276,902
Property, plant and equipment, net (note 6) ........................................ 104,505 104,346
Long-term investments ............................................................... 3,516 750
Other assets (note 12) .............................................................. 7,521 5,075
--------- ---------
Total assets ........................................................ $ 366,079 $ 387,073
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable (note 10) ..................................................... $ 41,421 $ 59,799
Short-term borrowings (note 7) .................................................. 10,269 18,573
Accrued expenses and income taxes (notes 8 and 12) ............................. 80,655 92,150
Distributor deposits ............................................................ 4,989 4,252
--------- ---------
Total current liabilities ........................................... 137,334 174,774
Deferred income taxes (note 12) .................................................... 454 184
--------- ---------
Total liabilities ................................................... 137,788 174,958
--------- ---------
Minority interests (note 15) ........................................................ 33,903 36,017
--------- ---------
Shareholders' equity (note 16):
Preferred stock, $0.01 par value - authorized 20,000,000 shares, none
issued ........................................................................ -- --
Common stock, $0.01 par value - authorized 110,000,000 shares;
issued and outstanding: 56,441,960 shares ..................................... 564 564
Additional paid-in capital ...................................................... 79,246 79,246
Accumulated other comprehensive income - cumulative foreign currency
translation adjustments ....................................................... (38,414) (44,182)
Retained earnings ............................................................... 152,992 140,470
--------- ---------
Total shareholders' equity .......................................... 194,388 176,098
--------- ---------
Commitments and contingencies (notes 9 and 14)
Total liabilities and shareholders' equity .......................... $ 366,079 $ 387,073
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE> 52
<TABLE>
<CAPTION>
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF INCOME
Years ended August 31, 1999, 1998 and 1997
(U.S. dollars in thousands, except per share amounts)
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales .................................................................... $501,475 $587,579 $845,166
Cost of sales (note 10) ..................................................... 216,455 257,220 313,287
-------- -------- --------
285,020 330,359 531,879
-------- -------- --------
Operating expenses (note 10):
Distributor incentives ................................................... 128,815 157,018 219,111
Distribution expenses .................................................... 37,774 45,199 49,662
Selling and administrative expenses ...................................... 92,104 102,849 114,523
-------- -------- --------
Total operating expenses ..................................... 258,693 305,066 383,296
-------- -------- --------
Operating income ............................................. 26,327 25,293 148,583
Other income - net (note 11) ................................................ 6,504 9,683 24,707
-------- -------- --------
Income before income taxes and minority
interest
32,831 34,976 173,290
Income taxes (note 12) ...................................................... 13,294 23,508 54,909
-------- -------- --------
Income before minority interest .............................. 19,537 11,468 118,381
Minority interest in income of consolidated subsidiaries
(note 15) .................................................................. 7,062 10,015 14,350
-------- -------- --------
Net income ................................................... $ 12,475 $ 1,453 $104,031
======== ======== ========
Basic and diluted earnings per share (note 17)
$ 0.22 $ 0.03 $ 1.76
======== ======== ========
Dividends per share paid to Company shareholders ............................. $ -- $ 0.88 $ 0.84
======== ======== ========
Weighted average number of shares outstanding (000s) ........................ 56,442 56,442 59,124
======== ======== ========
Weighted average number of shares outstanding including
the effect of dilutive securities (000s) (note 17) ......................... 56,442 56,446 59,176
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 53
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years ended August 31, 1999, 1998 and 1997
(U.S. dollars in thousands, except per share amounts)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMPREHENSIVE COMMON PAID-IN COMPREHENSIVE RETAINED SHAREHOLDERS'
INCOME STOCK CAPITAL INCOME EARNINGS EQUITY
------ --------- ------------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT AUGUST 31, 1996 ..................... $ 600 $ 228,335 $ 959 $ 134,322 $ 364,216
Comprehensive income:
Net income ................................... $ 104,031 -- -- -- 104,031 104,031
Other comprehensive income:
Net change in cumulative foreign
currency translation adjustments ......... (17,780) -- -- (17,780) -- (17,780)
Unrealized gains on marketable equity
Securities ............................... 448 -- -- 448 -- 448
---------
Other comprehensive income ................. (17,332)
---------
Comprehensive income ............................ $ 86,699
=========
Stock options exercised for 84,217
common shares ............................... 1 1,863 -- -- 1,864
Purchase of common stock for retirement ......... (37) (150,736) -- -- (150,773)
Dividends of $0.84 per share .................... -- -- -- (49,665) (49,665)
Amortization of unearned portion of
restricted common stock ....................... -- 143 -- -- 143
--------- ----------- ----------- ---------- ----------
BALANCES AT AUGUST 31, 1997 ..................... 564 79,605 (16,373) 188,688 252,484
Comprehensive income:
Net income ................................... $ 1,453 -- -- -- 1,453 1,453
Other comprehensive income:
Realization of gain upon sale of
securities .............................. (582) -- -- (582) -- (582)
Net change in cumulative foreign
currency translation adjustments ......... (27,227) -- -- (27,227) -- (27,227)
---------
Other comprehensive income ................. (27,809)
---------
Comprehensive income (loss) ..................... $ (26,356)
=========
AMHB repurchase of common stock held
by minority shareholders (note 15) ............. -- (397) -- -- (397)
Dividends of $0.88 per share .................... -- -- -- (49,671) (49,671)
Amortization of unearned portion of
restricted common stock ....................... -- 38 -- -- 38
--------- ---------- ---------- --------- ---------
BALANCES AT AUGUST 31, 1998 ..................... 564 79,246 (44,182) 140,470 176,098
Comprehensive income:
Net income ................................... $ 12,475 -- -- -- 12,475 12,475
Other comprehensive income:
Net change in cumulative foreign
currency translation adjustments ......... 5,768 -- -- 5,768 -- 5,768
---------
Comprehensive income ............................ $ 18,243
=========
Effect of change in minority interest in
AMHB on beginning retained earnings ............ -- -- -- 47 47
--------- --------- --------- --------- ---------
BALANCES AT AUGUST 31, 1999 ..................... $ 564 $ 79,246 $ (38,414) $ 152,992 $ 194,388
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 54
<TABLE>
<CAPTION>
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
(U.S. DOLLARS IN THOUSANDS)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 12,475 $ 1,453 $ 104,031
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..................................... 12,776 13,516 13,009
Deferred income taxes ............................................. (1,470) (2,662) (4,934)
Loss (gain) on sale or disposal of property and
equipment ...................................................... 1,331 1,582 (44)
Loss (gain) on sale of investments ................................ (578) (637) 5
Changes in assets and liabilities:
Accounts receivable ........................................... 8,353 (7,932) (7,522)
Inventories ................................................... 17,259 18,162 (31,984)
Prepaid expenses and other current assets ..................... 12,110 2,964 (5,658)
Accounts payable .............................................. (20,369) (18,894) 46,838
Accrued expenses and income taxes ............................. (15,298) (15,106) 10,611
Distributor deposits .......................................... 322 (4,033) (1,617)
Other ......................................................... 6,187 21,361 23,248
--------- --------- ---------
Net cash provided by operating activities ....................... 33,098 9,774 145,983
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures .................................................. (12,968) (33,155) (28,546)
Proceeds from sale of equipment ....................................... 446 375 701
Purchases of held to maturity investments ............................. (26,837) (80,851) (98,612)
Proceeds from maturity of investments ................................. 18,713 115,904 78,284
Purchases of available for sale investments ........................... (9,344) -- --
Proceeds from sale of available for sale investments .................. 5,057 1,644 --
Payments received on (issuance of) notes receivable ................... (125) 273 (1,126)
--------- --------- ---------
Net cash provided by (used in) investing activities ............. (25,058) 4,190 (49,299)
--------- --------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 55
<TABLE>
<CAPTION>
AMWAY ASIA PACIFIC LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
(U.S. DOLLARS IN THOUSANDS)
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net short-term borrowings (payments) .................................. (8,330) 18,529 --
Principal payments on notes payable and capital lease
obligations ......................................................... -- -- (27,564)
Dividends paid to shareholders ........................................ -- (49,671) (49,665)
Dividends paid by subsidiaries to minority shareholders ............... (11,334) (5,976) (3,112)
Proceeds from issuance of common stock ................................ -- -- 1,864
Purchase of common stock for retirement ............................... -- -- (150,773)
Amway (Malaysia) purchase for retirement of common stock
held by minority shareholders ....................................... -- (2,129) --
Investment in subsidiary by minority shareholder ...................... 2,219 -- --
--------- --------- ---------
Net cash used in financing activities ........................... (17,445) (39,247) (229,250)
--------- --------- ---------
Effect of exchange rate changes on cash ................................... 3,878 (25,475) (20,201)
--------- --------- ---------
Net decrease in cash and cash equivalents ................................. (5,527) (50,758) (152,767)
Cash and cash equivalents at beginning of year ............................ 157,157 207,915 360,682
--------- --------- ---------
Cash and cash equivalents at end of year .................................. $ 151,630 $ 157,157 $ 207,915
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid ......................................................... $ 971 $ 118 $ 51
========= ========= =========
Income taxes paid ..................................................... $ 27,952 $ 35,768 $ 60,772
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 56
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1999, 1998 and 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
Amway Asia Pacific Ltd. (the "Company"), a Bermuda corporation, was
incorporated on September 7, 1993. On December 21, 1993, the Company completed
its initial public offering of common stock. The Company has subsidiaries in
Australia, Brunei, China (the mainland, the Hong Kong Special Administrative
Region, Macau and Taiwan), Malaysia, New Zealand and Thailand. Each subsidiary
is wholly owned, except Malaysia, in which the Company has a 51.7% ownership
equity position (see note 15), and Thailand, a partnership in which the Company
is a general partner with a 99.0% economic interest.
The consolidated financial statements include the Company and its
subsidiaries. The Company's subsidiary in Australia ("Amway Australia") owns 50%
of the voting shares of AFS Pty. Ltd. Because Amway Australia is given control
over management decisions by means of a casting vote on the board of directors,
Amway Australia is deemed to have control over AFS Pty. Ltd. Therefore, the
financial statements of AFS Pty. Ltd. are consolidated with those of Amway
Australia and the Company.
All significant intercompany transactions and balances have been
eliminated. Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) DESCRIPTION OF BUSINESS
The Company is the exclusive distribution vehicle for Amway Corporation
("Amway") in Australia, Brunei, China (the mainland, the Hong Kong Special
Administrative Region, Macau and Taiwan), Malaysia, New Zealand and Thailand.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid debt instruments with maturities
of three months or less at the time of purchase to be cash equivalents.
(b) Short-term Investments
Management determines the proper classifications of investments in
obligations with fixed maturities and marketable equity securities at the time
of purchase and reevaluates such designations as of each balance sheet date. All
securities covered by Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," are
designated as either held to maturity or available for sale. Securities
designated as held to maturity are stated at amortized cost, and securities
designated as available for sale are stated at fair value, with unrealized gains
and losses reported as a component of other comprehensive income included in
shareholders' equity. Time deposits with original maturity dates of three months
to one year are also classified as short-term investments. These investments,
which are not subject to the provisions of SFAS No. 115, are carried at cost,
which approximates market value. Realized gains and losses on sales of
investments, as determined on a specific identification basis, are included in
the consolidated statements of income.
F-7
<PAGE> 57
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated primarily on the straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized straight-line over the
shorter of the lease term or estimated useful life of the asset.
(e) Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company
reviews long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of an asset to be held and used
is measured by a comparison of its carrying amount to future net cashflows
expected to be generated by the asset. If the asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell.
(f) Other Assets
Other assets at August 31, 1999 and 1998 are stated at cost, net of
amortization, if any, and primarily consist of deposits, land use rights, and
employee loans.
(g) Minority Interests
Minority interest represents the minority shareholders' or partners'
share of equity and net income in consolidated subsidiaries.
(h) Accounting for Sales or Repurchase of Stock by a Subsidiary
Gains or losses arising from the issuance or repurchase of stock by a
subsidiary is accounted for as a capital transaction in the consolidated
financial statements.
F-8
<PAGE> 58
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(i) Stock Based Compensation
Prior to September 1, 1996, the Company accounted for its stock option
awards in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On September 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in fiscal years beginning after December 15, 1994 as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(j) Revenue Recognition
The Company recognizes sales when products are shipped to or through
distributors. A reserve for sales returns is accrued based on historical
experience.
(k) Earnings Per Share
Earnings per share are computed in accordance with the provisions of
SFAS No. 128 "Earnings per Share." Basic earnings per share are computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the year. The calculation of diluted
earnings per share is similar to that of basic earnings per share except that
for diluted earnings per share, the denominator is increased to include the
effect of additional common shares that would have been outstanding if all
dilutive potential common shares had been issued.
(l) Foreign Currency Translation
All operations of the Company occur outside of the United States. Each
operation's local currency is considered its functional currency. No currency is
dominant within the group and transactions in Bermuda are minimal. Therefore,
the U.S. dollar is used for translation purposes since most merchandise purchase
transactions, as discussed below, are conducted in U.S. dollars. All assets and
liabilities are translated into U.S. dollars at the current exchange rate as of
the balance sheet date. Revenues and expenses are translated at average currency
exchange rates. Shareholders' equity is recorded at historical exchange rates.
The resulting translation adjustment is recorded as a component of other
comprehensive income included in shareholders' equity. Transaction gains and
losses are included in other income-net.
All of the Company's subsidiaries, except Australia and New Zealand,
pay for their purchases of products from Amway in U. S. dollars and bear the
risk of foreign currency exchange fluctuations. Australia and New Zealand pay
for their purchases of products from Amway in local currencies, thereby
transferring the immediate risk of foreign currency exchange rate fluctuations
to Amway. Amway has the right to modify its prices at any time on at least 30
days advance notice to its affiliates.
F-9
<PAGE> 59
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions in certain circumstances that affect the amounts reported in the
accompanying consolidated financial statements and notes. Ultimate resolution of
uncertainties could cause actual results to differ from those estimates.
(n) New Accounting Pronouncements
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components. Comprehensive income
includes all changes in equity during a period except those resulting from
investments by and distributions to the Company's shareholders. For the Company,
this primarily represents net income plus or minus the change in cumulative
foreign currency translation adjustments. The Statement requires only additional
or modified disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations. Comprehensive
income for the years ended August 31, 1999, 1998 and 1997 is displayed in the
Consolidated Statements of Shareholders' Equity and Comprehensive Income.
Accumulated other comprehensive income as of August 31, 1999 and 1998 is
displayed in the Consolidated Balance Sheets.
In fiscal 1999, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits." As it applies to
the Company, SFAS No. 132 revises the required disclosures about the Company's
defined benefit pension plans as displayed in note 13; it does not change the
method of accounting for such plans.
In fiscal 1999, the Company also adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information." This statement
requires only additional disclosures in the notes to the consolidated financial
statements; it does not affect the Company's financial position or results of
operations. The related disclosures for the Company are displayed in note 19.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes comprehensive
accounting and reporting standards for derivative instruments and hedging
activities and, as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 with earlier adoption allowed. The Company
currently plans to adopt this statement effective September 1, 2000.
F-10
<PAGE> 60
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(4) INVESTMENTS
SECURITIES SUBJECT TO THE PROVISIONS OF SFAS NO. 115 AT AUGUST 31, 1999
AND 1998 ARE SUMMARIZED AS FOLLOWS:
MARKET
COST VALUE
---- -----
August 31, 1999:
----------------
Available for sale:
Debt security mutual funds ... $ 4,353 $ 4,353
======= =======
Held to maturity:
Banker's acceptances ......... $ 1,979 $ 1,979
Commercial paper ............. 2,781 2,781
Treasury bills ............... 1,301 1,301
Government bonds ............. 2,766 2,766
------- -------
Total held to maturity ....... $ 8,827 $ 8,827
======= =======
August 31, 1998:
----------------
Held to maturity:
Banker's acceptances ......... $15,154 $15,154
Commercial paper ............. 255 255
------- -------
Total held to maturity ....... $15,409 $15,409
======= =======
There were no gross unrealized holding gains or losses on these
securities in fiscal 1999 or 1998. The government bonds within the held to
maturity category at August 31, 1999 mature in 2005 and are included in
long-term investments on the consolidated balance sheet. The remaining
securities within the held to maturity category at August 31, 1999 have original
maturities between 3 months and 1 year and, along with the available for sale
securities shown above, are included in short-term investments on the August 31,
1999 consolidated balance sheet. The held to maturity securities at August 31,
1998 have original maturities of less than 3 months and are therefore included
in cash and cash equivalents on the August 31, 1998 consolidated balance sheet.
Short-term investments included on the August 31, 1998 consolidated balance
sheet of $143 represent time deposits, which are not subject to the reporting
requirements of SFAS 115, and are stated at cost, which approximates market
value.
(5) INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING AT AUGUST 31:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials .......................................... $ 6,009 $ 6,996
Manufactured finished goods and finished goods purchased
for resale ........................................... 56,119 68,108
------- -------
Total .............................................. $62,128 $75,104
======= =======
</TABLE>
F-11
<PAGE> 61
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at August 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Land and improvements .......................................... $ 7,720 $ 7,633
Buildings and improvements ..................................... 61,542 46,151
Machinery and equipment ........................................ 78,235 70,111
Leasehold improvements ......................................... 12,975 15,760
Construction in progress ....................................... 4,181 14,144
--------- ---------
164,653 153,799
Less accumulated depreciation and amortization ................. (60,148) (49,453)
--------- ---------
Net property, plant and equipment .......................... $ 104,505 $ 104,346
========= =========
</TABLE>
(7) SHORT-TERM BORROWINGS
The Company's subsidiary in China had short-term borrowings of $10,269
and $11,473 at August 31, 1999 and 1998, respectively, under unsecured revolving
line of credit agreements with three local banks. The agreements are guaranteed
by Standard Chartered Bank in the form of standby letters of credit which in
turn are guaranteed by the Company. The interest rates on loans under these
agreements are based on the published rates determined by the Central Bank in
China for short-term loans. The weighted-average interest rate on these
borrowings was approximately 5.9% and 6.8% at August 31, 1999 and 1998,
respectively. There are no commitment fees on these credit facilities. Unused
credit available under these agreements was $11,478 and $6,643 at August 31,
1999 and 1998, respectively.
At August 31, 1998, the Company also had borrowings of $7,100 under an
unsecured revolving line of credit agreement in the United States with Standard
Chartered Bank. The interest rates on loans under this credit facility are based
on LIBOR plus 0.25% at the time of loan. The weighted-average interest rate on
these borrowings was approximately 5.9% at August 31, 1998. There are no
commitment fees on these credit facilities. Unused credit available under these
agreements was $25,000 and $17,900 at August 31, 1999 and 1998, respectively.
(8) ACCRUED EXPENSES AND INCOME TAXES
Accrued expenses and income taxes consist of the following at August
31:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Distributor incentives ....................................... $27,705 $29,837
Distributor seminars ......................................... 11,710 13,581
Income taxes ................................................. 9,122 16,329
Deferred taxes ............................................... 2,465 3,029
Other taxes
1,679 2,362
Employee compensation and retirement
8,062 7,565
Sales returns
5,386 6,491
Other ........................................................ 14,526 12,956
------- -------
Total .................................................... $80,655 $92,150
======= =======
</TABLE>
F-12
<PAGE> 62
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(9) LEASES
The Company leases real estate under noncancelable operating leases
which expire at various dates through 2004. Future minimum annual rentals under
these noncancelable operating leases as of August 31, 1999, are as follows:
Year ending August 31:
2000 ................................................ $ 6,663
2001 ................................................ 3,811
2002 ................................................ 2,603
2003 ................................................ 1,212
2004 ................................................ 253
-------
Total minimum lease payments ......................... $14,542
=======
Rental expense charged to operations for the years ended August 31,
1999, 1998 and 1997, approximated $9,765, $11,801 and $10,953, respectively,
including amounts paid under short-term cancelable leases.
(10) RELATED PARTY TRANSACTIONS
The Company, as the distribution vehicle for Amway in the Asia Pacific
markets in which the Company operates, has a number of contractual relationships
with Amway (1) for the right to purchase Amway products which Amway makes
available to its international affiliates (the "Product Purchase Agreements"),
(2) for the right to manufacture and sell Amway licensed products in China (the
"China Technical Agreement"), (3) for the right to use Amway's trade name and
trademark along with certain other intellectual property rights (the "Trademark
License Agreements"), (4) for receiving various executive management,
administrative support and information services (the "Amended and Restated
Support Service Agreements") and (5) for the right to use the Hong Kong and
Taiwan distributor lists (the "Distributor List and Certain Other Intangibles
License Agreements").
Purchases from and other transactions with Amway for the years ended
August 31 are as follows:
Prices for products are governed by a price schedule which Amway
establishes periodically based upon a U.S. dollar "cost plus" base price
calculation. At August 31, 1999 and 1998, the Company owed Amway $14,445 and
$31,337, respectively, primarily for the purchase of inventory. These amounts
are included in accounts payable.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Product purchases ................................. $113,599 $151,560 $190,031
China Technical royalty
41 885 3,725
Trademark license royalty ......................... 395 275 390
Support service and license fees .................. 5,308 5,294 650
Distributor list royalty .......................... 9,165 9,165 9,111
</TABLE>
F-13
<PAGE> 63
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(10) RELATED PARTY TRANSACTIONS - CONTINUED
On July 31, 1995, the Company entered into seven non-interest bearing
negotiable promissory notes aggregating $27,946 payable to Amway over three
years beginning in fiscal 1997 for the prepayment of fiscal 1997, 1998 and 1999
royalties on the Hong Kong and Taiwan distributor lists. The Company prepaid
these notes in full on February 27, 1997. Prepaid royalties totaling $9,165 are
included as a component of prepaid expenses at August 31, 1998. These prepaid
amounts were fully amortized as of August 31, 1999.
Under Amended and Restated Support Services Agreements between Amway,
the Company and its affiliates, Amway provides information systems, executive
management, investor relations services and certain administrative support
services including legal, accounting, tax, treasury, marketing, insurance,
inventory control and human resources services to the Company. The Company pays
Amway software license fees and maintenance charges with respect to information
systems provided by Amway; the Company pays Amway for other services based on
the internal labor and other direct and indirect costs incurred by Amway in
providing such services.
(11) OTHER INCOME - NET
Other income - net consists of the following for the years ended August
31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest income ............................. $ 8,216 $ 12,203 $ 22,461
Loss on foreign exchange .................... (3,315) (3,914) (2,554)
Interest expense ............................ (954) (1,329) (155)
Other, net .................................. 2,557 2,723 4,955
-------- -------- --------
Other income - net ........................ $ 6,504 $ 9,683 $ 24,707
======== ======== ========
</TABLE>
(12) INCOME TAXES
Income is subject to taxation in each country where the Company
operates and it files separate income tax returns in each country. Income taxes
consist of the following for the years ended August 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current ............................ $ 15,018 $ 25,403 $ 59,532
Deferred ........................... (1,724) (1,895) (4,623)
-------- -------- --------
Total .......................... $ 13,294 $ 23,508 $ 54,909
======== ======== ========
</TABLE>
The significant components of deferred income tax expense attributable
to income before income taxes for the years ended August 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Deferred taxes on undistributed earnings ........... $ (500) $(1,937) $(4,798)
Net operating loss carryforwards ................... (2,015) -- --
Inventory reserves ................................. (522) (95) (208)
Valuation allowance on deferred tax assets ......... 2,284 -- --
Other .............................................. (971) 137 383
------- ------- -------
Total .......................................... $(1,724) $(1,895) $(4,623)
======= ======= =======
</TABLE>
F-14
<PAGE> 64
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(12) INCOME TAXES - CONTINUED
The statutory tax rates by country are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- -----------
<S> <C> <C> <C>
Australia ............................................. 36.0% 36.0% 36.0%
Brunei ................................................ 30.0% 30.0% 30.0%
Mainland China (1) .................................... 7.5% 0.0% 0.0%
Hong Kong ............................................. 16.0% 16.0% 16.5%
Macau ................................................. 16.5% 16.5% 16.5%
Malaysia (2) .......................................... 28.0% 28.0% 30.0%
New Zealand ........................................... 33.0% 33.0% 33.0%
Taiwan ................................................ 25.0% 25.0% 25.0%
Thailand .............................................. 30.0% 30.0% 30.0%
<FN>
(1) In Mainland China, the current tax laws, which apply
to calendar years, allow the Company's subsidiary to
pay no tax on profits for the two calendar years
beginning in the year that an accumulated profit was
realized. Thereafter, it is subject to special
reduced rates of 7.5% for three years, 10% for the
subsequent three years and 15% thereafter. During the
1997 tax year, the Company's Chinese subsidiary
attained such an accumulated profit for the first
time; therefore, the Company's Mainland China
subsidiary was not subject to tax on profits in 1997
and 1998. The Mainland China tax laws allow for
losses to be carried forward for up to five years.
(2) The Malaysian government suspended the corporate
income tax on business-related income in that country
for the 1999 tax year. The statutory rate of 28%,
which will become effective again for the 2000 tax
year, was applied in the calculation of deferred
taxes at August 31, 1999.
</TABLE>
A reconciliation of the weighted-average statutory tax rate to the
weighted-average effective tax rate is shown in the table below. In 1998, the
Company's weighted-average statutory tax rate was particularly high because its
Mainland China subsidiary recorded a net operating loss while it was not subject
to income tax in that year.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Weighted average statutory tax rate ...................... 38.5% 51.9% 25.3%
Add tax effect of non-deductible meals
and entertainment ...................................... 1.7% 4.0% 1.0%
Add dividend withholding tax ............................. 9.8% 11.8% 5.1%
Subtract impact of Malaysia tax holiday .................. (9.9)% -- --
All other................................................. 0.4% (0.5)% 0.3%
------- ------- -------
Weighted average effective tax rate ...................... 40.5% 67.2% 31.7%
======= ======= =======
</TABLE>
F-15
<PAGE> 65
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(12) INCOME TAXES - CONTINUED
Taiwan and Thailand require a withholding tax of 20% and 10%,
respectively, on dividends paid to the Bermuda parent. The Company's Taiwan
subsidiary is subject to a statutory reserve on its retained earnings from which
it may not remit dividends. This statutory reserve was $8.0 million using the
exchange rate effective August 31, 1999.
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 31,
1999 and 1998, are presented below.
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories ........................................................ $ 1,942 $ 1,420
Accrued sales returns .............................................. 1,331 1,212
Accrued expenses ................................................... 1,690 1,675
Net operating loss carryforwards ................................... 2,015 --
Other .............................................................. 917 (126)
------- -------
7,895 4,181
Valuation allowance ............................................. (2,284) --
------- -------
Total deferred tax assets, net of valuation allowance ........... 5,611 4,181
------- -------
Deferred tax liabilities:
Withholding taxes .................................................. (2,465) (2,965)
Other .............................................................. (454) (248)
------- -------
Total deferred tax liabilit ..................................... (2,919) (3,213)
------- -------
Net deferred tax asset .......................................... $ 2,692 $ 968
======= =======
The net deferred tax asset is included in the consolidated
balance sheet as follows:
Prepaid expenses and other current assets ........................ $ 4,624 $ 3,960
Other assets ..................................................... 987 221
Accrued expenses and income taxes ................................ (2,465) (3,029)
Deferred income taxes ............................................ (454) (184)
------- -------
Net deferred tax asset ........................................ $ 2,692 $ 968
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Based upon the level of historical
taxable income and projections of future taxable income, management believes it
is more likely than not that the Company will realize the benefit of the net
deferred tax assets at August 31, 1999.
F-16
<PAGE> 66
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(13) EMPLOYEE BENEFIT PENSION PLANS
For all periods presented, the Company's China (Mainland, Macau, Taiwan
and Hong Kong Special Administrative Region) subsidiaries each sponsored a
pension plan that covers substantially all employees, primarily under defined
benefit pension plans. The following information, shown in accordance with SFAS
No. 132, relates to these defined benefit pension plans:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
Components of net periodic pension costs:
<S> <C> <C> <C>
Service cost ..................................... $ 830 $ 751 $ 702
Interest cost .................................... 428 461 342
Expected return on plan assets ................... (363) (481) (461)
Net amortization and deferral .................... 73 44 13
----- ----- -----
Net periodic pension cost ............................ $ 968 $ 775 $ 596
===== ===== =====
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation, beginning of year .................. $ 5,960 $ 5,255
Service cost ..................................................... 830 751
Interest cost .................................................... 428 461
Plan amendments .................................................. 29 94
Net actuarial loss (gain) ........................................ 490 (199)
Benefits paid .................................................... (926) (456)
Effect of exchange rate changes on translation ................... 226 54
------- -------
Projected benefit obligation, end of year ........................ 7,037 5,960
------- -------
Change in fair value of plan assets:
Fair value of plan assets, beginning of year ..................... 4,836 5,630
Actual return on plan assets ..................................... 1,015 (513)
Employer contributions ........................................... 589 512
Benefits paid .................................................... (926) (456)
Effect of exchange rate changes on translation ................... (156) (337)
------- -------
Fair value of plan assets, end of year ........................... 5,670 4,836
------- -------
Funded status of the plan ............................................ (1,367) (1,124)
Unrecognized net actuarial loss ...................................... 758 886
Unrecognized prior service costs ..................................... 537 574
Unrecognized transition asset ........................................ (53) (68)
Additional minimum liability ......................................... (385) (605)
------- -------
Net pension liability recognized on the balance sheets ............... $ (510) $ (337)
======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligation for defined benefit pension plans
ranged from 7% to 8% for the fiscal years ended August 31, 1999 and 1998. The
rate of increase in compensation levels ranged from 5% to 7% and the expected
long-term rate of return on assets ranged from 7% to 8% for the fiscal years
ended August 31, 1999 and 1998, respectively.
F-17
<PAGE> 67
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(14) CONTINGENCIES
In addition to the matters discussed in Note 20, the Company is a party
to certain routine litigation incidental to its business, none of which is
currently expected to have a material adverse effect on the Company's financial
condition and results of operations.
(15) REPURCHASE OF COMMON STOCK BY A SUBSIDIARY
In fiscal 1998, Amway (Malaysia) Holdings Berhad ("AMHB"), the parent
company for the Malaysia affiliate, obtained regulatory and shareholder approval
to repurchase up to 10% of the outstanding shares of its own common stock,
subject to certain regulatory limitations. During fiscal 1998, AMHB repurchased
and cancelled 1,365,000 of its shares on the open market at an aggregate price
of Malaysian ringgit 8.6 million, decreasing the local ownership level (minority
interest) to 48.3%. There were no such repurchases in fiscal 1999.
(16) STOCK OPTION/INCENTIVE AWARD PLANS
During fiscal 1994, the Company adopted the Long-term Incentive Plan
which authorizes the granting of stock-based awards of up to an aggregate of
500,000 shares of the Company's common stock to officers and key employees of or
consultants to the Company who demonstrate superior performance or achieve
management objectives. The plan is administered by the Compensation Committee of
the Board of Directors who determine the terms and conditions of each award
within the guidelines established by the plan.
During fiscal 1997, non-qualified stock options for 149,500 shares were
granted at a price equal to the market value on the date the options were
granted. The weighted average fair value of these options at the date of grant
was $17 per share. These options become exercisable over a period of three years
and expire no later than 10 years after the date of grant. No such options were
granted during fiscal years 1998 or 1999.
During fiscal 1995, the Company adopted an Outside Director Long-term
Award Plan which authorizes the granting of stock-based awards of up to an
aggregate of 50,000 shares of the Company's common stock. During fiscal 1997,
the Company granted non-qualified stock options for 9,000 shares at a price
equal to the market value on the date the options were granted. The weighted
average fair value of these options at the date of grant was $16 per share. No
such options were granted during fiscal years 1998 or 1999.
F-18
<PAGE> 68
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(16) STOCK OPTION/INCENTIVE AWARD PLANS - CONTINUED
Activity related to the options issued under the Long-term Incentive
Plan and the Outside Director Long-term Award Plan are summarized in the table
below.
<TABLE>
<CAPTION>
Options Options Options
outstanding outstanding exercisable
at beginning Forfeited or at end at end
of year Granted Exercised expired of year of year
-------- ------- --------- -------- --------- ----------
FISCAL 1997
<S> <C> <C> <C> <C> <C> <C>
Number of options 241,000 158,500 84,217 3,278 312,005 101,672
Weighted average
exercise price $ 25 $ 42 $ 22 $ 20 $ 35 $ 22
FISCAL 1998
Number of options 312,005 -- -- -- 312,005 194,672
Weighted average
exercise price $ 35 $ -- $ -- $ -- $ 35 $ 31
FISCAL 1999
Number of options 312,005 -- -- 13,500 298,505 245,672
Weighted average
exercise price $ 35 $ -- $ -- $ 36 $ 35 $ 33
</TABLE>
The exercise prices for options outstanding at August 31, 1999 range
from $18 to $46 per share. The weighted average remaining contractual life for
options outstanding at August 31, 1999 is six years.
During fiscal 1995 and 1996, pursuant to the Long-term Incentive Plan,
the Company granted 3,000 and 6,000 shares, respectively, of restricted common
stock to an officer at a cost of $0.01 per share. Of this restricted common
stock, 2,000, 3,000 and 4,000 shares vested and became nonforfeitable on June 1,
1997, June 30, 1997 and June 1, 1998, respectively. The fair value of the
restricted stock awards at the date of grant, based on the stock's market value
at the grant date, was $36 and $34 per share, respectively. The cost of these
restricted stock awards, based on the stock's fair market value at the award
date, was charged to shareholders' equity and amortized against earnings over
the vesting period.
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected not to adopt the fair value based method
to measure compensation cost related to stock-based awards in determining net
income in the basic financial statements. If the Company had elected to adopt
the fair value based method, the Company's net income for the years ended August
31, 1999, 1998 and 1997 would have been $11,470, $403 and $103,697,
respectively, and earnings per share would have been $0.20, $0.01 and $1.75 per
share, respectively.
The options pricing model used to estimate the fair value of the
stock-based awards for purposes of this disclosure included the following
assumptions: Expected life of 7.5 years; 8.5% risk-free interest rate; 2% annual
rate of dividends; and expected volatility of 7% in fiscal 1994 and fiscal 1995,
17% in fiscal 1996 and 24% to 31% in fiscal 1997.
F-19
<PAGE> 69
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(17) EARNINGS PER SHARE
The Company's stock options represent potential dilutive common shares
for the purposes of computing diluted earnings per share in accordance with SFAS
No. 128. These stock options had an immaterial effect on the weighted-average
number of shares outstanding, and there were no dilutive securities that
affected net income, for fiscal years 1999, 1998 and 1997.
For fiscal 1999, options to purchase 299,000 shares of common stock at
a weighted-average exercise price of $35 per share were outstanding but not
included in the computation of fiscal 1999 diluted earnings per share because
the options' exercise price was greater than that year's average market price of
the common shares. Such options expire at various dates during fiscal 2003,
2005, 2006 and 2007. For fiscal 1998, options to purchase 255,000 shares of
common stock at a weighted-average exercise price of $38 per share were
outstanding but not included in the computation of diluted earnings per share
because the options' exercise price was greater than that year's average market
price of the common shares. Such options expire at various dates during fiscal
2005, 2006 and 2007.
(18) UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1999
----
Net sales ............................. $ 117,710 $ 116,571 $ 131,648 $ 135,546 $ 501,475
Gross profit .......................... 66,686 65,607 74,094 78,633 285,020
Operating income ...................... 2,322 1,955 6,463 15,587 26,327
Income before income taxes
and minority interest ................ 1,070 3,530 7,829 20,402 32,831
Net income (loss) ..................... $ (3,380) $ (578) $ 2,111 $ 14,322 $ 12,475
========= ========= ========= ========= =========
Basic and diluted earnings
(loss) per share .................... $ (0.06) $ (0.01) $ 0.04 $ 0.25 $ 0.22
========= ========= ========= ========= =========
Weighted average number of
shares outstanding (000s):
For basic EPS ..................... 56,442 56,442 56,442 56,442 56,442
========= ========= ========= ========= =========
For diluted EPS ................... 56,442 56,442 56,442 56,442 56,442
========= ========= ========= ========= =========
1998
----
Net sales ............................. $ 169,124 $ 160,678 $ 133,601 $ 124,176 $ 587,579
Gross profit .......................... 103,227 93,907 64,469 68,756 330,359
Operating income ...................... 16,590 13,185 (9,525) 5,043 25,293
Income (loss) before income
taxes and minority interest ......... 19,684 13,866 (7,449) 8,875 34,976
Net income (loss) ..................... $ 8,525 $ 5,539 $ (15,295) $ 2,684 $ 1,453
========= ========= ========= ========= =========
Basic and diluted earnings
(loss) per share .................... $ 0.15 $ 0.10 $ (0.27) $ 0.05 $ 0.03
========= ========= ========= ========= =========
Weighted average number of
shares outstanding (000s):
For basic EPS ..................... 56,442 56,442 56,442 56,442 56,442
========= ========= ========= ========= =========
For diluted EPS ................... 56,461 56,449 56,442 56,442 56,446
========= ========= ========= ========= =========
</TABLE>
F-20
<PAGE> 70
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(19) SEGMENT INFORMATION
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. This Statement requires that
public companies report certain information about operating segments. It also
requires the reporting of certain information about the company's products and
services, the geographic areas in which the company operates and the company's
major customers. The Company adopted this statement in fiscal 1999.
The Company has identified three reportable segments based on
geographic regions including Greater China, Malaysia/Thailand and Australia/New
Zealand. The segments have similar business characteristics and each offers
similar products to its independent distributors and customers. The Company
assesses each segment's performance based on operating income or loss.
Transactions between the Parent company and the segments are reflected in the
segments' operating income or loss. There are no material transactions between
segments. Information related to the Company's segments for each of the years in
the three-year period ended August 31, 1999 is presented below.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales:
Greater China region ........................................ $ 203,514 $ 241,636 $ 377,226
Malaysia/Thailand region .................................... 172,630 199,032 316,818
Australia/New Zealand region ................................ 125,331 146,911 151,122
--------- --------- ---------
Total consolidated net sales ................................ $ 501,475 $ 587,579 $ 845,166
========= ========= =========
Operating income (loss):
Greater China region ........................................ $ (3,402) $ (16,152) $ 50,538
Malaysia/Thailand region .................................... 21,971 31,947 83,683
Australia/New Zealand region ................................ 10,285 11,381 16,706
Corporate expenses and eliminations, net .................... (2,527) (1,883) (2,344)
--------- --------- ---------
Total consolidated operating income ......................... $ 26,327 $ 25,293 $ 148,583
========= ========= =========
Depreciation and amortization:
Greater China region ....................................... $ 9,549 $ 10,266 $ 8,339
Malaysia/Thailand region ................................... 1,148 1,129 2,001
Australia/New Zealand region ............................... 2,079 2,121 2,669
--------- --------- ---------
Total consolidated depreciation and amortization ........... $ 12,776 $ 13,516 $ 13,009
========= ========= =========
Capital expenditures:
Greater China region ........................................ $ 10,329 $ 29,581 $ 17,626
.........
Malaysia/Thailand region .................................... 1,396 935 8,536
Australia/New Zealand region ................................ 1,243 2,639 2,384
--------- --------- ---------
Total consolidated capital expenditures ..................... $ 12,968 $ 33,155 $ 28,546
========= ========= =========
</TABLE>
F-21
<PAGE> 71
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(19) SEGMENT INFORMATION - CONTINUED
Total assets for each of the Company's segments as of August 31, 1999
and 1998 is presented in the following table.
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Total assets:
Greater China region ........................................... $ 172,090 $ 192,411
Malaysia/Thailand region ....................................... 118,774 137,360
Australia/New Zealand region ................................... 54,389 48,808
Corporate (1) .................................................. 25,631 22,250
Eliminations ................................................... (4,805) (13,756)
--------- ---------
Total consolidated assets .............................. $ 366,079 $ 387,073
========= =========
</TABLE>
(1) Corporate assets are principally receivables from the Company's
subsidiaries (which are deducted from total assets through eliminations)
and cash and cash equivalents.
Each of the Company's three segments derives its revenue primarily from
the sale of consumer products to or through its independent distributors.
Although the Company's performance does not rely on sales to any single
distributor, the Company's sales could decline if it were to lose a significant
distributor leader. The Company groups its products into four core product
lines: Personal Care, Nutrition & Wellness, Home Care and Home Tech. Not all of
the products in each line are available in all of the Company's three regions.
The three geographic regions also offer catalog products which are tailored to
the local market and offer varying assortments of products including clothing,
gourmet food and jewelry. Other products and services include starter kits and
business support materials such as motivational audio and videotapes and written
materials. The Company's net sales by product line are presented in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Personal Care ......................... $139,768 $149,384 $241,121
Nutrition & Wellness .................. 113,585 112,681 146,518
Home Care ............................. 72,599 89,727 130,617
Home Tech ............................. 72,330 99,130 127,601
Catalog products ...................... 59,486 64,353 68,920
Other products and services ........... 43,707 72,304 130,389
-------- -------- --------
$501,475 $587,579 $845,166
======== ======== ========
</TABLE>
F-22
<PAGE> 72
AMWAY ASIA PACIFIC LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(20) SUBSEQUENT EVENTS
Tender Offer and Amalgamation - On November 18, 1999, New AAP Limited,
a corporation organized under the laws of Bermuda ("New AAP"), commenced a
tender offer to purchase all of the outstanding shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), for $18.00 per share, in
cash (the "Offer"). The Offer expired on December 17, 1999. New AAP is wholly
owned by Apple Hold Co., L.P. ("Apple"), a Bermuda partnership and an entity
controlled and beneficially owned by the DeVos and Van Andel families and
certain corporations, trusts and other entities established by or for the
benefit of such families (the "Principal Shareholders"). Other than an aggregate
of 1,128,580 shares tendered by certain charitable foundations established by
the Principal Shareholders, the Principal Shareholders did not tender any shares
in response to the Offer. In connection with the consummation of the Tender
Offer, the Principal Shareholders contributed their remaining shares of Common
Stock to Apple.
The Offer was made pursuant to a Tender Offer and Amalgamation
Agreement, dated November 15, 1999, among New AAP, Apple and the Company (the
"Amalgamation Agreement"). The Amalgamation Agreement provided for, among other
things, New AAP first to conduct the Offer and then for the Company and New AAP
to amalgamate (the "Amalgamation") with the Company continuing as the surviving
company. Apple and New AAP have agreed not to dispose of or otherwise transfer
any shares of the Company prior to the consummation of the Amalgamation.
Pursuant to the Offer, New AAP purchased approximately 18% of the Company's
outstanding shares, and as a result of the Offer, the Principal Shareholders own
97.4% of the Company's Common Stock.
Legal Proceedings - On December 8, 1999, a class action lawsuit was
commenced in the Superior Court of the State of California, County of San Mateo,
captioned FISHER, ET AL. V. AMWAY ASIA PACIFIC, LTD., ET AL., No. 411303. The
complaint, which names as defendants the Company, its officers and directors and
New AAP, alleges that the purchase price offered to the Company's public
shareholders in connection with New AAP's cash tender offer was unfair and that
in pursuing the cash tender offer, defendants engaged in various manipulative
and deceptive acts and practices in breach of their fiduciary duties to the
Company's public shareholders. The complaint seeks an injunction prohibiting
defendants from proceeding with the cash tender offer or, alternatively,
rescission of the cash tender offer to the extent already completed, unspecified
damages, costs and attorneys' fees and other relief. This action has been
removed to the United States District Court, Northern District of California and
was assigned No. C 00-00199 MEJ.
On December 16, 1999, a class action lawsuit was commenced in the
United States District Court for the Southern District of New York captioned
WARDROP, ET AL. V. AMWAY ASIA PACIFIC LTD., ET AL, No. 99 Civ. 12093. The
complaint, which names as defendants the Company, its officers and directors and
New AAP, alleges that defendants violated Section 14(e) of the Exchange Act, and
Rules 14D-1 and 14D-9 promulgated pursuant thereto, by misrepresenting in the
Offer to Purchase that the purchase price offered to the Company's public
shareholders was fair. According to plaintiffs, the statement that the purchase
price was fair was false or misleading because defendants allegedly failed to
consider the impact on the Company's future of the agreement between China and
the United States, under which the United States agreed to support China's entry
into the World Trade Organization. The complaint seeks an injunction prohibiting
the defendants from proceeding with the cash tender offer or, alternatively,
rescission of the cash tender offer to the extent already completed or
rescissory damages, costs and attorneys' fees and other relief.
F-23
<PAGE> 73
<TABLE>
<CAPTION>
SCHEDULE II
AMWAY ASIA PACIFIC LTD.
VALUATION AND QUALIFYING ACCOUNTS
(U.S. DOLLARS IN THOUSANDS)
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS (A) PERIOD
- ----------------------------------------------- ------------ ------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1997
Allowance for doubtful
accounts and reserve
for excess and obsolete
inventory ............................... $ 12,270 $ 14,062 $ -- $(15,105) $ 11,227
Year ended August 31, 1998
Allowance for doubtful
accounts and reserve
for excess and obsolete
inventory ............................... $ 11,227 $ 17,742 $ -- $ (8,432) $ 20,537
Year ended August 31, 1999
Allowance for doubtful
accounts and reserve
for excess and obsolete
inventory ............................... $ 20,537 $ 1,563 $ -- $ (4,855) $ 17,245
</TABLE>
(A) Disposals of inventory and write-off of bad debts.
S-1
<PAGE> 1
Exhibit (j)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders:
Amway Asia Pacific Ltd.:
We consent to the use of our report incorporated by reference in the Proxy
Statement of Amway Asia Pacific Ltd. dated March 30, 2000.
/s/ KPMG LLP
Detroit, Michigan
March 22, 2000
