<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1995
SECURITIES ACT FILE NOS. (N-2) NO. 33-61915
(F-3) NO. 33-63469
INVESTMENT COMPANY ACT FILE NO. 811-07341
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 4 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 4 /X/
AJL PEPS TRUST
(Exact Name of Registrant as Specified in Charter)
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
(212) 815-3199
(Address and Telephone Number of Principal Executive Offices)
The Bank of New York
101 Barclay Street
New York, New York 10286
(212) 815-3199
(Name, Address and Telephone Number of Agent for Service)
------------------------
AMENDMENT NO. 2
TO
FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NIHON AMWAY KABUSHIKI KAISHA
(Exact Name of Registrant as Specified in Charter)
AMWAY JAPAN LIMITED
(Translation of Registrant's Name in English)
JAPAN
(State or Other Jurisdiction of Incorporation or Organization)
NONE
(I.R.S. Employer Identification No.)
ARCO TOWER
8/1, Shimomeguro 1-chome
Meguro-ku, Tokyo 153
(813) 5434-8484
(Address and Telephone Number of Principal Executive Offices)
CT CORPORATION SYSTEM
1633 Broadway
New York, New York 10019
(212) 664-1666
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Robert A. Yolles, Esq.
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Craig N. Meurlin, Esq.
Senior Vice President &
General Counsel
Amway Corporation
7575 Fulton Street East
Ada, Michigan 49355
John J. McCarthy, Jr., Esq.
Linda A. Simpson, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on these Forms are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on these Forms are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If these Forms are filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If these Forms are post-effective amendments filed pursuant to Rule 462(c),
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED OFFERING PRICE REGISTRATION FEE
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<S> <C> <C>
Premium Exchangeable Participating Shares (PEPS)........................ $345,000,000 $118,965.52(1)
Common Stock, no par value(2)........................................... None None
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</TABLE>
(1) Previously paid.
(2) A separate registration statement on Form F-6 (Registration No. 33-78994)
has been filed with respect to the American Depositary Shares evidenced by
American Depositary Receipts issuable upon deposit of the shares of Common
Stock. The Registrant is registering 11,450,000 shares of Common Stock
representing the estimated maximum number of shares of Common Stock, based
on the November 8, 1995 closing sale price of the Common Stock on the
Japanese over-the-counter market of Y3,860 and the noon buying rate in New
York City on November 8, 1995 for cable transfers in yen, as announced for
customs purposes by the Federal Reserve Bank of New York, of $1 = Y102.5, as
shall be deliverable in the form of American Depositary Shares upon exchange
of the PEPS. The maximum number of shares of Common Stock that may be
deliverable upon such exchange is subject to adjustment in accordance with
Rule 416. Since the shares of Common Stock are deliverable only upon the
exchange of the PEPS and a registration fee of $118,965.52 is being paid
with File No. 33-61915 with respect to the PEPS, no further registration fee
with respect to the Common Stock is required pursuant to the provisions of
Rule 457(i).
The Registrants hereby amend these Registration Statements on such date or
dates as may be necessary to delay their effective date until the Registrants
shall file a further amendment which specifically states that these Registration
Statements shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until these Registration Statements shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
EXPLANATORY NOTE
The N-2 Registration Statement relates to the offering of Premium
Exchangeable Participating Shares ("PEPS") (without giving effect to the U.S.
Underwriters' over-allotment option), of which PEPS will be offered in
the United States and Canada and PEPS will be offered internationally
outside the United States and Canada, except Japan. The N-2 Registration
Statement includes the U.S. Prospectus followed by an alternate front cover page
for the International Prospectus.
<PAGE> 3
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEMS IN PARTS A AND B OF FORM N-2 LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Outside Front Cover......................... Front Cover Page
2. Inside Front and Outside Back Cover Page.... Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis...................... Prospectus Summary
4. Financial Highlights........................ Not Applicable
5. Plan of Distribution........................ Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders........................ Not Applicable
7. Use of Proceeds............................. Use of Proceeds; Investment Objectives and
Policies
8. General Description of the Registrant....... Front Cover Page; Prospectus Summary; The
Trust; Investment Restrictions; Investment
Objectives and Policies; Risk Factors and
Special Considerations
9. Management.................................. Management and Administration of the Trust
10. Capital Stock, Long-Term Debt and Other
Securities.................................. Description of PEPS
11. Defaults and Arrears on Senior Securities... Not Applicable
12. Legal Proceedings........................... Not Applicable
13. Table of Contents of the Statement of
Additional Information...................... Not Applicable
14. Cover Page.................................. Not Applicable
15. Table of Contents........................... Not Applicable
16. General Information and History............. The Trust
17. Investment Objectives and Policies.......... Investment Objectives and Policies;
Investment Restrictions
18. Management.................................. Management and Administration of the Trust
19. Control Person and Principal Holders of
Securities.................................. Management and Administration of the Trust
20. Investment Advisory and Other Services...... Management and Administration of the Trust
21. Brokerage Allocation and Other Practices.... Investment Objectives and Policies
22. Tax Status.................................. Federal Income Tax Considerations
23. Financial Statement......................... AJL PEPS Trust -- Statement of Assets and
Liabilities
</TABLE>
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* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item, so numbered in Part C of the N-2
Registration Statement.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued November 9, 1995
$300,000,000
PEPS sm
AJL PEPS Trust
$ . PREMIUM EXCHANGEABLE PARTICIPATING SHARES - PEPS sm
(Subject to Exchange for American Depositary Shares Representing
Shares of Common Stock, No Par Value, of Amway Japan Limited or Shares of Such
Common Stock)
------------------------
EACH OF THE SHARES ($ . PREMIUM EXCHANGEABLE PARTICIPATING SHARES, OR "PEPS")
OF THE AJL PEPS TRUST (THE "TRUST") REPRESENTS THE RIGHT TO RECEIVE AN ANNUAL
DISTRIBUTION OF $ , AND WILL BE EXCHANGED ON FEBRUARY 15, 1999 (THE
"EXCHANGE DATE") FOR BETWEEN 0.XX AND 1.XX AMERICAN DEPOSITARY SHARES ("ADSS,"
AND EACH, AN "ADS") REPRESENTING SHARES OF COMMON STOCK, NO PAR VALUE (THE
"COMMON STOCK") OF AMWAY JAPAN LIMITED (THE "COMPANY"), OR, AT THE OPTION OF
A HOLDER, THE EQUIVALENT IN SHARES OF COMMON STOCK. EACH ADS REPRESENTS ONE-
HALF OF ONE SHARE OF COMMON STOCK. THE ANNUAL DISTRIBUTION OF $ PER PEPS
IS PAYABLE QUARTERLY ON EACH FEBRUARY 15, MAY 15, AUGUST 15 AND NOVEMBER
15, COMMENCING FEBRUARY 15, 1996. THE PEPS ARE NOT SUBJECT TO REDEMPTION.
THE TRUST IS A NEWLY ORGANIZED, 3 1/4-YEAR TRUST ESTABLISHED TO PURCHASE AND
HOLD A PORTFOLIO OF STRIPPED U.S. TREASURY SECURITIES MATURING ON A QUARTERLY
BASIS THROUGH THE EXCHANGE DATE, AND FORWARD CONTRACTS (THE "CONTRACTS") WITH
TWO EXISTING SHAREHOLDERS (THE "SELLERS") OF THE COMPANY RELATING TO THE ADSS.
OF THE PEPS OFFERED HEREBY, PEPS ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS AND PEPS ARE BEING OFFERED
INITIALLY INTERNATIONALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITING."
THE TRUST'S INVESTMENT OBJECTIVES ARE TO PROVIDE EACH HOLDER WITH A QUARTERLY
DISTRIBUTION OF $ . PER PEPS, AND TO PROVIDE THE HOLDER OF EACH PEPS, ON OR
SHORTLY AFTER THE EXCHANGE DATE, ADSS (OR, AT THE OPTION OF A HOLDER, THE
EQUIVALENT IN SHARES OF COMMON STOCK) EQUAL TO (I) IF THE EXCHANGE PRICE PER
ADS IS LESS THAN $ (THE "THRESHOLD APPRECIATION PRICE") BUT EQUAL TO OR
GREATER THAN $ (THE "DOWNSIDE PROTECTION THRESHOLD PRICE"), A NUMBER (OR
FRACTIONAL NUMBER) OF ADSS PER PEPS SO THAT THE VALUE THEREOF AT THE
EXCHANGE PRICE EQUALS $ (THE "INITIAL VALUE"), (II) IF THE EXCHANGE
PRICE PER ADS IS EQUAL TO OR GREATER THAN THE THRESHOLD APPRECIATION
PRICE, 0.XX ADSS PER PEPS AND (III) IF THE EXCHANGE PRICE PER ADS IS LESS
THAN THE DOWNSIDE PROTECTION THRESHOLD PRICE, 1.XX ADSS PER PEPS. HOLDERS
OTHERWISE ENTITLED TO RECEIVE FRACTIONAL ADSS OR FRACTIONAL SHARES OF
COMMON STOCK IN RESPECT OF THEIR AGGREGATE HOLDINGS OF PEPS WILL
RECEIVE CASH IN LIEU THEREOF. THE EXCHANGE PRICE PER ADS MEANS
GENERALLY THE AVERAGE ADS EQUIVALENT PRICE (AS DEFINED HEREIN) FOR THE
20 TRADING DAYS (AS DEFINED HEREIN) IMMEDIATELY PRIOR TO (BUT NOT
INCLUDING) THE EXCHANGE DATE.
THE YIELD ON PEPS IS HIGHER THAN THE ACTUAL (I.E., REGULAR PLUS SPECIAL)
DIVIDEND YIELD ON THE ADSS. HOWEVER, THERE IS NO ASSURANCE THAT THE YIELD ON
THE PEPS WILL BE HIGHER THAN THE DIVIDEND YIELD ON THE ADSS OVER THE LIFE OF
THE TRUST. IN ADDITION, THE OPPORTUNITY FOR EQUITY APPRECIATION AFFORDED BY AN
INVESTMENT IN THE PEPS IS LESS THAN THAT AFFORDED BY AN INVESTMENT IN THE ADSS
BECAUSE THE VALUE OF THE ADSS RECEIVABLE BY HOLDERS OF THE PEPS UPON EXCHANGE
AT THE EXCHANGE DATE WILL ONLY EXCEED THE INITIAL VALUE IF THE EXCHANGE
PRICE EXCEEDS THE THRESHOLD APPRECIATION PRICE, WHICH REPRESENTS AN
APPRECIATION OF % OF THE INITIAL VALUE. MOREOVER, BECAUSE A HOLDER OF
EACH PEPS WILL ONLY RECEIVE 0.XX ADSS IF THE EXCHANGE PRICE EXCEEDS THE
THRESHOLD APPRECIATION PRICE, HOLDERS OF THE PEPS WILL ONLY BE ENTITLED TO
RECEIVE UPON EXCHANGE % OF ANY APPRECIATION OF THE VALUE OF THE ADSS IN
EXCESS OF THE THRESHOLD APPRECIATION PRICE. ALTHOUGH THE VALUE OF THE
ADSS RECEIVABLE BY A HOLDER OF PEPS UPON EXCHANGE AT THE EXCHANGE DATE
MAY BE LESS THAN THE AMOUNT PAID BY THE HOLDER, UNLIKE THE ADSS, AN
INVESTMENT IN PEPS AFFORDS PROTECTION FROM DEPRECIATION OF THE ADSS TO
THE EXTENT THAT THE EXCHANGE PRICE DOES NOT FALL BELOW THE DOWNSIDE
PROTECTION THRESHOLD PRICE. IN THE EVENT THE EXCHANGE PRICE IS LESS
THAN THE DOWNSIDE PROTECTION THRESHOLD PRICE, HOLDERS WILL RECEIVE
1.XX ADSS PER PEPS AND ACCORDINGLY WILL HAVE ONLY LIMITED PROTECTION
FROM DEPRECIATION BELOW % OF THE INITIAL VALUE.
(continued on following page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE $ A PEPS
<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC LOAD(1) THE TRUST(2)
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<S> <C> <C> <C>
Per PEPS................. $ $ $
Total (3)................ $ $ $
</TABLE>
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(1) The Company and an affiliate of the Sellers have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated offering expenses of $655,000 payable by the
Trust.
(3) The Trust has granted to the U.S. Underwriters an option for 30 days to
purchase up to an additional PEPS at the price to the public less
underwriting discount, solely to cover over-allotments. If the option is
exercised in full, the total Price to Public, Sales Load and Proceeds to the
Trust will be $ , $ and $ , respectively. See "Underwriting."
------------------------
The PEPS are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Davis Polk &
Wardwell, counsel for the Underwriters. It is expected that delivery of the PEPS
will be made on or about November , 1995 at the office of Morgan Stanley & Co.
Incorporated, New York, New York, against payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO. MERRILL LYNCH & CO.
Incorporated
November , 1995
<PAGE> 5
The Trust's portfolio will not be managed in the traditional sense. The
Trust's management powers will be limited to the disposition of the Contracts in
certain limited circumstances. The Trust may continue to hold the Contracts
despite a significant decline in the market price of the ADSs or the Common
Stock or adverse changes in the financial condition of the Company. The address
of the Trust is 101 Barclay Street, New York, New York 10286 (telephone no.
(212) 815-3199). Investors are advised to read this Prospectus and to retain it
for future reference.
PEPS may be a suitable investment for those investors who are able to
understand the unique nature of the Trust and the economic characteristics of
the Contracts and the U.S. Treasury securities held by the Trust.
The Trust will be a grantor trust for federal income tax purposes and each
holder will be treated as the owner of its pro rata portion of the U.S. Treasury
securities and the Contracts. The U.S. Treasury securities will be treated as
having "original issue discount" which holders must recognize currently as
income as it accrues. Holders will not recognize income, gain or loss upon the
Trust's entry into the Contracts nor will the delivery of ADSs pursuant to the
Contracts be taxable to holders. Although the matter is not free from doubt,
holders should not recognize income, gain or loss with respect to the Contracts
over their term. See "Federal Income Tax Considerations."
The Company is not affiliated with the Trust.
THE PEPS HAVE BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE UPON
NOTICE OF ISSUANCE UNDER THE SYMBOL "AJP." PRIOR TO THIS OFFERING THERE HAS BEEN
NO PUBLIC MARKET FOR THE PEPS.
TYPICAL CLOSED-END FUND SHARES FREQUENTLY TRADE AT A PREMIUM TO OR DISCOUNT
FROM NET ASSET VALUE. BASED ON ITS ASSETS AND THE MARKET IN WHICH THE PEPS ARE
EXPECTED TO TRADE, THE TRUST BELIEVES THE PEPS ARE UNLIKELY TO TRADE AT A
PREMIUM TO OR DISCOUNT FROM NET ASSET VALUE. THE TRUST BELIEVES, HOWEVER, THAT
BECAUSE OF THE YIELD ON THE PEPS AND THE FORMULA FOR DETERMINING THE NUMBER OF
ADSS TO BE DELIVERED ON THE EXCHANGE DATE, THE PEPS WILL TEND TO TRADE AT A
PREMIUM TO THE MARKET VALUE OF THE ADSS TO THE EXTENT THE ADS PRICE FALLS AND AT
A DISCOUNT TO THE MARKET VALUE OF THE ADSS TO THE EXTENT THE ADS PRICE RISES.
"PEPS" and "Premium Exchangeable Participating Shares" are service marks of
Morgan Stanley & Co. Incorporated.
The closing sale price of the ADSs on the New York Stock Exchange on
November 8, 1995 was $18.375 per ADS. The closing sale price of the Common Stock
on the Japanese over-the-counter market on November 8, 1995 was Y3,860 or $37.66
per share (based on the noon buying rate in New York City on November 8, 1995
for cable transfers in yen, as announced for customs purposes by the Federal
Reserve Bank of New York of $1 = Y102.5).
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON
TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL DECEMBER , 1995 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE PEPS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary.................................................................................. 3
The Trust........................................................................................... 9
Use of Proceeds..................................................................................... 9
Investment Objectives and Policies.................................................................. 9
Investment Restrictions............................................................................. 17
Risk Factors and Special Considerations............................................................. 18
Description of the PEPS............................................................................. 20
Management and Administration of the Trust.......................................................... 20
Federal Income Tax Considerations................................................................... 23
Underwriting........................................................................................ 26
Legal Matters....................................................................................... 29
Experts............................................................................................. 29
Additional Information.............................................................................. 29
Independent Auditors' Report........................................................................ 30
Statement of Assets and Liabilities................................................................. 31
Appendix A: Prospectus of Amway Japan Limited
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PEPS OR THE
ADSS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
This summary of the provisions relating to the PEPS does not purport to be
complete and is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus. Certain terms used in this summary are defined
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes that the U.S. Underwriters' over-allotment option with
respect to the PEPS is not exercised.
THE TRUST
The Trust is a newly organized, 3 1/4-year trust. The Trust will be
registered as a non-diversified closed-end management investment company under
the Investment Company Act of 1940 (the "Investment Company Act"). Under
provisions of the Internal Revenue Code of 1986, as amended (the "Code")
applicable to grantor trusts, the Trustees will not have the power to vary the
investments held by the Trust. Accordingly, the Trust's portfolio will not be
managed in the traditional sense. The Trust's management powers will be
restricted to the disposition of the Contracts in certain limited circumstances.
See "Management and Administration of the Trust -- Trustees." Any proceeds
resulting from the disposition of a Contract will not be reinvested but will be
distributed to holders of the PEPS ("Holders").
THE OFFERING
The Trust is offering PEPS to the public at a purchase price of $
per PEPS through a group of underwriters (the "Underwriters") lead managed in
the U.S. and Canada by Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated and lead managed internationally by Morgan
Stanley & Co. International Limited and Merrill Lynch International Limited. In
addition, the U.S. Underwriters have been granted options to purchase up to
additional PEPS solely for the purpose of covering over-allotments. See
"Underwriting."
GENERAL
The PEPS are designed to provide investors with a higher distribution per
PEPS than the actual (i.e., regular plus special) dividends currently paid per
ADS in respect of the Company's 1995 fiscal year and anticipated to be paid in
respect of the Company's 1996 fiscal year. The annual calendar year distribution
on the PEPS is $ per share. For fiscal year 1995, the Company has paid a
regular interim dividend of Y22.5 per ADS ($0.23) and a special interim dividend
of Y25 per ADS ($0.256), and has announced its intention to pay, subject to
legal and other factors, a regular year-end dividend of Y22.5 per ADS ($0.23)
and a special year-end dividend of Y25 per ADS ($0.256) which would cause actual
dividends in respect of the Company's 1995 fiscal year to equal Y95 per ADS
($0.97). The Company has also announced its intention to increase the rate of
its regular semi-annual dividends with respect to fiscal year 1996 to Y25 per
ADS ($0.256) from Y22.5 per ADS ($0.23) for fiscal year 1995 and to pay a
special interim dividend with respect to fiscal 1996 in May 1996 of Y12.5 per
ADS ($0.128). The Company has not announced any present intention to pay a
special year-end dividend with respect to fiscal year 1996. If paid as proposed,
the actual dividends in respect of fiscal year 1996 would be Y62.5 per ADS
($0.64). See "Dividends and Dividend Policy" in the prospectus of the Company
attached as Appendix A (the "Company Prospectus"). The dollar values of the
foregoing yen dividend rates are based on the noon buying rate in New York City
on August 31, 1995 for cable transfers in yen, as announced for customs purposes
by the Federal Reserve Bank of New York of $1=Y97.75). Future declarations of
dividends on the ADSs by the Company and the amount of such dividends are
discretionary with its Board of Directors and subject to legal and other
factors. Such future declarations will necessarily depend on the Company's
future earnings, financial condition, capital requirements and other factors.
The Trust will not be entitled to any dividends that may be declared on the
ADSs.
The yield on PEPS is higher than the actual (i.e., regular plus special)
dividend yield on the ADSs. However, there is no assurance that the yield on the
PEPS will be higher than the dividend yield on the ADSs over the life of the
Trust. In addition, the opportunity for equity appreciation afforded by an
investment in the PEPS is less than that afforded by an investment in the ADSs
because the value of the ADSs (or shares of
3
<PAGE> 7
Common Stock) receivable by a Holder upon exchange at the Exchange Date will
only exceed the Initial Value if the Exchange Price exceeds the Threshold
Appreciation Price, which represents an appreciation of % of the Initial
Value. Moreover, because a holder of each PEPS will only receive 0.xx ADSs if
the Exchange Price exceeds the Threshold Appreciation Price, holders of the PEPS
will only be entitled to receive upon exchange % of any appreciation of the
value of the ADSs in excess of the Threshold Appreciation Price. Although the
value of the ADSs (or shares of Common Stock) receivable by a Holder upon
exchange at the Exchange Date may be less than the amount paid by the Holder,
unlike the ADSs, an investment in PEPS affords protection from depreciation of
the ADSs to the extent that the Exchange Price does not fall below the Downside
Protection Threshold Price. In the event the Exchange Price is less than the
Downside Protection Threshold Price, Holders will receive 1.xx ADSs per PEPS and
accordingly will have only limited protection from depreciation below % of the
Initial Value. See "Investment Objectives and Policies -- Enhanced Yield;
Limited Depreciation Protection; Less Equity Appreciation than Common Stock."
DISTRIBUTIONS
The Holders are entitled to receive distributions at the rate per PEPS of
$ per annum or $ per quarter, payable quarterly on each February 15, May
15, August 15 and November 15 or, if any such date is not a business day, on the
next succeeding business day, to Holders of record as of each February 1, May 1,
August 1 and November 1, respectively. The first distribution will be payable on
February 15, 1996 to Holders of record as of February 1, 1996. See "Investment
Objectives and Policies -- Trust Assets."
MANDATORY EXCHANGE
On the Exchange Date, each outstanding PEPS will be exchanged automatically
for between 0.xx and 1.xx ADSs, subject to adjustment in the event of certain
dividends or distributions, subdivisions, splits, combinations, issuances of
certain rights or warrants, distributions of certain assets with respect to the
Common Stock or certain purchases by the Company of Common Stock or ADSs. In the
event of a merger of the Company into another entity, or the liquidation of the
Company, or in certain related events, Holders of the PEPS would receive
consideration in the form of cash, Marketable Common Stock (as defined under
"Investment Objectives and Policies -- The Contracts -- Dilution Adjustments")
or a combination thereof, rather than ADSs. Additionally, the occurrence of
certain defaults by the Sellers under the Contracts or the related collateral
arrangements would cause the acceleration of the Contracts and the exchange of
each PEPS for an amount of ADSs (or Marketable Common Stock), cash or a
combination thereof, in respect of the ADSs. See "Investment Objectives and
Policies -- The Contracts." In lieu of receiving ADSs on the Exchange Date, each
Holder will have the option, upon prior written notice to the Administrator, to
receive the equivalent in shares of Common Stock, subject to certain
restrictions. See "Investment Objectives and Policies -- Delivery of ADSs; No
Fractional ADSs; Option to Elect Shares of Common Stock."
VOTING RIGHTS
The Holders will have the right to vote on matters affecting the Trust, as
described under "Description of the PEPS," but will not have voting rights with
respect to the Common Stock or the ADSs prior to receipt of the ADSs or shares
of Common Stock by Holders as a result of the exchange of the PEPS for ADSs or
shares of Common Stock on the Exchange Date. See "Investment Objectives and
Policies -- The Company" and "Description of the PEPS." See also "Description of
Capital Stock -- Japanese Unit Share System" and "-- Voting Rights" and
"Description of American Depositary Receipts -- Voting of Deposited Securities"
in the Company Prospectus.
THE COMPANY
Amway Japan Limited is the exclusive distribution vehicle for Amway
Corporation in Japan. The Company, which has a 16 year operating history,
believes that it is one of the largest direct selling businesses in Japan as
measured by its fiscal 1995 net sales of Y 178.0 billion (U.S. $1.8 billion) and
net income of Y 23.1 billion (U.S. $235.3 million) and approximately 980,000
independent distributors who renewed their distributorships from the prior
fiscal year. Reference is made to the Company Prospectus which describes the
4
<PAGE> 8
Company (including financial matters) and the ADSs and the Common Stock,
deliverable to Holders upon mandatory exchange of the PEPS on the Exchange Date.
The Company is not affiliated with the Trust and will not receive any of the
proceeds from the sale of the PEPS.
ASSETS OF THE TRUST; INVESTMENT OBJECTIVES AND POLICIES
The Trust will purchase and hold a portfolio of stripped U.S. Treasury
securities maturing on a quarterly basis through the Exchange Date and Contracts
with the Sellers relating to the ADSs. It is the Trust's investment objective to
provide to each Holder, on or shortly after the Exchange Date, ADSs (or, at the
option of a Holder, the equivalent in shares of Common Stock) equal to (i) if
the Exchange Price (as defined herein) per ADS is less than the Threshold
Appreciation Price but equal to or greater than the Downside Protection
Threshold Price, a number (or fractional number) of ADSs per PEPS so that the
value thereof at the Exchange Price equals the Initial Value, (ii) if the
Exchange Price per ADS is equal to or greater than the Threshold Appreciation
Price, 0.xx ADSs per PEPS and (iii) if the Exchange Price per ADS is less than
the Downside Protection Threshold Price, 1.xx ADS per PEPS. Holders otherwise
entitled to receive fractional ADSs (or fractional shares of Common Stock) in
respect of their aggregate holdings of PEPS will receive cash in lieu thereof.
See "Investment Objectives and Policies -- Delivery of ADSs; No Fractional ADSs;
Option to Elect Shares of Common Stock." It is also the Trust's investment
objective to provide each Holder with a quarterly distribution of $ per
PEPS, equal to the pro rata portion of the quarterly cash distributions from the
cash received from the U.S. Treasury securities.
The Trust will enter into forward contracts (the "Contracts") with two
shareholders of the Company (the "Sellers") obligating the Sellers, severally
and not jointly, on the Exchange Date, to deliver to the Trust ADSs in
the aggregate, except that (i) if the Exchange Price per ADS is less than the
Threshold Appreciation Price but equal to or greater than the Downside
Protection Threshold Price, each Seller will be obligated to deliver under its
Contract ADSs with an aggregate value equal to the product of the Initial Value
times the initial number of ADSs subject to such Contract, (ii) if the Exchange
Price per ADS is equal to or greater than the Threshold Appreciation Price, each
Seller will be obligated to deliver under its Contract ADSs equal to the product
of 0.xx times the initial number of ADSs subject to such Contract and (iii) if
the Exchange Price per share of Common Stock is less than the Downside Threshold
Protection Price, each Seller will be obligated to deliver under its Contract
ADSs representing a number of shares of Common Stock equal to the product of
1.xx times the initial number of ADSs subject to such Contract. This provides
the Trust with the potential for a portion of any capital appreciation above the
Threshold Appreciation Price on the ADSs, and limited protection from
depreciation of the ADSs. The purchase price under the Contracts is equal to
$ per ADS and $ in the aggregate and is payable to the Sellers
by the Trust on the closing of this offering.
The obligations of each Seller under its Contract will be secured by a
pledge of ADSs or, at the election of the Sellers, by substitute collateral
consisting of U.S. Government obligations. See "Investment Objectives and
Policies -- The Contracts."
FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be taxable as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury securities
and the Contracts, and income received (including original issue discount
treated as received) by the Trust will generally be treated as income of the
Holders.
The U.S. Treasury securities held by the Trust will be treated for federal
income tax purposes as having "original issue discount" which will accrue over
the term of the U.S. Treasury securities. It is currently anticipated that a
substantial portion of each quarterly cash distribution to the Holders will be
treated as a tax-free return of the Holders' costs of the U.S. Treasury
securities and therefore will not be considered current income for federal
income tax purposes. However, a Holder (whether on the cash or accrual method of
tax accounting) must recognize currently as income original issue discount on
the U.S. Treasury securities as it
5
<PAGE> 9
accrues. It is also expected that the tax-free portion of each quarterly cash
distribution will increase as a percentage of the total distribution during the
life of the Trust.
Under existing law, a Holder will not recognize income, gain or loss upon
the Trust's entry into the Contracts and should not recognize income, gain or
loss with respect to the Contracts over their term. Holders should be aware that
no published authorities directly address the characterization of the Contracts
and that it is possible that the Internal Revenue Service ("IRS") will assert
that a Holder should include in income over the term of the Contracts additional
amounts which together with the original issue discount on such Holder's pro
rata portion of the U.S. Treasury securities should not exceed the aggregate
amount of the quarterly cash distributions to such Holder. The delivery of ADSs
to the Trust pursuant to the Contracts will not be taxable to the Holders. The
distribution of ADSs or Common Stock upon the termination of the Trust will not
be taxable to the Holders. A Holder will have taxable gain or loss upon receipt
of cash in lieu of fractional ADSs or shares of Common Stock distributed upon
termination of the Trust. Each Holder's aggregate basis in its ADSs or shares of
Common Stock (or combination thereof) will be equal to its basis in its pro rata
portion of the Contracts less the portion of such basis allocable to any
fractional ADSs or shares of Common Stock for which cash is received. See
"Federal Income Tax Considerations."
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The administration of the Trust will be overseen by three Trustees. The
day-to-day administration of the Trust will be carried out by The Bank of New
York (or its successor) as trust administrator (the "Administrator"). The Bank
of New York (or its successor) will also act as custodian for the Trust's assets
(the "Custodian") and as paying agent, registrar and transfer agent (the "Paying
Agent") with respect to the PEPS. Except as aforesaid, and except for its role
as Collateral Agent under the Trust's Collateral Agreements (see "Investment
Objectives and Policies -- The Contracts -- Collateral Arrangements;
Acceleration"), The Bank of New York has no other affiliation with, and is not
engaged in any other transaction with, the Trust. See "Management and
Administration of the Trust."
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after the Exchange
Date. Promptly after the Exchange Date, the ADSs (or shares of Common Stock) to
be exchanged for the PEPS and other remaining Trust assets, if any, will be
distributed pro rata to Holders. See "Investment Objectives and Policies --
Trust Termination."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The Trust will not be managed in the traditional sense. The Trust may
continue to hold the Contracts despite a significant decline in the market price
of the ADSs or the Common Stock or adverse changes in the financial condition of
the Company. However, the Trustees will have the power, but not the obligation,
to sell Contracts only in the limited circumstances of (a) a decline in the ADS
Equivalent Price of the ADSs to less than 50% of the Initial Value, on an
as-adjusted basis, or (b) the bankruptcy or insolvency of the Company. Proceeds
from any sale of a Contract will not be reinvested but will be distributed pro
rata to Holders. In the event of such a sale of the Contracts and distribution
of proceeds, the U.S. Treasury securities remaining in the Trust will be
liquidated, the proceeds distributed pro rata to Holders and the Trust
terminated. See "Risk Factors and Special Considerations -- Limited Management"
and "Management and Administration of the Trust -- Trustees."
The yield on the PEPS is higher than the actual (i.e., regular plus
special) dividend yield on the ADSs. However, there is no assurance that the
yield on the PEPS will be higher than the dividend yield on the ADSs over the
life of the Trust. In addition, the opportunity for equity appreciation afforded
by an investment in the PEPS is less than that afforded by an investment in the
ADSs because the value per PEPS of the ADSs (or shares of Common Stock)
receivable by Holders of the PEPS upon exchange at the Exchange Date will only
exceed the Initial Value if the Exchange Price per ADS exceeds the Threshold
Appreciation Price, which represents an appreciation of % of the Initial
Value. Moreover, because a holder of each PEPS will only
6
<PAGE> 10
receive 0.xx ADSs if the Exchange Price per ADS exceeds the Threshold
Appreciation Price, holders of the PEPS will only be entitled to receive upon
exchange % of any appreciation of the value of the ADSs in excess of the
Threshold Appreciation Price. Although the value of the ADSs (or shares of
Common Stock) receivable by a Holder upon exchange at the Exchange Date may be
less than the amount paid by the Holder, unlike the ADSs, an investment in PEPS
affords protection from depreciation of the ADSs to the extent that the Exchange
Price per ADS does not fall below the Downside Protection Threshold Price. In
the event the Exchange Price per ADS is less than the Downside Protection
Threshold Price, Holders will receive 1.xx ADSs per PEPS and accordingly will
not be protected from depreciation below % of the Initial Value. See
"Investment Objectives and Policies -- Enhanced Yield; Limited Depreciation
Protection; Less Equity Appreciation than Common Stock."
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only securities held by the Trust will
be the U.S. Treasury securities and the Contracts, the Trust may be subject to
greater risk than would be the case for an investment company with more
diversified investments. See "Investment Objectives and Policies" and "Risk
Factors and Special Considerations -- Non-Diversified Status."
Fluctuations in the rate of exchange between the yen and the U.S. dollar
will affect the ADS Equivalent Price and are likely to affect the market price
of ADSs in the United States. See "Risk Factors and Special
Considerations -- Exchange Rates."
No published authorities directly address the characterization of the
Contracts for U.S. federal income tax purposes. As a result, there can be no
assurance that Holders will not be required to recognize income with respect to
the Contracts over their term. See "Federal Income Tax Considerations."
LISTING
The PEPS have been approved for listing on the New York Stock Exchange upon
notice of issuance under the symbol "AJP."
FEES AND EXPENSES
The public offering price of the PEPS includes an underwriting discount
payable by the Trust to the Underwriters of %. Estimated organization costs of
the Trust in the amount of $ and estimated costs of the Trust in
connection with the initial registration and public offering of the PEPS in the
amount of $ will be paid from the proceeds of the offering of the PEPS.
Each of the Administrator, the Custodian and the Paying Agent, and each Trustee
will be paid by Morgan Stanley & Co. Incorporated ("Morgan Stanley") at the
closing of this offering a one-time, up-front amount in respect of its ongoing
fees and, in the case of the Administrator, anticipated expenses of the Trust
(estimated to be $ in the aggregate), over the term of the Trust.
Morgan Stanley has also agreed to pay any on-going expenses of the Trust in
excess of these estimated amounts and to reimburse the Trust for any amounts it
may be required to pay as indemnification to any Trustee, the Administrator, the
Custodian or the Paying Agent. Morgan Stanley will be reimbursed by the Sellers
for all fees and expenses of the Trust and all reimbursements of
indemnifications paid by it. See "Management and Administration of the Trust --
Estimated Expenses."
Regulations of the Securities and Exchange Commission ("SEC") applicable to
closed-end investment companies designed to assist investors in understanding
the costs and expenses that an investor will bear directly or indirectly require
the presentation of Trust expenses in the following format. Because the Trust
will not bear any ongoing fees or expenses, investors will not bear any direct
expenses and the only expense which
7
<PAGE> 11
investors might be considered to be bearing indirectly is the proportion of the
Sales Load applicable to their PEPS which is payable by the Trust to the
Underwriters from the proceeds of the offering.
<TABLE>
<S> <C>
Investor transaction expenses
Sales load (as a percentage of offering price).............................. %
====
Annual Expenses
Management Fees............................................................. 0%
Other Expenses.............................................................. 0%
----
Total Annual Expenses............................................... 0%
====
</TABLE>
SEC regulations also require that closed-end investment companies present an
illustration of cumulative expenses (both direct and indirect) that an investor
would bear. The example is required to factor in the applicable Sales Load and
to assume, in addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE ASSUMPTION OF A
5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST.
SEE "INVESTMENT OBJECTIVES AND POLICIES -- TRUST ASSETS." ADDITIONALLY, THE
TRUST DOES NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------- -------
<S> <C> <C>
You would pay the following expenses (i.e., the applicable sales load) on
a $1,000 investment, assuming a 5% annual return........................ $ $
</TABLE>
8
<PAGE> 12
THE TRUST
AJL PEPS Trust (the "Trust") is a New York trust formed on August 17, 1995
pursuant to a trust agreement dated as of August 17, 1995, as amended on October
13, 1995, and as amended and restated on November , 1995 (the "Trust
Agreement"). The Trust's portfolio will not be managed in the traditional sense.
USE OF PROCEEDS
The net proceeds of this offering will be used to purchase a fixed
portfolio comprised of U.S. Treasury securities and to pay the purchase price
under the Contracts to the Sellers.
INVESTMENT OBJECTIVES AND POLICIES
TRUST ASSETS
The Trust's investment objectives are to provide each Holder with a
quarterly distribution of $ per PEPS, and to provide the Holder of each
PEPS, on or shortly after the Exchange Date, ADSs representing shares of Common
Stock per PEPS equal to (i) if the Exchange Price per ADS is less than $
(the "Threshold Appreciation Price") but equal to or greater than $ (the
"Downside Protection Threshold Price"), a number (or fractional number) of ADSs
per PEPS so that the value thereof at the Exchange Price equals $ (the
"Initial Value"), (ii) if the Exchange Price per ADS is equal to or greater than
the Threshold Appreciation Price, 0.xx ADSs per PEPS and (iii) if the Exchange
Price per ADS is less than the Downside Protection Threshold Price, 1.xx ADSs
per PEPS. Holders otherwise entitled to receive fractional ADSs (or fractional
shares of Common Stock) in respect of their aggregate holdings of PEPS will
receive cash in lieu thereof. See " -- Delivery of ADSs; No Fractional ADSs;
Option to Elect Shares of Common Stock." The Exchange Price per ADS means the
average ADS Equivalent Price (as defined below) for a Calculation Period (as
defined below) of 20 Trading Days (as defined below) immediately prior to (but
not including) the Exchange Date, provided that if no ADS Equivalent Price may
be determined for one or more (but not all) of such Trading Days, such Trading
Days shall be disregarded in the calculation of the Exchange Price (but no
additional Trading Days shall be added to the Calculation Period). If no ADS
Equivalent Price may be determined for any of such 20 Trading Days, the Exchange
Price shall be the ADS Equivalent Price for the most recent Trading Day prior to
such 20 Trading Days for which a Closing Price for the Common Stock may be
determined pursuant to clause (i), (ii) or (iv) of the definition of "Closing
Price" set forth below. In lieu of ADSs, Holders may elect to receive the
equivalent in shares of Common Stock. See " -- Delivery of ADSs; No Fractional
ADSs; Option to Elect Shares of Common Stock." A policy of the Trust is to
invest at least 65% of its portfolio in, and to be concentrated in, the
Contracts. The foregoing investment objectives and policy are fundamental
policies of the Trust which may not be changed without the approval of a
majority of the Fund's outstanding PEPS. A "majority of the Fund's outstanding
PEPS" means the lesser of (i) 67% of the PEPS represented at a meeting at which
more than 50% of the outstanding PEPS are represented, and (ii) more than 50% of
the outstanding PEPS.
The ADS Equivalent Price on any date of determination means the Closing
Price (as defined below) per share of the Common Stock on such date, times
one-half, divided by the Calculation Exchange Rate (as defined below) on such
date. If the number of shares of Common Stock represented by each ADS is not
one-half share of Common Stock per ADS on the date of determination of the ADS
Equivalent Price, adjustments shall be made to reflect such changes in the
share-to-ADS ratio. The Closing Price of any security on any Trading Day means
(i) the last reported executed trade price (regular way) of such security on the
principal trading market for such security for such date; (ii) if no regular way
executed trade price for such security is reported on the principal trading
market for such security on such date, the average of the closing bid and
offered prices for such security as reported by the principal trading market for
such security; (iii) if no regular way executed trade price or closing bid and
offered prices for such security are reported on the principal trading market
for such security on such date, the Closing Price (as determined in accordance
with clauses (i) or (ii)) for the next succeeding Trading Day (if any) within
the relevant period for which an average price must be determined (a
"Calculation Period") on which the Closing Price may be so determined; or (iv)
if
9
<PAGE> 13
such security is no longer listed or admitted to trading on any exchange or in
any over-the-counter market, the average of the closing bid and offered prices
for such day as furnished by a member firm of the most recent principal trading
market for such security; provided that if any event that results in an
adjustment under the Contracts as described under " -- The Contracts -- Dilution
Adjustments" occurs during any Calculation Period, the Closing Price as
determined pursuant to the foregoing will be appropriately adjusted for each
Trading Day in the Calculation Period occurring prior to the day on which such
adjustment was effected to reflect the occurrence of such event. The Calculation
Exchange Rate on any date of determination means the noon buying rate in New
York City on such date for cable transfers in yen as announced for custom
purposes by the Federal Reserve Bank of New York. A "Trading Day" means, with
respect to any security, a day on which the principal trading market for such
security is open for trading or quotation. The principal trading market for the
Common Stock is currently the Japanese over-the-counter market. If, at any time
when the Closing Price per share of Common Stock shall be required to be
determined, the principal market for the Common Stock shall be a market in ADSs
or other depositary shares or receipts which represent Common Stock, or shall
not be a Japanese market, then appropriate adjustments will be made under the
Contracts in order that (A) the ADS Equivalent Price shall continue to reflect
the value in U.S. dollars of one-half of one full share of Common Stock and (B)
the Then-Current Market Price (as defined below) of the Common Stock shall
continue to reflect the value, in Japanese yen, of one full share of Common
Stock, based on such Closing Price.
The value of the ADSs (or shares of Common Stock) that will be received by
Holders upon exchange of PEPS for ADSs (or shares of Common Stock) on the
Exchange Date may be less than the amount paid for the PEPS offered hereby.
For illustrative purposes only, the following chart shows the number of
ADSs (or shares of Common Stock) that a Holder would receive for each PEPS at
various Exchange Prices. The chart assumes that there would be no adjustments
under the Contracts by reason of the occurrence of any of the events described
under " -- The Contracts -- Dilution Adjustments." There can be no assurance
that the Exchange Price will be within the range set forth below. Given the
Initial Value of $ per PEPS, the Threshold Appreciation Price of $
and the Downside Protection Threshold Price of $ , a Holder would receive
in connection with the exchange of PEPS on the Exchange Date the following
number of ADSs or shares of Common Stock:
<TABLE>
<CAPTION>
EXCHANGE PRICE NUMBER OF SHARES
OF ADSS NUMBER OF ADSS OF COMMON STOCK
- -------------- --------------- -----------------
<S> <C> <C>
</TABLE>
The following table sets forth information regarding the distributions to
be received on the U.S. Treasuries, the portion of each year's distributions
that will constitute a return of capital for federal income tax purposes and the
amount of original issue discount accruing on the U.S. Treasuries with respect
to a Holder who acquires its PEPS at the issue price from an Underwriter
pursuant to the original offering. See "Federal Income Tax Considerations."
10
<PAGE> 14
<TABLE>
<CAPTION>
ANNUAL
ANNUAL GROSS INCLUSION OF
ANNUAL GROSS DISTRIBUTIONS ORIGINAL ISSUE
DISTRIBUTIONS FROM ANNUAL RETURN DISCOUNT
FROM U.S. TREASURIES OF CAPITAL IN INCOME
YEAR U.S. TREASURIES PER PEPS PER PEPS PER PEPS
- ----- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
1995 $ $ $ $
1996
1997
1998
</TABLE>
The annual distribution of $ per PEPS is payable quarterly on each
February 15, May 15, August 15 and November 15, commencing February 15, 1996.
Quarterly distributions on the PEPS will consist solely of the cash received
from the U.S. Treasury securities. The Trust will not be entitled to any
dividends that may be declared on the Common Stock. See "Management and
Administration of the Trust -- Distributions."
ENHANCED YIELD; LIMITED DEPRECIATION PROTECTION; LESS EQUITY APPRECIATION THAN
COMMON STOCK
Distributions will be paid on the PEPS at a higher rate than the rate at
which dividends are currently paid on the ADSs. However, there is no assurance
that the yield on the PEPS will be higher than the dividend yield on the ADSs
over the life of the Trust. In addition, the opportunity for equity appreciation
afforded by an investment in the PEPS is less than that afforded by an
investment in the ADSs because the value of the ADSs (or shares of Common Stock)
receivable by holders upon exchange at the Exchange Date will only exceed the
Initial Value if the Exchange Price exceeds the Threshold Appreciation Price,
which represents an appreciation of % of the Initial Value. Moreover, because
a Holder will only receive 0.xx ADSs if the Exchange Price exceeds the Threshold
Appreciation Price, Holders will only be entitled to receive upon exchange %
(the percentage equal to the Initial Value divided by the Threshold Appreciation
Price) of any appreciation of the value of the ADSs in excess of the Threshold
Appreciation Price. Although the value of the ADSs (or shares of Common Stock)
receivable by a Holder upon exchange at the Exchange Date may be less than the
amount paid by the Holder, unlike the ADSs, an investment in PEPS affords
protection from depreciation of the ADSs to the extent that the Exchange Price
does not fall below the Downside Protection Threshold Price. In the event the
Exchange Price is less than the Downside Protection Threshold Price, Holders
will receive 1.xx ADSs per PEPS and accordingly will have only limited
protection from depreciation below % of the Initial Value.
THE COMPANY
Amway Japan Limited is the exclusive distribution vehicle for Amway
Corporation in Japan. The Company, which has a 16 year operating history,
believes that it is one of the largest direct selling businesses in Japan as
measured by its fiscal 1995 net sales of Y178.0 billion (U.S. $1.8 billion) and
net income of Y23.1 billion (U.S. $235.3 million) and approximately 980,000
independent distributors who renewed their distributorships from the prior
fiscal year. The principal executive offices of the Company are currently
located at ARCO Tower, 8-1, Shimomeguro 1-chome, Meguro-Ku, Tokyo 153, telephone
number (813) 5434-8484.
Reference is made to the Company Prospectus which describes the Company
(including financial matters) and the ADSs and the Common Stock, deliverable to
Holders upon mandatory exchange of the PEPS on the Exchange Date. The Company is
not affiliated with the Trust and will not receive any of the proceeds from the
sale of the PEPS.
Holders will not be entitled to rights with respect to the ADSs or the
Common Stock (including, without limitation, voting rights and rights to receive
dividends or other distributions in respect thereof) until receipt of ADSs or
shares of Common Stock by Holders of PEPS as a result of the exchange of the
PEPS for ADSs or Common Stock on the Exchange Date. See "Description of Capital
Stock" and "Description of American Depositary Receipts" in the Company
Prospectus.
11
<PAGE> 15
The shares of Common Stock are traded on the Japanese over-the-counter
market. The ADSs are listed on the New York Stock Exchange. Information
regarding market prices of the Common Stock and the ADSs and trading volume of
the ADSs appears under the caption "Market Information" in the accompanying
Company prospectus.
THE CONTRACTS
General. The Trust will enter into one or more Contracts with the Sellers
obligating each Seller, severally and not jointly, to deliver to the Trust on
the Exchange Date a number of ADSs equal to the initial number of ADSs subject
to such Seller's Contract times a ratio (the "Exchange Ratio"). The aggregate
initial number of ADSs under the Contracts will equal the aggregate number of
PEPS offered hereunder. The Exchange Ratio under each Contract will equal, at
the Exchange Date (i) if the Exchange Price per ADS is less than the Threshold
Appreciation Price but equal to or greater than the Downside Protection
Threshold Price, the Initial Value divided by the Exchange Price per ADS, (ii)
if the Exchange Price per ADS is equal to or greater than the Threshold
Appreciation Price, 0.xx and (iii) if the Exchange Price per ADS is less than
the Downside Protection Threshold Price, 1.xx. For the purpose of the preceding
clause (i), the Exchange Ratio will be rounded upward or downward to the nearest
1/10,000th (or, if there is not a nearest 1/10,000th, to the next lower
1/10,000th). The purchase price of the Contracts was arrived at by arms' length
negotiation between the Trust and the Sellers taking into consideration factors
including the price, expected dividend level and volatility of the Common Stock,
current interest rates, the term of the Contracts, current market volatility
generally, the collateral security pledged by the Sellers, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the PEPS. All matters relating to the administration of the Contracts will be
the responsibility of either the Administrator or the Custodian.
Dilution Adjustments. The Exchange Ratio is subject to adjustment if the
Company shall (i) pay a stock dividend or make a distribution with respect to
the Common Stock in shares of such stock, (ii) subdivide or split its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its shares of Common Stock
any shares of common stock of the Company. In any such event, the Exchange Ratio
shall be multiplied by the number of shares of common stock (or fraction
thereof) that a holder who held one share of Common Stock immediately prior to
such event would be entitled solely by reason of such event to hold immediately
after such event.
In addition, if the Company shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Then-Current Market Price of the Common
Stock (as defined below) (other than rights to purchase Common Stock pursuant to
a plan for the reinvestment of dividends or interest) then the Exchange Ratio
shall be multiplied by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding immediately prior to the time the adjustment
is effected for the issuance of such rights or warrants plus the number of
additional shares offered for subscription or purchase pursuant to such rights
or warrants, and of which the denominator shall be the number of shares of
Common Stock outstanding immediately prior to the time such adjustment is
effected plus the number of additional shares which the aggregate offering price
of the shares so offered for subscription or purchase would purchase at the
Then-Current Market Price. To the extent that, after expiration of such rights
or warrants, the shares offered thereby shall not have been delivered, the
Exchange Ratio shall be readjusted to the Exchange Ratio that would then be in
effect had the foregoing adjustment been made upon the basis of delivery of only
the number of shares of Common Stock actually delivered. The "Then-Current
Market Price" of the Common Stock means the average Closing Price per share of
Common Stock for a Calculation Period of 5 Trading Days immediately prior to the
time such adjustment is effected (or, in the case of an adjustment effected at
the opening of business on the business day following a record date, as
described below, immediately prior to the earlier of the time such adjustment is
effected and the related "ex-date" on which the shares of Common Stock first
trade regular way on their principal market without the right to receive the
relevant dividend, distribution or issuance); provided that if no Closing Price
for the Common Stock may be determined for one or more (but not all) of such
Trading Days, such Trading Day shall be disregarded in the calculation of the
Then-Current Market Price (but no additional Trading Days shall be added to the
Calculation Period). If no Closing Price for the Common Stock may be determined
for
12
<PAGE> 16
any of such Trading Days, the most recently available Closing Price for the
Common Stock prior to such 5 Trading Days shall be the Then-Current Market
Price.
Further, if the Company shall pay a dividend or make a distribution to all
holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any stock dividends or distributions in shares
of Common Stock) or issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in the previous paragraph), then the Exchange Ratio shall be
multiplied by a fraction, of which the numerator shall be the Then-Current
Market Price per share of Common Stock, and the denominator shall be such price
less the fair market value (as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator) of the
portion of such evidences of indebtedness, non-cash assets or rights or warrants
payable in respect of one share of Common Stock.
If the Company distributes cash (other than any Permitted Dividend (as
defined below), special dividends of Y50 and Y25 per share of Common Stock to be
distributed to holders of record on August 31, 1995 and February 28, 1996,
respectively, any cash distributed in consideration of fractional shares of
Common Stock and any cash distributed in a Reorganization Event (as defined
below) ("Excluded Distributions")), by dividend or otherwise, to all holders of
Common Stock or makes an Excess Purchase Payment (as defined below), then the
Exchange Ratio shall be multiplied by a fraction, of which the numerator shall
be the Then-Current Market Price of Common Stock and of which the denominator
shall be such price less the amount of such distribution applicable to one share
of Common Stock which would not be a Permitted Dividend (or in the case of an
Excess Purchase Payment, less the aggregate amount of Excess Purchase Payments
for which adjustment is being made at such time divided by the number of then-
outstanding shares of Common Stock). For purposes of these adjustments, (a)
"Permitted Dividend" means any cash dividends in respect of the Common Stock to
the extent that the per share amount of such dividends does not, in any fiscal
semiannual period, exceed Y 50, and (b) "Excess Purchase Payment" means the
excess, if any, of (i) the cash and the value (as determined by a nationally
recognized independent investment banking firm retained for this purpose by the
Administrator) of all other consideration paid by the Company with respect to
one share of Common Stock acquired in any share repurchase, whether made by the
Company in the open market, by private purchase, by tender offer, exchange offer
or otherwise, over (ii) the Then-Current Market Price of Common Stock.
Notwithstanding the foregoing, the Company may pay up to Y15 billion in respect
of share repurchases without any dilution adjustment under the Contracts being
required, provided that no such purchase involves an Excess Purchase Payment of
more than 5% of the Then-Current Market Price of the Common Stock. For a
discussion of proposed dividends and share repurchases by the Company, see
"Prospectus Summary -- Recent Developments" in the Company Prospectus.
If any adjustment in the Exchange Ratio is made as described above, the
Threshold Appreciation Price, the Initial Value and the Downside Protection
Threshold Price shall also be adjusted, by multiplying each by a fraction, of
which the numerator shall be one and the denominator shall be the fraction or
number by which the Exchange Ratio shall have been multiplied pursuant to such
Exchange Ratio adjustment. In addition, if at any time the number of shares of
Common Stock represented by each ADS shall change, the Exchange Ratio shall be
multiplied by a fraction, of which the numerator shall be one half and the
denominator shall be the number of shares of Common Stock then represented by
each ADS.
Dilution adjustments shall be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day following the record date for determination of holders of Common
Stock entitled to receive such dividend, distribution or issuance or, if the
announcement of any such dividend, distribution or issuance is after such record
date, at the time such dividend, distribution or issuance shall be announced by
the Company; (ii) in the case of any subdivision, split, combination or
reclassification described above, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the Company shall
announce, at or prior to the time it commences the relevant share repurchase,
the repurchase price for shares to be repurchased, on the date of such
announcement; and (iv) in the case of any other Excess Purchase Payment, on the
date that the holders of shares become entitled to payment with respect thereto.
There will be no adjustment under the Contracts in respect of any dividends,
distributions, issuances or repurchases that may be declared or announced after
the Exchange Date. If any announcement or
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declaration of a record date in respect of a dividend, distribution, issuance or
repurchase shall subsequently be cancelled by the Company, or such dividend,
distribution or issuance shall fail to receive requisite approvals or shall fail
to occur for any other reason, or any repurchase shall fail to occur, then the
Exchange Ratio shall be readjusted to the Exchange Ratio that would then be in
effect had adjustment for such dividend, distribution, issuance or repurchase
not been made. All adjustments described herein, including any adjustments to
the ADS Equivalent Price as described in " -- Trust Assets," shall be rounded
upward or downward to the nearest 1/10,000th (or if there is not a nearest
1/10,000th, to the next lower 1/10,000th). No adjustment in the Exchange Ratio
shall be required unless such adjustment would require an increase or decrease
of at least one percent therein; provided, however, that any adjustments which
by reason of the foregoing are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
In the event of (A) any consolidation or merger of the Company, or any
surviving entity or subsequent surviving entity of the Company (a "Company
Successor"), with or into another entity (other than a merger or consolidation
in which the Company is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is not exchanged
for cash, securities or other property of the Company or another corporation),
(B) any sale, transfer, lease or conveyance to another corporation of the
property of the Company or any Company Successor as an entirety or substantially
as an entirety, (C) any statutory exchange of securities of the Company or any
Company Successor with another corporation (other than in connection with a
merger or acquisition) or (D) any liquidation, dissolution or winding up of the
Company or any Company Successor (any such event described in clause (A), (B),
(C) or (D), a "Reorganization Event"), the Exchange Ratio will be adjusted to
equal an aggregate amount such that, on the Exchange Date, each Holder will
receive for each PEPS cash in an amount equal to (i) if the Transaction Value
(as defined below) is less than the Threshold Appreciation Price but equal to or
greater than the Downside Protection Threshold Price, the Initial Value, (ii) if
the Transaction Value is greater than or equal to the Threshold Appreciation
Price, 0.xx multiplied by the Transaction Value and (iii) if the Transaction
Value is less than the Downside Protection Threshold Price, 1.xx multiplied by
the Transaction Value.
Notwithstanding the foregoing, to the extent that any Marketable Common
Stock (as defined below) is received in such Reorganization Event, then in lieu
of delivering cash as provided above, the Sellers may at their option deliver a
proportional amount of such Marketable Common Stock. If a Seller elects to
deliver Marketable Common Stock, Holders will be responsible for the payment of
any and all brokerage and other transaction costs upon the sale of such
securities.
"Transaction Value" means one-half times (i) for any cash received in any
such Reorganization Event, the amount of cash received per share of Common
Stock, (ii) for any property other than cash or Marketable Common Stock received
in any such Reorganization Event, an amount equal to the market value on the
date the Reorganization Event is consummated of such property received per share
of Common Stock (as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator) and (iii) for any
Marketable Common Stock received in any such Reorganization Event, an amount
equal to the average Closing Price per share of such securities for a
Calculation Period of 20 Trading Days immediately prior to the Exchange Date
multiplied by the number of shares of Marketable Common Stock received for each
share of Common Stock; provided that if no Closing Price for such Marketable
Common Stock may be determined for one or more (but not all) of such Trading
Days, such Trading Days shall be disregarded in the calculation of such average
Closing Price (but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Marketable Common Stock may be determined
for all such Trading Days, the calculation in the preceding clause (iii) shall
be based on the most recently available Closing Price for the Marketable Common
Stock prior to such 20 Trading Days. The number of shares of Marketable Common
Stock included in the calculation of Transaction Value for purposes of the
preceding clause (iii) shall be subject to adjustment if a dilution event of the
type described above shall occur with respect to the issuer of the Marketable
Common Stock between the time of the Reorganization Event and the Exchange Date.
"Marketable Common Stock" means any common equity securities listed on a U.S.
national securities exchange or any foreign securities exchange or in the
Japanese over-the-counter market or reported by The Nasdaq National Market.
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<PAGE> 18
If a Reorganization Event shall occur and the Exchange Ratio shall be
changed as described above, all adjustments previously applied to the Exchange
Ratio, other than adjustments to reflect a change in the number of shares of
Common Stock represented by each ADS, shall remain in effect and shall be
applied to the new Exchange Ratio.
Collateral Arrangements; Acceleration. Each Seller's obligations under its
Contract will be secured by a security interest in the maximum number of ADSs
subject to such Contract (i.e., 1.xx times the initial number of ADSs subject to
such Seller's Contract, subject to adjustment in accordance with the dilution
adjustment provisions of such Contract), pursuant to a Collateral Agreement
among such Seller, the Trust and The Bank of New York, as collateral agent (the
"Collateral Agent"). Unless a Seller is in default in its obligations under the
Collateral Agreement, the Seller will be permitted to substitute for the pledged
ADSs collateral consisting of short-term, direct obligations of the U.S.
Government. Any U.S. Government obligations pledged as substitute collateral for
ADSs will be required to have an aggregate market value at the time of
substitution and at daily mark-to-market valuations thereafter of not less than
150% (or, from and after any Insufficiency Determination that shall not be cured
by the close of business on the following business day, as described below,
200%) of the product of the ADS Equivalent Price at the time of each valuation
times the number of ADSs for which such obligations are being substituted. Each
Collateral Agreement will provide that, in the event of a Reorganization Event,
the relevant Seller will pledge as alternative collateral any Marketable Common
Stock received by it in respect of the maximum number of ADSs subject to such
Seller's Contract at the time of the Reorganization Event, plus U.S. Government
obligations having an aggregate market value when pledged and at daily
mark-to-market valuations thereafter of not less than 105% of the Seller's Cash
Delivery Obligations. Each Seller's "Cash Delivery Obligations" shall be the
Transaction Value of any consideration other than Marketable Common Stock
received by such Seller in respect of the maximum number of shares subject to
such Seller's Contract at the time of the Reorganization Event. The number of
shares of Marketable Common Stock required to be pledged shall be subject to
adjustment if any event requiring a dilution adjustment under the Contracts
shall occur. Each Seller will be permitted to substitute U.S. Government
obligations for Marketable Common Stock pledged at the time of or after any
Reorganization Event. Any U.S. Government obligations so substituted will be
required to have an aggregate market value at the time of substitution and at
daily mark-to-market valuations thereafter of not less than 150% (or, from and
after any Insufficiency Determination that shall not be cured by the close of
business on the following business day, as described below, 200%) of the product
of the market price per share of Marketable Common Stock at the time of each
valuation times the number of shares of Marketable Common Stock for which such
obligations are being substituted. The Collateral Agent will promptly pay over
to each Seller any dividends, interest, principal or other payments received by
the Collateral Agent in respect of any collateral, including any substitute
collateral, unless the relevant Seller is in default of its obligations under
its Collateral Agreement, or unless the payment of such amount to the relevant
Seller would cause the collateral to become insufficient under the Collateral
Agreement.
If the Collateral Agent shall determine (an "Insufficiency Determination")
that the U.S. Government obligations pledged as substitute collateral shall fail
to meet the foregoing requirements at any valuation, or that any Seller has
failed to pledge additional collateral required as a result of a dilution
adjustment increasing the maximum number of ADSs or shares of Marketable Common
Stock subject to such Seller's Contract, and such failure shall not be cured by
the close of business on the following business day, then, unless a Collateral
Event of Default (as defined below) under such Seller's Collateral Agreement
shall have occurred and be continuing, the Collateral Agent shall commence (i)
sales of such Seller's collateral consisting of U.S. Government obligations and
(ii) purchases, using the proceeds of such sales, of ADSs or shares of
Marketable Common Stock, in an amount sufficient to cause the collateral to meet
the requirements under such Collateral Agreement. The Collateral Agent shall
discontinue such sales and purchases if at any time a Collateral Event of
Default under such Collateral Agreement shall have occurred and be continuing. A
"Collateral Event of Default" under any Collateral Agreement shall mean, at any
time, (A) if no U.S. Government obligations shall be pledged as substitute
collateral at such time, failure of the collateral to consist of at least the
maximum number of ADSs subject to the relevant Seller's Contract at such time
(or, if a Reorganization Event shall have occurred at or prior to such time,
failure of the collateral to include the maximum number of shares of any
Marketable Common Stock required to be pledged as described above); (B) if any
U.S.
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Government obligations shall be pledged as substitute collateral for ADSs (or
shares of Marketable Common Stock) at such time, failure of such U.S. Government
obligations to have a market value at such time of at least 105% of the ADS
Equivalent Price (or the then-current market price per share of Marketable
Common Stock, as the case may be) times the difference between (x) the maximum
number of ADSs (or shares of Marketable Common Stock) subject to the relevant
Seller's Contract at such time and (y) the number of ADSs (or shares of
Marketable Common Stock) pledged as collateral at such time; and (C) at any time
after a Reorganization Event in which consideration other than Marketable Common
Stock shall have been delivered, failure of the U.S. Government obligations
pledged in respect of the relevant Seller's Cash Delivery Obligations to have a
market value at such time of at least 105% of such Cash Delivery Obligations, if
such failure shall not be cured within one business day after notice thereof is
delivered to the relevant Seller.
The occurrence of a Collateral Event of Default under any Collateral
Agreement, or the bankruptcy or insolvency of any Seller, will cause an
automatic acceleration of each Seller's obligations under each Contract. In any
such event, each Seller will become obligated to deliver ADSs (or, after a
Reorganization Event, Marketable Common Stock or cash or a combination thereof)
having an aggregate value equal to the "Aggregate Acceleration Value" under its
Contract. The Aggregate Acceleration Value for each Contract will be based on an
"Acceleration Value" determined by the Administrator on the basis of quotations
from independent dealers. Each quotation will be for the amount that would be
paid to the relevant dealer in consideration of an agreement between the Trust
and such dealer that would have the effect of preserving the Trust's rights to
receive ADSs (or, after a Reorganization Event, the alternative consideration
provided under the Contract) under a portion of such Contract that corresponds
to an initial number of ADSs equal to 1,000. The Administrator will request
quotations for each Contract from four nationally recognized independent dealers
on or as soon as reasonably practicable following the date of acceleration. If
four quotations are provided for any Contract, the Acceleration Value will be
the arithmetic mean of the two quotations remaining after disregarding the
highest and lowest quotations. If two or three quotations are provided, the
Acceleration Value will be the arithmetic mean of such quotations. If one
quotation is provided, the Acceleration Value will be equal to such quotation.
The Aggregate Acceleration Value for each Contract will be computed by dividing
the Acceleration Value by 1,000 and multiplying the quotient by the initial
number of ADSs subject to such Contract, except that, if no quotations are
provided, the Aggregate Acceleration Value will be (A) the ADS Equivalent Price
on the acceleration date times the number of ADSs that would be required to be
delivered on such date under the Contract if the Exchange Date were redefined to
be the acceleration date or (B) after a Reorganization Event, the value of the
alternative consideration that would be required to be delivered on such date
under the Contract if the Exchange Date were redefined to be the acceleration
date. Upon the occurrence of a Collateral Event of Default or the bankruptcy or
insolvency of any Seller, the ADSs (or, after a Reorganization Event, Marketable
Common Stock or cash or a combination thereof) deliverable for each PEPS will be
based solely on the Aggregate Acceleration Value described above for each
Contract.
Upon any acceleration, the Collateral Agent will distribute to the Trust
for distribution pro rata to the Holders, with respect to each Seller's
Contract, the Aggregate Acceleration Value under such Contract, in the form of
ADSs then pledged by that Seller, or cash generated from the liquidation of U.S.
Government obligations then pledged by that Seller, or a combination thereof
(or, after a Reorganization Event, in the form of Marketable Common Stock then
pledged, cash generated from the liquidation of U.S. Government obligations then
pledged, or a combination thereof). In addition, in the event that by the
Exchange Date any substitute collateral has not been replaced by ADSs (or, after
a Reorganization Event, cash or Marketable Common Stock) sufficient to meet the
obligations under any Contract, the Collateral Agent will distribute to the
Trust for distribution pro rata to the Holders, with respect to such Contract,
the market value of the ADSs required to be delivered thereunder, in the form of
any ADSs then pledged by the relevant Seller plus cash generated from the
liquidation of U.S. Government obligations then pledged by such Seller (or,
after a Reorganization Event, the market value of the alternative consideration
required to be delivered thereunder, in the form of any Marketable Common Stock
then pledged, plus any cash then pledged, plus cash generated from the
liquidation of U.S. Government obligations then pledged).
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Description of Sellers. The Sellers are the Jay Van Andel Trust and HDV
GRIT Holdings, Inc., principal shareholders of the Company. Reference is made to
the caption "Principal and Selling Shareholders" in the Company Prospectus for
information about the Sellers.
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the Exchange
Date.
In the event that the Contracts are accelerated, or that both Contracts
shall be disposed of as described under "Management and Administration of the
Trust -- Trustees," then any U.S. Treasury securities then held in the Trust
shall be liquidated by the Administrator and distributed pro rata to the
Holders, together with the amounts distributed upon acceleration (see "-- The
Contracts; Collateral Arrangements; Acceleration") or any consideration received
by the Trust upon disposition of the Contracts, and the Trust shall be
terminated.
DELIVERY OF ADSS; NO FRACTIONAL ADSS; OPTION TO ELECT SHARES OF COMMON STOCK
American Depositary Receipts ("ADRs") evidencing the ADSs for which the
PEPS will be exchanged on the Exchange Date are expected to be delivered shortly
after the Exchange Date. Each Holder will receive ADRs (or, as described below,
shares of Common Stock) representing the greatest number of whole ADSs allocable
to its PEPS, plus the cash value, based on the Exchange Price, of any fractional
ADSs so allocable. In lieu of ADSs, any Holder may elect to receive the shares
of Common Stock represented by such ADSs, subject to the restrictions, terms and
conditions of the Company's Share Handling Regulations and Articles of
Association and of the Deposit Agreement relating to the ADSs. In order to
receive shares of Common Stock in lieu of ADSs, Holders must provide written
notice of such election to the Administrator during the 5 business days
immediately preceding the Exchange Date. Any Holders who may be participants in
a book-entry system of a depositary who hold PEPS for the account of customers
should indicate, in any such written notice, the respective number of PEPS held
for the account of each customer who elects to receive shares of Common Stock in
lieu of ADSs, and, for each such customer, the name of the person for whose
account such shares of Common Stock should be delivered. Participants may be
required by the Trust or the Administrator to withdraw the relevant PEPS from
the depositary's book-entry system at the time such written notice is delivered.
Because the Deposit Agreement relating to the ADSs only permits withdrawal of
shares of Common Stock underlying ADSs where such shares constitute whole
100-share units of Common Stock, Holders electing to receive shares of Common
Stock may be required to receive ADSs to the extent the number of underlying
shares is not an integral multiple of 100 (or such other number of shares as may
constitute a unit at the Exchange Date). See "Description of Capital Stock,"
"Description of American Depositary Receipts" and "Exchange Controls and Other
Limitations Affecting Securityholders" in the Company Prospectus. Such shares of
Common Stock may be delivered to the Holder at a designated Tokyo office of the
share custodian for the depositary for the ADSs (the "Share Custodian"),
currently The Mitsubishi Bank, Limited, or at another location specified by the
Holder, provided that delivery of shares of Common Stock at a place other than
the designated Tokyo office of the Share Custodian shall be at the request, risk
and expense of the Holder.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy (as described under "Investment
Objectives and Policies"), the Trust may not purchase any securities or
instruments other than the U.S. Treasury securities, the Contracts and the ADSs
or other assets received pursuant to the Contracts and, for cash management
purposes, short-term obligations of the U.S. Government; issue any securities or
instruments except for the PEPS; make short sales
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or purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts; or make loans.
RISK FACTORS AND SPECIAL CONSIDERATIONS
INTERNAL MANAGEMENT; LIMITED MANAGEMENT
The Trust will be internally managed by its Trustees and will not have any
separate investment adviser. The Trust will not be managed in the traditional
sense. The Trust intends that its portfolio will remain fixed except for in the
events described under "Investment Objectives and Policies -- The Contracts,"
subject to the Trustees' power, but not obligation, to dispose of the Contracts
only in certain circumstances. As a result, the Contracts may continue to be
held by the Trust despite significant declines in the market price of the ADSs
or of the Common Stock or adverse changes in the financial condition of the
Company (or, after a Reorganization Event, comparable developments affecting any
Marketable Common Stock or the issuer thereof). Proceeds from any disposition of
the Contracts will not be reinvested but will be distributed to Holders, at
which time any U.S. Treasury securities held by the Trust would also be
liquidated and distributed and the Trust terminated. See "Management and
Administration of the Trust -- Trustees."
LIMITED APPRECIATION POTENTIAL; ADS DEPRECIATION RISK
It is anticipated that on the Exchange Date the Trust will receive the ADSs
deliverable pursuant to the Contracts, which will then be distributed to
Holders. The yield on the PEPS is higher than the actual (i.e., regular plus
special) dividend yield on the ADSs (although there is no assurance that the
yield on the PEPS will be higher than the dividend yield on the ADSs over the
life of the Trust). However, because the terms of the Contracts call for the
Sellers to deliver less than the full number of ADSs subject to the Contracts
where the Exchange Price exceeds the Initial Value (and therefore less than one
full ADS for each outstanding PEPS), the PEPS have more limited appreciation
potential than the ADSs. Therefore, the PEPS may trade below the value of the
ADSs if the ADSs appreciate in value. An investment in PEPS does afford
protection from the depreciation of the ADSs to the extent that the Exchange
Price does not fall below the Downside Protection Threshold Price ( % of the
Initial Value).
DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS
The number of ADSs or shares of Common Stock that Holders are entitled to
receive at the termination of the Trust is subject to adjustment in the event of
certain dividends or distributions, subdivisions, splits, combinations,
issuances of certain rights or warrants, distributions of certain assets with
respect to the Common Stock or certain purchases by the Company of Common Stock
or ADSs. See "Investment Objectives and Policies -- The Contracts -- Dilution
Adjustments." The number of ADSs or shares of Common Stock to be received by
Holders may not be adjusted for other events, such as offerings of Common Stock
for cash or in connection with acquisitions, that may adversely affect the price
of the ADSs or the Common Stock and, because of the relationship of the amount
to be received pursuant to the Contracts to the price of the ADSs, such other
events may adversely affect the trading price of the PEPS. There can be no
assurance that the Company will not take any of the foregoing actions, or that
it will not make offerings of, or that major shareholders will not sell any,
ADSs or shares of Common Stock in the future, or as to the amount of any such
offerings or sales. In addition, until the receipt by Holders of the ADSs (or
shares of Common Stock if so elected) as a result of the exchange of the PEPS
for the ADSs, Holders will not be entitled to any rights with respect to the
ADSs (or the Common Stock) (including without limitation voting rights and the
rights to receive any dividends or other distributions in respect thereof).
TRADING VALUE; LISTING
The PEPS are innovative securities, and it is not possible to predict how
they will trade in the secondary market. The trading price of the PEPS may vary
considerably prior to the Exchange Date due to, among other things, fluctuations
in the price of the ADSs or the Common Stock (which may occur due to changes in
the
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Company's financial condition, results of operations or prospects, or because of
complex and interrelated political, economic, financial and other factors that
can affect the capital markets generally, the stock exchanges or quotation
systems on which the ADSs and the Common Stock are traded and the market segment
of which the Company is a part) and fluctuations in interest rates and other
factors that are difficult to predict and beyond the Trust's control.
The Underwriters currently intend, but are not obligated, to make a market
in the PEPS. There can be no assurance that a secondary market will develop or,
if a secondary market does develop, that it will provide the holders of the PEPS
with liquidity of investment or that it will continue for the life of the PEPS.
The PEPS have been approved for listing on the New York Stock Exchange upon
notice of issuance. There can be no assurance that the PEPS will not later be
delisted or that trading in the PEPS on the NYSE will not be suspended. In the
event of a delisting or suspension of trading on such exchange, the Trust will
apply for quotation on another trading market. If the PEPS are not listed or
traded on any securities exchange or trading market, or if trading of the PEPS
is suspended, pricing information for the PEPS may be more difficult to obtain,
and the price and liquidity of the PEPS may be adversely affected.
NET ASSET VALUE
The Trust is a newly organized closed-end investment company with no
previous operating history. Typical closed-end fund shares frequently trade at a
premium to or discount from net asset value. Based on its assets and the market
in which the PEPS are expected to trade, the Trust believes the PEPS are
unlikely to trade at a premium to or discount from net asset value. The Trust
believes, however, that because of the yield on the PEPS and the formula for
determining the number of ADSs to be delivered on the Exchange Date, the PEPS
will tend to trade at a premium to the market value of the ADSs to the extent
the ADS price falls and at a discount to the market value of the ADSs to the
extent the ADS price rises. The PEPS are not subject to redemption.
The net asset value of the portfolio will be calculated by the
Administrator no less frequently than quarterly by dividing the value of the net
assets of the Trust (the value of its assets less its liabilities) by the total
number of PEPS outstanding. The Trust's net asset value will be published
semi-annually as part of the Trust's semi-annual report to Holders and at such
other times as the Trustees may determine. The U.S. Treasury securities will be
valued at the mean between the last current bid and asked prices or, if
quotations are not available, as determined in good faith by the Trustees.
Short-term investments having a maturity of 60 days or less will be valued at
cost with accrued interest or discount earned included in interest receivable.
The Contracts will be valued at the mean of the bid prices received by the Trust
from at least three independent broker-dealer firms unaffiliated with the Trust
who are in the business of making bids on financial instruments similar to the
Contracts and with terms comparable thereto.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. Because the only
securities held or received by the Trust will be U.S. Treasury securities and
the Contracts or other assets consistent with the terms of the Contracts, the
Trust may be subject to greater risk than would be the case for an investment
company with more diversified investments.
EXCHANGE RATES
The rate of exchange between the yen and the U.S. dollar is determined by
the forces of supply and demand in the foreign exchange markets, which in turn
are affected by changes in the balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
Fluctuations in exchange rates affect the foreign currency equivalents of the
yen price of the shares of Common Stock and therefore will affect the ADS
Equivalent Price and the Exchange Price and are likely to affect the market
price of the ADSs in the United States.
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TAX TREATMENT OF THE CONTRACTS
No published authorities directly address the characterization of the
Contracts for U.S. federal income tax purposes. As a result, there can be no
assurance that Holders will not be required to recognize income with respect to
the Contracts over their term. See "Federal Income Tax Considerations."
DESCRIPTION OF THE PEPS
Each PEPS represents an equal proportional interest in the Trust. Upon
liquidation of the Trust, Holders are entitled to share pro rata in the net
assets of the Trust available for distribution. PEPS have no preemptive,
redemption or conversion rights. PEPS are fully paid and nonassessable by the
Trust. The only securities which the Trust is authorized to issue are the PEPS
offered hereby and those sold to the initial Holders referred to below. The PEPS
will be issued in fully registered form.
Holders are entitled to a full vote for each PEPS held on all matters to be
voted on by Holders and are not able to cumulate their votes in the election of
Trustees. The Trustees of the Trust have been selected initially by Morgan
Stanley & Co. Incorporated and ML IBK Positions, Inc., an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as the initial Holders of the Trust.
The Trust does not intend to hold annual meetings of Holders. The Trustees may
call special meetings of Holders for action by Holder vote as may be required by
either the Investment Company Act or the Trust Agreement. The Holders have the
right, upon the declaration in writing or vote of more than two-thirds of the
outstanding PEPS, to remove a Trustee. The Trustees will call a meeting of
Holders to vote on the removal of a Trustee upon the written request of the
record holders of 10% of the PEPS or to vote on other matters upon the written
request of the record holders of 51% of the PEPS (unless substantially the same
matter was voted on during the preceding 12 months). The Trust will also assist
in communications with other Holders as required by the Investment Company Act.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees. Under the
provisions of the Code applicable to grantor trusts, the Trustees will not have
the power to vary the investments held by the Trust. Nevertheless, the Trustees
may consider disposing of the Contracts, although they are not obligated to do
so, in the event of (a) a decline in the ADS Equivalent Price (or, after a
Reorganization Event, the value of the alternative consideration required to be
delivered under the Contracts) that, on an as-adjusted basis, as determined by
the Trustees, reflects a 50% or greater decline below the Initial Value (as
adjusted from time to time under the Contracts) or (b) the bankruptcy or
insolvency of the Company (or of the issuer of any Marketable Common Stock
delivered in a Reorganization Event). See "Investment Objectives and Policies --
The Contracts -- Dilution Adjustments."
The names of the persons who have been elected by Morgan Stanley & Co.
Incorporated and ML IBK Positions, Inc., an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, the initial Holders of the
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<PAGE> 24
Trust, and who will serve as the Trustees are set forth below. The positions and
the principal occupations of the individual Trustees during the past five years
are also set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- --------------------------------- ------------------ -----------------------
<S> <C> <C>
Donald J. Puglisi, 50 Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51 Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 56 Trustee Professor of Economics
Center for Economic Education & University of Delaware
Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
Each Trustee who is not a director, officer or employee of any Underwriter
or the Administrator, or of any affiliate thereof, will be paid by Morgan
Stanley, on behalf of the Trust, in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $10,800. The Trust's
Managing Trustee will also receive an additional up-front fee of $3,600 for
serving in that capacity. The Trustees will not receive, either directly or
indirectly, any compensation, including any pension or retirement benefits, from
the Trust. None of the Trustees receives any compensation for serving as a
trustee or director of any other affiliated investment company.
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by The Bank of New
York, as Trust Administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
receive invoices for and pay, or cause to be paid, all expenses incurred by the
Trust; (ii) with the approval of the Trustees, engage legal and other
professional advisors (other than the independent public accountants for the
Trust); (iii) instruct the Paying Agent to pay distributions on PEPS as
described herein; (iv) prepare and mail, file or publish all notices, proxies,
reports, tax returns and other communications and documents, and keep all books
and records, for the Trust; (v) at the direction of the Trustees, institute and
prosecute legal and other appropriate proceedings to enforce the rights and
remedies of the Trust; and (vi) make all necessary arrangements with respect to
meetings of Trustees and any meetings of holders of PEPS. The Administrator will
not, however, select the independent public accountants for the Trust or sell or
otherwise dispose of the Trust assets (except in connection with an acceleration
of the Contracts, or the settlement of the Contracts at the Exchange Date, or a
disposition of the Contracts as described under "Management and Administration
of the Trust -- Trustees," and upon termination of the Trust).
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days' prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for its roles as Administrator, custodian, paying agent, registrar
and transfer agent for the Trust, and except for its role as Collateral Agent
under the Collateral Agreements, The Bank of New York has no other affiliation
with, and is not engaged in any other transactions with, the Trust.
The address of the Administrator is 101 Barclay Street, New York, New York
10286.
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<PAGE> 25
CUSTODIAN
The Trust's custodian (the "Custodian") is The Bank of New York pursuant to
a custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of the
Custodian, the Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as collateral agent
under the Collateral Agreement and will hold a perfected security interest in
the ADSs and U.S. Government obligations or other assets consistent with the
terms of the Contracts.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent") for the
PEPS is The Bank of New York pursuant to a paying agent agreement (the "Paying
Agent Agreement"). In the event of any termination of the Paying Agent Agreement
by the Trust or the resignation of the Paying Agent, the Trust will use its best
efforts to engage a new Paying Agent to carry out the duties of the Paying
Agent.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Paying Agent, the Administrator
and the Custodian with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
which it may incur in acting as Trustee, Paying Agent, Administrator or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties. Morgan
Stanley has agreed to reimburse the Trust for any amounts it may be required to
pay as indemnification to any Trustee, the Paying Agent, the Administrator or
the Custodian. Morgan Stanley will in turn be reimbursed by the Sellers or an
affiliate of the Sellers for all such reimbursements paid by it.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis the
proceeds of the U.S. Treasury securities held by the Trust. The first
distribution, reflecting the Trust's operations from the date of this offering,
will be made on February 15, 1996 to holders of record as of February 1, 1996.
Thereafter, distributions will be made on February 15, May 15, August 15 and
November 15 of each year to Holders of record as of each February 1, May 1,
August 1 and November 1, respectively. Upon termination of the Trust as
described in "Investment Objectives and Policies -- Trust Termination," each
Holder will receive any remaining net assets of the Trust.
ESTIMATED EXPENSES
Morgan Stanley will pay at the Trust's inception to each of the
Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of its fee and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, PEPS certificates and Holder reports, expenses of the
Trustees, fidelity bond coverage, stock exchange listing fees and expenses of
qualifying the PEPS for sale in the various states. Estimated organization costs
of the Trust in the amount of $12,000 and estimated costs of the Trust in
connection with the initial registration and public offering of the PEPS in the
amount of $655,000 will be paid from the proceeds of the offering of the PEPS.
The amount payable to the Administrator in respect of ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
Any excess expenses will be paid by Morgan Stanley or, in the event of their
failure to pay such amounts, the Trust. Morgan Stanley will be reimbursed by the
Sellers or an affiliate of the Sellers for all fees and expenses of the Trust
paid by it.
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<PAGE> 26
FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, tax counsel to the Trust
("Counsel"), the following is a general summary of the material United States
federal income tax consequences of the ownership of the PEPS with respect to a
Holder who acquires its PEPS at the issue price from an Underwriter pursuant to
the original offering and holds its PEPS as a capital asset. It does not discuss
all of the tax consequences that may be relevant to a Holder in light of its
particular circumstances or to Holders subject to special treatment under
federal income tax laws (e.g., certain financial institutions, insurance
companies, dealers in stock or securities, tax-exempt organizations or persons
who hold the PEPS as a part of a hedging transaction or straddle). It also does
not discuss the tax consequences of the ownership of the ADSs, Common Stock or
Marketable Common Stock. PROSPECTIVE PURCHASERS OF PEPS ARE URGED TO REVIEW THE
DISCUSSION UNDER "TAXATION" IN THE COMPANY PROSPECTUS CONCERNING THE FEDERAL TAX
CONSEQUENCES OF AN INVESTMENT IN THE ADSs OR COMMON STOCK, WHICH IS BASED UPON
THE OPINION OF WHITE & CASE, SPECIAL TAX COUNSEL TO THE COMPANY. The summary
herein is based on the Code, administrative pronouncements, judicial decisions
and existing and proposed Treasury Regulations, changes to any of which
subsequent to the date of this Prospectus may affect the tax consequences
described herein. PROSPECTIVE PURCHASERS OF PEPS SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF PEPS.
As used herein, the term "United States Holder" means a Holder that is, for
United States federal income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source. The term
"Non-U.S. Holder" means a Holder that is not a United States Holder.
The term "Holder" as used below in the discussion of "Tax Consequences to
United States Holders" and "Tax Consequences to Non-U.S. Holders" means a
"United States Holder" and a "Non-U.S. Holder," respectively.
TAX STATUS OF THE TRUST
The Trust will be taxable as a grantor trust for federal income tax
purposes, and income received by the Trust will be treated as income of the
Holders in the manner set forth below.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Tax Basis of the U.S. Treasury Securities and the Contracts. Each Holder
will be considered the owner of its pro rata portion of the stripped U.S.
Treasury securities and the Contracts in the Trust under the grantor trust rules
of Sections 671-679 of the Code. The cost to the Holder of its PEPS will be
allocated among the Holder's pro rata portion of the U.S. Treasury securities
and the Contracts (in proportion to the fair market values thereof on the date
on which the Holder acquires its PEPS) in order to determine the Holder's tax
bases. It is currently anticipated that approximately % and % of the net
proceeds of the offering will be used by the Trust to purchase the U.S. Treasury
securities and as payments under the Contracts, respectively.
Recognition of Original Issue Discount on the U.S. Treasury
Securities. The U.S. Treasury securities in the Trust will consist of stripped
U.S. Treasury securities. A Holder will be required to treat its pro rata
portion of each U.S. Treasury security in the Trust as a bond that was
originally issued on the date the Holder purchased its PEPS and at an original
issue discount equal to the excess of the Holder's pro rata portion of the
amounts payable on such U.S. Treasury security over the Holder's tax basis
therefor as discussed above. The Holder (whether on the cash or accrual method
of tax accounting) is required to include original issue discount (other than
original issue discount on short-term U.S. Treasury securities as defined below)
in income for federal income tax purposes as it accrues, in accordance with a
constant yield method. Because it is expected that more than 20% of the Holders
will be accrual basis taxpayers, original issue discount on any short-term U.S.
Treasury security (i.e., any U.S. Treasury security with a maturity of one year
or less from the
23
<PAGE> 27
date it is purchased) held by the Trust will also be required to be included in
income by the Holders as it is accrued. Unless a Holder elects to accrue the
original issue discount on a short-term U.S. Treasury security according to a
constant yield method based on daily compounding, such original issue discount
will be accrued on a straight-line basis. The Holder's tax basis in a U.S.
Treasury security will be increased by the amount of any original issue discount
included in income by the Holder with respect to such U.S. Treasury security.
Treatment of the Contracts. Each Holder will be treated as having entered
into a pro rata portion of the Contracts and, at the Exchange Date, as having
received a pro rata portion of the ADSs (or cash, Marketable Common Stock or a
combination thereof) delivered to the Trust. Under existing law, a Holder will
not recognize income, gain or loss upon entry into the Contracts. Counsel is of
the opinion that a Holder should not be required under existing law to include
in income additional amounts over the term of the Contracts. Holders should be
aware that no published authorities directly address the characterization of the
Contracts and that it is possible that the IRS will recharacterize the Contracts
and assert that a Holder should include in income over the term of the Contracts
additional amounts which together with the original issue discount on such
Holder's pro rata portion of the U.S. Treasury securities should not exceed the
aggregate amount of the quarterly cash distributions to such Holder. Prospective
investors in the PEPS should be aware that the IRS is not bound by the opinion
of Counsel and are urged to consult their tax advisors as to the proper tax
treatment of the Contracts.
Sale of the PEPS. Upon a sale of all or some of a Holder's PEPS, a Holder
will be treated as having sold its pro rata portion of the U.S. Treasury
securities and the Contracts underlying the PEPS. The selling Holder will
recognize gain or loss equal to the difference between the amount realized and
the Holder's aggregate tax bases in its pro rata portion of the U.S. Treasury
securities and the Contracts. Any gain or loss will be long-term capital gain or
loss if the Holder has held the PEPS for more than one year. The excess of net
long-term capital gains over net short-term capital losses is taxed at a lower
rate than ordinary income for certain non-corporate taxpayers. The distinction
between capital gain or loss and ordinary income or loss is also relevant for
purposes of, among other things, limitations on the deductibility of capital
losses.
Distribution of the ADSs or Common Stock. The delivery of ADSs to the
Trust pursuant to the Contracts will not be taxable to the Holders. The
distribution of ADSs or Common Stock upon the termination of the Trust will not
be taxable to the Holders. A Holder will have taxable gain or loss upon receipt
of cash in lieu of fractional ADSs or shares of Common Stock distributed upon
termination of the Trust. Each Holder's aggregate basis in its ADSs or shares of
Common Stock (or combination thereof) will be equal to its basis in its pro rata
portion of the Contracts less the portion of such basis allocable to any
fractional ADSs or shares of Common Stock for which cash is received.
Distribution of Cash or Marketable Common Stock. If as a result of a
Reorganization Event, cash, Marketable Common Stock, or a combination of cash
and Marketable Common Stock is delivered pursuant to the Contracts, a Holder
will have taxable gain or loss upon receipt equal to the difference between the
amount of cash received, including cash received in lieu of fractional shares of
Marketable Common Stock, and its basis in its pro rata portion of the Contracts
allocable to any shares of Common Stock for which such cash or fractional shares
of Marketable Common Stock were received. Holders, however, may be required to
recognize at the time of a Reorganization Event gain or loss in respect of the
amount of cash which is fixed at the time of such Reorganization Event and is to
be delivered pursuant to the Contracts. Although it is not entirely clear, such
gain or loss should be capital gain or loss. If such gain or loss is treated as
capital gain or loss and the Holder has held the PEPS for more than one year,
such gain or loss will be long-term capital gain or loss. A Holder's basis in
any Marketable Common Stock received will be equal to its basis in its pro rata
portion of the Contracts less the portion of such basis allocable to any shares
of Common Stock for which cash or fractional shares of Marketable Common Stock
were received. See "Investment Objectives and Policies -- The Contracts."
Fees and Expenses of the Trust. Counsel believes that a Holder's pro rata
portion of the expenses in connection with the organization of the Trust,
underwriting discounts and commissions and other offering expenses should be
includible in the cost to the Holder of the PEPS. However, there can be no
assurance that
24
<PAGE> 28
the IRS will not take a contrary view. If the IRS were to prevail in treating
such expenses as excludible from the Holder's cost of the PEPS, such expenses
would not be includible in the basis of the assets of the Trust and should
instead be amortizable and deductible over the term of the Trust. If such
expenses were treated as amortizable and deductible, an individual Holder who
itemizes deductions would be entitled to amortize and deduct (subject to any
other applicable limitations on itemized deductions) such expenses over the term
of the Trust only to the extent that such amortized annual expenses together
with such Holder's other miscellaneous deductions exceeds 2% of such Holder's
adjusted gross income.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
Subject to the discussion below concerning backup withholding and income
that is effectively connected with a trade or business of a Non-U.S. Holder in
the United States, under present United States federal income tax law:
(a) payments of principal and interest (including any original issue
discount) on a Non-U.S. Holder's pro rata portion of any U.S. Treasury security
will not be subject to United States federal withholding tax provided that, in
the case of interest, the statement requirement set forth in Section 871(h) or
Section 881(c) of the Code has been fulfilled with respect to the beneficial
owner, as discussed below; and
(b) any gain realized by a Non-U.S. Holder on the sale of its PEPS will not
be subject to U.S. federal income tax provided that in the case of a Non-U.S.
Holder who is a non-resident alien individual, such Holder is not present in the
United States for 183 days or more during the taxable year of the sale.
Sections 871(h) and 881(c) of the Code require that, in order to obtain the
portfolio interest exemption from withholding tax described in paragraph (a)
above, either the beneficial owner of the PEPS, or a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution") and that is holding the PEPS on behalf of such beneficial owner,
file a statement with the Trust to the effect that the beneficial owner of the
PEPS is not a United States Holder. Under temporary United States Treasury
Regulations, such requirement will be fulfilled if the beneficial owner of a
PEPS certifies on Internal Revenue Service Form W-8 (or a substitute form
thereof), under penalties of perjury, that it is not a United States Holder and
provides its name and address, and any Financial Institution holding the PEPS on
behalf of the beneficial owner files a statement with the Trust to the effect
that it has received such a statement from the Holder (and furnishes the Trust
with a copy thereof).
If any interest (including any original issue discount) or gain realized by
a Non-U.S. Holder is effectively connected with the Holder's trade or business
in the United States, such interest or gain will be subject to regular U.S.
federal income tax in the same manner as if the Non-U.S. Holder were a U.S.
Holder. See "Tax Consequences to United States Holders" above. In lieu of the
certificate described in the preceding paragraph, such a Non-U.S. Holder will be
required to provide to the Trust a properly executed Internal Revenue Service
Form 4224 in order to claim an exemption from withholding tax. In addition, if
such Non-U.S. Holder is a foreign corporation, such interest or gain may be
included in the earnings and profits of such Holder in determining such Holder's
U.S. branch profits tax liability.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The payments of principal and interest (including original issue discount)
on, and the proceeds received from the sale of, a PEPS may be subject to U.S.
backup withholding tax at the rate of 31% if the Holder thereof fails to supply
an accurate taxpayer identification number or otherwise to comply with
applicable U.S. information reporting or certification requirements. Any amounts
so withheld will be allowed as a credit against such Holder's U.S. federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the IRS.
After the end of each calendar year, the Trust will furnish to each record
holder of the PEPS an annual statement containing information relating to the
payments on the U.S. Treasury securities received by the
25
<PAGE> 29
Trust. The Trust will also furnish annual information returns to each record
holder of the PEPS and to the IRS.
NEW YORK STATE AND CITY INCOME TAX CONSIDERATIONS
Under the income tax laws of the State and City of New York, the Trust will
not be treated as an association taxable as a corporation.
The foregoing discussion relates only to federal and certain New York State
and City income taxes. Holders may also be subject to state and local taxation
in other jurisdictions and should consult their tax advisers in this regard.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives (the
"U.S. Representatives"), and the International Underwriters named below, for
whom Morgan Stanley & Co. International Limited and Merrill Lynch International
Limited are acting as representatives (the "International Representatives"),
have severally agreed to purchase, and the Trust has agreed to sell them,
severally, the respective number of PEPS set forth opposite their respective
names below:
<TABLE>
<CAPTION>
U.S. UNDERWRITER NUMBER OF PEPS
- ------------------------------------------------------------------------- ------------------
<S> <C>
Morgan Stanley & Co. Incorporated........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......................
Subtotal............................................................
------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITER
- -------------------------------------------------------------------------
<S> <C>
Morgan Stanley & Co. International Limited...............................
Merrill Lynch International Limited......................................
Subtotal............................................................
------------------
Total..........................................................
==================
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives."
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the PEPS offered hereby
(other than the PEPS subject to the U.S. Underwriters' over-allotment option),
if any are taken.
The Underwriters propose to offer the PEPS in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus, and in part to certain securities dealers at such price less a
concession of $ per PEPS. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per PEPS to certain brokers and
dealers. After the initial public offering the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Underwriters have entered into an intersyndicate agreement (the
"Intersyndicate Agreement") that provides for the coordination of their
activities. Under the terms of the Intersyndicate Agreement, the
26
<PAGE> 30
Underwriters in each geographic area have agreed not to offer or sell any PEPS
in any other geographic area until the completion of the distribution of the
PEPS in each offering. Pursuant to the Intersyndicate Agreement, each of the
U.S. Underwriters has agreed or will agree that, as part of the distribution of
the PEPS, subject to certain exceptions, (i) it is not purchasing any PEPS for
the account of anyone other than a U.S. Person (as defined below) or Canadian
Person (as defined below) and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any PEPS or distribute any prospectus
relating to the PEPS to any person outside the United States or Canada or to
anyone other than a U.S. Person or Canadian Person, or to any dealer who does
not so agree. Each of the International Underwriters has agreed or will agree
that, as part of the distribution of the PEPS, subject to certain exceptions,
(i) it is not purchasing any PEPS for the account of any U.S. Person or Canadian
Person and (ii) it has not offered or sold, and will not offer or sell, directly
or indirectly, any PEPS or distribute any prospectus relating to the PEPS in the
United States or Canada or to any U.S. Person or Canadian Person or to any
dealer who does not so agree. The foregoing limitations do not apply to
stabilization transactions or to transactions between the U.S. Underwriters and
the International Underwriters pursuant to the Intersyndicate Agreement. As used
in this section, "United States" means the United States of America, its
territories, possessions and other areas subject to its jurisdiction; "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction; and "U.S. Person" and "Canadian Person" mean (i) a citizen or
resident of the United States or Canada, respectively, (ii) a corporation,
partnership, trust or other entity created or organized in or under the laws of
the United States or Canada, respectively (other than a foreign branch of such
an entity), or (iii) an estate or trust, the income of which is subject to
United States federal income taxation or Canadian federal income taxation,
respectively, regardless of its source of income, and includes any United States
or Canadian branch of a person not included in any of clauses (i), (ii) and
(iii) of this sentence.
PEPS have been subscribed for jointly by Morgan Stanley & Co.
Incorporated and ML IBK Positions, Inc., an affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated at an aggregate purchase price of $100,000. No PEPS
will be sold to the public until the PEPS subscribed for have been purchased and
the purchase price thereof paid in full to the Trust.
The Company and an affiliate of the Sellers have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the 1933
Act.
The Trust has granted the U.S. Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of additional PEPS to cover over-allotments, if any. The U.S.
Underwriters may exercise such option only to cover overallotments in connection
with the sale of the PEPS offered hereby.
The Company, its directors and executive officers, and the Principal and
Selling Shareholders listed under the caption "Principal and Selling
Shareholders" in the Company Prospectus, including the Sellers, have agreed not
to offer, sell or otherwise dispose of ADSs or shares of Common Stock or any
securities convertible into or exchangeable or exercisable for ADSs or shares of
Common Stock, other than (i) in certain permitted private sale transactions,
(ii) pursuant to existing or prospective employee stock option plans previously
disclosed to the Underwriters and (iii) certain gifts to donees who have agreed
not to offer, sell or otherwise dispose of ADSs or shares of Common Stock as set
forth herein, until 90 days from the date of this Prospectus without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters.
The PEPS have been approved for listing on the New York Stock Exchange upon
notice of issuance.
SELLING RESTRICTIONS
General
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the PEPS or the
possession, circulation or distribution of this Prospectus or any other material
relating to the Trust or the PEPS in any jurisdiction where action for such
purpose is required. Accordingly, no PEPS may be offered or sold, directly or
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the PEPS may be distributed or published, in
or from
27
<PAGE> 31
any country or jurisdiction, except in compliance with any applicable rules and
regulations or any such country or jurisdiction.
The Investment Company Act limits all investment companies (including
foreign investment companies) in their acquisition of voting stock of an
investment company such as the Trust. Accordingly, an investment company may
acquire no more than 3% of the outstanding PEPS, and any group of affiliated
investment companies may acquire no more than 10% of the outstanding PEPS.
United Kingdom
Each International Underwriter represents and agrees that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
PEPS will not offer or sell any PEPS to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995; (ii) it has complied with and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the PEPS in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the PEPS to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Hong Kong
Each International Underwriter has agreed that (i) it has not offered or
sold and will not offer or sell in Hong Kong, by means of any documents, any
other than to persons whose ordinary business it is to buy or sell shares or
debentures, whether as a principal or agent, or in circumstances which do not
constitute an offer to the public within the meaning of the Companies Ordinance
(Cap. 32) of Hong Kong and (ii) it has not issued and will not issue any
invitation or advertisement relating to the PEPS in Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other than with
respect to PEPS intended to be disposed of to persons outside Hong Kong or to be
disposed of in Hong Kong only to persons whose business involves the
acquisition, disposal, or holding of securities, whether as principal or agent.
Singapore
Each International Underwriter has agreed that the PEPS may not be offered
or sold, nor may any document or other material in connection with the PEPS be
distributed, either directly or indirectly, (i) to persons in Singapore other
than in circumstances in which such offer or sale does not constitute an offer
or sale of the PEPS to the public in Singapore or (ii) to the public or any
member of the public in Singapore other than pursuant to, and in accordance with
the conditions of, an explanation invoked under Division 5A of Part IV of the
Companies Act, Chapter 50 of Singapore and to persons to whom the PEPS may be
offered or sold under such exemption.
Japan
Each International Underwriter has agreed that it has not offered or sold,
and it will not offer or sell, directly or indirectly, any of the PEPS in Japan
or to residents of Japan or to any persons for reoffering or resale, directly or
indirectly, in Japan or to any resident of Japan except pursuant to an exemption
from the registration requirements of the Securities and Exchange Law available
thereunder and in compliance with the other relevant laws of Japan.
28
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LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and the
Underwriters by Davis Polk & Wardwell, New York, New York. Certain legal matters
will be passed upon for the Company and the Sellers by Jones, Day, Reavis &
Pogue, Cleveland, Ohio, who will rely as to matters of Japanese law upon the
opinion of Nishimura & Sanada, Tokyo. Certain legal matters with respect to the
Contracts will be passed upon for the Sellers by their respective counsel,
Cravath, Swaine & Moore and Hogan & Hartson. The validity of the shares of
Common Stock and certain other legal matters governed by Japanese law will be
passed upon for the Company and the Sellers by Nishimura & Sanada, Tokyo.
Certain U.S. federal income tax matters will be passed upon for the Company by
White & Case, Washington, D.C. Following the conclusion of the offering, Jones,
Day, Reavis & Pogue will act as counsel to the Trust. Jones, Day, Reavis & Pogue
currently acts as counsel to the Company, Amway Corporation and certain of their
affiliates.
EXPERTS
The statement of assets and liabilities included in this Prospectus has
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and is included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the PEPS offered hereby. Further information
concerning the PEPS and the Trust may be found in the Registration Statement, of
which this Prospectus constitutes a part. The Registration Statement may be
inspected without charge at the Commission's office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of the fees prescribed by the Commission.
29
<PAGE> 33
AJL PEPS TRUST
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of AJL PEPS Trust:
We have audited the accompanying statement of assets and liabilities of AJL
PEPS Trust (the "Trust") as of November 8, 1995. This financial statement is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as evaluating the
overall statement of assets and liabilities presentation. We believe that our
audit of the statement of assets and liabilities provides a reasonable basis for
our opinion.
In our opinion, such statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of AJL PEPS
Trust, as of November 8, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 9, 1995
30
<PAGE> 34
AJL PEPS TRUST
STATEMENT OF ASSETS AND LIABILITIES
November 8, 1995
<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $100,000
Deferred organizational expenses (Note 1)................................ 12,000
--------
Total assets................................................... $112,000
========
LIABILITIES
Organizational expenses payable (Note 1)............................... $ 12,000
SHAREHOLDERS' EQUITY
Premium Exchangeable Participating Shares, no par value, 2 shares
issued and outstanding (Note 3)..................................... 100,000
--------
Total liabilities and shareholders' equity..................... $112,000
========
NET ASSETS............................................................... $100,000
========
Net asset value per share................................................ $ 50,000
========
</TABLE>
- ---------------
NOTE 1. ORGANIZATION
The Trust was established on August 17, 1995 and is registered as a
non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. Costs incurred by the Trust in connection with
its organization, estimated at $12,000, have been deferred and will be amortized
on a straight-line basis over the life of the Trust beginning at the
commencement of operations of the Trust.
NOTE 2. PREMIUM EXCHANGEABLE PARTICIPATING SHARES OFFERING
The Trust proposes to sell Premium Exchangeable Participating Shares
("PEPS") to the public pursuant to a Registration Statement on Form N-2 under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, as filed on August 18, 1995 and subsequently amended (the "Public
Offering"). The Trust intends to use the proceeds to purchase a portfolio
comprised of stripped U.S. Treasury securities and to pay the purchase price of
forward contracts for American Depositary Shares representing shares of common
stock of Amway Japan Limited with two existing shareholders of Amway Japan
Limited. The proceeds of the Public Offering, net of all offering costs, will be
recorded as shareholders' equity upon receipt of such proceeds by the Trust.
Offering costs will be paid from the proceeds of the Public Offering and will be
charged to shareholders' equity upon the receipt of such proceeds by the Trust.
NOTE 3. ISSUANCE OF PEPS AND PEPS SPLIT
The Trust has authorized PEPS of up to $450.0 million, but the actual
number of authorized PEPS will be based on the original issuance price of the
PEPS in the Public Offering. The Trust issued an aggregate of 2 PEPS on November
8, 1995, 1 to each of Morgan Stanley & Co. Incorporated and ML IBK Positions,
Inc., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated in
consideration for the aggregate purchase price of $100,000 or $50,000 per PEPS.
On November 8, 1995 the Trustees of the Trust approved a split of the 2
outstanding PEPS to be effected on the date that the price and underwriting
discount of the PEPS being offered to the public is determined, but prior to the
sale of the PEPS to the underwriters. Each of the 2 outstanding PEPS will be
split into the smallest whole number of PEPS that would result in the per PEPS
amount recorded as shareholders' equity after effecting the split not exceeding
the Public Offering price per PEPS, net of the underwriting discount per PEPS.
31
<PAGE> 35
APPENDIX A
COMPANY PROSPECTUS
<PAGE> 36
(This page intentionally left blank)
<PAGE> 37
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 9, 1995
PROSPECTUS
AMWAY JAPAN LIMITED
INCORPORATED UNDER THE LAWS OF JAPAN
AMERICAN DEPOSITARY SHARES
EACH REPRESENTING ONE-HALF OF ONE SHARE OF COMMON STOCK
This Prospectus relates to up to American Depositary Shares
("ADSs") of Amway Japan Limited (the "Company"), a Japanese corporation, which
may be delivered by the AJL PEPS TRUST (the "Trust"), a non-diversified
closed-end management investment company, to holders of Premium Exchangeable
Participating Shares of the Trust (the "PEPS") upon mandatory exchange of the
PEPS (the "Exchange") on February 15, 1999 (the "Exchange Date"). On the
Exchange Date, at the option of holders of PEPS, shares of Common Stock, no par
value (the "Common Stock"), of the Company may be delivered in lieu of ADSs in
exchange for PEPS. The PEPS are being offered (the "Offering") through a group
of Underwriters pursuant to a separate prospectus of the Trust (the "Trust
Prospectus"). In connection with the Offering, each Selling Shareholder
identified herein under "Principal and Selling Shareholders" and the Trust will
enter into a contract (each, a "Purchase Contract" and collectively the
"Purchase Contracts") which, among other things, will require each Selling
Shareholder to deliver to the Trust on the Exchange Date a specified number of
ADSs or, alternatively, shares of Common Stock, for each PEPS depending upon the
price of the Common Stock on the principal trading market of the Company for the
20 trading days immediately preceding the Exchange Date. Each ADS represents
one-half of one share of Common Stock of the Company. The ADSs are evidenced by
American Depositary Receipts. See "Description of American Depositary Receipts."
The Trust has granted the Underwriters of the PEPS an option for 30 days
from the date hereof to purchase up to an additional PEPS, solely to
cover over-allotments, which additional PEPS will also be mandatorily exchanged
by delivery of up to ADSs or, at the option of holders of PEPS,
shares of Common Stock to which this Prospectus relates.
All of the ADSs and underlying Common Stock covered by this Prospectus are
beneficially owned by the Selling Shareholders who are also Principal
Shareholders. Prior to the Offering, the Principal Shareholders collectively
owned beneficially 83.3% of the outstanding Common Stock. Assuming no other
disposition or acquisition of Common Stock or ADSs by the Principal Shareholders
prior to the Exchange Date, and assuming that the Exchange results in the
delivery of two ADSs or one share of Common Stock in exchange for each PEPS, the
Principal Shareholders will collectively own beneficially 78.6% of the
outstanding Common Stock (77.9% if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the proceeds from the
sale of the PEPS or the delivery of the ADSs or shares of Common Stock pursuant
to the Purchase Contracts.
This Prospectus relates only to the ADSs covered hereby and does not relate
to the PEPS. NEITHER THE COMPANY NOR THE SELLING SHAREHOLDERS TAKE ANY
RESPONSIBILITY FOR ANY INFORMATION INCLUDED IN OR OMITTED FROM THE TRUST
PROSPECTUS. THE TRUST PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS,
AND IS NOT INCORPORATED BY REFERENCE HEREIN.
The Common Stock is traded in Japan in the over-the-counter market. The
Company maintains a sponsored deposit facility for its ADSs, which are traded in
the United States on the New York Stock Exchange (the "NYSE") under the symbol
"AJL." On November 8, 1995, the closing sale price per share of Common Stock in
the Japanese over-the-counter market as reported by the Japan Securities Dealers
Association was Y3,860 per share. The closing sale price per ADS on the NYSE on
November 8, 1995 was U.S.$18.38. See "Market Information."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE ADSs.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November , 1995.
<PAGE> 38
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a Japanese corporation, and substantially all of its assets
and operations are located, and substantially all of its revenues are derived,
outside the United States. The Company has appointed CT Corporation System, New
York, New York, as its agent to receive service of process with respect to any
action brought against it in any federal or state court in the State of New York
arising from the Offering or the Exchange. However, it may not be possible for
investors to enforce outside the United States judgments against the Company
obtained in the United States in any such actions, including actions predicated
upon the civil liability provisions of the United States federal and state
securities laws. In addition, certain directors and certain officers of the
Company and the independent auditors named under "Experts" are residents of
Japan, 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 such
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. The Company has been advised by its
Japanese counsel, Nishimura & Sanada, that there is uncertainty as to whether
the courts of Japan would (i) recognize judgments of United States courts
obtained against the Company or such persons predicated upon the civil liability
provisions of the United States federal and state securities laws or (ii)
enforce in original actions brought in Japan liabilities against the Company or
such persons predicated upon the United States federal and state securities
laws.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities............. 2
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 3
Prospectus Summary.............................. 4
Risk Factors.................................... 10
Market Information.............................. 17
Dividends and Dividend Policy................... 19
Exchange Rates.................................. 21
Selected Financial Information.................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 35
Management...................................... 49
Principal and Selling Shareholders.............. 52
Certain Transactions............................ 55
Description of Capital Stock.................... 56
Description of American Depositary Receipts..... 62
Exchange Controls and Other Limitations
Affecting Securityholders..................... 71
Taxation........................................ 73
Plan of Distribution............................ 79
Legal Matters................................... 79
Experts......................................... 79
Index to Financial Statements................... F-1
</TABLE>
------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS OF THE PEPS HAVE ADVISED
THE COMPANY THAT THEY MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR
MAINTAIN THE MARKET PRICES OF THE PEPS OR THE ADSS AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Midwest
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511
2
<PAGE> 39
and Northeast Regional Office, Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Reports and other information concerning the Company may also
be inspected at the offices of the New York Stock Exchange.
The Company furnishes the Depositary referred to in "Description of
American Depositary Receipts" with annual reports in English, which include a
review of the Company's operations, and annual audited financial statements of
the Company prepared in conformity with Japanese generally accepted accounting
principles ("Japanese GAAP"), together with a reconciliation of net income and
shareholders' equity to generally accepted accounting principles in the United
States ("U.S. GAAP"). The Company also furnishes the Depositary with an English
translation of unaudited quarterly financial information prepared in accordance
with Japanese GAAP, together with a reconciliation of net income and
shareholders' equity to U.S. GAAP. Upon receipt thereof, the Depositary mails
such reports to all holders of record of American Depositary Receipts ("ADRs")
evidencing ADSs. The Deposit Agreement for the ADRs referred to in "Description
of American Depositary Receipts" also requires that the Company furnish to the
Depositary in English all notices of shareholders' meetings and other reports
and communications that are made generally available to holders of shares of
Common Stock, and the Depositary is required to mail such notices, reports and
communications to the holders of record of ADRs.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 20-F, filed on October 18, 1995, for
the fiscal year ended August 31, 1995, was filed pursuant to Section 13 of the
Exchange Act and the Registration Statement on Form 8-A filed on June 14, 1994,
are hereby incorporated by reference into this Prospectus.
To the extent designated therein certain Reports on Form 6-K and all other
documents filed by the Company pursuant to Section 13(a), 13(c) or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
(without exhibits other than exhibits specifically incorporated by reference) of
any or all documents incorporated by reference into this Prospectus. Requests
for such copies should be directed to Ms. Holly Clemente, Director of Investor
Relations at (212) 836-4850 or Mr. Milton Isa, Investor Relations Officer, at
011-81-3-5434-8484.
In this Prospectus, amounts are expressed in Japanese yen ("yen" or "Y") or
in United States dollars ("dollars," "U.S. dollars," "U.S.$" or "$"). Except as
otherwise indicated, for the convenience of the reader the translations of yen
into dollars have been made at the rate of 98 yen to the dollar, the approximate
rate of exchange on August 31, 1995, the date of the most recent balance sheet
contained herein. This rate is not materially different from the noon buying
rate in New York City for cable transfers in foreign currencies as announced for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate") on such date (Y97.75 = U.S.$1.00). See "Exchange Rates" for information
regarding rates of exchange between the yen and the dollar from fiscal 1991
through fiscal 1995, and as of a recent date. No representation is made that the
yen amounts have been, could have been or could be converted into dollars at
those or any other rates.
3
<PAGE> 40
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the consolidated financial
statements appearing elsewhere in this Prospectus. Unless otherwise indicated:
(i) all information in this Prospectus assumes that (A) the Underwriters'
over-allotment option with respect to the PEPS is not exercised and (B) the
Exchange results in the delivery by the Trust of two ADSs or one share of Common
Stock in exchange for each PEPS, (ii) references in this Prospectus to the
"Company" refer to Amway Japan Limited and its subsidiary, (iii) all historical
financial information reflects a three-for-two Common Stock split effected
during each of fiscal 1991 and 1992, (iv) information relating to the ownership
interest of the Principal Shareholders and the Selling Shareholders is
calculated based on an aggregate offering price of $300 million ($345 million if
the Underwriters' over-allotment option is exercised in full), a price per share
of Common Stock based on the closing price per share on October 17, 1995 of
Y4,290 and a noon buying rate on such date of Y100.3 = U.S. $1.00, and (v)
references in this Prospectus to "Amway" refer to Amway Corporation and its
subsidiaries. The Company's fiscal year ends August 31 of each year.
THE COMPANY
General. Amway Japan Limited is the exclusive distribution vehicle for
Amway in Japan. The Company, which has a 16 year operating history, believes
that it is one of the largest direct selling businesses in Japan as measured by
its fiscal 1995 net sales of Y178.0 billion (U.S.$1.8 billion) and net income of
Y23.1 billion (U.S.$235.3 million) and approximately 980,000 independent
distributors who renewed their distributorships from the prior fiscal year. The
Company believes that Japan, with a population of approximately 125.0 million,
is the largest direct selling market in the world in terms of sales, estimated
to be approximately twice the size of the direct selling market in the U.S.
The Company believes that the Amway Sales and Marketing Plan (the "Sales
Plan") is fundamental to the Company's operations. Under the Sales Plan, the
Company sells products exclusively to its distributors, who are independent
contractors and not employees of the Company or Amway. The Sales Plan offers
individuals the opportunity to establish their own business as independent
distributors selling directly to consumers. This 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 can develop a larger business by
sponsoring new distributors into their organization and/or by establishing
separate distributorships in other Amway markets internationally. Although no
compensation is paid by the Company for sponsoring activities, the sponsoring of
new distributors creates layers of "downline" distributors in the distribution
structure and permits distributors to earn performance bonuses based in part on
product purchases by their downline distributors. No distributor is obligated to
purchase any products or to sponsor new distributors.
The Company distributes approximately 130 different consumer products, in
four core product lines: Housewares, Personal Care, Nutrition and Home Care.
These products consist primarily of products purchased from Amway. In addition,
in order to heighten distributor interest by broadening the range of products
available, the Company distributes certain other products which bear the Amway
name or trademark but which are manufactured for the Company by third parties.
Many products the Company distributes are specially formulated for the Japanese
market. For example, cosmetics and skin care products are formulated for skin
tones and fragrance preferences of Japanese consumers, the Amway water treatment
system unit was designed to accommodate the characteristics of the water in
Japan and various products in the Housewares and Home Care Lines reflect the
characteristics of Japanese homes. The Company promotes products that are
environmentally friendly, which is consistent with the concerns of many Japanese
consumers and the Company's (and Amway's) long-standing philosophy. All products
distributed by the Company are covered by Amway's Satisfaction Guarantee, which
gives consumers the right to return products to the Company within a reasonable
time for a full refund, replacement or credit toward a future purchase.
Electronic and other durable products manufactured for Amway or the Company by
third parties are also covered by Amway's or their respective manufacturer's
warranties.
The Company believes that the extended family relationships and lifelong
close personal relationships common in Japan are particularly well-suited to the
direct selling methods of the Sales Plan. In addition, the low cost of entry,
wide range of available products and ability to start a distributorship business
part-time make a distributorship with the Company an attractive business
opportunity. The Company also believes that
4
<PAGE> 41
a variety of social and economic changes which have occurred in Japan in the
last few years have had a positive impact on the Company's sales. Trends that
benefit the Company include the emergence of a greater interest on the part of
some Japanese in pursuing more independent, entrepreneurial activities outside
traditional business settings, an increase in the number of Japanese women
deciding to join the workforce and an increase in the number of Japanese seeking
supplemental income from alternative sources to mitigate the financial impact of
slowing wages and salary growth, the reduction or elimination of bonuses and
overtime work, and the increased concern over future employment prospects.
The Company also believes that there has been a major shift in Japanese
consumers' attitudes toward consumer products. In evaluating products, Japanese
consumers are placing an increasing emphasis on value based upon proven product
performance, rather than equating high price with high quality. The Company
generally offers high value products that are easily demonstrated by
distributors and can be meaningfully differentiated from competing products. The
Japanese retail market is generally characterized by numerous small retailers
who frequently have only limited knowledge of the products they sell and may not
be able to demonstrate their products to customers. The Company provides
additional value to the consumer through a high level of personal service,
including convenient in-home demonstrations, ordering and delivery, and the
Amway Satisfaction Guarantee.
Strategy. The Company's principal growth strategies are (i) to promote
distributor productivity, retention and sponsoring by continuing to enhance
distributor relations, (ii) to develop and implement new methods to better
understand, communicate with and motivate distributors in order to increase
substantially distributor productivity and sponsoring, while maintaining high
rates of distributor retention and (iii) to systematically introduce new
products and services, while continuing to improve existing products, that are
targeted to the Japanese market and that are meaningfully differentiated from
competitive products.
The Company will continue to dedicate significant financial and human
resources to enhancing distributor relations. As an example of its commitment,
in fiscal 1995 over 65% of the Company's total operating expenses were
attributable to distributor incentives and activities designed to motivate,
reward and support distributors. In fiscal 1995, the Company sponsored
approximately 672 motivational sales meetings, product demonstration seminars
and product fairs, training sessions, leadership seminars and business promotion
meetings. In addition, the Company will continue to engage in the sponsorship of
civic events and corporate image advertising in order to enhance distributor
retention and sponsoring and the public perception of the Company. In fiscal
1995, 71.8% of the total number of distributors renewed their distributorships
from the prior fiscal year.
The Company is also developing and implementing new methods designed to
increase distributor productivity and sponsoring, while maintaining high rates
of retention. These new methods involve an identification and understanding of
distinct distributor types. Historically, the Company has categorized its
distributors into two general groups -- business-building distributors and
distributors who buy for their own consumption and sell only to a few
customers -- and has focused most of its resources on the former group. The
Company believes that, within each group, there are a number of distinct types
of distributors whose performance can be differentiated based upon sales
volumes, sponsoring activities, demographics, product purchase patterns and
renewal history. An identification and understanding of the distinct distributor
types will enable the Company to tailor its motivational and communication
efforts to targeted groups of distributors. In particular, the Company believes
that, by expanding the awareness of other Company products by existing
distributors, it will be able to expand the range of products purchased by those
distributors whose purchases have traditionally been limited to only a few
products or to products within a single product line.
Another principal growth strategy is to systematically introduce
meaningfully differentiated new products and services appropriate for the
Japanese market, while continuing to improve existing products. New and improved
products introduced during the 24-month period ended August 31, 1995, including
Amway water treatment system units and replacement parts, a specially formulated
line of Satinique(R) hair care products, a reformulated Dish Drops dishwashing
detergent, Triple X food supplement and World Plaza hosiery, accounted for
approximately 40% of net sales for fiscal 1995.
5
<PAGE> 42
The effort to introduce products specifically designed for the Japanese
market is fostered by the Company's cooperative efforts with Amway, which has
substantial research and development resources. Amway maintains an extensive
research and development center with 43 research and quality assurance
laboratories, currently staffed by approximately 425 people who focus on
developing new products and improving existing products. The Company, through
its product marketing and research and development personnel working in
conjunction with Amway, has introduced a variety of products specially
formulated or manufactured for the Japanese market, including the Artistry(R)
line of cosmetic and skin care products, SA8(R) powdered laundry detergent, the
Satinique(R) line of hair care products, Nutrilite food supplements and water
treatment system units and replacement parts.
Amway, working with the Company, is seeking strategic arrangements with
third parties that would provide the Company with additional products, product
lines or services targeted specifically for the Japanese markets. These
products, product lines or services would be distinct from, and non-competitive
with, the Company's existing product lines, but would have the common
characteristic of being meaningfully differentiated from competing products or
services. The Company believes that its customer base and distribution network,
as well as its financial strength, make it attractive to potential strategic
partners. As a financial objective, the Company's goal is to obtain such
products, product lines or services without reducing the Company's gross or
operating margins.
------------------------
The Company was organized as a joint stock corporation (kabushiki kaisha)
under the laws of Japan in 1977 and commenced sales activities in 1979. The
principal executive offices of the Company are currently located at ARCO Tower,
8-1, Shimomeguro 1-chome, Meguro-ku, Tokyo 153, telephone number (813)
5434-8484.
The Company's Principal Shareholders are certain corporations, trusts,
foundations and other entities established by or for the benefit of the founders
of Amway, Richard M. DeVos and Jay Van Andel, and their respective families as
identified under the caption "Principal and Selling Shareholders" (the
"Principal Shareholders"). Members of the DeVos and Van Andel families also
beneficially own all of the outstanding shares of capital stock of Amway. Prior
to the Offering, the Principal Shareholders collectively owned beneficially
83.3% of the outstanding Common Stock. After the Exchange (assuming no other
disposition or acquisition of Common Stock or ADSs by the Principal Shareholders
prior to the Exchange Date), the Principal Shareholders will collectively own
beneficially 78.6% of the outstanding Common Stock (77.9% if the Underwriters'
over-allotment option is exercised in full). The Selling Shareholders identified
under the caption "Principal and Selling Shareholders" (the "Selling
Shareholders") are Principal Shareholders. See "Risk Factors -- Controlling
Shareholders" and "Principal and Selling Shareholders."
Amway was founded in 1959 in Ada, Michigan, by Richard M. DeVos and Jay Van
Andel and is one of the world's largest direct selling businesses, operating in
the United States and, through affiliates, in over 70 countries and territories
throughout the world. The Company's relationship with Amway provides the Company
with significant competitive advantages, including Amway's 36 years of
experience in the research, development, testing and support of consumer
products and its proven ability to distribute products successfully.
Since its founding, Amway has stressed the environmental safety of its
products. Surfactants used in all of Amway's cleaning products are
biodegradable. Amway's aerosols do not use CFC (chlorofluorocarbon) propellants,
which have been linked to damage in the earth's ozone layer. Most Amway
household products are concentrated, allowing for less packaging materials, and
all of Amway's SA8(R) laundry products available in Japan are phosphate-free. In
keeping with Amway's commitment to the environment, animal testing is not used
in the development or testing of products.
The Company has entered into a series of agreements with Amway covering the
use of Amway trademarks, the selection and purchase of products from Amway and
the provision of support services by Amway to the Company. See
"Business -- Relationship with Amway" and "Certain Transactions."
------------------------
6
<PAGE> 43
RECENT DEVELOPMENTS
In order to demonstrate its long-term commitment in Japan, to enhance the
Company's image, to strengthen its corporate identity and to take advantage of
current Japanese real estate market conditions, the Company acquired in March
1995 a 3,561 square meter parcel of land in Tokyo for the construction of a new
headquarters facility. Certain additional events must occur prior to July 1,
1996 before the site is available for construction. Accordingly, construction of
the headquarters facility is not planned to commence before fiscal 1997. It is
anticipated that this facility will be available for occupancy in fiscal 1999.
The purchase price for the land, which was paid in cash, aggregated Y19.4
billion (U.S.$198.0 million). The total capital cost of this entire project,
including the purchase price for the land, is currently estimated to be between
Y27.5 billion (U.S.$280.6 million) and Y32.5 billion (U.S.$331.6 million). See
"Business -- Properties."
In addition, the Company purchased a 22,296 square meter parcel of land in
Tokyo in July 1995 for the construction of a new Tokyo Regional Distribution
Center. The purchase price for this land, which was paid in cash, was Y4.7
billion (U.S.$48.0 million). It is anticipated that construction of this
Regional Distribution Center will begin in December 1995 and that this facility
will be operational beginning in February 1997. The total cost of this project,
including the purchase price for the land, is currently estimated to be between
Y13.8 billion (U.S.$140.8 million) and Y14.4 billion (U.S.$146.9 million). See
"Business -- Properties."
In October 1995, the Company announced its intention to increase the
regular annual dividend rate with respect to fiscal 1996 to Y100 (U.S.$1.02) per
share of Common Stock from Y90 (U.S.$0.92) per share of Common Stock, to pay a
special year-end dividend with respect to fiscal 1995 of Y50 (U.S.$0.51) per
share of Common Stock in December 1995 and to pay a special interim dividend in
May 1996 of Y25 (U.S.$0.26) per share of Common Stock, in each case subject to
legal and other factors. There can be no assurance as to whether the Company
will be able to pay dividends as currently proposed or any other dividends. See
"Dividends and Dividend Policy."
In addition, in October 1995, the Company announced its intention to
present to the shareholders for their approval at the Company's Ordinary General
Meeting of Shareholders to be held on November 29, 1995 a proposal to repurchase
up to Y15 billion (U.S. $153.0 million) of Common Stock by means of open market
purchases or a tender offer to the shareholders of the Company in accordance
with the Securities and Exchange Law of Japan and the Exchange Act. The Company
has been informed by the Principal Shareholders that they intend to participate
fully in the share repurchase. The share repurchase will also include those
shares of Common Stock represented by ADSs. The shareholders' approval will be
conditioned upon amendment of applicable laws, regulations and ordinances of
Japan such that taxation on deemed dividends under the Income Tax Law or the
Corporate Tax Law of Japan will not apply either to (i) shareholders (whether
individual or corporate) who do not sell their shares in the repurchase, except
that corporate shareholders (other than nonresident corporate shareholders
without a permanent establishment in Japan) may elect to be subject to deemed
dividend taxation, or (ii) individual shareholders who sell their shares in a
tender offer. See "Dividends and Dividends Policy," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Capital Stock -- Repurchase by the Company
of its Common Stock" and "Taxation -- Japanese Taxation."
7
<PAGE> 44
SUMMARY FINANCIAL INFORMATION
The following summary income statement and balance sheet information has
been derived from the consolidated financial statements of the Company. Such
information at August 31, 1995 and for each of the years in the five year period
ended August 31, 1995 has been derived from the Company's audited consolidated
financial statements (the last three years of which, together with the related
report of Deloitte Touche Tohmatsu, independent auditors, are contained in this
Prospectus). All such financial information is qualified in its entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements (including Notes thereto).
The Company prepares its consolidated financial statements in accordance
with Japanese GAAP, which differ in certain material respects from U.S. GAAP.
See Notes 10 and 11 of Notes to Consolidated Financial Statements, which present
a reconciliation of U.S. GAAP and Japanese GAAP.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- ----------
(U.S.$)(1)
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF YEN AND THOUSANDS OF DOLLARS EXCEPT PER SHARE AND ADS AMOUNTS AND SHARES OUTSTANDING)
INCOME STATEMENT INFORMATION:
In accordance with Japanese GAAP:
Net sales........................ Y123,038 Y123,253 Y130,028 Y157,556 Y177,991 $1,816,235
Cost of sales.................... 34,832 36,087 37,319 43,576 47,515 484,847
-------- -------- -------- -------- -------- ----------
Gross profit..................... 88,206 87,166 92,709 113,980 130,476 1,331,388
-------- -------- -------- -------- -------- ----------
Distributor incentives........... 30,417 31,908 34,001 42,652 47,885 488,622
Distribution expenses............ 6,805 7,653 7,773 8,324 8,853 90,337
Selling and administrative
expenses(2).................... 11,260 15,188 16,810 19,616 24,022 245,123
-------- -------- -------- -------- -------- ----------
Total operating expenses......... 48,482 54,749 58,584 70,592 80,760 824,082
-------- -------- -------- -------- -------- ----------
Operating income................. 39,724 32,417 34,125 43,388 49,716 507,306
Other income -- net.............. 2,464 3,487 2,485 2,557 1,733 17,684
-------- -------- -------- -------- -------- ----------
Income before income taxes....... 42,188 35,904 36,610 45,945 51,449 524,990
Income taxes..................... 23,307 19,373 20,759 25,341 28,387 289,663
-------- -------- -------- -------- -------- ----------
Net income....................... Y 18,881 Y 16,531 Y 15,851 Y 20,604 Y 23,062 $ 235,327
========= ========= ========= ========= ========= ==========
Net income per share(3).......... Y 129.28 Y 110.49 Y 105.94 Y 137.70 Y 154.13 $ 1.57
Net income per ADS(4)............ Y 64.64 Y 55.24 Y 52.97 Y 68.85 Y 77.07 $ 0.79
Shares outstanding (in
thousands)..................... 146,050 149,625 149,625 149,625 149,625 149,625
In accordance with U.S. GAAP:(5)
Net income....................... Y 19,932 Y 16,335 Y 16,576 Y 20,452 Y 24,447 $ 249,459
Net income per share(3).......... 136.47 109.17 110.78 136.69 163.39 1.67
Net income per ADS(4)............ 68.24 54.59 55.39 68.34 81.70 0.83
BALANCE SHEET INFORMATION:
In accordance with Japanese GAAP:
Working capital.................. Y 50,976 Y 57,030 Y 62,305 Y 68,852 Y 43,566 $ 444,551
Total assets..................... 87,091 93,008 101,976 116,535 121,810 1,242,959
Total shareholders' equity....... 56,904 64,687 72,297 79,171 77,882 794,714
In accordance with U.S. GAAP:(5)
Working capital.................. Y 55,465 Y 61,284 Y 70,435 Y 73,397 Y 51,317 $ 523,443
Total assets..................... 90,727 96,472 106,239 120,991 129,503 1,321,459
Total shareholders' equity....... 60,539 68,147 76,494 83,231 83,661 853,684
OTHER INFORMATION:
Number of distributors(6)(7)..... 597,000 752,000 816,000 896,000 980,000
Number of direct
distributors(7)(8)............. 4,500 4,600 4,800 5,900 7,100
Renewal rate(9).................. 68.2% 67.6% 71.7% 72.8% 71.8%
</TABLE>
8
<PAGE> 45
- ---------
(1) Translated at the rate of Y98 = U.S.$1.00, the approximate rate of exchange
based on the Noon Buying Rate on August 31, 1995.
(2) In preparing this summary financial information, enterprise taxes have been
reclassified from selling and administrative expenses to income taxes in
order to present this summary financial information in a format which is
more consistent with U.S. disclosure practices. See Notes 1 and 10 of Notes
to Consolidated Financial Statements.
(3) The computation of net income per share is based on the weighted average
number of shares of Common Stock outstanding during the period retroactively
adjusted for stock splits.
(4) Each ADS represents one-half of one share of Common Stock.
(5) The Company prepares its consolidated financial statements in accordance
with Japanese GAAP which differ in certain respects from U.S. GAAP. A
discussion of the significant differences between Japanese GAAP and U.S.
GAAP and reconciliations of net income and shareholders' equity on a
Japanese GAAP basis to a U.S. GAAP basis is set forth in Note 10 of the
Notes to Consolidated Financial Statements.
(6) Includes total number of distributorships (including direct
distributorships) in force from the prior fiscal year which were renewed for
the fiscal year shown. Numbers of distributors are rounded to the nearest
thousand. The number for each fiscal year does not reflect the total number
of distributors for each fiscal year because it does not include new
distributors who enrolled during such fiscal year.
(7) Multiple persons in the same household (such as a married couple) who are
distributors are considered a single distributorship.
(8) "Direct distributors" are distributors who have achieved a significant level
of performance for a specified period. See
"Business -- Distribution -- Direct Distributors." Numbers of direct
distributors are rounded to the nearest hundred.
(9) Percentage of all distributorships in force from the prior fiscal year which
were renewed for the fiscal year shown.
9
<PAGE> 46
RISK FACTORS
Investing in the ADSs involves certain considerations not typically
associated with equity securities of United States companies, as well as other
considerations, which are discussed or referred to below. Prospective investors
should carefully consider the following information in conjunction with the
other information contained in this Prospectus.
RELIANCE UPON INDEPENDENT DISTRIBUTORS;
POSSIBLE NEGATIVE EFFECTS OF ADVERSE PUBLICITY
The Company distributes products exclusively through its distributors. The
level of the Company's net sales is directly dependent upon the efforts of its
distributors and any growth in net sales will require increased productivity by
the distributors and/or growth in the number of distributors. As is typical of
direct selling, there is turnover in distributors from year to year which
requires the sponsoring of new distributors by existing distributors in order to
maintain or increase the overall distributor force. Sponsoring activities and
distributor retention levels are particularly impacted by changes in the level
of distributor motivation, which in turn can be positively or negatively
affected by general economic conditions and a number of intangible factors.
Adverse publicity concerning the Company, Amway and direct selling generally can
have a significant negative impact on sponsoring activities and retention
levels. Historically, the Company has experienced periodic increases and
decreases in the level of sponsoring (as measured by distributor applications).
Because of the number of factors that impact sponsoring, the Company cannot
predict when or to what extent such increases and decreases in the level of
sponsoring will occur. There can be no assurance that the number or productivity
of distributors will be sustained at current levels or increased. In addition,
the number of distributors as a percent of the population may reach levels that
become difficult to exceed due to the finite number of persons inclined to
pursue an independent direct selling business opportunity. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Distribution."
Because the Company's distributors are independent contractors, the Company
is not in a position to provide them with the same level of direction and
oversight as it provides with respect to its own employees. Although the Company
has a Code of Ethics and Rules of Conduct (the "Code of Ethics and Rules of
Conduct"), patterned on Amway's Code of Ethics and Rules of Conduct, governing
distributor conduct, because of the large number of distributors and their
independent status, as well as the impact of certain resale price maintenance
and certain other regulations that limit the ability of the Company to monitor
and control the sales practices of its distributors, it can be difficult to
enforce those rules. At times distributor actions have given rise and may in the
future give rise to negative publicity for the Company and Amway. Also,
distributor leaders and downline distributors, without prior review or approval
by the Company or Amway, might prepare and sell their own audio and video tapes
and written materials. Sales of these tapes and materials could be inconsistent
with the Sales Plan or the Code of Ethics and Rules of Conduct, which, among
other things, prohibits unfounded claims and actions which improperly influence
the purchase of such materials. Actions by the Company terminating distributors
for violations of the Sales Plan or the Code of Ethics and Rules of Conduct
could negatively impact the Company's business.
CONCENTRATION OF DISTRIBUTORS
Because the Sales Plan provides incentives for distributors to develop
larger businesses by sponsoring new distributors into their organizations, the
Company's sales are concentrated within, and dependent upon, a relatively small
number of distributor lines of sponsorship. In addition, certain distributor
leaders have created distributor organizations independent of the Company and
Amway. These distributor organizations are designed to assist in motivating and
training distributors and can include Amway distributors from all over the
world.
Although there can be no assurances, the Company believes that the loss of
a leader of a distributor line would not necessarily result in the loss of a
significant number of that leader's downline distributors because of the
Company's close relationship with the significant downline distributors.
However, the loss of a distributor
10
<PAGE> 47
leader and a significant number of that leader's downline distributors could
have a material adverse effect on the Company. See "Business -- Distribution."
REGULATION OF CERTAIN DIRECT SELLING ACTIVITIES
Various governmental agencies in Japan regulate certain direct selling
activities. Applicable laws and regulations are generally intended to prevent
fraudulent or deceptive schemes often referred to as "pyramid" 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. The
Company is an active member of the Japan Direct Selling Association, a trade
association for the promotion of legitimate and ethical direct selling
practices. The Sales Plan under which the Company distributes products has a low
cost of entry, is based upon the sale of a broad range of products, does not
require product purchases and does not provide for the payment of any
compensation by the Company for recruiting. See "Business -- Distribution." The
Company believes that its method of distribution is in compliance in all
material respects with Japanese laws and regulations relating to direct selling
activities. The Company's activities can also be impacted by other regulations
not specifically addressed to direct selling. For example, the Act Concerning
Prohibition of Private Monopoly and Maintenance of Fair Trade (the
"Anti-Monopoly Law"), among other things, regulates resale price maintenance
(fixing retail prices of products). The Company only provides suggested retail
prices for the products it distributes. There can be no assurance that new
legislation or regulations or new interpretations of existing laws and
regulations would not have a material adverse effect on the Company's
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Government Regulation."
RELATIONSHIP AND POTENTIAL CONFLICTS OF INTEREST WITH AMWAY
There could be conflicts of interest with respect to transactions between
the Company and Amway or other affiliates of Amway. Conflicts could arise in a
variety of circumstances including in the interpretation, extension or
renegotiation of the various agreements between the Company and Amway or in
other arrangements, in the allocation of products by Amway to its various
affiliates worldwide and in the establishment by Amway of product prices and
exchange rates. The agreements between the Company and Amway include a trademark
license agreement relating to the use of Amway trademarks and product formulas
and designs (the "Trademark License Agreement"), a product purchase agreement
relating to the purchase of products from Amway (the "Product Purchase
Agreement") and a support services agreement relating to the utilization of
Amway support services (the "Support Services Agreement"). Each agreement is for
a term ending August 31, 2011, and is subject to renegotiation after December
31, 1999 in the event that members of the families of, or corporations, trusts,
foundations or other entities 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 Company's voting stock. See "Business -- Relationship with Amway" and
"Certain Transactions."
Under the Trademark License Agreement, Amway licenses the Amway trademark
and individual product trademarks to the Company for use only in Japan. Thus,
the Company will not be able to use the Amway name to expand outside Japan.
Approximately 80% of the Company's fiscal 1995 net sales was derived from
the distribution of products it purchased from Amway. Purchases of these
products represented approximately 65% of fiscal 1995 cost of sales. The prices
for these products are governed by a price schedule which Amway establishes
periodically based upon a U.S. dollar "cost plus" base price calculation. Amway
has the right to modify the "cost plus" base price; however, Amway has agreed
that any such modification will be consistently applied to all Amway affiliates.
No assurances can be given that Amway will not modify such U.S. dollar "cost
plus" base price, or as to the effect of any such modification on the Company.
See " -- Operations Outside the United States; Currency Fluctuations" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange Transaction Information."
In connection with the reorganization of certain Amway affiliates in
December 1993 as part of the capitalization of Amway Asia Pacific Ltd. ("AAP"),
the Company, based upon an independent evaluation, transferred to AAP the stock
of Amway Pacific Limited, a former subsidiary of the Company, through which the
Company held a 95% interest in the joint venture company formed as the exclusive
distribution vehicle for
11
<PAGE> 48
Amway products in the People's Republic of China. This resulted in the
acquisition by the Company of 972,222 shares of common stock of AAP,
representing an acquisition price of approximately U.S.$17.5 million (Y1.9
billion) (based on the Noon Buying Rate of Y110.70 = U.S.$1.00 prevailing on
December 21, 1993). As a result of this transaction, the Company owns
approximately 2% of AAP's common stock. The Principal Shareholders own
approximately 83% of AAP's common stock, with the remainder publicly held. See
"Certain Transactions" and Note 4 of Notes to Consolidated Financial Statements.
OPERATIONS OUTSIDE THE UNITED STATES; CURRENCY FLUCTUATIONS
Substantially all of the Company's assets and operations are located, and
substantially all of its revenues are derived, outside the United States. The
Company's operations may be materially and adversely affected by economic,
political and social conditions in Japan where the Company is incorporated. A
change in trade and other policies by the Japanese government could adversely
affect the Company through, among other things, changes in laws, regulations, or
the interpretation thereof, taxation or restrictions on imports. Fluctuations in
currency exchange rates between the yen and the dollar could have a material
adverse effect on the Company's financial position, results of operations and
cash flows.
The prices for products purchased from Amway, which the Company pays for in
yen, are governed by a price schedule that Amway establishes based upon a U.S.
dollar "cost plus" base price calculation. In addition to the U.S. dollar "cost
plus" base price component of Amway's schedule, the current prices for these
products include an implicit dollar/yen exchange rate which the Company has
calculated to be approximately Y91 = U.S.$1.00 compared to an exchange rate that
applied to product purchases throughout fiscal 1995 of Y104 = U.S.$1.00. Amway
has the right to modify, on 30 days' prior written notice, the prices of
products to be purchased by the Company from Amway; 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. The Company believes that the dollar/yen
exchange rate is determined by Amway based on Amway's assessment of current and
future economic and business conditions, both in the United States and Japan,
market conditions with respect to the Company's products and other factors,
including the impact, if any, of hedging activities by Amway. Using the
Company's assumptions regarding product and sales mix and assuming the
application of the price schedule established for fiscal 1996 throughout fiscal
1996 and that the products purchased from Amway continue to represent 65% of the
Company's cost of sales, the use of an implicit exchange rate of Y91 = U.S.
$1.00 throughout fiscal 1996 would result in a 5.2% reduction in the Company's
cost of sales for fiscal 1996 as compared to fiscal 1995. As a result of the
Company's payment for its purchases of products from Amway in yen, and because
the Company does not currently hedge its currency transaction exposure relating
to the purchase of products from Amway, appreciation of the dollar against the
yen could have a material adverse effect on the Company's operating results to
the extent Amway modifies the implicit exchange rate component of the prices it
charges the Company for products. In addition, the strengthening of the yen
against the dollar has allowed the Company to maintain relatively stable pricing
historically, notwithstanding periodic changes by Amway in the U.S. dollar "cost
plus" base prices to the Company. The Company cannot predict whether such
strengthening of the yen against the dollar will continue. Further, the Company
cannot predict what portion of any price changes may be passed through to
distributors or the effect of any such price changes on net sales or distributor
retention or sponsoring. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Foreign Exchange Transaction Information"
and "Business -- Relationship with Amway -- Product Purchase Agreement."
All payments to Amway for investor relations services and for support
services performed by third parties (the internal labor charges were
substantially eliminated in September 1993, except for those expenses incurred
in connection with investor relations services) are paid for in dollars and the
Company bears the risk of currency exchange rate fluctuations in connection
therewith. See "Business -- Relationship with Amway -- Support Services
Agreement."
12
<PAGE> 49
IMPORT RESTRICTIONS AND REGULATION OF CONSUMER GOODS;
DUTIES AND U.S. TRADE RELATIONS
Approximately 80% of the Company's fiscal 1995 net sales was derived from
the distribution of products it purchased from Amway. Japan imposes various
legal restrictions on imports. In some cases, licenses are required to import
particular types of goods. In general, duties of varying amounts are imposed
based on the classification of the goods imported. Certain products the Company
imports, notably products in the Personal Care Line, are subject to health and
safety regulations. Certain products in the Nutrition Line are also subject to
governmental regulation regarding foods and drugs which has had the effect of
limiting the Company's ability to sell certain products. The Company has not
experienced any difficulty maintaining its import licenses nor has it
experienced difficulties regarding health and safety or food and drug
regulations for products sold by distributors; however, such regulations could
be changed in a manner that could have a material adverse effect on the Company.
Present or future health and safety or food and drug regulations could delay or
prevent the introduction of new products or suspend or prohibit the sale of
existing products. See "Business -- Government Regulation."
Duties on imports are a component of Japan's national trade and economic
policy and could be changed in a manner that would materially impact the
Company's sales and its competitive position compared to locally produced goods.
In particular, as has been widely reported, certain U.S. government and industry
leaders have been critical of Japanese trade policies, duties and import
restrictions. In the last twelve months, the U.S. took steps to impose trade
sanctions on Japan and certain Japanese products; however, such sanctions did
not become effective as a result of subsequent agreements between the U.S. and
Japan. If trade relations between the U.S. and Japan deteriorate or U.S. trade
sanctions are imposed, Japan could choose to retaliate by increasing duties or
imposing additional restrictions on imports of the type the Company purchases
from Amway. Depending on the nature or severity of the sanctions, this could
have a material adverse effect on the Company.
PRODUCT LIABILITY
Manufacturers and sellers of products in Japan may be subject under
applicable laws or legal precedents to liability for loss or injury caused by
such products. The Company is currently covered for product liability claims to
the extent of and under insurance programs maintained by Amway for the benefit
of its affiliates purchasing Amway products, including the Company. See
"Business -- Relationship with Amway -- Product Purchase Agreement" and "Certain
Transactions." Although the Company has not had material product liability
claims brought against it and the laws and legal precedents providing for such
liability in Japan have been utilized less than comparable laws and legal
precedents in the United States, no assurance can be given that the Company may
not be exposed to future product liability claims and, if any such claims were
successful, there can be no assurance that the Company will be adequately
covered by insurance or have sufficient resources to pay such claims. On July 1,
1995, a new product liability law went into effect in Japan. This law permits
consumers to establish product liability claims against manufacturers and
importers of goods upon a showing of a defective condition in such goods rather
than negligence as was previously required. As a result of this new law, Amway
as the manufacturer and the Company as the importer of consumer products may be
subject to increased potential liability for loss or injury caused by such
products. See "Business -- Government Regulation -- Product Liability."
CONTROLLING SHAREHOLDERS
Following the Exchange (assuming no other disposition or acquisition of
Common Stock or ADSs by the Principal Shareholders prior to the Exchange Date),
the Principal Shareholders will collectively own beneficially 78.6% of the
outstanding shares of Common Stock (77.9% if the Underwriters' over-allotment
option is exercised in full). After taking into account the delivery of ADSs or
Common Stock by the Selling Shareholders on the Exchange Date and the Principal
Shareholders' participation in the proposed share repurchase described under the
caption "Prospectus Summary -- Recent Developments," the Principal Shareholders,
if they act in concert, will continue to be able to control the election of the
Board of Directors of the Company (the "Board of Directors") and, thus, the
direction and future operations of the Company
13
<PAGE> 50
without the supporting vote of any other holder of Common Stock or ADSs,
including decisions regarding acquisitions, dispositions and other business
opportunities, the declaration of dividends and the repurchase or the issuance
of shares of Common Stock and other securities. In general, as long as the
Principal Shareholders are majority shareholders of the Company and act in
concert, third parties will not be able to obtain control of the Company through
purchases of ADSs or shares of Common Stock not held by the Principal
Shareholders.
LESSER RELATIVE LIQUIDITY OF JAPANESE OVER-THE-COUNTER MARKET
The principal market for the Common Stock is the Japanese over-the-counter
("OTC") market. The Japanese OTC market is not as large or as active as the
Tokyo Stock Exchange (the "TSE") or the New York Stock Exchange (the "NYSE"). As
a result, the Japanese OTC market is less liquid and may be more volatile than
the TSE or the NYSE. At August 31, 1995, the Japanese OTC market had an
aggregate market capitalization of approximately Y13.0 trillion (U.S.$132.7
billion) compared to the Y339.7 trillion (U.S.$3.5 trillion) market
capitalization of the companies listed for trading on the TSE and U.S.$5.5
trillion for the NYSE. The aggregate annual equity trading value of the Japanese
OTC market in 1994 was Y5.4 trillion (U.S.$55.1 billion) compared to the
aggregate annual equity trading value for the same period of Y87.4 trillion
(U.S.$891.9 billion) for the TSE and U.S.$2.5 trillion for the NYSE. At August
31, 1995, the aggregate market capitalization of the Company in the Japanese OTC
market represented 4.1% of the aggregate market capitalization of the entire
Japanese OTC market. The Company does not currently meet the published listing
criteria and other requirements for the TSE and no assurance can be given that
the Common Stock will ever be listed on the TSE.
SIGNIFICANT RESTRICTIONS ON COMMON STOCK UNDER JAPANESE UNIT SHARE SYSTEM
Pursuant to the Commercial Code of Japan relating to joint stock
corporations (kabushiki kaisha) and certain related legislation (the "Commercial
Code"), the Company's Articles of Association, as amended (the "Articles of
Association"), provide that 100 shares of Common Stock constitute one "unit."
Thus, a holder who owns ADRs representing less than 200 ADSs will indirectly own
less than a whole unit, because each ADS represents one-half of one share of
Common Stock. The Commercial Code imposes significant restrictions and
limitations on holdings of Common Stock that do not constitute whole units. In
general, under the unit share system, holders of less than a unit do not have
the right to vote, to transfer shares other than to the issuer or to bring
derivative actions on behalf of the issuer. Under the unit share system, holders
of less than a unit of shares of Common Stock have the right to require the
Company to purchase their shares. Holders of ADRs representing other than
integral multiples of whole units of Common Stock are unable to withdraw the
underlying shares of Common Stock representing less than one unit and,
therefore, they are unable, as a practical matter, to exercise the right to
require the Company to purchase such underlying shares. The unit share system
does not affect the transferability of ADSs, which may be transferred in lots of
any size.
The voting rights of ADR holders are exercised through the Depositary, an
agent of which is the record owner of the underlying shares of Common Stock.
Upon receipt of instructions of a record holder of ADRs, the Depositary shall
endeavor, insofar as practicable and permitted, to vote or cause to be voted the
securities represented by such holder's ADRs in accordance with such
instructions. If such instructions are not received by the Depositary on or
before the date established by the Depositary for such purpose, the Depositary
shall deem such holder to have instructed the Depositary to give a discretionary
proxy to the persons designated by the Company to vote the securities
represented by such holder's ADRs subject to certain exceptions. See
"Description of American Depositary Receipts -- Voting of Deposited Securities."
To the extent the shares voted for or against a proposal do not constitute
integral multiples of a unit, any remainders in excess of the highest integral
multiple of a unit will be disregarded. However, the elimination of such
remainders from the aggregate votes of all the underlying shares represented by
ADRs would not currently exceed a total of 99 shares of Common Stock or 199
ADSs.
The unit share system generally will not affect the rights of ADR holders
(i) to receive dividends (including interim dividends), (ii) to receive shares
and/or cash by way of stock split or upon consolidation or subdivision of shares
or upon a capital decrease or merger, (iii) to be allotted subscription rights
with respect to new shares, convertible bonds and bonds with warrants to
subscribe for shares when such rights are granted
14
<PAGE> 51
to shareholders and (iv) to participate in the distribution of surplus assets in
the event of the liquidation of the Company. For a more complete description of
the unit share system and its effect on the rights of holders of the Common
Stock and holders of ADRs, see "Description of Capital Stock -- Japanese Unit
Share System" and "Description of American Depositary Receipts."
RIGHTS OF SHAREHOLDERS UNDER JAPANESE LAW
MAY BE LESS THAN UNDER U.S. JURISDICTIONS
The Company's corporate affairs are governed by its Articles of Association
and the Commercial Code. Principles of law relating to such matters as the
validity of corporate procedures, the fiduciary duties of directors and officers
and the rights of the Company's shareholders may differ from those that would
apply if the Company were incorporated in a jurisdiction within the United
States. For example, under the Commercial Code, only holders of 3% or more of
the Common Stock are entitled to examine the Company's accounting books and
records. The rights of shareholders under Japanese law may not be as extensive
as the rights of shareholders under legislation or judicial precedent in many
United States jurisdictions. Thus, holders of the Common Stock or ADSs may have
more difficulty in protecting their interests in the face of actions by the
Board of Directors or the Principal Shareholders than they might have as
shareholders of a corporation incorporated in many United States jurisdictions.
In addition, there is uncertainty whether the courts of Japan would enforce
liabilities of the Company in actions brought in Japan which are predicated upon
the securities laws of the United States or any state thereof. See
"Enforceability of Civil Liabilities," "Description of Capital Stock" and
"Description of American Depositary Receipts."
RECORD OWNERSHIP AND SHAREHOLDER RIGHTS
In general, the rights of shareholders under Japanese law to, among other
things, vote their shares, receive dividends and distributions, bring derivative
actions, examine the accounting books and records of the issuing corporation
(subject to the 3% holdings limitation discussed above under the caption
" -- Rights of Shareholders Under Japanese Law May Be Less Than Under U.S.
Jurisdictions") and exercise appraisal rights are available only to holders of
record. Because the Depositary (through its agent) is the record holder of the
shares of Common Stock underlying the ADSs, only the Depositary is entitled to
exercise such rights with respect to such shares.
Pursuant to the contractual obligations of the Depositary under the Deposit
Agreement, the voting rights of ADR holders and rights of ADR holders to receive
dividends and other distributions are not materially affected by the absence of
record ownership because the Depositary will endeavor insofar as practicable and
permitted under the provisions of or governing the Deposited Securities (as
defined in "Description of American Depositary Receipts"), to vote the
underlying shares of Common Stock as instructed by ADR holders and will pay to
holders of ADRs the dividends and distributions collected from the Company.
However, an ADR holder in its capacity as such will not be able to bring a
derivative action, examine the accounting books and records of the Company or
exercise appraisal rights through the Depositary. An ADR holder whose holdings
represent at least one unit (200 ADSs) would be able to withdraw the underlying
shares in integral multiples of one unit and become a record holder entitled to
the full rights of a shareholder under Japanese law with respect to such units.
However, as described above under " -- Significant Restrictions on Common Stock
Under Japanese Unit Share System," withdrawal of the underlying shares is not
available to ADR holders of less than one unit. ADR holders of both whole and
fractional units are permitted to withdraw only the underlying shares of the
whole units. As a result, with respect to the fractions of a unit, an ADR holder
will not have certain rights which are dependent upon record ownership of the
underlying shares of Common Stock and will not be able to withdraw the
underlying shares in order to become the record owner.
TERMINATION OF DEPOSIT AGREEMENT
The Deposit Agreement may be terminated at any time by the Company on 30
days' written notice. In addition, the Deposit Agreement terminates if a
successor Depositary has not been appointed within 60 days after the Depositary
notifies the Company of its election to resign. If the Deposit Agreement is
terminated, the
15
<PAGE> 52
Depositary will cease to perform any further acts under the Deposit Agreement,
including the transfer of ADRs, the distribution of dividends and the giving of
further notices, except that the Depositary will continue to deliver underlying
securities and related dividends or other distributions in exchange for
surrendered ADRs and perform certain other limited functions. As soon as
practicable after the expiration of six months following the termination of the
Deposit Agreement, the Depositary, subject to the provisions of the Commercial
Code and the Share Handling Regulations of the Company, shall sell the shares of
Common Stock remaining on deposit which constitute integral multiples of one
whole unit and hold the net proceeds for the ratable benefit of the holders of
unsurrendered ADRs. The Company does not intend to terminate the Deposit
Agreement or to permit the resignation of the Depositary without appointing a
successor Depositary.
16
<PAGE> 53
MARKET INFORMATION
JAPANESE OTC MARKET
The principal securities market for the Common Stock is the Japanese OTC
market. Trading in the Common Stock in the Japanese OTC market began in April
1991. The following table sets forth certain price information and average daily
trading volume for the fiscal quarters shown for the Common Stock in the
Japanese OTC market. High and low sales prices are shown in yen as reported by
the Japan Securities Dealers Association (the "JSDA") and, solely for the
convenience of the reader, in U.S. dollars per share of Common Stock at the Noon
Buying Rate on the last trading date of each fiscal quarter, except as noted.
<TABLE>
<CAPTION>
AVERAGE
DAILY
YEN PRICE PER TRADING DOLLAR PRICE
SHARE VOLUME PER SHARE(1)
--------------- (IN THOUSANDS ---------------
HIGH LOW OF SHARES) HIGH LOW
----- ----- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
FY 1994 First Quarter.................. 4,200 2,700 44.3 38.50 25.75
Second Quarter................ 4,950 3,400 26.9 47.50 32.62
Third Quarter................. 4,850 3,910 19.0 46.31 37.33
Fourth Quarter................ 4,300 3,300 46.8 42.95 32.96
FY 1995 First Quarter.................. 3,470 2,920 48.2 38.08 29.52
Second Quarter................ 3,450 2,650 34.5 35.71 27.43
Third Quarter................. 3,240 2,550 57.7 38.28 30.12
Fourth Quarter................ 3,590 2,700 78.3 36.63 27.55
FY 1996 First Quarter (through
November 8, 1995)............. 4,620 3,200 254.52 45.07 31.22
</TABLE>
- ---------
(1) Each ADS represents one-half of one share of Common Stock.
On August 31, 1995, the closing sale price per share of Common Stock in the
Japanese over-the-counter market as reported by the Japan Securities Dealers
Association was Y3,540 per share. See the cover page of this Prospectus for
recent price information for the Common Stock in the Japanese OTC market.
U.S. MARKET
In February 1993, the Company sponsored a deposit facility for its American
Depositary Shares, which, at that time, traded in the unlisted OTC market in the
United States (the "Level I ADSs"). Beginning on June 29, 1994, the ADSs began
to trade on the New York Stock Exchange ("NYSE"). Prior to June 29, 1994,
quotations for the Level I ADSs from certain market makers in the U.S. OTC
market were provided in the so-called "pink sheets" published daily by the
National Quotations Bureau, Inc. listing the bid and ask prices, if any, for the
previous trading day. Quotations for the Level I ADSs began appearing in the
"pink sheets" in September 1993 (the first quarter of fiscal 1994). U.S. OTC
quotations published in the "pink sheets" reflected interdealer prices without
retail mark-up, mark-down or commission and did not necessarily represent actual
transactions at those or any other prices.
The following table sets forth (i) beginning with the first quarter of
fiscal 1994 (when quotations for the Level I ADSs first appeared in the "pink
sheets"), for the fiscal quarters shown, high and low bid prices in U.S.
dollars, as published in the National Quotations Bureau, Inc.'s "pink sheets"
for the Level I ADSs in the U.S. OTC market until the time the ADSs began
trading on the NYSE (during such periods, there were no published ask prices);
and (ii) the high and low composite closing sales prices in U.S. dollars for the
ADSs, listed on the NYSE, beginning on June 29, 1994. The bid prices in the
following table have been adjusted to
17
<PAGE> 54
reflect the change, effective June 14, 1994, of the number of shares represented
by each Level I ADS from one share of Common Stock to one-half of one share of
Common Stock.
<TABLE>
<CAPTION>
LEVEL I ADSS
-------------------
BID
-------------------
OTC MARKET HIGH LOW
---------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
FY 1994 First Quarter................................................... $19.80 $14.28
Second Quarter.................................................. 22.11 15.13
Third Quarter................................................... 23.11 19.02
Fourth Quarter (through June 28, 1994).......................... 20.80 18.14
</TABLE>
<TABLE>
<CAPTION>
ADSS
-------------------
NYSE HIGH LOW
---------------------------------------------------------------- ------ ------
<S> <C> <C> <C>
FY 1994 Fourth Quarter (beginning June 29, 1994)........................ $19.00 $16.50
FY 1995 First Quarter................................................... 17.00 14.50
Second Quarter.................................................. 16.75 14.75
Third Quarter................................................... 19.38 14.38
Fourth Quarter.................................................. 19.25 17.38
FY 1996 First Quarter (through November 8, 1995)........................ 22.88 16.38
</TABLE>
18
<PAGE> 55
DIVIDENDS AND DIVIDEND POLICY
The Articles of Association provide that the Company's financial accounts
shall be closed on August 31 each year (the end of the Company's fiscal year),
and that such date shall be the record date for the payment of year-end
dividends, if any. The payment of year-end dividends is subject to shareholder
approval. In addition, the Company may, by resolution of the Board of Directors,
pay interim cash dividends once each fiscal year to shareholders of record as of
the close of business on the last day of February of such fiscal year, without
shareholder approval. Pursuant to the current provisions of the Commercial Code,
after the end of each fiscal year, the Board of Directors prepares, among other
things, a proposal for appropriation of profits and retained earnings to
year-end dividends and other purposes. This proposal is then submitted to
shareholders for approval at the Ordinary General Meeting of Shareholders which,
pursuant to the Articles of Association, must be convened within three months
after the close of the fiscal year. Historically, year-end dividends have been
paid promptly following approval thereof at the shareholders meeting to holders
of record as of the preceding August 31. Although the interim dividend is
ordinarily declared and the year-end dividend is approved subsequent to the last
day of February or the August 31 record date, as the case may be, the Common
Stock generally trades in the Japanese OTC market "ex-dividend" three business
days in advance of each record date (unless the record date is not a business
day, in which case the ex-dividend date is four business days prior to the
record date). For additional information regarding procedures and pending
procedures for the declaration of dividends, see "Description of Capital
Stock -- Dividends."
The following table sets forth the dividends paid with respect to each
fiscal year indicated to holders of the Common Stock.
<TABLE>
<CAPTION>
DIVIDEND PAID PER
FISCAL COMMON SHARE
YEAR ENDED ------------------
AUGUST 31, Y U.S.$(1)
---------------------------------------- --- --------
<S> <C> <C>
1993 60 0.54
1994(2) 140 1.39
</TABLE>
- ---------
(1) Yen dividend amounts per share of Common Stock appearing in this table and
the footnotes are translated solely for the convenience of the reader into
U.S. dollars at the Noon Buying Rate on the dividend payment date. Each ADS
represents one-half of one share of Common Stock.
(2) Includes (i) a special, commemorative interim dividend in recognition of the
Company's 15 years of operations, of Y30 (U.S.$0.29) per share of Common
Stock and a regular interim dividend of Y30 (U.S.$0.29) per share of Common
Stock paid on May 10, 1994 to holders of record on February 28, 1994 and
(ii) a regular year-end dividend of Y30 (U.S.$0.31) per share of Common
Stock and a special year-end dividend of Y50 (U.S.$0.50) per share of Common
Stock paid on December 9, 1994 to holders of record on August 31, 1994.
In fiscal 1995, the Company paid a regular interim dividend of Y45
(U.S.$0.54) per share of Common Stock and a special interim dividend of Y50
(U.S.$0.60) per share of Common Stock on May 20, 1995 to holders of record on
February 28, 1995. The Company has announced its intention to pay, subject to
legal and other factors, a regular year-end dividend for fiscal 1995 of Y45
(U.S.$0.46) per share of Common Stock and a special year-end dividend of Y50
(U.S.$0.51) per share of Common Stock. Such year-end dividends would be payable
in December 1995 to holders of record on August 31, 1995. If such regular and
special year-end dividends are paid as proposed, dividends paid with respect to
fiscal 1995 would total Y190 (U.S.$1.94) per share of Common Stock.
In October 1995, the Company announced its intention to increase the rate
of its regular annual dividend with respect to fiscal 1996 to Y100 (U.S.$1.02)
per share of Common Stock from Y90 (U.S.$0.92) per share of Common Stock with
respect to fiscal 1995. Such increased annual dividend rate would be paid with
respect to fiscal 1996 as a Y50 (U.S.$0.51) per share interim dividend payable
in May 1996 to holders of record on February 28, 1996 and as a Y50 (U.S.$0.51)
per share year-end dividend promptly following shareholder approval at the
November 1996 Ordinary General Meeting of Shareholders to holders of record on
August 31, 1996.
19
<PAGE> 56
In October 1995, the Company also announced its intention to pay a special
interim dividend with respect to fiscal 1996 of Y25 (U.S.$0.26) per share of
Common Stock in May 1996 in addition to the proposed interim dividend of Y50
(U.S.$0.51) per share of Common Stock described above for a total fiscal 1996
interim dividend of Y75 (U.S.$0.77) per share of Common Stock. The 1996 interim
dividend and the 1996 special interim dividend are proposed to be paid on the
same date in May 1996 to holders of record on February 28, 1996. Interim
dividends are not subject to shareholder approval. See "Description of Capital
Stock -- Dividends."
Future dividend policy depends upon a variety of factors, many of which are
beyond the control of the Company. The dividends described above and any other
future dividends will depend on the Company's earnings, capital requirements,
financial condition, the sufficiency of funds legally available for the payment
of dividends and other factors considered relevant by the Board of Directors and
upon receiving shareholder approval for year-end dividends or when otherwise
required. The funds legally available, at August 31, 1995, for the payment of
such dividends in fiscal 1996 and the proposed share repurchase described under
the caption "Prospectus Summary -- Recent Developments" totalled Y45.2 billion
(U.S.$461.2 million), which amount is sufficient for the payment of such
dividends and such share repurchase. There can be no assurance that the Company
will be able to pay the foregoing dividends or any other dividends in the future
or that the Company will repurchase any of its shares.
Under Japanese foreign exchange controls currently in effect, dividends
paid on, and the proceeds of sales in Japan of, shares of Common Stock held by
non-residents of Japan may be converted into any foreign currency and
repatriated abroad. See "Exchange Controls and Other Limitations Affecting
Securityholders." For a description of additional dividend matters relevant to
holders of ADSs, see "Description of American Depositary
Receipts -- Distributions on Deposited Securities."
Dividends paid to U.S. holders of ADSs will be generally subject to a
Japanese withholding tax at the rate of 15%. For United States federal income
tax purposes, U.S. holders of ADRs evidencing ADSs will be treated as the owners
of the underlying Common Stock. Cash dividends (including the amount of any
Japanese taxes withheld therefrom) paid with respect to the underlying Common
Stock are includible in the gross income of a U.S. holder as ordinary income
when the dividends are received by the Depositary and are not eligible for the
dividends received deduction allowed to corporations. Japanese withholding tax
paid by or for the account of any U.S. holder will generally be eligible for
credit against the holder's U.S. federal income tax liability. See "Taxation."
20
<PAGE> 57
EXCHANGE RATES
The rate of exchange between the yen and the dollar is determined by the
forces of supply and demand in the foreign exchange markets, which in turn are
affected by changes in the balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. The
following table sets forth for the periods indicated certain information
concerning the exchange rate for yen and dollars, based on the Noon Buying Rates
during each such fiscal period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, HIGH LOW AVERAGE(1) PERIOD-END
- -------------------------------------------- ------- ------- ---------- -----------
(AMOUNTS IN YEN PER DOLLAR)
<S> <C> <C> <C> <C>
1991........................................ Y143.55 Y125.05 Y135.76 Y136.85
1992........................................ 136.15 122.95 128.65 122.95
1993........................................ 126.10 101.10 115.46 104.73
1994........................................ 113.10 96.81 104.69 100.11
1995........................................ 99.60 84.04 93.08 97.75
</TABLE>
- ---------
(1) The average of month-end rates during the period.
On November 8, 1995, the Noon Buying Rate was Y102.5 = U.S.$1.00. As stated
previously, for the convenience of the reader translations of financial
information from yen into dollars have been made, except as otherwise indicated,
at the rate of 98 yen to the dollar, the approximate rate of exchange on August
31, 1995 (which does not differ materially from the Noon Buying Rate of Y97.75
on such date).
Fluctuations in exchange rates will affect the foreign currency amounts
received when dividends are remitted outside Japan to holders of ADSs. Such
fluctuations also affect the foreign currency equivalents of the yen price of
the Common Stock in the Japanese OTC market, and therefore are likely to affect
the market price of the ADSs in the United States.
21
<PAGE> 58
SELECTED FINANCIAL INFORMATION
The following selected income statement and balance sheet information has
been derived from the consolidated financial statements of the Company. Such
information at August 31, 1995 and for each of the years in the five year period
ended August 31, 1995 has been derived from the Company's audited consolidated
financial statements (the last three years of which, together with the related
report of Deloitte Touche Tohmatsu, independent auditors, are contained in this
Prospectus). All such financial information is qualified in its entirety by
reference to, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements (including Notes thereto).
The Company prepares its consolidated financial statements in accordance
with Japanese GAAP, which differ in certain material respects from U.S. GAAP.
See Notes 10 and 11 of Notes to Consolidated Financial Statements, which present
a reconciliation of U.S. GAAP and Japanese GAAP.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- ----------
(U.S.$)(1)
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF YEN AND THOUSANDS OF DOLLARS EXCEPT PER SHARE AND ADS AMOUNTS AND SHARES OUTSTANDING)
INCOME STATEMENT INFORMATION:
In accordance with Japanese GAAP:
Net sales........................ Y123,038 Y123,253 Y130,028 Y157,556 Y177,991 $1,816,235
Cost of sales.................... 34,832 36,087 37,319 43,576 47,515 484,847
-------- -------- -------- -------- -------- ----------
Gross profit..................... 88,206 87,166 92,709 113,980 130,476 1,331,388
-------- -------- -------- -------- -------- ----------
Distributor incentives........... 30,417 31,908 34,001 42,652 47,885 488,622
Distribution expenses............ 6,805 7,653 7,773 8,324 8,853 90,337
Selling and administrative
expenses(2).................... 11,260 15,188 16,810 19,616 24,022 245,123
-------- -------- -------- -------- -------- ----------
Total operating expenses......... 48,482 54,749 58,584 70,592 80,760 824,082
-------- -------- -------- -------- -------- ----------
Operating income................. 39,724 32,417 34,125 43,388 49,716 507,306
Other income -- net.............. 2,464 3,487 2,485 2,557 1,733 17,684
-------- -------- -------- -------- -------- ----------
Income before income taxes....... 42,188 35,904 36,610 45,945 51,449 524,990
Income taxes..................... 23,307 19,373 20,759 25,341 28,387 289,663
-------- -------- -------- -------- -------- ----------
Net income....................... Y 18,881 Y 16,531 Y 15,851 Y 20,604 Y 23,062 $ 235,327
========= ========= ========= ========= ========= ==========
Net income per share(3).......... Y 129.28 Y 110.49 Y 105.94 Y 137.70 Y 154.13 $ 1.57
Net income per ADS(4)............ Y 64.64 Y 55.24 Y 52.97 Y 68.85 Y 77.07 $ 0.79
Shares outstanding (in
thousands)..................... 146,050 149,625 149,625 149,625 149,625 149,625
In accordance with U.S. GAAP:(5)
Net income....................... Y 19,932 Y 16,335 Y 16,576 Y 20,452 Y 24,447 $ 249,459
Net income per share(3).......... 136.47 109.17 110.78 136.69 163.39 1.67
Net income per ADS(4)............ 68.24 54.59 55.39 68.34 81.70 0.83
BALANCE SHEET INFORMATION:
In accordance with Japanese GAAP:
Working capital.................. Y 50,976 Y 57,030 Y 62,305 Y 68,852 Y 43,566 $ 444,551
Total assets..................... 87,091 93,008 101,976 116,535 121,810 1,242,959
Total shareholders' equity....... 56,904 64,687 72,297 79,171 77,882 794,714
In accordance with U.S. GAAP:(5)
Working capital.................. Y 55,465 Y 61,284 Y 70,435 Y 73,397 Y 51,317 $ 523,643
Total assets..................... 90,727 96,472 106,239 120,991 129,503 1,321,459
Total shareholders' equity....... 60,539 68,147 76,494 83,231 83,661 853,684
OTHER INFORMATION:
Number of distributors(6)(7)..... 597,000 752,000 816,000 896,000 980,000
Number of direct
distributors(7)(8)............. 4,500 4,600 4,800 5,900 7,100
Renewal rate(9).................. 68.2% 67.6% 71.7% 72.8% 71.8%
</TABLE>
22
<PAGE> 59
- ---------
(1) Translated at the rate of Y98 = U.S.$1.00, the approximate rate of exchange
based on the Noon Buying Rate on August 31, 1995.
(2) In preparing this selected financial information, enterprise taxes have been
reclassified from selling and administrative expenses to income taxes in
order to present this selected financial information in a format which is
more consistent with U.S. disclosure practices. See Notes 1 and 10 of Notes
to Consolidated Financial Statements.
(3) The computation of net income per share is based on the weighted average
number of shares of Common Stock outstanding during the period retroactively
adjusted for stock splits.
(4) Each ADS represents one-half of one share of Common Stock.
(5) The Company prepares its consolidated financial statements in accordance
with Japanese GAAP which differ in certain respects from U.S. GAAP. A
discussion of the significant differences between Japanese GAAP and U.S.
GAAP and reconciliations of net income and shareholders' equity on a
Japanese GAAP basis to a U.S. GAAP basis is set forth in Note 10 of the
Notes to Consolidated Financial Statements.
(6) Includes total number of distributorships (including direct
distributorships) in force from the prior fiscal year which were renewed for
the fiscal year shown. Numbers of distributors are rounded to the nearest
thousand. The number for each fiscal year does not reflect the total number
of distributors for each fiscal year because it does not include new
distributors who enrolled during such fiscal year.
(7) Multiple persons in the same household (such as a married couple) who are
distributors are considered a single distributorship.
(8) "Direct distributors" are distributors who have achieved a significant level
of performance for a specified period. See
"Business -- Distribution -- Direct Distributors." Numbers of direct
distributors are rounded to the nearest hundred.
(9) Percentage of all distributorships in force from the prior fiscal year which
were renewed for the fiscal year shown.
23
<PAGE> 60
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 Selected
Financial Information, the Consolidated Financial Statements (including Notes
thereto) and the other information included elsewhere in this Prospectus. The
Company's fiscal year ends August 31 of each year.
OVERVIEW
The Company distributes approximately 130 different consumer products
through independent distributors. At August 31, 1995, the Company had
approximately 980,000 independent distributors who had renewed their
distributorships from the prior fiscal year. Substantially all of the Company's
revenues are derived from the sale by the Company to distributors of these
consumer products. The Company also receives revenues from other products, which
include starter and sponsor kits for new distributors and other business support
materials to existing distributors, and from distributor renewal fees. See
"Business -- Products." The Company recognizes sales when products are shipped
to distributors.
The level of the Company's net sales is directly dependent upon the efforts
of the distributors. For fiscal 1995, the Company's distributor renewal rate was
71.8% compared to 72.8% for fiscal 1994 and 71.7% for fiscal 1993. Because of
the number of factors that impact sponsoring, the Company cannot predict when or
to what extent increases and decreases in the level of sponsoring (as measured
by distributor applications) will occur in future periods. Net sales in any
particular period are also affected by a variety of other factors, such as
shifts in product mix, pricing, product improvements and the introduction of
major new products which tend to stimulate distributor interest and thus sales.
In addition, net sales are affected by certain external factors, such as current
economic conditions. See "Risk Factors -- Reliance Upon Independent
Distributors; Possible Negative Effects of Adverse Publicity" and
"Business -- Distribution -- Sponsoring."
A significant expense for the Company is cost of sales. Approximately 65%
of the Company's cost of sales for fiscal 1995 represented purchases of products
from Amway, which the Company pays for in yen. The prices for these products are
governed by a price schedule which Amway establishes periodically based upon a
U.S. dollar "cost plus" base price calculation. In addition to the U.S. dollar
"cost plus" base price component of Amway's schedule, the current prices for
these products include an implicit dollar/yen exchange rate which the Company
has calculated to be approximately Y91 = U.S.$1.00 compared to an implicit
exchange rate that applied to product purchases throughout fiscal 1995 of Y104 =
U.S.$1.00. Amway has the right to modify, on 30 days' prior written notice, the
prices of products to be purchased by the Company from Amway; 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. The Company believes that the
dollar/yen exchange rate is determined by Amway based on Amway's assessment of
current and future economic and business conditions, both in the United States
and Japan, market conditions with respect to the Company's products and other
factors, including the impact, if any, of hedging activities by Amway. Using the
Company's assumptions regarding product and sales mix and assuming the
application of the price schedule established for fiscal 1996 throughout fiscal
1996 and that the products purchased from Amway continue to represent 65% of the
Company's cost of sales, the use of an implicit exchange rate of Y91 = U.S.$1.00
throughout fiscal 1996 would result in a 5.2% reduction in the Company's cost of
sales for fiscal 1996 as compared to fiscal 1995. No assurances can be given
that Amway will not modify such U.S. dollar "cost plus" base price, or as to the
effect of any such modification on the Company. See "Risk Factors -- Operations
Outside the United States; Currency Fluctuations," " -- Foreign Exchange
Transaction Information" and "Business -- Relationship with Amway -- Product
Purchase Agreement."
The Company pays, as a cost of sales, all freight, handling, duties and
taxes associated with the importation of the goods, as well as the cost of the
initial transportation of the goods from the point of entry to a local
warehouse. Cost of sales also includes a provision for loss on inventory
disposal.
Because 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, a significant portion
24
<PAGE> 61
of the Company's operating expenses fluctuates with the volume of sales. See
"Business -- Distribution." Distributors earn incentives based on the purchase
of products by them and their downline distributors. Bonuses are not typically
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 under the Sales Plan and tied to the
volume and cost of products purchased by the distributors.
Other operating expenses consist of distribution expenses and selling and
administrative expenses. Distribution expenses include the costs associated with
having products available for, or delivering products to, distributors including
the costs of warehouse and distribution facilities.
Selling and administrative expenses include, in addition to corporate staff
overhead, the costs of motivational sales meetings, product demonstration
seminars and product fairs, training sessions, distributor leadership seminars
and business promotion meetings. Corporate image advertising, civic events and
other promotional activities are also selling and administrative expenses.
Included in selling and administrative expenses are charges relating to
various administrative support services provided to the Company by Amway
pursuant to the Support Services Agreement. These services include legal,
accounting, tax, treasury, marketing, insurance, inventory control, investor
relations and human resources. These charges include direct costs incurred by
Amway for investor relations services and direct costs payable by Amway to third
parties for services. Prior to September 1, 1993, these charges also included
certain internal labor costs relating to those services provided by Amway to the
Company. These internal labor costs, which aggregated Y352.3 million for fiscal
1993, were eliminated on September 1, 1993 (except for those expenses incurred
in connection with investor relations services). See "Business -- Relationship
with Amway -- Support Services Agreement."
Other income-net is principally a combination of interest income and gains
and losses on a portion of the investment portfolios held by Amway Japan
Enterprises Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company ("AJEI"). See " -- Liquidity and Capital Resources" and Note 12 of Notes
to Consolidated Financial Statements.
Under Japanese law, the Company is subject to a number of taxes based on
earnings, such as corporate tax, inhabitants tax and enterprise tax. As
described below, the Company's effective tax rates differ from the statutory tax
rates due to the effect of expenditures which are permanently non-deductible for
tax purposes and timing differences in the recognition of certain items of
income and expense.
The Company's financial condition and results of operations will also be
affected by certain actions that may be taken by the Company to avoid "passive
foreign investment company" status for U.S. federal income tax purposes because
such actions would reduce the Company's cash position. The Company does not
expect these actions to have a material impact on its results of operations. See
"Taxation -- United States Federal Income Taxation -- Passive Foreign Investment
Companies."
For a discussion of certain governmental matters which apply to the Company
and its business see "Risk Factors -- Regulation of Certain Direct Selling
Activities," " -- Operations Outside the United States; Currency Fluctuations,"
" -- Product Liability" and "Business -- Government Regulation."
25
<PAGE> 62
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
the specific components of income and expense for the fiscal years ended August
31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of sales.................................................... 28.7 27.7 26.7
------ ------ ------
Gross profit..................................................... 71.3 72.3 73.3
------ ------ ------
Distributor incentives........................................... 26.1 27.1 26.9
Distribution expenses............................................ 6.0 5.3 5.0
Selling and administrative expenses.............................. 12.9 12.5 13.5
------ ------ ------
Total operating expenses......................................... 45.1 44.8 45.4
------ ------ ------
Operating income................................................. 26.2 27.5 27.9
Other income -- net.............................................. 1.9 1.6 1.0
------ ------ ------
Income before income taxes....................................... 28.2 29.2 28.9
Income taxes..................................................... 16.0 16.1 15.9
------ ------ ------
Net income....................................................... 12.2% 13.1% 13.0%
====== ====== ======
</TABLE>
- ---------
Figures may not add to 100% due to rounding.
The Company operates in a single business segment, consumer products, and
in a single geographic market, Japan. The following table sets forth the net
sales by product line for the fiscal years ended August 31, 1993, 1994 and 1995.
NET SALES BY PRODUCT LINE
(IN MILLIONS OF YEN)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Personal Care.............................................. Y 41,888 Y 46,000 Y 55,491
Housewares................................................. 26,629 46,522 50,754
Nutrition.................................................. 33,691 37,031 42,360
Home Care.................................................. 21,754 21,549 22,371
Other Products............................................. 6,066 6,454 7,015
-------- -------- --------
Y130,028.. Y157,556 Y177,991
======== ======== ========
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales for fiscal 1995 of Y178.0 billion increased Y20.4
billion, or 13%, over net sales during fiscal 1994. All product categories
contributed to this increase, with the largest growth occurring in the Personal
Care and Nutrition Lines. Personal Care Line sales increased 20.6% and Nutrition
Line sales increased 14.4%. The Housewares Line and Other Products increased
9.1% and 8.7%, respectively. Competitive pricing pressures on household products
limited growth within the Home Care Line, which showed a more modest increase of
3.8%. Of the Y178.0 billion of fiscal 1995 net sales, Y71.9 million, or 40.4%,
is attributable to new products introduced during the 24-month period ended
August 31, 1995.
The largest contributor to growth within the Personal Care Line during
fiscal 1995 was the Amway World Plaza collection of apparel and accessories
which includes 58 new items that were added during fiscal 1995. Artistry(R) Self
Acting skin cream, which was launched in May 1995, and other skin care products,
particularly the Skin Care Trial Kit, also had a significant impact on fiscal
1995 growth. The Body Shampoo and Body Care Towel, launched in October 1994,
contributed to a lesser extent.
26
<PAGE> 63
Growth within the Nutrition Line was almost entirely attributable to sales
of the Company's Triple X food supplement, which was launched during the second
quarter of fiscal 1995. Sales of other food supplement products decreased in
fiscal 1995. Because Triple X was designed to be a complete, all-inclusive
nutritional supplement, the Company believes that the decrease in sales of other
food supplement products is directly related to the introduction of Triple X.
Within the Housewares Line, sales of Amway Queen(R) Cookware increased Y2.5
billion, or 17.2% over fiscal 1994. In addition, the Amway Queen(R) 7-ply
Utility Pan, which was reintroduced in October 1994, showed strong sales in
fiscal 1995. The combined fiscal 1995 sales of Amway Queen(R) Cookware, the
Amway Queen(R) 7-Ply Utility Pan and the Amway Queen(R) Wok were Y21.7 billion
and accounted for 12.2% of net sales. Sales of water treatment system units,
together with replacement parts, showed a slight increase over those of the
prior year and accounted for Y22.8 billion or 12.8% of net sales in fiscal 1995
compared to 13.7% of net sales for fiscal 1994.
The modest increase in sales in the Home Care Line was primarily
attributable to the introduction in April 1995 of the Super Concentrated
Cleaning system, a product that includes highly concentrated cleaning agents and
a mechanism that allows the user to adjust the strength of such agents. The
increase in Other Product sales was largely attributable to renewal fee income,
which increased 20.2% over fiscal 1994 due to increases in both the Company's
renewal fee and the number of distributor renewals.
Gross Profit. Gross profit during fiscal 1995 increased Y16.5 billion, or
14.5%, over that of fiscal 1994. The improvement in gross profit was caused by
the improvement in the implicit dollar/yen exchange rate between Amway and the
Company partially offset by an increase in prices for products purchased by the
Company from Amway. The introduction of the higher-margin Artistry(R) Self
Acting skin cream also contributed to this improvement. These improvements were
partially offset by an increase in the cost of producing and distributing the
Company's distributor magazine. Overall, these factors resulted in a gross
margin of 73.3%, as compared to a gross margin of 72.3% during fiscal 1994.
Expenses. Total operating expenses increased Y10.1 billion, or 14.4%, over
fiscal 1994. As a percentage of sales, however, this represented an increase of
only 0.6%, from 44.8% during fiscal 1994 to 45.4% during fiscal 1995.
Distributor incentives and distribution expenses decreased slightly as a
percentage of sales. This decrease in distributor incentives was primarily
attributable to the fact that, in fiscal 1994, the Company paid a special 15th
year anniversary bonus to distributors. These decreases in distributor
incentives and distribution expenses were more than offset by an increase in
selling and administrative costs of Y4.4 billion, or 22.1%, compared to fiscal
1994. The increase in selling and administrative costs resulted largely from
increased headcount and general expansion of the Company, as well as increased
advertising, promotional and public relations expenditures. Also, the Company
increased its expenditures for its annual distributor convention and similar
distributor events. Finally, administrative expenses in fiscal 1995 include Y0.4
billion of nonrecurring charges relating to land acquisitions. See Note 5 of
Notes to Consolidated Financial Statements.
Operating Income. The increase in gross profit and smaller increase in
operating expenses combined to produce an increase in operating income of Y6.4
billion, or 14.6%, over fiscal 1994.
Other Income-net. Other income during fiscal 1995 decreased Y0.8 billion
as compared to fiscal 1994, or 32.2%. This was primarily the result of one-time
charges in fiscal 1995 relating to the write-off of certain capitalized software
costs (Y465.0 million) and relating to costs incurred in connection with the
Kobe earthquake (Y195.0 million). In addition, other income-net in fiscal 1994
included a gain (Y507.0 million) on the transfer of the Company's interest in
Amway Pacific, Ltd. for shares of Amway Asia Pacific Ltd. See Notes 4 and 5 of
Notes to Consolidated Financial Statements. While investment income at AJEI
increased significantly over that of fiscal 1994, this increase was offset by
reduced interest income attributable to lower cash balances available for
investment, which resulted primarily from the use of cash to purchase land for
the new headquarters building and the new Tokyo Regional Distribution Center.
Income Taxes. The Company's effective tax rate for each of fiscal 1995 and
fiscal 1994 was 55.2%.
Net Income. The factors discussed above resulted in net income for fiscal
1995 of Y23.1 billion, which represents an increase of Y2.5 billion, or 11.9%,
over that of fiscal 1994.
27
<PAGE> 64
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. Net sales for fiscal 1994 of Y157.6 billion increased by Y27.5
billion (21.2%) from Y130.0 billion for fiscal 1993. Sales in fiscal 1994
increased in all business categories, except in the Home Care Line, which
declined 0.9%. Sales in the Housewares Line, the Company's largest line in
fiscal 1994, were Y46.5 billion. This was a 74.7% increase over Housewares Line
sales of Y26.6 billion in fiscal 1993. Sales in the Personal Care Line, the
Company's largest line in both fiscal 1992 and 1993, increased by Y4.1 billion
(9.8%) from fiscal 1993 sales of Y41.9 billion. Sales in the Nutrition and Other
Lines increased 9.9% and 6.4%, respectively. This growth was the result of an
increase in the distributor base in 1994 compared to fiscal 1993, as well as the
sales of new products, particularly water treatment system units. The number of
renewed distributors increased 9.8% to 896,000 from 816,000 at the end of fiscal
1993. The water treatment system unit, which was introduced on a test marketing
basis in fiscal 1993 and available in September 1993 on a limited basis through
direct distributors until becoming generally available to all distributors in
January 1994, accounted for Y21.6 billion or 13.7% of total sales in fiscal
1994. In fiscal 1993, the sales of water treatment system units accounted for
approximately 2.0% of total sales. New products introduced since September 1,
1992 accounted for approximately Y55.6 billion or 35.3% of fiscal 1994 net
sales.
Gross Profit. Gross profit for fiscal 1994 of Y114.0 billion increased by
Y21.3 billion (22.9%) from a gross profit of Y92.7 billion in fiscal 1993. The
increase was primarily a result of the increase in net sales. As a percentage of
net sales, gross margin increased to 72.3% in fiscal 1994 from 71.3% in fiscal
1993. The primary reason for this improvement was the appreciation of the yen
over the U.S. dollar and the impact of the implicit dollar/yen exchange rate for
purchases of products from Amway during fiscal 1994. The exchange rate which was
applicable during fiscal 1994 was approximately Y113 = U.S.$1.00 compared to
approximately Y131 = U.S.$1.00 for fiscal 1993. This improvement in the exchange
rate was partially offset by a shift in product mix from the Home Care, Personal
Care and Nutrition Lines to the Housewares Line, which generally has a lower
gross margin than the other three lines.
Expenses. Total operating expenses for fiscal 1994 were Y70.6 billion, an
increase of Y12.0 billion (20.5%) over Y58.6 billion for fiscal 1993, primarily
due to an increase of Y8.7 billion (25.4%) in distributor incentives.
Distributor incentives increased, as a percent of net sales, to 27.1% in fiscal
1994 from 26.1% in fiscal 1993 primarily as a result of an increase, as a
percent of total sales, in the sales of products on which distributor bonuses
are calculated and a special 15th anniversary bonus paid in fiscal 1994. Total
operating expenses, as a percent of net sales, decreased to 44.8% in fiscal 1994
from 45.1% in fiscal 1993 primarily due to a 0.7% reduction, as a percent of
total sales, in distribution expenses and a 0.5% reduction, as a percent of
total sales, in selling and administrative expenses in fiscal 1994 partially
offset by the increase in distributor incentives mentioned above.
Operating Income. Operating income for fiscal 1994 of Y43.4 billion
increased by Y9.3 billion (27.1%) from Y34.1 billion for fiscal 1993. The
Company's operating margin was 27.5% in fiscal 1994, as compared to 26.2% in
fiscal 1993. This improvement in operating income is the result of the
improvement in gross profit, distribution expense and selling and administrative
expense as a percent of net sales partially offset by increased distributor
incentives as a percent of net sales.
Other Income-net. Other income-net for fiscal 1994 of Y2.6 billion
increased slightly from Y2.5 billion in fiscal 1993.
Income Taxes. Income taxes of Y25.3 billion increased Y4.6 billion (22.1%)
from fiscal 1993 primarily due to the fact that pre-tax income increased 25.5%
to Y45.9 billion from Y36.6 billion in fiscal 1993. The effective tax rate in
fiscal 1994 was 55.2% compared to 56.7% in fiscal 1993. The decline in the
effective tax rate was primarily due to a reduction in the statutory rate to
51.4% in fiscal 1994 from 52.1% in fiscal 1993.
Net Income. Net income for fiscal 1994 of Y20.6 billion increased by Y4.8
billion (30.0%) from Y15.9 billion in fiscal 1993. The increase is attributable
to the increase in net sales, the reduction in distribution and selling and
administrative expenses as a percent of net sales, and the improvement in the
effective income tax rate.
28
<PAGE> 65
FISCAL 1993 COMPARED TO FISCAL 1992
Net Sales. Net sales for fiscal 1993 of Y130.0 billion increased by Y6.8
billion (5.5%) from Y123.3 billion for fiscal 1992. Sales in fiscal 1993
increased in all business categories, except in the Home Care Line, which
declined 2.4%. Sales in the Personal Care Line, the Company's largest line in
fiscal years 1993 and 1992 in terms of net sales, increased 10.3% to Y41.9
billion while Other, the Housewares Line and the Nutrition Line increased 14.4%,
5.0% and 4.2%, respectively. This growth was a result of an increase in the
distributor base when compared to fiscal 1992. Sales per distributor remained
constant between fiscal 1993 and fiscal 1992. New products introduced in fiscal
1993 that significantly contributed to 1993 sales growth included water
treatment system units (Y2.5 billion), which were available on a limited test
marketing basis beginning in March 1993, a 3.8 liter, three piece Amway Queen(R)
cookware "add-on" set, which was introduced in October 1992 for a limited time
only, and the calcium fiber drink, which was introduced in December 1992. New
and improved products introduced since the beginning of fiscal 1992, including
the water treatment system units, accounted for approximately 23% of fiscal 1993
net sales.
Gross Profit. Gross profit for fiscal 1993 of Y92.7 billion increased by
Y5.5 billion (6.4%) from a gross profit of Y87.2 billion in fiscal 1992. The
increase was primarily a result of increased net sales. As a percentage of net
sales, gross margin for fiscal 1993 increased to 71.3% from 70.7% in fiscal 1992
due to several factors, including a slight increase in the Company's selling
price to distributors primarily relating to certain selected Amway Queen(R)
cookware products. In addition, gross margin was favorably impacted, as a
percentage of net sales, as a result of a slight appreciation of the dollar/yen
exchange rate of Y130.5 = U.S.$1.00 which was applicable during fiscal 1993
compared to the average dollar/yen exchange rate of Y131.4 = U.S.$1.00 for
purchases of products from Amway in fiscal 1992. These factors were partially
offset by a slight shift in product mix from the Home Care Line to the Personal
Care Line, which generally has a lower gross margin than the Home Care Line.
Expenses. Total operating expenses in fiscal 1993 were Y58.6 billion, an
increase of Y3.8 billion (7.0%) over Y54.7 billion for fiscal 1992, primarily
due to an increase of Y2.1 billion (6.6%) in distributor incentives. Operating
expenses as a percent of net sales increased to 45.1% in fiscal 1993 from 44.4%
in fiscal 1992. Increased distributor seminar costs and an increase in rental
costs as a result of additional office space to accommodate staff increases in
fiscal 1991 and 1992 also contributed to the increase in total operating
expenses in fiscal 1993. Distributor incentives increased as a percent of net
sales to 26.1% in fiscal 1993 from 25.9% in fiscal 1992 due to an increase in
certain bonuses paid to distributors.
Operating Income. Operating income for fiscal 1993 of Y34.1 billion
increased by Y1.7 billion (5.3%) from Y32.4 billion for fiscal 1992. The
Company's operating margin was 26.2% in fiscal 1993 compared to 26.3% in fiscal
1992.
Other Income-Net. Other income-net for fiscal 1993 of Y2.5 billion
decreased by Y1.0 billion (28.7%) from Y3.5 billion for fiscal 1992. This was
caused primarily by lower interest income of Y2.8 billion in fiscal 1993
compared to Y3.3 billion in fiscal 1992, a reduction of 14.5%, as a result of
lower interest rates and a valuation loss on long-term investments of Y0.4
billion. In addition, net miscellaneous expenses increased slightly.
Income Taxes. Income taxes increased to Y20.8 billion in fiscal 1993, an
increase of Y1.4 billion (7.2%) from Y19.4 billion in fiscal 1992. Income taxes
as a percent of income before income taxes increased to 56.7% in fiscal 1993
from 54.0% in fiscal 1992. This increase was attributable to an increase for
fiscal 1993 in expenses that are not tax deductible or not currently deductible,
such as distributor meals and entertainment and a valuation loss on long-term
investments.
Net Income. Net income of Y15.9 billion in fiscal 1993 represented a Y0.7
billion (4.1%) decline from net income of Y16.5 billion in fiscal 1992. The
decline in net income was attributable to lower other income-net and the
increased effective income tax rate described above.
29
<PAGE> 66
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash flows from operations. In fiscal
1995, cash provided by operations totaled Y31.2 billion, including net income of
Y23.1 billion. The Company had cash, cash equivalents and short-term investments
of Y73.6 billion, including marketable equity securities and related derivative
instruments totaling Y32.0 billion, as of August 31, 1995.
Historically, the Company has maintained working capital levels that
significantly exceeded its working capital requirements. At August 31, 1995, the
Company's working capital of Y43.6 billion had decreased Y25.3 billion from
working capital of Y68.9 billion at August 31, 1994. This decrease was primarily
the result of the purchases of the land for the new headquarters facility and
the new Tokyo Regional Distribution Center discussed below.
On March 30, 1995, the Company acquired a 3,561 square meter parcel of land
in Tokyo for the construction of a new headquarters facility. The purchase
price, which was paid in cash, aggregated Y19.4 billion. Certain additional
costs related to this purchase are, in accordance with Japanese GAAP, being
expensed as incurred. Certain additional events must occur prior to July 1, 1996
before the site is available for construction. Accordingly, construction of the
headquarters facility is not planned to commence before fiscal 1997. The total
cost for the headquarters project, including the purchase price for the land, is
currently estimated to be between Y27.5 billion and Y32.5 billion. In addition,
the Company purchased a 22,296 square meter parcel of land in Tokyo in July 1995
for the development of a new Tokyo Regional Distribution Center. The purchase
price for this land, which was paid in cash, was Y4.7 billion. It is anticipated
that construction of this Regional Distribution Center will begin in December
1995 and that this facility will be operational beginning in February 1997. The
total cost of this project, including the purchase price for the land, is
currently estimated to be between Y13.8 billion and Y14.4 billion. The
construction of both facilities is expected to be financed out of operating cash
flows.
Capital expenditures in fiscal 1995 totaled Y25.2 billion primarily for the
purchases of the land for the new headquarters facility and the new Tokyo
Regional Distribution Center. The Company's committed capital expenditures for
fiscal 1996 will consist primarily of expenses incurred in connection with the
planning of the new headquarters facility and the planning and construction of
the new Tokyo Regional Distribution Center.
During the first quarter of fiscal 1995, the Company paid fiscal 1994
year-end regular and special dividends aggregating Y12.0 billion (Y80 per share,
Y40 per ADS). During the third quarter of fiscal 1995, the Company paid fiscal
1995 interim regular and special dividends aggregating Y14.2 billion (Y95 per
share, Y47.50 per ADS). The Company has announced its intention to pay, subject
to legal and other factors, a 1995 year-end regular dividend of Y45 per share
during fiscal 1996. If paid as currently intended, based on the number of shares
of Common Stock currently outstanding, such dividends would aggregate Y6.7
billion.
In October 1995, the Company announced its intention to increase the rate
of its regular annual dividend with respect to fiscal 1996 to Y100 per share of
Common Stock from Y90 per share of Common Stock with respect to fiscal 1995.
Such increased annual dividend rate would be paid with respect to fiscal 1996 as
a Y50 per share interim dividend payable in May 1996 to holders of record on
February 28, 1996 and as a Y50 year-end dividend promptly following shareholder
approval at the November 1996 Ordinary General Meeting of Shareholders to
holders of record on August 31, 1996.
In October 1995, the Company also announced its intention to pay a special
year-end dividend with respect to fiscal 1995 of Y50 per share of Common Stock
in December 1995 and to pay a special interim dividend with respect to fiscal
1996 of Y25 per share of Common Stock in May 1996 in addition to the proposed
interim dividend of Y50 per share of Common Stock described above for a total
fiscal 1996 interim dividend of Y75 per share of Common Stock. The 1996 interim
dividend and the 1996 special interim dividend are proposed to be paid on the
same date in May 1996 to holders of record on February 28, 1996. Interim
dividends are not subject to shareholder approval. See "Description of Capital
Stock -- Dividends."
On October 18, 1995, the Company announced its intention to present to the
shareholders for their approval at the Company's Ordinary General Meeting of
Shareholders to be held on November 29, 1995 a proposal to repurchase up to
Y15.0 billion (U.S.$153.0 million) of Common Stock by means of open market
30
<PAGE> 67
purchases or a tender offer to the shareholders of the Company in accordance
with the Securities and Exchange Law of Japan and the Exchange Act. The Company
has been informed by the Principal Shareholders that they intend to participate
fully in the share repurchase. The share repurchase will also include those
shares of Common Stock represented by ADSs. The shareholders' approval will be
conditioned upon amendment of applicable laws, regulations and ordinances of
Japan such that taxation on deemed dividends under the Income Tax Law or the
Corporate Tax Law of Japan will not apply either to (i) shareholders (whether
individual or corporate) who do not sell their shares in the repurchase, except
that corporate shareholders (other than nonresident corporate shareholders
without a permanent establishment in Japan) may elect to be subject to deemed
dividend taxation, or (ii) individual shareholders who sell their shares in a
tender offer. See, "Description of Capital Stock -- Repurchase by the Company of
its Common Stock" and "Taxation -- Japanese Taxation."
If, as proposed, the annual dividend rate is increased, the special
dividends described above are paid and the Company repurchases shares with an
aggregate value of approximately Y15.0 billion, dividend payments, based on the
number of shares currently outstanding, and payments for share repurchases in
fiscal 1996 would aggregate approximately Y40.4 billion. No assurances can be
given that any of these payments or repurchases or any future dividends will be
paid or made as currently intended.
The Company pays to Amway, for the use of Amway trademarks, formulas and
designs in connection with products manufactured by others under contract with
the Company, a royalty of up to 8% of net sales of such products. As of July 31,
1995, the Company executed, in prepayment of royalties for fiscal years 1996,
1997 and 1998, promissory notes in the aggregate amount of Y1.9 billion. In
consideration for the execution of these notes, the revised royalties for these
years will approximate 3.6% for those Company-sourced products bearing an Amway
trademark and approximately 7.3% for those Company-sourced products bearing an
Amway trademark and using an Amway formula or design. The actual royalty payable
with respect to these products will depend on actual aggregate sales of such
products for the three-year period. The notes are payable in six semiannual
installments commencing February 28, 1996, with the final payment due and
payable on August 31, 1998. Because these notes are not treated as notes under
Japanese commercial practices and regulations, they will not be recorded on the
balance sheet of the Company. See Note 9 of Notes to Consolidated Financial
Statements.
In March 1994, the Company capitalized AJEI with approximately Y31.6
billion (U.S.$300.0 million) (based on the Noon Buying Rate of Y105.38 =
U.S.$1.00 prevailing on March 18, 1994) of the Company's available cash. AJEI
initially invested approximately U.S.$287 million with two independent
investment managers, each of which is to manage approximately half of that
amount for a two year period. Both investment managers designed an equity
portfolio to produce results similar to the S&P 500. To protect against a loss
due to declines in the dollar value of the portfolios, the Company purchased two
put options exercisable in two years for a total premium of approximately
U.S.$13 million. The first put allowed AJEI to require the repurchase of
approximately U.S.$93.5 million of one equity portfolio at its original cost.
The second put provided for protection of approximately U.S.$93.5 million in the
other portfolio against downward market movements in the S&P 500. In September
1995, AJEI sold its positions in those portions of each of the equity portfolios
that were the subject of the puts and sold the puts for an aggregate net amount
of approximately U.S.$226.4 million. The Company previously recognized a portion
of this amount; the remaining U.S.$18.9 million will be included in other
income-net for the period ending November 30, 1995. The proceeds of such sale
were invested by AJEI in U.S. treasury securities and money market preferred
stock.
The performance of the balance of AJEI's equity investments of
approximately Y10.4 billion is hedged by swap transactions pursuant to which
AJEI, in effect, exchanged the S&P 500 total return (including dividends) on the
portfolio for a fixed return thereon of approximately 5% per year for two years.
At the end of two years any decrease in the price of the S&P 500 will be paid to
AJEI by the swap counterparties and any increase in the price of the S&P 500
will be paid to the swap counterparties by AJEI. As owner of the underlying
portfolio, AJEI receives the benefit of outperformance of, and bears the risks
of underperformance of, the investment managers' portfolios relative to the S&P
500.
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<PAGE> 68
In order to hedge, in part, AJEI's exposure with respect to its portfolio
of investments (which are U.S. dollar denominated) against exchange rate
fluctuations between the yen and the dollar, the Company has entered into a
series of forward currency transactions with Amway, as of October 12, 1995, in a
notional amount of U.S.$190 million that provide for the delivery of yen to AJEI
on January 9, 1996, at an average exchange rate of Y98.21 = U.S. $1.00. Except
for such forward currency transactions, no arrangements have been made by the
Company or AJEI to hedge its investments against exchange rate changes between
the yen and the dollar. As a result, the remaining investments held by AJEI are
subject to the beneficial or adverse effect of any such exchange rate
fluctuations.
In translating financial statements of AJEI into yen, the exchange rate
prevailing as of the respective balance sheet date was used for all asset and
liability items and for items other than capital stock and additional paid-in
capital in the shareholders' equity section. Translation adjustments resulting
from the depreciation of the U.S. dollar in relation to the yen were recorded as
a Translation adjustment on the balance sheet. AJEI is subject to U.S. federal
income tax rules and regulations. Any dividends or other distributions by AJEI
to the Company may be subject to withholding tax. See Note 2 of Notes to
Consolidated Financial Statements.
Under Japanese GAAP, it is permissible to reflect accounts of a
non-Japanese subsidiary in the consolidated financial statements of a Japanese
corporation without converting the accounting principles of such a subsidiary to
Japanese GAAP. Accordingly, the Company has followed Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires the Company to carry AJEI's
investments, options and swaps at market; changes in market value are either
reflected in an adjustment to shareholders' equity (with respect to one
investment manager's portfolio and any corresponding put) or constitute other
income/expense in the income statement (with respect to the other investment
manager's portfolio, any corresponding put and each of the swaps).
The Company does not currently have any plans, arrangements or
understandings with respect to incurring indebtedness in fiscal 1996. The
Company believes that internally generated funds, together with available cash,
will be sufficient over at least the next 12 months to meet its presently
anticipated day-to-day operating expenses, working capital and capital
expenditure requirements, to pay proposed regular and special dividends, and to
make proposed share repurchases.
PROJECTIONS
Because the Common Stock trades in the Japanese OTC market, the Company is
required to disclose publicly in Japan certain financial projections in
accordance with the requirements of the JSDA. Such projections are based on the
Company's Japanese accounts as prepared in accordance with the Commercial Code.
Each year, the first set of projections, covering both the first six months of a
fiscal year and the full fiscal year, are made at the time of the announcement
of the results of the preceding fiscal year. The second set of projections
covering the full fiscal year (reflecting six month interim results), is made at
the time of the announcement of the results of the first six month period. In
accordance with the JSDA requirements, the Company has disclosed projections of
its net sales, net income and "ordinary income." Under Japanese GAAP, "ordinary
income" includes all items of income and expense except for net special profit
or loss (largely comprised of items, defined in the Japanese accounting
regulations, that include "extraordinary items" under U.S. GAAP) and income
taxes, other than the Japanese enterprise tax. Japanese enterprise taxes are
included in selling and administrative expenses and are deductible when paid for
the purposes of calculating taxable income. However, in the statements of income
included in this Prospectus, enterprise taxes have been reclassified to "Income
taxes."
In accordance with JSDA requirements, on October 18, 1995, the Company
announced its net sales, "ordinary income" and net income projections for the
six months ending February 28, 1996 and for the fiscal year ending August 31,
1996. The Company projected for the six months ending February 28, 1996 net
sales of Y98.9 billion (U.S.$1.0 billion), ordinary income of Y25.2 billion
(U.S.$257.1 million) and net income of Y12.8 billion (U.S.$130.6 million). For
fiscal 1996, the Company projected net sales of Y201.7 billion
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<PAGE> 69
(U.S.$2.1 billion), ordinary income of Y52.2 billion (U.S.$532.7 million) and
net income of Y26.7 billion (U.S.$272.4 million).
In accordance with the requirements established by the JSDA, the
projections must generally be amended if the most recent projection or the
actual results vary from the prior projection by 10% or more in the case of
projected net sales, 30% or more in the case of projected ordinary income or 30%
or more in the case of projected net income. Accordingly, the Company may, as
interim or full fiscal year results become clear, announce its revised
"projection" even though such applicable period may already have been completed.
In arriving at its projections, the Company has assumed that the first half
of fiscal 1996 would be stronger than the second half of fiscal 1995 and that
fiscal 1996 as a whole would be stronger than fiscal 1995, primarily as a result
of new product introductions late in fiscal 1995 and throughout fiscal 1996. In
the Housewares Line, new product introductions in fiscal 1996 will include a
performance-enhanced induction range that will feature fully programmable
cooking. In the Personal Care Line, early in fiscal 1996 the Company will unveil
a comprehensive revision of product formulations and packaging for a significant
portion of the Artistry(R) line of cosmetics and skin care products. In addition
to these new product introductions, throughout fiscal 1996 the Company intends
to implement specific programs designed to increase distributor interest and
productivity, especially within the Home Care Line.
The foregoing financial projections should be read in conjunction with all
of the information, including the Consolidated Financial Statements, set forth
in this Prospectus. Except as required by the JSDA or otherwise, the Company
does not, as a matter of course, make public projections or forecasts of its
anticipated financial position or results of operations. To the extent the
Company releases, publishes or updates projections in Japan because of JSDA or
other requirements, it will include such information in documents filed with the
Commission or otherwise make such information public. Except as so required, the
Company does not anticipate that it will, and disclaims any obligation to,
publish or furnish projections or updates of projections previously published or
furnished.
The foregoing financial projections were not prepared with a view towards
public disclosure or compliance with published guidelines established by the
American Institute of Certified Public Accountants regarding projections and are
included in this Prospectus only because such information was made available in
Japan pursuant to the requirements of the JSDA and consequently in the United
States pursuant to the Company's obligations under Rule 12g3-2(b) promulgated by
the Commission under the Exchange Act. Neither the Company nor its directors or
officers assumes any responsibility for the accuracy of such projections. The
Company's independent auditors have not examined or compiled the projections
and, accordingly, assume no responsibility for them. The foregoing financial
projections reflect numerous assumptions, including various assumptions with
respect to the anticipated future performance of the Company, general business
and economic conditions and other matters, most of which are beyond the control
of the Company. In addition, unanticipated events and circumstances may affect
the actual financial results of the Company. Therefore, while the foregoing
financial projections are necessarily presented with numerical specificity as
required by the JSDA, the actual results achieved in fiscal 1996 will vary from
the projected results. These variations may be material. Accordingly, no
representation can be or is made with respect to the accuracy of the foregoing
financial projections or the ability of the Company to achieve the projected
results. See "Risk Factors" for a discussion of certain considerations that may
affect the future financial performance of the Company.
FOREIGN EXCHANGE TRANSACTION INFORMATION
The prices for products purchased from Amway, which the Company pays for in
yen, are governed by a price schedule that Amway establishes based upon a U.S.
dollar "cost plus" base price calculation. In addition to the U.S. dollar "cost
plus" base price component of Amway's schedule, the current prices for these
products include an implicit dollar/yen exchange rate which the Company has
calculated to be approximately Y91 = U.S.$1.00 compared to an exchange rate that
applied to product purchases throughout fiscal 1995 of Y104 = U.S.$1.00. Amway
has the right to modify, on 30 days' prior written notice, the prices of
products to be purchased by the Company from Amway; 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. The Company believes that the dollar/yen
exchange rate is determined by Amway based on Amway's assessment of current and
future
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<PAGE> 70
economic and business conditions, both in the United States and Japan, market
conditions with respect to the Company's products and other factors, including
the impact, if any, of hedging activities by Amway. Using the Company's
assumptions regarding product and sales mix and assuming the application of the
price schedule established for fiscal 1996 throughout fiscal 1996 and that the
products purchased from Amway continue to represent 65% of the Company's cost of
sales, the use of an implicit exchange rate of Y91 = U.S.$1.00 throughout fiscal
1996 would result in a 5.2% reduction in the Company's cost of sales for fiscal
1996 as compared to fiscal 1995. As a result of the Company's payment for its
purchases of products from Amway in yen, and because the Company does not
currently hedge its currency transaction exposure relating to the purchase of
products from Amway, appreciation of the dollar against the yen could have a
material adverse effect on the Company's operating results to the extent Amway
modifies the implicit exchange rate component of the prices it charges the
Company for products. In addition, the strengthening of the yen against the
dollar has allowed the Company to maintain relatively stable pricing
historically notwithstanding periodic changes by Amway in the U.S. dollar "cost
plus" base prices to the Company. The Company can not predict whether such
strengthening of the yen against the dollar will continue. Further, the Company
cannot predict what portion of any price changes may be passed through to
distributors or the effect of any such price changes on net sales or distributor
retention or sponsoring. See "Risk Factors -- Operations Outside the United
States; Currency Fluctuations," " -- Overview," and "Business -- Relationship
with Amway -- Product Purchase Agreement."
All payments to Amway for investor relations services and for support
services performed by third parties (internal labor charges were substantially
eliminated in September 1993, except for those expenses incurred in connection
with investor relations services) are made in dollars and the Company bears the
risk of currency exchange rate fluctuations in connection therewith. The Company
does not currently hedge against currency exchange rate fluctuations.
INFLATION
Inflation has not had a significant effect upon the Company's business.
ACCOUNTING CHANGE
Through the year ended August 31, 1992, both internally developed and
purchased software costs were charged to income when incurred or paid. However,
effective September 1, 1992, the Company changed the accounting for software
costs to defer and amortize them over five years. The Company believes that, due
to the significant investments being made in information systems, the method of
deferring software costs and amortizing them is more appropriate for measuring
the results of operations for each year. The effect of this change was to
increase net income by Y1.1 billion for the year ended August 31, 1993.
RECONCILIATION OF JAPANESE AND UNITED STATES GAAP
The consolidated financial statements of the Company are prepared in
accordance with Japanese GAAP, which differ in certain material respects from
U.S. GAAP. In the case of the Company, the applicable major differences relate
to income taxes, pension costs, software development costs, stock issue
expenses, non-monetary transactions and certain expenses incurred in connection
with capital projects.
Shareholders' equity would have been Y4.1 billion and Y5.8 billion higher
at August 31, 1994 and 1995, respectively, if U.S. GAAP had been followed. The
significant differences between Japanese GAAP and U.S. GAAP as applicable to the
Company are set out in more detail in Notes 10 and 11 of Notes to Consolidated
Financial Statements.
The Company had two outstanding negotiable promissory notes dated August
31, 1993 payable to Amway pursuant to the Trademark License Agreement totalling
Y314 million at August 31, 1994, which are not recorded on the balance sheet at
such date due to the commercial practices and regulations in Japan. The final
installment of these notes was paid on or prior to August 31, 1995. The Company
also has promissory notes dated July 31, 1995 totalling Y1.9 billion payable to
Amway pursuant to the Trademark License Agreement in prepayment of royalties for
fiscal years 1996 through 1998. These promissory notes are not recorded on the
balance sheet due to commercial practices and regulations in Japan. For U.S.
GAAP, these promissory notes would have been recorded as a long-term liability
with the offset being recorded to a prepaid expense account. See
"Business -- Relationship with Amway -- Trademark License Agreement."
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<PAGE> 71
BUSINESS
GENERAL
Amway Japan Limited is the exclusive distribution vehicle for Amway in
Japan. The Company, which has a 16 year operating history, believes that it is
one of the largest direct selling businesses in Japan as measured by its fiscal
1995 net sales of Y178.0 billion (U.S.$1.8 billion) and net income of Y23.1
billion (U.S.$235.3 million) and the approximately 980,000 independent
distributors who renewed their distributorships in fiscal 1994 from the prior
fiscal year. The Company believes that Japan, with a population of approximately
124.8 million, is the largest direct selling market in the world in terms of
sales, estimated to be approximately twice the size of the direct selling market
in the U.S.
The Company believes that the Sales Plan is fundamental to the Company's
operations. Under the Sales Plan, the Company sells products exclusively to its
distributors, who are independent contractors and not employees of the Company
or Amway. The Sales Plan offers individuals the opportunity to establish their
own business as independent distributors selling directly to consumers. This
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 can
develop a larger business by sponsoring new distributors into their organization
and/or by establishing separate distributorships in other Amway markets
internationally. Although no compensation is paid by the Company for sponsoring
activities, the sponsoring of new distributors creates layers of "downline"
distributors in the distribution structure and permits distributors to earn
performance bonuses based in part on product purchases by their downline
distributors. No distributor is obligated to purchase any products or to sponsor
new distributors.
The Company distributes approximately 130 different consumer products, in
four core product lines: Housewares, Personal Care, Nutrition and Home Care.
These products consist primarily of products purchased from Amway. In addition,
in order to heighten distributor interest by broadening the range of products
available, the Company distributes certain other products which bear the Amway
name or trademark but which are manufactured for the Company by third parties.
Many products the Company distributes are specially formulated for the Japanese
market. For example, cosmetics and skin care products are formulated for skin
tones and fragrance preferences of Japanese consumers, the Amway water treatment
system unit was designed to accommodate the characteristics of the water in
Japan and various products in the Housewares and Home Care Lines reflect the
characteristics of Japanese homes. The Company promotes products that are
environmentally friendly, which is consistent with the concerns of many Japanese
consumers and the Company's (and Amway's) long-standing philosophy. All products
distributed by the Company are covered by the Amway Satisfaction Guarantee,
which gives consumers the right to return products to the Company within a
reasonable time for a full refund, replacement or credit toward a future
purchase. Electronic and other durable products manufactured for Amway or the
Company by third parties are also covered by Amway's or their respective
manufacturer's warranties.
The Company believes that the extended family relationships and lifelong
close personal relationships common in Japan are particularly well-suited to the
direct selling methods of the Sales Plan. In addition, the low cost of entry,
wide range of available products and ability to start a distributorship business
part-time make a distributorship with the Company an attractive business
opportunity. The Company also believes that a variety of social and economic
changes which have occurred in Japan in the last few years have had a positive
impact on the Company's sales. Trends that benefit the Company include the
emergence of a greater interest on the part of some Japanese in pursuing more
independent, entrepreneurial activities outside traditional business settings,
an increase in the number of Japanese women deciding to join the workforce and
an increase in the number of Japanese seeking supplemental income from
alternative sources to mitigate the financial impact of slowing wages and salary
growth, the reduction or elimination of bonuses and overtime work, and the
increased concern over future employment prospects.
The Company also believes that there has been a major shift in Japanese
consumers' attitudes towards consumer products. In evaluating products, Japanese
consumers are placing an increasing emphasis on value based upon proven product
performance and service, rather than equating high price with high quality. The
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Company generally offers high value products that are easily demonstrated by
distributors and can be meaningfully differentiated from competing products. The
Japanese retail market is generally characterized by numerous small retailers
who frequently have only limited knowledge of the products they sell and may not
be able to demonstrate their products to customers. A high level of personal
service, including convenient in-home demonstrations, ordering and delivery, and
the Amway Satisfaction Guarantee provide additional value to the consumer.
PRODUCTS
The Company distributes approximately 130 different products in four core
product lines: Housewares, Personal Care, Nutrition and Home Care. Many products
are formulated exclusively for the Company for the Japanese market. 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 ("SKUs")
associated with the products the Company distributes is considerably larger than
the number of products. Approximately 80% of the Company's fiscal 1995 net sales
was derived from the distribution of products it purchased from Amway. Amway has
contracts with third party manufacturers for certain private label products in
its Housewares Line, predominantly metal kitchenware products such as Amway
Queen(R) cookware. The remaining approximately 20% of the Company's fiscal 1995
sales was derived from a variety of other products including starter kits,
sponsor kits, business support materials and other products purchased directly
by the Company from sources other than Amway and targeted specifically for the
Japanese market.
Housewares. The Housewares Line includes water treatment system units and
replacement parts, Amway Queen(R) cookware (including the Amway Queen(R) wok),
an electromagnetic induction range and gourmet kitchen knives. The water
treatment system unit, manufactured exclusively for Amway pursuant to
specifications jointly developed by the Company and Amway, utilizes carbon block
filter and ultraviolet technology to eliminate odors and bad taste in drinking
water and removes over 115 organic contaminants. An integral ultraviolet light
kills over 99.9% of bacteria, fungi and viruses. In addition, sales of the water
treatment system unit are generating ongoing sales of replacement carbon filters
and ultraviolet light bulbs, which must be replaced, at least annually,
depending on use and water conditions. The water treatment system unit has an
integrated self-monitoring system that alerts users when the filter or
ultraviolet light needs to be replaced. Amway Queen(R) cookware uses an
integrated waterless cooking system designed to preserve flavor, color and
nutrients, which the Company believes appeals to health conscious Japanese
consumers. Amway Queen(R) cookware, manufactured in the U.S. exclusively for
Amway, is significantly heavier than typical stainless steel cookware and is
guaranteed by the manufacturer to last a lifetime with proper use and care.
Amway Queen(R) cookware is sold in a 20-piece set and is designed to save space
and reduce energy costs by allowing pots to be stacked on top of each other so
that an entire meal can be prepared on a single burner. The cookware line also
includes the Amway Queen(R) wok (not included in the Amway Queen(R) cookware
set) which is designed for stir-fry and tempura-style cooking, common methods of
food preparation in many Japanese households. The electromagnetic induction
range, produced for the Company by a third party, provides a cool-to-the-touch,
smooth, easy to clean cooking surface that heats through electromagnetic
induction rather than traditional gas or electric heat. Fifteen Housewares Line
products are currently available in Japan.
Personal Care. The Personal Care Line includes the Artistry(R) line of
cosmetic and skin care products, Satinique(R) hair care products, hand and body
lotions, bath and shower soaps, oral care products and bath salts, as well as
products in the Amway World Plaza Collection. Many of these products were
specifically formulated for the Japanese market based upon market research and
analysis by the Company working in conjunction with Amway. For example, the
Artistry(R) line was completely reformulated as to color, shading and scent for
the Japanese market and reintroduced with new packaging in 1991. Satinique(R)
hair care products sold in Japan are also specially formulated for the special
needs and preferences of the Japanese market. The Company's bath salts are
locally manufactured to the Company's specifications and are not available in
other Amway markets. Approximately 52 Personal Care Line products are currently
available in Japan.
Nutrition. The Nutrition Line includes vitamins and dietary supplements
produced by Nutrilite Products Inc., a division of Amway ("Nutrilite"). For 60
years, Nutrilite has manufactured naturally-based nutritional
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supplements. Many of the raw materials used to make Nutrilite supplements are
grown and harvested on Nutrilite owned and operated farms including 600 acres in
California's San Jacinto Valley and acerola cherry plantations in Puerto Rico
and Mexico. No herbicides, pesticides or chemical fertilizers are used to grow
the raw materials for Nutrilite products, and no artificial preservatives,
colorings or flavorings are used in Nutrilite products. Leading Nutrition Line
products available in and specially formulated for the Japanese market include
vitamin supplements such as Triple X, a food supplement, Acerola C, Yeast B and
Wheat Germ E; nutrient rich products such as Hon E Lechi, Beta Carotene A,
Nutri-Protein and Quench(R) 8 drink mixes; and calcium fiber drink. Amway and
Nutrilite are official sponsors of the National Basketball Association, a
relationship which is highlighted on the packaging for Amway's vitamin and food
supplement products worldwide, including those distributed by the Company. Many
products in the Nutrition Line are regulated. See " -- Government Regulation."
Twenty-six Nutrition Line products are currently available in Japan.
Home Care. The 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), a Super Concentrated
Cleaning System, glass, metal and car care products and air fresheners. Amway
has demonstrated commitment to environmental matters that began with Amway's
first product in 1959, L.O.C.(R) (liquid organic cleaner), which since its
introduction has contained only biodegradable cleaning agents without the use of
phosphates, solvents or caustic materials. All SA8(R) brand products sold in
Japan are phosphate-free and have been reformulated specifically for the
Japanese market. Surfactants used in all of Amway's cleaning products are
biodegradable. 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 occupy in the Company's
warehouses and in consumers' homes. Amway aerosols do not use CFC
(chlorofluorocarbon) propellants which have been linked to damage in the earth's
ozone layer. Approximately 37 Home Care Line products are currently available in
Japan.
Other. Other products include sponsor kits, starter kits and business
support materials such as motivational audio and videotapes and written
materials as well as certain business accessories. Distributors interested in
sponsoring new distributors provide such potential new distributors with sponsor
kits. The purpose of the sponsor kit is to acquaint new distributors with the
Sales Plan, Rules of Conduct and Code of Ethics and performance bonus programs
and to provide product descriptions. The sponsor kits also contain
distributorship applications. The purchase price of a sponsor kit is currently
Y300 (U.S.$3.06). In order to become a distributor, an individual must complete
the distributorship application and purchase a starter kit from the Company. The
starter kit contains product order forms and literature as well as more detailed
information regarding the Sales Plan and the Rules of Conduct and Code of
Ethics. The purchase price of a starter kit is currently Y8,240 (U.S.$84). The
Company also derives revenues from the annual renewal fees paid by distributors
electing to renew their distributorships. Starter kits and sponsor kits are
covered by the Amway Satisfaction Guarantee. Other than the starter kit and
annual renewal fees, distributors are not required to make any payments to, or
purchases from, the Company as a condition to obtaining or maintaining their
distributorships. For a discussion of the fees charged by the Company to
distributors for annual renewals, see " -- Distribution."
DISTRIBUTION
The Sales Plan is fundamental to the Company's operations. Under the Sales
Plan, the Company sells products exclusively to its distributors, who are
independent contractors and not employees of the Company or Amway. The Sales
Plan is established and controlled by Amway and is required to be used by the
Company. The Sales Plan creates a direct selling structure under which
individuals have the opportunity to establish their own businesses with a
minimal cost of entry. See " -- Products -- Other." In order to become a
distributor, a person must be sponsored by an existing distributor and submit a
standard distributorship application (the "Distributorship Application"), which
is subject to Company approval. See " -- Sponsoring." The Company's net sales
are directly dependent upon the efforts of its distributors. See "Risk
Factors -- Reliance Upon Independent Distributors; Possible Negative Effects of
Adverse Publicity."
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The following table sets forth the approximate number of the Company's
distributors, direct distributors and the renewal rate for the fiscal years
shown.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Number of distributors(1)(2)..... 597,000 752,000 816,000 896,000 980,000
Renewal rate(3).................. 68.2% 67.6% 71.7% 72.8% 71.8%
Number of direct
distributors(2)(4)............. 4,500 4,600 4,800 5,900 7,100
</TABLE>
- ---------
(1) Includes total numbers of distributorships (including direct
distributorships) in force from the prior fiscal year which were renewed for
the fiscal year shown. Numbers 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) Percentage of all distributorships in force from the prior fiscal year which
were renewed for the fiscal year shown.
(4) "Direct distributors" are distributors who have achieved a specified,
significant level of performance for a specified period. See
" -- Distribution -- Direct Distributors." Numbers of direct distributors
are rounded to the nearest hundred.
Distributorships expire August 31 of each year regardless of when a person
commenced or last renewed the distributorship. A distributorship must be renewed
each fiscal year. The renewal fee is currently Y3,400 (U.S.$35). Distributors
are, however, given a grace period to pay their renewal fee before their
distributorship is treated as lapsing for nonrenewal. Persons can also lose
distributor status by violating the Sales Plan, the terms of their
distributorship, the Code of Ethics and Rules of Conduct or applicable law,
rules or regulations. See " -- Rules Affecting Distributors."
Amway's direct selling method is intended to involve a high level of
personal service, including convenient in-home demonstrations, ordering and
direct delivery of a broad range of consumer products, generally to a
distributor's personal contacts and relatives. Door-to-door sales and "cold
calling" are discouraged. The Company does not (and its rules do not permit
distributors to) sell products to or through retail stores or through direct
mail solicitation or other direct marketing mass media.
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
Distributorship Application which is subject to Company approval. Although the
Company does not pay for sponsoring activities, the Company believes that such
activities are vital to the Company's net sales.
The sponsoring of new distributors creates layers 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 layers 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 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. Although there can
be no assurances, the Company believes that the loss of a leader of a
distributor line would not necessarily result in the loss of a significant
number of that leader's downline distributors. See "Risk
Factors -- Concentration of Distributors."
Historically, the Company has experienced periodic increases and decreases
in the level of sponsoring (as measured by distributor applications). 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.
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Rapid decreases in sponsoring activities can also be precipitated by adverse
publicity regarding direct sales generally or the Company or Amway in
particular. Because of the number of factors that impact sponsoring, the Company
cannot predict the timing or degree of these increases and decreases. There can
be no assurance that the number or productivity of distributors will be
sustained at current levels or increased. In addition, the number of
distributors as a percent of the population may reach levels that become
difficult to exceed due to the finite number of persons inclined to pursue an
independent direct selling business opportunity. Net sales are impacted by a
variety of other factors such as distributor productivity, distributor
retention, product improvements and new products.
Sponsoring is not required and distributors are not paid by the Company for
sponsoring activities. 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 by downline distributors. See " -- Distributors' Sales Incentives."
Distributors are not limited to a particular sales territory within Japan
in their selling or sponsoring activities; however, additional requirements
apply if a distributor proposes to sponsor individuals outside Japan.
Principally for legal reasons (such as import, labeling and registration laws),
the Company does not allow distributors to export products. However, the Sales
Plan permits international sponsoring, under which Amway distributors in any
country (not only in Japan) can sponsor distributors in any other country in
which Amway operates (including Japan). This means that the Company's
distributors can sponsor distributors outside Japan and that Amway distributors
outside Japan can sponsor distributors in Japan. The international sponsors can
earn bonuses based in part upon the performance of the distributors they have
internationally sponsored. The Company believes that the level of international
sponsoring in or from Japan has not been significant.
Under the Sales Plan and the Code of Ethics and Rules of Conduct,
distributors are prohibited from providing distributor produced sales, business,
motivational and similar materials to other distributors prior to review and
approval by the Company. The Company does, however, permit distributors to
circulate certain newsletters without such review and approval. The Company has
not historically encountered significant unauthorized dissemination of such
materials. However, some distributor leaders and downline distributors, without
prior review or approval by the Company or Amway, have prepared and sold their
own audio and video tapes and written materials. Sales of these tapes and
materials could be inconsistent with the Sales Plan and the Code of Ethics and
Rules of Conduct, which, among other things, prohibit unfounded claims and
actions which improperly influence the purchase of such materials. Because
distributors are not employees of the Company, the Company cannot control
distributor leaders or their downline distributors other than through
communications with such leaders or downline distributors, and, if necessary,
efforts to enforce the Sales Plan and the Code of Ethics and Rules of Conduct.
Improper content in such materials and/or improper sales of such materials by
distributor leaders or downline distributors could have a material adverse
effect on the Company. See "Risk Factors -- Reliance Upon Independent
Distributors; Possible Negative Effects of Adverse Publicity."
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.
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. Distributors, not the Company, select the actual resale price of
products; the Company only provides suggested retail prices. Products that a
distributor buys for personal use or for sales demonstrations do not provide the
opportunity for a retail profit but do count towards bonuses and awards. The
Company's rules do not permit direct distributors and their downline
distributors to mark up the price of products sold to their downline
distributors.
Distributors can earn bonuses based upon their performance and the
performance of their downline distributors. Performance bonuses and awards are
paid according to a schedule established by Amway based on the cost and volume
of the products the Company sells to distributors. Under the Sales Plan, the
cost and volume variables assigned to products for purposes of calculating
bonuses may be changed from time to time.
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Cost is a currency based figure which reflects inflation and other economic
considerations and is generally the cost of a product to a distributor. In
Japan, the cost component is assigned with reference to the suggested retail
price of products and averages approximately 70% of such suggested prices.
Volume is an effort indicator that places the emphasis on the number of units
sold rather than their prices, which can increase from year to year. On average,
the Company's ratio of cost to volume for performance bonuses is approximately 3
to 2. Performance bonuses currently range from 3% to a maximum of 21% of the
combined cost of products purchased by distributors and their downline
distributors, depending on their combined volume. The higher the volume, the
higher the percentage of the performance bonus.
Pursuant to the Sales Plan, a portion of a distributor's performance bonus
must be shared, under the same bonus schedule, with the downline distributors
whose individual 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 for a specified
number of months. In this manner, the Sales Plan seeks to foster entrepreneurial
spirit, to provide monetary and nonmonetary recognition for achievement and to
reward persons building organizations producing high levels of sales.
Distributors must re-qualify each year for each of these bonuses (except for
one-time incentive awards). The requirement of six months of qualified
performance for direct distributor status (and consequently the higher levels of
achievement) is meant to promote sales activities throughout the entire year.
See " -- Direct Distributors." The requirement for annual requalification can,
however, lead to increased sales activity early in a fiscal year as distributors
try to get a quick start on requalifying, and late in a fiscal year as
distributors seek to requalify before the annual deadline. Another sales
incentive under the Sales Plan is the Sales Incentive Program under which the
Company has additional funds available each year to award to distributors at its
discretion.
Direct Distributors. Once a distributor achieves a specified significant
level of performance, the distributor becomes a "direct distributor" and is
eligible to earn higher bonuses and awards and to receive various forms of
official recognition from the Company.
In order to earn direct distributor status, a distributor must achieve
specified, significant qualifying criteria for three consecutive months plus
three additional months (which need not be consecutive) within the applicable 12
month period. In general, the qualifying criteria involve achieving and/or
sponsoring one or more groups of other distributors which earn the maximum
performance bonus under the Sales Plan. See " -- Distributors' Sales Incentives"
for a description of the performance bonus program. Persons earning direct
distributor status must requalify each year to remain direct distributors.
A large proportion of persons who become distributors may not actively
promote the sale of products, seek sponsoring opportunities or renew their
distributorships. Many of the distributors operate their distributorships on a
part-time basis to supplement their existing incomes. In contrast, direct
distributors generally have developed an active business evidenced by meeting
significant qualifying criteria and tend more frequently to actively promote
sales and sponsoring activities.
Rules Affecting Distributors. Under the Code of Ethics and Rules of
Conduct, distributors are not permitted to make unwarranted claims about Amway
products, to sell Amway products in retail locations, 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.
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 not manufactured, licensed or distributed by Amway or the
Company. The Company discourages door-to-door sales or other "cold calling"
techniques.
The Sales Plan has rules which are intended to promote ethical business
practices. For example, one of the conditions for eligibility for performance
bonuses is the "70% rule," which requires 70% or more of the products a
distributor buys to be resold at wholesale (to downline distributors) or retail
(to consumers). This
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rule is intended to limit purchases of inventory merely to achieve bonuses,
while allowing a level of inventory necessary to conduct business.
The Company, in conjunction with Amway, has a number of programs and
procedures to reinforce the Company's rules that apply to distributors. The
Company publishes Amagram(R), a monthly magazine circulated primarily to
distributors. Approximately half of the magazine contains articles of general
interest to the public at large and approximately half contains Amway product
advertisements, distributor recognition and regular features covering provisions
of the Sales Plan and the Code of Ethics and Rules of Conduct specifically for
distributors. The Company sponsors leadership seminars, business promotion
meetings and training sessions at which, among other things, the importance of
the Sales Plan and the Code of Ethics and Rules of Conduct are stressed.
Despite these efforts and because of the large number of distributors and
their independent status, as well as the impact of certain resale price
maintenance and other regulations that limit the ability of the Company to
monitor and control the sales practices of its distributors, the Sales Plan and
the Code of Ethics and Rules of Conduct can be difficult to enforce. At times,
distributor actions have given rise and may in the future give rise to negative
publicity with respect to Amway or the Company. Such negative publicity can have
a material adverse effect on retail sales, distributor morale and motivation,
public perception of Amway or the Company and the number of persons applying to
become distributors. Negative publicity regarding direct sales in general or
illegal pyramid or other schemes promoted by unethical organizations can also
have a material adverse effect on legitimate direct sales organizations,
including the Company.
Returns. Under the Amway Satisfaction Guarantee, consumers are able to
return durable or non-durable products distributed by the Company, whether new
or used, within a reasonable time for a full refund, replacement or credit
toward a future purchase. Prior to October 1994, this policy only applied to
non-durable products. Electronic and other durable items manufactured for the
Company by third parties, including the induction range, are also covered by
their respective manufacturer's warranties. The Company generally bears the
expense of fulfilling the Amway Satisfaction Guarantee, except with respect to
defective products, as to which the Company may seek reimbursement from Amway.
See " -- Relationship with Amway -- Product Purchase Agreement." The foregoing
are in addition to an eight-day "cooling off" period provided for door-to-door
sales under Japanese law which permits consumers to return products during such
period. See " -- Government Regulation -- Direct Selling Law." All bonuses and
other payments to distributors are adjusted to account for products returned
under the Amway Satisfaction Guarantee. The Code of Ethics contains a separate
"buy-back" policy under which downline distributors may return products to their
sponsors or the Company for a refund. Such repurchases are made at the downline
distributor's original cost, less any performance bonuses already received, and
less, in the case of Company repurchases, 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
not been material and it believes these arrangements foster consumer and
distributor confidence and are material to sales and sponsoring.
Product Shipment; Payment. The Company distributes products to
distributors principally through the use of private package delivery services,
although distributors are also permitted to pick up their own orders. The
Company maintains warehouse facilities for products prior to shipping or
pick-up. All of the Company's five warehouse operations at its Regional
Distribution Centers are operated for the Company by third parties under
contracts. See " -- Properties." All distributors are authorized to order and
pick up products directly from the Company if the order is prepaid. Distributors
may also order products through their sponsors. The Company currently ships
products directly to the ordering distributor without a separate shipping and
handling charge if the order is greater than Y20,000 (U.S.$205). If the order is
less than Y20,000, a Y1,000 (U.S.$10) shipping and handling charge is assessed.
Regardless of the method or sequence of delivery, distributor performance bonus
calculations include the cost component of sales to or through their downline
distributors. Generally, distributors pay in full for their purchases by postal
money order or direct bank transfer (debit) at the time of their order.
Qualified distributors are permitted to use an electronic payment system and
telephone and telecopy ordering systems. Distributors generally collect payment
from their sponsored downline distributors at the time an order is placed and
from consumers at the time of delivery of the products. The
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Company historically has not extended credit to its distributors. However, in
November 1993, the Company arranged a financing program with two unaffiliated
Japanese finance companies whereby qualifying distributors and their customers
may finance, for periods of up to 48 months, purchases of the Company's most
expensive products: the Amway Queen(R) cookware set, the induction range and the
Amway Queen(R) wok (only when they are purchased with Amway Queen(R) cookware)
and water treatment system units. Distributors may not obtain financing for
multiple purchases of a product. Loans are extended solely at the discretion of
the respective finance company. While the Company does not guarantee any of
these loans, it is responsible for any disputes arising between the purchasers
and the Company or the distributor. The Company is required, upon request, to
provide collateral to the finance companies. See Note 3 of Notes to Consolidated
Financial Statements.
Distributors' Inventory. The amount of inventory which a distributor
ultimately purchases or maintains is not within the direct control of the
Company. The Sales Plan expressly discourages inventory loading by distributors.
The Company's distribution system is designed to provide prompt availability of
products to distributors and thereby obviate the need for distributor
stockpiling. The Sales Plan discourages distributors from purchasing in any one
month more products than they can reasonably expect to sell in the following
month. The previously mentioned "buy-back" rule permitting downline distributors
to return products to the Company or sponsors for a refund is also intended to
discourage excess distributor inventories. See " -- Distribution -- Returns."
These rules and policies are difficult to enforce, and the Company is aware that
certain distributors may have purchased and may continue to purchase products in
excess of their current needs to avoid announced or anticipated price increases
or to achieve performance targets. The result of such purchases is to increase
the Company's sales in the short-term and decrease sales thereafter until the
distributor's excess inventory has been depleted.
STRATEGY
The Company's principal growth strategies are (i) to promote distributor
productivity, retention and sponsoring by continuing to enhance distributor
relations, (ii) to develop and implement new methods to better understand,
communicate with and motivate distributors in order to increase substantially
distributor productivity and sponsoring, while maintaining high rates of
distributor retention and (iii) to systematically introduce new products and
services, while continuing to improve existing products, that are targeted to
the Japanese market and that are meaningfully differentiated from competitive
products.
The Company will continue to dedicate significant financial and human
resources to enhancing distributor relations. As an example of its commitment,
in fiscal 1995, over 65% of the Company's total operating expenses were
attributable to distributor incentives and activities designed to motivate,
reward and support distributors. In fiscal 1995, the Company sponsored
approximately 672 motivational sales meetings, product demonstration seminars
and product fairs, training sessions, leadership seminars and business promotion
meetings. In addition, the Company will continue to engage in the sponsorship of
civic events and corporate image advertising in order to enhance distributor
retention and sponsoring and the public perception of the Company. In fiscal
1995, 71.8% of the total number of distributors renewed their distributorships
from the prior fiscal year.
The Company is also developing and implementing new methods designed to
increase distributor productivity and sponsoring, while maintaining high rates
of retention. These new methods involve an identification and understanding of
distinct distributor types. Historically, the Company has categorized its
distributors into two general groups -- business-building distributors and
distributors who buy for their own consumption and sell only to a few
customers -- and has focused most of its resources on the former group. The
Company believes that, within each group, there are a number of distinct types
of distributors whose performance can be differentiated based upon sales
volumes, sponsoring activities, demographics, product purchase patterns and
renewal history. An identification and understanding of the distinct distributor
types will enable the Company to tailor its motivational and communication
efforts to targeted groups of distributors. In particular, the Company believes
that, by expanding the awareness of other Company products by existing
distributors, it will be able to expand the range of products purchased by those
distributors whose purchases have traditionally been limited to only a few
products or to products within a single product line.
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Another principal growth strategy is to systematically introduce
meaningfully differentiated new products and services appropriate for the
Japanese market, while continuing to improve existing products. New and improved
products introduced during the 24-month period ended August 31, 1995, including
the Amway water treatment system units and replacement parts, a specially
formulated line of Satinique(R) hair care products, reformulated Dish Drops
dishwashing detergent, Triple X food supplement and World Plaza hosiery,
accounted for approximately 40% of net sales for fiscal 1995.
The effort to introduce products specifically designed for the Japanese
market is fostered by the Company's cooperative efforts with Amway, which has
substantial research and development resources. Amway maintains an extensive
research and development center with 43 research and quality assurance
laboratories, currently staffed by approximately 425 people who focus on
developing new products and improving existing products. The Company, through
its product marketing and research and development personnel working in
conjunction with Amway, has introduced a variety of products specially
formulated or manufactured for the Japanese market, including the Artistry(R)
line of cosmetic and skin care products, SA8(R) powdered laundry detergent, the
Satinique(R) line of hair care products, Nutrilite food supplements and water
treatment system units and replacement parts.
Amway, working with the Company, is seeking strategic arrangements with
third parties that would provide the Company with additional products, product
lines or services targeted specifically for the Japanese markets. These
products, product lines or services would be distinct from, and non-competitive
with, the Company's existing product lines, but would have the common
characteristic of being meaningfully differentiated from competing products or
services. The Company believes that its customer base and distribution network,
as well as its financial strength, make it attractive to potential strategic
partners. As a financial objective, the Company's goal is to obtain such
products, product lines or services without reducing the Company's gross or
operating margins.
COMPETITION
The Company faces significant competition in Japan both in the products
sold and in the sponsoring and retaining of independent distributors. Competing
consumer products in home care, housewares, personal care and nutrition 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 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 and Japanese enterprises.
The Company believes that the principal bases of product competition it
faces are quality, price, product knowledge, convenience and variety. Although
consumers of the types of products that the Company distributes have
alternatives that are lower in cost, the Company believes that its products are
competitive on the bases of value, availability of product knowledge through the
direct sales method and convenience of purchase. In addition, the Company
believes that there has been a major shift in Japanese consumers' attitudes
towards consumer products. In evaluating products, Japanese customers are
placing an increasing emphasis on value based upon proven products' performance
and service, rather than equating high price with high quality. The Company
generally offers high value products that are easily demonstrated by
distributors and can be meaningfully differentiated from competing products. A
high level of personal service, including convenient in-home demonstrations,
ordering and delivery and the Amway Satisfaction Guarantee provide additional
value to the consumer.
The Company also competes with other direct selling organizations to
recruit independent distributors. 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 distributors are reputation, perceived opportunity for
financial success and quality and range of products offered for sale.
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COMMUNITY SUPPORT ACTIVITIES
The Company engages in a variety of activities in support of the
environment, human achievement, education, the arts and civic causes. The
Company continues to sponsor the tour of the major art exhibition "Masters of
the Arctic -- Art in the Service of the Earth" in Japan featuring a collection
of Inuit art. The exhibition celebrates the art of the indigenous peoples of the
northern hemisphere's circumpolar region and focuses on their tradition of
respect for and preservation of their environment. The Company has also
sponsored performances and tours of the New York Philharmonic Orchestra, the
Cleveland Orchestra, the American Symphony Orchestra, the San Francisco Symphony
and the Philadelphia Philharmonic Orchestra. In addition, the Company has
sponsored the Maurice Bejart Ballet and exhibitions of American contemporary art
in Japan. Recent major independent sponsorships and co-sponsorships have
included four Interlink Festivals in conjunction with the U.S. Embassy, the
"Kabuki Class for Everyone" programs and the special exhibition "John Cage Sound
Installation: on his essay 'Civil Disobedience'."
In its effort to preserve the environment, the Company founded the Amway
Nature Center which raises funds for environmental protection activities. Since
its inception in 1989, the Amway Nature Center has funded numerous projects both
in Japan and elsewhere. Recent campaigns have funded projects for the
preservation of the Kurosawa wetlands, the restoration of the Yaeyama coral
reef, nature conservation in Yakushima and the preservation and restoration of
underwater forests in the seas off the Izu Peninsula.
The objective of these activities is to enhance the Company's image,
strengthen its corporate identity and foster a positive relationship with the
local community. Sponsorships also allow the Company to demonstrate its
commitment to the environment. The Company believes that leading corporations
have an obligation to contribute to the welfare of their communities. Another
goal of the Company's contribution to society is to offer valuable and helpful
support to the local customers who have given their patronage to, and have
accepted, the Company, its products and business. Through sponsorships, the
Company seeks to earn and maintain a positive image and name recognition among
its distributors and their customers as well as potential distributors and
customers.
SOURCES OF SUPPLY
The Company has no manufacturing facilities. Amway products are principally
produced by Amway at its worldwide manufacturing plant in Ada, Michigan and by
Nutrilite at its plant in Buena Park, California. Certain products, such as
Amway Queen(R) cookware and water treatment system units and replacement parts,
are produced to Amway specifications by third-party manufacturers. Certain other
products, such as the induction range and the fully-automated coffee maker, are
produced to Company specifications by third-party manufacturers.
RELATIONSHIP WITH AMWAY
The Company, as the exclusive distribution vehicle for Amway in Japan, has
and will continue to have a number of contractual relationships with Amway. The
Company and Amway have entered into the Trademark License Agreement relating to
the use of Amway trademarks and product formulas, the Product Purchase Agreement
relating to the purchase of products from Amway and the Support Services
Agreement relating to the utilization of Amway support services. The following
descriptions of the contracts and amendments thereto, are only summaries and are
qualified in their entirety by reference to such agreements, copies of which are
on file with the Commission, and amendments to the agreements described below,
may be entered into by the Company and Amway after consummation of the Offering.
The continuation of these contractual relationships with Amway is essential to
the conduct of the Company's business.
Trademark License Agreement. Pursuant to the Trademark License Agreement
with the Company, Amway has granted the Company an exclusive right to use in
Japan the Amway trademark and the individual product trademarks used on Amway
products. In addition to the exclusive use of the trademarks on Amway sourced
products in Japan, the Company has the right, with Amway's consent, to use the
Amway trademark in connection with products manufactured by the Company or by
others under contract with the Company. In addition, the Company has the right
to use Amway formulas and designs for certain products sold by the
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Company. With respect to locally manufactured products based upon an Amway
formula, Amway is responsible only for defects in the formula.
Use of the trademarks is royalty free (the value of the trademarks is
included in the prices of products purchased from Amway), except in connection
with products manufactured by the Company or by others under contract with the
Company, in which case Amway may charge a royalty of up to 8% of the net sales
of such products. Exclusively for fiscal years 1994 and 1995, however, the
royalty rate for certain Company-sourced products bearing an Amway trademark was
established at 2%, except that for Amway products bearing an Amway trademark and
using an Amway formula or design (certain Satinique(R) and Artistry(R)
products), the royalty rate was established at 4%, in each case calculated based
on the net sales forecasts of the Company for such periods and not net sales as
otherwise required by the Trademark License Agreement. Based upon these rates
and estimates of sales for fiscal years 1994 and 1995, the Company delivered to
Amway promissory notes in the aggregate amount of approximately Y628.0 million
(U.S.$6.4 million) in prepayment of royalties for these products for fiscal
years 1994 and 1995. The final installment of these notes was paid on or prior
to August 31, 1995.
As of July 31, 1995, the Company executed, in prepayment of royalties for
fiscal years 1996, 1997 and 1998, promissory notes in the aggregate amount of
Y1.9 billion (U.S.$19.4 million). In consideration for the execution of these
notes, the revised royalties for these years will approximate 3.6% for those
Company-sourced products bearing an Amway trademark and approximately 7.3% for
those Company-sourced products bearing an Amway trademark and using an Amway
formula or design. The actual royalty payable with respect to these products
will depend on actual aggregate sales of such products for the three-year
period. The notes are payable in six semiannual installments commencing February
28, 1996, with the final payment due and payable on August 31, 1998.
Product Purchase Agreement. Pursuant to the Product Purchase Agreement
between Amway and the Company, the Company 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. See " -- Government Regulation -- Product
Restrictions." Purchases are evidenced by purchase orders and Amway must use
reasonable commercial efforts to fill such orders. In determining whether it has
the production capacity to meet an order, Amway is required to treat the Company
on a parity with other comparable Amway affiliates based on net sales.
Prior to September 1, 1992, the Company paid for all of its purchases from
Amway in dollars; since that date, purchases have been paid for in yen. The
prices for products purchased from Amway are governed by a price schedule which
Amway establishes based upon a U.S. dollar "cost plus" base price calculation.
In addition to the U.S. dollar "cost plus" base price component of Amway's
schedule, the current prices for these products include an implicit dollar/yen
exchange rate which the Company has calculated to be approximately Y91 =
U.S.$1.00 compared to an implicit exchange rate that applied to product
purchases throughout fiscal 1995 of Y104 = U.S.$1.00. Amway has the right to
modify, on 30 days' prior written notice, the prices of products to be purchased
by the Company from Amway; 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. See "Risk Factors -- Operations Outside the United States; Currency
Fluctuations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Foreign Exchange Transaction Information."
Amway indemnifies the Company with respect to any defect in, or any harm
caused by, any product purchased from Amway under the Product Purchase Agreement
or failure of any such products to comply with local regulatory requirements in
Japan. Under the Product Purchase Agreement, Amway is required to maintain
product liability insurance with respect to products that the Company purchases
from Amway. The Product Purchase Agreement also provides that the Company may be
a named insured on such product liability policies with its own independent
rights under such policies.
Support Services Agreement. Amway provides various administrative support
services for the Company. Support services provided include legal, accounting,
tax, treasury, marketing, insurance, inventory control, investor relations and
human resources. Charges for these services include direct costs incurred by
Amway for investor relations services and direct costs payable by Amway to third
parties for such services. Prior to
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September 1, 1993, these charges also included certain internal labor costs
relating to those services provided by Amway to the Company. These internal
labor costs were eliminated effective September 1, 1993 (except for those
expenses incurred in connection with investor relations services). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange Transaction Information" and "Certain
Transactions."
In addition, the Support Services Agreement provides that the Company will,
upon the request of Amway, provide assistance to Amway with respect to Amway
products specifically formulated for the special needs and preferences of the
Japanese market. Under the Support Services Agreement, Amway reimburses the
Company for certain costs and expenses relating to such assistance provided by
the Company to Amway.
The Company has the right to discontinue receiving any of such services or
to terminate the Support Services Agreement at any time upon six months' notice
to Amway. Amway has agreed not to discontinue any services that Amway continues
to provide to its other international affiliates. If Amway determines to
discontinue any service to all of its international affiliates, it may do so
upon six months' notice to the Company. There can be no assurance that the
Company would be able to obtain such services from alternative suppliers or, if
obtained, at a cost comparable to that charged by Amway.
General Provisions. Each of the Trademark License Agreement, Product
Purchase Agreement and Support Services Agreement is for a term ending on August
31, 2011, and is subject to renegotiation after December 31, 1999 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.
GOVERNMENT REGULATION
The Company operates in Japan pursuant to various regulatory frameworks.
These regulatory frameworks, as summarized below, affect the Company's direct
selling, general trade, securities, import/export and distribution activities in
addition to many other areas of the Company's business.
Direct Selling Law. The Company is subject to certain provisions of the
Japanese Door-to-Door Sales Law (the "Sales Law"). The Sales Law is broadly
drafted to cover sales other than those made in stores and therefore covers the
direct selling method of the Sales Plan. The Sales Law is intended to ensure
fair transactions involving door-to-door sales, mail order sales as well as
chain sales transactions through various requirements, including certain
disclosure to purchasers of products, refund procedures and, with respect to
door-to-door sales, an eight-day "cooling-off period."
The Company believes that its method of distribution is in compliance in
all material respects with the Sales Law. However, since this statute could be
interpreted by regulators in a manner which could impact the Company's
operations, there can be no assurance that new legislation or regulations or new
interpretations of the existing laws and regulations would not have a material
adverse effect on the Company's operations. See "Risk Factors -- Regulation of
Certain Direct Selling Activities."
Fair Trade Laws. The Company's operations and the activities of
distributors are regulated by the Anti-Monopoly Law and the guidelines
concerning distribution systems and business practice (the "Guidelines") issued
thereunder by the Fair Trade Commission of Japan in 1991. The Guidelines are
intended to assure fair and free competition as well as broadly regulate, among
other areas, resale price maintenance, sole distributorship contracts, rebates
and assignment of exclusive sales territories. The Company believes that it is
in compliance in all material respects with the Guidelines. There can be no
assurance, however, that new guidelines or amendments to the Anti-Monopoly Law
would not have a material adverse effect on the Company's operations.
Securities Laws. The Common Stock is currently registered with the JSDA as
Japanese OTC traded shares and the Company is subject to the Securities and
Exchange Law of Japan, as amended (the "Securities and Exchange Law"), and
ordinances and regulations thereunder, as well as requirements of the JSDA.
Under the Securities and Exchange Law and the JSDA's requirements, the Company
is subject to periodic
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and other reporting requirements, including filings of annual and semiannual
securities reports, business reports and financial reports with the Ministry of
Finance ("MOF") and the JSDA.
Foreign Ownership and Import. The Company operates in accordance with
company, trade, tax and the foreign investment laws of Japan. The Company was
formed as a joint stock corporation (kabushiki kaisha) in accordance with the
Commercial Code. Foreign investment is regulated by the Foreign Exchange and
Foreign Trade Control Law of Japan, as amended (the "Foreign Exchange Law").
There are no limitations on the repatriation of capital, earnings or the sales
proceeds for goods imported, provided that the underlying transactions are
proper and legal. Imports are controlled by the Foreign Exchange Law, and as a
signatory to the General Agreement on Tariffs and Trade, as amended ("GATT"),
Japan adheres to GATT requirements relative to customs duties. Additionally,
customs duties are covered by the Customs Duty Law, the Customs Tariff Law and
the Customs Duty Temporary Measures Law.
Intellectual Property Protection. The Company considers the Amway
trademarks important to its business. Pursuant to the Trademark License
Agreement with Amway, the Company has the exclusive license to use the Amway
trademark and the individual product trademarks used on Amway products in the
Company's market. Pursuant to this Agreement, Amway is responsible for filing,
maintaining and defending the trademarks and other intellectual property
licensed to the Company. See " -- Relationship with Amway -- Trademark License
Agreement". Amway policy is to secure trademark registration 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 registers the foreign language equivalents of the Amway
trademark. Where possible, Amway's policy is also to perfect patent filing for
products or components, particularly in the Housewares Line. For example, Amway
has filed for and obtained patent protection on components of the water
treatment system in Japan.
Japan is a participant in the major international conventions for the
protection of intellectual property. In addition, the Company believes that
Japan's Patent Law, Trademark Law, Copyright Law and Unfair Competition
Prevention Law, among other laws, provide adequate protection for the
intellectual property Amway licenses to the Company.
Product Restrictions. Some of the Company's products, particularly
vitamins, certain nutritional supplements and cosmetics, are subject to the
Pharmaceutical Business Law, the Food Sanitation Law and other health,
sanitation and labeling laws and regulations. Under the Pharmaceutical Business
Law, in the event that a distributor promotes the sale of vitamin products or
nutritional supplements by claiming that such vitamin products or nutritional
supplements would have a pharmaceutical effect, the distribution of vitamin
products or nutritional supplements by such distributor may constitute a
violation of the Pharmaceutical Business Law. Certain of the Company's products
require licenses for importation.
Product Liability. On July 1, 1995, a new product liability law went into
effect in Japan. This law permits consumers to establish product liability
claims against manufacturers and importers of goods upon a showing of a
defective condition in such goods rather than negligence as was previously
required. As a result of this new law, Amway as the manufacturer and the Company
as the importer of consumer products may be subject to increased potential
liability for loss or injury caused by such products.
LEGAL PROCEEDINGS
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 or results of operations.
EMPLOYEES
At August 31, 1995, the Company had approximately 635 permanent full-time
employees, approximately 75 other contract temporary employees and approximately
250 temporary employees. The Company has no union employees and no collective
bargaining agreements. The Company considers its employee relations to be
excellent. The distributors are independent contractors and are not employees of
the Company. See
" -- Distribution."
47
<PAGE> 84
PROPERTIES
The Company has no manufacturing facilities. The Company has office
facilities and Regional Distribution Centers (including warehouses) located
throughout Japan all of which currently are leased by the Company. The following
table summarizes the number of facilities in which the Company currently has
operations in addition to its registered head office and main office in Tokyo:
<TABLE>
<CAPTION>
REGIONAL CUSTOMER
DISTRIBUTION SERVICE
CENTERS(1) OFFICES
------------ ------------
<S> <C> <C>
Fukuoka....................................................... 1 1
Hiroshima..................................................... -- 1
Ishikawa...................................................... -- 1
Kobe.......................................................... 1(2) --
Nagoya........................................................ -- 1
Okinawa....................................................... 1(3) --
Osaka......................................................... -- 1
Sapporo....................................................... 1 1
Sendai........................................................ -- 1
Tokyo......................................................... 1 1
-- --
Total.................................................... 5 8
========= =========
</TABLE>
- ---------
(1) The Company's warehouse operations at its Regional Distribution Centers in
Fukuoka, Kobe, Okinawa, Sapporo and Tokyo are operated for the Company by
third parties under contracts expiring at various dates from 1996 through
1997.
(2) In January 1995, the Kobe area sustained a major earthquake. The Company's
Regional Distribution Center in Kobe was relatively undamaged, although it
was inaccessible through April 3, 1995.
(3) Leased by the warehouse operator.
In order to demonstrate its long-term commitment in Japan, to enhance the
Company's image, to strengthen its corporate identity and to take advantage of
current Japanese real estate market conditions, the Company acquired in March
1995 a 3,561 square meter parcel of land in Tokyo for the construction of a new
headquarters facility. Certain additional events must occur prior to July 1,
1996 before the site is available for construction. Accordingly, construction of
the facility is not planned to commence before fiscal 1997. It is anticipated
that this facility will be available for occupancy in fiscal 1999. The purchase
price for the land aggregated Y19.4 billion (U.S.$198.0 million). The total
capital cost of this headquarters project is currently estimated to be between
Y27.5 billion (U.S.$280.6 million) and Y32.5 billion (U.S.$331.6 million).
In addition, the Company purchased a 22,296 square meter parcel of land in
Tokyo in July 1995 for the construction of a new Tokyo Regional Distribution
Center. The purchase price for this land, which was paid in cash, was Y4.7
billion (U.S.$48.0 million). It is anticipated that construction of this
Regional Distribution Center will begin in December 1995 and that this facility
will be operational beginning in February 1997. The total cost of this project
is currently estimated to be between Y13.8 billion (U.S.$140.8 million) and
Y14.4 billion (U.S.$146.9 million). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
48
<PAGE> 85
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- ---------------------------------------------
<S> <C> <C>
Richard M. DeVos, Jr. 40 Chairman; Director
Stephen A. Van Andel 40 Vice-Chairman; Director
Richard S. Johnson 53 President; Representative Director
Takashi Kure 44 Vice President and Chief Planning Officer;
Director
Yoshizo Matsushita 60 Vice President and Chief Financial Officer;
Director
Hisao Hattori 70 Director Executive Director of the
President's Office/Public Relations and
External Affairs; Director
Hitoshi Tsurumoto 55 Director of Human Resources; Director
Noboru Makino 74 Director
Nobuyuki Nakahara 60 Director
Yoshikazu Takaishi 65 Director
Bert Crandell 42 Marketing Division Director
Patric J. Sullivan 52 Distributor Relations Division Director
Shigeo Kobayashi 48 National Distribution Manager
</TABLE>
Richard M. DeVos, Jr. has been Chairman of the Company since January 1995
and a director of the Company since November 1994. Since January 1995, Mr. DeVos
has been President of Amway Asia Pacific Ltd. Mr. DeVos has been President of
Amway since 1993. Mr. DeVos was President and Chief Executive Officer of the
Orlando Magic Ltd. from 1991 to 1993. Mr. DeVos 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, Mr.
DeVos 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. Mr. DeVos is also a director of Amway
Asia Pacific Ltd.
Stephen A. Van Andel has been Vice-Chairman of the Company since January
1995 and a director of the Company since November 1994. Since January 1995, Mr.
Van Andel has been Chairman of Amway Asia Pacific Ltd. Mr. Van Andel has been
Chairman of Amway since September 1, 1995 and Chairman of the Executive
Committee of Amway since 1993 as well as a member of the Policy Board of Amway
since 1992. Since 1993, Mr. Van Andel also has been Vice President-Corporate
Affairs of Amway. Mr. Van Andel was appointed Vice President-Marketing of Amway
in 1988 and in 1991, he became Vice President-Americas. Prior to 1988, Mr. Van
Andel held various administrative and management positions with Amway. Mr. Van
Andel holds a Bachelor's degree from Hillsdale College and a Masters of Business
Administration from Miami University. Mr. Van Andel is also a director of Amway
Asia Pacific Ltd.
Richard S. Johnson has been President and Representative Director of the
Company since 1991. Mr. Johnson joined Amway in 1990 as General Manager of Amway
Germany. Prior to joining Amway, Mr. Johnson was President of Tupperware
Pacific. Mr. Johnson holds a Bachelor's Degree from the University of
Pennsylvania and a Masters of Business Administration Degree from Harvard
Business School.
Takashi Kure has been Vice President and Chief Planning Officer of the
Company since January 1995 and a director of the Company since 1987. Prior to
becoming Chief Planning Officer, Mr. Kure served as Vice
49
<PAGE> 86
President and Chief Operating Officer since 1990. Between 1989 and 1990, Mr.
Kure served as Director of Sales and Marketing. Previously, Mr. Kure served as
Director of Operations and Manager of Information Systems Control Department of
the Company. Mr. Kure joined the Company in 1985 as Manager of the EDP
Department. Mr. Kure holds a Bachelor's Degree from Cornell University.
Yoshizo Matsushita has been Vice President and Chief Financial Officer of
the Company since April 1, 1994 and a director of the Company since 1990. Mr.
Matsushita joined the Company in 1989 as Division Manager of Finance and served
as Director of Finance from 1990 to 1994. Prior to joining the Company, Mr.
Matsushita held various manufacturing and finance positions with Nihon Tetra Pak
K.K. Mr. Matsushita holds a Bachelor's of Business Administration Degree from
Meiji University.
Hisao Hattori has been Executive Director of the President's Office/Public
Relations and External Affairs since February 1994 and a director of the Company
since 1992. Mr. Hattori joined the Company in 1987 as Statutory Auditor and in
1988 became Director of the President's Office and from 1992 to 1994 served as
Executive Director of the President's Office. Prior to joining the Company, Mr.
Hattori held various administrative positions with IBM Japan Limited.
Hitoshi Tsurumoto has been Director of Human Resources and a director of
the Company since 1990. Mr. Tsurumoto joined the Company in 1989 as Manager of
Human Resources and Administration. Prior to joining the Company, Mr. Tsurumoto
held various personnel and administrative positions with Wyeth Japan Limited.
Mr. Tsurumoto holds a Bachelor's Degree from Hokkaido University of Education.
Noboru Makino has been a director of the Company since November 1994. Since
1990, Mr. Makino has served as an Advisory Director to Mitsubishi Research
Institute, Ltd. Prior to that Mr. Makino was Director and Chairman of Mitsubishi
Research Institute, Ltd. since June 1984. Mr. Makino holds a Master's Degree
from Tokyo University.
Nobuyuki Nakahara has been a director of the Company since November 1994.
In March 1994, Mr. Nakahara became a Honorary Chairman of Tonen Corporation
("Tonen"). Since March 1986, he was Representative Director and President of
Tonen. Mr. Nakahara holds a Bachelor's of Economics Degree from Tokyo
University.
Yoshikazu Takaishi has been a director of the Company since November 1994.
Between November 1993 and November 1994, he was statutory auditor of the
Company. In April 1993, Mr. Takaishi established Takaishi Law Office. Prior to
that, Mr. Takaishi was Managing Director (Legal Affairs and Intellectual
Property) for IBM Japan Limited. Mr. Takaishi holds a Bachelor's of Law Degree
from Nihon University and has been an attorney-at-law since 1957.
Bert Crandell has been Marketing Division Director of the Company since
September 1992. Mr. Crandell has been employed by Amway since 1978 in a variety
of research and development and marketing positions. Mr. Crandell holds a
Bachelor's Degree from Michigan State University.
Patric J. Sullivan has been Distributor Relations Division Director of the
Company since January 1994. Mr. Sullivan has been employed by Amway since 1971
in a variety of distributor relations positions. Mr. Sullivan holds a Bachelor's
Degree from Aquinas College.
Shigeo Kobayashi has been National Distribution Manager of the Company
since he joined the Company in November 1988. Mr. Kobayashi holds a Bachelor's
Degree of Mathematics from Science University of Tokyo.
Effective as of the Ordinary General Meeting of Shareholders on November
29, 1995, Mr. Hattori will be retiring from his positions as a director of the
Company and as Executive Director of the President's Office/ Public Relations
and External Affairs after eight years of distinguished service. The Company has
nominated Tomiaki Nagase for election by the shareholders at the Ordinary
General Meeting of Shareholders on November 29, 1995 as a director of the
Company to succeed Mr. Hattori. In addition, Mr. Nagase will be appointed as an
executive officer of the Company.
50
<PAGE> 87
Tomiaki Nagase, age 60, has been an employee of the Company since July 1,
1995. Mr. Nagase was previously Senior Managing Director of Kao Corporation, a
multi-national corporation involved in the manufacture and sale of consumer
products ("Kao"), from March 1992 until June 1995. Previously, Mr. Nagase held
various operational and marketing managerial positions with Kao as well as
serving as a member of its board of directors. In addition, Mr. Nagase has
previously held managerial positions with The Fuji Bank, Limited and Asian
Development Bank. Mr. Nagase holds a Bachelor's Degree in Economics from
Gakushuin University.
The Company's Statutory Auditors are Akira Toriumi (a former employee of
the Company), Kouichi Kura (full-time external Statutory Auditor of the
Company), Lawrence M. Call (Chief Financial Officer of Amway and an officer of
various of its affiliates) and Craig N. Meurlin (General Counsel of Amway and an
officer of various affiliates).
51
<PAGE> 88
PRINCIPAL AND SELLING SHAREHOLDERS
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the ownership of
Common Stock as of August 1, 1995 by (i) the Principal Shareholders and as
adjusted to reflect the deposit of Common Stock, as represented by ADSs, with
the collateral agent in connection with the delivery by the Selling
Shareholders, on the Exchange Date, of ADSs or shares of Common Stock, which
will be exchanged for the PEPS, (ii) each person owning of record or known to
the Company to be the beneficial owner of more than 10% of the Common Stock and
(iii) the Company's officers and directors as a group. All information with
respect to beneficial ownership has been furnished by the respective Principal
Shareholder, more than 10% shareholder, executive 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 TO BE
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING REPRESENTED AFTER THE EXCHANGE
NAMES AND ADDRESSES -------------------------- BY ADSS -------------------------
OF BENEFICIAL OWNERS NUMBER PERCENTAGE DEPOSITED(1) NUMBER PERCENTAGE
- -------------------------------------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Jay and Betty J. Van Andel
7186 Windy Hill Drive, S.E.
Grand Rapids, Michigan 49546 63,455,500(2) 42.4% 3,507,131(3) 59,948,369 40.1%
David Van Andel
6962 Ada Drive
Grand Rapids, Michigan 49546 29,695,000(4) 19.8% -- 29,695,000 19.8%
Richard M. and Helen DeVos
1840 South Ocean Blvd.
Manapalan, Florida 33462 50,173,500(5) 33.5% -- 50,173,500 33.5%
Richard M. DeVos, Jr.
2003 Hillsboro, S.E.
Grand Rapids, Michigan 49546 11,020,500(6) 7.4% 3,507,131(7) 7,513,369 5.0%
All officers and directors
as a group (16) 11,042,500 7.4% 3,507,131(7) 7,535,369 5.0%
</TABLE>
- ---------
(1) Assuming no exercise of the Underwriters' over-allotment option. Each ADS
represents one-half of one share of Common Stock.
(2) Includes 33,760,500 shares (22.6%) of Common Stock held by the Jay Van Andel
Trust, 26,956,000 shares (18.0%) of Common Stock held by Japan HC I, Inc.
and 2,739,000 shares (1.8%) of Common Stock held by the Jay and Betty J.
Van Andel Foundation (the "Van Andel Foundation"). Under the terms of the
Jay Van Andel Trust, Jay Van Andel has sole voting and dispositive power
with respect to the shares of Common Stock held by such Trust. Jay Van
Andel is a director of Japan HC I, Inc. with shared voting and dispositive
power with respect to the shares of Common Stock held by Japan HC I, Inc.,
and a co-trustee of the Van Andel Foundation with shared voting and
dispositive power with respect to the shares of Common Stock held by such
Foundation. As the sole beneficiary of the Betty J. Van Andel Trust, which
is the sole shareholder of Japan HC I, Inc., Betty J. Van Andel has shared
voting and dispositive power with respect to the shares of Common Stock
held by Japan HC I, Inc. due to her right to revoke such Trust. Jay Van
Andel and Betty J. Van Andel are married; as a consequence, each may be
deemed to be the beneficial owner of all of the shares listed.
(3) The Jay Van Andel Trust will deposit with the collateral agent, as security
for its obligations under its Purchase Contract, up to shares of
Common Stock, as represented by up to ADSs, in
52
<PAGE> 89
connection with its delivery to the Trust, on the Exchange Date, of ADSs or
Common Stock in exchange for the PEPS.
(4) Includes 26,956,000 shares (18.0%) of Common Stock held by Japan HC I, Inc.
and 2,739,000 shares (1.8%) of Common Stock held by the Van Andel
Foundation. David Van Andel is a director of Japan HC I, Inc. with shared
voting and dispositive power with respect to the shares of Common Stock
held by Japan HC I, Inc., and a co-trustee of the Van Andel Foundation with
shared voting and dispositive power with respect to the shares of Common
Stock held by such Foundation.
(5) Includes 25,995,000 shares (17.4%) of Common Stock held by RDV(AJL)
Holdings, Inc., 21,439,500 shares (14.3%) of Common Stock held by HDV(AJL)
Holdings, Inc., 2,739,000 shares (1.8%) of Common Stock held by the Richard
and Helen DeVos Foundation (the "DeVos Foundation"). The Richard DeVos
Trust is the sole shareholder of RDV(AJL) Holdings, Inc. The Helen DeVos
Trust is the sole shareholder of HDV(AJL) Holdings, Inc. Richard M. DeVos
is a co-trustee of the Richard DeVos Trust and a co-trustee of the Helen
DeVos Trust in each case with shared and dispositive power of the shares of
Common Stock indirectly held by such trusts. Helen DeVos is a co-trustee of
the Helen DeVos Trust and a co-trustee of the Richard DeVos Trust in each
case with shared voting and dispositive power of the shares of Common Stock
indirectly held by such trusts. Richard M. DeVos, Helen DeVos and Jerry L.
Tubergen are each a co-trustee of the DeVos Foundation and each has shared
voting and dispositive power of the shares of Common Stock held by the
DeVos Foundation.
(6) Includes 2,505,500 shares (1.7%) of Common Stock held by RDV GRIT Holdings,
Inc., 6,515,000 shares (4.4%) of Common Stock held by HDV GRIT Holdings,
Inc. and 2,000,000 shares (1.3%) of Common Stock held by RDV Capital
Management L.P. II. Richard M. DeVos, Jr. and Jerry L. Tubergen are
directors of each of RDV GRIT Holdings, Inc. and HDV GRIT Holdings, Inc.
with shared voting and dispositive power of the shares of Common Stock held
by such corporations. RDV Corporation is the general partner of RDV Capital
Management L.P. II. As a director of RDV Corporation, Richard M. DeVos, Jr.
shares voting and dispositive power of the shares of Common Stock held by
RDV Capital Management L.P. II. Richard M. DeVos, who holds an indirect
interest in RDV GRIT Holdings, Inc., but has no voting or dispositive power
with respect to the shares of Common Stock held by such corporation,
disclaims beneficial ownership of such shares. Helen DeVos, who holds an
indirect interest in HDV GRIT Holdings, Inc., but has no voting or
dispositive power with respect to the shares of Common Stock held by such
corporation, disclaims beneficial ownership of such shares.
(7) HDV GRIT Holdings, Inc. will deposit with the collateral agent, as security
for its obligations under its Purchase Contract, up to shares of
Common Stock, as represented by up to ADSs, in connection with
its delivery to the Trust, on the Exchange Date, of ADSs or Common Stock in
exchange for the PEPS.
53
<PAGE> 90
SELLING SHAREHOLDERS
The following table sets forth certain information as to the ownership of
Common Stock as of August 1, 1995 by the Selling Shareholders listed below. The
Selling Shareholders are Principal Shareholders. In addition, the table below
sets forth information as to the ownership of Common Stock, as adjusted to
reflect the deposit of Common Stock, as represented by ADSs, with the collateral
agent in connection with the delivery by the Selling Shareholders, on the
Exchange Date, of ADSs or shares of Common Stock, which will be exchanged for
the PEPS. See "Risk Factors -- Relationship and Potential Conflicts of Interest
with Amway," " -- Controlling Shareholders," "Business -- Relationship with
Amway" and "Certain Transactions."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES TO BE
OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING REPRESENTED AFTER THE EXCHANGE
NAMES AND ADDRESSES ------------------------ BY ADSS ------------------------
OF BENEFICIAL OWNERS NUMBER PERCENTAGE DEPOSITED(1) NUMBER PERCENTAGE
- ----------------------------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Jay Van Andel Trust(2) 33,760,500 22.6% 3,507,131 30,253,369 20.2%
HDV GRIT Holdings, Inc.(3) 6,515,000 4.4% 3,507,131 3,007,869 2.0%
</TABLE>
- ---------
(1) The table set forth above assumes that the Underwriters' over-allotment
option is not exercised. In connection with the Offering, the Trust has
granted the Underwriters a 30-day option to purchase up to an additional
PEPS which may require the Selling Shareholders to deposit the
following number of additional shares of Common Stock, as represented by
ADSs, with the collateral agent as security for delivery by the Selling
Shareholders, on the Exchange Date, of ADSs or Common Stock in exchange for
the PEPS: Jay Van Andel Trust ; and HDV GRIT Holdings, Inc.
. Each ADS represents one-half of one share of Common Stock.
(2) Under the terms of the Jay Van Andel Trust, Jay Van Andel has sole voting
and dispositive power with respect to the shares of Common Stock held by
the Jay Van Andel Trust and as a result is the beneficial owner of the
shares of Common Stock held by such Trust. Jay Van Andel and Betty J. Van
Andel are married; as a consequence, Betty J. Van Andel may be deemed to be
the beneficial owner of such shares.
(3) Richard M. DeVos, Jr. and Jerry L. Tubergen are directors of HDV GRIT
Holdings, Inc. with shared voting and dispositive power of the shares of
Common Stock held by HDV GRIT Holdings, Inc. and as a result are the
beneficial owners of such shares. Helen DeVos, who holds an indirect
interest in HDV GRIT Holdings, Inc., but has no voting or dispositive power
with respect to the shares of Common Stock held by such corporation,
disclaims beneficial ownership of such shares.
54
<PAGE> 91
CERTAIN TRANSACTIONS
Members of the DeVos and Van Andel families own all of the outstanding
shares of Amway. Following the Exchange (assuming no other disposition or
acquisition of Common Stock or ADSs by the Principal Shareholders prior to the
Exchange Date), the Principal Shareholders will collectively own beneficially
78.6% of the outstanding shares of Common Stock (77.9% if the Underwriters'
over-allotment option is exercised in full). See "Principal and Selling
Shareholders."
Approximately 80% of the Company's fiscal 1995 net sales was derived from
the distribution of products in the four core Amway product lines at prices and
on other terms provided in the Product Purchase Agreement between Amway and the
Company. In addition, Amway has granted the Company the exclusive right in Japan
to use the Amway trademark and individual product trademarks. Amway also
provides a broad range of administrative and technical assistance to the Company
pursuant to various assistance agreements with the Company. For a summary of the
terms of the agreements between Amway and the Company, see
"Business -- Relationship with Amway." During fiscal 1993, fiscal 1994 and
fiscal 1995, pursuant to the agreements between Amway and the Company, the
Company paid Amway a total of Y23.8 billion (U.S.$242.9 million), Y28.2 billion
(U.S.$287.8 million) and Y28.6 billion (U.S.$291.8 million), respectively, for
the purchase of products; and Y633.0 million (U.S.$6.5 million), Y290.0 million
(U.S.$3.0 million) and Y385.0 million (U.S.$3.9 million), respectively, for
services provided to the Company. In addition, the Company has paid Amway in
advance through the issuance of promissory notes for royalties under the
Trademark License Agreement, in the aggregate amount of Y1.9 billion (U.S.$19.4
million) for fiscal 1996 through 1998. See "Business -- Relationship with
Amway -- Trademark License Agreement."
In connection with the reorganization of certain Amway affiliates in
December 1993 as part of the capitalization of AAP, the Company transferred to
AAP the stock of Amway Pacific Limited, a former subsidiary of the Company,
through which the Company held a 95% interest in the joint venture company
formed as the exclusive distribution vehicle for Amway products in the People's
Republic of China. This resulted in the acquisition by the Company of 972,222
shares of common stock of AAP, representing an acquisition price of
approximately Y1.9 billion (U.S.$17.5 million) (based on the Noon Buying Rate of
Y110.70 = U.S.$1.00 prevailing on December 21, 1993). This price was established
principally based upon an independent valuation. As a result of this
transaction, the Company owns approximately 2% of AAP's common stock. The
Principal Shareholders own approximately 83% of AAP's common stock, with the
remainder publicly held.
Takaishi Law Office, of which Mr. Takaishi, a director of the Company, is
the founder, provided legal services to the Company in fiscal 1993, 1994 and
1995 and it is anticipated that it will provide legal services to the Company in
fiscal 1996.
The Company has agreed to pay approximately Y50.0 million (U.S.$0.5
million) of the costs and expenses of the Offering. The Company will indemnify
the Selling Shareholders and the Underwriters of the PEPS against certain
liabilities, including liabilities under the Securities Act.
55
<PAGE> 92
DESCRIPTION OF CAPITAL STOCK
Set forth below is a discussion of the material provisions of the Common
Stock, including brief summaries of certain provisions of the Articles of
Association and the Company's Share Handling Regulations (the "Share Handling
Regulations"), as currently in effect, and of the Commercial Code. These
summaries do not purport to be complete and are qualified in their entirety by
reference to the full Articles of Association and the full Share Handling
Regulations which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
GENERAL
Under the Articles of Association, the presently authorized capital stock
of the Company consists of 256,000,000 shares of Common Stock, which may be
issued as no par value shares or with a par value of Y50 per share. As of August
31, 1995, 149,624,951 no par value shares were issued and outstanding. No Y50
par value shares are outstanding. Under the Commercial Code, the Company may, by
resolution of the Board of Directors, convert par value shares into no par value
shares and vice versa, provided that in the latter case, the total par value may
not be more than the Company's stated capital. The Commercial Code requires that
shares be in registered form. Under the Commercial Code, shares are transferable
by delivery of share certificates, but in order to assert shareholders' rights
against the Company, the transferee must have its name registered on the
Company's register of shareholders. The Share Handling Regulations require
shareholders to file their names, addresses and seal impressions with The Yasuda
Trust and Banking Company, Limited, the transfer agent for the Company, and
foreign shareholders customarily using a signature may file a specimen signature
in lieu of a seal impression. Shareholders not resident in Japan are required to
file a mailing address in Japan or appoint a resident proxy in Japan. These
requirements do not apply to the holders of ADSs or ADRs.
The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan started to
operate in October 1991. Under this system, a holder of shares of Common Stock
may choose, at its discretion, to participate in this system and all
certificates of shares of Common Stock elected to be put into this system will
be deposited with the central clearing system (through a participating
institution, such as a securities company or bank, having a clearing account
with the clearing house, if the holder is not such a securities company or bank)
and all such shares will be registered in the name of the clearing house on the
Company's register of shareholders. Each participating shareholder will in turn
be registered in the Company's register of beneficial shareholders and be
treated the same way as shareholders registered on the Company's register of
shareholders. This system is intended to reduce paperwork required in connection
with the transfer of title to share certificates.
DIVIDENDS
The Articles of Association provide that the Company's financial accounts
shall be closed on August 31 of each year and that dividends, if any, shall be
paid to the shareholders of record at the close of business as of such date.
Pursuant to the Commercial Code, after the close of the fiscal year, the Board
of Directors prepares, among other things, a proposal for appropriation of
profits and retained earnings for year-end dividends, legal reserve and other
reserves, and such appropriation customarily includes a bonus to Directors and
Statutory Auditors. This proposal is then submitted to the Board of Statutory
Auditors of the Company and the independent certified public accountants for
their review and comments. Then the proposal accompanied by the Board of
Statutory Auditors' and independent accountant's reports are submitted for
shareholder approval at the Ordinary General Meeting of Shareholders, which,
pursuant to the Articles of Association, must be convened within three months
after the close of the fiscal year and is customarily held in November of each
year.
In addition to year-end dividends, the Board of Directors may by resolution
declare an interim cash dividend (which may include special or commemorative
dividends) to shareholders of record as of the close of the last day of February
of each year, without prior shareholder approval, but subject to the
restrictions described below. The requisite appropriation of profits and
retained earnings and related transfer of the
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<PAGE> 93
applicable amount to legal reserve occurs at the time of the payment of the
interim dividend from funds available for such purpose as described below.
Payment of interim dividends reduces the funds legally available for the payment
of year-end dividends for the fiscal year in which such interim dividends are
resolved and paid.
As a result of amendments to the Commercial Code, effective October 1993,
the Company is required to have three Statutory Auditors (previously two), of
which at least one (previously none) is required to be an "external" auditor,
which is an auditor who has not been a director, manager or employee of the
Company or its subsidiaries during the last five years. As required by the
amendments to the Commercial Code, the Statutory Auditors formed a Board of
Statutory Auditors consisting of Lawrence M. Call, Akira Toriumi, Kouichi Kura
(who serves as external statutory auditor) and Craig N. Meurlin.
As a result of amendments to the Commercial Code, beginning in September
1995, the Board of Directors is required to submit its proposal for the
appropriation of profits and retained earnings for year-end dividends, legal
reserve and other reserves and bonus to the Company's Board of Statutory
Auditors, in lieu of its Statutory Auditors. Then, the proposal is required to
be submitted for shareholder approval at the Ordinary General Meeting of
Shareholders accompanied by a report of the Board of Statutory Auditors of the
Company, in lieu of the Statutory Auditors' report.
The amendments to the Commercial Code which took effect on April 1, 1991
eliminated certain provisions relating to stock dividends. Under the Commercial
Code, the shareholders may, by resolution at a Ordinary General Meeting of
Shareholders, transfer to the Company's stated capital account any amount which
could otherwise be distributed as year-end dividends and the Board of Directors
may, by its resolution, pay a dividend in the form of additional shares of
Common Stock, by way of a stock split without affecting the par value thereof,
up to the amount so transferred to the Company's stated capital account.
Under the Commercial Code, the Company may not make any distribution of
profits by way of year-end dividends or interim dividends for any fiscal year
unless it has set aside in its legal reserve an amount equal to at least
one-tenth of the amount paid by way of appropriation of profits and retained
earnings for such fiscal year or equal to one-tenth of any interim dividend, as
the case may be, until the legal reserve equals one-quarter of its stated
capital. Under the Commercial Code, the Company may distribute profits by way of
year-end or interim dividends out of the excess of its net assets over the
aggregate of (i) its stated capital, (ii) its additional paid-in capital, (iii)
its accumulated legal reserve, (iv) the legal reserve to be set aside in respect
of the dividend concerned and any other proposed payment by way of appropriation
of profits and retained earnings; (v) the excess, if any, of unamortized
expenses incurred in preparation for commencement of business and in connection
with research and development expense over the aggregate of amounts referred to
in (ii), (iii) and (iv) above; and (vi) the book value, as stated on its balance
sheet as at the last day of the fiscal year concerned, of the shares of Common
Stock, if any, which have been purchased and held by the Company for the purpose
of transfer to its employees (see " -- Repurchase by the Company of its Common
Stock" below). In the case of interim dividends, the net assets are calculated
by reference to the balance sheet as at the last closing of the Company's
accounts, but adjusted to reflect (A) any subsequent payment by way of
appropriation of profits and retained earnings and the related transfer to the
legal reserve; (B) any subsequent transfer of profits and retained earnings to
stated capital; and (C) if the Company has been authorized pursuant to a
resolution of the Ordinary General Meeting of Shareholders relating to the
immediately preceding fiscal year to purchase shares of Common Stock for the
purpose of transfer to its employees or for the purpose of cancellation (see
" -- Repurchase by the Company of its Common Stock" below), the total amount of
the purchase price for the shares authorized by such resolution to be paid by
the Company for such purpose. Interim dividends may not be paid where there is a
risk that at the end of the fiscal year there might not be any excess of net
assets over the aggregate of the amounts referred to in clauses (i) through (vi)
above. As of August 31, 1995, the net assets of the Company determined in
accordance with the Commercial Code were Y75.7 billion (U.S.$772.4 million), its
stated capital was Y12.5 billion (U.S.$127.6 million), its additional paid-in
capital was Y14.9 billion (U.S.$152.0 million) and its legal reserve was Y3.1
billion (U.S.$31.6 million).
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In Japan the "ex-dividend" date and the record date for dividends precede
the date of determination of the amount of the dividend to be paid. See
" -- Record Date." For information as to taxation of dividends, see
"Taxation -- Japanese Taxation."
TRANSFER OF ADDITIONAL PAID-IN CAPITAL AND LEGAL RESERVE TO STATED CAPITAL AND
STOCK SPLITS
When the Company issues new shares of Common Stock, the entire amount of
the issue price of such new shares is required to be accounted for as stated
capital, although the Company may account for an amount not exceeding one-half
of such issue price as additional paid-in capital (subject to the remainder
being not less than the total par value, if any, of the new shares being
issued). The Company may, by resolution of the Board of Directors, transfer the
whole or any part of additional paid-in capital and legal reserve to stated
capital and grant to shareholders additional shares of Common Stock free of
charge by way of a stock split without affecting the par value thereof, with
reference to the whole or any part of the amount of additional paid-in capital
and legal reserve so transferred to stated capital. Such additional shares may
also be granted by reference to the amount representing the portion of the issue
price of shares of Common Stock in excess of the par value thereof which has
been accounted for as stated capital. In either case, following the issuance of
additional shares by way of a stock split, the total par value of all
outstanding shares may not exceed the Company's stated capital, and the
Company's net assets (as of its latest balance sheet date) divided by the total
number of shares outstanding must be at least Y500.
The Commercial Code permits the Company to make a distribution to
shareholders by way of a rights issue at a subscription price per share which is
less than the par value thereof if (i) the difference between the subscription
price and the par value does not exceed the amount of the stated capital minus
the aggregate par value of all outstanding shares, divided by the number of new
shares to be issued pursuant to such rights issue, (ii) the sum of the net
assets of the Company (as appearing on its latest balance sheet) and the total
subscription price, divided by the number of the shares outstanding immediately
after the issuance of the new shares, is at least Y500 and (iii) the
subscription rights are made transferable. In order to satisfy the requirement
mentioned in (i) above, the Board of Directors may transfer the whole or any
part of additional paid-in capital or legal reserve to stated capital.
JAPANESE UNIT SHARE SYSTEM
At the Ordinary General Meeting of Shareholders in November 1994, the
shareholders approved an amendment to the Articles of Association to reduce the
number of shares of Common Stock constituting one unit under the Japanese unit
share system from 1,000 shares to 100 shares. As a result, effective February 1,
1995, the number of shares constituting one unit is 100 shares.
Transferability of Shares Representing Less Than One Unit. Certificates
for shares representing less than one unit may only be issued in certain limited
circumstances. Because the transfer of shares normally requires delivery of the
certificates therefor, fractions of a unit for which no share certificates are
issued are not normally transferable. Shares representing less than one unit for
which share certificates have been issued continue to be transferable, but the
transfer may be registered on the Company's register of shareholders only if the
transferee is already a registered shareholder (whether in respect of units or
of shares representing less than one unit). Because transfer of ADRs does not
require changes in the ownership of the underlying Common Stock, holders of ADRs
representing less than one unit of Common Stock are not affected by such
restrictions in their ability to transfer such ADRs. However, because transfers
of less than a unit of the underlying shares of Common Stock are normally
prohibited under the unit share system, under the Deposit Agreement, the right
of ADR holders to surrender their ADRs and withdraw the underlying shares of
Common Stock for sale in Japan may only be exercised as to whole units of Common
Stock. As a result, access to the Japanese markets through the withdrawal
mechanism will not be available for dispositions of shares in lots of less than
one unit.
Right of a Holder of Shares Representing Less Than One Unit to Require the
Company to Purchase Such Shares. A holder of shares representing less than one
unit may at any time require the Company to purchase such shares at their last
reported sale price in the Japanese OTC market on the day when such request is
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served on the transfer agent of the Company or, if no such sale takes place on
such day, the price at which the first sale of the shares is effected in the
Japanese OTC market thereafter, less applicable brokerage commission. The usual
securities transfer tax is applicable to such transactions. Because holders of
ADRs representing less than one unit are not able to withdraw the underlying
shares of Common Stock from deposit, such holders are unable as a practical
matter to exercise this right to require the Company to purchase the underlying
shares of Common Stock. See " -- Transferability of Shares Representing Less
Than One Unit."
Other Rights of a Holder of Shares Representing Less Than One Unit. A
holder of shares representing less than one unit continues to enjoy in respect
of such shares only (i) the right to receive dividends (including interim
dividends), (ii) the right to receive shares and/or cash by way of stock split
or upon consolidation or subdivision of shares or upon a capital decrease or
merger, (iii) the right to be allotted subscription rights with respect to new
shares, convertible bonds and bonds with warrants to subscribe for shares when
such rights are granted to shareholders, (iv) the right to participate in the
distribution of surplus assets in the event of the liquidation of the Company
and (v) the right to require the Company to issue replacement share certificates
for lost, stolen or destroyed share certificates. All other rights, including
voting rights, the right to institute derivative actions and the right to
examine the Company's accounting books and records (subject to the further
limitation that only holders of 3% or more of a company's shares may have access
to such company's accounting books and records), cannot be exercised with
respect to shares representing less than one unit.
Voting Rights of a Holder of Shares Representing Less Than One Unit. A
holder of shares representing less than one unit cannot exercise any voting
rights with respect to such shares. In calculating the quorum for various voting
purposes, the aggregate number of shares representing less than one unit will be
excluded from the number of outstanding shares. A holder of shares representing
one or more whole units will have one vote for each such share, except as stated
in " -- Voting Rights" below.
Consolidation by Operation of Law of Shares Constituting One Unit into One
Share. The unit share system is intended to be an interim measure with a view
ultimately to achieve shares of much higher denomination than at present. The
Commercial Code contains provisions to the effect that on a date to be specified
by separate legislation the shares comprising one unit will be deemed to be
consolidated into one share. When the bill specifying such date will be
submitted to the Japanese Diet is unknown at present. If the consolidation takes
place, the holder of any fractional share constituting one-hundredth of one
share or any integral multiple thereof, which may result from such
consolidation, will be registered as the holder thereof, in the register of
fractional shares, and the holder of any fraction representing less than a whole
hundredth of one share will be entitled only limited rights, such as the right
to receive a cash payment and/or a distribution of shares by way of stock split.
The registered holders of fractional shares may request that the Company issue
share certificates, but such fractional shares will not carry voting rights and,
unless the Articles of Association are amended to provide otherwise, the
entitlement thereof will be limited and will not include the right to receive
dividends thereon.
See "Risk Factors -- Significant Restrictions on Common Stock Under
Japanese Unit Share System" and "Description of American Depositary Receipts"
for a discussion of the effect of the unit share system on the rights of holders
of ADRs.
ORDINARY GENERAL MEETING OF SHAREHOLDERS
The Ordinary General Meeting of Shareholders to settle accounts of the
Company for each fiscal year is normally held in November each year in Tokyo,
Japan. In addition, the Company may hold an extraordinary general meeting of
shareholders whenever necessary by giving at least two weeks' advance notice to
shareholders.
Under the Commercial Code, notice of any shareholders' meeting, setting
forth the place, time and purpose thereof, must be mailed to each shareholder
having voting rights (or, in the case of a non-resident shareholder, to his
resident proxy or mailing address in Japan appointed or determined pursuant to
the Share Handling Regulations) at least two weeks prior to the date set for the
meeting.
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VOTING RIGHTS
A shareholder is entitled to one vote per share subject to the limitations
on voting rights set forth in the following paragraph and under " -- Japanese
Unit Share System" above. Under the Commercial Code, except as otherwise
provided by law or by the Articles of Association, a resolution can be adopted
at a General Meeting of Shareholders by a majority of the shares having voting
rights represented at the meeting. The Commercial Code and the Articles of
Association provide, however, that the quorum for the election of Directors and
Statutory Auditors shall not be less than one-third of the total number of
outstanding shares having voting rights. The Company's shareholders are not
entitled to cumulative voting in the election of Directors. A corporate
shareholder, more than one-quarter of whose outstanding shares are directly or
indirectly owned by the Company, may not exercise its voting rights in respect
of the shares of the Company. Shareholders may exercise their voting rights
through proxies provided that the proxies are also shareholders holding voting
rights.
The Commercial Code provides that in order to amend the Articles of
Association and in certain other instances, including a reduction of the stated
capital, the removal of a Director or Statutory Auditor, dissolution, merger or
consolidation, the transfer of the whole or an important part of the business,
the taking over of the whole of the business of any other corporation or any
offering of new shares at a "specially favorable" price (or any offering of
convertible bonds or debentures with "specially favorable" conversion conditions
or of bonds or debentures with warrants or rights to subscribe for new shares
with "specially favorable" conditions) to persons other than shareholders, the
quorum shall be a majority of the total number of shares having voting rights
outstanding and the approval of the holders of at least two-thirds of the shares
having voting rights represented at the meeting is required.
Voting rights of holders of ADRs are exercised through the Depositary, an
agent of which is the record holder of the underlying shares of Common Stock,
based upon instructions from the holders of ADRs to the Depositary. See "Risk
Factors -- Significant Restrictions on Common Stock Under Japanese Unit Share
System" and "Description of American Depositary Receipts -- Voting of Deposited
Securities."
SUBSCRIPTION RIGHTS
Holders of the Common Stock have no preemptive rights under the Articles of
Association. Authorized but unissued shares may be issued at such times and upon
such terms as the Board of Directors determines, subject to the limitations as
to the offering of new shares at a "specially favorable" price discussed in
" -- Voting Rights" above. Under the Commercial Code, the Board of Directors
may, however, determine that shareholders shall be given subscription rights
regarding a particular issue of new shares, in which case such rights must be
given on uniform terms to all shareholders as of a record date of which not less
than two weeks' public notice must be given. Each of the shareholders to whom
such rights are given must also be given notice of the expiry thereof at least
two weeks prior to the date on which such rights are to expire.
Rights to subscribe for new shares may be made transferable or
nontransferable by the Board of Directors and may be made at par or at or
substantially below the market price of shares of Common Stock. Accordingly,
rights offerings can result in substantial dilution or can result in rights
holders not being able to realize the economic value of such rights.
LIQUIDATION RIGHTS
In the event of a liquidation of the Company, the assets remaining after
payment of all debts, liquidation expenses and taxes will be distributed among
the shareholders in proportion to the respective numbers of shares which they
hold.
LIABILITY TO FURTHER CALLS OR ASSESSMENTS
All the Company's presently outstanding shares of Common Stock are fully
paid and nonassessable.
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TRANSFER AGENT
The Yasuda Trust and Banking Company, Limited is the transfer agent for the
Common Stock. As such transfer agent, its office at 2-1, Yaesu 1-chome, Chuo-ku,
Tokyo 103, Japan keeps the Company's register of shareholders and makes transfer
of record ownership upon presentation of the certificates representing the
transferred shares.
RECORD DATE
The close of business on August 31 is the record date for the Company's
year-end dividends, if paid. The shareholders who are registered as the holders
of at least one unit on the Company's register of shareholders at the close of
business as of August 31 are also entitled to exercise shareholders' voting
rights at the Ordinary General Meeting of Shareholders with respect to the
fiscal year ending on such August 31. The close of business on the last day of
February of each year is the record date for interim dividends, if paid. In
addition, the Company may set a record date for determining the shareholders
entitled to other rights and for other purposes by giving at least two weeks'
public notice.
The shares of Common Stock generally trade ex-dividend or ex-rights in the
Japanese OTC market on the third business day prior to a record date (or if the
record date is not a business day, the fourth business day prior thereto), for
the purpose of dividends or rights offerings.
REPURCHASE BY THE COMPANY OF ITS COMMON STOCK
With certain exceptions, neither the Company nor any subsidiary can acquire
shares of the Company's Common Stock. One exception is by means of a reduction
of capital in the manner provided in the Commercial Code. Under another
exception, the Company may acquire its Common Stock in response to a
shareholder's request for purchase of shares representing less than one unit.
See " -- Japanese Unit Share System." Shares so purchased, once they aggregate a
whole unit, must be sold or otherwise transferred to a third party within a
reasonable period thereafter. On October 1, 1994, an amendment to the Commercial
Code (the "Amendment") became effective that permits the Company (and other
Japanese corporations) to repurchase and cancel its (and their) own capital
stock with funds legally available for dividends pursuant to a resolution of the
Ordinary General Meeting of Shareholders. Such stock repurchase may be made by
the Company through purchases of Common Stock in the Japanese OTC market or by
offering to purchase Common Stock from existing shareholders by means of a
tender offer in accordance with the Securities and Exchange Law of Japan. In
September 1995, a bill was proposed in the Japanese legislature to provide
special treatment regarding deemed dividend taxation in connection with
repurchases and cancellations of shares by corporations the shares of which are
listed on any Japanese stock exchange or registered with the JSDA as shares to
be traded on the Japanese OTC market. The bill is being considered for adoption
by the Japanese legislature. See "Taxation -- Japanese Taxation." In addition,
the Amendment also permits the Company, pursuant to a resolution of the Ordinary
General Meeting of Shareholders, to acquire shares of Common Stock for the
purpose of transferring shares of Common Stock to the Company's employees for
due cause, such as providing compensation for specified long-term service to the
Company, provided that the Company may not purchase more than three percent of
the total number of outstanding shares of the Company for transfer to its
employees.
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DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of the material provisions of the Deposit
Agreement relating to the ADSs (including all exhibits thereto, the "Deposit
Agreement") among the Company, Morgan Guaranty Trust Company of New York, as
depositary (the "Depositary"), and the registered holders from time to time of
the ADRs issued thereunder. This summary does not purport to be complete and is
qualified in its entirety by reference to the Deposit Agreement. Copies of the
Deposit Agreement are available for inspection at the principal office of the
Depositary in New York (the "Principal New York Office"), which is presently
located at 60 Wall Street, New York, New York 10260. Terms used herein and not
otherwise defined shall have the respective meanings set forth in the Deposit
Agreement.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms
of the Deposit Agreement. Each ADS represents the right to receive one-half of
one share of Common Stock deposited under the Deposit Agreement (together with
any additional shares of Common Stock deposited thereunder and all other
securities, property and cash received and held thereunder at any time in
respect of or in lieu of such deposited shares of Common Stock, the "Deposited
Securities") with the Custodian, currently The Mitsubishi Bank, Limited
(together with any successor or successors thereto, the "Custodian"). The
Custodian's offices are currently located at 7-1, Marunouchi 2-chome,
Chiyoda-ku, Tokyo 100, Japan. An ADR may evidence any number of ADSs. Only
persons in whose names ADRs are registered on the books of the Depositary will
be treated by the Depositary and the Company as holders of ADRs.
DEPOSIT, TRANSFER AND WITHDRAWAL
In connection with the deposit of shares of Common Stock under the Deposit
Agreement, the Depositary or the Custodian may require the following in form
satisfactory to it: (i) a written order directing the Depositary to execute and
deliver to, or upon the written order of, the person or persons designated in
such order an ADR or ADRs evidencing the number of ADSs representing such
deposited shares of Common Stock (a "Delivery Order"); (ii) proper endorsements
or duly executed instruments of transfer in respect of such deposited shares of
Common Stock; (iii) instruments assigning to the Custodian or its nominee any
distribution on or in respect of such deposited shares of Common Stock or
indemnity therefor; and (iv) proxies entitling the Custodian to vote such
deposited shares of Common Stock. As soon as practicable after the Custodian
receives Deposited Securities pursuant to any such deposit or pursuant to the
form of ADR, the Custodian shall present such Deposited Securities for
registration of transfer into the name of the Depositary or its nominee or the
Custodian or its nominee, to the extent such registration is practicable, at the
cost and expense of the person making such deposit (or for whose benefit such
deposit is made) and shall obtain evidence satisfactory to it of such
registration. Deposited Securities shall be held by the Custodian for the
account and to the order of the Depositary at such place or places and in such
manner as the Depositary shall determine. Deposited Securities may be delivered
by the Custodian to any person only under the circumstances expressly
contemplated in the Deposit Agreement.
After any such deposit of shares of Common Stock, the Custodian shall
notify the Depositary of such deposit and of the information contained in any
related Delivery Order by letter, first class airmail postage prepaid, or, at
the request, risk and expense of the person making the deposit, by cable, telex
or facsimile transmission. After receiving such notice from the Custodian, the
Depositary, subject to the terms and conditions of the Deposit Agreement, shall
execute and deliver at the Transfer Office which is presently located at the
Principal New York Office, to or upon the order of any person named in such
notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs
to which such person is entitled.
Subject to the terms and conditions of the Deposit Agreement, the
Depositary may so issue ADRs for delivery at the Transfer Office only against
deposit with the Custodian of: (i) shares of Common Stock in form satisfactory
to the Custodian; (ii) rights to receive shares of Common Stock from the Company
or any registrar, transfer agent, clearing agent or other entity recording share
ownership or transactions; or (iii) other rights to receive shares of Common
Stock (until such shares of Common Stock are actually deposited
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pursuant to (i) or (ii) above, "Pre-released ADRs") only if (a) Pre-released
ADRs are fully collateralized (marked to market daily) with cash or U.S.
government securities held by the Depositary for the benefit of holders of ADRs
(but such collateral shall not constitute "Deposited Securities"), (b) each
recipient of Pre-released ADRs agrees in writing with the Depositary that such
recipient (1) owns such shares of Common Stock, (2) assigns all beneficial
right, title and interest therein to the Depositary, (3) holds such shares of
Common Stock for the account of the Depositary and (4) will deliver such shares
of Common Stock to the Custodian as soon as practicable and promptly upon demand
therefor and (c) all Pre-released ADRs evidence not more than 20% of all ADSs
(excluding those evidenced by Pre-released ADRs), except to the extent that the
Depositary (in its sole discretion) determines that unusual market conditions
require the issuance of Pre-released ADRs in addition to 20% of all such ADSs.
The Depositary may retain for its own account any earnings on collateral for
Pre-released ADRs and its charges for issuance thereof. At the request, risk and
expense of the person depositing shares of Common Stock, the Depositary may
accept deposits together with the other instruments herein specified for
forwarding to the Custodian and may deliver ADRs at a place other than its
Transfer Office. Every person depositing shares of Common Stock under the
Deposit Agreement represents and warrants that such shares of Common Stock are
validly issued and outstanding, fully paid, non-assessable and free of
preemptive rights, that the person making such deposit is duly authorized so to
do and that such shares of Common Stock are not "restricted securities" as such
term is defined in Rule 144 under the Securities Act. Such representations and
warranties shall survive the deposit of shares of Common Stock and issuance of
ADRs.
Subject to the terms and conditions of the Deposit Agreement and the
Articles of Association and Share Handling Regulations, upon surrender of an ADR
in form satisfactory to the Depositary at the Transfer Office, the holder
thereof is entitled to delivery at the Custodian's Tokyo office of the Deposited
Securities at the time represented by the ADSs evidenced by such ADR. At the
request, risk and expense of the holder thereof, the Depositary may deliver such
Deposited Securities at such other place as may have been requested by the
holder of the ADR. Notwithstanding any other provision of the Deposit Agreement
or the ADR, the withdrawal of Deposited Securities may be restricted only for
the reasons set forth in General Instruction I.A.(1) of Form F-6 under the
Securities Act.
Notwithstanding anything to the contrary contained in the Deposit Agreement
or the form of ADRs, upon surrender of an ADR or ADRs by a holder of the ADR to
the Depositary, as a result of, and to the extent required by the operation of
applicable provisions of the Commercial Code or any other Japanese law, the
Depositary will effect the delivery to such holder of only such Deposited
Securities comprising a unit or an integral multiple thereof (the "deliverable
portion" of such ADR or ADRs). For the purpose of the foregoing sentence, the
deliverable portion shall be determined on the basis of the aggregate number of
Deposited Securities represented by the entire amount of the ADSs evidenced by
the ADR or ADRs surrendered by the same holder of the ADRs at that time. The
Depositary will promptly advise such holder as to the number of Deposited
Securities represented by the non-deliverable portion of such ADR or ADRs and
shall deliver to such holder a new ADR evidencing such non-deliverable portion.
In addition, the Depositary shall notify such holder of the additional amount of
ADSs which such holder would be required to surrender in order for the
Depositary to effect delivery of all the Deposited Securities represented by the
ADSs of such holder.
DISTRIBUTIONS ON DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, to the extent
practicable, the Depositary will distribute by mail to each holder of ADRs
entitled thereto on the record date set by the Depositary therefor at such
holder's address shown on the ADR Register, in proportion to the number of
Deposited Securities (on which the following distributions on Deposited
Securities are received by the Custodian) represented by ADSs evidenced by such
holder's ADRs:
(i) Cash: Any U.S. dollars available to the Depositary resulting from
a cash dividend or other cash distribution or the net proceeds of sales of
any other distribution or portion thereof authorized in the Deposit
Agreement ("Cash"), on an averaged or other practicable basis, subject to
appropriate adjustments for (a) taxes withheld, (b) such distribution being
impermissible or impracticable with respect to certain holders and (c)
deduction of the Depositary's expenses in (1) converting any foreign
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currency into U.S. dollars by sale or in such other manner as the
Depositary may determine to the extent that it determines that such
conversion may be made on a reasonable basis, (2) transferring foreign
currency or U.S. dollars to the United States by such means as the
Depositary may determine to the extent that it determines that such
transfer may be made on a reasonable basis, (3) obtaining any approval or
license of any governmental authority required for such conversion or
transfer, which is obtainable at a reasonable cost and within a reasonable
time and (4) making any sale by public or private means in any commercially
reasonable manner. If the Depositary determines that in its judgment any
foreign currency received by it cannot be converted on a reasonable basis
and transferred to the United States, the Depositary may distribute the
foreign currency received by it or, at its discretion, hold such foreign
currency, uninvested and without liability for interest thereon, for the
respective accounts of the holders of ADRs entitled to receive the same.
(ii) Shares of Common Stock: (a) Additional ADRs evidencing whole
ADSs representing any shares of Common Stock available to the Depositary
resulting from a stock split or a dividend on Deposited Securities
consisting of shares of Common Stock (a "Share Distribution") and (b) U.S.
dollars available to it resulting from the net proceeds of sales of shares
of Common Stock received in a Share Distribution, which shares of Common
Stock would give rise to fractional ADSs if additional ADRs were issued
therefor, as in the case of Cash.
(iii) Rights: (a) Warrants or other instruments in the discretion of
the Depositary representing rights to acquire additional ADRs in respect of
any rights to subscribe for additional shares of Common Stock or rights of
any nature available to the Depositary as a result of a distribution on
Deposited Securities ("Rights"), to the extent that the Company timely
furnishes to the Depositary evidence satisfactory to the Depositary that
the Depositary may lawfully distribute same (the Company has no obligation
to so furnish such evidence), (b) to the extent the Company does not so
furnish such evidence and sales of Rights are practicable, any U.S. dollars
available to the Depositary from the net proceeds of sales of Rights as in
the case of Cash or (c) to the extent the Company does not so furnish such
evidence and such sales cannot practicably be accomplished by reason of the
nontransferability of the Rights, limited markets therefor, their short
duration or otherwise, nothing (and any Rights may lapse). The Depositary
will not make available to holders of ADRs any Rights unless a registration
statement with respect to such Rights under the Securities Act is in effect
or unless the offering and sale of such Rights to such holders is exempt
from registration thereunder. Should any distribution of Rights not be
possible or if the Depositary deems such distribution not feasible, the
Depositary intends to endeavor to dispose of the Rights for the benefit of
the holders, as stated above.
(iv) Other Distributions: (a) Securities or property available to the
Depositary resulting from any distribution on Deposited Securities other
than Cash, Share Distributions and Rights ("Other Distributions"), by any
means that the Depositary may deem equitable and practicable or (b) to the
extent the Depositary deems distribution of such securities or property not
to be equitable and practicable, any U.S. dollars available to the
Depositary from the net proceeds of sales of Other Distributions as in the
case of Cash. Such U.S. dollars available will be distributed by checks
drawn on a bank in the United States for whole dollars and cents (any
fractional cents being withheld without liability for interest and added to
future Cash distributions).
To the extent that the Depositary determines in its discretion that any
distribution is not practicable with respect to any holder of ADRs, the
Depositary may make such distribution as it so determines is practicable,
including the distribution of foreign currency, securities or property (or
appropriate documents evidencing the right to receive foreign currency,
securities or property) or the retention thereof as Deposited Securities with
respect to such holder's ADRs (without liability for interest thereon or the
investment thereof).
There can be no assurance that the Depositary will be able to effect any
currency conversion or to sell or otherwise dispose of any distributed or
offered property, subscription or other rights, shares of Common Stock or other
securities in a timely manner or at a specified rate or price, as the case may
be.
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DISCLOSURE OF BENEFICIAL OWNERSHIP
Any Beneficial Owner (as defined below) of ADSs who becomes, or ceases to
be, directly or indirectly the Beneficial Owner of more than 5% of all
outstanding shares of Common Stock (whether such interest is held in whole or
only in part through ADRs) shall, within five days (excluding Saturdays, Sundays
and legal holidays in any part of Japan) following such event, send written
notice to the Depositary at its Transfer Office and to the Company at its
principal office in Japan containing the following information:
(i) the name, address and nationality of such Beneficial Owner and all
other persons by whom or on whose behalf such shares of Common Stock of the
Company (including any Deposited Securities) have been acquired or are
held; the number of ADSs, and total shares of Common Stock (including ADSs)
beneficially owned directly or indirectly by such Beneficial Owner
immediately before and immediately after the event requiring notification;
the names and addresses of any persons other than the Depositary, the
Custodian or either of their nominees, through whom such beneficially owned
shares of Common Stock are held, or in whose name the same are registered
in the Company's share register, and the respective numbers of shares of
Common Stock beneficially held through each such person; the date or dates
of acquisition of the beneficial interest in such shares of Common Stock;
and the number of any shares of Common Stock in which such Beneficial Owner
has the right to acquire directly or indirectly beneficial ownership and
material information as to such right(s) of acquisition; and
(ii) the names, addresses and nationalities of any persons with whom
such Beneficial Owner is acting as a partnership, limited partnership,
syndicate or other group for the purpose of acquiring, holding, voting or
disposing of a beneficial interest in shares of Common Stock; and the
number of such shares of Common Stock being acquired, held, voted or
disposed of as a result of such association (being the total number held by
such group).
Any Beneficial Owner of more than 5% of all outstanding shares of Common
Stock shall promptly notify the Depositary and the Company as provided above of
any material change in the information previously notified, including, without
limitation, a change of more than 1% in the percentage of total shares of Common
Stock to which the beneficial ownership relates.
As used in this description, the "Beneficial Owner" means a person who,
directly or indirectly, through any contract, trust, arrangement, understanding,
relationship or otherwise, has an interest in any shares of Common Stock,
including shares of Common Stock which underlie any ADS (including having the
right to exercise or control the exercise of any right conferred by the holding
of such shares of Common Stock or the power to vote or to direct voting or the
power to dispose or to direct disposition), and includes any holder of an ADS.
Any Beneficial Owner of shares of Common Stock shall, if so requested in
writing by the Company, provide such information with respect to the beneficial
ownership of such shares of Common Stock (including not only shares of Common
Stock underlying ADSs, but also any shares of Common Stock (including any
securities convertible into, exchangeable for or exercisable for shares of
Common Stock) in which such Beneficial Owner has an interest) by such Beneficial
Owner as is requested by the Company. Such Beneficial Owner shall provide such
information to the Company in writing within the time specified by the Company.
Copies of any such request and responses shall be contemporaneously sent to the
Depositary at its Transfer Office.
If the Company notifies the Depositary in writing that a particular
Beneficial Owner has not complied with the above described provisions, the
Depositary has agreed to use reasonable efforts not to vote or cause to be voted
any shares of Common Stock held by it or any Custodian as to which such
Beneficial Owner of such shares of Common Stock shall have failed to comply with
the provisions of the paragraphs above but only to the extent that such
Beneficial Owner is the holder of an ADR or ADRs. See "Exchange Controls and
Other Limitations Affecting Securityholders -- Reporting of Substantial
Shareholdings."
The disclosure obligations set forth above shall also apply to any class of
equity securities of the Company other than the shares of Common Stock that the
Company may issue from time to time (including any securities convertible into,
exchangeable for or exercisable for such equity securities).
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RECORD DATES
The Depositary may, after consultation with the Company, if practicable,
fix a record date (which shall be as near as practicable to any corresponding
record date set by the Company) for the determination of the holders of ADRs who
shall be entitled to receive any cash dividend or other distribution on or in
respect of Deposited Securities, to give instructions for the exercise of any
voting rights, to receive any notice or to act in respect of other matters and
only such holders of ADRs shall be so entitled.
VOTING OF DEPOSITED SECURITIES
As soon as practicable after receipt from the Company of notice of any
meeting or solicitation of consents or proxies of holders of shares of Common
Stock or other Deposited Securities, the Depositary shall mail to holders of
ADRs a notice stating (i) such information as is contained in such notice and
any solicitation materials, (ii) that each holder of ADRs on the record date set
by the Depositary therefor will be entitled, subject to any applicable provision
of Japanese law and of the Articles of Association, to instruct the Depositary
as to the exercise of the voting rights, if any, pertaining to the Deposited
Securities represented by the ADSs evidenced by such holder's ADRs and (iii) the
manner in which such instructions may be given, including instructions (or
deemed instructions in accordance with the last sentence of this paragraph) to
give a discretionary proxy to the persons designated by the Company. Because of
the Japanese unit share system, the Depositary shall in no event vote or
exercise the right to vote Deposited Securities other than in a unit or integral
multiples thereof and may therefore not be permitted to vote all Deposited
Securities in respect of which it has received voting instructions from the
holder of ADRs. In voting or exercising the right to vote Deposited Securities
the Depositary shall, to the extent possible, aggregate Deposited Securities
represented by ADSs evidenced by ADRs as to which the holders thereof have given
the same or similar instructions. Subject to the provisions of the Deposit
Agreement as described above under "Disclosure of Beneficial Ownership," upon
receipt of instructions of a record holder of ADRs on or before the date
established by the Depositary for such purpose, the Depositary shall endeavor
insofar as practicable and permitted under the provisions of or governing
Deposited Securities to vote or cause to be voted (or to grant a discretionary
proxy to the persons designated by the Company to vote) the Deposited Securities
represented by the ADSs evidenced by such holder's ADRs in accordance with such
instructions. The Depositary will not itself exercise any voting discretion in
respect of any Deposited Securities. To the extent such instructions are not so
received by the Depositary from any holder of ADRs, the Depositary shall deem
such holder to have so instructed the Depositary to give a discretionary proxy
to the persons designated by the Company and the Depositary shall endeavor
insofar as practicable and permitted under the provisions of or governing
Deposited Securities to give a discretionary proxy to the persons designated by
the Company to vote the Deposited Securities represented by the ADSs evidenced
by such holder's ADRs as to which such instructions are so given; provided that
no such discretionary proxy shall be given with respect to any matter as to
which the Company informs the Depositary in writing that (i) the Company does
not wish such proxy given, (ii) substantial opposition exists or (iii) the
rights of holders of shares of Common Stock will be materially and adversely
affected.
INSPECTION OF TRANSFER BOOKS
The Deposit Agreement provides that the Depositary will keep books at its
Transfer Office for the registration, registration of transfer, combination and
split-up of ADRs, which at all reasonable times will be open for inspection by
the holders of ADRs and the Company for the purpose of communicating with
holders of ADRs the interest of the business of the Company or a matter related
to the Deposit Agreement or the ADRs.
REPORTS AND OTHER COMMUNICATIONS
The Depositary shall make available for inspection by holders of ADRs at
the Transfer Office any reports and communications received from the Company
which are both (i) received by the Depositary as the holder of the Deposited
Securities and (ii) made generally available to the holders of shares of Common
Stock or other Deposited Securities by the Company. The Depositary shall also
send to the holders of ADRs copies of
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such reports when furnished by the Company. Any such reports and communications
furnished to the Depositary by the Company shall be furnished in English.
On or before the first date on which the Company gives notice, by
publication or otherwise, of any meeting of holders of shares of Common Stock or
other Deposited Securities, or of any adjourned meeting of such holders, or the
taking of any action by such holders other than at a meeting, the Company shall
transmit to the Depositary and the Custodian a copy of the notice thereof (in
English) in the form given or to be given to holders of shares of Common Stock
or other Deposited Securities. The Depositary will, at the Company's expense,
arrange for the prompt mailing of copies thereof to all holders of ADRs. In
connection with any registration statement under the Securities Act relating to
the ADRs or with any undertaking contained therein, the Company and the
Depositary shall each furnish to the other and to the Commission or any
successor governmental agency such information as shall be required to make such
filings or comply with such undertakings. The Company has delivered to the
Depositary, the Custodian and any Transfer Office, a copy of all provisions of
or governing the shares of Common Stock and any other Deposited Securities
issued by the Company or any affiliate of the Company and, promptly upon any
change thereto, the Company shall deliver to the Depositary, the Custodian and
any Transfer Office, a copy (in English or with an English translation) of such
provisions as so changed. The Depositary and its agents may rely upon the
Company's delivery thereof for all purposes of the Deposit Agreement.
CHANGES AFFECTING DEPOSITED SHARES OF COMMON STOCK
Subject to the terms and conditions of the Deposit Agreement, the
Depositary may, in its discretion, amend the form of ADR or distribute
additional or amended ADRs (with or without calling the ADRs for exchange) or
cash, securities or property on the record date set by the Depositary therefor
to reflect any change in par value, split-up, consolidation, cancellation or
other reclassification of Deposited Securities, any Share Distribution or Other
Distribution not distributed to holders of ADRs or any cash, securities or
property available to the Depositary in respect of Deposited Securities from
(and the Depositary is authorized to surrender any Deposited Securities to any
person and to sell by public or private sale any property received in connection
with) any recapitalization, reorganization, merger, consolidation, liquidation,
receivership, bankruptcy or sale of all or substantially all the assets of the
Company, and to the extent the Depositary does not so amend the form of ADR or
make a distribution to holders of ADRs to reflect any of the foregoing, or the
net proceeds thereof, whatever cash, securities or property results from any of
the foregoing shall constitute Deposited Securities and each ADS evidenced by
the ADR shall automatically represent its pro rata interest in the Deposited
Securities as then constituted.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The ADRs and the Deposit Agreement may be amended by the Company and the
Depositary, provided that any amendment that imposes or increases any fees or
charges (other than stock transfer or other taxes and other governmental
charges, transfer or registration fees, cable, telex or facsimile transmission
costs, delivery costs or other such expenses), or that shall otherwise prejudice
any substantial existing right of holder of ADRs, shall become effective 30 days
after notice of such amendment shall have been given to the holder of ADRs.
Every holder of an ADR at the time any amendment to the Deposit Agreement
becomes effective shall be deemed, by continuing to hold such ADR, to consent
and agree to such amendment and to be bound by the Deposit Agreement, as amended
thereby. In no event shall any amendment impair the right of the holder of any
ADR to surrender such ADR and receive the Deposited Securities represented
thereby, except in order to comply with mandatory provisions of applicable law.
The Depositary may, and shall at the written direction of the Company,
terminate the Deposit Agreement and the related ADRs by mailing notice of such
termination to the holders of ADRs at least 30 days prior to the date fixed in
such notice for such termination. The Depositary may terminate the Deposit
Agreement, upon such notice, at any time after 60 days after the Depositary
shall have delivered to the Company its written resignation, provided that no
successor depositary shall have been appointed and accepted its appointment as
provided in the Deposit Agreement before the end of such 60 days. After the date
so fixed for termination, the Depositary and its agents will perform no further
acts under the Deposit Agreement, except to
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advise holders of ADRs of such termination, receive and hold (or sell)
distributions on Deposited Securities and deliver Deposited Securities being
withdrawn. As soon as practicable after the expiration of six months from the
date so fixed for termination, the Depositary, subject to the provisions of the
Commercial Code and the Share Handling Regulations, shall sell the Deposited
Securities and shall thereafter (as long as it may lawfully do so) hold in a
segregated account the net proceeds of such sales, together with any other cash
then held by it under the Deposit Agreement, without liability for interest, in
trust for the pro rata benefit of the holders of ADRs not theretofore
surrendered. After making such sale, the Depositary shall be discharged from all
obligations in respect of the Deposit Agreement, except to account for such net
proceeds and other cash. After the date so fixed for termination, the Company
shall be discharged from all obligations under the Deposit Agreement except for
its obligations to the Depositary and its agents.
CHARGES OF DEPOSITARY
The Depositary may charge each person to whom ADRs are issued against
deposits of shares of Common Stock, including deposits in respect of Share
Distributions, Rights and Other Distributions, and each person surrendering ADRs
for withdrawal of Deposited Securities, U.S.$5.00 for each 100 ADSs (or portion
thereof) evidenced by the ADRs issued or surrendered. An issuance fee will not
be charged in connection with the initial issuance of ADSs covered by this
Prospectus. The Company will pay all other charges and expenses of the
Depositary and any agent of the Depositary (except the Custodian) pursuant to
agreements from time to time between the Company and the Depositary, except (i)
stock transfer or other taxes and other governmental charges (which are payable
by holders of ADRs or persons depositing shares of Common Stock), (ii) cable,
telex and facsimile transmission and delivery charges incurred at the request of
persons depositing, or holders of ADRs delivering shares of Common Stock, ADRs
or Deposited Securities (which are payable by such persons or holders of ADRs),
(iii) transfer or registration fees for the registration of transfer of
Deposited Securities on any applicable register in connection with the deposit
or withdrawal of Deposited Securities (which are payable by persons depositing
shares of Common Stock or holders of ADRs withdrawing Deposited Securities;
there are no such fees in respect of the shares of Common Stock as of the date
of the Deposit Agreement) and (iv) expenses of the Depositary in connection with
the conversion of foreign currency into U.S. dollars (which are paid out of such
foreign currency).
LIABILITY OF HOLDER FOR TAXES
If any tax or other governmental charge shall become payable by or on
behalf of the Custodian or the Depositary with respect to the ADRs, any
Deposited Securities represented by the ADSs evidenced thereby or any
distribution thereon, such tax or other governmental charge shall be paid by the
holder thereof to the Depositary. The Depositary may refuse to effect any
registration, registration of transfer, split-up or combination thereof or,
subject to the terms and conditions of the Deposit Agreement, any withdrawal of
such Deposited Securities until such payment is made. The Depositary may also
deduct from any distributions on or in respect of Deposited Securities, or may
sell by public or private sale for the account of the holder thereof any part or
all of such Deposited Securities (after attempting by reasonable means to notify
the holder thereof prior to such sale), and may apply such deduction or the
proceeds of any such sale in payment of such tax or other governmental charge,
the holder thereof remaining liable for any deficiency, and shall reduce the
number of ADSs evidenced thereby to reflect any such sales of Deposited
Securities. In connection with any distribution to holders of ADRs, the Company
will remit to the appropriate governmental authority or agency all amounts (if
any) required to be withheld and owing to such authority or agency by the
Company; and the Depositary and the Custodian will remit to the appropriate
governmental authority or agency all amounts (if any) required to be withheld
and owing to such authority or agency by the Depositary or the Custodian. If the
Depositary determines that any distribution in property other than cash
(including shares of Common Stock or Rights) on Deposited Securities is subject
to any tax that the Depositary or the Custodian is obligated to withhold, the
Depositary may dispose of all or a portion of such property in such amounts and
in such manner as the Depositary deems necessary and practicable to pay such
taxes, by public or private sale, and the Depositary shall distribute the net
proceeds of any such sale or the balance of any such property after deduction of
such taxes to the holders of ADRs entitled thereto.
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GENERAL LIMITATIONS
The Depositary, the Company, their agents and each of them shall: (i) incur
no liability (a) if any present or future law, regulation of any country or of
any governmental or regulatory authority or stock exchange, the provisions of or
governing any Deposited Security (including the Articles of Association or the
Share Handling Regulations of the Company), act of God, war or other
circumstance beyond its control shall prevent, delay or subject to any civil or
criminal penalty any act which the Deposit Agreement or the ADRs provides shall
be done or performed by it or (b) by reason of any exercise or failure to
exercise any discretion given it in the Deposit Agreement or the ADRs; (ii)
assume no liability except to perform its obligations to the extent they are
specifically set forth in the ADRs and the Deposit Agreement without gross
negligence or bad faith; (iii) be under no obligation to appear in, prosecute or
defend any action, suit or other proceeding in respect of any Deposited
Securities or the ADRs; and (iv) not be liable for any action or inaction by it
in reliance upon the advice of or information from legal counsel, accountants,
any person presenting shares of Common Stock for deposit, any holder of ADRs or
any other person believed by it to be competent to give such advice or
information. The Depositary, its agents and the Company may rely and shall be
protected in acting upon any written notice, request, direction or other
document believed by them to be genuine and to have been signed or presented by
the proper party or parties. The Depositary and its agents will not be
responsible for any failure to carry out any instructions to vote any of the
Deposited Securities, for the manner in which any such vote is cast (provided
that any such action or inaction is undertaken in good faith) or for the effect
of any such vote. The Depositary and its agents may own and deal in any class of
securities of the Company and its affiliates and in ADRs. The Company has agreed
to indemnify the Depositary, its directors, employees and agents under certain
circumstances and the Depositary has agreed to indemnify the Company, its
directors, employees and agents against losses incurred by the Company to the
extent such losses are due to the negligence or bad faith of the Depositary or
its agents.
Prior to the issuance, registration, registration of transfer, split-up or
combination of any ADR, the delivery of any distribution in respect thereof or,
subject to the terms and conditions of the Deposit Agreement, the withdrawal of
any Deposited Securities, the Company, the Depositary or the Custodian may
require from the depositor of shares of Common Stock, the presenter of the ADR
or the holder of an ADR: (i) payment with respect thereto of (a) any stock
transfer or other tax or other governmental charge, (b) any stock transfer or
registration fees in effect for the registration of transference of shares of
Common Stock or other Deposited Securities upon any applicable register and (c)
any applicable charges as provided in the Deposit Agreement; (ii) the production
of proof satisfactory to it of (a) the identity and genuineness of any signature
and (b) such other information, including, without limitation, information as to
citizenship, residence, exchange control approval, beneficial ownership of any
securities, compliance with applicable law, regulations, provisions of or
governing Deposited Securities (including the registration of Deposited
Securities on the books of the Company or the Foreign Registrar) and terms of
the Deposit Agreement and the ADRs, as it may deem necessary or proper; and
(iii) compliance with such regulations as the Depositary may establish
consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of
deposits of shares of Common Stock, the registration, registration of transfer,
split-up or combination of ADRs or, subject to the terms and conditions of the
Deposit Agreement, the withdrawal of Deposited Securities may be suspended,
generally or in particular instances, when the ADR Register or any register for
Deposited Securities is closed or when any such action is deemed necessary or
advisable by the Depositary or the Company.
GOVERNING LAW
The Deposit Agreement is governed by and shall be construed in accordance
with the laws of the State of New York without regard to the principles of
conflicts thereof.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
The Depositary is Morgan Guaranty Trust Company of New York, a New York
banking corporation, which has its principal office located in New York, New
York. Morgan Guaranty Trust Company of New York is a commercial bank offering a
wide range of banking and trust services to its customers in the New York
metropolitan area, throughout the United States and around the world.
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The Consolidated Balance Sheets of J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), the parent corporation of Morgan Guaranty Trust Company of New York,
are set forth in its most recent Annual Report and Form 10-Q. The Annual Report,
Form 10-K and Form 10-Q of J.P. Morgan are on file with the Commission.
The Articles of Association and By-Laws of Morgan Guaranty Trust Company of
New York together with the Annual Report, Form 10-K and Form 10-Q of J.P. Morgan
will be available for inspection at the Principal New York Office of the
Depositary.
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EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITYHOLDERS
GENERAL
The Foreign Exchange Law and the Foreign Trade Control Law and the cabinet
orders and ministerial ordinances issued thereunder (collectively, the "Foreign
Exchange Regulations") govern certain matters relating to the acquisition and
holding of shares of equity securities of Japanese corporations by
"non-residents of Japan" and "foreign investors" (as defined below).
"Non-residents of Japan" are defined as individuals who are not resident in
Japan and corporations whose principal offices are located outside Japan.
Generally, branches and other offices of Japanese corporations located outside
Japan are regarded as non-residents of Japan, but branches and other offices of
non-resident corporations located within Japan are regarded as residents of
Japan. "Foreign investors" are defined to be (i) non-resident individuals of
Japan, (ii) corporations which are established under the laws of foreign
countries or whose principal offices are located outside of Japan and (iii)
corporations (a) not less than 50% of the shares of which are held by persons
described in clause (i) and/or (ii) immediately above or (b) a majority of the
directors (or similar persons having the power of representation) of which are
non-resident individuals of Japan.
ACQUISITION OF SHARES
Acquisition by a non-resident of Japan of shares of stock of a Japanese
corporation from a resident of Japan generally requires prior notification by
the acquiring person to the MOF. The notification must be filed not more than 10
days prior to the proposed acquisition. If, however, a party to the transaction
is one of the securities firms (or licensed branches of foreign securities
firms) which are designated by the MOF or if such a securities firm acts as an
intermediary (broker or agent) in such transaction, no prior notification is
required. Such designated securities firms are subject to reporting requirements
to the MOF through The Bank of Japan.
Notwithstanding the foregoing, if the proposed transaction falls within the
category of "inward direct investment," the transaction is subject to different
regulations. The term "inward direct investment" in relation to transactions in
shares means in relevant part acquisition of shares of a Japanese corporation
whose shares are listed on any stock exchange in Japan (or registered with the
JSDA as shares to be traded in the Japanese OTC market) by a foreign investor
(whether from a resident, a nonresident or any other foreign investor) the
result of which would be such investor's holding directly or indirectly 10% or
more of the total outstanding shares of such corporation or (if such foreign
investor already holds 10% or more of the total outstanding shares of such
corporation) acquisition of additional shares in such corporation.
Except in limited cases which are prescribed by the law as requiring prior
notification, whenever an inward direct investment is made, the foreign investor
who makes such investment must make a post facto report to the MOF and other
Ministers having jurisdiction over the business of the issuer of the shares
within 15 days from the acquisition.
DIVIDENDS AND PROCEEDS OF SALE
Under the Foreign Exchange Regulations, dividends paid on, and the proceeds
of sales in Japan of, shares of Common Stock held by non-residents of Japan may
in general be converted into any foreign currency and repatriated abroad. The
acquisition of shares of Common Stock by non-resident shareholders by way of
stock split is not subject to any notification requirements.
AMERICAN DEPOSITARY SHARES
Neither the deposit of shares of Common Stock by a non-resident of Japan,
the issuance of ADRs evidencing the ADSs created by such deposit in exchange
therefor nor the withdrawal of the underlying shares
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of Common Stock upon surrender of ADRs is subject to any formalities or
restrictions referred to under
" -- Acquisition of Shares" above.
REPORTING OF SUBSTANTIAL SHAREHOLDINGS
The Securities and Exchange Law requires any person who has become,
beneficially and solely or jointly, a holder of more than 5% of the total issued
shares of a company listed on any Japanese stock exchange or whose shares are
traded in the Japanese OTC market to file with the MOF within five business days
a report concerning such shareholdings. A similar report must also be made in
respect of any subsequent change of one percent or more in any such holding. For
this purpose, shares issuable to such person upon conversion of convertible
securities or exercise of share subscription warrants are taken into account in
determining both the number of shares held by such holder and the issuer's total
issued shares capital. Copies of each such report must also be furnished to the
issuer of such shares and all Japanese stock exchanges on which the shares are
listed or, in the case of shares traded in the Japanese OTC market, the JSDA.
The Securities and Exchange Law also requires a principal shareholder (a
beneficial owner of 10% or more of the total issued shares of a company listed
on any Japanese stock exchange or whose shares are traded in the Japanese OTC
market) who sold (or purchased) its shares of that company to file with the MOF
a Principal Shareholder Sale (or Purchase) Report by the 15th day of the month
immediately following the month of the sale (or purchase).
Any person who has become, beneficially and solely or jointly, a holder of
more than 5% of the total issued shares of the Company and who fails to file the
report with respect to such holding as required by the Securities and Exchange
Law, or who files such a report containing an untrue statement with respect to
important matters, is subject to incarceration for a period not longer than one
year and/or a fine of not more than Y1.0 million. Any person who fails to file a
Principal Shareholder Sale (or Purchase) Report as required by the Securities
and Exchange Law, or who files such a Report containing an untrue statement, is
subject to a fine of not more than Y300,000 (U.S.$3,529). If the Company
notifies the Depositary that a holder of ADRs has failed to file any such report
or has filed such a report containing an untrue statement, the Depositary has
agreed to use reasonable efforts to not vote or cause to be voted the shares of
Common Stock underlying the ADSs evidenced by such ADRs. See "Description of
American Depositary Receipts -- Disclosure of Beneficial Ownership."
OTHER
There are no limitations on the right of non-residents or foreign owners in
their capacity as such to hold or vote shares of Common Stock or ADSs imposed by
Japanese law or by the Articles of Association.
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TAXATION
The following discussion is a summary of the material anticipated tax
consequences of the operations of the Company and of an investment in the Common
Stock or the ADSs under United States federal income tax laws and Japanese tax
laws. The discussion does not deal with all possible tax consequences relating
to the Company's operations or to an investment in the Common Stock or the ADSs.
In particular, the discussion does not address the tax consequences under state,
local and other (e.g., non-United States federal, non-Japanese) tax laws.
Accordingly, each prospective investor should consult its tax advisor regarding
the tax consequences of an investment in the Common Stock or the ADSs. The
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Prospectus, all of which are subject to change.
JAPANESE TAXATION
Generally, a non-resident of Japan (whether an individual or a corporation)
is subject to Japanese withholding tax on dividends paid by Japanese
corporations. Stock splits are not subject to Japanese income tax. However, a
transfer of retained earnings or legal reserve (but, in general, not additional
paid-in capital) to stated capital (whether made in connection with a stock
split or otherwise) is treated as a dividend payment to shareholders for
Japanese tax purposes and is, in general, subject to Japanese income tax. No
such transfer would be necessary in connection with a stock split if the total
par value of the shares in issue after the stock split does not exceed the
stated capital.
In addition, the repurchase and cancellation of shares pursuant to a
resolution of the Ordinary General Meeting of Shareholders using distributable
profits, as described herein under "Description of Capital Stock -- Repurchase
by the Company of its Common Stock" above, may be treated as a dividend payment
to shareholders in certain circumstances. Shareholders who sell their shares in
a repurchase by the Company executed by means of a tender offer may be deemed to
have received a taxable dividend payment from the Company in connection with
such repurchase. In the case of a non-resident shareholder (whether individual
or corporate) without a permanent establishment in Japan, any such dividend will
be subject to Japanese withholding taxation on the amount by which cash received
by such shareholder from the Company in respect of such repurchase exceeds the
sum of the stated capital and the additional paid-in capital attributable to the
shares sold by such shareholder. Gains realized by shareholders in connection
with such a tender offer repurchase may also be subject to Japanese capital
gains taxation, to the extent not subject to taxation as a deemed dividend. In
the case of shareholders who sell their shares in an open market repurchase by
the Company, such shareholders will not be deemed to have received any dividend
payment from the Company in connection with such repurchase, although they may
be subject to Japanese capital gains taxation. For either type of repurchase,
non-resident shareholders (whether individual or corporate) without permanent
establishments in Japan will not in general be subject to Japanese capital gains
taxation, as further discussed below. In addition, a dividend will be deemed to
have been received by any shareholder who elects not to participate in a
repurchase by the Company (whether through an open market repurchase or by way
of a tender offer); however, non-resident shareholders (whether individual or
corporate) without permanent establishments in Japan who elect not to
participate in such a repurchase by the Company will be exempt from all Japanese
taxation in respect of such deemed dividend.
In September 1995, a bill was proposed in the Japanese legislature to
provide special treatment regarding deemed dividend taxation in connection with
repurchases and cancellations of shares by corporations the shares of which are
listed on any Japanese stock exchange or registered with the JSDA as shares to
be traded on the Japanese OTC market. Such special treatment is proposed to
apply to non-resident shareholders as well as resident shareholders. Under the
proposed bill which is stated to be effective through March 31, 1999 (i)
individual shareholders who sell their shares in a tender offer will not be
subject to deemed dividend income taxation, but rather will be subject to
capital gains taxation (with the exception of non-resident individuals without
permanent establishments in Japan, who are generally not subject to Japanese
capital gains taxation, as further discussed below), and (ii) dividends deemed
to have been received by shareholders (whether individual or corporate) who
elect not to participate in any repurchase will not be taxable, although
corporate shareholders (other than non-resident corporate shareholders without
permanent establishments in Japan) may elect to be subject to deemed dividend
taxation. However, due to uncertainty as to the enactment of the
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<PAGE> 110
legislation, the form in which any legislation may be enacted and the variations
in treatment depending upon the circumstances of particular shareholders,
prospective investors are urged to consult their own tax advisors as to the tax
consequences to them of any repurchase and cancellation by the Company of its
shares.
Under the Convention between the United States of America and Japan for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Tax on Income dated March 8, 1971 (the "Convention"), as currently in force,
the maximum rate of Japanese withholding tax which may be imposed on dividends
(including deemed dividends) paid to a United States resident or corporation not
having a "permanent establishment" (as defined therein) in Japan is limited to:
(i) 15% of the gross amount actually distributed; or
(ii) if the recipient is a corporation, 10% of the gross amount
actually distributed, if:
(a) during the part of the paying corporation's taxable year which
precedes the date of payment of the dividend and during the whole of its
prior taxable year (if any), at least 10% of the voting shares of the
paying corporation were owned by the recipient corporation, and
(b) not more than 25% of the gross income of the paying corporation
for such prior taxable year (if any) consists of interest or dividends
(as defined therein).
For purposes of the Convention and the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), U.S. holders of ADRs will be treated as the owners of
the Common Stock underlying the ADSs represented by the ADRs. In order for the
lower Convention rate to apply to dividends paid with respect to ADRs held by
U.S. holders, the Depositary will make the appropriate notification to the
Japanese taxation authorities regarding the residency status of such ADR
holders.
In the absence of any applicable tax treaty, convention or agreement
reducing the maximum rate of withholding tax, the rate of Japanese withholding
tax applicable to dividends paid by Japanese corporations to non-residents of
Japan or non-Japanese corporations is 20%.
Gains derived from the sale outside Japan of shares of Common Stock or ADRs
by a non-resident of Japan, or from the sale of shares of Common Stock within
Japan by a non-resident of Japan not having a permanent establishment in Japan,
are in general not subject to Japanese income tax.
Japanese inheritance and gift taxes at progressive rates may be payable by
an individual who has acquired shares of Common Stock or ADRs as legatee, heir
or donee, even though neither the individual nor the decedent nor the donor is a
Japanese resident.
Generally, a transfer by a non-resident of Japan of shares of Common Stock
in the Japanese OTC market is subject to a Japanese securities transaction tax
which is levied on the transferor at the rate of 0.3% of the aggregate transfer
prices. A transfer by a non-resident of Japan of ADSs on the NYSE is not subject
to the Japanese securities transaction tax provided the transferor is outside
Japan at the time of the transfer. Non-residents of Japan interested in trading
Common Stock or ADSs through facilities other than the NYSE should seek the
advice of their own tax advisors as to Japanese securities transaction tax or
other tax consequences.
UNITED STATES FEDERAL INCOME TAXATION
The following summary of U.S. federal income taxation is based upon the
opinion of White & Case, special U.S. tax counsel to the Company.
TAXATION OF SHAREHOLDERS
For purposes of United States federal income taxation, U.S. holders of ADRs
evidencing ADSs will be treated as the owners of the Common Stock underlying
such ADSs. Except as indicated below, for purposes of the discussion below
relating to United States federal income taxation considerations, the term
"Common Stock" includes ADSs representing shares of the Common Stock and ADRs
evidencing such ADSs.
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<PAGE> 111
The following discussion addresses 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")) making an investment in the 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% Shareholder").
Non-United States persons and 10% Shareholders are urged to consult their own
tax advisors regarding the tax considerations incident to an investment in the
Common Stock. 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. Prospective investors are advised to consult their
own tax advisors with respect to their particular circumstances and with respect
to the effect of state, local or foreign tax laws to which they may be subject.
A U.S. Investor receiving a distribution on the Common Stock will be
required to include such distribution (including amounts withheld) 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 of capital to the extent of (and in 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. Dividends paid
in yen will be includible in income in a U.S. dollar amount based on the
exchange rate at the time of their receipt (which, in the case of ADSs, will be
the date of receipt by the Depositary) regardless of whether the payment is in
fact converted into U.S. dollars at that time. Gain or loss, if any, realized on
the sale or disposition of such yen will be U.S. source ordinary income or loss.
Subject to the limitations of the Code, U.S. Investors may credit against
their U.S. income tax liability Japanese taxes withheld at the applicable
Convention rate from dividends paid on Common Stock owned by them. Distributions
with respect to the Common Stock that are taxable as dividends in the U.S. 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% Shareholders) 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.
The Code contains special tax provisions applicable to non-United States
corporations and their shareholders in certain circumstances. The following is a
summary of these provisions which could have an adverse impact on the Company
and its U.S. Investors.
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 whom is a U.S. resident or citizen) and (ii) which receives 60%
or more of gross income, as specifically adjusted, from certain passive
75
<PAGE> 112
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 will be owned, directly or
indirectly, by five or fewer individuals (at least one of whom is a U.S.
resident or citizen) both after the Offering and the Exchange (assuming no other
disposition of Common Stock or ADSs by the Principal Shareholders prior to the
Exchange Date). Because the Company derives most of its U.S. source income from
non-passive sources, the Company does not satisfy the foregoing income test and
therefore is not a PHC. Even if the character of the Company's U.S. source
income should change in the future, the Company should not be subject to the
taxation as a PHC because it intends to make dividend distributions in an amount
sufficient to eliminate any undistributed personal holding company income.
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 shareholders 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 "shareholder 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 hold the
Common 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.
Immediately after both the Offering and the Exchange (assuming no other
disposition of Common Stock or ADSs by the Principal Shareholders prior to the
Exchange Date), Richard DeVos and Jay Van Andel, who are United States citizens,
will directly or indirectly own a beneficial interest in more than 50% of the
Common Stock for purposes of the FPHC rules. Accordingly, the shareholder test
will be met immediately after both the Offering and the Exchange (assuming no
other disposition of Common Stock or ADSs by the Principal Shareholders prior to
the Exchange Date). Because the Company derives most of its gross income from
the distribution of Amway products in Japan and such income is not passive
income, the Company does not satisfy the foregoing income test and therefore is
not a FPHC.
PASSIVE FOREIGN INVESTMENT COMPANIES
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.
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<PAGE> 113
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 may take certain
actions that would reduce the Company's cash position. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company does not expect these actions to have a material impact on its results
of operations or to have a material adverse effect on its liquidity.
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 net 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
as a capital asset) and the denial of basis step-up at death described above
would not apply.
CONTROLLED FOREIGN CORPORATIONS
Sections 951 through 964 and section 1248 of the Code are applicable to
controlled foreign corporations ("CFCs") and impute a portion of undistributed
income to 10% Shareholders and convert into dividend income a portion of the
gain on dispositions of shares which would otherwise qualify for capital gain
treatment. The CFC provisions only apply if 10% Shareholders, 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 10% Shareholders, are deemed to own more than 50% of
the shares of Common Stock and therefore the Company is a CFC. However, the
income imputation rules referred to for CFCs above apply only with respect to
such 10% Shareholders.
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 as a
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<PAGE> 114
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.
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<PAGE> 115
PLAN OF DISTRIBUTION
The PEPS will be distributed as described in the Trust Prospectus under the
caption "Underwriting."
LEGAL MATTERS
Certain legal matters will be passed upon for the Company and the Selling
Shareholders by Jones, Day, Reavis & Pogue, Cleveland, Ohio, who will rely as to
matters of Japanese law upon the opinion of Nishimura & Sanada. The validity of
the underlying shares of Common Stock and certain other legal matters governed
by Japanese law will be passed upon for the Company and the Selling Shareholders
by Nishimura & Sanada, Tokyo. Certain U.S. federal income tax matters will be
passed upon for the Company by White & Case, Washington, D.C.
EXPERTS
The consolidated financial statements as of August 31, 1994 and 1995 and
for each of the years in the three year period ended August 31, 1995 have been
included herein in reliance upon the report of Deloitte Touche Tohmatsu,
independent auditors, appearing elsewhere herein given upon the authority of
said firm as experts in accounting and auditing.
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80
<PAGE> 117
AMWAY JAPAN LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at August 31, 1994 and 1995............................... F-3
Consolidated Statements of Income for the three years ended August 31, 1995........... F-4
Consolidated Statements of Shareholders' Equity for the three years ended August 31,
1995................................................................................ F-5
Consolidated Statements of Cash Flows for the three years ended August 31, 1995....... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Amway Japan Limited
We have audited the accompanying consolidated balance sheets of Amway Japan
Limited and subsidiary as of August 31, 1994 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended August 31, 1995, all expressed in
Japanese yen. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Japan (and the United States of America). 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Amway Japan Limited and
subsidiary as of August 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1995, in conformity with accounting principles generally accepted in Japan. As
described in Notes 10 and 11, accounting principles generally accepted in Japan
differ, in certain material respects, from those generally accepted in the
United States.
Our audits also comprehended the translation of Japanese yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. Such U.S. dollar amounts are
presented solely for the convenience of readers outside Japan.
DELOITTE TOUCHE TOHMATSU
Tokyo, Japan
October 18, 1995
F-2
<PAGE> 119
AMWAY JAPAN LIMITED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1994 AND 1995
(IN MILLIONS OF YEN AND THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1994 1995 1995
-------- -------- -----------
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 3)........................ Y 61,548 Y 41,640 $ 424,898
Short-term investments (Note 2)........................... 29,690 31,997 326,500
Accounts receivable....................................... 2,274 806 8,224
Finished good inventories................................. 10,936 11,397 116,296
Prepaid expenses.......................................... 841 1,032 10,531
Other current assets...................................... 927 622 6,347
-------- -------- ----------
Total current assets................................. 106,216 87,494 892,796
Property and equipment, net (Note 5)........................ 2,519 26,791 273,378
Investments in affiliates (Note 4).......................... 1,937 2,037 20,786
Leasehold deposits.......................................... 2,214 2,453 25,031
Capitalized software costs (Note 10)........................ 1,614 880 8,979
Other....................................................... 301 286 2,918
Translation adjustments..................................... 1,734 1,869 19,071
-------- -------- ----------
Total................................................ Y116,535 Y121,810 $1,242,959
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... Y 11,762 Y 13,532 $ 138,082
Income taxes payable...................................... 14,961 15,952 162,775
Accounts payable to Amway Corporation (Note 9)............ 2,592 3,496 35,673
Allowance for sales returns............................... 3,868 4,281 43,684
Accrued distributor seminar expenses...................... 2,523 2,684 27,388
Distributor deposits...................................... 952 1,655 16,888
Consumption taxes payable................................. 547 717 7,316
Accrued expenses and other current liabilities............ 159 1,611 16,439
-------- -------- ----------
Total current liabilities............................ 37,364 43,928 448,245
-------- -------- ----------
Shareholders' equity (Notes 7 and 14):
Common stock, no par value -- authorized 256,000 thousand
shares; issued and outstanding 149,625 thousand shares
(equivalent to 299,250 thousand ADSs, see Note 1)...... 12,462 12,462 127,163
Additional paid-in capital................................ 14,850 14,850 151,531
Legal reserve............................................. 3,116 3,116 31,796
Net unrealized gain (loss) on short-term investments...... (242) 1,632 16,653
Retained earnings......................................... 48,985 45,822 467,571
-------- -------- ----------
Total shareholders' equity........................... 79,171 77,882 794,714
-------- -------- ----------
Total................................................ Y116,535 Y121,810 $1,242,959
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 120
AMWAY JAPAN LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
(IN MILLIONS OF YEN AND THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE (ADS)
AMOUNTS)
<TABLE>
<CAPTION>
1993 1994 1995 1995
-------- -------- -------- ----------
(NOTE 1)
<S> <C> <C> <C> <C>
Net sales.................................. Y130,028 Y157,556 Y177,991 $1,816,235
Cost of sales.............................. 37,319 43,576 47,515 484,847
-------- -------- -------- ----------
Gross profit.......................... 92,709 113,980 130,476 1,331,388
-------- -------- -------- ----------
Operating expenses:
Distributor incentives................... 34,001 42,652 47,885 488,622
Distribution expenses.................... 7,773 8,324 8,853 90,337
Selling and administrative expenses...... 16,810 19,616 24,022 245,123
-------- -------- -------- ----------
Total operating expenses............ 58,584 70,592 80,760 824,082
-------- -------- -------- ----------
Operating income.................... 34,125 43,388 49,716 507,306
Other income -- net (Note 12).............. 2,485 2,557 1,733 17,684
-------- -------- -------- ----------
Income before income taxes.......... 36,610 45,945 51,449 524,990
Income taxes (Note 8)...................... 20,759 25,341 28,387 289,663
-------- -------- -------- ----------
Net income.......................... Y 15,851 Y 20,604 Y 23,062 $ 235,327
======== ======== ======== =========
Net income per common share................ Y 105.94 Y 137.70 Y 154.13 $ 1.57
Net income per ADS......................... 52.97 68.85 77.07 .79
Dividends per share........................ 60.00 140.00 190.00 1.94
Dividends per ADS.......................... 30.00 70.00 95.00 .97
Shares outstanding (thousands)............. 149,625 149,625 149,625
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 121
AMWAY JAPAN LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
(IN MILLIONS OF YEN AND THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE (ADS)
AMOUNTS)
<TABLE>
<CAPTION>
NET
SHARES UNREALIZED
ISSUED AND ADDITIONAL GAIN (LOSS) ON TOTAL
OUTSTANDING COMMON PAID-IN LEGAL SHORT-TERM RETAINED SHAREHOLDERS'
(THOUSANDS) STOCK CAPITAL RESERVE INVESTMENTS EARNINGS EQUITY
----------- -------- ---------- ------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, August 31, 1992.... 149,625 Y 12,462 Y 14,850 Y 1,675 -- Y 35,700 Y 64,687
Net income................... -- -- -- -- -- 15,851 15,851
Dividends paid:
1992 year-end, Y25 per
share (Y12.50 per ADS)... -- -- -- -- -- (3,740) (3,740)
1993 interim, Y30 per share
(Y15 per ADS)............ -- -- -- -- -- (4,489) (4,489)
Bonuses to directors and
statutory auditors......... -- -- -- -- -- (12) (12)
Transfer to legal reserve.... -- -- -- 824 -- (824) --
----------- -------- ---------- ------- --------------- --------- -------------
Balances, August 31, 1993.... 149,625 12,462 14,850 2,499 -- 42,486 72,297
Net income................... -- -- -- -- -- 20,604 20,604
Dividends paid:
1993 year-end, Y30 per
share
(Y15 per ADS)............ -- -- -- -- -- (4,489) (4,489)
1994 interim, Y60 per share
(Y30 per ADS)............ -- -- -- -- -- (8,977) (8,977)
Bonuses to directors and
statutory auditors......... -- -- -- -- -- (22) (22)
Transfer to legal reserve.... -- -- -- 617 -- (617) --
Change in fair value of
short-term investments..... -- -- -- -- (242) -- (242)
----------- -------- ---------- ------- --------------- --------- -------------
Balances, August 31, 1994.... 149,625 12,462 14,850 3,116 (242) 48,985 79,171
Net income................... -- -- -- -- -- 23,062 23,062
Dividends paid:
1994 year-end, Y80 per
share
(Y40 per ADS)............ -- -- -- -- -- (11,969) (11,969)
1995 interim, Y95 per share
(Y47.50 per ADS)......... -- -- -- -- -- (14,214) (14,214)
Bonuses to directors and
statutory auditors......... -- -- -- -- -- (42) (42)
Change in fair value of
short-term investments..... -- -- -- -- 1,874 -- 1,874
----------- -------- ---------- ------- --------------- --------- -------------
Balances, August 31, 1995.... 149,625 Y 12,462 Y 14,850 Y 3,116 Y 1,632 Y 45,822 Y 77,882
========= ========= ======= ============= ========== ===========
In U.S. Dollars (Note 1):
Balances, August 31, 1994.... $127,163 $151,531 $31,796 $(2,469) $ 499,847 $ 807,868
Net income................... -- -- -- -- 235,327 235,327
Dividends paid:
1994 year-end, $0.82 per
share ($0.41 per ADS).... -- -- -- -- (122,133) (122,133)
1995 interim, $0.97 per
share ($0.48 per ADS).... -- -- -- -- (145,041) (145,041)
Bonuses to directors and
statutory auditors......... -- -- -- -- (429) (429)
Change in fair value of
short-term investments..... -- -- -- 19,122 -- 19,122
-------- ---------- ------- --------------- --------- -------------
Balances, August 31, 1995.... $127,163 $151,531 $31,796 $16,653 $ 467,571 $ 794,714
========= ========= ======= ============= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 122
AMWAY JAPAN LIMITED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
(IN MILLIONS OF YEN AND THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1993 1994 1995 1995
------- -------- -------- ---------
(NOTE 1)
<S> <C> <C> <C> <C>
Operating activities:
Net income..................................... Y15,851 Y 20,604 Y 23,062 $ 235,327
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on inventory disposal................... 1,625 1,487 1,739 17,745
Depreciation and amortization................ 742 1,177 1,435 14,643
Loss on disposals of property and
equipment -- net.......................... 109 69 138 1,408
Gain on exchange of stock of subsidiary...... -- (507) -- --
Loss (gain) on marketable securities and
investments -- net........................ -- 118 (645) (6,582)
Write-off of capitalized software............ -- -- 465 4,745
Write-down of investments.................... 383 -- -- --
Changes in assets and liabilities:
Accounts receivable....................... 448 529 1,468 14,980
Finished good inventories................. (1,194) (2,526) (2,200) (22,449)
Prepaid expenses.......................... (9) (202) (191) (1,949)
Other current assets...................... (128) 355 136 1,387
Accounts payable.......................... (234) 1,792 2,674 27,286
Income taxes payable...................... 779 3,961 987 10,071
Accrued expenses and other current
liabilities............................. 813 1,932 2,192 22,367
Other........................................ (12) 35 (55) (561)
------- -------- -------- ---------
Net cash provided by operating
activities.............................. 19,173 28,824 31,205 318,418
------- -------- -------- ---------
Investing activities:
Purchase of property and equipment............. (858) (961) (25,174) (256,878)
Investments in affiliates...................... (1,121) -- (100) (1,020)
Purchases of short-term investments............ -- (33,386) (3,954) (40,347)
Proceeds from sale of short-term investments... 3,119 12,308 4,646 47,408
Proceeds from redemption of long-term
investments.................................. -- 2,702 -- --
Capitalized software costs..................... (1,187) (797) (110) (1,122)
Net change in leasehold deposits............... (378) 57 (239) (2,439)
Other.......................................... (25) (14) 1 11
------- -------- -------- ---------
Net cash used in investing activities..... (450) (20,091) (24,930) (254,387)
------- -------- -------- ---------
Financing activities:
Cash dividends paid............................ (8,229) (13,466) (26,183) (267,174)
------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... 10,494 (4,733) (19,908) (203,143)
Cash and cash equivalents, beginning of year..... 55,787 66,281 61,548 628,041
------- -------- -------- ---------
Cash and cash equivalents, end of year........... Y66,281 Y 61,548 Y 41,640 $ 424,898
======== ========= ========= ==========
Additional cash flow information:
Income taxes paid.............................. Y19,980 Y 21,471 Y 27,478 $ 280,388
Non-cash investing activities:
Net unrealized gain (loss) on short-term
investments............................. -- (242) 1,874 19,122
Fair value of stock acquired in non-cash
exchange (Note 4)....................... -- 1,937 -- --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 123
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Amway Japan Limited (the "Company"), is a direct selling company that
distributes approximately 130 consumer products through approximately 980,000
independent distributors in Japan. Established in 1977, the Company serves as
the exclusive distribution vehicle in Japan for Amway Corporation ("Amway"), a
U.S. direct selling company incorporated in Michigan. The Company operates in a
single business segment, consumer products, and in a single geographic area,
Japan. The Company's common stock is traded on the Japanese over-the-counter
market, and on the New York Stock Exchange in the form of American Depositary
Shares (ADSs), which represent one half of one share of common stock.
Basis of Presentation -- The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned U.S. subsidiary, Amway
Japan Enterprises, Inc. ("AJEI"), which was established in March of 1994. The
consolidated financial statements are presented in accordance with accounting
principles generally accepted in Japan ("Japanese GAAP"), which differ in
certain material respects from those in the United States ("U.S. GAAP"). See
Notes 10 and 11. In preparing these financial statements, certain amounts have
been reclassified to present these financial statements in a format which is
more familiar to readers outside of Japan. Additionally, the 1993 annual report
and the 1994 consolidated financial statements have been reclassified to conform
to current year presentation.
The consolidated statements of cash flows have been prepared for the
convenience of readers outside of Japan, although such statements are not
required as part of the basic financial statements in Japan. For purposes of the
consolidated statement of cash flows, the Company considers all time deposits
and negotiable certificates of deposit with a maturity of one year or less to be
cash equivalents.
The U.S. dollar amounts included herein are, solely for convenience,
calculated at the approximate rate of exchange prevailing on August 31, 1995 of
Y98 to U.S. $1. The U.S. dollar amounts should not be construed as
representations that the Japanese yen have been, or could in the future be,
converted into United States dollars at this or any other rate of exchange.
Consolidation -- The accompanying consolidated financial statements include
the accounts of the Company and AJEI. All significant intercompany accounts and
transactions are eliminated in consolidation. It is common practice in Japan for
the accounts of foreign subsidiaries to be included in the consolidated
financial statements without converting the accounting principles of the foreign
entities to Japanese GAAP. Accordingly, the accounts of AJEI included in the
consolidated financial statements are based upon U.S. GAAP.
Foreign Currency Translation -- In translating financial statements of AJEI
into yen, the exchange rates prevailing at the respective balance sheet dates
were used for all asset and liability items and for items other than capital
stock and additional paid-in capital in the shareholders' equity section, for
which historical rates were used. Translation adjustments resulting from such
translation were recorded as assets.
Average exchange rates during the respective periods were used for all AJEI
items of income and expense, except for net income which was translated at the
rates prevailing at the respective balance sheet dates. The resulting exchange
difference has been included in Other income -- net.
Marketable Equity Securities and Related Financial
Derivatives -- Substantially all marketable equity securities which are included
in Short-term investments are owned by AJEI. Under Statement of Financial
Accounting Standards ("SFAS") No. 115, trading securities are carried at fair
value, and gains and losses, whether realized or unrealized, are included in
income or expense, whereas available-for-sale securities are carried at fair
value, and unrealized holding gains and losses are included in a separate
component of shareholders' equity net of tax effects.
F-7
<PAGE> 124
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined investment risks. Options which do not qualify for hedge accounting
are valued at market, and changes in market value are recognized as gains or
losses in the period of the change. Options which qualify as hedges are split
between time values and intrinsic values. The changes in intrinsic value are
included in the same separate component of shareholders' equity as the changes
in the fair value of the item being hedged. The time value is amortized into
expense over the life of the option. Swaps are valued at market value, and
changes in market value are recognized as gains or losses in the period of the
change.
Investments in Affiliates -- The Company's 50% interest in Provatene
Partners Limited is accounted for pursuant to the equity method of accounting.
The Company's 2% interest in Amway Asia Pacific Ltd. ("AAP") is carried at cost
(see Note 4).
Revenue Recognition -- The Company recognizes sales revenue upon shipment
of products to distributors. An allowance for sales returns is accrued based on
historical experience.
Inventories -- Inventories consist primarily of finished good merchandise
purchased for resale and are stated at the lower of cost, determined in
accordance with the first-in, first-out method, or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed in accordance with the declining-balance method over
the estimated useful lives of the assets.
Software Costs -- The Company capitalizes the cost of both internally
developed and purchased computer software. Such capitalized costs are amortized
on a straight-line basis over a five-year period or the estimated useful life,
whichever is shorter.
Income Taxes -- Income taxes are provided only for amounts currently
payable for each year. Deferred income taxes related to temporary differences
between the tax basis of an asset or liability and the reported amounts in the
consolidated financial statements are not recorded except for those related to
the accounts of AJEI.
The Japanese enterprise tax, which is based on earnings and included in
selling and administrative expenses under Japanese GAAP, has been reclassified
to Income taxes in these financial statements in order to provide a presentation
more familiar to readers outside of Japan.
Defined Benefit Pension Plan -- The Company's contributions to its defined
benefit non-contributory pension plan (see Note 11) are charged to expense when
paid, as are retirement benefits paid to directors and statutory auditors. Prior
service costs of the pension plan are amortized to expense at the rate of 30%
per annum.
Stock Issue Costs -- Stock issue costs are charged to expense when paid.
Amounts per Share; Amounts per American Depositary Share (ADS) -- The
computation of net income per share is based on the weighted average number of
shares of common stock outstanding during the period. Each ADS is equivalent to
one half of one share of common stock, consequently amounts per ADS are
calculated as one half of the per share amount.
Appropriation of Retained Earnings -- Payments of bonuses to directors and
statutory auditors are made as an appropriation of retained earnings. Retained
earnings at each year-end are appropriated and reflected in the books of account
in the year during which approval at the shareholders meeting has been obtained.
This accounting is required by the Commercial Code of Japan (the "Code").
F-8
<PAGE> 125
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Foreign Currency Transactions -- Current receivables and payables
denominated in foreign currencies are translated into yen at the current rates
of exchange. Long-term receivables and payables are translated into yen at the
exchange rates prevailing on the transaction dates. Transaction gains and losses
are included in Other income -- net.
2. INVESTMENTS
Short-term investments, at approximate market value, at August 31, 1994 and
1995, were comprised of the following (in millions of yen and thousands of U.S.
dollars):
<TABLE>
<CAPTION>
1994 1995 1995
------- ------- --------
<S> <C> <C> <C>
Marketable securities:
Trading securities............................... Y14,837 Y15,789 $161,112
Available-for-sale securities.................... 14,353 16,208 165,388
Other.............................................. 500 -- --
------- ------- --------
Y29,690 Y31,997 $326,500
======= ======= ========
</TABLE>
Substantially all short-term investments are held by AJEI. In March of 1994
AJEI invested approximately $287 million with two independent investment
managers. Each investment manager placed approximately half of that amount in
equity portfolios designed to produce results similar to the Standard & Poor's
500 Stock Index (the "S&P 500"). To protect against a loss due to price declines
in the dollar value of a portion of each of the portfolios, AJEI purchased two
put options exercisable in two years for a total premium of approximately $13
million. The first put allows AJEI to require the repurchase of $93.5 million of
one equity portfolio at its original cost. The second put provides for
protection in the other portfolio of $93.5 million against downward market
movements in the S&P 500.
In September of 1995, AJEI sold those portions of the equity portfolios
that were protected by these puts, realizing a net gain of $18.9 million. The
proceeds of the sale were reinvested in U.S. treasury securities and money
market preferred stocks.
The balance of the equity investments ($100 million) is hedged by swaps
that allow AJEI to receive a quarterly fixed interest payment of approximately
5% per annum, less the dividend yield on the S&P 500. In March of 1996, any
decrease in the price of the S&P 500 will be paid to AJEI by the swap
counterparties, and any increase in the price of the S&P 500 will be paid to the
swap counterparties by AJEI. As owner of the underlying managed portfolios, AJEI
receives the benefit of outperformance of, and bears the risk of
underperformance of, the investment managers' portfolios relative to the S&P
500.
U.S. earnings of AJEI, which have been included in the determination of net
income but have not been remitted to the Company, aggregated $6.4 million for
the year ended August 31, 1995.
In translating the financial statements of AJEI into yen, the exchange rate
prevailing as of the respective balance sheet dates was used for all asset and
liability items and for items other than capital stock and additional paid-in
capital in the shareholders' equity section. Translation adjustments resulting
from the depreciation of the U.S. dollar in relation to the yen were recorded as
Translation adjustments on the consolidated balance sheets.
Subsequent to year-end, the Company entered into a series of hedging
contracts with Amway in order to protect against exchange rate fluctuations
between the yen and the U.S. dollar. These contracts, which protect $190 million
of AJEI's investments, provide for the delivery of Y18.6 billion to the Company
on January 9,
F-9
<PAGE> 126
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
2. INVESTMENTS -- CONTINUED
1996 at an average exchange rate of approximately Y98 to U.S. $1.00. Through
September of 1995, no arrangements have been made to hedge the remaining balance
of AJEI's investments against exchange rate fluctuations.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at August 31, 1994 and 1995 consisted of the
following (in million of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995 1995
------- ------- --------
<S> <C> <C> <C>
Cash on hand and in banks.......................... Y 4,148 Y 4,840 $ 49,388
Time deposits...................................... 35,400 36,800 375,510
Negotiable certificates of deposit................. 22,000 -- --
------- ------- --------
Total......................................... Y61,548 Y41,640 $424,898
======= ======= ========
</TABLE>
The Company has arrangements with two finance companies for the extension
of credit to the Company's distributors. The Company is responsible for the
losses incurred by these finance companies as the result of improper acts of
distributors, and in certain other cases. Time deposits of Y300 million ($3.1
million) at August 31, 1994 and 1995 collateralized these arrangements.
Management believes that the risk of loss is not significant. At August 31, 1994
and 1995, the outstanding receivables of the finance companies relating to these
arrangements aggregated approximately Y2.6 billion and Y6.8 billion ($69.4
million), respectively.
Time deposits of Y200 million and Y50 million ($510 thousand) were pledged
as collateral for deferred payment of postal charges at August 31, 1994 and
1995, respectively.
4. INVESTMENTS IN AFFILIATES
On December 21, 1993, the Company transferred to Amway Asia Pacific Ltd.
("AAP"), a Bermuda corporation majority-owned by shareholders of the Company,
the stock of Amway Pacific Limited ("APL"), a former subsidiary of the Company.
Through APL, the Company held a 95% interest in the joint venture company formed
to be the exclusive distribution vehicle for Amway products in the People's
Republic of China. In exchange for the stock of APL the Company acquired 972,222
shares of the common stock of AAP, representing an acquisition price of
approximately Y1.9 billion. This price was established principally based upon an
independent valuation. The exchange was accounted for as a sale of APL stock and
a purchase of AAP stock and, in accordance with Japanese accounting practices
and tax treatment, a gain on the exchange of Y507 million was included in income
for the year ended August 31, 1994.
As a result of this transaction, the Company owns approximately 2% of AAP's
common stock. The shareholders of Amway own approximately 83% of AAP's common
stock, with the remainder publicly held. The market value of the AAP stock held
by the Company as of August 31, 1995 was Y3.8 billion ($38.8 million).
In December of 1994 the Company, at a cost of Y100 million, formed a
partnership joint venture, Provatene Partners Limited, with Nutrilite Products,
("Nutrilite"), a division of Amway. The joint venture engages in the processing
of raw materials used by Nutrilite in the manufacture of certain vitamins.
F-10
<PAGE> 127
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
5. PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1994 and 1995 consisted of the
following (in millions of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995 1995
------- ------- --------
<S> <C> <C> <C>
Land....................................................... Y -- Y24,055 $245,459
Leasehold improvements..................................... 1,057 1,258 12,837
Vehicles................................................... 219 249 2,541
Furniture and fixtures..................................... 4,121 4,490 45,816
------- ------- --------
Total................................................. 5,397 30,052 306,653
Less accumulated depreciation and amortization............. (2,878) (3,261) (33,275)
------- ------- --------
Net property and equipment................................. Y 2,519 Y26,791 $273,378
======= ======= ========
</TABLE>
On March 30, 1995 the Company acquired a 3561 square meter parcel of land
in Tokyo for the construction of a new headquarters facility. Construction of
the facility is not planned to commence before fiscal 1997. The purchase price,
which was paid in cash, aggregated Y19.4 billion ($198 million). Management
estimates that the total cost of the headquarters project, including the
purchase price of the land, will range between Y27.5 billion ($280.6 million)
and Y32.5 billion ($331.6 million). Additionally, on July 27, 1995 the Company
purchased a 22,296 square meter parcel of land in Tokyo for the development of a
sixth Regional Distribution Center (RDC). The purchase price, which was paid in
cash, aggregated Y4.7 billion ($48.0 million). The total cost of the RDC
project, including the purchase price of the land, is expected to range between
Y13.8 billion ($140.8 million) and Y14.4 billion ($146.9 million). In accordance
with Japanese accounting practices, certain additional direct costs of these
land acquisitions are being expensed as incurred. As of August 31, 1995, such
costs have aggregated Y399 million ($4.1 million). Except for these capital
projects, the Company has no material commitments for capital expenditures as of
August 31, 1995.
The Company maintains five Regional Distribution Centers (RDCs) in Tokyo,
Fukuoka, Sapporo, Okinawa and Kobe. In January of 1995, the Kobe area sustained
a major earthquake. The Company's RDC in Kobe was relatively undamaged. The
Company did incur, however, costs directly related to the earthquake
(principally air freight and administrative charges) aggregating approximately
Y408 million during the fiscal year ended August 31, 1995. In August of 1995,
the Company recovered Y211 million of this amount through its insurance. These
costs and the related insurance recovery are both unusual in nature and
infrequent in occurrence, however they are not considered to be sufficiently
material to warrant separate classification as an extraordinary item in the
income statement. Accordingly, they have been charged against Other income --
net.
6. LEASES
The Company has no leases which are accounted for as capital leases. Total
rent expense under operating leases, primarily for real estate and equipment,
aggregated Y2.6 billion, Y3.0 billion and Y3.1 billion ($31.5 million), during
the fiscal years ended August 31, 1993, 1994, and 1995, respectively. Certain of
the
F-11
<PAGE> 128
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
6. LEASES -- CONTINUED
equipment leases are non-cancelable. Future minimum annual rentals under
operating leases as of August 31, 1995 are as follows (in millions of yen and
thousands of U.S. dollars):
<TABLE>
<CAPTION>
REAL ESTATE EQUIPMENT TOTAL TOTAL
----------- --------- ------ -------
<S> <C> <C> <C> <C>
Year ended August 31,
1996.......................................... Y2,629 Y399 Y3,028 $30,898
1997.......................................... 1,500 262 1,762 17,980
1998.......................................... 3 180 183 1,867
1999.......................................... -- 72 72 735
2000.......................................... -- 1 1 10
----------- --------- ------ -------
Total minimum lease payments....................... Y4,132 Y914 Y5,046 $51,490
========== ========== ====== =======
</TABLE>
7. SHAREHOLDERS' EQUITY
As of August 31, 1994 and 1995, 84.8% and 83.3%, respectively, of the
Company's outstanding common stock was held by certain trusts, foundations and
entities created by or for the benefit of the founders of Amway, Jay Van Andel
and Richard M. DeVos, and their families. The remaining balance of the Company's
common stock was publicly held. The Company's common stock is traded on the
Japanese over-the-counter market. The Company's common stock is also traded on
the New York Stock Exchange in the form of American Depositary Shares (ADSs),
which represent one-half of one common share.
Under the Code, at least 50% of the issue price of new shares is to be
designated as stated capital as determined by resolution of the Board of
Directors. Proceeds in excess of the amounts designated as stated capital are to
be credited to additional paid-in capital. The Company may transfer portions of
additional paid-in capital to stated capital by resolution of the Board of
Directors.
Under the Code, the Company is required to appropriate as a legal reserve
portions of retained earnings in an amount equal to at least 10% of specified
cash payments, such as cash dividends and bonuses to directors and statutory
auditors, appropriated in each financial period until the reserve equals 25% of
the stated capital. As of August 31, 1994 and 1995 such reserve, at Y3.1
billion, was equal to 25% of stated capital. This reserve is not available for
dividends but may be used to reduce a deficit by resolution of the shareholders
or transferred to the stated capital by resolution of the Board of Directors.
The Company may also transfer portions of retained earnings which are available
for dividends to stated capital by resolution of the shareholders.
Annual dividends are approved at the shareholders' meeting held subsequent
to the fiscal year to which the dividends are applicable. In addition,
semiannual dividends may be paid upon resolution of the Board of Directors,
subject to limitations imposed by the Code, without shareholder approval.
Effective October 1, 1994, an amendment to the Code permits the Company to
repurchase its outstanding common shares for the purpose of (1) assignment of
the shares to its employees or (2) cancellation of the shares subject to an
approval at the ordinary general shareholders' meeting and certain requirements
of the Code. In a repurchase for the purpose of (1) above, (a) the aggregate
purchase price may not exceed the Company's distributable retained earnings and
(b) the aggregate number of shares repurchased must not exceed three percent of
the total issued shares. In a repurchase for the purpose of (2) above, the
requirements include requirement (a) above, but not requirement (b) above.
F-12
<PAGE> 129
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
8. INCOME TAXES
The Company is subject to a number of taxes based on earnings: the
corporate tax, inhabitants tax and enterprise tax. The enterprise tax is
deductible when paid for purposes of calculating earnings-based taxes, which
results in an effective statutory tax rate that is somewhat lower than the
combined statutory tax rate would otherwise be. In the aggregate, these taxes
produced effective statutory tax rates of approximately 52.1%, 51.4%, and 51.4%
for 1993, 1994 and 1995, respectively. The Company's effective tax rates
reflected in the accompanying consolidated statements of income differ from the
effective statutory tax rates primarily due to the effect of permanently
non-deductible expenses and temporary differences in the recognition of certain
income and expenses for tax and for financial reporting purposes.
9. RELATED PARTY TRANSACTIONS
The Company is the exclusive distribution vehicle for Amway (a Michigan
corporation) in Japan. The Company has entered into agreements with Amway (1)
for receiving a long-term secure and stable supply of merchandise (the Product
Purchase Agreement), (2) for the exclusive use of Amway's trademarks in Japan
(the Trademark License Agreement) and (3) for receiving management support
services (the Support Services Agreement). See also Note 2.
Balances with Amway at August 31, 1994 and 1995 were as follows (in
millions of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995 1995
------ ------ -------
<S> <C> <C> <C>
Receivables included in other current assets.................. Y 131 Y 196 $ 2,000
Accounts payable and accrued expenses......................... 2,592 3,496 35,673
</TABLE>
Purchases from and other transactions with Amway for the years ended August
31, 1993, 1994 and 1995 were as follows (in millions of yen and thousands of
U.S. dollars):
<TABLE>
<CAPTION>
1993 1994 1995 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Purchases....................................... Y23,826 Y28,175 Y28,622 $292,061
Management charges.............................. 633 290 385 3,929
Royalties....................................... 304 493 697 7,112
</TABLE>
All charges for support services made pursuant to the Support Services
Agreement are denominated in U.S. dollars. Accordingly, the Company bears the
risk of currency exchange rate fluctuations in connection therewith. Because the
Company does not believe this risk to be significant, no arrangements have been
made to hedge this exposure against exchange rate fluctuations.
The Company pays to Amway, for the use of Amway trademarks and formulas in
connection with products manufactured by others under contract with the Company,
a royalty of 4% of sales of products bearing an Amway trademark, and 8% of sales
of products bearing an Amway trademark and also using an Amway formula or
design. Based upon estimated sales of certain products for fiscal years 1994 and
1995, the Company delivered to Amway promissory notes in payment of royalties
for these years. In consideration for the execution of these notes, the actual
payments during fiscal years 1994 and 1995 approximated 2% for certain products
bearing an Amway trademark and 4% for certain products bearing an Amway
trademark and using an Amway formula or design.
Based upon estimated sales of products for fiscal years 1996 through 1998,
the Company also delivered promissory notes in payment of royalties for these
years. In consideration for the execution of these notes, the actual payments
for these years are expected to approximate 3.6% for products bearing an Amway
trademark
F-13
<PAGE> 130
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
9. RELATED PARTY TRANSACTIONS -- CONTINUED
and 7.3% for products bearing an Amway trademark and using an Amway formula or
design. Balances on these promissory notes were as follows (in millions of yen
and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995 1995
----- ------ -------
<S> <C> <C> <C>
Royalties payable........................................... Y 314 Y1,867 $19,051
Less current maturities..................................... (314) (622) (6,347)
----- ------ -------
-- 1,245 12,704
===== ====== =======
</TABLE>
The outstanding balance at August 31, 1995 is payable in six semi-annual
installments commencing February 28, 1996, with the final payment due and
payable on August 31, 1998. Because these promissory notes are not treated as
notes under Japanese commercial practices and regulations, they have not been
recorded on the accompanying consolidated balance sheets of the Company.
10. RECONCILIATION OF JAPANESE AND U.S. ACCOUNTING PRINCIPLES
The Company prepares its accounts in accordance with Japanese GAAP, which
differ in certain material respects from U.S. GAAP. The significant differences
relate to the following items:
Income Taxes -- In accordance with Japanese GAAP, income taxes are provided
only for amounts currently payable for each year. U.S. GAAP requires that
deferred income taxes be recognized for temporary differences between the tax
basis of assets and liabilities and the reported amounts in the consolidated
financial statements.
Pension Costs -- Under Japanese GAAP, the amounts contributed to the
Company's funnded defined benefit pension plan, including amortization of prior
service costs, are charged to expense when paid. Under U.S. GAAP, net periodic
pension costs, as defined by SFAS No. 87, are charged to expense.
Software Costs -- The Company capitalizes the costs of both internally
developed and purchased software under Japanese GAAP, whereas only purchased
software costs are capitalized under U.S. GAAP. Under Japanese GAAP,
amortization of capitalized software costs aggregated Y44 million, Y326 million
and Y379 million ($3.9 million), during the fiscal years ended August 31, 1993,
1994, and 1995, respectively. Accumulated amortization, under Japanese GAAP,
aggregated Y370 million and Y460 million ($4.7 million) as of August 31, 1994
and 1995, respectively.
Stock Issue Costs -- Stock issue costs are charged to expense when paid
under Japanese GAAP, whereas such costs are charged to additional paid-in
capital under U.S. GAAP.
Investments in Affiliates and Non-Monetary Transaction -- In December 1993,
the Company exchanged its ownership of, and advances to, APL for 972,222 shares
(approximately 2%) of the common stock of AAP. A gain was recorded on the
exchange of stock under Japanese GAAP, whereas U.S. GAAP does not allow
recognition of such a gain (see Note 3). Additionally, under U.S. GAAP the
investment in AAP would be valued at market value with the unrealized gain or
loss, net of tax, being reflected in shareholders equity. Under Japanese GAAP,
this investment is carried at cost.
Cash Dividend -- Under Japanese GAAP, dividends are charged to retained
earnings when paid. Under U.S. GAAP, dividends are charged to retained earnings
when declared by the Board of Directors.
Translation Adjustments -- Under Japanese GAAP, translation adjustments
resulting from translating financial statements of foreign subsidiaries are
reported as assets or liabilities, whereas such adjustments are reported in a
separate component of shareholders' equity under U.S. GAAP.
F-14
<PAGE> 131
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
10. RECONCILIATION OF JAPANESE AND U.S. ACCOUNTING PRINCIPLES -- CONTINUED
Notes Payable -- The Company has outstanding negotiable promissory notes
payable to Amway aggregating Y0.3 billion and Y1.9 billion as of August 31, 1994
and 1995, respectively (see Note 9). Because these notes are not treated as
notes under the commercial practices and regulations in Japan, they have not
been recorded on the accompanying consolidated balance sheets. Under U.S. GAAP,
these notes would have been recorded as a liability with the offset being
recorded as a prepaid expense.
Land Acquisition Costs -- On March 30, 1995 the Company acquired a 3561
square meter parcel of land in Tokyo for the construction of a new headquarters
facility, and on July 27, 1995 the Company acquired a 22,296 square meter parcel
of land in Tokyo for the development of a sixth RDC (see Note 5). Taxes and
certain other direct costs of these acquisitions are being expensed as incurred
in accordance with Japanese GAAP, whereas under U.S. GAAP these costs would be
capitalized.
The following table summarizes the effects on net income of the differences
between Japanese GAAP and U.S. GAAP for the years ended August 31, 1993, 1994
and 1995 (in millions of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1993 1994 1995 1995
------- ------- ------- --------
<S> <C> <C> <C> <C>
Amounts as shown in the Japanese GAAP consolidated
financial statements............................. Y15,851 Y20,604 Y23,062 $235,327
Adjustments of:
Income taxes..................................... 1,303 778 540 5,510
Defined benefit pension plan..................... 103 136 28 286
Software costs................................... (586) (521) 493 5,030
Land acquisition costs........................... -- -- 399 4,071
Gain on exchange of stock of subsidiary.......... -- (507) -- --
Other............................................ (95) (38) (75) (765)
------- ------- ------- --------
Amounts according to U.S. GAAP..................... Y16,576 Y20,452 Y24,447 $249,459
======= ======= ======= ========
Net income per share under U.S. GAAP............... Y110.78 Y136.69 Y163.39 $ 1.67
Net income per ADS................................. Y 55.39 Y 68.34 Y 81.70 $ .83
</TABLE>
F-15
<PAGE> 132
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
10. RECONCILIATION OF JAPANESE AND U.S. ACCOUNTING PRINCIPLES -- CONTINUED
The following table summarizes the effect on shareholders' equity of the
differences between Japanese GAAP and U.S. GAAP as of August 31, 1994 and 1995
(in millions of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995 1995
------- ------- --------
<S> <C> <C> <C>
Amounts as shown in the Japanese GAAP consolidated
financial statements................................... Y79,171 Y77,882 $794,714
Adjustments of:
Income taxes........................................... 5,321 5,861 59,806
Defined benefit pension plan........................... 463 491 5,010
Software costs......................................... (1,108) (615) (6,276)
Land acquisition costs................................. -- 399 4,071
Gain on exchange of stock of subsidiary................ (507) (507) (5,173)
Unrealized gain on investment in affiliate, net of
related income taxes................................ 846 1,154 11,776
Translation adjustments, net of related income taxes... (847) (908) (9,265)
Other.................................................. (108) (96) (979)
------- ------- --------
Amounts according to U.S. GAAP........................... Y83,231 Y83,661 $853,684
======= ======= ========
</TABLE>
Income Tax -- The effective income tax rates of the Company on a U.S. GAAP
basis differ from the effective Japanese statutory rates as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Effective Japanese statutory rates............................ 52.1% 51.4% 51.4%
Non-deductible expenses....................................... 1.9 2.0 2.5
Other......................................................... -- 1.2 (0.7)
---- ---- ----
Effective tax rates........................................... 54.0% 54.6% 53.2%
==== ==== ====
</TABLE>
The approximate effect of temporary differences that would give rise to
deferred tax balances under U.S. GAAP is as follows (in millions of yen and
thousands of U.S. dollars):
<TABLE>
<CAPTION>
1994 1995
DEFERRED TAX DEFERRED TAX
--------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------- -----------
<S> <C> <C> <C> <C>
Accruals, currently not deductible for tax:
Sales returns.................................. Y1,988 Y -- Y 2,200 Y --
Enterprise tax................................. 1,653 -- 1,726 --
Accrued distributor seminars................... 1,309 -- 1,447 --
Deferred software costs.......................... 650 -- 354 --
Translation adjustments.......................... 882 -- 961 --
Unrealized gain on investment in affiliate....... -- 895 -- 1,221
Other............................................ 767 1,046 1,059 925
------ ----------- ------- -----------
Total............................................ Y7,249 Y 1,941 Y 7,747 Y 2,146
====== ========= ======= =========
Total (U.S. dollars, Note 1)..................... $79,051 $ 21,898
======= =========
</TABLE>
F-16
<PAGE> 133
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
10. RECONCILIATION OF JAPANESE AND U.S. ACCOUNTING PRINCIPLES -- CONTINUED
Cash Flows -- U.S. GAAP requires that for cash flow reporting, cash and
cash equivalents include only those time deposits with maturities of less than
three months. Under U.S. GAAP, cash and cash equivalents were Y45.1 billion and
Y32.4 billion ($331 million) at August 31, 1994 and 1995, respectively.
11. PENSION PLAN
The Company maintains a defined-benefit non-contributory pension plan (the
"Plan") for the benefit of its full-time employees. Substantially all such
employees are covered by the Plan. Under the Plan, employees terminating their
employment or retiring are, in most circumstances, entitled to benefits based on
years of service, compensation at the time of termination and certain other
factors. At August 31, 1995 the Plan was fully funded. The amounts contributed
to the fund for the years ended August 31, 1993, 1994 and 1995 were Y262
million, Y299 million and Y308 million ($3.1 million), respectively.
The net periodic pension costs, the status of projected benefit obligations
of the Plan and major assumptions used to determine these amounts under the
requirements of U.S. GAAP are as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1995
----- ---- ---- ------
<S> <C> <C> <C> <C>
Components of net periodic pension costs:
Service cost.......................................... Y 149 Y173 Y249 $2,541
Interest cost......................................... 33 45 74 755
Actual return on plan assets.......................... (104) (29) (11) (112)
Net amortization and deferral......................... 81 (26) (32) (327)
----- ---- ---- ------
Net periodic pension costs.............................. Y 159 Y163 Y280 $2,857
===== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1995
------- ------- --------
<S> <C> <C> <C>
Status of obligations:
Actuarial present value of benefit obligations:
Vested benefit obligation........................... Y (714) Y (940) $ (9,592)
Non-vested benefit obligation....................... (20) (24) (245)
------- ------- --------
Accumulated benefit obligation......................... Y (734) Y (964) $ (9,837)
======= ======= ========
Projected benefit obligation for service rendered to
date................................................... Y(1,363) Y(1,479) $(15,092)
Plan assets at fair value................................ 1,205 1,497 15,276
------- ------- --------
Plan assets in excess of projected benefit obligations... (158) 18 184
Unrecognized net loss.................................... 629 440 4,489
Unrecognized prior service costs......................... -- 40 408
Unrecognized net assets at date of initial application... (8) (7) (71)
------- ------- --------
Prepaid pension costs to be recognized on the
consolidated balance sheets............................ Y 463 Y 491 $ 5,010
======= ======= ========
Assumptions used:
Discount rate.......................................... 5.5% 5.5%
Rate of increase in compensation level................. 5.5% 4.0%
Expected long-term rate of return on assets............ 6.0% 6.0%
</TABLE>
At August 31, 1995, Plan assets consisted primarily of marketable debt and
equity securities.
F-17
<PAGE> 134
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
12. OTHER INCOME -- NET
Other Income -- net for the years ended August 31, 1993, 1994 and 1995
consists of the following (in millions of yen and thousands of U.S. dollars):
<TABLE>
<CAPTION>
1993 1994 1995 1995
------ ------ ------ -------
<S> <C> <C> <C> <C>
Interest income............................................ Y2,838 Y1,949 Y1,131 $11,541
Gain on exchange of stock of subsidiary.................... -- 507 -- --
Gains on sales of investments.............................. -- 108 508 5,184
Dividend income............................................ -- 311 658 6,714
Write-off of capitalized software (Note 13)................ -- -- (465) (4,745)
Earthquake-related costs, net (Note 5)..................... -- -- (197) (2,010)
Other, net................................................. (353) (318) 98 1,000
------ ------ ------ -------
Other income -- net........................................ Y2,485 Y2,557 Y1,733 $17,684
====== ====== ====== =======
</TABLE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in millions of yen and thousands of QUARTER ENDED
U.S. dollars, -----------------------------------------------------------------
except per share (ADS) data) NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31 YEAR
----------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1994
Net Sales............................. Y 37,466 Y 40,655 Y 39,772 Y 39,663 Y 157,556
Gross Profit.......................... 26,696 29,602 29,125 28,557 113,980
Net Income............................ 5,269 5,609 5,087 4,639 20,604
Net Income per Common Share........... 35.21 37.49 34.00 31.00 137.70
Net Income per ADS.................... 17.60 18.75 17.00 15.50 68.85
Fiscal 1995
Net Sales............................. Y 42,665 Y 41,683 Y 48,768 Y 44,875 Y 177,991
Gross Profit.......................... 30,970 30,097 36,168 33,241 130,476
Net Income............................ 5,630 5,760 6,708 4,964 23,062
Net Income per Common Share........... 37.63 38.50 44.83 33.18 154.13
Net Income per ADS.................... 18.81 19.25 22.42 16.59 77.07
Fiscal 1995 (in U.S. Dollars, Note 1)
Net Sales............................. $ 435,358 $ 425,336 $497,633 $ 457,908 $1,816,235
Gross Profit.......................... 316,020 307,113 369,061 339,194 1,331,388
Net Income............................ 57,449 58,776 68,449 50,653 235,327
Net Income per Common Share........... .38 .40 .46 .33 1.57
Net Income per ADS.................... .19 .20 .23 .17 .79
</TABLE>
A charge of Y465 million ($4.7 million) relating to a write-off of
capitalized software costs was charged against Other income -- net during the
quarter ended August 31, 1995. Due to the replacement and upgrade of order
management and certain general ledger systems, this software was determined to
be without future benefit to the Company. Under U.S. GAAP, this charge would
have been classified as a Selling and administrative expenses.
F-18
<PAGE> 135
AMWAY JAPAN LIMITED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
14. SUBSEQUENT EVENTS
In October 1995, the Company announced its intention to increase the
regular annual dividend rate with respect to fiscal 1996 to Y100 ($1.02) per
share of common stock from Y90 ($.92) per share of common stock, to pay a
special year-end dividend with respect to fiscal 1995 of Y50 ($.51) per share of
common stock in December 1995 and to pay a special interim dividend in May 1996
of Y25 ($.26) per share of common stock, in each case subject to legal and other
factors.
In October 1995, the Company announced its intention to present to the
shareholders for their approval a proposal to repurchase up to Y15.0 billion
($153.0 million) of common stock by means of open market purchases or a tender
offer to the shareholders of the Company in accordance with the Securities and
Exchange Law of Japan and the Securities Exchange Act of 1934. The Company has
been informed by its controlling shareholders that they intend to participate
fully in the share repurchase. The share repurchase will also include those
shares of common stock represented by ADSs. The shareholders' approval will be
conditioned upon amendment of applicable laws, regulations and ordinances of
Japan such that taxation on deemed dividends under the Income Tax Law or the
Corporate Tax Law of Japan will apply to neither individual shareholders who
sell their shares in a tender offer nor to individual or corporate shareholders
who do not sell their shares in the repurchase, except that corporate
shareholders (other than nonresident corporate shareholders without a permanent
establishment in Japan) may elect to be subject to deemed dividend taxation.
Assuming a repurchase of the full Y15.0 billion of common stock, this
transaction will have the effect of reducing both cash and cash equivalents and
shareholders' equity by Y15.0 billion.
See also Note 2 regarding certain investment transactions relating to AJEI
that occurred subsequent to August 31, 1995.
F-19
<PAGE> 136
ALTERNATE FRONT COVER PAGE FOR INTERNATIONAL PROSPECTUS
PROSPECTUS (Subject to Completion)
November 9, 1995
$300,000,000
PEPS sm
AJL PEPS Trust
$ . PREMIUM EXCHANGEABLE PARTICIPATING SHARES - PEPS sm
(Subject to Exchange for American Depositary Shares Representing
Shares of Common Stock, No Par Value, of Amway Japan Limited or Shares of Such
Common Stock)
------------------------
EACH OF THE SHARES ($ . PREMIUM EXCHANGEABLE PARTICIPATING SHARES, OR "PEPS")
OF THE AJL PEPS TRUST (THE "TRUST") REPRESENTS THE RIGHT TO RECEIVE AN ANNUAL
DISTRIBUTION OF $ , AND WILL BE EXCHANGED ON FEBRUARY 15, 1999 (THE
"EXCHANGE DATE") FOR BETWEEN 0.XX AND 1.XX AMERICAN DEPOSITARY SHARES ("ADSS,"
AND EACH, AN "ADS") REPRESENTING SHARES OF COMMON STOCK, NO PAR VALUE (THE
"COMMON STOCK") OF AMWAY JAPAN LIMITED (THE "COMPANY"), OR, AT THE OPTION OF
A HOLDER, THE EQUIVALENT IN SHARES OF COMMON STOCK. EACH ADS REPRESENTS ONE-
HALF OF ONE SHARE OF COMMON STOCK. THE ANNUAL DISTRIBUTION OF $ PER PEPS
IS PAYABLE QUARTERLY ON EACH FEBRUARY 15, MAY 15, AUGUST 15 AND NOVEMBER
15, COMMENCING FEBRUARY 15, 1996. THE PEPS ARE NOT SUBJECT TO REDEMPTION.
THE TRUST IS A NEWLY ORGANIZED, 3 1/4-YEAR TRUST ESTABLISHED TO PURCHASE AND
HOLD A PORTFOLIO OF STRIPPED U.S. TREASURY SECURITIES MATURING ON A QUARTERLY
BASIS THROUGH THE EXCHANGE DATE, AND ONE OR MORE FORWARD CONTRACTS (THE
"CONTRACTS") WITH TWO EXISTING SHAREHOLDERS (THE "SELLERS") OF THE COMPANY
RELATING TO THE ADSS. OF THE PEPS OFFERED HEREBY, PEPS ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND PEPS
ARE BEING OFFERED INITIALLY INTERNATIONALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITING."
THE TRUST'S INVESTMENT OBJECTIVES ARE TO PROVIDE EACH HOLDER WITH A QUARTERLY
DISTRIBUTION OF $ . PER PEPS, AND TO PROVIDE THE HOLDER OF EACH PEPS, ON OR
SHORTLY AFTER THE EXCHANGE DATE, ADSS (OR, AT THE OPTION OF A HOLDER, THE
EQUIVALENT IN SHARES OF COMMON STOCK) EQUAL TO (I) IF THE EXCHANGE PRICE PER
ADS IS LESS THAN $ (THE "THRESHOLD APPRECIATION PRICE") BUT EQUAL TO OR
GREATER THAN $ (THE "DOWNSIDE PROTECTION THRESHOLD PRICE"), A NUMBER (OR
FRACTIONAL NUMBER) OF ADSS PER PEPS SO THAT THE VALUE THEREOF AT THE
EXCHANGE PRICE EQUALS $ (THE "INITIAL VALUE"), (II) IF THE EXCHANGE
PRICE PER ADS IS EQUAL TO OR GREATER THAN THE THRESHOLD APPRECIATION
PRICE, 0.XX ADSS PER PEPS AND (III) IF THE EXCHANGE PRICE PER ADS IS LESS
THAN THE DOWNSIDE PROTECTION THRESHOLD PRICE, 1.XX ADSS PER PEPS. HOLDERS
OTHERWISE ENTITLED TO RECEIVE FRACTIONAL ADSS OR FRACTIONAL SHARES OF
COMMON STOCK IN RESPECT OF THEIR AGGREGATE HOLDINGS OF PEPS WILL
RECEIVE CASH IN LIEU THEREOF. THE EXCHANGE PRICE PER ADS MEANS
GENERALLY THE AVERAGE ADS EQUIVALENT PRICE (AS DEFINED HEREIN) FOR THE
20 TRADING DAYS (AS DEFINED HEREIN) IMMEDIATELY PRIOR TO (BUT NOT
INCLUDING) THE EXCHANGE DATE.
THE YIELD ON PEPS IS HIGHER THAN THE ACTUAL (I.E., REGULAR PLUS SPECIAL)
DIVIDEND YIELD ON THE ADSS. HOWEVER, THERE IS NO ASSURANCE THAT THE YIELD ON
THE PEPS WILL BE HIGHER THAN THE DIVIDEND YIELD ON THE ADSS OVER THE LIFE OF
THE TRUST. IN ADDITION, THE OPPORTUNITY FOR EQUITY APPRECIATION AFFORDED BY AN
INVESTMENT IN THE PEPS IS LESS THAN THAT AFFORDED BY AN INVESTMENT IN THE ADSS
BECAUSE THE VALUE OF THE ADSS RECEIVABLE BY HOLDERS OF THE PEPS UPON EXCHANGE
AT THE EXCHANGE DATE WILL ONLY EXCEED THE INITIAL VALUE IF THE EXCHANGE
PRICE EXCEEDS THE THRESHOLD APPRECIATION PRICE, WHICH REPRESENTS AN
APPRECIATION OF % OF THE INITIAL VALUE. MOREOVER, BECAUSE A HOLDER OF
EACH PEPS WILL ONLY RECEIVE 0.XX ADSS IF THE EXCHANGE PRICE EXCEEDS THE
THRESHOLD APPRECIATION PRICE, HOLDERS OF THE PEPS WILL ONLY BE ENTITLED TO
RECEIVE UPON EXCHANGE % OF ANY APPRECIATION OF THE VALUE OF THE ADSS IN
EXCESS OF THE THRESHOLD APPRECIATION PRICE. ALTHOUGH THE VALUE OF THE
ADSS RECEIVABLE BY A HOLDER OF PEPS UPON EXCHANGE AT THE EXCHANGE DATE
MAY BE LESS THAN THE AMOUNT PAID BY THE HOLDER, UNLIKE THE ADSS, AN
INVESTMENT IN PEPS AFFORDS PROTECTION FROM DEPRECIATION OF THE ADSS TO
THE EXTENT THAT THE EXCHANGE PRICE DOES NOT FALL BELOW THE DOWNSIDE
PROTECTION THRESHOLD PRICE. IN THE EVENT THE EXCHANGE PRICE IS LESS
THAN THE DOWNSIDE PROTECTION THRESHOLD PRICE, HOLDERS WILL RECEIVE
1.XX ADSS PER PEPS AND ACCORDINGLY WILL HAVE ONLY LIMITED PROTECTION
FROM DEPRECIATION BELOW % OF THE INITIAL VALUE.
(continued on following page)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE $ A PEPS
<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC LOAD(1) THE TRUST(2)
--------------------- ------------------ ------------------------------
<S> <C> <C> <C>
Per PEPS................. $ $ $
Total (3)................ $ $ $
</TABLE>
- ---------------
(1) The Company and an affiliate of the Sellers have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated offering expenses of $655,000 payable by the
Trust.
(3) The Trust has granted to the U.S. Underwriters an option for 30 days to
purchase up to an additional PEPS at the price to the public less
underwriting discount, solely to cover over-allotments. If the option is
exercised in full, the total Price to Public, Sales Load and Proceeds to the
Trust will be $ , $ and $ , respectively. See "Underwriting."
------------------------
The PEPS are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Davis Polk &
Wardwell, counsel for the Underwriters. It is expected that delivery of the PEPS
will be made on or about November , 1995 at the office of Morgan Stanley & Co.
Incorporated, New York, New York, against payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO. MERRILL LYNCH INTERNATIONAL LIMITED
International
November , 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH JURISDICTION.
<PAGE> 137
The Trust's portfolio will not be managed in the traditional sense. The
Trust's management powers will be limited to the disposition of the Contracts in
certain limited circumstances. The Trust may continue to hold the Contracts
despite a significant decline in the market price of the ADSs or the Common
Stock or adverse changes in the financial condition of the Company. The address
of the Trust is 101 Barclay Street, New York, New York 10286 (telephone no.
(212) 815-3199). Investors are advised to read this Prospectus and to retain it
for future reference.
PEPS may be a suitable investment for those investors who are able to
understand the unique nature of the Trust and the economic characteristics of
the Contracts and the U.S. Treasury securities held by the Trust.
The Trust will be a grantor trust for federal income tax purposes and each
holder will be treated as the owner of its pro rata portion of the U.S. Treasury
securities and the Contracts. The U.S. Treasury securities will be treated as
having "original issue discount" which holders must recognize currently as
income as it accrues. Holders will not recognize income, gain or loss upon the
Trust's entry into the Contracts nor will the delivery of ADSs pursuant to the
Contracts be taxable to holders. Although the matter is not free from doubt,
holders should not recognize income, gain or loss with respect to the Contracts
over their term. See "Federal Income Tax Considerations."
The Company is not affiliated with the Trust.
THE PEPS HAVE BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE UPON
NOTICE OF ISSUANCE UNDER THE SYMBOL "AJP." PRIOR TO THIS OFFERING THERE HAS BEEN
NO PUBLIC MARKET FOR THE PEPS.
TYPICAL CLOSED-END FUND SHARES FREQUENTLY TRADE AT A PREMIUM TO OR DISCOUNT
FROM NET ASSET VALUE. BASED ON ITS ASSETS AND THE MARKET IN WHICH THE PEPS ARE
EXPECTED TO TRADE, THE TRUST BELIEVES THE PEPS ARE UNLIKELY TO TRADE AT A
PREMIUM TO OR DISCOUNT FROM NET ASSET VALUE. THE TRUST BELIEVES, HOWEVER, THAT
BECAUSE OF THE YIELD ON THE PEPS AND THE FORMULA FOR DETERMINING THE NUMBER OF
ADSS TO BE DELIVERED ON THE EXCHANGE DATE, THE PEPS WILL TEND TO TRADE AT A
PREMIUM TO THE MARKET VALUE OF THE ADSS TO THE EXTENT THE ADS PRICE FALLS AND AT
A DISCOUNT TO THE MARKET VALUE OF THE ADSS TO THE EXTENT THE ADS PRICE RISES.
"PEPS" and "Premium Exchangeable Participating Shares" are service marks of
Morgan Stanley & Co. Incorporated.
The closing sale price of the ADSs on the New York Stock Exchange on
November 8, 1995 was $18.375 per ADS. The closing sale price of the Common Stock
on the Japanese over-the-counter market on November 8, 1995 was Y3,860 or $37.66
per share (based on the noon buying rate in New York City on November 8, 1995
for cable transfers in yen, as announced for customs purposes by the Federal
Reserve Bank of New York of $1 = Y102.5).
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING TO SELL OR A SOLICITATION OF AN OFFER
TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON
TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL DECEMBER , 1995 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE PEPS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary.................................................................................. 3
The Trust........................................................................................... 9
Use of Proceeds..................................................................................... 9
Investment Objectives and Policies.................................................................. 9
Investment Restrictions............................................................................. 17
Risk Factors and Special Considerations............................................................. 18
Description of the PEPS............................................................................. 20
Management and Administration of the Trust.......................................................... 20
Federal Income Tax Considerations................................................................... 23
Underwriting........................................................................................ 26
Legal Matters....................................................................................... 29
Experts............................................................................................. 29
Additional Information.............................................................................. 29
Independent Auditors' Report........................................................................ 30
Statement of Assets and Liabilities................................................................. 31
Appendix A: Prospectus of Amway Japan Limited
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PEPS OR THE
ADSS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 138
FORM N-2
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
PART A-- INDEPENDENT AUDITORS' REPORT. STATEMENT OF ASSETS AND LIABILITIES.
PART B-- NONE.
(B) EXHIBITS
<TABLE>
<S> <C>
**2.d.(i) Trust Agreement dated as of August 17, 1995
2.d.(ii) Form of Amended and Restated Trust Agreement
2.d.(iii) Form of Specimen Certificate of PEPS (included in Exhibit 2.d.(ii))
2.h.(i) Form of Underwriting Agreement
2.h.(ii) Form of Intersyndicate Agreement
2.h.(iii) Form of Master Agreement Among Underwriters
2.h.(iv) Form of Agreement Among International Underwriters
2.h.(v) Form of Master Selected Dealer Agreement
2.h.(vi) Form of International Dealer Agreement
2.j Form of Custodian Agreement
2.k.(i) Form of Administration Agreement
2.k.(ii) Form of Paying Agent Agreement
2.k.(iii) Form of Purchase Agreement
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement
2.k.(vi) Form of Fund Indemnity Agreement
2.1 Opinion and Consent of Counsel to the Trust
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in Exhibit 2.1)
2.n.(ii) Consent of Special Tax Counsel to the Company
2.n.(iii) Consent of Independent Public Accountants
**2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement
2.r Financial Data Schedule
</TABLE>
- ---------------
** Previously filed.
ITEM 25. MARKETING ARRANGEMENTS
See the Form of Underwriting Agreement filed as Exhibit 2.h.(i) to this
Registration Statement.
C-1
<PAGE> 139
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees....................................................... $118,966
New York Stock Exchange listing fee..................................... 68,050
Printing (other than certificates)...................................... 250,000
Engraving and printing certificates..................................... 35,000
Fees and expenses of qualification under state securities laws
(excluding fees of counsel)........................................... 20,000
Accounting fees and expenses............................................ 3,500
Legal fees and expenses................................................. 125,000
NASD fees............................................................... 30,500
Miscellaneous........................................................... 3,984
----------
Total.............................................................. $655,000
==========
</TABLE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Prior to August 17, 1995 the Trust had no existence. As of the effective
date the Trust will have entered a subscription agreement for 2 PEPS with Morgan
Stanley & Co. Incorporated and ML IBK Positions, Inc., an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
-------------- ---------
<S> <C>
Shares of beneficial interest....................................... 2
</TABLE>
ITEM 29. INDEMNIFICATION
Section 7.6 of the Trust Agreement and Section 7 of the Underwriting
Agreement provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not Applicable
C-2
<PAGE> 140
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Bank of New York
101 Barclay Street
New York, New York 10286
(Trust Agreement)
The Bank of New York
101 Barclay Street
New York, New York 10286
(with respect to its services as Administrator)
The Bank of New York
101 Barclay Street
New York, New York 10286
(with respect to its services as Custodian)
The Bank of New York
101 Barclay Street
New York, New York 10286
(with respect to its services as Registrar, Transfer Agent and Paying
Agent)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The registrant hereby undertakes to suspend offering of its units until
it amends its prospectus if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
(b) The registrant hereby undertakes that (i) for purpose of determining
any liability under the 1933 Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant under Rule
497(h) under the 1933 Act shall be deemed to be part of this registration
statement as of the time it was declared effective; (ii) for the purpose of
determining any liability under the 1933 Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The registrant hereby undertakes (i) if requested to do so by holders
of at least 10% of the PEPS outstanding, to call a meeting of holders for the
purpose of voting upon the question of removal of a Trustee or Trustees, and
(ii) to assist in communications with other holders as required by Section 16(c)
of the Investment Company Act of 1940.
C-3
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee) expenses, other than the underwriting
discounts, expected to be incurred by the Company in connection with the
issuance and distribution of the securities registered under this Registration
Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 1,585
New York Stock Exchange listing fee................................. 61,800
Printing............................................................ 85,000
Fees and expenses of qualification under state securities laws...... 15,000
Accounting fees and expenses........................................ 125,000
Legal fees and expenses............................................. 220,000
Miscellaneous....................................................... 1,615
----------
Total.......................................................... $ 510,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles 254 and 280 of the Commercial Code make the provisions of Section
10, Chapter 2, Book III of the Civil Code applicable to the relationship between
the Company and its directors and statutory auditors, respectively. Section 10,
among other things provides in effect that:
(1) Any director or statutory auditor of a company may demand advance
payment of expenses which are considered necessary for the management of
the affairs of such company entrusted to him;
(2) If a director or a statutory auditor of a company has defrayed any
expenses which are considered necessary for the management of the affairs
of such company entrusted to him, he may demand reimbursement therefor from
the company;
(3) If a director or a statutory auditor has assumed an obligation
necessary for the management of the affairs entrusted to him, he may
require the company to perform it in his place or, if it is not due, to
furnish adequate security;
(4) If a director or a statutory auditor, without any fault on his
part, sustains damage through the management of the affairs entrusted to
him, he may demand compensation therefor from the company; and
Notwithstanding the above subparagraphs (1) through (4), these statutory
provisions are generally interpreted to provide that the company shall not make
any advance payment or reimbursement of expenses nor any indemnification for
liability of a director or statutory auditor of the company in any threatened,
pending or completed action or suit, including all appeals, except that the
company may purchase and maintain insurance on behalf of the director or
statutory auditor of the company against any liability asserted against him
provided that the company shall not purchase and maintain insurance for any
liability, costs and expenses incurred by him when he shall have been finally
adjudged to be liable for negligence or misconduct in the performance of his
duty to the company in shareholder derivative actions.
Amway Corporation intends to enter into indemnity agreements (the
"Indemnity Agreements") with the directors of the Company. Pursuant to the
Indemnity Agreements, Amway Corporation will indemnify a
director (the "Indemnitee") if the Indemnitee is a party to or otherwise
involved in any legal proceeding by reason of the fact that the Indemnitee is or
was a director of the Company, or is or was serving at the request of the
Company in certain capacities with another entity, against all expenses,
judgments, settlements, fines and penalties, actually and reasonably incurred by
the Indemnitee in connection with the defense or settlement of such proceeding.
Indemnity will only be available if the Indemnitee acted in good faith and in a
manner which he believes would not result in any personal profit or advantage to
him. The Indemnity
II-1
<PAGE> 142
Agreements will mandate advancement of expenses to the Indemnitee if the
Indemnitee provides the Company with a written promise to repay the advanced
amounts in the event that it is determined that the conduct of the Indemnitee
has not met the applicable standard of conduct.
ITEM 16. EXHIBITS
Unless otherwise indicated, the following Exhibits are filed with the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C> <C>
**3.1 -- Articles of Association of the Registrant, as amended (English translation)
4.1 -- Share Handling Regulations (unofficial English translation followed by the
original Japanese version) (incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form F-1, as amended (Registration No. 33-78400))
4.2 -- Deposit Agreement dated as of February 18, 1993, as amended and restated as of
June 28, 1994 among the Registrant, Morgan Guaranty Trust Company of New York,
as Depositary, and all holders of ADRs issued thereunder (incorporated by
reference to exhibit (a)(2) of the Registration Statement on Form F-6, as
amended (Registration No. 33-78994))
**5.1 -- Opinion of Nishimura & Sanada, counsel to the Registrant, as to the legality of
the securities being registered
10.1 -- First Amendment to Amended and Restated Trademark License Agreement, dated as
of July 31, 1995, between Amway Corporation and the Registrant
*23.1 -- Independent Auditors' Consent
**23.2 -- Consent of Nishimura & Sanada (included in Exhibit 5.1)
**23.3 -- Consent of White & Case
23.4 -- Consent of Jones, Day, Reavis & Pogue
*24.1 -- Powers of Attorney
**99.1 -- Consent of person to be nominated as director
</TABLE>
- ---------
* Previously filed on October 24, 1995 with the Registrant's Amendment No. 1
to Registration Statement on Form F-3.
** Previously filed on October 18, 1995 with the Registrant's Registration
Statement on Form F-3.
ITEM 17. UNDERTAKINGS
The undersigned undertakes to provide, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 143
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 144
FORM N-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 8th day of
November, 1995.
AJL PEPS Trust
By:/s/ DONALD J. PUGLISI
Donald J. Puglisi
Trustee
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons, in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------- -------------------------------------------------------
<S> <C> <C>
/s/ DONALD J. PUGLISI Principal Executive Officer November 8, 1995
Donald J. Puglisi and Trustee
/s/ WILLIAM R. LATHAM III Principal Financial Officer, November 8, 1995
William R. Latham III Principal Accounting Officer
and Trustee
/s/ JAMES B. O'NEILL Trustee November 8, 1995
James B. O'Neill
</TABLE>
S-1
<PAGE> 145
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM F-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF ADA, MICHIGAN ON NOVEMBER 8, 1995.
AMWAY JAPAN LIMITED
By: * RICHARD S. JOHNSON
Name: Richard S. Johnson
Title: Representative Director and
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
* RICHARD S. JOHNSON Representative Director and November 8, 1995
- ----------------------------------- President
Richard S. Johnson (Principal Executive Officer)
* YOSHIZO MATSUSHITA Director, Vice President and Chief November 8, 1995
- ----------------------------------- Financial Officer (Principal
Yoshizo Matsushita Financial Officer and Principal
Accounting Officer)
* RICHARD M. DEVOS, JR. Director November 8, 1995
- -----------------------------------
Richard M. DeVos, Jr.
* STEPHEN A. VAN ANDEL Director November 8, 1995
- -----------------------------------
Stephen A. Van Andel
* TAKASHI KURE Director November 8, 1995
- -----------------------------------
Takashi Kure
* HISAO HATTORI Director November 8, 1995
- -----------------------------------
Hisao Hattori
* HITOSHI TSURUMOTO Director November 8, 1995
- -----------------------------------
Hitoshi Tsurumoto
* NOBORU MAKINO Director November 8, 1995
- -----------------------------------
Noboru Makino
Director November , 1995
- -----------------------------------
Nobuyuki Nakahara
* YOSHIKAZU TAKAISHI Director November 8, 1995
- -----------------------------------
Yoshikazu Takaishi
/s/ CRAIG N. MEURLIN Authorized Representative in the November 8, 1995
- ----------------------------------- United States
Craig N. Meurlin
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment to the Registration Statement pursuant to the Powers of Attorney
executed by the above-named officers and directors of the Company and which
have been filed previously with the Securities and Exchange Commission on
behalf of such officers and directors.
By: /s/ CRAIG N. MEURLIN
Name: Craig N. Meurlin
Attorney-in-Fact
S-2
<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT EXHIBIT NUMBERING
NUMBER DESCRIPTION SYSTEM
- --------- ----------- ----------
<S> <C> <C>
**2.d.(i) Trust Agreement dated as of August 17, 1995
2.d.(ii) Form of Amended and Restated Trust Agreement
2.d.(iii) Form of Specimen Certificate of PEPS (included in Exhibit 2.d.(ii))
2.h.(i) Form of Underwriting Agreement
2.h.(ii) Form of Intersyndicate Agreement
2.h.(iii) Form of Master Agreement Among Underwriters
2.h.(iv) Form of Agreement Among International Underwriters
2.h.(v) Form of Master Selected Dealer Agreement
2.h.(vi) Form of International Dealer Agreement
2.j Form of Custodian Agreement
2.k.(i) Form of Administration Agreement
2.k.(ii) Form of Paying Agent Agreement
2.k.(iii) Form of Purchase Contract
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement
2.k.(vi) Form of Fund Indemnity Agreement
2.l Opinion and Consent of Counsel to the Trust
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in Exhibit 2.1)
2.n.(ii) Consent of Special Tax Counsel to the Company
2.n.(iii) Consent of Independent Public Accountants
**2.n.(iv) Consents to Being Named as Trustee
2.p Form of Subscription Agreement
2.r Financial Data Schedule
</TABLE>
- ---------------
** Previously filed.
E-1
<PAGE> 1
Draft of November 7, 1995
AMENDED AND RESTATED
TRUST AGREEMENT
CONSTITUTING
AJL PEPS TRUST
Dated as of November __, 1995
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II TRUST DECLARATION; PURPOSES,
POWERS AND DUTIES OF THE TRUSTEES;
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.1 Declaration of Trust; Purposes of the Trust . . . . . . 8
SECTION 2.2 General Powers and Duties of the Trustees . . . . . . . 8
SECTION 2.3 Portfolio Acquisition . . . . . . . . . . . . . . . . . 9
SECTION 2.4 Portfolio Administration . . . . . . . . . . . . . . . 10
SECTION 2.5 Extraordinary Sale . . . . . . . . . . . . . . . . . . 13
SECTION 2.6 Manner of Sales . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.7 Limitations on Trustees' Powers . . . . . . . . . . . . 13
ARTICLE III ACCOUNTS AND PAYMENTS . . . . . . . . . . . . . . . . . . . 14
SECTION 3.1 The Trust Account . . . . . . . . . . . . . . . . . . . 14
SECTION 3.2 Payment of Fees and Expenses . . . . . . . . . . . . . 14
SECTION 3.3 Distributions to Holders . . . . . . . . . . . . . . . 14
SECTION 3.4 Segregation . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.5 Investments . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.1 Redemption . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF PEPS . . . . . . . . . . . . . . . . 15
SECTION 5.1 Form of Certificate . . . . . . . . . . . . . . . . . . 15
SECTION 5.2 Transfer of PEPS; Issuance, Transfer and
Interchange of Certificates . . . . . . . . . . . . . . 16
SECTION 5.3 Replacement of Certificates . . . . . . . . . . . . . . 17
ARTICLE VI ISSUANCE OF CONTRACTS . . . . . . . . . . . . . . . . . . . 17
SECTION 6.1 Execution of Contracts . . . . . . . . . . . . . . . . 17
ARTICLE VII TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.1 Trustees . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7.2 Vacancies . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.3 Powers . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.4 Meetings . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 7.5 Resignation and Removal . . . . . . . . . . . . . . . . 19
SECTION 7.6 Liability . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7.7 Compensation . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.1 Meetings of Holders . . . . . . . . . . . . . . . . . . 20
SECTION 8.2 Books and Records; Reports . . . . . . . . . . . . . . 20
SECTION 8.3 Termination . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.4 Amendment and Waiver . . . . . . . . . . . . . . . . . 22
-i-
<PAGE> 3
TABLE OF CONTENTS
PAGE
----
SECTION 8.5 Accountants . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.6 Nature of Holder's Interest . . . . . . . . . . . . . . 24
SECTION 8.7 New York Law to Govern . . . . . . . . . . . . . . . . 24
SECTION 8.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.9 Severability . . . . . . . . . . . . . . . . . . . . . 25
SECTION 8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . 25
Schedule I Treasury Securities
Exhibit A Form of PEPS Certificate
Exhibit B Form of Collateral Agreements
Exhibit C Form of Contracts
Exhibit D Form of Expense Agreement
-ii-
<PAGE> 4
AMENDED AND RESTATED
TRUST AGREEMENT
This Amended and Restated Trust Agreement, dated as of November
__, 1995 (the "Trust Agreement"), by and between Morgan Stanley & Co.
Incorporated, as sponsor (the "Sponsor"), and William R. Latham, III, James B.
O'Neill and Donald J. Puglisi, as trustees (the "Trustees"), constituting AJL
PEPS Trust (the "Trust").
W I T N E S S E T H:
WHEREAS, the Sponsor and Steven R. Umlauf, as trustee, have
previously entered into a Trust Agreement dated as of August 17, 1995, as
amended as of October 13, 1995 (the "Original Agreement"), creating AJL PEPS
Trust;
WHEREAS, the parties hereto desire to amend and restate the
Original Agreement in certain respects; and
WHEREAS, the Trust has previously issued to the Sponsor one
PEPS in consideration of the aggregate purchase price therefor of $100,000 in
satisfaction of the requirements of Section 14(a)(1) under the Investment
Company Act (as defined hereinafter);
NOW, THEREFORE, the parties hereto agree to amend and restate
the Original Agreement as provided herein. Upon the execution and delivery of
copies hereof by the parties hereto, the Original Agreement will be
automatically amended and restated in its entirety to read as provided herein.
<PAGE> 5
ARTICLE I
DEFINITIONS
Whenever used in this Trust Agreement, the following words and
phrases shall have the meanings listed below. Any reference to any agreement
shall be a reference to such agreement as supplemented or amended from time to
time.
Acceleration Amount Notice
An Acceleration Amount Notice as defined in the Contracts.
Acceleration Value
The Acceleration Value as defined in the Contracts.
Additional Purchase Price
With respect to each Contract, the amount indicated as the
Additional Purchase Price therefor in Section 1.2 thereof.
Aggregate Acceleration Value
The Aggregate Acceleration Value as defined in the Contracts.
Administration Agreement
The Administration Agreement, dated as of the date hereof,
between the Administrator and the Trustees, and any substitute agreement
therefor entered into pursuant to Section 2.2(a) hereof.
Administrator
The Bank of New York or its successor as permitted under
Section 6.1 of the Administration Agreement or appointed pursuant to Section
2.2(a) hereof.
ADR Depositary
Morgan Guaranty Trust Company of New York, or any successor
thereto as ADR Depositary under the Deposit Agreement.
ADRs
American Depositary Receipts representing the ADSs.
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ADSs
American Depositary Shares of Amway Japan Limited, each
representing one-half of one share of the Common Stock.
Business Day
A day on which the New York Stock Exchange, Inc. is open for
trading that is not a day on which banks in The City of New York are authorized
or obligated by law to close.
Certificate
Any certificate evidencing the ownership of PEPS substantially
in the form of Exhibit A hereto.
Closing Date
The Closing Date as defined in the Underwriting Agreement.
Code
The Internal Revenue Code of 1986, as amended from time to
time; each reference herein to any section of the Code or any regulation
thereunder shall constitute a reference to any successor provision thereto.
Collateral Agent
The Bank of New York or its successor as permitted under the
Collateral Agreements.
Collateral Agreements
The Collateral Agreements between the Collateral Agent, each
Seller and the other parties thereto, securing such Seller's obligations under
its Contract, each substantially in the form of Exhibit B hereto.
Commencement Date
The day on which the Underwriting Agreement is executed.
Commission
The United States Securities and Exchange Commission.
Common Stock
Common Stock, no par value, of Amway Japan Limited.
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Company
Amway Japan Limited, a Japanese corporation.
Contracts
The forward purchase contracts entered into by the Trustees,
each Seller and the other parties thereto, each substantially in the form of
Exhibit C hereto.
Custodian
The Bank of New York or its successor as permitted under
paragraph 11 of the Custodian Agreement or appointed pursuant to Section 2.2(a)
hereof.
Custodian Agreement
The Custodian Agreement, dated as of the date hereof, between
the Custodian and the Trustees, and any substitute agreement therefor entered
into pursuant to Section 2.2(a) hereof.
Deposit Agreement
Deposit Agreement dated as of February 18, 1993, as amended and
restated as of May 12, 1994 among the ADR Depositary, the Company and holders of
ADRs issued thereunder.
Depositary
The Depository Trust Company, or any successor thereto.
Distribution Date
Each February 15, May 15, August 15 and November 15 of each
year commencing February 15, 1996, to and including February 15, 1999, or if any
such date is not a Business Day, then the first Business Day thereafter.
Excess Purchase Payment
Excess Purchase Payment as defined under the Contracts.
Event of Default
An Event of Default as defined in the Contracts.
Exchange
The delivery by the Trustees to the Holders of Shares in
mandatory exchange for the PEPS on the Exchange Date.
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Exchange Date
February 15, 1999.
Exchange Price
The Exchange Price as defined in the Contracts.
Firm Purchase Price
With respect to each Contract, the amount indicated as the Firm
Purchase Price therefor in Section 1.2 thereof.
Holder
The registered owner of any PEPS as recorded on the books of
the Paying Agent.
Indemnity Agreement
The Fund Indemnity Agreement dated as of the date hereof
between the Trustees and the Sponsor substantially in the form of Exhibit D
hereto.
Investment Company Act
The Investment Company Act of 1940, as amended from time to
time; each reference herein to any section of such Act or any rule or regulation
thereunder shall constitute a reference to any successor provision thereto.
Managing Trustee
The Trustee designated the Managing Trustee by resolution of
the Trustees.
Marketable Common Stock
Marketable Common Stock as defined in the Contracts.
Option Closing Date
The Option Closing Date as defined in the Underwriting
Agreement.
Original Agreement
The meaning specified in the recitals hereof.
Participant
A Person having a book entry only system account with the
Depositary.
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Paying Agent
The Bank of New York or its successor as permitted under
Section 6.6 of the Paying Agent Agreement or appointed pursuant to Section
2.2(a) hereof.
Paying Agent Agreement
The Paying Agent Agreement, dated as of the date hereof,
between the Paying Agent and the Trustees, and any substitute agreement therefor
entered into pursuant to Section 2.2(a) hereof.
PEPS
Premium Exchangeable Participating Shares of the Trust
evidencing a Holder's undivided interest in the Trust and right to receive a pro
rata distribution upon liquidation of the Trust Estate.
Person
An individual, a partnership, a corporation, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
Prospectus
The prospectus relating to the Trust constituting a part of the
Registration Statement, as first filed with the Commission pursuant to Rule
497(b) or (h) under the Securities Act, and as subsequently amended or
supplemented by the Trust.
Quarterly Distribution
$_____ per PEPS paid to each Holder on each Distribution Date.
Record Date
Each February 1, May 1, August 1 and November 1 of each year
commencing February 1, 1996.
Registration Statement
Registration Statement on Form N-2 (Registration No. 33-61915)
of the Trust, as amended.
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Reorganization Event
A Reorganization Event as defined in the Contracts.
Securities Act
The Securities Act of 1933, as amended from time to time.
Shares
ADSs or, at the election of Holders, shares of Common Stock, to
be exchanged by the Trustees for the PEPS on the Exchange Date.
Temporary Investments
Direct short-term U.S. government obligations, as specified
from time to time by the Trustees or through standing instructions from the
Trustees to the Administrator or the Paying Agent.
Treasury Securities
The meaning specified in Section 2.3(b) hereof.
Trust Account
The account created pursuant to Section 3.1 hereof.
Trust Estate
The Contracts and the Treasury Securities held at any time by
the Trust, together with any Temporary Investments held at any time pursuant to
Section 3.5 hereof, and any proceeds thereof or therefrom and any other moneys
held at any time in the Trust Account.
Underwriters
The Underwriters named in the Underwriting Agreement.
Underwriting Agreement
The Underwriting Agreement as described in the Prospectus.
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ARTICLE II
TRUST DECLARATION; PURPOSES,
POWERS AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 Declaration of Trust; Purposes of the Trust. The
Sponsor hereby creates the Trust in order that it may acquire the Treasury
Securities, enter into the Contracts, issue and sell to the Sponsor and the
Underwriters the PEPS, hold the Trust Estate in trust for the use and benefit of
all present and future Holders and otherwise carry out the terms and conditions
of this Trust Agreement, all for the purpose of achieving the investment
objectives set forth in the Prospectus. The Trustees hereby declare that they
will accept and hold the Trust Estate in trust for the use and benefit of all
present and future Holders. The Sponsor has heretofore deposited with the
Trustees the sum of $10 to accept and hold in trust hereunder until the issuance
and sale of the PEPS to the Underwriters, whereupon such sum shall be donated to
an organization satisfying the requirements of Section 170(c)(2) of the Code
selected by unanimous consent of the Trustees.
SECTION 2.2 General Powers and Duties of the Trustees. In
furtherance of the provisions of Section 2.1 hereof, the Sponsor authorizes and
directs the Trustees:
(a) to enter into and perform (and, in accordance with Section
8.4(a) hereof, amend), the Contracts, the Collateral Agreements, the
Underwriting Agreement, the Indemnity Agreement, the Custodian
Agreement, the Administration Agreement and the Paying Agent Agreement
and to perform all obligations of the Trustees (including the
obligation to provide indemnity hereunder and thereunder) and enforce
all rights and remedies of the Trust under each of such agreements; and
if any of the Custodian Agreement, the Administration Agreement, the
Collateral Agreements and the Paying Agent Agreement terminates, or the
agent of the Trust thereunder resigns or is discharged, to appoint a
substitute agent and enter into a new agreement with such substitute
agent containing provisions substantially similar to those contained in
the agreement being terminated; provided that in any such new agreement
(i) the Custodian and the Paying Agent shall each be a commercial bank
or trust company organized and existing under the laws of the United
States of America or any state therein, shall have full trust powers
and shall have minimum capital, surplus and retained earnings of not
less than $100,000,000; and (ii) the Administrator and the Collateral
Agent shall each be a reputable financial institution qualified in all
respects to carry out its obligations under the Administration
Agreement or the Collateral Agreements, as the case may be;
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(b) to hold the Trust Estate in trust, to create and administer
the Trust Account, to direct payments received by the Trust to the
Trust Account and to make payments out of the Trust Account as set
forth in Article III hereof;
(c) to issue and sell to the Underwriters an aggregate of up to
__________ PEPS (including those PEPS subject to the over-allotment
option of the Underwriters provided for in the Underwriting Agreement)
pursuant to the Underwriting Agreement and as contemplated by the
Prospectus; provided, however, that subsequent to the determination of
the public offering price per PEPS and related underwriting discount
for the PEPS to be sold to the Underwriters but prior to the sale of
the PEPS to the Underwriters, the PEPS originally issued to the Sponsor
shall be split into a greater number of PEPS so that immediately
following such split the value of each PEPS held by the Sponsor will
equal the aforesaid public offering price less the related underwriting
discount;
(d) to select independent public accountants and, subject to
the provisions of Section 8.5 hereof, to engage such independent public
accountants;
(e) to engage legal counsel and, to the extent required by
Section 2.4 hereof, to engage professional advisors and pay reasonable
compensation thereto;
(f) to defend any action commenced against the Trustees or the
Trust and to prosecute any action which the Trustees deem necessary to
protect the Trust and the rights and interests of Holders, and to pay
the costs thereof;
(g) to arrange for the bonding of officers and employees of the
Trust as required by Section 17(g) of the Investment Company Act and
the rules and regulations thereunder;
(h) to delegate any and all of its powers and duties hereunder
as contemplated by the Custodian Agreement, the Paying Agent Agreement
and the Administration Agreement, to the extent permitted by applicable
law; and
(i) to adopt and amend bylaws, and take any and all such other
actions as necessary or advisable to carry out the purposes of the
Trust, subject to the provisions hereof and applicable law, including,
without limitation, the Investment Company Act.
SECTION 2.3 Portfolio Acquisition. In furtherance of the
provisions of Section 2.1 hereof, the Sponsor further specifically authorizes
and directs the Trustees:
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(a) to enter into the Contracts with respect to the Shares
subject thereto with the Sellers on the Commencement Date for
settlement on the date or dates provided thereunder and, subject to
satisfaction of the conditions set forth in the Contracts, to pay the
Firm Purchase Price and, if any, Additional Price, thereunder with the
proceeds of the sale of the PEPS, net of underwriting commissions and
other expenses payable in connection with the public offering of the
PEPS as described in Section 3.2 hereof and net of the purchase price
paid for the Treasury Securities as provided in paragraph (b) below;
and, subject to the adjustments and exceptions set forth in the
Contracts, each Contract shall entitle the Trust to receive from the
respective Seller on the Exchange Date the Shares subject thereto so
that the Trust may execute the Exchange with the Holders; and
(b) to purchase for settlement on the Closing Date, and on the
Option Closing Date, as appropriate, with the proceeds of the sale of
the PEPS, net of underwriting commissions and other expenses payable in
connection with the public offering of the PEPS, U.S. Treasury
securities from such brokers or dealers as the Trustees shall designate
in writing to the Administrator having the terms set forth on Schedule
I hereto ("Treasury Securities").
SECTION 2.4 Portfolio Administration. In furtherance of the
provisions of Section 2.1 hereof, the Sponsor further specifically authorizes
and directs the Trustees:
(a) Determination of Dilution or Merger Adjustments.
Upon receipt of any notice pursuant to Section 5.4(b) of either
Contract of an event requiring an adjustment to the Exchange Ratio, or
upon otherwise acquiring knowledge of such an event, to calculate the
required adjustment and furnish notice thereof to the Collateral Agent
and each Seller, or to request from the Sellers such further
information as may be necessary to calculate or effect the required
adjustment;
(b) Selection of Independent Investment Bank. Upon
receipt of notice of (i) the occurrence of a Reorganization Event in
which property other than cash or Marketable Common Stock is to be
received in respect of the Common Stock as described in Section 6.2 of
each Contract or (ii) an Excess Purchase Payment in which the Company
has paid or will pay consideration other than cash as described in
Section 6.1(d) of each Contract, to select and retain a nationally
recognized investment banking firm to determine the market value of
such property as provided in each Contract, and to deliver to each
Seller notice pursuant to Section 8.1 of each Contract identifying the
firm proposed to be selected and retained, to consult with each Seller
on
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such selection and retention as provided in such Section 8.1;
(c) Acceleration. Upon receipt of any notice pursuant
to Section 5.4(a) of either Contract or pursuant to Section 6(a) of
either Collateral Agreement that a Collateral Event of Default has
occurred, or upon otherwise acquiring notice that an Event of Default
has occurred, to request quotations from Independent Dealers, compute
Acceleration Value and Aggregate Acceleration Value and deliver an
Acceleration Amount Notice, in each case with respect to each Contract,
all as described in Article VII of each Contract;
(d) Determination of Exchange Date Amounts. To
calculate, on the Exchange Date, the number of ADSs required to be
delivered by each Seller under Section 1.1 of each Contract or, if a
Reorganization Event shall have occurred, the amount of cash required
to be delivered by each Seller, and the number of shares of Marketable
Common Stock permitted to be delivered by each Seller in lieu of all or
a portion of such cash, all as provided in Section 6.2 of each
Contract; and to furnish notice of the amounts so determined to the
Collateral Agent and each Seller;
(e) Distribution of Exchange Consideration. Unless a
Reorganization Event shall have occurred (in which event distribution
of proceeds shall be governed by Section 8.3 below):
(i) Determination of Fractional ADSs. To determine, on
the Exchange Date: (A) for each Holder of PEPS, such Holder's pro rata
share of the total number of ADSs delivered to the Trustees under the
Contracts on the Exchange Date; and (B) the number of fractional ADSs
allocable to each Holder (including, in the case of the Depositary,
fractional shares allocable to beneficial owners of PEPS who own
through Participants) and in the aggregate;
(ii) Cash for Fractional ADSs. To sell, in the
principal market therefor, on the Exchange Date, a number of ADSs equal
to the aggregate number of fractional ADSs determined pursuant to
clause (i) (B) above, rounded down to the nearest integral number; and
to determine the difference between (A) the aggregate proceeds of such
sale (net of any brokerage or related expenses) and (B) the product of
the number of ADSs so sold and the Exchange Price; and, in accordance
with the Indemnity Agreement, to pay such difference, if positive, to
Morgan Stanley & Co. Incorporated, or to request payment of such
difference, if negative, from Morgan Stanley & Co. Incorporated;
(iii) Common Stock Election. To determine, on the
Exchange Date, for each Holder or beneficial owner owning
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through a Participant who shall have requested, in the manner provided
in the Prospectus, to receive shares of Common Stock in lieu of ADSs,
the number of PEPS held by each such Holder or beneficial owner as of
the close of business on the Business Day preceding the Exchange Date,
and the maximum number of shares of Common Stock for which each such
Holder's or beneficial owner's pro rata share of ADSs may be exchanged,
consistent with the Deposit Agreement and any applicable restrictions
on the holding of shares of Common Stock;
(iv) Conversion of ADSs. To deliver to the ADR
Depositary on the Exchange Date a number of ADSs representing the
aggregate number of shares of Common Stock to be delivered to Holders
or beneficial owners of PEPS as determined pursuant to clause (iii)
above, with instructions that shares of Common Stock in respect of such
ADSs be delivered as provided under the Deposit Agreement in the names
and amounts corresponding to the electing Holders or beneficial owners;
(v) Delivery of ADSs. To deliver the remaining ADSs to
the ADR Depositary on the Exchange Date, with instructions that such
ADSs be re-registered and re-issued as follows: (A) for and in the name
of each Holder (other than the Depositary) who holds PEPS in definitive
form, the ADR Depositary shall be instructed to issue definitive ADRs
representing a number of ADSs equal to such Holder's pro rata share of
the total ADSs delivered to the Trustees under the Contracts, rounded
down to the nearest integral number, and reduced by the number of ADSs
that shall have been delivered to the ADR Depositary for conversion
into shares of Common Stock for delivery to such Holder as described in
(iv) above; (B) the ADR Depositary shall be instructed to transfer all
remaining ADSs to the account of the Custodian held through the
Depositary, who shall then be instructed to transfer and credit such
ADSs to each Participant who holds PEPS, with each Participant
receiving its pro rata share of the total ADSs delivered to the Trust
on the Exchange Date, reduced by (x) the aggregate fractional shares
allocable to such Participant and (y) the number of ADSs allocable to
such Participant that shall have been delivered to the ADR Depositary
for conversion into shares of Common Stock for delivery to such Holder
as described in (iv) above;
(vi) Distribution of Cash in Respect of Fractional
ADSs. To distribute to each Holder of PEPS cash in the amount of: (A)
the fraction of an ADS, if any, allocable to such Holder as determined
pursuant to clause (i) (B) above; times (B) the Exchange Price; and
(vii) Record Date. The distributions described in this
paragraph (e) shall be made to Holders of record as
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of the close of business on the Business Day preceding the Exchange
Date.
SECTION 2.5 Extraordinary Sale. In the event of (a) a decline
in the market price of the Common Stock (on an as- adjusted basis as determined
by the Trustees applying the adjustments called for by each Contract) to 50% or
less of the closing sale price for the Common Stock on the Commencement Date or
(b) the bankruptcy or insolvency of the Company, the Trustees may (but shall be
under no obligation to) direct the Administrator to sell the Contracts. The
proceeds of any such sale of the Contracts shall be distributed pro rata to the
Holders within three Business Days after such sale. In the event of any such
sale of the Contracts, the Trustees shall immediately liquidate the Treasury
Securities and any Temporary Investments and distribute the proceeds thereof pro
rata to the Holders within three Business Days after such liquidation.
SECTION 2.6 Manner of Sales. Any sale of the Contracts or other
property permitted under this Article II or Section 8.3(c) hereof, shall be made
through such executing brokers or to such dealers as the Trustees, seeking best
price and execution for the Trust, shall designate in writing to the Paying
Agent, taking into account such factors as price, commission, size of order,
difficulty of execution and brokerage skill required.
SECTION 2.7 Limitations on Trustees' Powers. The Trustees are
not permitted:
(a) to purchase or hold any securities or instruments except
for the Shares, the Contracts, the Treasury Securities, the Temporary
Investments contemplated by Section 3.5 hereof and, in the event of a
Reorganization Event, Marketable Common Stock;
(b) to dispose of any Contract prior to the Exchange Date,
except as provided in Section 2.5 hereof;
(c) to issue any securities or instruments except for the PEPS,
or to issue any PEPS other than the PEPS sold to the Sponsor and the
PEPS to be sold pursuant to the Underwriting Agreement and until such
PEPS have been so purchased and paid for in full;
(d) to make short sales or purchases on margin;
(e) to write put or call options;
(f) to borrow money;
(g) to underwrite securities;
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(h) to purchase or sell real estate, commodities or commodities
contracts;
(i) to make loans; or
(j) to take any action, or direct or permit the Administrator,
the Paying Agent or the Custodian to take any action, that would vary
the investment of the Holders within the meaning of Treasury Regulation
Section 301.7701-4(c), or otherwise take any action or direct or permit
any action to be taken that would or could cause the Trust not to be a
"grantor trust" under the Code.
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 The Trust Account. The Trustees shall, upon
issuance of the PEPS, establish with the Paying Agent an account to be called
the "Trust Account". All moneys received by the Trustees in respect of the
Contracts, the Treasury Securities and any Temporary Investments held pursuant
to Section 3.5 hereof, all moneys received from the sale of the PEPS to the
Sponsor, and any proceeds from the sale to the Underwriters of the PEPS
remaining after the purchase of the Contracts and the Treasury Securities and
the payment of the Trust's expenses described in Section 3.2 hereof shall be
credited to the Trust Account.
SECTION 3.2 Payment of Fees and Expenses. The Administrator is
authorized to pay from the Trust Account out of the net proceeds of the sale of
the PEPS, the fees and expenses of the Trust incurred in connection with the
offering of the PEPS and the costs and expenses incurred in the organization of
the Trust.
SECTION 3.3 Distributions to Holders. On or shortly after each
Distribution Date the Trustees shall distribute to each Holder of record at the
close of business on the preceding Record Date, at the post office address of
the Holder appearing on the books of the Trust or Paying Agent or by any other
means mutually agreed upon by the Holder and the Trustees, an amount equal to
such Holder's pro rata share of the Quarterly Distribution computed as of the
close of business on such Distribution Date.
SECTION 3.4 Segregation. All moneys and other assets deposited
with or received by the Trustees hereunder shall be held by them in trust as
part of the Trust Estate until required to be disbursed or otherwise disposed of
in accordance with the provisions of this Trust Agreement, and the Trustees
shall handle such moneys and other assets in such manner as shall constitute
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the segregation and holding in trust within the meaning of the Investment
Company Act.
SECTION 3.5 Investments. To the extent necessary to enable the
Paying Agent to make the next succeeding Quarterly Distribution, any moneys
deposited with or received by the Trustees in the Trust Account shall be
invested as soon as possible by the Paying Agent in Temporary Investments
maturing no later than the Business Day preceding the next following
Distribution Date. Except as otherwise specifically provided herein or in the
Paying Agent Agreement, the Paying Agent shall not have the power to sell,
transfer or otherwise dispose of any Temporary Investment prior to the maturity
thereof, or to acquire additional Temporary Investments. The Paying Agent shall
hold any Temporary Investments to its maturity and shall apply the proceeds
thereof paid upon maturity to the payment of the next succeeding Quarterly
Distribution. All such Temporary Investments shall be selected from time to time
by the Trustees or pursuant to standing instructions from the Trustees to the
Administrator, and the Administrator and/or Paying Agent shall have no liability
to the Trust or any Holder or any other Person with respect to any such
Temporary Investment. Any interest or other income received on any moneys in the
Trust Account shall, upon receipt thereof, be deposited into the Trust Account.
ARTICLE IV
REDEMPTION
SECTION 4.1 Redemption. The Trustees shall have no right or
obligation to redeem PEPS.
ARTICLE V
ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF PEPS
SECTION 5.1 Form of Certificate. Each Certificate evidencing
PEPS shall be countersigned manually or in facsimile by the Managing Trustee and
executed manually by the Paying Agent in substantially the form of Exhibit A
hereto with the blanks appropriately filled in, shall be dated the date of
execution and delivery by the Paying Agent and shall represent a fractional
undivided interest in the Trust, the numerator of which fraction shall be the
number of PEPS set forth on the face of such Certificate and the denominator of
which shall be the total number of PEPS outstanding at that time. All PEPS shall
be issued in registered form and shall be numbered serially.
Pending the preparation of definitive Certificates, the
Trustees may execute and the Paying Agent shall authenticate and
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deliver temporary Certificates (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the Paying Agent). Temporary
Certificates shall be issuable as registered Certificates substantially in the
form of the definitive Certificates but with such omissions, insertions and
variations as may be appropriate for temporary Certificates, all as may be
determined by the Trustees with the concurrence of the Paying Agent. Every
temporary Certificate shall be executed by the Managing Trustee and be
authenticated by the Paying Agent upon the same conditions and in substantially
the same manner, and with like effect, as the definitive Certificates. Without
unreasonable delay the Managing Trustee shall execute and shall furnish
definitive Certificates and thereupon temporary Certificates may be surrendered
in exchange therefor without charge at each office or agency of the Paying Agent
and the Paying Agent shall authenticate and deliver in exchange for such
temporary Certificates definitive Certificates for a like aggregate number of
PEPS. Until so exchanged, the temporary Certificates shall be entitled to the
same benefits hereunder as definitive Certificates.
SECTION 5.2 Transfer of PEPS; Issuance, Transfer and
Interchange of Certificates. PEPS may be transferred by the Holder thereof by
presentation and surrender of properly endorsed Certificates at the office of
the Paying Agent, accompanied by such documents executed by the Holder or his
authorized attorney as the Paying Agent deems necessary to evidence the
authority of the person making the transfer. Certificates issued pursuant to
this Trust Agreement are interchangeable for one or more other Certificates in
an equal aggregate number of PEPS and all Certificates issued as may be
requested by the Holder and deemed appropriate by the Paying Agent shall be
issued in denominations of one PEPS or any multiple thereof. The Paying Agent
may deem and treat the person in whose name any PEPS shall be registered upon
the books of the Paying Agent as the owner of such PEPS for all purposes
hereunder and the Paying Agent shall not be affected by any notice to the
contrary. The transfer books maintained by the Paying Agent for the purposes of
this Section 5.2 hereof shall include the name and address of the record owners
of the PEPS and shall be closed in connection with the termination of the Trust
pursuant to Section 8.3 hereof.
A sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such transfer shall be paid to the
Paying Agent by the Holder. A Holder may be required to pay a fee for each new
Certificate to be issued pursuant to the preceding paragraph in such amount as
may be specified by the Paying Agent and approved by the Trustees.
All Certificates cancelled pursuant to this Trust Agreement may
be voided by the Paying Agent in accordance with the usual practice of the
Paying Agent or in accordance with the instructions of the Trustees; provided,
however, that the Paying Agent shall not be required to destroy cancelled
Certificates.
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The Paying Agent may adopt other reasonable rules and
regulations for the registration, transfer and tender of PEPS as it may, in its
discretion, deem necessary.
SECTION 5.3 Replacement of Certificates. In case any
Certificate shall become mutilated or be destroyed, stolen or lost, the Paying
Agent shall execute and deliver a new Certificate in exchange and substitution
therefor upon the Holder's furnishing the Paying Agent with proper
identification and satisfactory indemnity, complying with such other reasonable
regulations and conditions as the Paying Agent may prescribe and paying such
expenses and charges, including any bonding fee, as the Paying Agent may incur
or reasonably impose; provided that if the Trust has terminated or is in the
process of terminating, the Paying Agent, in lieu of issuing such new
Certificate, may, upon the terms and conditions set forth herein, make the
distributions set forth in Section 8.3(c) hereof. Any mutilated Certificate
shall be duly surrendered and cancelled before any duplicate Certificate shall
be issued in exchange and substitution therefor. Upon issuance of any duplicate
Certificate pursuant to this Section 5.3 hereof, the original Certificate
claimed to have been lost, stolen or destroyed shall become null and void and of
no effect, and any bona fide purchaser thereof shall have only such rights as
are afforded under Article 8 of the Uniform Commercial Code to a Holder
presenting a Certificate for transfer in the case of an overissue.
ARTICLE VI
ISSUANCE OF CONTRACTS
SECTION 6.1 Execution of Contracts. Each Contract shall be
countersigned manually or in facsimile by the Managing Trustee and executed
manually by the Sellers and shall be dated the date of execution and delivery by
the Sellers.
ARTICLE VII
TRUSTEES
SECTION 7.1 Trustees. The Trust shall have three Trustees who
shall initially be elected by the Sponsor. One Trustee shall be the Managing
Trustee and, as such, is authorized to execute documents and instruments on
behalf of the Trust. The Managing Trustee will be appointed by resolution of the
Trustees. Each Trustee shall serve until the next regular annual or special
meeting of Holders called for the purpose of electing Trustees and, then, until
such Trustee's successor is duly elected and qualified. Holders may not
cummulate their votes in the election of Trustees. Each Trustee shall not be
considered to have qualified for the office unless such Trustee shall agree to
be bound by the terms of this Trust Agreement and shall evidence his consent by
executing this Trust Agreement or a supplement hereto.
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SECTION 7.2 Vacancies. Any vacancy in the office of a Trustee
may be filled in compliance with Sections 10 and 16 of the Investment Company
Act by the vote, within thirty days, of the remaining Trustees; provided that if
required by Section 16 of the Investment Company Act, the Trustees shall
forthwith cause to be held as promptly as possible and in any event within sixty
days (unless the Commission by order shall extend such period) a meeting of
Holders for the purpose of electing Trustees in compliance with Sections 10 and
16 of the Investment Company Act. Until a vacancy in the office of any Trustee
is filled as provided above, the remaining Trustees in office, regardless of
their number, shall have the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Trust Agreement. Election shall
be by the affirmative vote of Holders of a majority of the PEPS entitled to vote
present in person or by proxy at a special meeting of Holders called for the
purpose of electing any Trustee. Each individual Trustee shall be at least 21
years of age and shall not be under any legal disability. No Trustee who is an
"interested person", as defined in the Investment Company Act, may assume office
if it would cause the composition of the Trustees of the Trust not to be in
compliance with the percentage limitations on interested persons in Section 10
of the Investment Company Act. Trustees need not be Holders. Notice of the
appointment or election of a successor Trustee shall be mailed promptly after
acceptance of such appointment by the successor Trustee to each Holder.
SECTION 7.3 Powers. The Trust will be managed solely by the
Trustees, who will, subject to the provisions of Article II hereof, have
complete and exclusive control over the management, conduct and operation of the
Trust's business, and shall have the rights, powers and authority of a board of
directors of a corporation organized under New York law. The Trustees shall have
fiduciary responsibility for the safekeeping and use of all funds and assets of
the Trust and shall not employ, or permit another to employ, such funds or
assets in any manner except for the exclusive benefit of the Trust and except in
accordance with the terms of this Trust Agreement. Subject to the continuing
supervision of the Trustees and as permitted by applicable law, the functions of
the Trust shall be performed by the Custodian, the Paying Agent, the
Administrator and such other entities engaged to perform such functions as the
Trustees may determine, including, without limitation, any or all administrative
functions.
SECTION 7.4 Meetings. Meetings of the Trustees shall be held
from time to time upon the call of any Trustee on not less than 48 hours' notice
(which may be waived by any or all of the Trustees in writing either before or
after such meeting or by attendance at the meeting unless the Trustee attends
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened). The Trustees shall act either by majority vote of the Trustees
present at a meeting at which at least a
-18-
<PAGE> 22
majority of the Trustees then in office are present or by a unanimous written
consent of the Trustees without a meeting. Except as otherwise required under
the Investment Company Act, all or any of the Trustees may participate in a
meeting of the Trustees by means of a conference telephone call or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to such
communications equipment shall constitute presence in person at such meeting.
SECTION 7.5 Resignation and Removal. Any Trustee may resign and
be discharged of the trust created by the Trust Agreement by executing an
instrument in writing resigning as Trustee, filing the same with the
Administrator and sending notice thereof to the remaining Trustees, and such
resignation shall become effective immediately unless otherwise specified
therein. Any Trustee may be removed in the event of incapacity by vote of the
remaining Trustees and for any reason by written declaration or vote of the
Holders of more than 66 2/3% of the outstanding PEPS, notice of which vote shall
be given to the remaining Trustees and the Administrator. The resignation,
removal or failure to reelect any Trustee shall not cause the termination of the
Trust.
SECTION 7.6 Liability. The Trustees shall not be liable to the
Trust or any Holder for any action taken or for refraining from taking any
action except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties of their office. Specifically, without
limitation, the Trustees shall not be responsible for or in respect of the
recitals herein or the validity or sufficiency of this Trust Agreement or for
the due execution hereof by any other Person, or for or in respect of the
validity or sufficiency of PEPS or certificates representing PEPS and shall in
no event assume or incur any liability, duty or obligation to any Holder or to
any other Person, other than as expressly provided for herein. The Trustees may
employ agents, attorneys, administrators, accountants and auditors, and shall
not be answerable for the default or misconduct of any such Persons if such
Persons shall have been selected with reasonable care. Action in good faith may
include action taken in good faith in accordance with an opinion of counsel. In
no event shall any Trustee be personally liable for any expenses with respect to
the Trust. Each Trustee shall be indemnified from the Trust Account with respect
to any claim, liability, loss or expense incurred in acting as Trustee of the
Trust, including the costs and expenses of the defense against any such claim or
liability, except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties of his office.
SECTION 7.7 Compensation. Each Trustee, other than a Trustee
who is a director, officer or employee of the Sponsor, any Underwriter, or the
Administrator or any affiliate thereof, shall receive a one-time, up-front fee
of $10,800 in respect of
-19-
<PAGE> 23
its annual fee and anticipated out-of-pocket expenses. In addition, the Managing
Trustee shall receive an additional one-time, up-front fee of $3,600 for
serving in such capacity. The Trustees will not receive any pension or
retirement benefits. In the event of the resignation or removal of a Trustee,
such Trustee shall remit to the Trust the portion of its fee ratable for the
period from the day of such resignation or removal through the Exchange Date.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Meetings of Holders. The Trustees shall not hold
annual or regular meetings of Holders except as set forth herein. A special
meeting may be called at any time by the Trustees or upon petition of Holders of
not less than 51% of the PEPS outstanding (unless substantially the same matter
was voted on during the preceding 12 months), and shall be called as provided in
Section 7.2 hereof (or as otherwise required by the Investment Company Act and
the rules and regulations thereunder, including, without limitation, when
requested by the Holders of not less than 10% of the PEPS outstanding for the
purpose of voting upon the question of the removal of any Trustee or Trustees).
The Trustees shall establish, and notify the Holders in writing of, the record
date for each such meeting which shall be not less than 10 nor more than 50 days
before the meeting date. Holders at the close of business on the record date
will be entitled to vote at the meeting. The Administrator shall, as soon as
possible after any such record date (or prior to such record date if
appropriate), mail by first class mail to each Holder a notice of meeting and a
proxy statement and form of proxy in the form approved by the Trustees and
complying with the Investment Company Act and the rules and regulations
thereunder. Except as otherwise specified herein or in any provision of the
Investment Company Act and the rules and regulations thereunder, any action may
be taken by vote of Holders of a majority of the PEPS outstanding present in
person or by proxy if Holders of a majority of PEPS outstanding on the record
date are so represented. Each PEPS shall have one vote and may be voted in
person or by duly executed proxy. Any proxy may be revoked by notice in writing,
by a subsequently dated proxy or by voting in person at the meeting, and no
proxy shall be valid after eleven months following the date of its execution.
SECTION 8.2 Books and Records; Reports. (a) The Trustees shall
keep a certified copy or duplicate original of this Trust Agreement on file at
the office of the Trust and the office of the Administrator available for
inspection at all reasonable times during its usual business hours by any
Holder. The Trustees shall keep proper books of record and account for all the
transactions under this Trust Agreement at the office of the Trust and the
office of the Administrator, and such books and
-20-
<PAGE> 24
records shall be open to inspection by any Holder at all reasonable times during
usual business hours. The Trustees shall retain all books and records in
compliance with Section 31 of the Investment Company Act and the rules and
regulations thereunder.
(b) With each payment to Holders the Paying Agent shall set
forth, either in the instruments by means of which payment is made or in a
separate statement, the amount being paid from the Trust Account expressed as a
dollar amount per PEPS and the other information required under Section 19 of
the Investment Company Act and the rules and regulations thereunder. The
Trustees shall prepare and file or distribute reports as required by Section 30
of the Investment Company Act and the rules and regulations thereunder. The
Trustees shall prepare and file such reports as may from time to time be
required to be filed or distributed to Holders under any applicable state or
Federal statute or rule or regulation thereunder, and shall file such tax
returns as may from time to time be required under any applicable state or
Federal statute or rule or regulation thereunder. One of the Trustees shall be
designated by resolution of the Trustees to make the filings and give the
notices required by Rule 17g-1 under the Investment Company Act.
(c) In calculating the net asset value of the Trust as required
by the Investment Company Act, (i) the Treasury Securities will be valued at the
mean between the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees, (ii) short-term
investments having a maturity of 60 days or less will be valued at cost with
accrued interest or discount earned included in interest receivable and (iii)
the Contracts will be valued at the mean of the bid prices received by the
Administrator from at least three independent broker-dealer firms unaffiliated
with the Trust to be named by the Trustees who are in the business of making
bids on financial instruments similar to the Contracts and with terms comparable
thereto.
SECTION 8.3 Termination. (a) This Trust Agreement and the Trust
created hereby shall terminate upon the earliest of (i) the date 90 days after
the execution of this Trust Agreement if (x) the PEPS have not theretofore been
issued or (y) the net worth of the Trust is not at least $100,000 at such time,
(ii) the date of the repayment, sale or other disposition, as the case may be,
of all of the Contracts, Treasury Securities and any other securities held
hereunder, (iii) the date 10 Business Days after the Exchange Date (or, if the
Contracts shall be accelerated pursuant to Article VIII thereof, 10 Business
Days after the date on which the Trust shall receive the ADSs then required to
be delivered by the Sellers, or the proceeds of any sale of collateral pursuant
to Section 8(c) of the Collateral Agreements), and (iv) the date which is 21
years less 91 days after the death of the last survivor of all of the
descendants of Joseph P. Kennedy living on the date hereof. The Trust is
irrevocable, the Sponsor has no right to withdraw any assets
-21-
<PAGE> 25
constituting a portion of the Trust Estate, and the dissolution of the Sponsor
shall not operate to terminate the Trust. The death or incapacity of any Holder
shall not operate to terminate this Trust Agreement, nor entitle his legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, and shall
not otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Written notice of any termination shall be sent to Holders
specifying the record date for any distribution to Holders and the time of
termination as determined by the Trustees, upon which the books maintained by
the Paying Agent pursuant to Section 5.2 hereof shall be closed.
(c) For purposes of termination under Sections 8.3(a)(ii),
(iii) and (iv) hereof, within five Business Days after such termination, the
Trustees shall, subject to any applicable provisions of law, effect the sale of
any remaining property of the Trust, and the Paying Agent shall distribute pro
rata as soon as practicable thereafter to each Holder, upon surrender for
cancellation of its Certificates, its interest in the Trust Estate. Together
with the distribution to the Holders, the Trustees shall furnish the Holders
with a final statement as of the date of the distribution of the amount
distributable with respect to each PEPS.
SECTION 8.4 Amendment and Waiver. (a) This Trust Agreement, and
any of the agreements referred to in Section 2.2(a) hereof, may be amended from
time to time by the Trustees for any purpose prior to the issuance and sale to
the Underwriters of the PEPS and thereafter without the consent of any of the
Holders (i) to cure any ambiguity or to correct or supplement any provision
contained herein or therein which may be defective or inconsistent with any
other provision contained herein or therein; (ii) to change any provision hereof
or thereof as may be required by applicable law or the Commission or any
successor governmental agency exercising similar authority; or (iii) to make
such other provisions in regard to matters or questions arising hereunder or
thereunder as shall not materially adversely affect the interests of the Holders
(as determined in good faith by the Trustees, who may rely on an opinion of
counsel).
(b) This Trust Agreement may also be amended from time to time
by the Trustees (or the performance of any of the provisions of the Trust
Agreement may be waived) with the consent by the required vote of the Holders in
accordance with Section 8.1 hereof; provided that this Trust Agreement may not
be amended (i) without the consent by vote of the Holders of all PEPS then
outstanding, so as to increase the number of PEPS issuable hereunder above the
number of PEPS specified in Section 2.2(c) hereof or such lesser number as may
be outstanding at any time during the term of this Trust Agreement, (ii) to
-22-
<PAGE> 26
reduce the interest in the Trust represented by PEPS without the consent of the
Holders of such PEPS, (iii) if such amendment is prohibited by the Investment
Company Act or other applicable law, (iv) without the consent by vote of the
Holders of all PEPS then outstanding, if such amendment would effect a change in
the voting requirements set forth in Section 8.1 hereof or this Section 8.4, or
(v) with the consent by vote of the Holders of the lesser of (x) 67% or more of
the PEPS represented at a special meeting of Holders, if more than 50% of the
PEPS outstanding are represented at such meeting, and (y) more than 50% of the
PEPS outstanding, if such amendment would effect a change in Section 2.1 or 2.7
hereof.
(c) Promptly after the execution of any amendment, the Trustees
shall furnish written notification of the substance of such amendment to each
Holder.
(d) Notwithstanding subsections (a) and (b) of this Section
8.4, no amendment hereof shall permit the Trust, the Trustees, the
Administrator, the Paying Agent or the Custodian to take any action or direct or
permit any Person to take any action that (i) would vary the investment of
Holders within the meaning of Treasury Regulation Section 301.7701-4(c), or (ii)
would or could cause the Trust, or direct or permit any action to be taken that
would or could cause the Trust, not to be a "grantor trust" under the Code.
SECTION 8.5 Accountants.
(a) The Trustees shall, in accordance with Section 30 of the
Investment Company Act, file annually with the Commission such information,
documents and reports as investment companies having securities registered on a
national securities exchange are required to file annually pursuant to Section
13(a) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder. The Trustees shall transmit to the Holders, at
least semi-annually, the reports required by Section 30(d) of the Investment
Company Act and the rules and regulations thereunder, including, without
limitation, a balance sheet accompanied by a statement of the aggregate value of
investments on the date of such balance sheet, a list showing the amounts and
values of such investments owned on the date of such balance sheet, and a
statement of income for the period covered by the report. Financial statements
contained in such annual reports shall be accompanied by a certificate of
independent public accountants based upon an audit not less in scope or
procedures than that which independent public accountants would ordinarily make
for the purpose of presenting comprehensive and dependable financial statements
and shall contain such information as the Commission may prescribe. Each such
report shall state that such independent public accountants have verified
investments owned, either by actual examination or by receipt of a certificate
from the Custodian.
-23-
<PAGE> 27
(b) The independent public accountants referred to in
subsection (a) above shall be selected at a meeting held within thirty days
before or after the beginning of the fiscal year by the vote, cast in person, of
a majority of the Trustees who are not "interested persons" as defined in the
Investment Company Act and such selection shall be submitted for ratification at
the first meeting of Holders to be held as set forth in Section 8.1 hereof, and
thereafter as required by the Investment Company Act and the rules and
regulations thereunder. The employment of any independent public accountant for
the Trust shall be conditioned upon the right of the Holders by a vote of the
lesser of (i) 67% or more of the PEPS present at a special meeting of Holders,
if Holders of more than 50% of PEPS outstanding are present or represented by
proxy at such meeting or (ii) more than 50% of the PEPS outstanding to terminate
such employment at any time without penalty.
(c) The foregoing provisions of this Section 8.5 are in
addition to any applicable requirements of the Investment Company Act and the
rules and regulations thereunder.
SECTION 8.6 Nature of Holder's Interest. Each Holder holds at
any given time a beneficial interest in the Trust Estate, but does not have any
right to take title or possession of any portion of the Trust Estate. Each
Holder expressly waives any right he may have under any rule of law, or the
provisions of any statute, or otherwise, to require the Trustees at any time to
account, in any manner other than as expressly provided in this Trust Agreement,
for the Shares, the Contracts, the Treasury Securities or other assets or moneys
from time to time received, held and applied by the Trustees hereunder. No
Holder shall have any right except as provided herein to control or determine
the operation and management of the Trust or the obligations of the parties
hereto. Nothing set forth herein or in the certificates representing PEPS shall
be construed to constitute the Holders from time to time as partners or members
of an association.
SECTION 8.7 New York Law to Govern. This Trust Agreement is
executed and delivered in the State of New York, and all laws or rules of
construction of the State of New York shall govern the rights of the parties
hereto and the Holders and the construction, validity and effect of the
provisions hereof.
SECTION 8.8 Notices. Any notice, demand, direction or
instruction to be given to the Sponsor hereunder shall be in writing and shall
be duly given if mailed or delivered to Morgan Stanley & Co. Incorporated, 1251
Avenue of the Americas, New York, New York 10020, Attention: Steven R. Umlauf,
or at such other address as shall be specified by the Sponsor to the other
parties hereto in writing. Any notice, demand, direction or instruction to be
given to the Trust and the Trustees hereunder shall be in writing and shall be
duly given if mailed or delivered to the Trust at 101 Barclay Street, New York,
New York 10286 and to each Trustee at such Trustee's address set forth
-24-
<PAGE> 28
beneath its signature below, or such other address as shall be specified to the
other parties hereto by such party in writing. Any notice to be given to a
Holder shall be duly given if mailed, first class postage prepaid, or by such
other substantially equivalent means as the Trustees may deem appropriate, or
delivered to such Holder at the address of such Holder appearing on the registry
of the Paying Agent.
SECTION 8.9 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Trust Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
and terms of this Trust Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Trust Agreement or of the
Certificates, or the rights of the Holders thereof.
SECTION 8.10 Counterparts. This Trust Agreement may be executed
in counterparts, and as so executed will constitute one agreement, binding on
all of the parties hereto.
-25-
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed.
MORGAN STANLEY & CO. INCORPORATED
By
-------------------------------------
Name:
Title:
TRUSTEES:
---------------------------------------
Name: William R. Latham III
Address: Department of Economics
University of Delaware
Newark, Delaware 19716
---------------------------------------
Name: James B. O'Neill
Address: Center for Economic Education
and Entrepreneurship
University of Delaware
Newark, Delaware 19716
---------------------------------------
Name: Donald J. Puglisi
Address: Department of Finance
University of Delaware
Newark, Delaware 19716
-26-
<PAGE> 30
Schedule I
TREASURY SECURITIES
All terms specified are for stripped principal or interest
components of U.S. Treasury debt obligations.
<TABLE>
<CAPTION>
================================================================================
Aggregate Face Amount, per
STRIPS Payment Date PEPS, Payable at Payment Date
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
February 15, 1996
- --------------------------------------------------------------------------------
May 15, 1996
- --------------------------------------------------------------------------------
August 15, 1996
- --------------------------------------------------------------------------------
November 15, 1996
- --------------------------------------------------------------------------------
February 15, 1997
- --------------------------------------------------------------------------------
May 15, 1997
- --------------------------------------------------------------------------------
August 15, 1997
- --------------------------------------------------------------------------------
November 15, 1997
- --------------------------------------------------------------------------------
February 15, 1998
- --------------------------------------------------------------------------------
May 15, 1998
- --------------------------------------------------------------------------------
February 15, 1999
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE> 31
Exhibit A
THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS, PROVISIONS AND
CONDITIONS OF THE TRUST AGREEMENT REFERRED TO BELOW TO WHICH THE HOLDER OF THIS
CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND.
PEPS SHARES
AJL PEPS TRUST
CUSIP NO. __________
NO. _______ ____________________ SHARES
THIS CERTIFIES THAT ____________________________________________________IS THE
RECORD OWNER OF ______________________PREMIUM EXCHANGEABLE PARTICIPATING SHARES
(PEPS) OF AJL PEPS TRUST CONSTITUTING FRACTIONAL UNDIVIDED INTERESTS OF AJL
PEPS TRUST, A TRUST CREATED UNDER THE LAWS OF THE STATE OF NEW YORK PURSUANT
TO A TRUST AGREEMENT BETWEEN MORGAN STANLEY & CO. INCORPORATED AND THE TRUSTEES
NAMED THEREIN. THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS,
PROVISIONS AND CONDITIONS OF THE TRUST AGREEMENT TO WHICH THE HOLDER OF THIS
CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND, A COPY OF
WHICH TRUST AGREEMENT IS AVAILABLE AT THE OFFICE OF THE TRUST'S ADMINISTRATOR
AND PAYING AGENT, THE BANK OF NEW YORK, 101 BARCLAY STREET, NEW YORK, NEW YORK.
THIS CERTIFICATE IS TRANSFERABLE AND INTERCHANGEABLE BY THE REGISTERED OWNER
IN PERSON OR BY HIS DULY AUTHORIZED ATTORNEY AT THE OFFICE OF THE PAYING AGENT
UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR ACCOMPANIED BY A
WRITTEN INSTRUMENT OF TRANSFER AND ANY OTHER DOCUMENTS THAT THE PAYING AGENT
MAY REQUIRE FOR TRANSFER, IN FORM SATISFACTORY TO THE PAYING AGENT AND PAYMENT
OF THE FEES AND EXPENSES PROVIDED IN THE TRUST AGREEMENT.
<PAGE> 32
THIS CERTIFICATE IS NOT VALID UNLESS MANUALLY COUNTERSIGNED BY THE
PAYING AGENT.
WITNESS THE FACSIMILE SIGNATURE OF THE MANAGING TRUSTEE.
DATED:
AJL PEPS Trust
By
----------------------------
Donald J. Puglisi
Managing Trustee
COUNTERSIGNED:
The Bank of New York,
as Paying Agent
By
----------------------------
Authorized Signature
-2-
<PAGE> 1
_________ Shares
AJL PEPS TRUST
PREMIUM EXCHANGEABLE PARTICIPATING SHARES
UNDERWRITING AGREEMENT
November __, 1995
<PAGE> 2
November __, 1995
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Merrill Lynch International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
ATL PEPS Trust, a trust duly created under the laws of the
State of New York (such trust and the trustees thereof acting in their
capacities as such being referred to herein as the "Trust"), proposes to issue
and sell to the several Underwriters (as defined below) _________ shares (the
"Firm PEPS Shares") of its Premium Exchangeable Participating Shares.
It is understood that, subject to the conditions hereinafter
stated, _______________ Firm PEPS Shares (the "U.S. Firm PEPS Shares") will be
sold to the several U.S. Underwriters named in Schedule I hereto (the "U.S.
Underwriters") in connection with the offering and sale of such U.S. Firm Shares
in the United States and Canada to United States and Canadian Persons (as such
terms are defined in the Agreement Between U.S. and International Underwriters
of even date herewith), and _____________ Firm PEPS Shares (the "International
PEPS Shares") will be sold to the several International Underwriters named in
Schedule II hereto (the "International Underwriters") in connection with the
offering and sale of such International PEPS Shares outside the United States
and Canada to persons other than United States and Canadian Persons. Morgan
Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated shall act as representatives (the "U.S. Representatives") of the
several U.S. Underwriters, and Morgan Stanley & Co. International Limited and
Merrill Lynch
<PAGE> 3
International Limited shall act as representatives (the "International
Representatives") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the Underwriters.
The Trust also proposes to issue and sell to the several U.S.
Underwriters not more than an additional ________ shares of its Premium
Exchangeable Participating Shares (the "Additional PEPS Shares") if and to the
extent that the U.S. Representatives shall have determined to exercise, on
behalf of the U.S. Underwriters, the right to purchase such shares granted to
the U.S. Underwriters in Section 2 hereof. The Firm PEPS Shares and the
Additional PEPS Shares are hereinafter collectively referred to as the "PEPS
Shares." The shares of Premium Exchangeable Participating Shares of the Trust to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "Premium Exchangeable Participating Shares."
Each Premium Exchangeable Participating Share will be
exchanged for American Depositary Shares ("ADSs") or, at the option of the
holder thereof, the equivalent in shares of Common Stock, of Amway Japan Limited
(the "Company") on February __, 1999 (the "Exchange Date") to be delivered
pursuant to a purchase contract (the "HDV Purchase Contract") among the Trust
and HDV GRIT Holdings, Inc., a Michigan corporation ("HDV, Inc."), and HDV
Grantor Retained Income Trust, a trust duly created under the laws of the State
of [________] (such trust and the trustees thereof acting in their capacities as
such being referred to herein as the "HDV Group") and a purchase contract (the
"JVA Purchase Contract" and, collectively with the HDV Purchase Contract, the
"Purchase Contracts") among the Trust, the Jay Van Andel Trust, a trust
organized under the laws of the State of [__________] (such trust and the
trustees thereof acting in their capacities as such being referred to as "JVA
Trust" and, collectively with HDV, Inc., the "Sellers"), and Jay Van Andel (Jay
Van Andel and JVA Trust are hereinafter referred to as the "JVA Group"). The
Trust has entered into the Purchase Contracts with each of the Sellers pursuant
to which each Seller has agreed to sell, and the Trust has agreed to purchase,
the number of ADSs deliverable by such Seller on, or immediately prior to, the
Exchange Date. Each Seller's obligations under its respective Purchase Contract
will be secured by a pledge of collateral pursuant to the terms of a collateral
agreement between such Seller and The Bank of New York, as collateral agent
(each a "Collateral Agreement" and, collectively, the "Collateral Agreements").
The shares of Common Stock, no par value, of the Company
2
<PAGE> 4
outstanding on the date hereof are hereinafter referred to as the "Common
Stock". Each ADS represents one-half of one share of Common Stock and is
evidenced by an American Depositary Receipt (an "ADR") which is issued by Morgan
Guaranty Trust Company of New York, as Depositary (the "Depositary") under a
Deposit Agreement dated as of February 18, 1993, as amended and restated as of
May 12, 1994 (the "Deposit Agreement"), among the Company, the Depositary and
the holders from time to time of ADRs.
The Trust has filed with the Securities and Exchange
Commission (the "Commission") a notification on Form N-8A (the "Notification")
of registration of the Trust as an investment company and a registration
statement on Form N-2, relating to the PEPS Shares. The registration statement
contains two prospectuses to be used in connection with the offering and sale of
the PEPS Shares: the U.S. prospectus, to be used in connection with the offering
and sale of PEPS Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of PEPS Shares outside the United States and Canada
to persons other than United States and Canadian persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended, is hereinafter referred to as the "Trust
Registration Statement"; the U.S. and international prospectuses in the
respective forms first used to confirm sales of PEPS Shares are hereinafter
collectively referred to as the "Trust Prospectus." If the Trust has filed an
abbreviated registration statement to register additional shares of Premium
Exchangeable Participating Shares pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Trust Registration Statement"), then any reference herein to
the term "Trust Registration Statement" shall be deemed to include such Rule 462
Trust Registration Statement.
The Securities Act of 1933, as amended, and the rules and
regulations of the commission thereunder are collectively referred to as the
"Securities Act;" the Investment Company Act of 1940, as amended, and the rules
and regulations of the Commission thereunder are collectively referred to as the
"Investment Company Act;" and the Securities Act and the Investment Company Act
are collectively referred to as the "Acts."
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<PAGE> 5
The Company has filed with the Commission a registration
statement under the Securities Act on Form F-3 (File No. 33-63469), including a
prospectus, with respect to the shares of Common Stock underlying the ADSs
deliverable pursuant to the Purchase Contracts, has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. Such registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of such registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act and any information
incorporated by reference therein pursuant to amendment or supplement from time
to time under the Securities Act, the Securities Exchange Act of 1934, as
amended (together with the rules and regulations thereunder the "Exchange Act")
or otherwise is hereinafter referred to as the "Company Registration Statement";
the prospectus included within the Company Registration Statement at the time
the Company Registration Statement was declared effective is hereinafter
referred to as the "Company Prospectus," except that if any revised prospectus
shall be prepared by the Company for use by the Underwriters which differs from
the Company Prospectus on file at the Commission at the time the Company
Registration Statement becomes effective (whether or not such revised prospectus
is required to be filed by the Company pursuant to Rule 424(b) of the Securities
Act), the term "Company Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for use and if the
Company files any documents pursuant to Section 13 or 15 of the Exchange Act
after the Company Registration Statement becomes effective and prior to the
termination of the offering of the Shares by the Underwriters, which documents
are deemed to be incorporated by reference into the Company Prospectus, the term
"Company Prospectus" shall refer to said prospectus as supplemented by the
documents so filed from and after the time said documents are filed with the
Commission. The Trust Registration Statement and the Company Registration
Statement are hereinafter collectively referred to as the "Registration
Statements," and the Trust Prospectus and the Company Prospectus are hereinafter
collectively referred to as the "Prospectuses."
1. REPRESENTATIONS OF THE TRUST, THE SELLERS AND THE
COMPANY. (a) The Trust represents and warrants to and agrees with each of the
Underwriters, the Sellers and the Company that:
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<PAGE> 6
(i) The Trust Registration Statement has become effective; no
stop order suspending the effectiveness of the Trust Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
(ii) The Trust has been duly created, is validly existing as a
trust under the laws of the State of New York, has the power and
authority to conduct its business as described in the Trust Prospectus
and to enter into and perform its obligations under this Agreement and
the Amended and Restated Trust Agreement dated as of November [__],
1995 among the trustees of the Trust (the "Trustees") and Morgan
Stanley & Co. Incorporated, as Sponsor (the "Trust Agreement"). The
Trust has no subsidiaries.
(iii) The Trust is registered with the Commission as a
non-diversified, closed-end management investment company under the
Investment Company Act and no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or, to
the knowledge of the Trust, threatened by the Commission. No person is
serving or acting as an officer or trustee of, the Trust except in
accordance with the provisions of the Investment Company Act.
(iv) This Agreement has been duly authorized, executed and
delivered by the Trust.
(v) Each of the Purchase Contracts, the Collateral Agreements,
the Administration Agreement between The Bank of New York ("BONY") and
the Trust (the "Administration Agreement"), the Custodian Agreement
between BONY and the Trust (the "Custodian Agreement") the Paying Agent
Agreement between BONY and the Trust (the "Paying Agent Agreement") and
the Fund Indemnity Agreement between Morgan Stanley & Co. Incorporated
and the Trust (the "Fund Indemnity Agreement") (the Purchase Contracts,
the Collateral Agreement, the Administration Agreement, the Custodian
Agreement, the Paying Agent Agreement and the Fund Indemnity Agreement
are referred to herein, collectively, as the "Fundamental Agreements")
has been duly authorized, executed and delivered by the Trust and,
assuming due authorization, execution and delivery by the other parties
thereto, is a valid and binding agreement of the Trust, enforceable
against the Trust in accordance with its terms except as (i) such
enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights
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<PAGE> 7
generally and (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability.
(vi) None of (A) the execution and delivery by the Trust of,
and the performance by the Trust of its obligations under, this
Agreement and each Fundamental Agreement, or (B) the issue and sale by
the Trust of the PEPS Shares as contemplated by this Agreement
contravenes or will contravene any provision of applicable law or the
Trust Agreement or any agreement or other instrument binding upon the
Trust that is material to the Trust, or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the
Trust, whether foreign or domestic, and no consent, approval,
authorization, order of, or qualification with, any governmental body
or agency, self-regulatory organization or court or other tribunal,
whether foreign or domestic, is required for the performance by the
Trust of its obligations under this Agreement or the Fundamental
Agreements, except such as have been obtained and as may be required by
the securities or Blue Sky laws of the various states and foreign
jurisdictions in connection with the offer and sale of the PEPS Shares
by the Underwriters.
(vii) The authorized capital stock of the Trust conforms in
all material respects to the description thereof contained in the Trust
Prospectus, and the Trust Agreement and the Fundamental Agreements
conform in all material respects to the descriptions thereof contained
in the Trust Prospectus.
(viii) The Trust Agreement and the Fundamental Agreements
comply with all applicable provisions of the Acts, and all approvals of
such documents required under the Investment Company Act by the holders
of the Premium Exchangeable Participating Shares of the Trust and the
Trustees have been obtained and are in full force and effect.
(ix) The Fundamental Agreements are in full force and effect
and the Trust is not in default thereunder and, to the knowledge of the
Trust, no event has occurred which with the passage of time or the
giving of notice or both would constitute a default thereunder. The
Trust is not currently in breach of, or in default under, any other
written agreement or instrument to which it or its property is bound or
affected.
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<PAGE> 8
(x) The shares of Premium Exchangeable Participating Shares
outstanding prior to the issuance of the PEPS Shares have been duly
authorized and are validly issued, fully paid and non-assessable and
the form of certificates used to evidence the shares of Premium
Exchangeable Participating Shares is in due and proper form and
complies with all provisions of applicable law.
(xi) The PEPS Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance
of such PEPS Shares will not be subject to any preemptive or similar
rights. No person has rights to the registration of any securities
because of the filing of the Trust Registration Statement.
(xii) The PEPS Shares and any outstanding shares of Premium
Exchangeable Participating Shares prior to the issuance of the PEPS
Shares have been approved for listing on the New York Stock Exchange,
Inc. (the "New York Stock Exchange"), subject to official notice of
issuance. The Trust's Registration Statement on Form 8-A under the
Exchange Act is effective.
(xiii) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, of the Trust, or in the investment
objectives, investment policies, liabilities, business, prospects or
operations of the Trust from that set forth in the Trust Prospectus
(exclusive of any supplements thereto subsequent to the date of this
Agreement) and there have been no transactions entered into by the
Trust which are material to the Trust other than those in the ordinary
course of its business or as described in the Trust Prospectus
(exclusive of any supplements thereto subsequent to the date of this
Agreement).
(xiv) There are no legal or governmental proceedings pending
or, to the knowledge of the Trust, threatened against or affecting the
Trust that are required to be described in the Trust Registration
Statement or the Trust Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required
to be described in the Trust Registration Statement or the Trust
Prospectus or to be filed as exhibits to the Trust
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<PAGE> 9
Registration Statement that are not described or filed as required.
(xv) The Trust has all necessary consents, authorizations,
approvals, orders (including exemptive orders), certificates and
permits of and from, and has made all declarations and filings with,
all governmental authorities, self-regulatory organizations and courts
and other tribunals, whether foreign or domestic, to own and use its
assets and to conduct its business in the manner described in the Trust
Prospectus, except to the extent that the failure to obtain or file the
foregoing would not have a material adverse effect on the Trust and
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the PEPS
Shares.
(xvi) Each preliminary prospectus filed as part of the Trust
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 497 under the Securities Act,
complied when so filed in all material respects with the Acts.
(xvii) (A) Each part of the Trust Registration Statement, when
such part became effective, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (B) the Trust Registration Statement, the Notification and
the Trust Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Acts and (C)
the Trust Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this paragraph (xvii) do not apply to statements or omissions
in the Trust Registration Statement or the Trust Prospectus based upon
information furnished to the Trust in writing by such Underwriter
through you expressly for use therein.
(xviii) There are no material restrictions, limitations or
regulations with respect to the ability of the Trust to invest its
assets as described in the Trust Prospectus, other than as described
therein.
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<PAGE> 10
(xix) The accountants who certified the financial statements
and supporting schedules included in the Trust Registration Statement
are independent public accountants as required by the Securities Act.
(xx) The Trust has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(b) The HDV Group represents and warrants to and agrees with
each of the Underwriters, the Company and the Trust that:
(i) HDV, Inc. has been duly formed, is validly existing as a
corporation in good standing under the laws of the State of Michigan,
has the power and authority to own its property and to conduct its
business and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on HDV, Inc. HDV,
Inc. has no subsidiaries.
(ii) HDV Trust has been duly created, is validly existing as a
trust under the laws of the State of ________, has the power and
authority to own its property and to conduct its business and is duly
qualified to transact business in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified would not have a material adverse effect on HDV Trust.
HDV Trust has no subsidiaries.
(iii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the HDV Group.
(iv) Each of the HDV Purchase Contract, the Collateral
Agreement of the HDV Group and the letter agreement from the Sellers to
Morgan Stanley & Co. Incorporated relating to expenses of the Trust
(the "Reimbursement Agreement") has been duly authorized, executed and
delivered by or on behalf of the HDV Group and, assuming due
authorization, execution and delivery by the other parties thereto, is
a valid and binding agreement of the HDV Group, enforceable against the
HDV
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<PAGE> 11
Group in accordance with its terms except as (i) such enforceability
may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(v) The execution and delivery by the HDV Group of, and the
performance by the HDV Group of its obligations under, this Agreement,
the HDV Purchase Contract, the Collateral Agreement and the
Reimbursement Agreement will not contravene any provision of applicable
law, or the certificate of incorporation of HDV, Inc., the by-laws of
HDV, Inc. or the applicable constitutive documents of HDV Trust, or any
agreement or other instrument binding upon the HDV Group that is
material to HDV, Inc. or HDV Trust or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over
HDV,Inc. or HDV Trust, whether foreign or domestic, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency, self-regulatory organization or court or
other tribunal, whether foreign or domestic, is required for the
performance by the HDV Group of its obligations under this Agreement,
the HDV Purchase Contract, its Collateral Agreement or the
Reimbursement Agreement, except such as have been obtained and as may
be required by the securities or Blue Sky laws of the various states
and foreign jurisdictions in connection with the sale of ADSs by HDV,
Inc. pursuant to the HDV Purchase Contract.
(vi) HDV, Inc. is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act.
(vii) HDV, Inc. (or its direct or indirect nominee) has, and
on the Closing Date will have, good and valid title to the ADSs to be
pledged and assigned by it under its Collateral Agreement, free and
clear of any security interests, claims, liens, equities and other
encumbrances, except for those created pursuant to its Collateral
Agreement, and has the legal right and power, and all authorization and
approval required by law to pledge and assign the ADSs to be pledged
and assigned by HDV,Inc. pursuant to its Collateral Agreement.
(viii) Assuming payment of the purchase price on the Closing
Date, delivery of the ADSs to be sold by HDV, Inc. pursuant to the HDV
Purchase Contract on the
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<PAGE> 12
Exchange Date will pass to the holders of the PEPS Shares title to such
ADSs free and clear of any security interests, claims, liens, equities
and other encumbrances, except for those created pursuant to the
Collateral Agreement of HDV, Inc.
(ix) The representations and warranties of the HDV Group set
forth in Section [__] of the HDV Purchase Contract and in Section [__]
of the Collateral Agreement of the HDV Group are true and correct on
and as of the date hereof with the same effect as though such
representations and warranties had been set forth in full in this
Agreement.
(x) For the purposes described in Section 12 hereof, under the
laws of the State of New York relating to submission to jurisdiction,
the HDV Group has validly and irrevocably submitted to the jurisdiction
of any State or Federal court located in the Borough of Manhattan, The
City of New York, New York, has validly and irrevocably waived any
objection to the venue of a proceeding in any such court, and has
validly and irrevocably appointed CT Corporation System as its
authorized agent for service of process.
(c) the JVA Group represents and warrants to and agrees with
each of the Underwriters, the Company and the Trust that:
(i) JVA Trust has been duly created, is validly existing as a
trust under the laws of the State of ________, has the power and
authority to own its property and to conduct its business and is duly
qualified to transact business in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified would not have a material adverse effect on JVA Trust.
JVA Trust has no subsidiaries.
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the JVA Group.
(iii) Each of the JVA Purchase Contract, the Collateral
Agreement of the JVA Group and the Reimbursement Agreement has been
duly authorized, executed and delivered by or on behalf of the JVA
Group and, assuming due authorization, execution and delivery by the
other parties thereto, is a valid and binding
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<PAGE> 13
agreement of the JVA Group, enforceable against the JVA Group in
accordance with its terms except as (i) such enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) the availability of equitable
remedies may be limited by equitable principles of general
applicability.
(iv) The execution and delivery by the JVA Group of, and the
performance by the JVA Group of its obligations under, this Agreement,
the JVA Purchase Contract, Collateral Agreement of the JVA Group and
the Reimbursement Agreement will not contravene any provision of
applicable law, or applicable constitutive documents of JVA Trust, or
any agreement or other instrument binding upon the JVA Group that is
material to JVA Trust or John Van Andel or any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over JVA Trust or John Van Andel, whether foreign or domestic, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency, self-regulatory organization or court
or other tribunal, whether foreign or domestic, is required for the
performance by the JVA Group of its obligations under this Agreement,
the JVA Purchase Contract, its Collateral Agreement or the
Reimbursement Agreement, except such as have been obtained and as may
be required by the securities or Blue Sky laws of the various states
and foreign jurisdictions in connection with the sale of ADSs by JVA
Trust pursuant to the JVA Purchase Contract.
(v) JVA Trust is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act.
(vi) JVA Trust (or its direct or indirect nominee) has, and on
the Closing Date will have, good and valid title to the ADSs to be
pledged and assigned by it under its Collateral Agreement, free and
clear of any security interests, claims, liens, equities and other
encumbrances, except for those created pursuant to its Collateral
Agreement, and has the legal right and power, and all authorization and
approval required by law, to pledge and assign the ADSs to be pledged
and assigned by JVA Trust pursuant to its Collateral Agreement.
(vii) Assuming payment of the purchase price on the Closing
Date, delivery of the ADSs to be sold by JVA Trust pursuant to the JVA
Purchase Contract on the
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<PAGE> 14
Exchange Date will pass to the holders of the PEPS Shares title to such
ADSs free and clear of any security interests, claims, liens, equities
and other encumbrances, except for those created pursuant to the
Collateral Agreement of JVA Trust.
(viii) The representations and warranties of the JVA Group
Seller set forth in Section [__] of the JVA Purchase Contract and in
Section [__] of the Collateral Agreement of the JVA Group are true and
correct on and as of the date hereof with the same effect as though
such representations and warranties had been set forth in full in this
Agreement.
(ix) For the purposes described in Section 12 hereof, under
the laws of the State of New York relating to submission to
jurisdiction, the JVA Group has validly and irrevocably submitted to
the jurisdiction of any State or Federal court located in the Borough
of Manhattan, The City of New York, New York, has validly and
irrevocably waived any objection to the venue of a proceeding in any
such court, and has validly and irrevocably appointed CT Corporation
System as its authorized agent for service of process.
(d) The Company represents and warrants to and agrees with
each of the Underwriters, the Trust and the Sellers that:
(i) The Company Registration Statement has become effective;
no stop order suspending the effectiveness of the Company Registration
Statement is in effect, and, to the best knowledge of the Company, no
proceedings for such purpose are pending before or threatened by the
Commission.
(ii) (A) Each part of the Company Registration Statement, when
such part became effective, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (B) the Company Registration Statement and the Company
Prospectus comply as to form and, as amended or supplemented, if
applicable, will comply as to form in all material respects with the
Securities Act and (C) the Company Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein,
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<PAGE> 15
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this Section 1(c)(ii) do not apply to statements or omissions in the
Company Registration Statement or the Company Prospectus based upon
information furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(iii) (A) A registration statement in respect of the ADSs
evidenced by ADRs on Form F-6 has been filed with, and declared
effective by, the Commission (such registration statement, including
all exhibits thereto, at the time it became effective, being
hereinafter called the "ADS Registration Statement"), (B) each part of
the ADS Registration Statement, when such part became effective, did
not contain, and each such part, as amended or supplemented, if
applicable, will not contain, any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (C) copies of
the ADS Registration Statement have heretofore been delivered to you
and, excluding exhibits, to you for each of the other Underwriters, (D)
no other document with respect to the ADS Registration Statement has
heretofore been filed with the Commission, and (E) the ADS Registration
Statement, when it became effective, conformed in all material respects
to the requirements of the Securities Act.
(iv) The Company has been duly incorporated, is validly
existing as a corporation under the laws of Japan, has the corporate
power and authority to own its property and to conduct its business as
described in the Company Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified would not have a material adverse effect on the Company
and the Subsidiary (as defined below), taken as a whole.
(v) The only subsidiary of the Company is Amway Japan
Enterprises, Inc., a Delaware corporation (the "Subsidiary"). The
Subsidiary has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its property and to
conduct its business as described in the Company Prospectus and is duly
qualified to
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<PAGE> 16
transact business and is not required to be registered
or qualified in any other jurisdiction.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Company
Prospectus.
(viii) The shares of Common Stock may be freely deposited by
any registered holder thereof with the Depositary against issuance of
ADRs evidencing ADSs; the ADSs are freely transferable by the Sellers
to the Trust in the manner contemplated in this Agreement, the Purchase
Contracts and the Collateral Agreements;
(ix) The Deposit Agreement is in full force and effect and
neither the Company nor, to the Company's knowledge, any other party to
such agreement is in default thereunder and, to the knowledge of the
Company, no event has occurred that with the passage of time or the
giving of notice or both would constitute a default thereunder. The
Company is not currently in breach of, or in default under, any other
written agreement or instrument to which it or its property is bound or
affected except to the extent that such breach or default would not
have a material adverse effect on the Company. Upon due issuance by the
Depositary of ADRs evidencing ADSs against the deposit of shares of
Common Stock in respect thereof in accordance with the provisions of
the Deposit Agreement, such ADRs will be duly and validly issued and
the person in whose names the ADRs are registered will be entitled to
the benefits specified therein and in the Deposit Agreement.
(x) All of the outstanding shares of Common Stock have been
duly authorized and are validly issued, fully paid and non-assessable
(meaning that no further sums are payable to the Company in respect of
such shares).
(xi) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or the Subsidiary that is material
to the Company or the Subsidiary, taken as a whole, or any material
judgment, order or decree of any governmental body, agency or court
having
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<PAGE> 17
jurisdiction over the Company or the Subsidiary, whether foreign or
domestic, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency, self-regulatory
organization or court or other tribunal, whether foreign or domestic,
is required for the performance by the Company of its obligations under
this Agreement, except such as may have been obtained and as may be
required by the securities or Blue Sky laws of the various states and
foreign jurisdictions, including without limitation, Japan in
connection with the offer and sale of ADSs by the Sellers pursuant to
the Purchase Contracts.
(xii) There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and the Subsidiary, taken as a whole, from
that set forth in the Company Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement).
(xiii) There are no legal or governmental proceedings pending
or threatened to which the Company or the Subsidiary is a party or to
which any of the properties of the Company or the Subsidiaries is
subject that are required to be described in the Company Registration
Statement or the Company Prospectus and are not so described or any
contracts or other documents that are required to be described in the
Company Registration Statement or the Company Prospectus or to be filed
as exhibits to the Company Registration Statement that are not
described or filed as required.
(xiv) Each preliminary prospectus filed as part of the Company
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities
Act.
(xv) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act.
(xvi) No stamp or other issuance or transfer taxes or duties
are payable by or on behalf of the Trust or the Underwriters in
connection with (A) the sale of the ADSs to the Trust pursuant to the
Purchase Contracts, (B) the issuance of the PEPS Shares or the sale
thereof
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<PAGE> 18
to the Underwriters in the manner contemplated herein and in the Trust
Prospectus; or (C) the resale and delivery of the PEPS Shares by the
Underwriters in the manner contemplated in the Trust Prospectus.
(xvii) For the purposes described in Section 12 hereof, under
the laws of the State of New York relating to submission to
jurisdiction, the Company has validly and irrevocably submitted to the
jurisdiction of any State or Federal court located in the Borough of
Manhattan, The City of New York, New York, has validly and irrevocably
waived any objection to the venue of a proceeding in any such court,
and has validly and irrevocably appointed CT Corporation System as its
authorized agent for service of process.
(xviii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company held by
such person or to require the Company to include such securities with
the shares of Common Stock registered pursuant to the Company
Registration Statement or the ADSs evidenced by ADRs registered
pursuant to the ADS Registration Statement.
(xix) The accountants who certified the financial statements
and supporting schedules included in the Company Registration Statement
are independent public accountants as required by the Securities Act.
(xx) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(e) Amway Corporation, a Delaware corporation ("Amway"),
represents and warrants to and agrees with each of the Underwriters, the
Company, the Trust and the Sellers that:
(i) (A) Each part of the Trust Registration Statement, when
such part became effective, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (B) the Trust Registration Statement and the Trust
Prospectus comply and, as amended or supplemented, if applicable, will
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<PAGE> 19
comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (C)
the Trust Prospectus does snot contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this Section 1(e)(i) do not apply to statements or omissions
in the Trust Registration Statement or the Trust Prospectus based upon
information furnished in writing by such Underwriter through you
expressly for use therein.
(ii) Each preliminary prospectus filed as part of the Company
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities
Act.
2. AGREEMENTS TO SELL AND PURCHASE. The Trust hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Trust the respective number of Firm PEPS Shares set forth in Schedules I and II
hereto opposite their names at $______ a share (the "Purchase Price").
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Trust agrees to
sell to the U.S. Underwriters the Additional PEPS Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to ______ Additional PEPS Shares at the Purchase Price. If you, on behalf of
the U.S. Underwriters, elect to exercise such option, you shall so notify the
Trust in writing not later than 30 days after the date of this Agreement, which
notice shall specify the number of Additional PEPS Shares to be purchased by the
U.S. Underwriters and the date on which such shares are to be purchased. Such
date may be the same as the Closing Date (as defined below) but not earlier than
the Closing Date nor later than ten business days after the date of such notice.
Additional PEPS Shares may be purchased as provided in Section 4 hereof solely
for the purpose of covering over-allotments made in connection with the offering
of the Firm PEPS Shares. If any Additional PEPS Shares are to be purchased, each
U.S. Underwriter agrees, severally and not
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jointly, to purchase the number of Additional PEPS Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional PEPS Shares to be purchased as
the number of U.S. Firm PEPS Shares set forth in Schedule I hereto opposite the
name of such U.S. Underwriter bears to the total number of U.S. Firm PEPS
Shares. The Additional PEPS Shares to be purchased by the U.S. Underwriters
hereunder and the U.S. Firm PEPS Shares are hereinafter collectively referred to
as the "U.S. PEPS Shares."
The Company and each member of the HDV Group and the JVA
Group, severally and not jointly, hereby agree that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 90 days after the date of the Company
Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any ADSs or shares of Common Stock or any securities
convertible into or exercisable or exchangeable for ADSs or shares of Common
Stock (whether such ADSs or shares of Common Stock or any such securities are
now owned or are hereafter acquired), or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the ADSs or shares of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of ADSs,
shares of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to transfers of ADSs or shares of Common
Stock or securities convertible into or exercisable or exchangeable for ADSs or
Common Stock pursuant to (x) certain permitted private sale transactions among
members of the DeVos and Van Andel Families (as defined below) or any entity
directly or indirectly controlled by members of the Van Andel or DeVos Families
or entities directly or indirectly controlled by any of them (collectively, the
"Affiliated Entities") in which the transferee agrees in writing to be bound by
the provisions of this paragraph to the same extent as the transferor is bound,
(y) existing or prospective employee stock option plans previously disclosed to
the Underwriters and (z) a bona fide gift or gifts among members of the DeVos
and Van Andel Families or the Affiliated Entities or to a charitable or
educational organization which is a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended if the donee agrees
in writing to be bound by the provisions of this paragraph to the same extent as
the donor
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is bound. For the purposes of this paragraph "Van Andel and DeVos Families"
shall mean Jay Van Andel and Richard M. DeVos and any and all of their spouses,
parents, brothers, sisters, brothers-in-law, sisters-in-law, children and
grandchildren (whether natural or adopted), daughters-in- law, sons-in-law and
blood relatives not more remote than first cousin.
3. TERMS OF PUBLIC OFFERING. The Trust, the Sellers and the
Company are advised by you that the Underwriters propose to make a public
offering of their respective portions of the PEPS Shares as soon after the
Registration Statements and this Agreement have become effective as in your
judgment is advisable. The Trust, the Sellers and the Company are further
advised by you that the PEPS Shares are to be offered to the public initially at
$______ per share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of $______ per
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ per share, to
any Underwriter or to certain other dealers.
Each U.S. Underwriter hereby makes to and with the Trust, the
Company and the Sellers the representations and agreements of such U.S.
Underwriter contained in the fifth and sixth paragraphs of Article III of the
Agreement Between U.S. and International Underwriters of even date herewith.
Each International Underwriter hereby makes to and with the Trust, the Company
and the Sellers the representations and agreements of such International
Underwriter contained in the seventh, eight, ninth and tenth paragraphs of
Article III of such Agreement.
4. PAYMENT AND DELIVERY. Payment for the Firm PEPS Shares
shall be made by certified or official bank check or checks payable to the order
of the Trust in New York Clearing House funds in U.S. dollars at the office of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York at 10:00 A.M.,
local time, on ____________, 1995, or at such other time on the same or such
other date, not later than _________, 1995, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date."
Payment for any Additional PEPS Shares shall be made by
certified or official bank check or checks payable to the order of the Trust in
New York Clearing House funds in U.S. dollars at the offices of Davis Polk &
Wardwell, 450
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<PAGE> 22
Lexington Avenue, New York, New York at 10:00 A.M., local time, on the date
specified in the notice described in Section 2 or on such other date, in any
event not later than _______, 1995, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Option
Closing Date."
Certificates for the Firm PEPS Shares and Additional PEPS
Shares shall be in definitive form and registered in such names and in such
denominations as you shall request in writing not later than two full business
days prior to the Closing Date or the Option Closing Date, as the case may be.
The certificates evidencing the Firm PEPS Shares and Additional PEPS Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the PEPS Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Trust to sell the PEPS Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the PEPS Shares
on the Closing Date are subject to the condition that the Registration
Statements shall have become effective not later than 5:00 p.m. (New York time)
on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date there shall not have occurred (i) any
change, or any development involving a prospective change, in the
condition, financial or otherwise, of the Trust, or in the investment
objectives, investment policies, liabilities, business, prospects or
operations of the Trust from that set forth in the Trust Registration
Statement, (ii) any change, or any development involving a prospective
change, in the condition, financial or otherwise, of the Company or in
the earnings, business or operations of the Company and the Subsidiary,
taken as a whole, from that set forth in the Company Registration
Statement, or (iii) any change, or any development involving a
prospective change, in the condition, financial or otherwise, of any
member of the HDV Group or the JVA Group or in the earnings, business
or operations of any member of the HDV Group or the JVA Group, since
the date hereof,
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that, in your reasonable judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the PEPS Shares on
the terms and in the manner contemplated in the Trust Prospectus.
(b) The Underwriters shall have received on the Closing Date
certificates, dated the Closing Date and signed by an executive
officer, trustee, agent or other authorized person, as applicable, of
the Trust, the Company and each member of the HDV Group and the JVA
Group, to such individual's knowledge, in each case to the relevant
effect set forth in clause (a) above, and to the effect that the
respective representations and warranties of each of the Trust, the
Company and of each member of the HDV Group and the JVA Group,
severally and not jointly, contained in this Agreement, the relevant
Purchase Contract and the relevant Collateral Agreement are true and
correct on and as of the Closing Date as though made on the Closing
Date and that each of the Trust, the Company and each member of the HDV
Group and the JVA Group, has complied in all material respects with all
of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder or thereunder on or before the Closing
Date.
(c) Each Fundamental Agreement shall have been executed and
delivered by all parties thereto, and each Seller shall have delivered
to the Collateral Agent the number of ADSs required by such Seller's
Collateral Agreement to be initially pledged thereunder in accordance
with the requirements of the Collateral Agreement.
(d) You shall have received on the Closing Date an opinion of
Davis Polk & Wardwell, special counsel for the Trust and the
Underwriters, dated the Closing Date, to the effect that:
(i) each of the Registration Statements is effective
under the Securities Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Trust
Registration Statement is in effect and no proceedings for
such purpose are pending or threatened by the Commission;
(ii) at the time the Trust Registration Statement
became effective, the Trust Registration Statement (other than
the operating statistics, financial statements, financial
schedules and other financial and statistical information
22
<PAGE> 24
included therein, as to which no opinion need be rendered)
complied as to form in all material respects with the
requirements of the Acts; and such counsel does not know of
any material contracts or other documents of a character
required to be described in or filed as exhibits to the Trust
Registration Statement by the Securities Act which have not
been described in or filed as exhibits to the Trust
Registration Statement as required;
(iii) the Trust has been duly created, is validly
existing as a Trust under the laws of the State of New York,
has the power and authority to conduct its business as
described in the Trust Prospectus;
(iv) the Trust is registered with the Commission as a
non-diversified, closed-end management investment company
under the Investment Company Act and, to such counsel's
knowledge, no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated
or threatened by the Commission;
(v) this Agreement has been duly authorized, executed
and delivered by the Trust;
(vi) each Fundamental Agreement has been duly
authorized, executed and delivered by the Trust and, assuming
due authorization, execution and delivery by the other parties
thereto, is a valid and binding agreement of the Trust,
enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (b) the availability of equitable remedies may
be limited by equitable principles of general applicability;
(vii) none of (A) the execution and delivery by the
Trust of, and the performance by the Trust of its obligations
under, each Fundamental Agreement, or (B) the issuance and
sale by the Trust of the PEPS Shares as contemplated by this
Agreement, will contravene any provision of applicable U.S. or
State of New York law or of the Trust Agreement or, to such
counsel's knowledge, any agreement or instrument binding upon
the Trust that is material to the Trust, or, to such
23
<PAGE> 25
counsel's knowledge, any judgment, order or decree of any U.S.
or State of New York governmental body, agency or court having
jurisdiction over the Trust counsel, and no consent, approval,
authorization or order of, or qualification with, any U.S. or
State of New York governmental body or agency, is required for
the performance by the Trust of its obligations under this
Agreement and the Fundamental Agreements, except as may be
required by the Acts, the Exchange Act or the securities or
Blue Sky laws of the various states and in connection with the
offer and sale of the PEPS Shares by the Underwriters;
(viii) the authorized capital stock of the Trust
conforms in all material respects to the description thereof
contained in the Trust Prospectus; and the Trust Agreement and
the Fundamental Agreements conform in all material respects as
to legal matters to the descriptions thereof contained in the
Prospectuses;
(ix) the Trust Agreement and the Fundamental
Agreements comply with all applicable provisions of the Acts,
and all approvals of such documents required under the
Investment Company Act by the Trust's shareholders and the
Trustees have been obtained and are in full force and effect;
(x) to the knowledge of such counsel, the Fundamental
Agreements are in full force and effect and, to such counsel's
knowledge, neither the Trust nor any other party to any such
agreement is in default thereunder and, to the knowledge of
such counsel, no event has occurred which with the passage of
time or the giving of notice or both would constitute a
default thereunder. To the knowledge of such counsel, the
Trust is not currently in breach of, or in default under, any
other written agreement or instrument to which it or its
property is bound or affected;
(xi) the shares of Premium Exchangeable Participating
Shares outstanding prior to issuance of the PEPS Shares have
been duly authorized and are validly issued, fully paid and
non-assessable;
(xii) the PEPS Shares have been duly authorized and,
when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and
non-assessable,
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<PAGE> 26
and the issuance of the PEPS Shares will not be
subject to any preemptive or similar rights;
(xiii) the statements in the Trust Prospectus under
"Description of the PEPS" and "Underwriting," and the
statements in the Company Prospectus under "Description of the
American Depositary Receipts," in each case insofar as such
statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters
referred to therein;
(xiv) the statements in the Trust Prospectus under
"Federal Income Tax Considerations," to the extent that they
constitute summaries of the legal matters referred to therein,
fairly represent our opinion as to such matters;
(xv) the descriptions, if any, in the Trust
Prospectus of U.S. or State of New York statutes, regulations
and legal or governmental proceedings are accurate in all
material respects and fairly summarize the matters referred to
therein;
(xvi) after due inquiry, such counsel does not know
of any legal or governmental proceedings pending or threatened
to which the Trust is a party that is required to be described
in the Trust Registration Statement or the Trust Prospectus
and is not so described or of any U.S. or State of New York
statutes or regulations, contracts or other documents that are
required to be described in the Trust Registration Statement
or the Trust Prospectus or to be filed as exhibits to the
Trust Registration Statement that are not described or filed
as required; and
(xvii) such counsel (A) is of the opinion that the
Registration Statements, the Notification and the Prospectuses
(other than the operating statistics, financial statements,
financial schedules and other financial and statistical
information included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
Acts, (B) has no reason to believe that (other than the
operating statistics, financial statements, financial
schedules and other financial and statistical
25
<PAGE> 27
information included therein, as to which no opinion need be
rendered) any part of the Registration Statements, when such
part became effective contained, and as of the date hereof
contains, any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and (C) has no reason to believe that (other than
the operating statistics, financial statements, financial
schedules and other financial and statistical information
included therein, as to which no opinion need be rendered) the
Prospectuses as of the date hereof contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
With respect to subparagraph (xvii) of this paragraph (d),
Davis Polk & Wardwell may state that their opinion and belief are based
upon their participation in the preparation of the Registration
Statements and the Prospectuses and any amendments or supplements
thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
(e) You shall have received on the Closing Date an opinion of
Nishimura & Sanada, Japanese counsel for the Company and the Sellers,
dated the Closing Date, to the effect that:
(i) the Company is validly existing as a corporation
under the laws of Japan with corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Company Prospectus and to enter
into and perform its obligations under this Agreement and the
Deposit Agreement;
(ii) the authorized, issued and outstanding share
capital of the Company is as set forth under the caption
"Description of Capital Stock" in the Company Prospectus and
the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and
non-assessable (meaning that no further sums are payable to
the Company with respect to the holding of such shares);
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<PAGE> 28
(iii) this Agreement, has been duly authorized,
executed and delivered by the Company;
(iv) all outstanding shares of Common Stock,
including the shares of Common Stock underlying the ADSs to be
delivered by the Sellers in pledge pursuant to the Collateral
Agreements, have been duly and validly issued and are fully
paid and non-assessable (meaning that no further sums are
payable to the Company on such shares); and the terms and
provisions of such shares of Common Stock and other share
capital of the Company conform in all material respects to the
descriptions thereof contained in the Company Prospectus;
(v) no filing with, or consent, approval,
authorization, order, registration, qualification or decree
of, any court or governmental authority or body in Japan is
necessary or required to be obtained by the Company or either
Seller in connection with its obligations hereunder, the offer
or sale of ADSs pursuant to the Purchase Contracts, or the
performance of the transactions contemplated by this
Agreement, the Purchase Contracts or the Collateral
Agreements, except such as have been duly filed or obtained in
accordance with Japanese law;
(vi) the form of certificates used to evidence shares
of the Company Common Stock are in due and proper form and
complies with all applicable statutory requirements of Japan;
(vii) the Company has the power to submit, and
pursuant to this Agreement has legally, validly, effectively
and irrevocably submitted, to the jurisdiction of any federal
or state court in the State of New York, County of New York,
and has the power to designate, appoint and empower and
pursuant to this Agreement has legally, validly, effectively
and irrevocably designated, appointed and empowered an agent
for service of process in any suit or proceeding based on or
arising under this Agreement in any federal or state court in
the State of New York, County of New York as provided in
Section 12 hereof;
(viii) no stamp or other issuance or transfer taxes
or duties and no capital gains, income, withholding or other
taxes are payable to the
27
<PAGE> 29
Republic of Japan or any political subdivision or taxing
authority thereof or therein by or on behalf of the Trust or
the Underwriters in connection with (A) the sale of the ADSs
to the Trust pursuant to the Contracts, (B) the issuance of
the PEPS Shares or the sale thereof to the Underwriters in the
manner contemplated herein; or (C) the resale and delivery of
the PEPS Shares by the Underwriters in the manner contemplated
in the Trust Prospectus;
(ix) the statements under the captions "Prospectus
Summary", "Risk Factors", "Dividends and Dividend Policy",
"Management's Discussion and Analysis of Financial Conditions
and Results of Operations", "Business - Government
Regulation", "Description of Capital Stock", "Exchange
Controls and Other Limitations Affecting Securityholders" and
"Taxation - Japanese Taxation" in the Company Registration
Statement and the Company Prospectus, to the extent that they
constitute a description of the laws and regulations of Japan,
or their respective agencies, authorities or other
governmental or quasi-governmental bodies, or documents, or
proceedings or conclusions of Japanese law, are correct in all
material respects;
(x) the statements under the caption "Taxation --
Japanese Taxation" in the Company Registration Statement and
the Company Prospectus describe the material anticipated tax
consequences of an investment in the Common Stock or ADSs
under Japanese tax laws;
(xi) the Company and its obligations under this
Agreement and the Deposit Agreement are subject to civil and
commercial law and to suit in Japan and neither it or any of
its properties, assets or revenues has any right of immunity,
on any grounds, from any legal action, suit or proceeding,
from the giving of any relief in any such legal action, suit
or proceeding, from setoff or counterclaim, from the
jurisdiction of any court, from service of process, attachment
upon or prior to judgment, or attachment in aid of execution
of judgment, or from execution of a judgment, or other legal
process or proceeding for the giving of any relief or for the
enforcement of judgment, in Japan, with respect to its
obligations, liabilities or any other matter under
28
<PAGE> 30
or arising out of or in connection with this Agreement and the
Deposit Agreement, and to the extent that the Company or its
properties, assets or revenues may have or may hereafter
become entitled to any such right of immunity in Japan in
which proceedings may at any time be commenced, the Company
has effectively waived or agreed to waive such right to the
extent permitted by law and consented to such relief and
enforcement as provided in Section 12 of this Agreement;
(xii) It is not necessary to ensure the legality,
validity, enforceability or admissibility in evidence of this
Agreement or the Deposit Agreement in Japan or any political
subdivision thereof that any of them be filed or recorded or
enrolled with any court or authority in Japan or any political
subdivision thereof or that any stamp, registration or similar
tax be paid in Japan or any political subdivision thereof
except for any ad valorem court or other expenses payable in
connection with any action, litigation, petition or other
court proceeding brought before the Courts of Japan for or in
respect of the enforcement thereof;
(xiii) to the knowledge of such counsel, (A) the
Company is not in violation of its Articles of Association,
board of directors' regulations or share handling regulations
or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, license,
lease or other instrument or agreement to which the Company is
a party or by which it may be bound, or to which any of the
property or assets of the Company is subject, which violation
or default would be reasonably expected to have a material
adverse affect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the
Company and the Subsidiary considered as one enterprise; and
(B) the execution, delivery and performance of this Agreement
and the Deposit Agreement and the consummation of the
transactions contemplated herein, therein and thereby have
been duly authorized by the Company and will not conflict with
or constitute a breach of, or default under, or result in the
creation or imposition of any tax, lien, charge or encumbrance
upon any revenues, property or assets of the
29
<PAGE> 31
Company pursuant to, any treaty, law, regulation or decree or
any contract, indenture, mortgage, loan agreement, note,
license, lease or other instrument or agreement to which the
Company is a party or by which it may be bound, or to which
any of the property or assets of the Company is subject (other
than any such breach, default, creation or imposition, as,
when taken together with all such breaches, defaults,
creations and impositions, would not be reasonably expected to
have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one
enterprise), nor will such action result in any violation of
the provisions of the Articles of Association or board of
directors' regulations or share handling regulations of the
Company or any Japanese treaty, law, rule, administrative
regulation, judgment, order of any governmental agency or
body, administrative or court decree in Japan or regulations
or guidances of the Japanese Securities Dealers Association
("JSDA") (other than any such violation as, when taken
together with all such violations, would not have a material
adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the
Company and the Subsidiary considered as one enterprise);
(xiv) the Deposit Agreement is in full force and
effect and, to such counsel's knowledge, neither the Company
nor any other party to such agreement is in default thereunder
and, to such counsel's knowledge, no event has occurred which
with the passage of time or the giving of notice or both would
constitute a default thereunder;
(xv) to the best knowledge of such counsel, the
Company owns, possesses or has the right to use patents,
patent rights, licenses, invention, copyrights, know-how
(including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names
presently employed by it in connection with the business now
operated by it, and the Company has not received and notice of
infringement of or conflict with asserted rights of others
with respect to any of the foregoing with, singly or in the
aggregate, would be reasonably expected to
30
<PAGE> 32
result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and the Subsidiary
considered as one enterprise; and
(xvi) such counsel (A) has no reason to believe that
(other than the operating statistics, financial statements,
financial schedules and other financial and statistical
information included therein, as to which no opinion need be
rendered) any part of the Company Registration Statement, when
such part became effective contained, and as of the date
hereof contains, any untrue statement of a material fact or
omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (B) has no reason to believe that (other than
the operating statistics, financial statements, financial
schedules and other financial and statistical information
included therein, as to which no opinion need be rendered) the
Company Prospectus as of the date hereof contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
With respect to subparagraph (xvi) of this paragraph (e),
Nishimura & Sanada may state that their opinion and belief are based
upon their participation in the preparation of the Company Registration
Statement, the ADS Registration Statement and the Company Prospectus
and any amendments or supplements thereto and review and discussion of
the contents thereof, but are without independent check or
verification, except as specified.
(f) You shall have received on the Closing Date an opinion of
Jones, Day, Reavis & Pogue, special U.S. counsel for the Company and
the Sellers, dated the Closing Date, to the effect that:
(i) each of the Registration Statements and the ADS
Registration Statement is effective under the Securities Act
and, to the their knowledge, no stop order suspending the
effectiveness of the Registration Statements or the ADS
Registration Statement has been issued under the Securities
Act
31
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and no proceedings for that purpose are pending or
threatened by the Commission;
(ii) at the time the Registration Statements became
effective, the Registration Statements (other than the
operating statistics, financial statements, financial
schedules and other financial and statistical information
included therein, as to which no opinion need be rendered)
complied as to form in all material respects with the
requirements of the Acts; and such counsel does not know of
any material contracts or other documents of a character
required to be described in or filed as exhibits to the
Registration Statements by the Securities Act which have not
been described in or filed as exhibits to the Registration
Statements as required;
(iii) no filing with, or consent, approval,
authorization, order, registration, qualification or decree
of, any court or governmental authority or body of the United
States or the State of New York is necessary in connection
with the consummation on the part of the Company or the
Sellers of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act or the
securities or Blue Sky laws of the various states and in
connection with the offer and sale of the PEPS Shares by the
Underwriters;
(iv) to the knowledge of such counsel, under the laws
of the State of New York relating to submission to
jurisdiction and pursuant to this Agreement, the Company has
validly and irrevocably submitted to the personal jurisdiction
of any federal or state court in the State of New York, County
of New York in any suit or proceeding based on or arising
under this Agreement as provided in Section 12 hereof; and, to
the knowledge of such counsel, the Company has the power to
designate, appoint and empower and pursuant to this Agreement
has validly and irrevocably designated, appointed and
empowered an agent for service of process in any suit or
proceeding based on or arising under this Agreement in any
federal or state court in the State of New York, County of New
York as provided in Section 12 hereof;
(v) the execution, delivery and performance by the
Company of this Agreement and the
32
<PAGE> 34
consummation on the part of the Company of the transactions
contemplated herein, to such counsel's knowledge, will not
conflict with or constitute a breach of, or a default under,
or result in the creation or imposition of any tax, lien,
charge or encumbrance upon any revenues, property or assets of
the Company or of the Subsidiary pursuant to any of the terms
herein or pursuant to any U.S. federal treaty, or any U.S.
federal or New York law, regulation or decree (other than any
such breach, default, creation or imposition as, when taken
together with all such breaches, defaults, creations and
impositions, would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and the
Subsidiary considered as one enterprise);
(vi) The execution, delivery and performance by the
Company of this Agreement and the consummation on the part of
the Company of the transactions contemplated herein will not
conflict with or result in a default under any of the
provisions of any indenture, loan agreement or other agreement
known to us by which the Company is bound, in each case which
conflict or default would be reasonably expected to have a
material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business
prospects of the Company and the Subsidiary considered as one
enterprise;
(vii) such counsel does not know of any litigation or
governmental proceedings, pending or threatened, required to
be described in the Trust Prospectus that are not described as
required;
(viii) the Company is not an "investment company" or
an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act;
(ix) the Deposit Agreement is in full force and
effect and, to such counsel's knowledge, neither the Company
nor any other party to such agreement is in default thereunder
and, to such counsel's knowledge, no event has occurred which
with the passage of time or the giving of notice or both would
constitute a default thereunder;
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(x) the ADRs are in due and proper form and comply
with the applicable statutory requirements of U.S. and state
law and conform in all material respects as to legal matters
to the description thereof contained in the Trust Prospectus;
(xi) the statements in the Company Prospectus under
"Description of the American Depositary Receipts" and "Plan of
Distribution", insofar as such statements constitute a summary
of the law or legal conclusions, documents or proceedings
referred to therein, are accurate in all material respects and
fairly present the information called for with respect to such
legal matters, legal conclusions, documents and proceedings
and fairly summarize the matters referred to therein;
(xii) To the knowledge of such counsel, the
Subsidiary is not in violation of its Certificate of
Incorporation or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan
agreement, note, license, lease or other instrument or
agreement to which the Subsidiary is a party or by which it
may be bound, or to which any of the property or assets of the
Subsidiary is subject, which violation or default would be
reasonably expected to have a material adverse affect on the
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and the
Subsidiary considered as one enterprise; and the execution,
delivery and performance of this Agreement, and the Deposit
Agreement and the consummation of the transactions
contemplated herein, therein and thereby will not conflict
with or constitute a breach of, or default under, or result in
the creation or imposition of any tax, lien, charge or
encumbrance upon any revenues, property or assets of the
Subsidiary pursuant to, any treaty, law, regulation or decree
or any contract, indenture, mortgage, loan agreement, note,
license, lease or other instrument or agreement to which the
Subsidiary is a party or by which it may be bound, or to which
any of the property or assets of the Subsidiary is subject
(other than any such breach, default, creation or imposition,
as, when taken together with all such breaches, defaults,
creations and impositions, would not be reasonably expected to
have a material adverse effect on the
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<PAGE> 36
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and the
Subsidiary considered as one enterprise), nor will such action
result in any violation of the provisions of the Certificate
of Incorporation or by-laws of the Subsidiary or any U.S.
federal treaty, or any U.S., New York or Delaware corporate
law, rule, administrative regulation, judgment, order of any
governmental agency or body or administrative or court decree
in Japan (other than any such violation as, when taken
together with all such violations, would not have a material
adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the
Company and the Subsidiary considered as one enterprise);
(xiii) upon the occurrence of an Event of Default
specified in Section [__] of the Collateral Agreements, the
rights of the Collateral Agent with respect to the Collateral,
as set forth in the Collateral Agreements, shall immediately
become exercisable in accordance with the terms of the
Collateral Agreements, and such rights will not be subject to
any stay pursuant to Section 362(a) of the Bankruptcy Code;
(xiv) the Subsidiary has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the State of Delaware, has the corporate power and
authority to own its property and to conduct its business as
described in the Company Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the
Company and the Subsidiary, considered as one enterprise; and
(xv) such counsel (A) is of the opinion that the
Registration Statements, the ADS Registration Statement and
the Prospectuses (other than the operating statistics,
financial statements, financial schedules and other financial
and statistical information included therein, as to which no
opinion need be rendered) comply as to form in all material
respects with the requirements of the Securities Act, (B) has
no
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<PAGE> 37
reason to believe that (other than the operating statistics,
financial statements, financial schedules and other financial
and statistical information included therein, as to which no
opinion need be rendered) any part of the Registration
Statements or the ADS Registration Statement, when such part
became effective contained, and as of the date hereof
contains, any untrue statement of a material fact or omitted
or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and (C) has no reason to believe that (other than
the operating statistics, financial statements, financial
schedules and other financial and statistical information
included therein, as to which no opinion need be rendered) the
Prospectuses as of the date hereof contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
With respect to subparagraph (xv) of this paragraph (f),
Jones, Day, Reavis & Pogue may state that their opinion and belief are
based upon their participation in the preparation of the Registration
Statements, the ADS Registration Statement, and the Prospectuses and
any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified.
(g) You shall have received on the Closing Date an opinion of
Cravath, Swaine & Moore, special counsel for the HDV Group, dated the
Closing Date, to effect that:
(i) HDV, Inc. has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the jurisdiction of the State of Michigan, has the power and
authority to own its property and to conduct its business and
is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good
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<PAGE> 38
standing would not have a material adverse
effect on HDV, Inc.;
(ii) HDV Trust has been duly created, is validly
existing as a trust under the laws of the State of
____________, has the power and authority to own its property
and to conduct its business and is duly qualified to transact
business in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material
adverse effect on HDV Trust;
(iii) this Agreement has been duly authorized,
executed and delivered by or on behalf of the HDV Group;
(iv) the HDV Purchase Contract, the Collateral
Agreement of the HDV Group and the Reimbursement Agreement
have been duly authorized, executed and delivered by or on
behalf of HDV Group and are valid and binding agreements of
the HDV Group enforceable against the HDV Group in accordance
with their respective terms except as (a) such enforceability
may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (b) the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(v) the execution and delivery by the HDV Group of,
and the performance by the HDV Group of its obligations under,
this Agreement, the HDV Purchase Contract and the Collateral
Agreement of the HDV Group will not contravene any provision
of applicable law or the certificate of incorporation or
by-laws of HDV, Inc. or the applicable constitutive documents
of HDV Trust, or, to such counsel's knowledge, any agreement
or other instrument binding upon the HDV Group or, to such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the HDV Group, and no consent, approval, authorization or
order of, or qualification with, any governmental body or
agency is required for the performance by the HDV Group of its
obligations under this Agreement, the HDV Purchase Contract of
such Seller, the
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Collateral Agreement of the HDV Group or the
Reimbursement Agreement;
(vi) delivery of the ADSs to be sold by HDV, Inc.
pursuant to this Agreement and the HDV Purchase Contract on
the Exchange Date will pass title to such ADSs free and clear
of any security interests, claims, liens, equities and other
encumbrances, except for those created pursuant to the
Collateral Agreement of the HDV Group;
(vii) HDV, Inc. has good and valid title to the ADSs
pledged and assigned by it pursuant to the Collateral
Agreement of HDV the Group free and clear of any security
interests, claims, liens, equities and other encumbrances. The
ADSs pledged by HDV, Inc. as of the date hereof have been duly
and validly assigned, delivered and pledged by HDV, Inc. under
the Collateral Agreement of the HDV Group and such Collateral
Agreement, together with such assignment, delivery and pledge,
creates, as security for the performance of the obligations of
HDV Group under the HDV Purchase Contract, a valid first and
perfected security interest in such ADSs prior to other liens;
(viii) to the knowledge of the HDV Group, under the
laws of the State of New York relating to submission to
jurisdiction and pursuant to this Agreement, the HDV Group has
validly and irrevocably submitted to the personal jurisdiction
of any federal or state court in the State of New York, County
of New York in any suit or proceeding based on or arising
under this Agreement as provided in Section 12 hereof; and, to
the knowledge of such counsel, the HDV Group has the power to
designate, appoint and empower and pursuant to this Agreement
has validly and irrevocably designated, appointed and
empowered an agent for service of process in any suit or
proceeding based on or arising under this Agreement in any
federal or state court in the State of New York, County of New
York as provided in Section 12 hereof.
(h) You shall have received on the Closing Date an opinion of
Hogan & Hartson, special counsel for the JVA Group, dated the Closing
Date, to effect that:
(i) JVA Trust has been duly created, is validly
existing as a trust under the laws of
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<PAGE> 40
the State of ________, has the power and authority to own its
property and to conduct its business and is duly qualified to
transact business in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a
material adverse effect on the JVA Trust;
(ii) this Agreement has been duly authorized,
executed and delivered by or on behalf of the JVA Group;
(iii) the JVA Purchase Contract, the Collateral
Agreement of the JVA Group and the Reimbursement Agreement
have been duly authorized, executed and delivered by or on
behalf of the JVA Group and are valid and binding agreements
of the JVA Group enforceable against the JVA Group in
accordance with their respective terms except as (a) such
enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (b) the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(iv) the execution and delivery by the JVA Group of,
and the performance by the JVA Group of its obligations under,
this Agreement, the Purchase Contract, the Collateral
Agreement of the JVA Group and the Reimbursement Agreement
will not contravene any provision of applicable law or the
applicable constitutive documents of JVA Trust, or, to such
counsel's knowledge, any agreement or other instrument binding
upon the JVA Group or, to such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the JVA Group, and no consent,
approval, authorization or order of, or qualification with,
any governmental body or agency is required for the
performance by the JVA Group of its obligations under this
Agreement, the JVA Purchase Contract, the Collateral Agreement
of the JVA Agreement or the Reimbursement Agreement;
(v) delivery of the ADSs to be sold by JVA Trust
pursuant to this Agreement and the JVA Purchase Contract on
the Exchange Date will pass title to such ADSs free and clear
of any security
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<PAGE> 41
interests, claims, liens, equities and other encumbrances,
except for those created pursuant to the Collateral Agreement
of the JVA Group;
(vi) JVA Trust has good and valid title to the ADSs
pledged and assigned by it pursuant to the Collateral
Agreement of the JVA Group free and clear of any security
interests, claims, liens, equities and other encumbrances. The
ADSs pledged by JVA Trust as of the date hereof has been duly
and validly assigned, delivered and pledged by JVA Trust under
the Collateral Agreement of the JVA Group and such Collateral
Agreement, together with such assignment, delivery and pledge,
creates, as security for the performance of the obligations of
the JVA Group under the JVA Purchase Contract, a valid first
and perfected security interest in such ADSs prior to other
liens;
(vii) to the knowledge of such counsel, under the
laws of the State of New York relating to submission to
jurisdiction and pursuant to this Agreement, the JVA Group has
validly and irrevocably submitted to the personal jurisdiction
of any federal or state court in the State of New York, County
of New York in any suit or proceeding based on or arising
under this Agreement as provided in Section 12 hereof; and, to
the knowledge of such counsel, the JVA Group has the power to
designate, appoint and empower and pursuant to this Agreement
has validly and irrevocably designated, appointed and
empowered an agent for service of process in any suit or
proceeding based on or arising under this Agreement in any
federal or state court in the State of New York, County of New
York as provided in Section 12 hereof;
(i) You shall have received on the Closing Date the opinion of
White & Case, special U.S. tax counsel to the Company, to the effect
that the statements in the Company Prospectus under "Taxation - United
States Federal Income Taxation", to the extent that they constitute a
description of the tax laws and regulations of the United States, or
its agencies, authorities or other governmental or quasi-governmental
bodies, or documents or proceedings or conclusions of United States
law, are correct in all material respects.
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(j) You shall have received on the Closing Date the opinion of
Ziegler, Ziegler & Altman, U.S. counsel for the Depositary, dated the
Closing Date, to the effect that:
(i) the Deposit Agreement was duly authorized, executed and
delivered by the Depositary and is currently a valid and legally
binding obligation of the Depositary enforceable against it in
accordance with its terms, except insofar as enforceability may be
limited by (a) applicable bankruptcy, insolvency, moratorium or other
laws relating to creditors' rights generally and (b) general principles
of equity (whether considered in an action at law or in equity); and
(ii) when ADRs evidencing ADSs are issued in accordance with
the Deposit Agreement against the deposit, pursuant to the terms of the
Deposit Agreement, of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock, the preemptive rights, if any,
with respect to which have been validly waived or exercised, such ADRs
will be validly issued and will entitle the holders thereof to the
rights specified therein and in the Deposit Agreement.
With respect to paragraphs (d) and (f) above, Davis Polk &
Wardwell and Jones, Day, Reavis & Pogue may rely upon the opinion of
Nishimura & Sanada set forth in paragraph (e) as to matters of Japanese
law. With respect to paragraph (e) above, Nishimura & Sanada may rely
upon the opinion of Jones, Day, Reavis & Pogue set forth in paragraph
(f) as to matters of U.S. law.
The opinion of Davis Polk & Wardwell described in paragraph
(d) above shall be rendered to the Underwriters at the request of the
Trust and shall so state therein. The opinions of Nishimura & Sanada,
Jones, Day, Reavis & Pogue, White & Case and Ziegler, Ziegler & Altman
described in paragraphs (e), (f), (i) and (j) above, respectively,
shall be rendered to the Underwriters at the request of the Company,
the Sellers and the Company, respectively, and shall so state therein.
The opinions of Cravath, Swaine & Moore and Hogan & Hartson described
in paragraphs (g) and (h) above, shall be rendered to the Underwriters
at the request of the respective Sellers and shall so state therein.
(k) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated
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<PAGE> 43
the date hereof or the Closing Date, as the case may be, in form and
substance satisfactory to the Underwriters, from Deloitte & Touche LLP,
independent public accountants for the Trust, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Trust Registration
Statement and the Trust Prospectus; provided that the letter delivered
on the Closing Date shall use a "cut-off date" not earlier than the
date hereof.
(l) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Deloitte Touche Tohmatsu, independent public
accountants for the Company, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial information contained in the Company Registration Statement
and the Company Prospectus; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date
hereof.
(m) The Depositary shall have furnished to the Underwriters a
certificate, satisfactory to the U.S. Representatives, of one of its
authorized officers with respect to the deposit with its custodian of
the shares of Common Stock underlying the ADSs to be pledged pursuant
to the Collateral Agreements, the execution and delivery of the ADRs
evidencing such ADSs pursuant to the Deposit Agreement and such other
matters related thereto as the Underwriters reasonably request.
(n) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of shares of Common Stock, ADSs or certain other
securities, delivered to you on or before the date hereof, shall be in
full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase
Additional PEPS Shares hereunder are subject to the delivery to you on the
Option Closing Date of such updated versions of the documents, certificates and
opinions set
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forth above in this Section 5 as you may reasonably request with respect to the
good standing of the Trust, the Company and the Sellers, the due authorization
and issuance of the Additional PEPS Shares and other matters related to the
issuance of the Additional PEPS Shares.
6. COVENANTS OF THE TRUST AND THE COMPANY. (a) In further
consideration of the agreements of the Underwriters herein contained, the Trust
covenants with each Underwriter as follows:
(i) To notify you immediately, and confirm such notice in
writing, (i) of the institution of any proceedings pursuant to Section
8(e) of the Investment Company Act and (ii) of the happening of any
event during the period described in paragraph (iv) below which in the
judgment of the Trust makes any statement in the Notification, the
Trust Registration Statement or the Trust Prospectus untrue in any
material respect or which requires the making of any change in or
addition to the Notification, the Trust Registration Statement or the
Trust Prospectus in order to make the statements therein not misleading
in any material respect. If at any time the Commission shall issue any
order suspending the effectiveness of the Trust Registration Statement
or an order pursuant to Section 8(e) of the Investment Company Act, the
Fund will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment.
(ii) To furnish to you, without charge, three signed copies of
each of the Notification and the Trust Registration Statement
(including exhibits thereto) and for delivery to each other Underwriter
a conformed copy of the Trust Registration Statement (without exhibits
thereto) and to furnish to you in New York City, without charge, prior
to 5:00 P.M. local time on the business day following the date of this
Agreement and during the period mentioned in paragraph (iv) below, as
many copies of the Trust Prospectus and any supplements and amendments
thereto or to the Trust Registration Statement as you may reasonably
request.
(iii) Before amending or supplementing the Trust Registration
Statement or the Trust Prospectus, to furnish to you a copy of each
such proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you or the Trustees
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reasonably object, and to file with the Commission within the
applicable period specified in Rule 497(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(iv) If, during such period after the first date of the public
offering of the PEPS Shares as in the opinion of counsel for the
Underwriters the Trust Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Trust Prospectus in order to make the statements
therein, in the light of the circumstances when the Trust Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement
the Trust Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to
the Underwriters and to the dealers (whose names and addresses you will
furnish to the Trust) to which PEPS Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Trust Prospectus so that the
statements in the Trust Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Trust Prospectus is
delivered to a purchaser, be misleading or so that the Trust
Prospectus, as amended or supplemented, will comply with law.
(v) To endeavor to qualify the PEPS Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(vi) To make generally available to the Trust's security
holders and to you as soon as practicable an earning statement covering
the twelve-month period ending December 31, 1996 that satisfies the
provisions of Section 11(a) of the Securities Act.
(vii) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid pursuant to the Fund Indemnity Agreement all expenses
incident to the performance of its obligations under this Agreement,
including: (A) the fees, disbursements and expenses of the Trust's
counsel and the Trust's accountants in connection with the registration
and delivery of the PEPS Shares under the Securities Act and all other
fees or expenses in connection with the preparation and
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<PAGE> 46
filing of the Notification, the Trust Registration Statement, any
preliminary prospectus of the Trust, the Trust Prospectus and
amendments and supplements to any of the foregoing, including all
printing costs associated therewith, and the mailing and delivering of
copies thereof to the Underwriters and dealers, in the quantities
hereinabove specified, (B) all costs and expenses related to the
transfer and delivery of the PEPS Shares to the Underwriters, including
any transfer or other taxes payable thereon, (C) the cost of printing
or producing any Blue Sky memorandum in connection with the offer and
sale of the PEPS Shares under state securities laws and all expenses in
connection with the qualification of the PEPS Shares for offer and sale
under state securities laws as provided in paragraph (v) of this
Section 6(a) including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky memorandum, (D) all
filing fees and disbursements of counsel to the Underwriters incurred
in connection with the review and qualification of the offering by the
National Association of Securities Dealers, Inc., (E) all fees and
expenses in connection with the preparation and filing of a
registration statement under the Exchange Act relating to the PEPS
Shares and all costs and expenses incident to listing the PEPS Shares
on the New York Stock Exchange, (F) the cost of printing certificates
representing the PEPS Shares, (G) the costs and charges of any transfer
agent, registrar or depositary for the PEPS Shares, and (H) all other
costs and expenses incident to the performance of the obligations of
the Trust hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section 6, Section 7 entitled "Indemnity and Contribution," and the
last paragraph of Section 9 below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their
counsel, stock transfer taxes payable on resale of any of the PEPS
Shares by them, and any advertising expenses connected with any offers
they may make.
(b) In further consideration of the agreements of the
Underwriters herein contained, the Company covenants with each Underwriter as
follows:
(i) To furnish to you, without charge, three signed copies of
the Company Registration Statement, the ADS Registration Statement
(including exhibits thereto) and for delivery to
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<PAGE> 47
each other Underwriter a conformed copy of the Company Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 10:00 A.M. local time on the business
day next succeeding the date of this Agreement and during the period
mentioned in paragraph (c) below, as many copies of the Company
Prospectus and any supplements and amendments thereto or to the Company
Registration Statement as you may reasonably request.
(ii) Before amending or supplementing the Company Registration
Statement, the ADS Registration Statement or the Company Prospectus, to
furnish to you a copy of each such proposed amendment or supplement and
not to file any such proposed amendment or supplement to which you
reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(iii) If, during such period after the first date of the
public offering of the PEPS Shares as in the opinion of counsel for the
Underwriters the Trust Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Company Prospectus in order to make the statements in
the Trust Prospectus, in the light of the circumstances when the Trust
Prospectus is delivered to a purchaser of PEPS Shares, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary
to amend or supplement the Company Prospectus to comply with applicable
law, forthwith to prepare, file with the Commission and furnish, at its
own expense, to the Underwriters and to the dealers (whose names and
addresses you will furnish to the Company) to which PEPS Shares may
have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Trust
Prospectus so that the statements in the Trust Prospectus as so amended
or supplemented will not, in the light of the circumstances when the
Trust Prospectus is delivered to a purchaser of PEPS Shares, be
misleading or so that the Company Prospectus, as amended or
supplemented, will comply with law.
(iv) To endeavor to qualify the ADSs for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
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(v) To maintain, during the period beginning the date hereof
until a date __ days following the Exchange Date, a sponsored program
for the ADSs with the Depositary or other comparable depositary
institution in the United States and to pay all fees and expenses in
connection therewith.
(vi) To make generally available to holders of PEPS Shares and
to you as soon as practicable an earning statement covering the
twelve-month period ending December 31, 1996 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(vii) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (A) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration of the shares of Common
Stock and ADSs under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Company
Registration Statement, the ADS Registration Statement any preliminary
prospectus of the Company, the Company Prospectus and amendments and
supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (B) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the sale of the ADSs under
state securities laws and all expenses in connection with the
qualification of the ADSs for offer and sale under state securities
laws as provided in paragraph (iv) of this Section 6(b), including
filing fees and the reasonable fees and disbursements of counsel for
the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (C) the
cost of printing certificates representing the ADSs, (D) the costs and
charges of any transfer agent, registrar or depositary for the ADSs,
(E) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the Offering, but limited expressly to travel and lodging
expense of the representatives and officers of the Company and 50% of
the cost of any aircraft chartered in connection with the road show in
Europe, and (F) all other costs and expenses incident to the
performance of
47
<PAGE> 49
the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except
as provided in this Section 6, Section 7 entitled "Indemnity and
Contribution," and the last paragraph of Section 9 below, the
Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on
resale of any of the ADSs by them, and any advertising expenses
connected with any offers they may make.
(c) Each Seller, severally and not jointly, agrees to pay or
cause to be paid (a) all taxes, if any, on the transfer and sale of the ADSs
being sold or pledged by such Seller and (b) such Seller's pro rata share
(determined by dividing the number ADSs to be sold by such Seller pursuant to
the Purchase Contract of such Seller by the total number of ADSs to be sold by
the Sellers under the Purchase Contracts) of all costs and expenses incident to
the performance of the obligations of the Sellers and the Company under this
Agreement, including, but not limited to, the fees and expenses of counsel and
accountants for the Sellers and the Company.
7. INDEMNITY AND CONTRIBUTION. (a) Amway Corporation agrees to
indemnify and hold harmless the Trust, the Company and each Underwriter and each
person, if any, who controls the Trust, the Company or any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by the Trust, the Company or any Underwriter or any such
controlling person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement or any amendment
thereof, any preliminary prospectus relating thereto or the Trust Prospectus (as
amended or supplemented if the Trust shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished to the
Trust in writing by such Underwriter through you expressly for use therein.
48
<PAGE> 50
(b) The Company agrees to indemnify and hold harmless the
Trust, each Seller and each Underwriter and each person, if any, who controls
the Trust, any Seller or any Underwriter within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred by the Trust, any Seller or any
Underwriter or any such controlling person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Company
Registration Statement or any amendment thereof, the ADS Registration Statement
or any amendment thereof, any preliminary prospectus or the Company Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished to the
Company in writing by such Underwriter through you expressly for use therein.
The Company agrees to indemnify and hold harmless the Trust, each Seller and
each Underwriter and each person, if any, who controls the Trust, any Seller or
any Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by the Trust, any Seller or any Underwriter, in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Trust Registration Statement or any amendment thereof, any preliminary
prospectus or the Trust Prospectus (as amended or supplemented if the Trust
shall have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with reference to information relating to the Company.
(c) The HDV Group agrees to indemnify and hold harmless the
Company, the Trust and each Underwriter and each person, if any, who controls
the Company, the Trust or any Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or
49
<PAGE> 51
other expenses reasonably incurred by the Company, the Trust or any Underwriter
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Company Registration Statement or any Amendment thereof, any preliminary
prospectus or the Company Prospectus, (as amended or Supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, but
only with reference to information relating to the HDV Group.
(d) The JVA Group agrees to indemnify and hold harmless the
Company, the Trust and each Underwriter and each person, if any, who controls
the Company, the Trust or any Underwriter within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred by the Company, the Trust or any
Underwriter in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a material
fact contained in the Company Registration Statement or any Amendment thereof,
any preliminary prospectus or the Company Prospectus, (as amended or
Supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading, but only with reference to information relating to the
JVA Group.
(e) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Trust, the Company and each Seller, and any of
their directors and officers who sign the Registration Statements and each
person, if any, who controls the Trust, the Company or the Sellers within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statements or any amendment thereof, any preliminary
prospectuses or the Prospectuses (as amended or supplemented if the Trust or the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or
50
<PAGE> 52
necessary to make the statements therein not misleading, but only with reference
to information relating to such Underwriter furnished to the Trust or the
Company in writing by such Underwriter through you expressly for use in the
Registration Statements, any preliminary prospectuses, the Prospectuses or any
amendments or supplements thereto.
(f) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b), (c), (d) or (e) of this
Section 7, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (i) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Underwriters and all
persons, if any, who control any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the Company, its officers and directors who sign the Company
Registration Statement and each person, if any who controls the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm (in addition to any local counsel) for both Sellers and all
persons, if any, who control either Seller within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such
51
<PAGE> 53
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Sellers and such controlling persons of
the Sellers, such firm shall be designated in writing by ________. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(g) To the extent the indemnification provided for in
paragraph (a), (b), (c), (d) or (e) of this Section 7 is unavailable to an
indemnified party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand from the offering of the PEPS Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the indemnifying party or parties on the
one hand and of the indemnified party or
52
<PAGE> 54
parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Trust,
the Sellers, the Company and Amway on the one hand and the Underwriters on the
other hand in connection with the offering of the PEPS Shares shall be deemed to
be in the same respective proportions as the net proceeds from the offering of
the PEPS Shares (before deducting expenses) received by the Trust and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Trust Prospectus, bear to the
aggregate Public Offering Price of the PEPS Shares. The relative fault of the
Trust, the Sellers, the Company and Amway on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Trust, the Company, the Sellers or Amway, on the one hand, or by
the Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(h) The Trust, the Company, the Sellers and the Underwriters
agree that it would not be just or equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (e) of this Section 7. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the PEPS Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of
53
<PAGE> 55
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 7 not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
(i) The indemnity and contribution provisions contained in
this Section 7 and the representations, warranties and other statements of the
Trust, the Company and the Sellers contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or by or on behalf of the Trust, the Company,
the Sellers, any of their respective officers or directors or any person
controlling the Trust, the Company or the Sellers and (iii) acceptance of and
payment for any of the PEPS Shares.
8. TERMINATION. This Agreement shall be subject to termination
by notice given by you to the Trust, the Company and the Sellers, if (a) after
the execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the Tokyo Stock Exchange, the Osaka Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of
any securities of the Trust or the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Japanese, U.S. Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the PEPS Shares on the terms and
in the manner contemplated in the Trust Prospectus.
9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
54
<PAGE> 56
If, on the Closing Date or the Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase PEPS Shares that it has or they have agreed to purchase hereunder on
such date, and the aggregate number of PEPS Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the PEPS Shares to be purchased on
such date, the other Underwriters shall be obligated severally in the
proportions that the number of Firm PEPS Shares set forth opposite their
respective names in Schedule I or Schedule II bears to the aggregate number of
Firm PEPS Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
PEPS Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date; provided that in no event shall the number
of PEPS Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such number of PEPS Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm PEPS Shares and the aggregate number of Firm PEPS
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm PEPS Shares to be purchased, and arrangements
satisfactory to you, the Trust and the Sellers for the purchase of such Firm
PEPS Shares are not made within 36 hours after such default, this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter,
the Trust or either Seller. In any such case either you, the Trust or either
Seller shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statements and in the Prospectuses or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional PEPS Shares and the
aggregate number of Additional PEPS Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional PEPS Shares
to be purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional PEPS Shares or (ii)
purchase not less than the number of Additional PEPS Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
55
<PAGE> 57
If this Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Trust, the
Company or either Seller to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Trust, the Company or
either Seller shall be unable to perform its obligations under this Agreement,
the Trust, the Company and the Sellers, severally and not jointly, will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering contemplated
hereunder.
10. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
12. LITIGATION. Each of the Company, the Trust and each member
of the HDV Group and the JVA Group irrevocably agrees that any legal suit,
action or proceeding against it brought by any Underwriter or by any person who
controls any Underwriter arising out of or based upon this Agreement or the
transactions contemplated hereby may be instituted in any state or federal court
in the Borough of Manhattan, The City of New York, New York, irrevocably waives,
to the fullest extent permissible by law, any objection which it may now or
hereafter have to the laying of venue of any such proceeding and irrevocably
submits to the non-exclusive jurisdiction of such courts in any such suit,
action or proceeding. Each of the Company, the Trust and each member of the HDV
Group and the JVA Group has appointed CT Corporation System, 1633 Broadway, New
York, New York 10019 as its authorized agent (the "Authorized Agent") upon which
process may be served in any such action arising out of or based on this
Agreement or the transactions contemplated hereby which may be instituted in any
state or federal court in the Borough of Manhattan, The City of New York, New
York, by any Underwriter or by any person who controls any Underwriter,
expressly consents to the jurisdiction of any such court in respect of any such
action, and waives any other requirements of or objections
56
<PAGE> 58
to personal jurisdiction with respect thereto. Such appointment shall be
irrevocable. Each of the Company, the Trust and each member of the HDV Group and
the JVA Group represents and warrant that the Authorized Agent has agreed to act
as said agent for service of process, and each of the Company, the Trust and
each member of the HDV Group and the JVA Group agrees to take any and all
action, including the filing of any and all documents, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the Authorized Agent and written notice of such service to the
Company, the Trust or the relevant member of the HDV Group or the JVA Group, as
the case may be, shall be deemed, in every respect, effective service of process
upon the Company and, the Trust and each member of the HDV Group and the JVA
Group. Each of the Company hereby irrevocably waives any immunity to
jurisdiction to which they may otherwise be entitled or become entitled
(including sovereign immunity and immunity to pre-judgment attachment and
execution) in any legal suit, action or proceeding against it arising out of or
based on this Agreement or the transactions contemplated hereby which is
instituted in any state or federal court in the Borough of Manhattan, The City
of New York, New York. Notwithstanding the foregoing, any action based on this
Agreement may be instituted against the Company by any U.S. Underwriter in any
competent court in the Republic of Japan.
If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than U.S.
dollars, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate at which in
accordance with normal banking procedures Morgan Stanley & Co. Incorporated
could purchase U.S. dollars with such other currency in The City of New York on
the business day preceding that on which final judgment is given. The obligation
of any party in respect of any sum due from it to any Underwriter shall,
notwithstanding any judgment in a currency other than U.S. dollars, be
discharged only if and to the extent that on the first business day following
receipt by such Underwriter of any sum adjudged to be so due in such other
currency, such Underwriter may in accordance with normal banking procedures
purchase such U.S. dollars with such other currency as it would have purchased
on the business day preceding that on which the final judgment is rendered; if
the U.S. dollars so purchased are less than the sum originally due to such
Underwriter hereunder, such party agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify such Underwriter against such
loss. If the U.S. dollars so purchased are greater than the sum originally due
to such Underwriter hereunder, such
57
<PAGE> 59
Underwriter agrees to pay to such party an amount equal to the excess of the
dollars so purchased over the sum originally due to such Underwriter hereunder.
13. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
AJL PEPS TRUST
______________________, as trustee,
William R. Latham III
______________________, as trustee, and
James B. O'Neill
______________________, as trustee,
Donald J. Puglisi
each as trustee of AJL PEPS TRUST
AMWAY JAPAN LIMITED
By_____________________________
Name:
Title:
HDV GRIT HOLDINGS, INC.
By__________________________
Name:
Title:
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<PAGE> 60
HDV GRANTOR RETAINED INCOME TRUST:
_____________________, as trustee,
Richard M. DeVos, Jr.
_____________________, as trustee,
Jerry L. Tubergen
each as trustee of
HDV GRANTOR RETAINED
INCOME TRUST
JAY VAN ANDEL TRUST
By__________________, as trustee
David Van Andel
_____________________
Jay Van Andel
AMWAY CORPORATION
By______________________________
Name:
Title:
59
<PAGE> 61
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Acting severally on behalf
of themselves and the
several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By___________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. International Limited
Merrill Lynch International Limited
Acting severally on behalf
of themselves and the
several International
Underwriters named in
Schedule II hereto.
By Morgan Stanley & Co.
International Limited
By___________________________
Name:
Title:
60
<PAGE> 62
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm PEPS Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
[NAMES OF OTHER UNDERWRITERS]
---------------
Total ........
===============
</TABLE>
<PAGE> 63
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Firm PEPS Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. International Limited
Merrill Lynch International Limited
[NAMES OF OTHER UNDERWRITERS]
---------------
Total ........
===============
</TABLE>
<PAGE> 64
Exhibit A
[FORM OF LOCK-UP CONTRACT]
November __, 1995
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that you, as Representatives of
the several Underwriters, propose to enter into an underwriting agreement (the
"Underwriting Agreement") with, among others, AJL PEPS Trust, a trust organized
under the laws of the State of New York (the "Trust") providing for the public
offering (the "Public Offering") by the several Underwriters, including
yourselves, of Premium Exchangeable Participating Shares (no par value) of the
Trust (the "PEPS"), which are mandatorily exchangeable in 1999 for American
Depositary Shares ("ADSs"), each representing one-half of one share of common
stock, no par value (the "Common Stock") of Amway Japan Limited, a Japanese
corporation (the "Company") or, at the option of the holder of PEPS, an
equivalent in shares of Common Stock.
In consideration of the Underwriters' agreement to purchase
and make the Public Offering of the PEPS, and for other good and valuable
consideration receipt of which is hereby acknowledged, the undersigned hereby
agrees it will not, for a period of 90 days from the date of the final domestic
and international prospectuses relating to the Public Offering which are
initially filed under Rule 424(b) of the Securities of Act of 1933, as amended,
by the Trust with respect to the Public Offering, and except as otherwise
provided herein or contemplated by the terms of the Underwriting Agreement,
without your prior written consent, (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any ADSs or shares of Common Stock or any
securities convertible into or exercisable or exchangeable for ADSs or
<PAGE> 65
shares of Common Stock (whether such ADSs or shares of Common Stock or any such
securities are now owned by the undersigned or are hereafter acquired), or (2)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the ADSs or shares of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of ADSs, shares of Common Stock or such other securities, in
cash or otherwise; except that the undersigned may, without your consent,
transfer ADSs or shares of Common Stock or securities convertible into or
exercisable or exchangeable for ADSs or Common Stock pursuant to (x) certain
permitted private sale transactions among members of the DeVos and Van Andel
Families (as defined below) or any entity directly or indirectly controlled by
members of the Van Andel or DeVos Families or entities directly or indirectly
controlled by any of them (collectively, the "Affiliated Entities") in which the
transferee agrees in writing to be bound by the provisions hereof to the same
extent as the transferor is bound hereunder, (y) existing or prospective
employee stock option plans previously disclosed to the Underwriters and (z) a
bona fide gift or gifts among members of the DeVos and Van Andel Families or the
Affiliated Entities or to a charitable or educational organization which is a
tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended if the donee agrees in writing to be bound by the provisions
hereof to the same extent as the donor is bound hereunder. For purposes of this
letter "Van Andel and DeVos Families" shall mean Mr. Jay Van Andel and Mr.
Richard M. DeVos and any and all of the following: their spouses, parents,
brothers, sisters, brothers-in-law, sisters-in-law, children and grandchildren
(whether natural or adopted), daughters-in-law, sons-in-law and blood relatives
not more remote than first cousin.
<PAGE> 66
Very truly yours,
________________________
(Name)
________________________
(Address)
Accepted as of the date
first set forth above:
MORGAN STANLEY & CO. INCORPORATED
By:_______________________
<PAGE> 1
[400,000] PEPS Shares
PEPS TRUST-AJL
PREMIUM EXCHANGEABLE PREFERRED PEPS Shares
AGREEMENT BETWEEN U.S. AND INTERNATIONAL UNDERWRITERS
November __, 1995
<PAGE> 2
November __, 1995
To each of the Underwriters named in
Schedules I and II to the Underwriting
Agreement referred to below.
Dear Sirs:
We understand that PEPS Trust-AJL, a trust created under the
laws of the State of New York (the "Trust"), has entered into an underwriting
agreement (the "Underwriting Agreement") with Morgan Stanley & Co. Incorporated
and Merrill Lynch, Pierce, Fenner & Smith Incorporated acting as representatives
(the "U.S. Representatives") of the U.S. underwriters named in Schedule I
thereto (the "U.S. Underwriters") and Morgan Stanley & Co. International Limited
and Merrill Lynch International Limited, as representatives (the "International
Representatives") of the international underwriters named in Schedule II thereto
(the "International Underwriters," and, together with the U.S. Underwriters, the
"Underwriters"), pursuant to which the several Underwriters have agreed to
purchase from the Trust an aggregate of [400,000] shares of Premium Exchangeable
Participating PEPS Shares of the Trust ("PEPS"). In addition, the Trust has
granted the U.S. Underwriters the option to purchase up to [60,000] additional
shares of PEPS (the "Additional PEPS Shares"). Each PEPS Share will be exchanged
for American Depository Shares ("ADSs") or, at the option of the holder thereof,
the equivalent in shares of Common Stock ("Common Stock") of Amway Japan
Limited, a Japanese corporation (the "Company"), on November __, 1998 to be
delivered pursuant to purchase contracts between the Trust and each of HDV GRIT
Holdings, Inc., a ________ corporation, and the Jay Van Andel Trust, a trust
created under the laws of the State of _________ (collectively, the "Sellers").
All shares of PEPS to be purchased by the U.S. Underwriters and the
International Underwriters under the Underwriting Agreement, including any
Additional PEPS Shares, are hereinafter called the "U.S. PEPS Shares" and the
"International PEPS Shares," respectively. The U.S. PEPS Shares and the
International PEPS Shares are collectively referred to herein as the "PEPS
Shares."
<PAGE> 3
I.
The U.S. Underwriters, acting through the U.S. Representatives,
and the International Underwriters, acting through the International
Representatives, agree that, in order to provide an orderly marketing effort for
the offering, they will consult with each other as to the availability of the
PEPS Shares for sale to the public, from time to time until the earlier of (a)
notice from the U.S. Representatives to the U.S. Underwriters of the completion
of the distribution of the U.S. PEPS Shares and (b) notice from the
International Representatives to the International Underwriters of the
completion of the distribution of the International PEPS Shares. From time to
time as mutually agreed among the U.S. Underwriters and the International
Underwriters, acting through Morgan Stanley & Co. Incorporated and Morgan
Stanley & Co. International Limited, respectively, the Underwriters may purchase
and sell among each other such number of PEPS Shares to be purchased pursuant to
the Underwriting Agreement as may be so mutually agreed.
The price and currency of settlement of any PEPS Shares so
purchased or sold shall be the public offering price, in United States dollars,
less an amount not greater than the selling concession. Settlement with respect
to any PEPS Shares transferred hereunder prior to the Closing Date (as defined
in the Underwriting Agreement) shall be made on the Closing Date, and in the
case of purchases and sales made thereafter, as promptly as practicable but in
no event later than three business days (four business days in the case of any
purchase or sale made after 4:30 p.m. Eastern Time on the transfer date) after
the transfer date. Certificates representing the PEPS Shares so purchased shall
be delivered on the respective settlement dates. The liability of the
Underwriters under the Underwriting Agreement for payment of the purchase price
of the PEPS Shares purchased thereunder shall not be affected by the provisions
of this Agreement.
The obligations of each U.S. Underwriter in respect of any
purchase or sale of PEPS Shares under this Article I by the U.S. Underwriters
shall be pro rata in accordance with such U.S. Underwriter's proportion of the
total number of U.S. PEPS Shares. The obligations of each International
Underwriter in respect of any purchase or sale of PEPS Shares under this Article
I by the International Underwriters shall be pro rata in accordance with such
International Underwriter's proportion of the total number of International PEPS
Shares.
2
<PAGE> 4
II.
Each of the Underwriters represents that it is a member in good
standing of the U.S. National Association of Securities Dealers, Inc. (the
"NASD") or that it is a foreign bank or dealer not eligible for membership in
the NASD. In making sales of PEPS Shares, if it is such a member, such
Underwriter agrees to comply with all applicable rules of the NASD, including,
without limitation, the NASD's Interpretation with Respect to Free-Riding and
Withholding and Section 24 of Article III of the NASD's Rule's of Fair Practice,
or, if it is such a foreign bank or dealer, such Underwriter agrees to comply
with such Interpretation and Sections 8, 24 and 36 of such Article as though it
were such a member and Section 25 of such Article as it applies to a nonmember
broker or dealer in a foreign country.
III.
Each U.S. Underwriter represents and agrees that, except for
(x) sales between the U.S. Underwriters and the International Underwriters
pursuant to Article I of this Agreement and (y) stabilization transactions,
contemplated in Article IV of this Agreement, conducted through the U.S.
Representatives as part of the distribution of the PEPS Shares, (a) it is not
purchasing any of the U.S. PEPS Shares for the account of anyone other than a
United States or Canadian Person and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any of the U.S. PEPS Shares or
distribute any prospectus relating to the U.S. PEPS Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person, and
any dealer to whom it may sell any of the U.S. PEPS Shares will represent that
it is not purchasing any of the U.S. PEPS Shares for the account of anyone other
than a United States or Canadian Person and will agree that it will not offer or
resell such U.S. PEPS Shares directly or indirectly outside the United States or
Canada or to anyone other than a United States or Canadian Person or to any
other dealer who does not so represent and agree.
Each International Underwriter represents and agrees that,
except for (x) sales between the U.S. Underwriters and the International
Underwriters pursuant to Article I of this Agreement and (y) stabilization
transactions, contemplated in Article IV of this Agreement,
3
<PAGE> 5
conducted through the U.S. Representatives as part of the distribution of the
PEPS Shares, (a) it is not purchasing any of the International PEPS Shares for
the account of any United States or Canadian Person and (b) it has not offered
or sold, and will not offer or sell, directly or indirectly, any of the
International PEPS Shares or distribute any prospectus relating to the
International PEPS Shares in the United States or Canada or to any United States
or Canadian Person, and any dealer to whom it may sell any of the International
PEPS Shares will represent that it is not purchasing any of the International
PEPS Shares for the account of any United States or Canadian Person and will
agree that it will not offer or resell such International PEPS Shares directly
or indirectly in the United States or Canada or to any United States or Canadian
Person or to any other dealer who does not so represent and agree.
With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter shall apply only to PEPS Shares
purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in its
capacity as an International Underwriter shall apply only to PEPS Shares
purchased by it in its capacity as an International Underwriter and (iii) shall
not restrict its ability to distribute any prospectus relating to the PEPS
Shares to any person. "United States or Canadian Person" shall mean any national
or resident of the United States or Canada, or any corporation, pension,
profit-sharing or other trust or other entity organized under the laws of the
United States or Canada or of any political subdivision thereof (other than a
branch located outside of the United States and Canada of any United States or
Canadian Person), and shall include any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. "United States"
shall mean the United States of America, its territories, its possessions and
all areas subject to its jurisdiction.
The agreements of the Underwriters set forth in the first and
second paragraphs of this Article III shall terminate upon the earlier of (a)
the mutual agreement of the U.S. Representatives and the International
Representatives and (b) 30 days after the date hereof, unless the U.S.
Representatives or the International Representatives shall have given notice to
the other to the effect that the distribution of the PEPS Shares by the U.S.
Underwriters or the International Underwriters, as the case may be, has not yet
been completed. If such notice is given, the agreements set forth in such
preceding paragraphs
4
<PAGE> 6
shall survive until the earlier of (x) the mutual agreement referred to in the
preceding sentence and (y) 30 days after the date of any such notice.
Each U.S. Underwriter represents that it has not offered or
sold, and agrees not to offer or sell, any PEPS Shares, directly or indirectly,
in Canada in contravention of the securities laws of Canada or any province or
territory thereof and, without limiting the generality of the foregoing,
represents that any offer of PEPS Shares in Canada will be made only pursuant to
an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made. Each U.S. Underwriter further
agrees to send to any dealer who purchases from it any of the PEPS Shares a
notice stating in substance that, by purchasing such PEPS Shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such PEPS Shares in Canada or to, or for
the benefit of, any resident of Canada in contravention of the securities laws
of Canada or any province or territory thereof and that any offer of PEPS Shares
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province of Canada in which such offer is made, and
that such dealer will deliver to any other dealer to whom it sells any of such
PEPS Shares a notice containing substantially the same statement as is contained
in this sentence.
The Underwriters understand that no action has been or will be
taken in any jurisdiction by the Underwriters, the Trust, the Company or the
Sellers that would permit a public offering of the PEPS Shares, or possession or
distribution of the Prospectuses (as defined in the Underwriting Agreement), in
preliminary or final form, in any jurisdiction where, or in any circumstances in
which, action for that purpose is required, other than the United States.
Each International Underwriter agrees that it will comply with
all applicable laws and regulations, and make or obtain all necessary filings,
consents or approvals, in each jurisdiction in which it purchases, offers, sells
or delivers PEPS Shares (including, without limitation, any applicable
requirements relating to the delivery of the Prospectuses, in preliminary or
final form), in each case at its own expense. In connection with sales of and
offers to sell PEPS Shares made by it, such International Underwriter will
either furnish to each person to whom any such sale or offer is made a copy of
the then-current Prospectuses (in preliminary or final form and as then amended
or
5
<PAGE> 7
supplemented if the Trust or the Company shall have furnished any amendments or
supplements thereto), or inform such person that such Prospectuses, in
preliminary or final form, will be made available upon request.
Each International Underwriter further represents that it has
not offered or sold, and agrees not to offer or sell, directly or indirectly, in
Japan or to or for the account of any resident thereof, any of the PEPS Shares
acquired in connection with the distribution contemplated hereby, except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law of Japan. Each International Underwriter further agrees to send
to any dealer who purchases from it any of the PEPS Shares a notice stating in
substance that, by purchasing such PEPS Shares, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, any of such
PEPS Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan, and that such dealer
will send to any other dealer to whom it sells any of such PEPS Shares a notice
containing substantially the same statement as is contained in this sentence.
Each International Underwriter further represents and agrees
that (i) it has not offered or sold and will not offer or sell any PEPS Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purpose of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the PEPS Shares
in, from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the PEPS Shares if
such person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom such document may otherwise lawfully be issued or passed on.
6
<PAGE> 8
Each International Underwriter agrees to indemnify and hold
harmless the Trust, the Company, the Sellers, each Underwriter and each person
controlling the Trust, the Company, the Sellers or any Underwriter from and
against any and all losses, claims, damages and liabilities (including fees and
disbursements of counsel) arising from any breach by it of any of the provisions
of paragraphs six, seven, eight and nine of this Article III.
IV.
The overall direction and planning of the stabilization
transactions contemplated herein shall be the responsibility of the U.S.
Representatives and the International Representatives, which will consult with
one another on a continuous basis so that such stabilization transactions, which
may be effected in PEPS, ADSs or both, shall be conducted in accordance with
such direction and planning as is mutually agreed upon.
All stabilization transactions shall be conducted only by
Morgan Stanley & Co. Incorporated and shall be conducted in compliance with any
applicable laws and regulations. Morgan Stanley & Co. Incorporated agrees to
notify the International Representatives of the date of termination of
stabilization.
The International Primary Market Association (IPMA) limits will
not be complied with in connection with stabilization losses and expenses. All
stabilization transactions shall be for the respective accounts of the several
Underwriters and shall be allocated between the U.S. Underwriters and the
International Underwriters in the respective proportions that the number of U.S.
PEPS Shares and International PEPS Shares purchased pursuant to the Underwriting
Agreement bear to the total number of PEPS Shares purchased. In no event shall
the net commitment of any Underwriter, for either long or short account,
resulting from such stabilization transactions and from the over-allotments
referred to in Article V, exceed 15% of the aggregate dollar amount of the
original purchase obligation of such Underwriter under the Underwriting
Agreement; provided that, in determining the net commitment of any
Underwriter for short account, there shall be subtracted (x) in the case of any
U.S. Underwriter, any PEPS Shares that the U.S. Representatives have agreed to
purchase for the account of such U.S. Underwriter pursuant to Article I of this
Agreement and the maximum number of Additional PEPS Shares that such Underwriter
is entitled to purchase under
7
<PAGE> 9
the Underwriting Agreement and (y) in the case of any International Underwriter,
any PEPS Shares that the International Representatives have agreed to purchase
for the account of such International Underwriter pursuant to Article I of this
Agreement.
Each U.S. Underwriter agrees that it will not offer or sell,
directly or indirectly, PEPS Shares to any person at less than the public
offering price, other than to (i) the International Underwriters pursuant to
Article I hereof or (ii) other U.S. Underwriters or to dealers who have entered
into the Master Dealer Agreement with Morgan Stanley & Co. Incorporated and who
have received a pricing wire from the U.S. Representatives with respect to this
offering that, among other things, sets forth such dealer's agreement that it is
not purchasing PEPS Shares for the account of any persons other than United
States or Canadian Persons and that it will not offer or resell PEPS Shares
outside the United States and Canada. Such sales to U.S. dealers and other U.S.
Underwriters shall be made at a price that is not below the public offering
price less the maximum permissible reallowance to be specified in the Trust
Prospectus (as defined in the Underwriting Agreement). Each U.S. Underwriter
agrees that prior to offering PEPS Shares to any dealer at the public offering
price less the reallowance, it will either ascertain that such dealer has
entered into such Master Dealer Agreement and received such a pricing wire or
make arrangements to ensure that such dealer will enter into such Master Dealer
Agreement and receive such a pricing wire.
Each International Underwriter represents that it has not
offered or sold, and agrees that it will not offer or sell, directly or
indirectly, PEPS Shares to any person at less than the offering price, other
than to (i) U.S. Underwriters pursuant to Article I hereof or (ii) other
International Underwriters or to dealers who have entered into International
Dealer Agreements (the "International Dealers") with the International
Representatives in the form of Exhibit C to the Agreement Among International
Underwriters. Such sales to International Dealers and other International
Underwriters shall be made in conformity with the provisions of Article II and
at a price that is not below the public offering price less the maximum
permissible reallowance to be specified in the Trust Prospectus. Each
International Underwriter agrees that prior to offering PEPS Shares to any
dealer at the public offering price less the reallowance, it will either
ascertain that such dealer has entered into such an International Dealer
Agreement or make arrangements to assure that such dealer will enter into an
International Dealer Agreement.
8
<PAGE> 10
The agreements of the Underwriters set forth in the foregoing
two paragraphs shall terminate upon the earlier of (a) the mutual agreement of
the U.S. Representatives and the International Representatives and (b) 30 days
after the date hereof, unless the U.S. Representatives or the International
Representatives shall have given notice to the other to the effect that the
distribution of the PEPS Shares by the U.S. Underwriters or the International
Underwriters, as the case may be, has not yet been completed. If such notice is
given, the agreements set forth in such preceding paragraphs shall survive until
the earlier of (x) the mutual agreement referred to in the preceding sentence
and (y) 30 days after the date of any such notice.
Each Underwriter agrees that it will not, without the advance
approval of the U.S. Representatives and the International Representatives,
respectively, buy, sell, deal or trade in (i) any PEPS, ADSs or Common Stock,
(ii) any security convertible into PEPS, ADSs or Common Stock or (iii) any right
or option to acquire or sell PEPS, ADSs or Common Stock or any security
convertible into PEPS, ADSs or Common Stock, for its own account or for the
account of a customer, except (a) as provided in the Agreement Among
International Underwriters, the Master Agreement Among Underwriters, this
Agreement or in the Underwriting Agreement, (b) that it may convert any security
convertible into PEPS, ADSs or Common Stock owned by it and sell PEPs, ADSs or
Common Stock acquired upon such conversion and that it may deliver PEPS, ADSs or
Common Stock owned by it upon the exercise of any option written by it as
permitted by the provisions set forth herein, (c) in brokerage transactions on
unsolicited orders which have not resulted from activities on its part in
connection with the solicitation of purchases and which are executed by it in
the ordinary course of its brokerage business and (d) that on or after the date
of the initial public offering of the PEPS Shares, it may execute covered
writing transactions in options to acquire PEPS, ADSs or Common Stock, when such
transactions are covered by PEPS Shares, for the accounts of customers.
An opening uncovered writing transaction in options to acquire
PEPS, ADSs or Common Stock for an Underwriter's account or for the account of a
customer shall be deemed, for purposes of this Article IV, to be a sale of PEPS,
ADSs or Common Stock, as the case may be, which is not unsolicited. The term
"opening uncovered writing transaction in options to acquire" as used above
means a transaction in which the seller intends to become a writer of an option
to purchase PEPS, ADSs or Common Stock which he does not own. An opening
uncovered purchase transaction in
9
<PAGE> 11
options to sell PEPS, ADSs or Common Stock for an Underwriter's account or for
the account of a customer shall be deemed, for purposes of this paragraph, to be
a sale of PEPS, ADSs or Common Stock, as the case may be, which is not
unsolicited. The term "opening uncovered purchase transaction in options to
sell" as used above means a transaction where the purchaser intends to become an
owner of an option to sell PEPS, ADSs or Common Stock which he does not own.
Each Underwriter represents that it has not participated, since
it was invited to participate in the offering of the PEPS Shares, in any
transaction prohibited by this Article IV and that it has at all times complied
and agrees that it will at all times comply with the provisions of Rule 10b-6 of
the U.S. Securities Exchange Act of 1934, as amended, applicable to this
offering.
V.
The overall direction and planning of any over-allotments to be
made by the Underwriters in arranging for sales of PEPS Shares, and the related
transactions required to cover such over-allotments, shall be the responsibility
of the U.S. Representatives. All profits and losses arising from such
over-allotments (excluding the excess, if any, of (i) the public selling price
of any Additional PEPS Shares and any PEPS Shares purchased pursuant to Article
I of this Agreement over (ii) the cost of such Additional PEPS Shares and such
other PEPS Shares to the Underwriters making such sales) shall be for the
respective accounts of the several Underwriters and shall be allocated between
the U.S. Underwriters and the International Underwriters in the respective
proportions that the number of U.S. PEPS Shares and International PEPS Shares
purchased pursuant to the Underwriting Agreement bears to the total number of
PEPS Shares purchased.
VI.
Each of the Underwriters agrees that the expenses incurred in
connection with or attributable to the purchase, carrying or sale of the PEPS
Shares, including the fees and disbursements of David Polk & Wardwell (U.S.
counsel to the Underwriters), shall be for the respective accounts of the
several Underwriters and shall be allocated between the U.S. Underwriters and
the International Underwriters in the
10
<PAGE> 12
respective proportions that the number of U.S. PEPS Shares and International
PEPS Shares, respectively, bears to the total number of PEPS Shares purchased.
VII.
Changes in the offering price and in the concessions and
reallowances to dealers will be made only upon the mutual agreement of the
Underwriters during the period referred to in the first sentence of Article I
hereof.
VIII.
The Underwriters will keep one another fully informed of the
progress of the offering of the PEPS Shares.
The agreements of the Underwriters contained in Article II, the
fifth through tenth paragraphs of Article III, the last paragraph of Article IV
and Article V and Article VI shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any termination of the
Underwriting Agreement, (iii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter or by or on behalf of the
Trust, the Company, the Sellers, their officers or directors or any other person
controlling the Trust, the Company or the Sellers and (iv) acceptance of and
payment for any PEPS Shares.
IX.
This Agreement may be signed in counterparts, which together
shall constitute one and the same instrument.
This Agreement shall be governed and construed in all respects
in accordance with the laws of the State of New York and United States federal
law.
11
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been executed as of the
date and year first above written by the undersigned for themselves and for the
Underwriters as set forth above.
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
Acting severally on behalf
of themselves and the
several U.S. Underwriters
named in Schedule I to the
Underwriting Agreement referred
to herein.
By MORGAN STANLEY & CO.
INCORPORATED
By ________________________
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
Acting severally on behalf of
themselves and the several
International Underwriters named in
Schedule II to the Underwriting
Agreement referred to herein.
By MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
By ________________________
12
<PAGE> 1
MORGAN STANLEY & CO.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
MASTER AGREEMENT AMONG UNDERWRITERS
August 1, 1982
Dear Sirs:
From time to time we may invite you (and others) to participate on the
terms set forth herein as underwriter in connection with certain public
offerings of securities that are managed by us. If we invite you to
participate in a specific offering (an "Offering") to which this Master
Agreement Among Underwriters shall apply, we will send you, by wire, telex or
other written means, and agreement among underwriters, substantially in the
form of Exhibit A hereto (an "AAU"). Any such AAU may exclude or revise such
provisions of this Master Agreement Among Underwriters or may contain such
additional provisions as you and we mutually deem appropriate. An
Underwriters' Questionnaire to be used in connection with such Offerings is
attached as Exhibit B hereto.
Each AAU shall relate to a specific Offering and shall identify (i) the
securities to be offered, their principal terms, the issuer thereof and, if
different from the issuer, the seller or sellers of such securities, (ii) the
underwriting agreement providing for the purchase of such securities by the
several underwriters and whether such agreement provides the several
underwriters with an option to purchase additional securities to cover
over-allotments, (iii) the price at which such securities are to be purchased
by the several underwriters from the seller or sellers thereof (or a formula
establishing the maximum such price), (iv) the offering terms, including, if
applicable, the public offering price, concession, reallowance and management
fee with respect to such securities, (v) the manager or managers for such
Offering and (vi) if applicable, the trustee for the indenture under which such
securities will be issued.
Each AAU shall also set forth your proposed participation in the
Offering to which it relates and you hereby agree to accept such participation
on the terms set forth or contemplated herein and in such AAU without further
action on your part. You may decline such participation only if we receive by
wire, telex or other written means a notice from you to that effect before the
time specified in such AAU for such a notice. If we do not receive such a
notice by such time, such AAU shall constitute a valid and binding contract
between us.
Unless we have received by wire, telex or other written means a notice
from you stating exceptions to the Underwriters' Questionnaire attached as
Exhibit B hereto before the time specified in an AAU for such a notice, you
hereby confirm that you have no exceptions in connection with the Offering to
which such AAU relates.
Except to the extent an AAU provides otherwise, you and we hereby agree
that the following general provisions shall be incorporated by reference in
each AAU. For purposes of such general provisions, the term Applicable AAU
means incorporating such general provisions by reference; the term Agreement
means the Applicable AAU including the general provisions incorporated
<PAGE> 2
therein by reference as it applies to the Offering identified in such
Applicable AAU; the terms Securities, Issuer, Underwriting Agreement,
Underwriters, Manager and Trustee shall have the meanings set forth in the
Applicable AAU; the term Firm Securities means the Securities that the several
Underwriters are initially committed to purchase under the Underwriting
Agreement; and the term Additional Securities means the Securities, if any,
that the several Underwriters have an option to purchase under the Underwriting
Agreement to cover over-allotments.
I.
1.1. You understand that the Issuer has filed with the Securities and
Exchange Commission (the "Commission") a registration statement including a
prospectus relating to the Securities. If the registration statement relates to
securities to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 (the "1933 Act"), the term Registration
Statement means such registration statement as amended to the date of the
Underwriting Agreement. Otherwise, the term Registration Statement means such
registration statement as amended at the time when it becomes effective. The
term Prospectus means the prospectus, together with the final prospectus
supplement, if any, relating to the offering of the Securities, filed pursuant
to Rule 424 under the 1933 Act. The term preliminary prospectus means any
preliminary prospectus relating to the offering of the Securities or any
preliminary prospectus supplement together with a prospectus relating to the
offering of the Securities. As used herein the terms Registration Statement,
Prospectus and preliminary prospectus shall include in each case the material,
if any, incorporated by reference therein.
1.2. You authorize the Manager, on your behalf, to determine the form
of the Underwriting Agreement and to execute and deliver to the seller or
sellers (collectively, the "Seller") of the Securities the Underwriting
Agreement to purchase (i) up to the amount of Firm Securities set forth in the
Applicable AAU and (ii) if the Manager elects on behalf of the several
Underwriters to exercise any option to purchase Additional Securities, up to
the amount of Additional Securities set forth in the Applicable AAU, subject,
in each case, to reduction pursuant to Article III. The amount of Firm
Securities set forth opposite each Underwriter's name in the Underwriting
Agreement plus any additional Firm Securities which you may become obligated to
purchase under the Underwriting Agreement or Article X hereof is hereinafter
referred to as the original purchase obligation of such Underwriter and the
ratio which such original purchase obligation bears to the total amount of
Firm Securities set forth in the Underwriting Agreement is hereinafter referred
to as the underwriting percentage of such Underwriter.
II.
2.1. You authorize the Manager to act as manager of the offering of the
Securities for sale by the Underwriters (the "Underwriters' Securities") or by
the Seller pursuant to delayed delivery contracts (the "Contract Securities"),
if any, contemplated by the Underwriting Agreement. You authorize the Manager
to (i) vary the offering terms of the Securities in effect at any time,
including, if applicable, the public offering price, concession and
reallowance, (ii) purchase any or all of the Additional Securities for the
accounts of the several Underwriters pursuant to the Underwriting Agreement,
(iii) determine, within the limits of any formula set forth in the Applicable
AAU, on your behalf, the price at which the Securities are to be purchased by
the several Underwriters from the Seller, (iv) agree, on your behalf, to any
addition to, change in or waiver of any provision of the Underwriting
Agreement (other than a change in the purchase price of the Securities from
that contemplated by the Applicable AAU or an increase of your original
purchase obligation) and (v) take any other action as may seem advisable to the
Manager in respect of the offering of the Securities.
2.2. The public offering of the Securities is to made as soon after the
Underwriting Agreement is entered into by the Seller and the Manager as in the
Manager's judgment is advisable, on the terms and conditions set forth in the
Prospectus and the Applicable AAU. Any public advertisement of the offering of
the Securities shall be made by the Manager on behalf of the Underwriters on
such date as the Manager shall determine. You agree not to advertise such
offering prior to the date of the
2
<PAGE> 3
Manager's advertisement thereof without the Manager's consent. Any
advertisement you may make of such offering after such date will be your own
responsibility and at your own expense.
2.3. You authorize the Manager to sell for your account to institutions
such Securities pruchased by you from the Seller as the Manager shall
determine. Except for sales for the accounts of Underwriters designated by a
purchasing institution, aggregate sales of Securities to institutions shall be
made for the accounts of the several Underwriters as nearly as practicable in
their respective underwriting percentages.
2.4 You authorize the Manager to sell for your account to dealers such
Securities purchased by you from the Seller as the Manager shall determine.
Sales of Securities to dealers shall be made for the account of each
Underwriter approximately in the proportion that Securities of such Underwriter
held by the Manager for such sales bears to all Securities so held.
2.5. The Manager will advise you promptly, on the date of the public
offering, as to the Securities purchased by you which you shall retain for
direct sale. At any time prior to the termination of the Agreement, any
Securities purchased by you, which are held by the Manager for sale for your
account as set forth above but not sold, may, on your request and at the
Manager's discretion, be released to you for direct sale, and Securities so
released to you shall no longer be deemed held for sale by the Manager.
2.6. From time to time prior to the termination of the Agreement, on the
request of the Manager, you will advise the Manager of the amount of Securities
remaining unsold which were retained by or released to you for direct sale and
of the amount of Securities and other securities of the Issuer remaining unsold
which were delivered to you pursuant to Article IV hereof, and, on the request
of the Manager, you will release to the Manager any such Securities and other
securities remaining unsold (i) for sale by the Manager for your account to
institutions or dealers, (ii) for sale by the Seller pursuant to delayed
delivery contracts or (iii) if, in the Manager's opinion, such Securities or
other securities are needed to make delivery against sales made pursuant to
Article IV hereof.
III.
3.1. You agree that arrangements for sales of Contract Securities will be
made only through the Manager acting either directly or through dealers
(including Underwriters acting as dealers), and you authorize the Manager to
act on your behalf in making such arrangements. The aggregate amount of
Securities to be purchased by the several Underwriters shall be reduced by the
respective amounts of Contract Securities attributed to such Underwriters as
hereinafter provided. Subject to the provisions of Section 3.2, the aggregate
amount of Contract Securities shall be attributed to the Underwriters as nearly
as practicable in their respective underwriting percentages, except that, as
determined by the Manager in its discretion, (i) Contract Securities directed
and allocated by a purchaser to particular Underwriters shall be attributed to
such Underwriters and (ii) Contract Securities for which arrangements have been
made for sale through dealers shall be attributed to each Underwriter
approximately in the proportion that Securities of such Underwriter held by the
Manager for sales to dealers bear to all Securities so held. The fee with
respect to Contract Securities payable to the Manager for the accounts of the
Underwriters pursuant to the Underwriting Agreement shall be credited to the
accounts of the respective Underwriters in proportion to the Contract
Securities attributed to such Underwriters pursuant to the provisions of this
Section 3.1, less, in the case of each Underwriter, the commission to dealers
on Contract Securities sold through dealers and attributed to such Underwriter.
3.2. If the amount of Contract Securities attributable to an Underwriter
pursuant to Section 3.1 would exceed such Underwriter's original purchase
obligation reduced by the amount of Underwriters' Securities sold by or on
behalf of such Underwriter, such excess shall not be attributed to such
Underwriter, and such Underwriter shall be regarded as having acted only as a
dealer with respect to, and shall receive only the commission to dealers on,
such excess.
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<PAGE> 4
IV.
4.1. You authorize Morgan Stanley & Co. Incorporated to buy and sell
(i) Securities, (ii) shares of common stock ("Common Stock") of the Issuer, if
the Securities are Common Stock or securities of the Issuer that may be
exchanged for or converted into Common Stock, and (iii) any other securities of
the Issuer designated in the Applicable AAU, in addition to Securities sold
pursuant to Article II hereof, in the open market or otherwise, for long or
short account, on such terms as it shall deem advisable, and to over-allot in
arranging sales. Such purchases and sales and over-allotments shall be made
for the accounts of the several Underwriters as nearly as practicable in their
respective underwriting percentages. Any securities which may have been
purchased by Morgan Stanley & Co. Incorporated for stabilizing purposes in
connection with the offering of the Securities prior to the execution of the
Applicable AAU shall be treated as having been purchased pursuant to this
Section 4.1 for the accounts of the several Underwriters. At no time shall
your net commitment pursuant to the foregoing authorization exceed 10% of your
original purchase obligation. On demand you will take up and pay for any
securities of the Issuer so purchased for your account and deliver against
payment any securities of the Issuer so sold or over-allotted for your account.
Morgan Stanley & Co. Incorporated agrees to notify you if it engages in any
stabilization transaction requiring reports to be filed pursuant to Rule 17a-2
under the Securities Exchange Act of 1934 (the "1934 Act") and to notify you of
the date of termination of stabilization. You agree to file with Morgan
Stanley & Co. Incorporated any reports required of you pursuant to such Rule
not later than five business days following the day upon which stabilization
was terminated and you authorize Morgan Stanley & Co. Incorporated to file on
your behalf with the Commission any reports required by such Rule.
4.2. If pursuant to the provisions of Section 4.1 and prior to the
termination of the Agreement (or prior to such earlier date as Morgan Stanley &
Co. Incorporated may have determined ) Morgan Stanley & Co. Incorporated
purchases or contracts to purchase for the account of any Underwriter in the
open market or otherwise any Securities which were retained by, or released to,
you for direct sale, or any Securities which may have been issued on transfer
on in exchange for such Securities, and which Securities were therefore not
effectively placed for investment by you, you authorize Morgan Stanley & Co.
Incorporated either to charge your account with an amount equal to the
concession to dealers with respect thereto, which amount shall be credited
against the cost of such Securities, or to require you to repurchase such
Securities at a price equal to the total cost of such purchase, including
transfer taxes, accrued interest, dividends and commissions, if any.
4.3. If the Securities are Common Stock or securities of the Issuer
that may be exchanged for or converted into Common Stock, you agree that you
will not, without the advance approval of Morgan Stanley & Co. Incorporated,
buy, sell, deal or trade in (i) any Common Stock, (ii) any security of the
Issuer convertible into Common Stock or (iii) any right or option to acquire or
sell Common Stock or any security of the Issuer convertible into Common Stock,
for your own account or for the account of a customer, except:
(a) as provided for in the Agreement or the Underwriting
Agreement;
(b) that you may convert any security of the Issuer convertible
into Common Stock owned by you and sell the Common Stock acquired
upon such conversion and that you may deliver Common Stock owned by you
upon the exercise of any option written by you as permitted by the
provisions set forth herein;
(c) in brokerage transactions on unsolicited orders which have
not resulted from activities on your part in connection with the
solicitation of purchases and which are executed by you in the ordinary
course of your brokerage business; and
(d) that on or after the date of the initial public offering
of the Securities, you may execute covered writing transactions in
options to acquire Common Stock, when such transactions are covered
by Securities, for the accounts of customers.
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<PAGE> 5
An opening uncovered writing transaction in options to acquire Common Stock
for your account or for the account of a customer shall be deemed, for
purposes of this Section 4.3, to be a sale of Common Stock which is not
unsolicited. The term "opening uncovered writing transaction In options to
acquire" as used above means a transaction where the seller intends to become a
writer of an option to purchase any Common Stock which be does not own. An
opening uncovered purchase transaction in option, to sell Common Stock for your
account or for the account of a customer shall be deemed, for purposes of this
paragraph, to be a sale of Common Stock which is not unsolicited. The term
"opening uncovered purchase transaction in options to sell" as used above
means a transaction where the purchaser intends to become an owner of an option
to sell Common Stock which he does not own.
4.4. If the Securities are not shares of Common Stock or securities of
the Issuer that may be exchanged for or converted into Common Stock, you agree
that you will not bid for or purchase, or attempt to induce any other person to
purchase, any Securities or any other securities of the Issuer designated in
the Applicable AAU other than (i) as provided for in the Agreement or the
Underwriting Agreement, (ii) as approved by Morgan Stanley & Co. Inoorporated
or (iii) as a broker in executing unsolicited orders.
4.5. You represent that you have not participated, since you were
invited to participate in the offering of the Securities, in any transaction
prohibited by Section 4.3 or 4.4 and that you have at all times complied with
the provisions of Rule 10b-6 of the Commission applicable to such offering.
V.
5.1. On the date on which the Underwriters are required to pay the
Seller for the Firm Securities, at the office of Morgan Stanley & Co.
Incorporated, 55 Water Street, New York, New York, prior to 8:45 A.M. (New York
City time) you will deliver to the Manager a certified or official bank check,
payable to the order of Morgan Stanley & Co. Incorporated in New York Clearing
House funds (or other next day funds), for (i) an amount equal to the public
offering price less the selling concession in respect of the Firm Securities to
be purchased by you, (ii) an amount equal to the public offering price less the
selling concession in respect of such of the Firm Securities to be purchased by
you as shall have been retained by or released to you for direct sale or (iii)
the amount set forth or indicated in the Applicable AAU, as the Manager shall
advise. You will make similiar payment as the Manager may direct for Additional
Securities, if any, to be purchased by you on the date specified by the Manager
for such payment. The Manager will make payment to the Seller against delivery
to the Manager for your account of the Securities to be purchased by you and
the Manager deliver to you the Securities paid for by you which shall have been
retained by or released to you for direct sale. Unless you promptly give the
Manager written instructions otherwise, if transactions in the Securities may
be settled through the facilities of The Depository Trust Company, payment for
and delivery of Securities purchased by you will be made through such
facilities, if you are a member, or, if you are not a member, settlement may be
made through your ordinary corespondent who is a member.
VI.
6. 1. You authorize the Manager to charge your account as compensation
for the Manager's services in connection with the Securities, including the
purchase from the Seller and the management of the offering of the Securities,
the amount, if any, set forth as the Management Fee in the Applicable AAU.
6.2. You authorize the Manager to charge your account with your
underwriting percentage of all expenses incurred by the Manager under the
Agreement in connection with the offering of the Securities or in connection
with the purchase, carrying and sale of any securities of the Issuer under the
Agreement.
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<PAGE> 6
VII.
7.1. You authorize the Manager to advance the Manager's own funds for
your account, charging current interest rates, or to arrange loans for your
account for the purpose of carrying out the provisions of the Agreement and, in
connection therewith, to hold or pledge as security therefor all or any
securities of the Issuer which the Manager may be holding for your account
under the Agreement.
7.2. Out of payment received by the Manager for Securities sold for
your account which have been paid for by you, the Manager will remit to you
promptly an amount equal to the price paid by you for such Securities.
7.3. The Manager may deliver to you from time to time against payment,
for carrying purposes only, any securities of the Issuer purchased by you or for
your account under the Agreement which the Manager is holding for sale for your
account but which are not sold and paid for. You will redeliver to the Manager
against payment any securities of the Issuer delivered to you for carrying
purposes at such times as the Manager may demand.
VIII.
8.1. The Agreement shall terminate 30 days after the date of the
initial public offering of the Securities unless sooner terminated by the
Manager. The Manager may at its discretion by notice to you prior to the
termination of the Agreement alter any of the terms or conditions of offering
determined pursuant to Article II or III hereof, or terminate or suspend the
effectiveness of Article IV hereof, or any part thereof. No termination or
suspension pursuant to this paragraph shall affect the Manager's authority under
Article IV hereof to cover any short position incurred under the Agreement.
8.2. Upon termination of the Agreement or prior thereto at the
Manager's discretion, the Manager shall deliver to you any Securities purchased
by you from the Seller and held by the Manager for sale for your account to
institutions and dealers but not sold and paid for and any securities of the
Issuer which are held by the Manager for your account pursuant to the
provisions of Article IV hereof. If at the termination of the Agreement the
aggregate amount of any securities of the Issuer so held and not sold and paid
for does not exceed 10% of the aggregate amount of Securities, Morgan Stanley
& Co. Incorporated may, in its discretion, sell for the accounts of the several
Underwriters any such securities so held, at such prices, on such terms and
in such manner as it may determine. As soon as practicable after termination
of the Agreement. your account shall be settled and paid. The Manager may
reserve from distribution such amount as the Manager deems advisable to cover
possible additional expenses. The determination by the Manager of the amount
so to be paid to or by you shall be final and conclusive. Any of your funds
in the Manager's hands may be held with the Manager's general funds without
accountability for interest.
8.3. Notwithstanding any settlement on the termination of the
Agreement, you agree to pay any transfer taxes which may be assessed and paid
after such settlement on account of any sales or transfers under the
Agreement for your account and your underwriting percentage of (i) all expenses
incurred by the Manager in investigating or defending against any claim or
proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) other than an Underwriter relating to the
Registration Statement, any preliminary prospectus or Prospectus (or any
amendment or supplement thereto) and (ii) any liability, including attorneys'
fees, incurred by the Manager in respect of any such claim or proceeding,
whether such liability shall be the result of a judgment or as a result of any
settlement agreed to by the Manager, other than any such expense or liability
as to which the Manager receives indemnity pursuant to Section 8.4 or indemnity
or contribution pursuant to the Underwriting Agreement.
8.4. You agree to indemnify and hold harmless each other Underwriter
and each person, if any, who controls any such Underwriter within the meaning
of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the
extent and upon the terms which you agree to indemnify and hold harmless
6
<PAGE> 7
the Seller, the Issuer, its directors, its officers who signed the Registration
Statement and any person controlling the Seller or the Issuer as set forth in
the Underwriting Agreement.
8.5. Regardless of any termination of the Agreement, your agreements
contained in Sections 8.3 and 8.4 shall remain operative and in full force and
effect regardless of (i) any termination of the Underwriting Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Seller or Issuer, its directors or
officers or any person controlling the Seller or Issuer and (iii) acceptance of
and payment for any Securities.
IX.
9.1. You understand that it is your responsibility to examine the
Registration Statement, the Prospectus, any amendment or supplement thereto
relating to the offering of the Securities, any preliminary prospectus and the
material, if any, incorporated by reference therein and you will familiarize
yourself with the terms of the Securities and the other terms of the offering
thereof which are to be reflected in the Prospectus and the Applicable AAU. The
Manager is authorized, with the approval of counsel for the Underwriters, to
approve on your behalf any amendments or supplements to the Registration
Statement or the Prospectus.
9.2. You will keep an accurate record of the names and addresses of all
persons to whom you give copies of the Registration Statement, the Prospectus
or any preliminary prospectus (or any amendment or supplement thereto), and,
when furnished with any subsequent amendment to the Registration Statement, any
subsequent prospectus or any memorandum outlining changes in the Registration
Statement or any prospectus, you will, upon request of the Manager, promptly
forward copies thereof to such persons.
9.3. You confirm that the information that you have given or are deemed
to have given in response to the Underwriters' Questionnaire attached as
Exhibit B hereto which information has been furnished to the Issuer for use in
the Registration Statement or the Prospectus is correct. You will notify the
Manager immediately of any development before the termination of the Agreement
which makes untrue or incomplete any information that you have given or
are deemed to have given in response to the Underwriters' Questionnaire.
9.4. Unless you have promptly notified the Manager in writing otherwise
your name as it should appear in the Prospectus and your address are set
forth on the signature pages hereof.
9.5. You represent that your commitment to purchase the Securities will
not result in a violation of the financial responsibility requirements of Rule
15c3-1 under the 1934 Act or of any similar provision of any applicable rules
of any securities exchange to which you are subject.
9.6. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or that you are a
foreign bank or dealer not eligible for membership in the NASD. In making sales
of Securities, if you are such a member, you agree to comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Section 24 of
Article III of the NASD's Rules of Fair Practice, or, if you are such a foreign
bank or dealer, you agree to comply with such Interpretation and Sections 8, 24
and 36 of such Article as though you were such a member and Section 25 of such
Article as it applies to a nonmember broker or dealer in a foreign country.
9.7. The Manager will file a Further State Notice with the Department
of State of New York, if required.
X.
10.1. If the Underwriting Agreement is terminated as permitted by the
terms thereof, your obligations hereunder with respect to the offering of the
Securities shall immediately terminate except (i) as set forth in Section 8.5,
(ii) that you shall remain liable for your underwriting percentage of all
expenses and for any purchases or sales which may have been made for your
account pursuant to the
7
<PAGE> 8
provisions of Article IV hereof and (iii) that such termination shall not
affect any obligations of any defaulting Underwriter.
10.2. If any Underwriter shall default in its obligations (i)
pursuant to Section 4.1, (ii) to pay amounts charged to its account pursuant to
Section 6.2 or (iii) pursuant to Section 8.3, 8.4 or 10.1, you will assume
your proportionate share (determined on the basis of the respective
underwriting percentages of the non-defaulting Underwriters) of such
obligations, but no such assumption shall relieve any defaulting Underwriter
from liability for its default.
10.3. The Manager is authorized to arrange for the purchase by others
(including the Manager or any other Underwriter) of any Securities not purchased
by any defaulting Underwriter. If such arrangements are made, the respective
amounts of Securities to be purchased by the remaining Underwriters and such
other person or persons, if any, shall be taken as the basis for all rights
and obligations hereunder, but this shall not relieve any defaulting
Underwriter from liability for its default.
10.4. If any Underwriter shall default in its obligation to purchase
the amount of Firm Securities or Additional Securities which it has agreed to
purchase under the Underwriting Agreement and to the extent that arrangements
shall not have been made by the Manager for others to assume the obligations
of such defaulting Underwriter, each non-defaulting Underwriter severally
agrees to assume, at the Manager's request, its share of the obligations of
such defaulting Underwriter in the proportion which the amount of Firm
Securities set forth opposite its name in the Underwriting Agreement bears to
the aggregate amount of Firm Securities set forth opposite the names of all
non-defaulting Underwriters in the Underwriting Agreement, or in such
proportions as the Manager may specify, provided that in no event shall the
amount of Securities which any Underwriter has agreed to purchase be increased
pursuant to this Section 10.4 and the Underwriting Agreement, without the
written consent of such Underwriter, by an amount in excess of one-ninth of the
amount of Securities which such Underwriter agreed to purchase before giving
effect to any such increase. No such assumption shall relieve any defaulting
Underwriter from liability for its default.
XI.
11.1. If you are a foreign bank or dealer and you are not registered
as a broker-dealer under Section 15 of the 1934 Act, you agree that while you
are acting as an Underwriter in respect of the Securities and in any event
during the term of the Agreement, you will not directly or indirectly effect
in, or with persons who are nationals or residents of, the United States any
transactions (except for the purchases provided for in the Underwriting
Agreement and transactions contemplated by Articles II and IV hereof) in (i)
Securities, (ii) Common Stock, if the Securities are Common Stock or
securities of the Issuer that may be exchanged for or converted into Common
Stock or (iii) any other securities of the Issuer designated in the Applicable
AAU.
11.2. If you are a foregign bank or dealer, you represent that in
connection with sales and offers to sell Securities made by you outside the
United States (a) you will not offer or sell any Securities in any jurisdiction
except in compliance with applicable laws and (b) you will either furnish to
each person to whom any such sale or offer is made a copy of the then current
preliminary prospectus, if any, or of the Prospectus (as then amended or
supplemented, as the case may be, or inform such person that such preliminary
prospectus, if any, or Prospectus will be available upon request. Any
offering material in addition to the then current preliminary prospectus or the
Prospectus furnished by you to any person in connection with any offers or
sales referred to in the preceding sentence (i) shall be prepared and so
furnished at your sole risk and expense and (ii) shall not contain information
relating to the Securities or the Issuer which is inconsistent in any respect
with the information contained in the then current preliminary prospectus, if
any, or in the Prospectus (as then amended or supplemented), as the case may
be. If is understood that no action has been taken by the Manager, the Seller
or the Issuer to permit a public offering in any jurisdiction other than the
United States where action would be required for such purpose.
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<PAGE> 9
XII.
12.1. Nothing contained in this Master Agreement Among Underwriters or
the Agreement constitutes you partners with the Manager or with the other
Underwriters and the obligations of you and of each of the other Underwriters
are several and not joint. Each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code of 1954, as amended.
12.2. The Manager shall be under no liability to you for any act or
omission except for obligations expressly assumed by the Manager in the
Agreement.
12.3. The Master Agreement Among Underwriters may be terminated by
either party hereto upon five business days' written notice to the other party;
provided that with respect to any Offering for which an AAU was sent prior to
such notice, this Master Agreement Among Underwriters as it applies to such
Offering shall remain in full force and effect and shall terminate with respect
to such Offering in accordance with Article VIII hereof.
12.4. This Master Agreement Among Underwriters and the Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
Please confirm your acceptance of this Master Agreement Among Underwriters
by signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By ??????
Managing Director
Confirmed and accepted
as of August 1, 1982
- --------------------------------------
(Name of Underwriter)
- --------------------------------------
- --------------------------------------
(Address)
By
-----------------------------------
Title:
(If person signing is not an offcer or partner,
please attach instrument of authorization.)
9
<PAGE> 10
EXHIBIT A
[name of participating underwriter]
MORGAN STANLEY & CO.INCORPORATED
AGREEMENT AMONG UNDERWRITERS
[date]
[Name of Issuer]
[Title of Securities]
Dear Sirs:
[Name of Issuer] (the "Issuer") proposes to issue and sell [specify
amount][Title of Securities] (the "Firm Securities") pursuant to the
Underwriting Agreement, to be dated , 19 (the "Underwriting
Agreement"), between the Issuer and ourselves (the "Manager"), on behalf of the
several underwriters named therein (the "Underwriters").(1) [In addition, the
several Underwriters shall have an option to purchase from [Name of Seller] an
additional [specify amount] [Title of Securities] (the "Additional Securities")
to cover over-allotments.](2) The term Securities shall mean the Firm
Securities [and the Additioinal Securities].(2)
Except to the extent supplemented or superseded by the terms set forth
herein, the provisions contained in the Morgan Stanley & Co. Incorporated
Master Agreement Among Underwriters dated August 1, 1983 (the "Master
Agreement"), are incorporated by reference herein.
You hereby confirm your agreement with the Manager with respect to the
offering of the Securities and with respect to the purchase by the Manager and
the other Underwriters, including yourselves, severally of the Securities [for
which delayed delivery contracts ("Delayed Delivery Contracts") are not entered
into by the Issuer as contemplated in the Underwriting Agreement].(3) [You
hereby agree that any action that the Manager is authorized to take, under the
Underwriting Agreement, this Agreement or the Master Agreement may be taken by
Morgan Stanley & Co. Incorporated on the Manager's behalf.](4)
You hereby agree to purchase up to [specify amount] of Firm Securities [and
up to [specify amount] of Additional Securities](2) pursuant to the
Underwriting Agreement on the following terms:
Price to Public:(5)
Purchase Price:(5)
Underwriting Fee:
Selling Concession:
Reallowance:
[Fee for delayed delivery
securities:](3)
Management Fee:
Offering Date:
Anticipated Closing Date:
together with any other additional securities of the Issuer which you may be
required to purchase pursuant to the Master Agreement.
[Principal terms of Securities, if apropriate, e.g, yield, sinking fund,
call protection, redemption rights.]
<PAGE> 11
[The trustee for the indenture under which the Securities will be
issued is [Name of Trustee] [, a subsidiary of [Name of trustee's parent
company].](6)
[You will not, without the Manager's consent, sell any of the
Securities to any account over which you exercise discretionary
authority.](7)
[The amount of the Securities you hereby agree to purchase may be
reduced on the terms set forth in the Master Agreement by sales of
Securities pursuant to Delayed Delivery Contracts.](3)
[[Title of Restricted Securities] are hereby designated as "other
Securities of the Issuer" referred to in Sections 4.1, 4.4 and 11.1 of the
Master Agreement.](8)
Unless we receive a notice to the contrary by wire, telex or other
written means from you by [specify time], you agree to accept your
participation in the offering and confirm that you have no exceptions to the
Underwriters' Questionnaire attached as Exhibit B to the Master Agreement.
Please contact [insert name] at [insert phone number] of Morgan Stanley
& Co. Incorporated [or[insert name] at [insert phone number] of the
[Issuer]] if you have any questions relating to the offering of the
Securities, including the terms of the Underwriting Agreement or an other
matters.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By
----------------------------
Title:
[MORGAN STANLEY & CO.
INCORPORATED
Name of Co-Manager
By: MORGAN STANLEY & CO.
INCORPORATED
By
------------------------
Title: ](4)
----------
(1) Use the following alternate language if the Issuer is not the seller
or only seller of the Firm Securities: "[Names of Sellers] propose to sell
[specify amount] [Title of Securities] (the "Firm Securities") of [Name of
Issuer] (the "Issuer") pursuant to the Underwriting Agreement, to be dated
, 19 (the "Underwriting Agreement"), among [Names of Sellers] and
ourselves (the "Manager"), on behalf of the several underwriters named
therein (the "Underwriters").
(2) Include bracketed material only if there is an over-allotment
option.
(3) Include bracketed material only if there are delayed delivery
contracts.
(4) Include bracketed material only if there are co-managers.
(5) Include formula price language if appropriate.
(6) Include bracketed material only for Securities to be issued under
an indenture qualified under the Trust Indenture Act of 1939.
(7) Include bracketed material only if the Issuer was not, immediately
prior to filing the Registration Statement, subject to the requirements of
Section 13(a) or 15(d) of the Securities Exchange act of 1934.
(8) Include bracketed material if trading in designated securities is to
be restricted.
<PAGE> 12
EXHIBIT B
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering governed by the Morgan Stanley & Co.
Incorporated Master Agreement Among Underwriters dated August 1, 1982, except
as indicated in a reply to the applicable AAU, each underwriter participating
in such Offering severally advises the Issuer that:
(a) neither such underwriter nor any of its directors, officers or
partners have a material relationship, as "material" is defined in Regulation C
under the Securities Act of 1933, with the Issuer;
(b) if the Registration Statement is on Form S-1, neither such
underwriter nor any "group" (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) of which such underwriter is aware is the
beneficial owner of more than 5% of any class of voting securities of the
Issuer;
(c) other than as may be stated in the Morgan Stanley & Co.
Incorporated Master Agreement Among Underwriters dated August 1, 1982, the
Applicable AAU, the dealer agreement, if any, the Prospectus or the
Registration Statement, such underwriter does not know and has no reason to
believe that there is an intention to over-allot or that the price of any
security may be stabilized to facilitate the offering of the Securities;
(d) other than as may be stated in the Prospectus, such underwriter
does not know of any other discounts or commissions to be allowed or paid to
the underwriters or of any other items that would be deemed by the National
Association of Securities Dealers, Inc. to constitute underwriting compensation
for purposes of the Association's Rules of Fair Practice and such underwriter
does not know of any discounts or commissions to be allowed or paid to dealers,
including any cash, securities, contracts or other consideration to be received
by any dealer in connection with the sale of the Securities;
(e) if the Securities are to be issued under an indenture qualified
under the Trust Industure Act of 1939:
(i) such underwriter (if a corporation) does not have outstanding nor
has such underwriter assumed or guaranteed any securities issued
otherwise than in its present corporate name;
(ii) neither such underwriter nor any of its directors, officers or
partners is an affiliate, as defined in Rule O-2 under the Trust Indenture
Act of 1939, of the Trustee or its parent holding company, if any, and
neither of them nor any of their directors or executive officers is a
director, officer, partner, employee, appointee or representative of such
underwriter as designated in said Act; and
(iii) neither such underwriter nor any of its directors, executive
officers or partners owns beneficially any shares of voting securities of
the Trustee or its parent holding company, if any; and
(f) such underwriter has not prepared any report or memorandum for
external use in connection with the offering of the Securities; and if the
Registration Statement is on Form S-1, such underwriter has not prepared any
engineering, management or similar reports or memoranda relating to broad
aspects of the business, operations or products of the Issuer within the past
twelve months (except for reports solely comprised of recommendations to buy,
sell or hold the securities of the Issuer, unless such recommendations have
changed within the past six months).
If an underwriter notes an exception with respect to material of the
type referred to in clause (f), such underwriter will send three copies of each
item of such material, together with a statement as to distribution
identifying classes of recipients and the number of copies distributed to each
such class, to Morgan Stanley & Co. Incorporated, 1251 Avenue of the Americas,
New York, New York 10020, Attention: Syndicate Department.
As used herein, the term "beneficially" is defined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934.
<PAGE> 1
_______________ Shares
PEPS TRUST-AJL
AGREEMENT AMONG INTERNATIONAL UNDERWRITERS
Exhibit A - Underwriting Agreement
Exhibit B - Agreement Between U.S. and
International Underwriters
Exhibit C - International Dealer Agreement
November __, 1995
<PAGE> 2
Morgan Stanley & Co. International Limited
Merrill Lynch International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that PEPS Trust-AJL, a trust created under the
laws of the State of New York (the "Trust"), proposes to issue and sell to the
several Underwriters (as defined below) an aggregate of [400,000] shares (the
"Firm PEPS Shares") of its Premium Exchangeable Preferred Shares ("PEPS")
pursuant to an underwriting agreement (the "Underwriting Agreement"),
substantially in the form attached hereto as Exhibit A, with you as
representatives (the "International Representatives") of the international
underwriters named in Schedule II thereto (the "International Underwriters"),
and Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith,
as representatives (the "U.S. Representatives") of the U.S. underwriters named
in Schedule I thereto (the "U.S. Underwriters"). The International Underwriters
and the U.S. Underwriters are hereinafter collectively referred to as the
"Underwriters."
Of such Firm PEPS Shares ________ shares are to be offered
outside the United States and Canada by the International Underwriters (the
"International PEPS Shares") and _______ shares are to be offered by the U.S.
Underwriters in the United States and Canada (the "U.S. Firm PEPS Shares").
In addition, the several U.S. Underwriters will have an option
to purchase from the Company an additional [60,000] shares (the "Additional PEPS
Shares") to provide for over-allotments. The term "U.S. PEPS Shares" shall mean
the U.S. Firm PEPS Shares and the Additional PEPS Shares. The U.S. PEPS Shares
and the International PEPS Shares are hereinafter collectively referred to as
the "PEPS Shares."
Each PEPS Share will be exchanged for American Depositary
Shares ("ADSs") or, at the option of the holder thereof, the equivalent in
shares of Common Stock, of Amway Japan Limited (the "Company") on November __,
1998 to be delivered pursuant to purchase contracts between the Trust and each
of HDV GRIT Holdings, Inc., a [__________] corporation, and the Jay Van Andel
Trust, a trust organized
<PAGE> 3
under the laws of the State of [__________] (collectively, the "Sellers").
We further understand that the Trust has filed with the U.S.
Securities and Exchange Commission (the "Commission") a registration statement
including a U.S. prospectus and an international prospectus relating to the PEPS
Shares and that the Company has filed a registration statement including a
prospectus relating to the ADSs.
I.
We hereby confirm our agreement with you that the
International PEPS Shares shall be purchased by you and the other several
International Underwriters, including ourselves, pursuant to the terms of and as
set forth in the Underwriting Agreement. We further understand that the
International Representatives propose to enter into an agreement with the U.S.
Representatives (the "Agreement Between U.S. and International Underwriters"),
substantially in the form attached hereto as Exhibit B, pursuant to Article I of
which, and subject to the conditions thereof, the several International
Underwriters, including ourselves, could become obligated to purchase PEPS
Shares from, or sell PEPS Shares to, the U.S. Underwriters.
We authorize you (a) to execute and deliver the Underwriting
Agreement and the Agreement Between U.S. and International Underwriters on our
behalf in substantially the forms of Exhibits A and B hereto, respectively, and
to make representations and agreements on our behalf as set forth therein, (b)
to vary the offering terms of the International PEPS Shares in effect at any
time, including the offering price, the concession and the reallowance (other
than a change in the purchase price of the International PEPS Shares), (c) to
agree to the price at which the International PEPS Shares are to be purchased
from the Trust, (d) to agree, on our behalf, to any addition to, change in or
waiver of any provision of the Underwriting Agreement (other than a change in
the purchase price of the International PEPS Shares and the respective numbers
of International PEPS Shares set forth opposite our names in Schedule II
thereto) or of the Agreement Between U.S. and International Underwriters (other
than a change in the purchase price of the International PEPS Shares pursuant to
Article I thereof) and (e) to take any other action as may seem advisable to you
in respect of the offering of the International PEPS Shares. The number of PEPS
Shares set forth opposite each Underwriter's name in Schedule I or in
2
<PAGE> 4
Schedule II of the Underwriting Agreement (or such amount increased as provided
in Section 9 of the Underwriting Agreement) or the aggregate purchase price
thereof, as the context requires, is hereinafter referred to as the "Original
Purchase Obligation" of such Underwriter, and the ratio that such Original
Purchase Obligation of any International Underwriter bears to the total number
of International PEPS Shares, expressed as a percentage, is hereinafter referred
to as the "International Underwriting Percentage" of such International
Underwriter.
II.
We authorize you to act as the Lead Managers of the offering
by the International Underwriters of the International PEPS Shares outside of
the United States and Canada and to take such action as may seem advisable to
you in respect thereof. The offering of the International PEPS Shares is to be
made as soon after the Registration Statements (as defined in the Underwriting
Agreement) become effective as in your judgment and the judgment of the U.S.
Representatives is advisable, at the offering price set forth in, and on the
other terms and conditions as you shall determine in accordance with, the
Underwriting Agreement. The offering of the International PEPS Shares is to be
made on the terms and conditions to be set forth in the Underwriting Agreement,
the Agreement Between U.S. and International Underwriters and in the
prospectuses first used to confirm sales of the International PEPS Shares (the
"International Prospectus"), whether or not filed pursuant to Rule 424 under the
U.S. Securities Act of 1933, as amended (the "Act"). During the term of this
Agreement, advertisement of the offering outside of the United States and Canada
will be made only by Morgan Stanley & Co. International Limited. Such
advertisement will be made on behalf of the International Underwriters on such
dates and in such countries as Morgan Stanley & Co. International Limited shall
determine.
We authorize Morgan Stanley & Co. International Limited to
determine whether to purchase, and, if such determination is made, to purchase,
any PEPS Shares for the account of the International Underwriters pursuant to
the Agreement Between U.S. and International Underwriters. We further authorize
Morgan Stanley & Co. International Limited to determine whether to sell, and, if
such determination is made, to sell, PEPS Shares for the account of the
International Underwriters pursuant to such Agreement.
3
<PAGE> 5
We authorize Morgan Stanley & Co. International Limited to
offer or to sell for our account, in conformity with the immediately succeeding
paragraph, to dealers selected by it (among whom may be included any
International Underwriter) such PEPS Shares purchased by us from the Trust or
pursuant to the Agreement Between U.S. and International Underwriters as Morgan
Stanley & Co. International Limited shall determine. Sales of PEPS Shares to
dealers shall be made for the account of each International Underwriter
approximately in the proportion that PEPS Shares of such International
Underwriter held by Morgan Stanley & Co. International Limited for such sales
bear to the total PEPS Shares so held. Such sales shall be made pursuant to
dealer agreements substantially in the form attached as Exhibit C hereto.
We authorize Morgan Stanley & Co. International Limited to
offer or sell for our account to certain persons (other than the persons to whom
PEPS Shares are sold pursuant to the terms of the immediately preceding
paragraph) such PEPS Shares purchased by us from the Trust or pursuant to the
Agreement Between U.S. and International Underwriters as it shall determine at
the offering price set forth in the International Prospectus. Except for sales
for the accounts of International Underwriters designated by a purchaser,
aggregate sales of PEPS Shares to such persons shall be made for the accounts of
the several International Underwriters as nearly as practicable in their
respective International Underwriting Percentages.
Morgan Stanley & Co. International Limited will advise us
promptly as to the number of PEPS Shares purchased by us that we shall retain
for direct sale. At any time prior to the termination of this Agreement, any
PEPS Shares purchased by us that are held by Morgan Stanley & Co. International
Limited for sale for our account as set forth above but not sold may, upon our
request and at Morgan Stanley & Co. International Limited's discretion, be
released to us for direct sale, and PEPS Shares so released to us shall no
longer be deemed held for sale by you.
From time to time prior to the termination of this Agreement,
at Morgan Stanley & Co. International Limited's request, we will advise it of
the number of PEPS Shares remaining unsold that were retained by or released to
us for direct sale and of the number of PEPS Shares remaining unsold that were
delivered to us pursuant to Article III hereof and, at Morgan Stanley & Co.
International Limited's request, we will release to it any such PEPS Shares
remaining unsold for sale by it (i) for our account to dealers or certain other
persons or (ii) if in its opinion,
4
<PAGE> 6
such PEPS Shares are needed to make delivery against sales made pursuant to
Article III hereof.
We agree that without your consent we will not sell to any
account over which we exercise discretionary authority any of the PEPS Shares.
III.
We confirm that, pursuant to the Agreement Between U.S. and
International Underwriters, the International Underwriters are authorizing
Morgan Stanley & Co. Incorporated to buy and sell PEPS, ADSs or both for the
accounts of the several Underwriters, including the International Underwriters,
in the open market or otherwise, for long or short account, on such terms as it
shall deem advisable and to over-allot in arranging sales. Any PEPS or ADSs that
may have been purchased by the U.S. Representatives for stabilizing purposes in
connection with the offering of the PEPS Shares prior to the execution of this
Agreement and the Agreement Between U.S. and International Underwriters shall be
treated as having been purchased pursuant to this paragraph and the Agreement
Between U.S. and International Underwriters for the accounts of the several
Underwriters. We authorize Morgan Stanley & Co. International Limited to
over-allot in arranging sales. We recognize that the International Primary
Market Association (IPMA) limits will not be complied with in connection with
stabilization losses and expenses. Subject to the provisions of the Agreement
Between U.S. and International Underwriters, all such purchases, sales and
over-allotments for the International Underwriters as a group shall be for the
accounts of the several International Underwriters as nearly as practicable in
their respective International Underwriting Percentages. At no time shall our
net commitment pursuant to the foregoing authorization exceed 15% of our
Original Purchase Obligation, and, in determining our net commitment for short
account, there shall be subtracted any PEPS Shares that you have agreed to
purchase for our account pursuant to Article I of the Agreement Between U.S. and
International Underwriters. On demand we will take up and pay for any shares of
PEPS of ADSs so purchased for our account and deliver against payment any PEPS
or ADSs so sold or over-allotted for our account. The International
Representatives agree to notify us of the date of termination of stabilization
when so notified by Morgan Stanley & Co. Incorporated pursuant to the Agreement
Between U.S. and International Underwriters.
5
<PAGE> 7
If pursuant to the provisions of the preceding paragraph and
prior to the termination of this Agreement (or prior to such earlier date as the
International Representatives may have determined), the U.S. Representatives
purchase or contract to purchase in the open market or otherwise any PEPS Shares
that were retained by or released to us for direct sale, or any PEPS Shares that
may have been issued on transfer of or in exchange for such PEPS Shares, and
which PEPS Shares were therefore not effectively placed for investment by us, we
authorize the International Representatives either to charge our account with an
amount equal to the selling concession with respect thereto, which amount shall
be credited against the cost of such PEPS Shares, or to require us to repurchase
such PEPS Shares at a price equal to the total cost of such purchase, including
commissions, if any, and any taxes on redelivery.
IV.
On the Closing Date (as defined in the Underwriting
Agreement), at the office of Morgan Stanley & Co. Incorporated, One Pierrepont
Plaza, Brooklyn, New York, prior to 8:45 A.M. (New York City time) we will
deliver to you a certified or official bank check, payable to the order of
Morgan Stanley & Co. International Limited in New York Clearing House funds (or
other next day funds), for (i) an amount equal to the offering price less the
selling concession in respect of the PEPS Shares to be purchased by us, (ii) an
amount equal to the offering price less the selling concession in respect of
such of the PEPS Shares to be purchased by us as shall have been retained by or
released to us for direct sale or (iii) the amount set forth or indicated in a
telex to us, as you shall advise. You will make payment to the Trust against
delivery to you for our account of the PEPS Shares to be purchased by us and you
will deliver to us the PEPS Shares paid for by us which shall have been retained
by or released to us for direct sale. Unless we promptly give you written
instructions otherwise, if transactions in the PEPS Shares may be settled
through the facilities of The Depository Trust Company, payment for and delivery
of PEPS Shares purchased by us will be made through such facilities, if we are a
member, or, if we are not a member, settlement may be made through our ordinary
correspondent who is a member.
V.
6
<PAGE> 8
We authorize you as Lead Managers to charge our account, as
compensation for your services in connection with this issue, including the
purchase from the Trust and the management of the offering, $____ a share for
each PEPS Share that we have agreed to purchase pursuant to Article I of the
Underwriting Agreement.
We authorize you to charge to our account (i) our
International Underwriting Percentage of all expenses incurred by you under the
terms of this Agreement or in connection with the purchase, carrying and sale of
PEPS Shares pursuant to this Agreement and (ii) all transfer taxes paid or
payable on our behalf on purchases, sales or transfers made for our account
pursuant to this Agreement.
VI.
We authorize you to advance your own funds for our account,
charging interest rates prevailing from time to time, or to arrange loans for
our account for the purpose of carrying out the provisions of this Agreement and
in connection therewith to hold or pledge as security therefor all or any PEPS
Shares which you may be holding for our account under this Agreement.
Out of payment received by you for PEPS Shares sold for our
account which have been paid for by us, you will remit to us promptly an amount
equal to the price paid by us for such PEPS Shares.
Morgan Stanley & Co. International Limited may deliver to us
or transfer to our account from time to time against payment, for carrying
purposes only, any PEPS Shares purchased by us or for our account under this
Agreement that it is holding for sale for our account but that are not sold and
paid for. We will transfer back to Morgan Stanley & Co. International Limited
against payment at such times as it may demand any PEPS Shares so transferred to
us for carrying purposes.
VII.
This Agreement shall terminate 30 days from the date hereof,
unless sooner terminated by you, provided that you may in your discretion extend
this Agreement for a further period or periods not exceeding an aggregate of 30
days. You may at your discretion on notice to us prior to
7
<PAGE> 9
the termination of this Agreement alter any of the terms or conditions of
offering determined pursuant to Article II hereof or Article III of the
Agreement Between U.S. and International Underwriters, or terminate or suspend
in whole or in part the effectiveness of Article III hereof or paragraphs five
through nine of Article IV thereof. No termination or suspension pursuant to
this paragraph shall affect your authority under Article III to cover any short
or close any long position incurred under this Agreement prior to such
termination or suspension.
Upon termination of this Agreement, or prior thereto at your
discretion, Morgan Stanley & Co. International Limited shall deliver to us or
transfer to our account any PEPS Shares purchased by us from the Trust or
pursuant to the Agreement Between U.S. and International Underwriters and held
by Morgan Stanley & Co. International Limited for sale for our account to
dealers or others but not sold and paid for and any shares of PEPS which are
held by Morgan Stanley & Co. International Limited for our account pursuant to
Article III. As soon as practicable after termination of this Agreement our
account hereunder shall be settled and paid. Morgan Stanley & Co. International
Limited may reserve from distribution such amount as it deems advisable to cover
possible additional amounts due from us. Determination by Morgan Stanley & Co.
International Limited of amounts to be paid to or by us shall be final and
conclusive. Any of our funds in Morgan Stanley & Co. International Limited's
hands may be held with its general funds without accountability for interest.
Notwithstanding any settlement on the termination of this
Agreement, each International Underwriter agrees to pay its International
Underwriting Percentage of (i) all expenses incurred by you in investigating or
defending against any claim or proceeding which is asserted or instituted by any
party (including any governmental or regulatory body) other than an Underwriter
relating to the Registration Statements or the Prospectuses (as defined in the
Underwriting Agreement) (or any amendment or supplement thereto) or any
preliminary prospectus and (ii) any liability, including attorneys' fees,
incurred by you in respect of any such claim or proceeding, whether such
liability shall be the result of a judgment or as a result of any settlement
agreed to by you, other than any such expense or liability as to which you
receive indemnity payments pursuant to the following paragraph, Article III of
the Agreement Between U.S. and International Underwriters or Section 7 of the
Underwriting Agreement.
8
<PAGE> 10
We agree to indemnify and hold harmless each other Underwriter
and each person, if any, who controls any such Underwriter within the meaning of
either Section 15 of the Act or Section 20 of the U.S. Securities Exchange Act
of 1934, as amended, to the extent and upon the terms which we agree to
indemnify and hold harmless the Trust, the Company, the Sellers, the directors,
the officers or the trustees, as the case may be, of the Trust and the Company
who sign the Registration Statements, any person controlling the Trust, the
Company or the Sellers as set forth in the Underwriting Agreement.
Our agreements contained in the second through fourth
paragraphs of Article II and this Article VII shall remain operative and in full
force and effect regardless of any termination of this Agreement or the
occurrence of any of the events described in clauses (i) through (iii) of the
last paragraph of Article VII of the Underwriting Agreement.
VIII.
We have examined each prospectus included in the Registration
Statements as amended to date and we are familiar with the terms of the
securities being offered and the other terms of offering which are to be
reflected in the proposed amendment to the Registration Statements. In addition,
we confirm that the information relating to us which has been furnished to the
Trust or the Company for use therein is correct. You are authorized, with the
approval of counsel for the Underwriters, to approve on our behalf such proposed
amendment and any further amendments or supplements to the Registration
Statements or the International Prospectus.
We represent that our commitment to purchase PEPS Shares
hereunder and under the Agreement Between U.S. and International Underwriters
will not result in a violation of any financial responsibility requirements of
any laws, rules or regulations applicable to us, including applicable rules of
any securities exchange.
IX.
If the Underwriting Agreement is terminated as permitted by
the terms thereof, our obligations hereunder shall immediately terminate except
that (i) our obligations as set forth in the last paragraph of Article VII shall
9
<PAGE> 11
remain in full force and effect, (ii) we shall remain liable for our
International Underwriting Percentage of all expenses and for any purchases or
sales which may have been made for our account pursuant to the provisions of
Article III, including any taxes on any such purchases or sales and (iii) such
termination shall not affect any obligation of any defaulting International
Underwriter.
In the event that any International Underwriter shall default
in its obligations (i) pursuant to the second paragraph of Article II or the
first paragraph of Article III, (ii) to pay amounts owed by it pursuant to
Article V or (iii) pursuant to the third or fourth paragraph of Article VII or
the first paragraph of this Article IX, we will assume our proportionate share
(determined on the basis of the International Underwriting Percentages of the
non-defaulting International Underwriters) of such obligations, but no such
assumption shall affect any obligation of any defaulting International
Underwriter.
If any one or more of the Underwriters shall fail or refuse to
purchase any PEPS Shares which it or they have agreed to purchase under the
Underwriting Agreement, we agree, in the proportion which the number of Firm
PEPS Shares set forth opposite our name in Schedule II to the Underwriting
Agreement bears to the aggregate number of Firm PEPS Shares set forth opposite
the names of all non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the PEPS Shares which such defaulting Underwriter
or Underwriters agreed but failed or refused to purchase; provided that, in no
event shall the PEPS Shares that any International Underwriter has agreed to
purchase pursuant to the Underwriting Agreement be increased pursuant to this
Article IX by an amount in excess of one-ninth of the number of such PEPS
Shares, without the written consent of such International Underwriter. Morgan
Stanley & Co. International Limited is authorized to arrange for the purchase by
others (including itself and any other International Underwriter) of any PEPS
Shares not purchased by any defaulting International Underwriter or by the other
International Underwriters as provided in this paragraph and in Section 9 of the
Underwriting Agreement. If such arrangements are made, the respective numbers of
PEPS Shares to be purchased by the remaining International Underwriters and such
other person or persons, if any, shall be taken as the basis for all rights and
obligations hereunder. Any action taken under this paragraph shall not relieve
any defaulting International Underwriter from liability in respect of any
default of such International Underwriter under the Underwriting Agreement or
this Agreement.
10
<PAGE> 12
Nothing herein contained shall constitute us partners with you
or with the other Underwriters and the obligations of ourselves and of each of
the other Underwriters are several and not joint. If for United States federal
income tax purposes the International Underwriters shall be deemed to constitute
a partnership, each International Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the United States
Internal Revenue Code, as amended.
You shall be under no liability to us for any act or omission
except in respect of obligations expressly assumed by you herein.
This Agreement is being executed by us and delivered to you in
duplicate. Upon your confirmation hereof and agreements in identical form with
each of the other Underwriters, this Agreement shall constitute a valid and
binding contract between us.
Your authority hereunder and under the Underwriting Agreement
and the Agreement Between U.S. and International Underwriters may be exercised
by Morgan Stanley & Co. International Limited and Merrill Lynch International
Limited, jointly or by Morgan Stanley & Co. International Limited alone. The
authority of the U.S. Representatives hereunder and under the Agreement Between
U.S. and International Underwriters may be exercised by Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated, either
jointly or alone.
This Agreement may be executed in two or more counterparts
which together shall constitute one and the same instrument. If this Agreement
is executed by or on behalf of any party hereto by a person acting under the
power of attorney given him by such party, such person hereby states that at the
time of execution hereof he has no notice of revocation of the power of attorney
by which he has executed this Agreement as such attorney.
11
<PAGE> 13
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and United States federal law.
Very truly yours,
MORGAN STANLEY & CO. INTERNATIONAL
LIMITED
By_______________________________
Attorney-in-fact for each
of the several International
Underwriters named in Schedule II
to the Underwriting Agreement
Confirmed, November __, 1995
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
By MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By____________________________
12
<PAGE> 1
MORGAN STANLEY & CO.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
MASTER DEALER AGREEMENT
August 1, 1982
Dear Sirs:
From time to time we may invite you (and others) to participate on the
terms set forth herein as dealer in connection with certain public offerings of
securities by one or more underwriters ("Underwriters") that are managed by us.
If we invite you to participate in a specific offering (an "Offering") to which
this Master Dealer Agreement shall apply, we will give you express notice (a
"Pricing Wire") by wire, telex or other written means specifying (i) the
securities to be offered and the issuer thereof, (ii) the offering terms,
including, if applicable, the public offering price, concession and reallowance
with respect to such securities and (iii) the extent to which the general
provisions set forth in this Master Dealer Agreement shall apply.
Each Pricing Wire shall also set forth your allotment for the Offering
to which it relates and you hereby agree to accept such allotment on the terms
set forth or contemplated herin and in such Pricing Wire without further action
on your part. You may decline such allotment only if we receive by wire, telex
or other written means a notice from you to that effect before the time
specified in such Pricing Wire for such a notice. If we do not receive such a
notice by such time, such Pricing Wire shall be binding upon you and shall
constitute a reconfirmation of your acceptance of this Master Dealer Agreement.
Except to the extent that the applicable Pricing Wire provides
otherwise, you hereby agree as follows with respect to each Offering to which
we invite you to participate as a dealer. For purposes of the following
provisions, with respect to any Offering, the term Securities means the
securities to be publicly offered; the term preliminary prospectus means any
preliminary prospectus relating to the offering of the Securities or any
preliminary prospectus supplement together with a propectus relating to the
offering of the Securities; the term Prospectus means the prospectus, together
with the final prospectus supplement, if any, relating to the offering of the
Securities, filed pursuant to Rule 424 under the Securities Act of 1933; and
the terms Public Offering Price and Reallowance shall mean, respectively, the
public offering price and reallowance, if any, then in effect with respect to
the Securities.
I.
1.1 Securities sold to you for reoffering shall be promptly offered to
the public upon the terms set forth in the Prospectus and the Pricing Wire. If
a Reallowance is in effect for the Offering, Securities may also be offered for
sale at a concession from the Public Offering Price not in excess of the
Reallowance to any Underwriter or to any other member of the National
Association of Securities Dealers, Inc. (the "NASD") or to any foreign bank or
dealer (not eligible for membership in the NASD), who enters into an agreement
with us in the form of this Master Dealer Agreement and whom we have invited to
participate as a dealer in connection with the Offering.
<PAGE> 2
1.2. If the Securities are shares of common stock ("Common Stock") of
the issuer thereof (the "Issuer") or securities of the Issuer that may be
exchanged for or converted into Common Stock, you agree that you will not,
without our approval in advance, at any time prior to the completion by you of
distribution of Securities acquired by you pursuant to this Master Dealer
Agreement and the applicable Pricing Wire, buy, sell, deal or trade in (i) any
Common Stock, (ii) any security of the Issuer convertible into Common Stock or
(iii) any right or option to acquire or sell Common Stock or any security of
the Issuer convertible into Common Stock, for your own account or for the
account of a customer, except:
(a) as provided for in this Master Dealer Agreement, the
applicable Pricing Wire, the agreement among underwriters, if any,
or the underwriting agreement relating to the Securities;
(b) that you may convert any security of the Issuer convertible
into Common Stock owned by you and sell the Common Stock acquired upon
such conversion and that you may deliver Common Stock owned by you upon
the exercise of any option written by you as permitted by the
provisions set forth herein;
(c) in brokerage transactions on unsolicited orders which have
not resulted from activities on your part in connection with the
solicitation of purchases and which are executed by you in the ordinary
course of your brokerage business; and
(d) that on or after the date of the initial public offering of
the Securities, you may execute covered writing transactions in options
to acquire Common Stock, when such transactions are covered by
Securities, for the accounts of customers.
An opening uncovered writing transaction in options to acquire Common Stock for
your account or for the account of a customer shall be deemed, for purposes of
this Section 1.2, to be a sale of Common Stock which is not unsolicited. The
term "opening uncovered writing transaction in options to acquire" as used
above means a transaction where the seller intends to become a writer of an
option to purchase any Common Stock which he does not own. An opening
uncovered purchase transaction in options to sell Common Stock for your account
or for the account of a customer shall be deemed, for purposes of this
paragraph, to be a sale of Common Stock which is not unsolicited. The term
"opening uncovered purchase transaction in options to sell" as used above means
a transaction where the purchaser intends to become an owner of an option to
sell Common Stock which he does not own.
1.3 If the Securities are not shares of Common Stock or securities of
the Issuer that may be exchanged for or converted into Common Stock, you agree
that you will not bid for or purchase, or attempt to induce any other person to
purchase, and Securities or any other securities of the Issuer designated in
the Pricing Wire other than (i) as provided in this Master Dealer Agreement,
the agreement among underwriters, if any, or the underwriting agreement
relating to the Securities or (ii) as a broker in executing unsolicited orders.
1.4 You represent that you have not participated, since the date you
were invited to participate in the offering of the Securities, in any
transaction prohibited by Section 1.2 or 1.3 and that you have at all times
complied with the provisions of Rule 10b-6 of the Securities and Exchange
Commission applicable to such offering.
1.5 You agree to advise us from time to time upon request, prior to the
termination of this Master Dealer Agreement as it applies to the offering of
the Securities, of the amount of Securities remaining unsold which were
purchased by you from us or from any other Underwriter or dealer for reoffering
and, on our request, you will resell to us any such Securities remaining unsold
at the purchase price thereof if, in our opinion, such Securities are needed to
make delivery against sales made to others.
1.6 If prior to the termination of this Master Dealer Agreement as it
applies to the offering of the Securities (or prior to such earlier date as we
have determined) we purchase or contract to purchase in the open market or
otherwise any Securites which were purchased by you from us or from any other
2
<PAGE> 3
Underwriter or dealer for reoffering (including any Securities which may have
been issued on transfer or in exchange for such Securities), and which
Securities were therefore not effectively placed for investment by you, you
authorize us either to charge your account with an amount equal to the
concession from the Public Offering Price at which you purchased such
Securities, which shall be credited against the cost of such Securities, or to
require you to repurchase such Securities at a price equal to the total cost of
such purchase, including any commissions and transfer taxes on redelivery.
II.
2.1. If you purchase any Securities from us in connection with your
participation as dealer in such Offering, you agree that such purchases will be
evidenced by our written confirmation and will be subject to the terms and
conditions set forth in the confirmation and in the Prospectus.
2.2. Securities purchased by you from us in connection with your
paraticipation as dealer in such Offering shall be paid for in full at (i) the
Public Offering Price, (ii) such price less the applicable concession or (iii)
the price set forth or indicated in the Pricing Wire, as we shall advise, at
the office of Morgan Stanley & Co. Incorporated, 55 Water Street, New York, New
York, at such time and on such day as we may advise you, by certified or
official bank check payable in New York Clearing House funds (or other next day
funds) to the order of Morgan Stanley & Co. Incorporated against delivery of
the Securities. If you are called upon to pay the Public Offering Price for
the Securities purchased by you, the applicable concession will be paid to you,
less any amounts charged to your account pursuant to Article I above, after
termination of this Master Dealer Agreement as it applies to the offering of
the Securities. Unless you promptly give us written instructions otherwise, if
transactions in the Securities may be settled through the facilities of The
Depository Trust Company, payment for and delivery of Securities purchased by
you will be made through such facilities, if you are a member, or, if you are
not a member, settlement may be made through your ordinary correspondent who is
a member.
III.
3.1. We will advise you of the date and time of termination of this
Master Dealer Agreement as it applies to the offering of the Securities or of
any designated provisions hereof. This Master Dealer Agreement shall, in any
event, terminate with respect to the offering of the Securities 30 days after
the date of the initial public offering of the Securities unless sooner
terminated by us.
IV.
4.1. In purchasing Securities, you will rely only on the Prospectus and
on no other statements whatsoever, written or oral.
4.2. You represent that you are a member in good standing of the NASD
or that you are a foreign bank or dealer, not eligible for membership in the
NASD, which agrees not to offer or sell any Securities in, or to persons who
are nationals or residents of, the United States. In making sales of
Securities, if you are such a member, you agree to comply with all applicable
rules of the NASD, including, without limitation, the NASD's Interpretation
with Respect to Free-Riding and Withholding and Section 24 of Article III of
the NASD's Rules of Fair Practice, or, if you are such a foreign bank or
dealer, you agree to comply with such Interpretation and Sections 8, 24 and 36
of such Article as though you were such a member and Section 25 of such Article
as it applies to a nonmember broker or dealer in a foreign country.
4.3. If you are a foreign bank or dealer, you represent that in
connection with sales and offers to sell Securities made by you outside the
United States (a) you will not offer or sell any Securities in any jurisdiction
except in compliance with applicable laws and (b) you will either furnish to
each person to whom any such sale or offer is made a copy of the then current
preliminary prospectus, if any, or of the Prospectus (as then amended or
supplemented), as the case may be, or inform such person that such preliminary
prospectus, in any, or Prospectus will be available upon request. Any offering
material in addition to the then current preliminary prospectus or the
Prospectus furnished by you to any person in connection with any offers or
sales referred to in the preceding sentence (i) shall be prepared and so
furnished at your sole risk and expense and (ii) shall not contain information
relating to the Securities or the Issuer which is inconsistent in any respect
with the information contained in the then current
3
<PAGE> 4
preliminary prospectus, if any, or in the Prospectus (as then amended or
supplemented), as the case may be. It is understood that no action has been
taken by us or the Issuer to permit a public offering in any jurisdiction other
than the United States where action would be required for such purpose.
4.4. You will not give any information or make any representations
other than those contained in the Prospectus, or act as agent for the Issuer,
any Underwriter or us.
4.5. You agree that we, as manager or co-manager of the offering of the
Securities, have full authority to take such action as may seem advisable to us
in respect of all matters pertaining to such offering.
4.6. Neither we, as manager, nor any Underwriter shall be under any
liability to you for any act or omission, except for obligations expressly
assumed by us in the Master Dealer Agreement.
4.7. All communications to us relating to the offering of the Securities
shall be addressed to the Syndicate Department, Morgan Stanley & Co.
Incorporated, 1251 Avenue of the Americas, New York, New York 10020. Unless
you have otherwise notified us in writing, any notices to you shall be deemed
to have been duly given if mailed or telegraphed to you at the address shown
below.
V.
5.1. Neither we, as manager, nor any Underwriter will have any
responsibility with respect to the right of any dealer to sell Securities in
any jurisdiction, notwithstanding any information we may furnish in that
connection.
VI.
6.1. This Master Dealer Agreement may be terminated by either party
hereto upon five business days' written notice to the other party; provided
that with respect to any Offering for which a Pricing Wire was sent prior to
such notice, this Master Dealer Agreement as it applies to such Offering shall
remain in full force and effect and shall terminate with respect to such
Offering in accordance with Article III hereof.
6.2. This Master Dealer Agreement and each Pricing Wire shall be
governed by an construed in accordance with the laws of the State of New York.
Please confirm you acceptance of this Master Dealer Agreement by
signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By /s/???????????????
Managing Director
Confirmed and accepted
as of August 1, 1982
......................................
(Name of Dealer
......................................
......................................
(Address)
By ...................................
Title:
(If person signing is not an officer or partner,
please attach instrument of authorization.)
4
<PAGE> 1
_______________ Shares
PEPS TRUST-AJL
PREMIUM PARTICIPATING EXCHANGEABLE SHARES
INTERNATIONAL DEALER AGREEMENT
November __, 1995
<PAGE> 2
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
MERRILL LYNCH INTERNATIONAL LIMITED
c/o MORGAN STANLEY &CO. INTERNATIONAL LIMITED
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs:
We understand that PEPS Trust-AJL, a trust created under the
laws of the State of New York (the "Trust"), proposes to issue and sell to the
several Underwriters (as defined below) an aggregate of [400,000] shares (the
"Firm Shares") of its Premium Exchangeable Preferred Shares ("PEPS") pursuant to
an underwriting agreement (the "Underwriting Agreement") with you as
representatives (the "International Representatives") of the international
underwriters named in Schedule II thereto (the "International Underwriters"),
and with Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner &
Smith Incorporated as representatives (the "U.S. Representatives") of the U.S.
underwriters named in Schedule I thereto (the "U.S. Underwriters"). The Firm
PEPS Shares to be sold to the several U.S. Underwriters and to the several
International Underwriters shall hereinafter be referred to, respectively, as
the "U.S. Firm PEPS Shares" and the "International PEPS Shares." The
International Underwriters and the U.S. Underwriters are hereinafter
collectively referred to as the "Underwriters."
In addition, the several U.S. Underwriters will have an option
to purchase from the Trust an additional [60,000] shares (the "Additional
Shares") to provide for over-allotments. The term "U.S. PEPS Shares" shall mean
the U.S. Firm PEPS Shares and the Additional PEPS Shares. The U.S. PEPS Shares
and the International PEPS Shares are hereinafter collectively referred to as
the "PEPS Shares."
Each PEPS Share will be exchanged for American Depository
Shares ("ADSs") or, at the option of the holder thereof, Common Stock ("Common
Stock") of Amway Japan Limited, a Japanese corporation (the "Company"), on
November __, 1998 to be delivered pursuant to purchase contracts
<PAGE> 3
between the Trust and each of HDV GRIT Holdings, Inc., a ________ corporation,
and the Jay Van Andel Trust, a trust created under the laws of the State of
_________ (collectively, the "Sellers").
We acknowledge receipt of the Prospectus dated November __,
1995 relating to the offering of the International PEPS Shares including the
Prospectus dated November __, 1995 relating to the ADSs (hereinafter such
prospectuses are called the "International Prospectus").
We understand that the International Underwriters are
severally offering, through you, certain of the PEPS Shares for sale to certain
dealers at the offering price of U.S. $_____ less a concession not in excess of
U.S. $_____ under the offering price, and that any International Underwriter may
allow, and dealers may reallow, a concession not in excess of U.S. $_____ under
the offering price to other International Underwriters or to other dealers who
enter into an agreement in this form.
We hereby agree with you as follows with respect to any
purchase of PEPS Shares from you or from any other International Underwriter or
from any dealer at a concession from the offering price.
In purchasing PEPS Shares, we will rely only on the
International Prospectus and on no other statements whatsoever, written or oral.
I.
We understand that no action has been or will be taken in any
jurisdiction by the International Underwriters, the Trust or the Company that
would permit a public offering of the PEPS Shares, or possession or distribution
of the International Prospectus, in preliminary or final form, in any
jurisdiction where, or in any circumstances in which, action for that purpose is
required, other than the United States. We agree that we will comply with all
applicable laws and regulations, and make all necessary filings and obtain all
necessary consents or approvals, in each jurisdiction in which we purchase,
offer, sell or deliver PEPS Shares (including, without limitation, any
applicable requirements relating to the delivery of the International
Prospectus, in preliminary or final form), in each case at our own expense. In
connection with sales of and offers to sell PEPS Shares made by us we will
either furnish to each person to whom any such sale or offer is made a copy of
the
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<PAGE> 4
then-current International Prospectus (in preliminary or final form and as then
amended or supplemented if the Trust or the Company shall have furnished any
amendments or supplements thereto), or inform such person that such
International Prospectus will be made available upon request and we will keep an
accurate record of the names and addresses of all persons to whom we give copies
of the registration statements relating to the Prospectus (collectively, the
"Registration Statement"), the International Prospectus, in preliminary or final
form, or any amendment or supplement thereto, and, when finished with any
subsequent amendment to such Registration Statement, any subsequent prospectus
or any medium outlining changes in the Registration Statement or any prospectus,
we will upon request of the International Representatives, promptly forward
copies thereof to such persons.
We will not give any information or make any representation
other than as contained in the International Prospectus, or act for the Trust,
any International Underwriter or you.
We represent and agree that, except for (x) sales between the
U.S. Underwriters and the International Underwriters pursuant to Article I of
the Agreement Between U.S. and International Underwriters of even date herewith
(hereinafter called the "Agreement Between U.S. and International Underwriters")
and (y) stabilization transactions contemplated in Article IV of the Agreement
Between U.S. and International Underwriters conducted through the U.S.
Representatives as part of the distribution of the Shares, (a) we are not
purchasing and have not purchased and will not purchase any of the PEPS Shares
for the account of any United States or Canadian Person and (b) we have not
offered or sold, and will not offer or sell, directly or indirectly, any of the
PEPS Shares or distribute any prospectus relating to the PEPS Shares, in the
United States or Canada or to any United States or Canadian Person and any
dealer to whom we may sell any of the PEPS Shares will represent that it is not
purchasing any of the PEPS Shares for the account of any United States or
Canadian Person and will agree that it will not offer or resell such PEPS Shares
directly or indirectly in the United States or Canada or to any United States or
Canadian Person or to any other dealer who does not so represent and agree.
"United States or Canadian Person" shall mean any national or resident of the
United States or Canada, or any corporation, pension, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside the
United States and Canada of any United
3
<PAGE> 5
States or Canadian Person), and shall include any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person.
"United States" shall mean the United States of America, its territories, its
possessions and all areas subject to its jurisdiction. Our agreement set forth
in this paragraph shall terminate upon the earlier of (a) notice from you to
such effect and (b) 30 days after the date of the initial offering of the PEPS
Shares, unless you have given notice that the distribution of the PEPS Shares
has not yet been completed. If such latter notice is given, the agreement set
forth in this paragraph shall survive until the earlier of (x) the notice of
termination referred to in (a) above and (y) 30 days after the date of any
notice that the distribution of the PEPS Shares has not yet been completed.
We further represent that we have not offered or sold, and
agree not to offer or sell, directly or indirectly, in Japan or to or for the
account of any resident thereof, any of the PEPS Shares acquired in connection
with the distribution contemplated hereby, except for offers or sales to
Japanese International Underwriters or dealers. We further agree to send to any
dealer who purchases from us any of such PEPS Shares a notice stating in
substance that, by purchasing such PEPS Shares, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, any of such
PEPS Shares, directly or indirectly, in Japan or to or for the account of any
resident thereof and that such dealer will send to any other dealer to whom it
sells any of such PEPS Shares a notice containing substantially the same
statement as is contained in this sentence.
We further represent and agree that (i) it has not offered or
sold and will not offer or sell any PEPS Shares to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995 (the "Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Regulations with respect to anything done by it in
relation to the PEPS Shares in, from or otherwise involving the United Kingdom;
and (iii) it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection with the
issue of the PEPS Shares if such person is of a kind described in Article 11(3)
of the Financial Services
4
<PAGE> 6
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom such document may otherwise lawfully be issued or passed on.
We represent that we are a foreign bank or dealer not eligible
for membership in the U.S. National Association of Securities Dealers, Inc.
(hereinafter called the "NASD"), and we agree not to offer to sell or sell any
PEPS Shares in, or to persons who are nationals or residents of, the United
States, except for offers and PEPS Shares referred to in clause (x) of the third
paragraph of this Article I. In making sales of PEPS Shares, we agree to comply
with the NASD's Interpretation with Respect to Free-Riding and Withholding and
Sections 8, 24 and 36 of Article III of the NASD's Rules of Fair Practice as
though we were a member in good standing of the NASD and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
We represent that we have not and agree that we will not,
during the period continuing until the International Representatives shall have
notified us of the completion of the distribution of the PEPS Shares, buy, sell,
deal or trade in (i) any PEPS, ADSs or Common Stock, (ii) any security
convertible into PEPS, ADSs or Common Stock or (iii) any right or option to
acquire or sell PEPS, ADSs or Common Stock or any security convertible into
PEPS, ADSs or Common Stock for our own account or for the account of a customer,
except (a) as provided in the Agreement Among International Underwriters, the
Master Agreement Among Underwriters, this Agreement or the Underwriting
Agreement, (b) that we may convert any security convertible into PEPS, ADSs or
Common Stock owned by us and sell the PEPS, ADSs or Common Stock acquired upon
such conversion and that we may deliver PEPS, ADSs or Common Stock owned by us
upon the exercise of any option written by us as permitted by the provisions set
forth herein, (c) in brokerage transactions on unsolicited orders which have not
resulted from activities on our part in connection with the solicitation of
purchases and which are executed by us in the ordinary course of our brokerage
business and (d) that on or after the date of the initial public offering of the
PEP Shares, we may execute covered writing transactions in options to acquire
PEPS, ADSs or Common Stock, when such transactions are covered by PEPS Shares,
for the accounts of customers.
An opening uncovered writing transaction in options to acquire
PEPS, ADSs or Common Stock for our account or for the account of a customer
shall be deemed, for purposes of this Article I, to be a sale of PEPS or ADSs
which is not unsolicited. The term "opening uncovered
5
<PAGE> 7
writing transaction in options to acquire" as used above means a transaction
where the seller intends to become a writer of an option to purchase any PEPS,
ADSs or Common Stock which it does not own. An opening uncovered purchase
transaction in options to sell PEPS, ADSs or Common Stock for our account or for
the account of a customer shall be deemed, for purposes of this paragraph, to be
a sale of PEPS, ADSs or Common Stock which is not unsolicited. The term "opening
uncovered purchase transaction in options to sell" as used above means a
transaction where the purchaser intends to become an owner of an option to sell
PEPS, ADSs or Common Stock which it does not own.
We represent that we have not participated, since we were
invited to participate in the offering of the PEPS Shares, in any transaction
prohibited by this Article I and that we have at all times complied and agree
that we will at all times comply with the provisions of Rule 10b-6 of the U.S.
Securities Exchange Act of 1934, as amended, applicable to this offering.
We agree to indemnify and hold harmless the Trust, the
Company, the Sellers, each Underwriter and each person controlling the Trust,
the Company, the Sellers or any Underwriter from and against any and all losses,
claims, damages and liabilities (including fees and disbursements of counsel)
arising from any breach by us of any of the provisions of this Article I.
II.
PEPS Shares purchased by us at a concession from the offering
price shall be promptly offered upon the terms set forth in the International
Prospectus or for sale at a concession not in excess of the reallowance
concession under the offering price to any International Underwriter or to any
other dealer who enters into an agreement with you in this form with respect to
this offering that, among other things, sets forth such dealer's agreement that
it is not purchasing PEPS Shares for the account of any United States or
Canadian Persons and that it will not offer or resell PEPS Shares in the United
States and Canada. Prior to offering PEPS Shares to any dealer at the public
offering price less the reallowance, you must either ascertain that such dealer
has entered into such an agreement or assure that such dealer will enter into
such an agreement.
We agree to advise you from time to time upon request, prior
to the termination of this Agreement, of the
6
<PAGE> 8
number of PEPS Shares remaining unsold which were purchased by us from you or
from any other International Underwriter or dealer at a concession from the
offering price and, on your request, we will resell to you any such PEPS Shares
remaining unsold at the purchase price thereof if, in your opinion, such PEPS
Shares are needed to make delivery against sales made to others.
If prior to the termination of this Agreement (or prior to
such earlier date as you have determined) a U.S. Representative purchases or
contracts to purchase in the open market or otherwise any PEPS Shares which were
purchased by us from you or from any other International Underwriter or dealer
at a concession from the offering price (including any PEPS Shares represented
by certificates which may have been issued on transfer or in exchange for
certificates originally representing such PEPS Shares), and which PEPS Shares
were therefore not effectively placed for investment by us, we authorize you
either to charge our account with an amount equal to such concession which shall
be credited against the cost of such PEPS Shares, or to require us to repurchase
such PEPS Shares at a price equal to the total cost of such purchase, including
any commissions and any taxes on redelivery.
We have not offered or sold, and we will not offer or sell,
directly or indirectly, PEPS Shares that were purchased by us from you or from
any other International Underwriter or dealer at a concession from the offering
price (including any PEPS Shares represented by certificates which may have been
issued on transfer or in exchange for certificates originally representing such
PEPS Shares) to any person at less than the offering price, other than to a
person whose business it is to buy or sell securities, or to act on behalf of
persons who buy or sell securities, and then only in conformity with the
provisions of the sixth paragraph of Article I hereof and at a price that is not
below the offering price less the maximum permissible reallowance to be
specified in the International Prospectus.
We agree that without your consent we will not sell to any
account over which we exercise discretionary authority any of the PEPS Shares.
III.
If we purchase any PEPS Shares from you hereunder, we agree
that such purchases will be evidenced by your
7
<PAGE> 9
written confirmation and will be subject to the terms and conditions set forth
in the confirmation and in the International Prospectus.
PEPS Shares purchased by us from you in connection with our
participation as dealer in the offering shall be paid for in full at (i) the
offering price, (ii) such price less the applicable concession or (iii) the
price set forth or indicated in the pricing wire, as you shall advise, at the
office of Morgan Stanley & Co. Incorporated, One Pierrepont Plaza, Brooklyn, New
York, at such time and on such day as you may advise us, by certified or
official bank check payable in New York Clearing House funds (or other next day
funds) to the order of Morgan Stanley & Co. International Limited against
delivery of the PEPS Shares. If we are called upon to pay the offering price for
the PEPS Shares purchased by us, the applicable concession will be paid to us,
less any amounts charged to our account pursuant to Article II above, after
termination of this Agreement. Unless we promptly give you written instruction
otherwise, if transactions in the PEPS Shares may be settled through the
facilities of The Depository Trust Company, payment for and delivery of PEPS
Shares purchased by us will be made through such facilities, if we are a member,
or, if we are not a member, settlement may be made through our ordinary
correspondent who is a member.
We authorize the International Representatives as principals
to advance, or to arrange the advance of, funds to us to cover any delay in the
receipt of funds necessary for payment for the PEPS Shares to be purchased by us
and to charge, or to arrange for the charging of, interest on such funds at
current rates.
IV.
You will advise us of the date and time of termination of this
Agreement or of any designated provisions hereof. This Agreement shall in any
event terminate 30 days after the date of the initial offering of the PEPS
Shares unless sooner terminated by you, provided that you may in your discretion
extend this Agreement for a further period or periods not exceeding an aggregate
of 30 days, and provided further that the provisions of Article I hereof shall
survive any termination of this Agreement.
8
<PAGE> 10
V.
We agree that you, as International Representatives, have full
authority to take such action as may seem advisable to you in respect of all
matters pertaining to the offering of the PEPS Shares. Neither you, as
International Representatives, nor any of the International Underwriters shall
be under any liability to us for any act or omission, except in respect of
obligations expressly assumed in this Agreement.
All communications to you relating to the subject matter of
this Agreement shall be addressed to the Syndicate Department, Morgan Stanley &
Co. International Limited, 25 Cabot Square, Canary Wharf, London E14 4QA,
England, and any notices to us shall be deemed to have been duly given if mailed
or telegraphed to us at the address shown below.
VI.
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and United States federal law.
Very truly yours,
___________________________
___________________________
___________________________
(ADDRESS)
By_________________________
9
<PAGE> 1
Draft of November 2, 1995
CUSTODIAN AGREEMENT
This CUSTODIAN AGREEMENT dated as of this _____ day of
November 1995 by and between The Bank of New York, a New York banking
corporation (the "Custodian"), and William R. Latham, III, James B. O'Neill and
Donald J. Puglisi (collectively, the "Trustees"), not in their individual
capacities but solely as Trustees of AJL PEPS Trust (the "Trust"), a trust
organized under the laws of the State of New York under and by virtue of an
Amended and Restated Trust Agreement, dated as of November __, 1995 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold a forward
contract with each of two existing shareholders of Amway Japan Limited
(individually, a "Contract," collectively, the "Contracts") and to issue Premium
Exchangeable Participating Shares ("PEPS") in accordance with the terms and
conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the
Custodian to perform certain custodial duties for the Trust; and
WHEREAS, the Custodian is willing to assume such duties, on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings specified in the Trust Agreement.
2. Appointment of Custodian; Transfer of Assets. The Trustees
hereby constitute and appoint the Custodian, and the Custodian accepts such
appointment, as custodian of all of the property, including but not limited to,
the Contracts, the
<PAGE> 2
Treasury Securities, the Temporary Investments, any cash and any other property
at any time owned or held by the Trust (collectively, the "Assets"). The
Trustees hereby deposit the Assets with the Custodian and the Custodian hereby
accepts such into its custody and the Trustees shall deliver to the Custodian
all of the Assets, including all monies, securities and other property received
by the Trust at any time during the period of this Agreement, subject to the
following terms and conditions. The Custodian hereby agrees that it shall hold
the Assets in a segregated custody account, separate and distinct from all other
accounts, in accordance with Section 17(f) of, and in such manner as shall
constitute the segregation and holding in trust within the meaning of, the
Investment Company Act and the rules and regulations thereunder. The Trustees
authorizes the Custodian, for any Assets held hereunder, to use the services of
any United States securities depository permitted to perform such services for
registered investment companies and their custodians under Rule 17f-4 under the
Investment Company Act and which have been approved by the Trustees, including
but not limited to, the Depository Trust Company and the Federal Reserve Book
Entry System.
3. Asset Disposition; Examinations. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of the
Assets, except pursuant to a written direction in accordance with paragraph 4
below and then only for the account of the Trust. The Assets shall be subject to
no lien or charge of any kind in favor of the Custodian for itself or for any
other Person claiming through the Custodian. The Custodian shall permit actual
examination of the Assets by the Trust's independent public accountant at the
end of each annual and semi-annual fiscal period of the Trust and at least one
other time during the fiscal year of the Trust chosen by such independent public
accountant and shall permit the inspection of the Assets by the Commission
through its employees or agents during the normal business hours of the
Custodian upon reasonable request.
4. Authorized Actions. The Custodian shall take such actions
with respect to the Assets as directed in writing by any Trustee or by any
officer of the Administrator duly authorized by the Trustees to give written
instructions on behalf of the Trustees and named in such resolutions of the
Trustees, certified by a Trustee, as may be received by the Custodian from time
to time.
5. Custodian's Actions Taken In Good Faith. In connection with
the performance of its duties under this Agreement, the Custodian shall be under
no liability to the Trust or any Holder for any action taken in good faith on
any paper, order, certification, list, demand, request, consent, affidavit,
notice, opinion, direction, endorsement, assignment, resolution, draft or other
document, prima facie properly executed, or for the disposition of the Assets
pursuant to the Trust Agreement or
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<PAGE> 3
in respect of any action taken or suffered under the Trust Agreement in good
faith, in accordance with an opinion of counsel or at the direction of the
Trustees pursuant hereto; provided that this provision shall not protect the
Custodian against any liability to which it would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and duties
hereunder. Notwithstanding any other provision of this Agreement, the Custodian
shall under no circumstances be liable for any indirect or consequential
damages.
6. Trust Agreement Validity. The Custodian shall not be
responsible for the validity or sufficiency of the Trust Agreement or the due
execution thereof, or for the form, character, genuineness, sufficiency, value
or validity of any of the Assets and the Custodian shall in no event assume or
incur any liability, duty or obligation to any Holder or to the Trustees, other
than as expressly provided for herein. The Custodian shall not be responsible
for or in respect of the validity of any signature by or on behalf of the
Trustees.
7. Litigation Obligations, Costs and Indemnity. The Custodian
shall not be under any obligation to appear in, prosecute or defend any action
which in its opinion may involve it in expense or liability, unless it shall be
furnished with such reasonable security and indemnity against such expense or
liability as it may require, and any pecuniary costs of the Custodian from such
actions shall be expenses which are reimbursable pursuant to paragraph 13
hereof.
8. Taxes; Trust Expenses. In no event shall the Custodian be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the Assets or upon the monies, securities or other properties
thereon. The Custodian shall be reimbursed and indemnified by the Trustees for
all such taxes and charges, for any tax or charge imposed against the Trust and
for any expenses, including counsel fees, interest, penalties and additions to
tax which the Custodian may sustain or incur with respect to such taxes or
charges.
9. Custodian Resignation, Succession. (a) The Custodian may
resign by executing an instrument in writing resigning as Custodian and
delivering the same to the Trustees, not less than 60 days before the date
specified in such instrument when, subject to clause (b) of this paragraph 9,
such resignation is to take effect. Upon receiving such notice of resignation,
the Trustees shall use their reasonable efforts promptly to appoint a successor
Custodian in the manner and meeting the qualifications provided in the Trust
Agreement, by written instrument or instruments delivered to the resigning
Custodian and the successor Custodian.
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<PAGE> 4
(b) In case no successor Custodian shall have been appointed
within 30 days after notice of resignation has been received by the Trustees,
the resigning Custodian may forthwith apply to a court of competent jurisdiction
for the appointment of a successor Custodian. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribed, appoint a successor
Custodian.
10. Custodian Removal. The Trustees may remove the Custodian
upon 60 days' prior written notice to the Custodian and appoint a successor
Custodian. In case at any time the Custodian shall not meet the requirements set
forth in the Trust Agreement or shall become incapable of acting or if a court
having jurisdiction shall enter a decree or order for relief in respect of the
Custodian in an involuntary case, or the Custodian shall commence a voluntary
case, under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for the Custodian or for any substantial part
of its property shall be appointed, or the Custodian shall make any general
assignment for the benefit of creditors, or shall generally fail to pay its
debts as they become due, the Trustees may remove the Custodian immediately and
appoint a successor Custodian. The termination of the Administration Agreement
or the Paying Agent Agreement shall cause the removal of the Custodian
simultaneously therewith.
11. Transfers to Successor Custodian. Upon the request of any
successor Custodian, the Custodian hereunder shall, upon payment of all amounts
due it, execute and deliver an instrument acknowledged by it transferring to
such successor Custodian all the rights and powers of the retiring Custodian;
and the retiring Custodian shall transfer, deliver and pay over to the successor
Custodian the Assets at the time held by it hereunder, if any, together with all
necessary instruments of transfer and assignment or other documents properly
executed necessary to effect such transfer and such of the records or copies
thereof maintained by the retiring Custodian in the administration hereof as may
be requested by the successor Custodian, and shall thereupon be discharged from
all duties and responsibilities hereunder. Any resignation or removal of the
Custodian shall become effective upon such acceptance of appointment by the
successor Custodian. The indemnification of the resigning Custodian provided for
hereunder shall survive any resignation, discharge or removal of the Custodian
hereunder.
12. Custodian Merger, Consolidation. Any corporation into
which the Custodian may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Custodian shall be a party, shall be the successor
Custodian under the Trust Agreement without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
provided that such corporation meets the requirements set
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<PAGE> 5
forth in the Trust Agreement and provided further that the Trust has given its
prior written consent to the Custodian with respect to any such merger,
conversion or consolidation.
13. Compensation; Expenses. The Custodian shall receive
compensation for performing the usual, ordinary, normal and recurring services
under this Custodian Agreement and, with the prior written approval of the
Trustees, reimbursement for any and all expenses and disbursements incurred
hereunder, as provided in Section 3.1 of the Administration Agreement.
14. Section 17(f) Qualification. The Custodian hereby
represents that it is qualified to act as a custodian under Section 17(f) of the
Investment Company Act.
15. Custodian's Limited Liability. The Trustees shall
indemnify and hold the Custodian harmless from and against any loss, damages,
cost or expense (including the costs of investigation, preparation for and
defense of legal and/or administrative proceedings related to a claim against it
and reasonable attorneys' fees and disbursements), liability or claim incurred
by reason of any inaccuracy in information furnished to the Custodian by the
Trustees, or any act or omission in the course of, connected with or arising out
of any services to be rendered hereunder, provided that the Custodian shall not
be indemnified and held harmless from and against any such loss, damages, cost,
expense, liability or claim arising from its willful misfeasance, bad faith or
gross negligence in the performance of its duties, or its reckless disregard of
its duties and obligations hereunder. Neither the Federal Reserve Book Entry
System nor the Depository Trust Company shall be deemed to be agents of the
Custodian.
16. Rights of Set-Off; Banker's Lien. The Custodian hereby
waives all rights of set-off or banker's lien it may have with respect to the
Assets held by it as Custodian hereunder.
17. Termination. This Agreement shall terminate upon the
earlier of the termination of the Trust or the appointment of a successor
Custodian.
18. Choice of Law. This Agreement is executed and delivered in
the State of New York, and all laws or rules of construction of the State of New
York shall govern the right of the parties hereto and the interpretation of the
provisions hereof.
19. Notices. Any notice to be given to the Trust hereunder
shall be in writing and shall be duly given if mailed or delivered to AJL PEPS
Trust, c/o Donald J. Puglisi, Managing Trustee, Puglisi & Associates, 1500 Casho
Mill Road, Suite 3, Newark, Delaware 19715, and to the Custodian if mailed or
delivered to The Bank of New York, 101 Barclay Street, New York, New York 10286,
Attention: Theodore D. Parsons, or at such other
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<PAGE> 6
address as shall be specified by the addressee to the other party
hereto in writing.
20. No Third Party Beneficiaries. Nothing herein, express or
implied, shall give to any Person, other than the Trustees, the Custodian and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim hereunder.
21. Amendments; Trust Agreement Changes; Waiver. This
Agreement shall not be deemed or construed to be modified, amended, rescinded,
cancelled or waived, in whole or in part, except by a written instrument signed
by a duly authorized representative of the party to be charged. The Trustees
shall notify the Custodian of any change in the Trust Agreement prior to the
effective date of any such change. Failure of either party hereto to exercise
any right or remedy hereunder in the event of a breach hereof by the other party
shall not constitute a waiver of any such right or remedy with respect to any
subsequent breach.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
TRUSTEES
_________________________________
William R. Latham, III,
as Trustee
_________________________________
James B. O'Neill,
as Trustee
_________________________________
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By ____________________________
Name:
Title:
-7-
<PAGE> 1
Draft of November 7, 1995
ADMINISTRATION AGREEMENT
This ADMINISTRATION AGREEMENT dated as of this ____ day of
November 1995 by and between The Bank of New York, a New York banking
corporation (the "Administrator"), and William R. Latham, III, James B. O'Neill
and Donald J. Puglisi (collectively, the "Trustees"), not in their individual
capacities but solely as Trustees of AJL PEPS Trust (the "Trust"), a trust
organized under the laws of the State of New York under and by virtue of an
Amended and Restated Trust Agreement, dated as of November __, 1995 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold a forward
contract with each of two existing shareholders (the "Selling Shareholders") of
Amway Japan Limited (individually, a "Contract," collectively, the "Contracts")
and to issue Premium Exchangeable Participating Shares ("PEPS") in accordance
with the terms and conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the
Administrator to assume certain duties and responsibilities of the Trustees
under the Trust Agreement and the Investment Company Act and to undertake
certain services on behalf of and subject to the supervision of the Trustees as
provided herein; and
WHEREAS, the Administrator is qualified and willing to assume
such duties and responsibilities and to undertake to render such services,
subject to the supervision of the Trustees, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms not otherwise defined
herein shall have the respective meanings specified in the Trust Agreement.
ARTICLE II
ENGAGEMENT OF ADMINISTRATOR
2.1 Engagement. The Trustees hereby engage the Administrator,
and the Administrator hereby agrees to be so engaged, to provide the services
hereinafter enumerated.
2.2 Services of Administrator. Subject to the supervision of
the Trustees, the Administrator shall effect the matters set forth further in
Sections 2.3, 2.4, 2.5 and 2.6 of the Trust Agreement, to the extent such
responsibilities can lawfully be delegated to the Administrator; provided,
however, that the Administrator shall not (i) render investment advisory
services to the Trust as defined in the Investment Company Act or the Investment
Advisers Act of 1940; (ii) have the power of the Trustees to sell the Contracts
or the Treasury Securities except as provided in Sections 2.5 and 2.6 of the
Trust Agreement; or (iii) have the power to select the independent public
accountants for the Trust. Additionally, the Administrator shall be responsible
for rendering the following services:
(a) instruct the Paying Agent to pay out of the Net Proceeds
of the sale of the PEPS the fees and expenses of the Trust incurred in
connection with the offering of the PEPS as specified in Schedule I
hereto;
(b) instruct the Paying Agent to pay out of the Net Proceeds
of the sale of the PEPS the fees and expenses of the Trust incurred in
connection with the organization of the Trust as specified in Schedule
II hereto;
(c) instruct the Paying Agent to effect the transactions set
forth in Sections 2.3, 2.4, 2.5 and 2.6 of the Trust Agreement and to
otherwise perform the duties of the Paying Agent referred to in the
Trust Agreement;
(d) with the approval of the Trustees, engage legal and other
professional advisors, subject to clause (iii) above;
(e) receive all demands, bills and invoices for expenses
incurred by or on behalf of the Trust and pay the
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<PAGE> 3
same, or cause the Paying Agent to pay the same, out of moneys paid to
the Administrator pursuant to the Fund Expense Agreement dated the date
hereof between the Trustees and The Bank of New York (the "Fund Expense
Agreement") but in no event out of any assets of the Trust;
(f) (i) prepare and mail, file or publish, or, as appropriate,
direct the Paying Agent to prepare and mail, file or publish, any
notices, proxies, reports and other communications required to be
mailed or published pursuant to the Trust Agreement and the Investment
Company Act, (ii) keep all the books and records of the Trust (other
than those to be kept by the Paying Agent), and (iii) prepare (or cause
to be prepared) and, as necessary, file (or cause to be filed) any and
all reports, returns and other documents as required under the
Investment Company Act, the Securities Exchange Act of 1934, or the
Code, or, as reasonably requested by the Trustees, under any other
applicable laws, rules or regulations or otherwise; provided, however,
that responsibility for the adequacy and accuracy of any such reports,
returns, etc. shall be that of the Trustees and provided, further, that
the Administrator shall have no liability for the adequacy or accuracy
of such reports, returns, etc.;
(g) at the request of the Trustees and upon being furnished
with such reasonable security and indemnity against any related expense
or liability as the Administrator may require, institute and prosecute,
in accordance with the instructions of the Trustees, legal or other
appropriate proceedings to enforce any and all rights and remedies of
the Trust;
(h) receive and review on behalf of the Trust all notices,
reports, certificates and other documents regarding the Contracts and
the Treasury Securities;
(i) make all necessary arrangements with respect to meetings
of Trustees and meetings of Holders, including, without limitation, the
preparation of notices, proxies and minutes, subject to the approval of
the Trustees; and
(j) in conjunction with the Trustees, determine and publish,
in such manner as the Trustees shall direct in writing, the Trust's net
asset value in accordance with the Trust's policy as set forth in the
Prospectus.
2.3 Certain Rights of the Administrator. In connection with
the performance of its duties under this Agreement, the Administrator shall not
be liable to the Trust, the Trustees or any Holder (i) for any action taken or
for refraining from taking any action hereunder except in the case of its
willful misfeasance, bad faith, gross negligence or the reckless disregard of
its duties hereunder, (ii) with respect to
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<PAGE> 4
any action taken or omitted to be taken by it in good faith in accordance with
the directions of the Trustees or of any Trustee or (iii) in connection with the
performance of its duties under Section 2.2(j) hereof, for good faith reliance
upon information furnished by third parties selected by the Administrator with
due care. The Administrator shall under no circumstances be liable for any
indirect or consequential damages. The Administrator may consult with counsel
and the written advice of such counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon. The Administrator may perform
its duties and exercise its rights hereunder either directly or by or through
agents or attorneys appointed with due care by it but shall be liable for the
acts and omissions of such persons to the same extent as if the functions had
been performed by the Administrator itself.
ARTICLE III
COMPENSATION OF ADMINISTRATOR
3.1 Compensation. For services to be rendered by the
Administrator pursuant to this Agreement, as custodian under the Custodian
Agreement, dated as of November __, 1995, between the Administrator, as
custodian, and the Trustees, as paying agent under the Paying Agent Agreement,
dated as of November __, 1995, between the Administrator, as paying agent, and
the Trustees, and as collateral agent under the Collateral Agreements, dated as
of November __, 1995, among the Administrator, as collateral agent, the Selling
Shareholders and the Trustees, and for the payment of Trust expenses pursuant to
Section 2.2(e) hereof, the Administrator shall receive only such fees and
expenses as shall be paid to it pursuant to the terms of the Fund Expense
Agreement and shall have no recourse to the assets of the Trust for the payment
of any such amounts.
3.2 Additional Services. If and to the extent that the
Trustees shall request the Administrator to render services for the Trust, other
than those to be rendered by the Administrator hereunder, and if the
Administrator agrees to render such services, such additional services shall be
compensated separately on terms to be agreed upon between the Administrator and
the Trustees from time to time.
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<PAGE> 5
ARTICLE IV
TERMINATION
4.1 Termination.
(a) This Agreement shall terminate immediately upon written
notice of termination from the Trustees to the Administrator if any of the
following events shall occur:
(i) If the Administrator shall violate any
provision of this Agreement, the Trust Agreement, or the Investment
Company Act, and after notice of such violation, shall not cure such
default within 30 days; or
(ii) If the Administrator shall be adjudged bankrupt
or insolvent by a court of competent jurisdiction, or an order shall be
made by a court of competent jurisdiction for the appointment of a
receiver, liquidator, or trustee of the Administrator, or of all or
substantially all of its property by reason of the foregoing, or
approving any petition filed against the Administrator for its
reorganization, and such adjudication or order shall remain in force or
unstayed for a period of 30 days; or
(iii) If the Administrator shall institute
proceedings for voluntary bankruptcy, or shall file a petition seeking
reorganization under the Federal bankruptcy laws, or for relief under
any law for the relief of debtors, or shall consent to the appointment
of a receiver of the Administrator or of all or substantially all of
its property, or shall make a general assignment for the benefit of its
creditors, or shall admit in writing its inability to pay its debts
generally as they become due; or
(iv) Upon the voluntary or involuntary dissolution
of the Administrator, or unless the Trust shall have given its prior
written consent thereto, the merger or consolidation of the
Administrator with any other entity.
If any of the events specified in clauses (ii), (iii) or (iv) of
this Section 4.1(a) shall occur, the Administrator shall give immediate written
notice thereof to the Trustees.
(b) Notwithstanding anything to the contrary contained herein,
this Agreement shall terminate immediately (i) upon termination of the Trust
Agreement, (ii) upon termination of the Paying Agent Agreement, (iii) upon
termination of any Collateral Agreement or (iv) upon the resignation or removal
of the Custodian.
(c) This Agreement may be terminated by either party hereto
without penalty upon 60 days' prior written notice
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<PAGE> 6
to the other party hereto; provided that neither party hereto may terminate this
Agreement pursuant to this Section 4.1(c) unless a successor Administrator shall
have been appointed and shall have accepted the duties of the Administrator. If,
within 30 days after notice by the Administrator to the Trustees of termination
of this Agreement, no successor Administrator shall have been selected and
accepted the duties of the Administrator, the Administrator may apply to a court
of competent jurisdiction for the appointment of a successor Administrator.
4.2 Effect of Termination. The Administrator shall forthwith
upon termination of this Agreement deliver to the Trustees any records or other
property of the Trust then in the possession or custody of the Administrator.
Any obligation to indemnify the Administrator pursuant to Section 6.6 shall
survive the termination of this Agreement.
ARTICLE V
RECORDS AND REPORTS
5.1 Books and Records; Inspection and Copying. The
Administrator shall keep appropriate, and reasonably detailed and accurate,
books and records of all its activities pursuant to this Agreement. The Trustees
shall have the right to inspect such books and records during the
Administrator's normal business hours upon reasonable request, and to make
copies of the same at the expense of the Trust.
5.2 Access to Information. The Administrator shall make
available to each of the Trustees all information it receives and compiles with
respect to the Contracts and the Treasury Securities, the moneys available to
the Trust, the financial condition of the Trust and all other relevant matters
concerning the Trust.
ARTICLE VI
MISCELLANEOUS
6.1 Binding Effect. Any corporation into which the
Administrator may be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Administrator shall be a party, shall be the successor Administrator
hereunder and under the Trust Agreement without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
provided that such corporation meets the requirements set
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<PAGE> 7
forth in the Trust Agreement and provided further that the Trustees have given
their prior written consent to the Administrator with respect to any such
merger, conversion or consolidation. This Agreement shall be binding on and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
6.2 Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the matters contained herein and
supersedes all prior agreements or understandings, whether oral or written. This
Agreement shall not be amended, changed, modified, or discharged, in whole or in
part, except by an instrument in writing signed by both parties hereto, or their
respective successors or permitted assigns.
6.3 Notices. Any notice, report or other communication
required or permitted to be given hereunder shall be in writing, and shall,
unless some other method of giving such notice, report or other communication is
accepted by the party to whom it is to be given or is required by the Trust
Agreement or the Investment Company Act, be given by being mailed by U.S. first
class mail, certified or registered, return receipt requested, postage prepaid,
to the following addresses of the parties hereto:
The Trust: AJL PEPS Trust
c/o Donald J. Puglisi
Managing Trustee
Puglisi & Associates
1500 Casho Mill Road, Suite 3
Newark, Delaware 19715
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
The Administrator: The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Theodore D. Parsons
Telephone: (212) 815-3199
Telecopier: (212) 571-3050
Any party may at any time give written notice to the other
party that it wishes to change its address for the purposes of this Section 6.3.
6.4 Applicable Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect except to the extent such law is preempted by federal
law.
6.5 Non-assignability. This Agreement and the rights and
obligations of the parties hereunder may not be assigned or delegated by either
party without the prior written consent of the other party.
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<PAGE> 8
6.6 Indemnification. The Trustees shall indemnify and hold the
Administrator harmless from and against any loss, damages, cost or expense
(including the costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements), liability or claim incurred by reason of any
inaccuracy in information furnished to the Administrator by the Trustees, or any
act or omission in the course of, connected with or arising out of any services
to be rendered hereunder, provided that the Administrator shall not be
indemnified and held harmless from and against any such loss, damages, cost,
expense, liability or claim incurred by reason of its willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or its reckless
disregard of its duties and obligations hereunder.
6.7. Provisions of Law to Control. This Agreement shall be
subject to the applicable provisions of the Investment Company Act and the rules
and regulations of the Commission thereunder. To the extent that any provisions
herein contained conflict with any applicable provisions of the Investment
Company Act or such rules and regulations, the latter shall control.
6.8. Counterparts. This Agreement may be signed in counterpart
with all counterparts constituting one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF the parties have hereunto executed this
Administration Agreement as of the day and year first above written.
TRUSTEES
________________________________
William R. Latham, III,
as Trustee
________________________________
James B. O'Neill,
as Trustee
________________________________
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By ___________________________
Name:
Title:
-9-
<PAGE> 1
Draft of November 7, 1995
PAYING AGENT AGREEMENT
This PAYING AGENT AGREEMENT dated as of this ___ day of
November 1995, by and between The Bank of New York, a New York banking
corporation (the "Paying Agent"), and William R. Latham, III, James B. O'Neill
and Donald J. Puglisi (collectively, the "Trustees"), not in their individual
capacities but solely as Trustees of AJL PEPS Trust (the "Trust"), a trust
organized under the laws of the State of New York under and by virtue of an
Amended and Restated Trust Agreement, dated as of November __, 1995 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold the U.S. treasury
securities (the "Treasury Securities"), to enter into and hold a forward
contract with each of two existing shareholders of Amway Japan Limited
(individually, a "Contract," collectively, the "Contracts") and to issue Premium
Exchangeable Participating Shares ("PEPS") to the public in accordance with the
terms and conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the
Paying Agent to assume certain responsibilities and to perform certain duties as
the transfer agent, registrar and paying agent with respect to the PEPS upon the
terms and conditions of this Agreement; and
WHEREAS, the Paying Agent is qualified and willing to assume
such responsibilities and to perform such duties, subject to the supervision of
the Trustees, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms not otherwise
defined herein shall have the respective meanings specified in the Trust
Agreement.
ARTICLE II
PAYING AGENT
2.1 Appointment of Paying Agent and Acceptance. The
Trust Agreement provides that The Bank of New York shall act as the initial
Paying Agent. The Bank of New York accepts such appointment and agrees to act in
accordance with its standard procedures and the provisions of the Trust
Agreement and the provisions set forth in this Article 2 as Paying Agent with
respect to the PEPS. Without limiting the generality of the foregoing, The Bank
of New York, as Paying Agent, agrees that it shall establish and maintain the
Trust Account, subject to the provisions of Section 2.3 hereof.
2.2 Certificates and Notices. The Trustees shall
deliver to the Paying Agent the certificates and notices required to be
delivered to the Paying Agent pursuant to the Trust Agreement, and the Paying
Agent shall mail or publish such certificates or notices as required by the
Trust Agreement, but the Paying Agent shall have no responsibility to confirm or
verify the accuracy of certificates or notices of the Trustees so delivered.
2.3 Payments and Investments. The Paying Agent shall
make payments out of the Trust Account as provided for in Section 3.2 of the
Trust Agreement. The Paying Agent shall effect the transactions set forth in
Sections 2.3, 2.4, 2.5, 2.6 and 8.3 of the Trust Agreement upon instructions to
do so from the Administrator (except that with respect to its obligations under
Section 8.3 of the Trust Agreement, the Paying Agent shall act without
instructions from the Administrator) and shall invest moneys on deposit in the
Trust Account in the Temporary Investments in accordance with Section 3.5 of the
Trust Agreement. Except as otherwise specifically provided herein or in the
Trust Agreement, the Paying Agent shall not have the power to sell, transfer or
otherwise dispose of any Temporary Investment prior to the maturity thereof, or
to acquire additional Temporary Investments. The Paying Agent shall hold any
Temporary Investments to its maturity and shall apply the proceeds thereof paid
upon maturity to the payment of the next succeeding Quarterly Distribution. All
such Temporary Investments shall be selected by the Trustees from time to time
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<PAGE> 3
or pursuant to standing instructions from the Trustees, and the Paying Agent
shall have no liability to the Trust or any Holder or any other Person with
respect to any such Temporary Investment.
2.4 Instructions from Administrator. The Paying Agent
shall receive and execute all instructions from the Administrator, except to the
extent they conflict with or are contrary to the terms of the Trust Agreement or
this Agreement.
ARTICLE III
TRANSFER AGENT AND REGISTRAR
3.1 Original Issue of Certificates. On the date PEPS
sold pursuant to the Underwriting Agreement are originally issued, certificates
for such PEPS shall be issued by the Trust, and, at the request of the Trustees,
registered in such names and such denominations as the Underwriters shall have
previously requested of the Trustees, executed manually or in facsimile by the
Managing Trustee and countersigned by the Paying Agent. At no time shall the
aggregate number of PEPS represented by such countersigned certificates exceed
the number of then outstanding PEPS.
3.2 Registry of Holders. The Paying Agent shall maintain a
registry of the Holders of the PEPS.
3.3 Registration of Transfer of PEPS. PEPS shall be
registered for transfer or exchange, and new certificates shall be issued, in
the name of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the Paying
Agent to be responsible, (b) such assurances as the Paying Agent shall deem
necessary or appropriate to evidence the genuineness and effectiveness of each
necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes.
3.4 Lost Certificates. The Paying Agent shall issue and
register replacement certificates for certificates represented to have been
lost, stolen or destroyed, upon the fulfillment of such requirements as shall be
deemed appropriate by the Trustees and the Paying Agent, subject at all times to
provisions of law, the Trust Agreement and resolutions adopted by the Trustees
with respect to lost securities. The Paying Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Trustees to the Paying Agent to issue a replacement or new
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<PAGE> 4
certificate pursuant to this Section 3.4 shall be deemed to be a representation
and warranty by the Trustees to the Paying Agent that such issuance will comply
with such provisions of law and the Trust Agreement and resolutions of the
Trustees.
3.5 Transfer Books. The Paying Agent shall maintain the
transfer books listing the Holders of the PEPS. In case of any written request
or demand for the inspection of the transfer books of the Trust or any other
books in the possession of the Paying Agent, the Paying Agent will notify the
Trustees and secure instructions as to permitting or refusing such inspection.
The Paying Agent reserves the right, however, to exhibit the transfer books or
other books to any person in case it is advised by its counsel that its failure
to do so would be unlawful.
3.6 Disposition of Cancelled Certificates; Records. The
Paying Agent shall retain certificates which have been cancelled in transfer or
in exchange and accompanying documentation in accordance with applicable rules
and regulations of the Commission for six calendar years from the date of such
cancellation, and shall make such records available during this period at any
time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Commission and the Board of Governors of
the Federal Reserve System. Thereafter such records shall not be destroyed by
the Paying Agent but will be safely stored for possible future reference. In
case of any request or demand for the inspection of the register of the Trust or
any other books in the possession of the Paying Agent, the Paying Agent will
notify the Trustees and to secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful, or (ii) expose it to liability,
unless the Trustees shall have offered indemnification satisfactory to the
Paying Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEES
The Trustees represent and warrant to the Paying Agent that:
(a) the Trust is a validly existing trust under the laws of the
State of New York and the Trustees have full power under the Trust
Agreement to execute and deliver this Agreement and to authorize,
create and issue the PEPS;
(b) this Agreement has been duly and validly authorized,
executed and delivered by the Trustees and constitutes the valid and
binding agreement of the Trustees,
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<PAGE> 5
enforceable against the Trustees in accordance with its terms, subject
as to such enforceability to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors'
rights and to general equitable principles;
(c) the form of the certificate evidencing the PEPS complies
with all applicable laws of the State of New York;
(d) the PEPS have been duly and validly authorized, executed
and delivered by the Trustees and are validly issued;
(e) the PEPS have been registered under the Securities Act of
1933 and the Trust has been registered under the Investment Company Act
and no further action by or before any governmental body or authority
of the United States or of any state thereof is required in connection
with the execution and delivery of this Agreement or the issuance of
the PEPS;
(f) the execution and delivery of this Agreement and the
issuance and delivery of the PEPS do not and will not conflict with,
violate, or result in a breach of, the terms, conditions or provisions
of, or constitute a default under, the Trust Agreement, any law or
regulation, any order or decree of any court or public authority having
jurisdiction over the Trust, or any mortgage, indenture, contract,
agreement or undertaking to which the Trustees are a party or by which
any of them are bound; and
(g) no taxes are payable upon or in respect of the execution of
this Agreement or the issuance of the PEPS.
ARTICLE V
DUTIES AND RIGHTS
5.1 Duties. (a) The Paying Agent is acting solely as agent for
the Trustees hereunder and owes no fiduciary duties to any other Person by
reason of this Agreement.
(b) In the absence of bad faith, gross negligence or willful
misfeasance on its part in the performance of its duties hereunder or its
reckless disregard of its duties and obligations hereunder, the Paying Agent
shall not be liable for any action taken, suffered, or omitted in the
performance of its duties under this Agreement. The Paying Agent shall under no
circumstances be liable for any indirect or consequential damages hereunder.
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<PAGE> 6
5.2 Rights. (a) The Paying Agent may rely and shall be
protected in acting or refraining from acting upon any communication authorized
hereby and upon any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
reasonably believed by it to be genuine. The Paying Agent shall not be liable
for acting upon any telephone communication authorized hereby which the Paying
Agent believes in good faith to have been given by the Trustees.
(b) The Paying Agent may consult with legal counsel and the
advice of such counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Paying Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.
(d) The Paying Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys appointed
with due care by it hereunder.
5.3 Disclaimer. The Paying Agent makes no
representation as to (a) the first two recitals of this Agreement or (b) the
validity or adequacy of the PEPS.
5.4 Compensation, Expenses and Indemnification. (a) The
Paying Agent shall receive for all services rendered by it under this Agreement
and, upon the prior written approval of the Trustees, for all expenses,
disbursements and advances incurred or made by the Paying Agent in accordance
with any provision of this Agreement (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), the compensation set
forth in Section 3.1 of the Administration Agreement.
(b) The Trustees shall indemnify the Paying Agent for and hold
it harmless against any loss, liability, claim or expense (including the costs
of investigation, preparation for and defense of legal and/or administrative
proceedings relating to a claim against it and reasonable attorneys' fees and
disbursements) arising out of or in connection with the performance of its
obligations under this Agreement, provided such loss, liability or
expense is not the result of gross negligence, willful misfeasance or bad faith
on its part in the performance of its duties hereunder or its reckless disregard
of its duties or obligations hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with its exercise
or performance of any of its duties or obligations hereunder and thereunder. The
indemnification
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<PAGE> 7
provided by this Section 5.4(c) shall survive the termination of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Term of Agreement. (a) The term of this Agreement
is unlimited unless terminated as provided in this Section 6.1 or unless the
Trust is terminated, in which case this Agreement shall terminate ten days after
the date of termination of the Trust. This Agreement may be terminated by either
party hereto without penalty upon 60 days' prior written notice to the other
party hereto; provided that neither party hereto may terminate this
Agreement pursuant to this Section 6.1(a) unless a successor Paying Agent shall
have been appointed and shall have accepted the duties of the Paying Agent. The
termination of the Administration Agreement or the resignation or removal of the
Custodian Agreement shall cause the termination of this Agreement simultaneously
therewith. If, within 30 days after notice by the Paying Agent of termination of
this Agreement, no successor Paying Agent shall have been selected and accepted
the duties of the Paying Agent, the Paying Agent may apply to a court of
competent jurisdiction for the appointment of a successor Paying Agent.
(b) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Trust and the Paying Agent under this
Agreement shall cease upon termination of this Agreement. The Trust's
representations, warranties, covenants and obligations to the Paying Agent under
Sections 4 and 5.4 hereof shall survive the termination hereof. Upon termination
of the Agreement, the Paying Agent shall, at the Trust's request, promptly
deliver to the Trust or to any successor Paying Agent as requested by the Trust
(i) copies of all books and records maintained by it and (ii) any funds
deposited with the Paying Agent by the Trust.
6.2 Communications. Except for communications
authorized to be made by telephone pursuant to this Agreement, all notices,
requests and other communications to any party hereunder shall be in writing
(including telecopy or similar writing) and given to such person at its address
or telecopy number set forth below:
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<PAGE> 8
If to the Trust,
addressed: AJL PEPS Trust
c/o Donald J. Puglisi
Managing Trustee
Puglisi & Associates
1500 Casho Mill Road, Suite 3
Newark, Delaware 19715
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
with a copy to the Administrator if the duties of the
Administrator are being performed by a Person other than the
Person performing the obligations of the Paying Agent.
If to the Paying Agent,
addressed:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Theodore D. Parsons
Telephone: (212) 815-3199
Telecopier: (212) 571-3050
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by the Trustees (or by the
Administrator, provided that the Trust shall not have delivered to the
Paying Agent an instrument in writing revoking the authorization of the
Administrator to act for it pursuant hereto) and on behalf of the Paying Agent
by a Senior Vice President or Vice President of the Paying Agent assigned to its
Corporate Trust Department.
6.3 Entire Agreement. This Agreement contains the
entire agreement between the parties relating to the subject matter hereof, and
there are no other representations, endorsements, promises, agreements or
understandings, oral, written or inferred, between the parties relating to the
subject matter hereof.
6.4 No Third Party Beneficiaries. Nothing herein,
express or implied, shall give to any Person, other than the Trustees, the
Paying Agent and their respective successors and assigns, any benefit of any
legal or equitable right, remedy or claim hereunder.
6.5 Amendment; Waiver. (a) This Agreement shall not be deemed
or construed to be modified, amended, rescinded, cancelled or waived, in whole
or in part, except by a written instrument signed by a duly authorized
representative of the
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<PAGE> 9
party to be charged. The Trust shall notify the Paying Agent of any change in
the Trust Agreement prior to the effective date of any such change.
(b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
6.6 Successors and Assigns. Any corporation into which
the Paying Agent may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Paying Agent shall be a party, shall be the successor
Paying Agent under the Trust Agreement without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
provided that such corporation meets the requirements set forth in the
Trust Agreement. This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors of each of the Trust and the
Paying Agent. This Agreement shall not be assignable by either the Trust or the
Paying Agent, provided further that the Trust has given its
prior written consent to the Paying Agent with respect to any such merger,
conversion or consolidation.
6.7 Severability. If any clause, provision or section
hereof shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any of the remaining clauses, provisions or sections
hereof.
6.8 Execution in Counterparts. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
6.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of law.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the date first above written.
TRUSTEES
----------------------------
William R. Latham, III,
as Trustee
---------------------------
James B. O'Neill,
as Trustee
---------------------------
Donald J. Puglisi,
as Trustee
THE BANK OF NEW YORK
By:
-------------------------
Name:
Title:
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<PAGE> 1
PRELIMINARY DRAFT
PURCHASE AGREEMENT*
THIS AGREEMENT is made as of this ______ day of
November 1995 between HDV GRIT Holdings, Inc., a Michigan corporation
("Seller"), HDV Grantor Retained Income Trust, a trust duly created under the
laws of _____ (such trust and the trustees thereof acting in their capacity as
such being referred to herein as "GRIT"), and AJL PEPS Trust (such trust and the
trustees thereof acting in their capacity as such being referred to herein as
"Purchaser").
WHEREAS, Seller owns shares of common stock, no par value (the
"Common Stock"), of Amway Japan Limited, a Japanese corporation (the "Company"),
and GRIT is the owner of all of the outstanding common stock of Seller;
WHEREAS, Purchaser has filed with the Securities and Exchange
Commission a registration statement contemplating the offering of up to
_________ Premium Exchangeable Participating Shares (the "PEPS"), the terms of
which contemplate delivery by Purchaser to the holders thereof of a number of
American Depositary Shares ("ADSs"), each representing one half of one share of
Common Stock (or, at the option of the holders, the equivalent in shares of
Common Stock), on February 15, 1999 (the "Exchange Date");
WHEREAS, Seller has agreed, pursuant to the Collateral
Agreement (the "Collateral Agreement") dated as of November __, 1995,among
Purchaser, Seller, GRIT and The Bank of New York, as collateral agent (the
"Collateral Agent"), to grant Purchaser a security interest in ADSs and in
certain other circumstances certain other collateral to secure the obligations
of the Seller and GRIT hereunder;
WHEREAS, Purchaser has agreed, pursuant to an underwriting
agreement, dated November __, 1995 (the "Underwriting Agreement"), among
Purchaser, Seller, GRIT, Amway Corporation, Jay Van Andel Trust, Jay Van Andel
(together with Jay Van Andel Trust, the "Other Sellers"), the Company, Morgan
Stanley and Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, on behalf of the other several U.S. underwriters named therein
(the "U.S.
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* This is a form of Purchase Contract. A substantially identical agreement will
be entered into by each Seller.
<PAGE> 2
Underwriters") and Morgan Stanley & Co. International Limited and Merrill Lynch
International Limited, on behalf of the other several international underwriters
named therein (the "International Underwriters" and, together with the U.S.
Underwriters, the "Underwriters"), to issue and sell to the Underwriters an
aggregate of _________ PEPS ("the Initial PEPS") and, at the U.S. Underwriters'
option, all or any part of _______ additional PEPS (the "Additional PEPS") to
cover overallotments;
NOW, THEREFORE, in consideration of their mutual covenants
herein contained, the parties hereto, intending to be legally bound, hereby
mutually covenant and agree as follows:
DEFINITIONS
As used herein, the following words and phrases shall have the
following meanings:
"Acceleration Amount" has the meaning provided in Article VII.
"Acceleration Value" has the meaning provided in Article VII.
"Additional ADS Base Amount" means one half times the
number of Additional PEPS that the U.S. Underwriters shall elect to purchase
under the Underwriting Agreement.
"Additional ADSs" has the meaning provided in Section 1.1(b).
"Additional STRIPS" means the U.S. Treasury obligations
purchased by Purchaser for settlement on the Option Closing Date.
"Administrator" means The Bank of New York,
administrator for Purchaser under the Administration Agreement dated as of
November __, 1995, or any successor thereto.
"ADS Equivalent Price" on any date of determination
means the Closing Price per share of the Common Stock on such date, times one
half, divided by the Calculation Exchange Rate on such date.
"Aggregate Acceleration Value" has the meaning provided in
Article VII.
2
<PAGE> 3
"Business Day" means: (i) as used in Article VI, any
day on which commercial banks are open for business in Tokyo and (ii) as used in
Article VII, any day on which commercial banks are open for business in New York
City and the New York Stock Exchange is not closed.
"Calculation Exchange Rate" means, on any date of
determination, the noon buying rate in New York City on such date for cable
transfers in yen as announced for customs purposes by the Federal Reserve Bank
of New York.
"Calculation Period" means any period of Trading Days
for which an average security price must be determined pursuant to this
Agreement.
"Closing Price" means, for any security on any Trading
Day, (i) the last reported executed trade price (regular way) of such security
on the principal trading market for such security for such date; (ii) if no
regular way executed trade price for such security is reported on the principal
trading market for such security on such date, the average of the closing bid
and offered prices for such security as reported by the principal trading market
for such security; (iii) if no regular way executed trade price or closing bid
and offered prices for such security are reported on the principal trading
market for such security on such date, the Closing Price (as determined in
accordance with clauses (i) or (ii)) for the next succeeding Trading Day (if
any) within the relevant Calculation Period on which the Closing Price may be so
determined; or (iv) if such security is no longer listed or admitted to trading
on any exchange or in the over-the-counter market, the average of the closing
bid and offered prices for such day as furnished by a member firm of the most
recent principal trading market for such security. The Closing Price shall be
subject to adjustment in certain events as provided in Section 6.1(e).
"Contract ADSs" has the meaning provided in Section 1.1(b).
"Custodian" means The Bank of New York, custodian for
Purchaser under the Custodian Agreement dated as of November __, 1995, or any
successor thereto.
"Dilution Adjustment" means any fraction or number by
which the Exchange Ratio shall be multiplied pursuant to Section 6.1(a), (b),
(c) or (d).
"Downside Protection Threshold Price" has the meaning provided
in Section 1.1(c).
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<PAGE> 4
"Event of Default" has the meaning provided in Article VII.
"Excess Purchase Payment" has the meaning provided in Section
6.1(d).
"Exchange Price" means the average ADS Equivalent Price
for a Calculation Period of 20 Trading Days immediately prior to (but not
including) the Exchange Date, provided that if no ADS Equivalent Price may be
determined for one or more (but not all) of such Trading Days, such Trading Day
shall be disregarded in the calculation of the Exchange Price (but no additional
Trading Days shall be added to the Calculation Period). If no ADS Equivalent
Price may be determined for any of such Trading Days, the Exchange Price shall
be the ADS Equivalent Price for the most recent Trading Day prior to such 20
Trading Days for which a Closing Price for the Common Stock may be determined
pursuant to clause (i), (ii) or (iv) of the "Closing Price" definition.
"Exchange Ratio" has the meaning provided in Section 1.1(c).
"Firm ADS Base Amount" has the meaning provided in Section
1.1(a).
"Firm ADSs" has the meaning provided in Section 1.1(a).
"Firm Payment Date" has the meaning provided in Section 1.3(a).
"Firm Purchase Price" has the meaning provided in Section
1.2(a).
"Independent Dealers" has the meaning provided in Article VII.
"Initial Value" has the meaning provided in Section (1)(c).
"Marketable Common Stock" has the meaning provided in Section
6.2.
"Permitted Dividend" has the meaning provided in Section
6.1(d).
"Then-Current Market Price" of the Common Stock, for the
purpose of applying any adjustment pursuant to
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<PAGE> 5
Section 6.1, means the average Closing Price per share of the Common Stock for
the Calculation Period of 5 Trading Days immediately prior to the time such
adjustment is effected (or, in the case of an adjustment effected on the
Business Day next following a record date as described in Section 6.1(f)(i),
immediately prior to the earlier of the time such adjustment is effected and the
related ex- date); provided that if no Closing Price for the Common Stock may be
determined for one or more (but not all) of such Trading Days, such Trading Day
shall be disregarded in the calculation of the Then-Current Market Price (but no
additional trading days shall be added to the Calculation Period). If no Closing
Price for the Common Stock may be determined for any of such Trading Days, the
Then-Current Market Price shall be the Closing Price for the Common Stock for
the most recent Trading Day prior to such 5 Trading Days for which a Closing
Price for the Common Stock may be determined pursuant to clause (i), (ii) or
(iv) of the "Closing Price" definition. The "ex-date" with respect to any
dividend, distribution or issuance shall mean the first date on which the shares
of Common Stock trade regular way on their principal market without the right to
receive such dividend, distribution or issuance.
"Threshold Appreciation Price" has the meaning provided in
Section 1.1(c).
"Trading Day" means, with respect to any security, a
day on which the principal trading market for such security is open for trading
or quotation.
"Transaction Value" has the meaning provided in Section 6.2.
"Trust Agreement" means the Amended and Restated Trust
Agreement constituting AJL PEPS Trust dated as of November __, 1995.
I.
SALE AND PURCHASE
1.1 Sale and Purchase. (a) Firm ADSs. Upon the
terms and subject to the conditions of this Agreement, Seller agrees to sell,
and GRIT agrees to cause Seller to sell, to Purchaser, and Purchaser agrees to
purchase and acquire from Seller, the number of ADSs (the "Firm ADSs") equal to
the product of ____________ (the "Firm ADS Base Amount") and the Exchange Ratio.
5
<PAGE> 6
(b) Additional ADSs. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell, and GRIT agrees to cause
Seller to sell, to Purchaser, and Purchaser shall have a right to purchase, a
number of additional ADSs (the "Additional ADSs") equal to the product of the
Exchange Ratio and the Additional ADS Base Amount. If the U.S. Underwriters
exercise their option to purchase Additional PEPS pursuant to the Underwriting
Agreement, Purchaser shall notify Seller in writing that Purchaser will purchase
the Additional ADSs, which notice shall specify the Additional ADS Base Amount
and the date on which Purchaser shall deliver the purchase price for the
Additional ADSs, which shall be the Option Closing Date, as defined in Article
IV of the Underwriting Agreement. The Firm ADSs and the Additional ADSs (if any)
are collectively referred to herein as the "Contract ADSs".
(c) Exchange Ratio; Exchange Price. The "Exchange
Ratio" shall be determined in accordance with the following formula, subject to
adjustment as a result of certain events relating to the Common Stock or the
ADSs as provided in Article VI: (i) if the Exchange Price is less than $______
(the "Threshold Appreciation Price") but equal to or greater than $______ (the
"Downside Protection Threshold Price"), a fraction (rounded upward or downward
to the nearest 1/10,000th or, if there is not a nearest 1/10,000th, to the next
lower 1/10,000th) equal to $________ (the "Initial Value") divided by the
Exchange Price, (ii) if the Exchange Price is equal to or greater than the
Threshold Appreciation Price, 0.x and (iii) if the Exchange Price is less than
the Downside Protection Threshold Price, 1.xx.
1.2 Purchase Price. (a) Firm Purchase Price. The purchase price
for the Firm ADSs (the "Firm Purchase Price") shall be $________ in cash.
(b) Additional Purchase Price. The purchase price for
the Additional ADSs (the "Additional Purchase Price") shall be one half times
the difference between: (i) the aggregate proceeds to Purchaser from the sale of
the Additional PEPS; and (ii) the aggregate cost to Purchaser, as notified by
Purchaser to Seller on the Option Closing Date, of the Additional STRIPS.
1.3 Payment for and Delivery of Contract ADSs. (a)
Firm Payment Date. Upon the terms and subject to the conditions of this
Agreement, Purchaser shall deliver to Seller the Firm Purchase Price on November
__, 1995 (the "Firm Payment Date") at the offices of Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, or at such other place as shall be
agreed upon by Purchaser and
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<PAGE> 7
Seller, paid by certified or official bank check or checks duly endorsed to, or
payable to the order of, Seller, or by wire transfer to an account designated by
Seller, in New York Clearing House Funds.
(b) Option Closing Date. Upon the terms and subject to
the conditions of this Agreement, Purchaser shall deliver to Seller the
Additional Purchase Price on the Option Closing Date at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, or at such
other place as shall be agreed upon by Purchaser and Seller, paid by certified
or official bank check or checks duly endorsed to, or payable to the order of,
Seller, or wire transfer to an account designated by Seller, in New York
Clearing House Funds.
(c) Delivery of Contract ADSs. On February 15, 1999
(the "Exchange Date"), Seller agrees to deliver, and GRIT agrees to cause Seller
to deliver, the Contract ADSs to Purchaser. Delivery shall be effected by
delivery by the Collateral Agent to the Custodian, for the account of Purchaser,
of American Depositary Receipts ("ADRs") then held by the Collateral Agent as
collateral under the Collateral Agreement, in an amount representing a number of
ADSs equal to the number of Contract ADSs, rounded down to the nearest whole
number. Instead of any fractional ADS that would otherwise be deliverable to
Purchaser at the Exchange Date, Seller agrees to make, and GRIT agrees to cause
Seller to make, a cash payment in respect of such fractional ADS in an amount
equal to the value thereof at the Exchange Price. Notwithstanding the foregoing,
if a Reorganization Event shall have occurred prior to the Exchange Date then,
in lieu of the foregoing, delivery shall be effected as follows: (i) in the case
of any cash required to be delivered on the Exchange Date as provided in Section
6.2, by wire transfer of immediately available funds to an account designated by
Purchaser; or (ii) in the case of any shares of Marketable Common Stock elected
by Seller to be delivered in lieu of cash as provided in Section 6.2, at
Seller's election, by instruction to the Collateral Agent to deliver to the
Custodian, for the account of Purchaser, a specified number of shares of
Marketable Common Stock then held as collateral under the Collateral Agreement,
as provided in Section 6(g) of the Collateral Agreement.
II.
REPRESENTATIONS AND WARRANTIES OF SELLER
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Each of Seller and GRIT represents and warrants to Purchaser
that each representation and warranty made by the Seller and GRIT pursuant to
Article I, paragraph (b) of the Underwriting Agreement is true and correct on
the date hereof.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller and GRIT as
follows:
(a) Purchaser has been duly created and is validly existing as
a trust under the laws of the State of New York.
(b) This Agreement has been duly authorized, executed and
delivered by Purchaser and, assuming due authorization, execution and delivery
by Seller and GRIT, is a legal, valid and binding agreement of Purchaser,
enforceable against Purchaser in accordance with its terms except as (i) such
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(c) The execution and delivery by Purchaser of, and the
performance by Purchaser of its obligations under, this Agreement will not
contravene any provision of applicable law or the Trust Agreement or any
agreement or other instrument binding upon Purchaser or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
Purchaser, whether foreign or domestic, and no consent, approval, authorization,
order of, or qualification with, any governmental body or agency,
self-regulatory organization or court or other tribunal, whether foreign or
domestic.
IV.
CONDITIONS TO PURCHASER'S OBLIGATIONS
(a) The obligation of Purchaser to deliver the Purchase Price
on the Firm Payment Date is subject to the satisfaction of the following
conditions:
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(i) the purchase by the Underwriters of the Initial PEPS
pursuant to the Underwriting Agreement shall have been consummated as
contemplated therein; and
(ii) the representations and warranties of Seller and GRIT
contained in Article III hereof shall be true and correct as of the
Firm Payment Date.
(b) The obligation of Purchaser to deliver the Additional
Purchase Price on the Option Closing Date is subject to the condition that the
purchase by the Underwriters of the Additional PEPS shall have been consummated
as contemplated under the Underwriting Agreement.
V.
COVENANTS
5.1 Taxes. Seller shall pay, and GRIT shall cause to be
paid, any and all documentary, stamp, transfer or similar taxes and charges that
may be payable in respect of the entry into this Agreement and the transfer and
delivery of the Contract ADSs pursuant hereto.
5.2 Forward Contract. Seller and GRIT each hereby
agrees that: (i) it will not treat this Agreement, any portion of this
Agreement, or any obligation hereunder as giving rise to any interest income or
other inclusions of ordinary income; (ii) it will not treat the delivery of any
portion of the Contract ADSs, cash or Marketable Common Stock to be delivered
pursuant to this Agreement as the payment of interest or ordinary income; (iii)
it will treat this Agreement in its entirety as a forward contract for the
delivery of such Contract ADSs, cash or Marketable Common Stock; and (iv) it
will not take any action (including filing any tax return or form or taking any
position in any tax proceeding) that is inconsistent with the obligations
contained in (i) through (iii). Notwithstanding the preceding sentence, Seller
and GRIT may take any action or position required by law, provided that Seller
or GRIT delivers to Purchaser an unqualified opinion of counsel, nationally
recognized as expert in Federal tax matters, to the effect that such action or
position is required by a statutory change, Treasury regulation, or applicable
court decision published after the date of this Agreement.
5.3 Limitations on Trading During Certain Days. Seller and GRIT
each hereby agrees that it will not buy ADSs
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or shares of Common Stock for its own account during the 60 days prior to the
Exchange Date.
5.4 Notices. Seller and GRIT will cause to be delivered to
Purchaser:
(a) Immediately upon the occurrence of any Event of Default
hereunder or under the Collateral Agreement, or upon any officer or trustee of
Seller or GRIT obtaining knowledge that any of the conditions or events
described in paragraph (a) or (b) of Article VII shall have occurred with
respect to the Company, notice of such occurrence; and
(b) In case at any time prior to the Exchange Date Seller or
GRIT receives notice, or any officer or trustee of Seller or GRIT obtains
knowledge, that any event requiring that an adjustment be effected pursuant to
Article VI hereof shall have occurred or be pending, then Seller and GRIT shall
promptly cause to be delivered to Purchaser a notice identifying such event and
stating, if known to Seller or GRIT, the date on which such event is to occur
and, if applicable, the record date relating to such event. Seller and GRIT
shall cause further notices to be delivered to Purchaser if Seller or GRIT shall
subsequently receive notice, or any officer or trustee of Seller or GRIT shall
obtain knowledge, of any further or revised information regarding the terms or
timing of such event or any record date relating thereto.
5.5 Further Assurances. From time to time on and after
the date hereof through the Exchange Date, each of the parties hereto shall use
its reasonable best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper and advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Agreement in accordance with the terms and conditions
hereof.
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VI.
ADJUSTMENT OF EXCHANGE RATIO, THRESHOLD PRICES,
INITIAL VALUE AND CLOSING PRICE
6.1 Dilution Adjustments. The Exchange Ratio, Threshold
Appreciation Price, Downside Protection Threshold Price and the Initial Value
shall be subject to adjustment from time to time as follows:
(a) Stock Dividends, Splits, Reclassifications, Etc. If the
Company shall, after the date hereof,
(i) pay a stock dividend or make a distribution with
respect to Common Stock in shares of such stock;
(ii) subdivide or split the outstanding shares of
Common Stock into a greater number of shares of Common Stock;
(iii) combine the outstanding shares of Common Stock
into a smaller number of shares; or
(iv) issue by reclassification of shares of Common
Stock any shares of common stock of the Company;
then, in each such case, the Exchange Ratio shall be multiplied by a Dilution
Adjustment equal to the number of shares of common stock (or the fraction
thereof) that a holder who held one share of Common Stock immediately prior to
such event would be entitled solely by reason of such event to hold immediately
after such event. The Threshold Appreciation Price, Downside Protection
Threshold Price and Initial Value shall also be adjusted in the manner described
in paragraph (e).
(b) Right or Warrant Issuances. If the Company shall,
after the date hereof, issue, or declare a record date in respect of an issuance
of, rights or warrants to all holders of Common Stock entitling them to
subscribe for or purchase shares of Common Stock (other than rights to purchase
Common Stock pursuant to a plan for the reinvestment of dividends or interest)
at a price per share less than the Then-Current Market Price of the Common
Stock, then, in each such case, the Exchange Ratio shall be multiplied by the
following Dilution Adjustment: a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to the time the
adjustment is effected, plus the number of
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additional shares of Common Stock offered for subscription or purchase pursuant
to such rights or warrants, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately prior to the time the adjustment
is effected, plus the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at the Then-Current Market Price of the Common Stock, which shall be
determined by multiplying the total number of shares so offered for subscription
or purchase by the exercise price of such rights or warrants and dividing the
product so obtained by such Then-Current Market Price. To the extent that shares
of Common Stock are not delivered after the expiration of such rights or
warrants, the Exchange Ratio shall be readjusted to the Exchange Ratio which
would then be in effect had such adjustments for the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock actually delivered. The Threshold Appreciation Price, Downside
Protection Threshold Price and Initial Value shall also be adjusted in the
manner described in paragraph (e).
(c) Distributions of Other Assets. If the Company
shall, after the date hereof, declare or pay a dividend or distribution to all
holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any dividends or distributions referred to in
paragraph (a) above) or shall issue to all holders of Common Stock rights or
warrants to subscribe for or purchase any of its securities (other than rights
or warrants referred to in paragraph (b) above), then, in each such case, the
Exchange Ratio shall be multiplied by the following Dilution Adjustment: a
fraction, of which the numerator shall be the Then-Current Market Price of the
Common Stock, and of which the denominator shall be such Then-Current Market
Price less the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by Purchaser) as
of the time the adjustment is effected of the portion of the assets or evidences
of indebtedness so distributed or of such subscription rights or warrants
applicable to one share of Common Stock. The Threshold Appreciation Price,
Downside Protection Threshold Price and Initial Value shall also be adjusted in
the manner described in subparagraph (e).
(d) Cash Dividends; Excess Purchase Payments. If, after the
date hereof, the Company distributes or declares a record date in respect of a
distribution of cash (other than any Permitted Dividend, special dividends of 50
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yen and 25 yen per share of Common Stock to be distributed to holders of record
on August 31, 1995 and February 28, 1996, respectively, any cash distributed in
consideration of fractional shares of Common Stock and any cash distributed in a
Reorganization Event), by dividend or otherwise, to all holders of Common Stock,
or makes an Excess Purchase Payment, then the Exchange Ratio will be multiplied
by the following Dilution Adjustment: a fraction, of which the numerator shall
be the Then- Current Market Price of the Common Stock, and of which the
denominator shall be such Then-Current Market Price less the amount of such
distribution applicable to one share of Common Stock which would not be a
Permitted Dividend (or in the case of an Excess Purchase Payment, less the
aggregate amount of such Excess Purchase Payments for which adjustment is being
made at such time divided by the number of outstanding shares of Common Stock on
the date the adjustment is effected). For purposes of these adjustments, (A)
"Permitted Dividend" means any cash dividends in respect of the Common Stock to
the extent that the per share amount of such dividends does not, in any fiscal
semiannual period, exceed 50 yen and (B) "Excess Purchase Payment" means the
excess, if any, of (x) the cash and the value (as determined by a nationally
recognized independent investment banking firm retained for this purpose by
Purchaser) of all other consideration paid by the Company with respect to one
share of Common Stock acquired in any share repurchase, whether made by the
Company in the open market, by private purchase, by tender offer, by exchange
offer or otherwise, over (y) the Then-Current Market Price of the Common Stock.
Notwithstanding the foregoing, the Company may pay up to 15 billion yen in
aggregate consideration in respect of share repurchases without any adjustment
pursuant to this paragraph (d) being required, provided that no such repurchase
involves an Excess Purchase Payment of more than 5 percent of the Then-Current
Market Price of the Common Stock on the date an adjustment therefor would
otherwise be required to be effected. The Threshold Appreciation Price, Downside
Protection Threshold Price and Initial Value shall also be adjusted in the
manner described in subparagraph (e).
(e) Corresponding Adjustments to Initial Value, Threshold
Prices and Closing Price; Change in Principal Market. (i) If any adjustment
is made to the Exchange Ratio pursuant to paragraph (a), (b), (c) or (d) of this
Section 6.1, an adjustment shall also be made to the Threshold Appreciation
Price, the Downside Protection Threshold Price and the Initial Value. The
required adjustment shall be made by dividing each of the Threshold Appreciation
Price, the Downside Protection Threshold Price and the Initial Value by the
relevant Dilution Adjustment.
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(ii) If, during any Calculation Period used in calculating the
Exchange Price, the Then-Current Market Price or the Transaction Value, there
shall occur any event requiring an adjustment to be effected pursuant to this
Section 6.1, then the Closing Price for each Trading Day in the Calculation
Period occurring prior to the day on which such adjustment is effected shall be
adjusted by being divided by the relevant Dilution Adjustment.
(iii) If, at any time when the Closing Price per share of the
Common Stock shall be required to be determined hereunder, the principal market
for the Common Stock shall be a market in ADSs or other depositary shares or
receipts representing Common Stock, or shall not be a Japanese market, then
appropriate adjustments shall be made hereunder in order that: (A) the ADS
Equivalent Price shall continue to reflect the value in U.S. dollars of one half
of one full share of Common Stock, based on such Closing Price and (B) the
Then-Current Market Price of the Common Stock shall continue to reflect the
value, in Japanese yen, of one full share of Common Stock, based on such Closing
Price.
(f) Timing of Dilution Adjustments. Each Dilution Adjustment
shall be effected:
(i) in the case of any dividend, distribution or issuance, at
the opening of business on the Business Day next following the record
date for determination of holders of Common Stock entitled to receive
such dividend, distribution or issuance or, if the announcement of any
such dividend, distribution or issuance is after such record date, at
the time such dividend, distribution or issuance shall be announced by
the Company;
(ii) in the case of any subdivision, split, combination or
reclassification, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the
Company shall announce, at or prior to the time it commences the
relevant share repurchase, the repurchase price per share for shares
proposed to be repurchased on the date of such announcement; and
(iv) in the case of any other Excess Purchase Payment, on the
date that the holders of the repurchased shares become entitled to
payment in respect thereof.
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(g) General; Failure of Dilution Event to Occur. All
Dilution Adjustments shall be rounded upward or downward to the nearest
1/10,000th (or if there is not a nearest 1/10,000th to the next lower
1/10,000th). No adjustment in the Exchange Ratio shall be required unless such
adjustment would require an increase or decrease of at least one percent
therein; provided, however, that any adjustments which by reason of this
sentence are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. If any announcement or declaration of a
record date in respect of a dividend, distribution, issuance or repurchase
requiring an adjustment pursuant to this Section 6.1 shall subsequently be
cancelled by the Company, or such dividend, distribution, issuance or repurchase
shall fail to receive requisite approvals or shall fail to occur for any other
reason, then, upon such cancellation, failure of approval or failure to occur,
the Exchange Ratio shall be readjusted to the Exchange Ratio which would then
have been in effect had adjustment for such event not been made. If a
Reorganization Event shall occur after the occurrence of one or more events
requiring an adjustment pursuant to this Section 6.1, the Dilution Adjustments
previously applied to the Exchange Ratio in respect of such events shall not be
rescinded but shall be applied to the new Exchange Ratio provided for under
Section 6.2.
6.2 Adjustment for Consolidation, Merger or Other
Reorganization Event. In the event of (i) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of the Company
(a "Company Successor"), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Common Stock outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the Company or another
corporation), (ii) any sale, transfer, lease or conveyance to another
corporation of the property of the Company or any Company Successor as an
entirety or substantially as an entirety, (iii) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (iv) any liquidation,
dissolution or winding up of the Company or any Company Successor (any such
event described in clause (i), (ii), (iii) or (iv), a "Reorganization Event"),
the Exchange Ratio shall be adjusted so that on the Exchange Date Purchaser
shall receive, in lieu of the Contract ADSs, cash in an amount equal to the
product of (x) the Firm ADS Base Amount plus the Additional ADS Base Amount (if
any) and (y)(i) if the Transaction Value (as defined below) is less
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than the Threshold Appreciation Price but equal to or greater than the Downside
Protection Threshold Price, the Initial Value, (ii) if the Transaction Value is
equal to or greater than the Threshold Appreciation Price, 0.x multiplied by the
Transaction Value and (iii) if the Transaction Value is less than the Downside
Protection Threshold Price, 1.xx multiplied by the Transaction Value.
Notwithstanding the foregoing, if any Marketable Common Stock is received in
such Reorganization Event, Seller may, at its option, in lieu of delivering cash
as described above, deliver an equivalent amount (based on the value determined
in accordance with clause (z) of the following paragraph) of Marketable Common
Stock, but not exceeding, as a percentage of the total consideration required to
be delivered, the percentage of the total Transaction Value attributable to such
Marketable Common Stock.
"Transaction Value" means one half times the sum of: (x) for
any cash received in any such Reorganization Event, the amount of cash received
per share of Common Stock; (y) for any property other than cash or Marketable
Common Stock received in any such Reorganization Event, an amount equal to the
market value on the date the Reorganization Event is consummated of such
property received per share of Common Stock, as determined by a nationally
recognized independent investment banking firm retained for this purpose by
Purchaser; and (z) for any Marketable Common Stock received in any such
Reorganization Event, an amount equal to the average Closing Price per share of
such Marketable Common Stock for the Calculation Period of 20 Trading Days
immediately prior to the Exchange Date, multiplied by the number of such shares
received for each share of Common Stock; provided that if no Closing Price for
such Marketable Common Stock may be determined for one or more (but not all) of
such Trading Days, such Trading Day shall be disregarded in the calculation of
such average Closing Price (but no additional trading days shall be added to the
Calculation Period). If no Closing Price for the Marketable Common Stock may be
determined for all such Trading Days, the calculation in the preceding clause
(z) shall be based on the most recently available Closing Price for the
Marketable Common Stock prior to such 20 Trading Days.
"Marketable Common Stock" means any common equity securities
traded on a U.S. national securities exchange or any foreign securities exchange
or in the Japanese OTC market or reported by The Nasdaq National Market. The
number of shares of any Marketable Common Stock included in the calculation of
Transaction Value pursuant to the preceding clause (z) shall be subject to
adjustment if any
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event that would, had it occurred with respect to the Common Stock or the
Company, have required an adjustment pursuant to Section 6.1, shall occur with
respect to such Marketable Common Stock or the issuer thereof subsequent to the
date the Reorganization Event is consummated. Adjustment for such subsequent
events shall be as nearly equivalent as practicable to the adjustments provided
for in Section 6.1.
6.3. Adjustment for Change in ADS to Share Ratio. If
the number of shares of Common Stock represented by each ADS shall change at any
time to become a number other than one half, then the Exchange Ratio shall be
adjusted by being multiplied by a fraction, of which the numerator shall be one
half and the denominator shall be the number of shares of Common Stock then
represented by each ADS. If a Reorganization Event shall occur after the
effectuation of any adjustment pursuant to this Section 6.3, then such
adjustment shall be reversed and shall not be applied to the new Exchange Ratio
provided for under Section 6.2.
VII.
ACCELERATION
If one or more of the following events (each an "Event of
Default") shall occur:
(a) Seller, any Other Seller or GRIT shall commence a voluntary
case or other proceeding seeking a liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall take any corporate action to
authorize any of the foregoing;
(b) an involuntary case or other proceeding shall be commenced
against the Seller, any Other Seller or GRIT seeking liquidation,
reorganization or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding
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shall remain undismissed and unstayed for a period of 60 days; or an
order for relief shall be entered against the Seller, any Other Seller
or GRIT under the federal bankruptcy laws as now or hereafter in
effect; or
(c) a Collateral Event of Default within the meaning of the
Collateral Agreement, or a Collateral Event of Default within the
meaning of the Collateral Agreement dated as of the date hereof between
Purchaser, Other Sellers and the Collateral Agent;
then, upon the occurrence of any such event, an Acceleration Date shall occur,
and Seller shall become obligated to deliver, and GRIT shall become obligated to
cause Seller to deliver, immediately upon receipt of the Acceleration Amount
Notice (as defined below), the Acceleration Amount of ADSs. The "Acceleration
Amount" means the quotient obtained by dividing: (i) the Aggregate Acceleration
Value, as defined below, by (ii) the ADS Equivalent Price on the Acceleration
Date. If the number of shares of Common Stock represented by each ADS on the
Acceleration Date shall be other than one half, then the Acceleration Amount
shall by adjusted by being multiplied by a fraction, of which the numerator
shall be one half and the denominator shall be the number of shares of Common
Stock then represented by each ADS. If a Reorganization Event shall have
occurred on or before the Acceleration Date, then in lieu of the Acceleration
Amount of ADSs, Seller and GRIT shall deliver cash, Marketable Common Stock or a
combination thereof having an aggregate value, based on the Closing Price per
share of the Marketable Common Stock on the Acceleration Date, equal to the
Aggregate Acceleration Value; provided that the percentage of such aggregate
value that may be delivered in the form of Marketable Common Stock shall not
exceed the percentage of the Transaction Value that would be attributable to
Marketable Common Stock if the Exchange Date were the Acceleration Date.
The "Aggregate Acceleration Value" means the product obtained
by multiplying (i) the Acceleration Value (as defined below) by (ii) the
quotient obtained by dividing (A) the sum of the Firm ADS Base Amount and the
Additional ADS Base Amount (if any) by (B) 1,000; except that, if no quotations
for the determination of the Acceleration Value are obtained as described below,
the Aggregate Acceleration Value shall be the ADS Equivalent Price on the
Acceleration Date times the number of ADSs that would be required to be
delivered by Seller on such date under this Agreement if the Exchange Date were
the Acceleration Date.
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The "Acceleration Value" means an amount determined on the
basis of quotations from Independent Dealers, as defined below. Each quotation
will be for the amount that would be paid to the relevant Independent Dealer in
consideration of an agreement between Purchaser and such Independent Dealer that
would have the effect of preserving for Purchaser the economic equivalent of the
payments and deliveries that Purchaser would, but for the occurrence of the
Acceleration Date, have been entitled to receive after the Acceleration Date
under Article I hereof (taking into account any adjustments to the Exchange
Ratio that may have been effected on or prior to the Acceleration Date) provided
that, for purposes of determining the payments and deliveries to which Purchaser
is entitled under Article I hereof, the Additional ADS Base Amount shall be
redefined to be zero and the Firm ADS Base Amount shall be redefined to be
1,000. On or as soon as reasonably practicable following the Acceleration Date,
Purchaser will request each Independent Dealer to provide its quotation as soon
as reasonably practicable, but in any event within two Business Days. Purchaser
shall compute Acceleration Value upon receipt of each Independent Dealer's
quotation, provided that if, at the close of business on the fourth Business Day
following the Acceleration Date, Purchaser shall have received quotations from
fewer than four of the Independent Dealers, Purchaser shall compute the
Acceleration Value using the quotations, if any, it shall have received at or
prior to such time. If four quotations are provided, the Acceleration Value will
be the arithmetic mean of the two quotations remaining after disregarding the
highest and lowest quotations. (For this purpose, if more than one quotation has
the same highest or lowest value, then one of such quotations shall be
disregarded.) If two or three quotations are provided, the Acceleration Value
will be the arithmetic mean of such quotations. If one quotation is provided,
the Acceleration Value will be equal to such quotation. If no quotations are
provided, the Acceleration Value will not be determined and the Aggregate
Acceleration Value will be determined as provided above.
"Independent Dealers" means four nationally recognized
independent investment banking firms selected in good faith by Purchaser.
As promptly as reasonably practicable after receipt of the
quotations on which the Acceleration Value is based (or, as the case may be,
after failure to receive any such quotations within the time period prescribed
above, Purchaser shall deliver to Seller a notice (the "Acceleration Amount
Notice") specifying the Acceleration Amount of ADSs required to be delivered by
Seller.
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Purchaser, Seller and GRIT agree that the Aggregate
Acceleration Value is a reasonable pre-estimate of loss and not a penalty. Such
amount is payable for the loss of bargain and Purchaser will not be entitled to
recover additional damage as a consequence of loss resulting from an Event of
Default.
VIII.
MISCELLANEOUS
8.1 Adjustments of Exchange Ratio; Selection of Independent
Investment Banking Firm. Purchaser shall be responsible for the effectuation
and calculation of any adjustment pursuant to Article VI hereof and shall
furnish Seller notice of any such adjustment and shall provide Seller reasonable
opportunity to review the calculations pertaining to any such adjustment. If,
pursuant to the terms and conditions hereof, Purchaser shall be required to
retain a nationally recognized independent investment banking firm for any
purpose provided herein, such nationally recognized independent investment
banking firm shall be selected and retained by Purchaser only after consultation
with Seller. Purchaser may delegate the selection of any such firm, or the
effectuation and calculation of any such adjustments, to its Administrator.
8.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard forms of telecommunication. Notices to
Purchaser shall be directed to it in care of the Administrator for Purchaser,
The Bank of New York, at 101 Barclay Street, New York, New York 10286, Telecopy
No: (212) 815-5999, attention Peter Lagatta, with a copy to __________________;
notices to Seller shall be directed to it c/o RDV Corporation, 500 Grand Bank
Building, 126 Ottawa Avenue, NW, Grand Rapids, Michigan 490503, Telecopy No.
(616) 454-4654, Attention:
Jerry L. Tubergen.
8.3 Governing Law; Severability. This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York. To the extent permitted by law, the unenforceability or invalidity of any
provision or provisions of this Agreement shall not render any other provision
or provisions herein contained unenforceable or invalid.
8.4 Entire Agreement. Except as expressly set forth herein,
this Agreement constitutes the entire
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agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, among the parties with respect to the subject matter of this
Agreement.
8.5 Amendments; Waivers. Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by Purchaser and Seller or,
in the case of a waiver, by the party against whom the waiver is to be
effective. No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
8.6 No Third Party Rights; Successors and Assigns. This
Agreement is not intended and shall not be construed to create any rights in any
person other than Seller and Purchaser and their respective successors and
assigns and no person shall assert any rights as third party beneficiary
hereunder. Whenever any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party. All the
covenants and agreements herein contained by or on behalf of the Seller, GRIT
and Purchaser shall bind, and inure to the benefit of, their respective
successors and assigns whether so expressed or not, and shall be enforceable by
and inure to the benefit of Purchaser and its successors and assigns.
8.7 Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have signed this Agreement as
of the date and year first above written.
SELLER:
HDV GRIT HOLDINGS, INC.
By
--------------------------
Name:
Title:
GRIT:
---------------------, as trustee,
Richard M. DeVos, Jr.
---------------------, as trustee,
Jerry L. Tubergen
each as trustee of
HDV GRANTOR RETAINED
INCOME TRUST
PURCHASER:
---------------------, as trustee,
William R. Latham III
------------------, as trustee and
James B. O'Neill
---------------------, as trustee,
Donald J. Puglisi
each as trustee of AJL PEPS TRUST
22
<PAGE> 1
PRELIMINARY DRAFT
COLLATERAL AGREEMENT(1)
Among
HDV GRIT HOLDINGS, INC., As Pledgor,
HDV GRANTOR RETAINED INCOME TRUST,
THE BANK OF NEW YORK, As Collateral Agent
and
AJL PEPS TRUST
Dated as of
November __, 1995
___________________
1 This is a form of Collateral Agreement. A substantially identical
Collateral Agreement will be entered into by each Pledgor.
<PAGE> 2
The following Table of Contents has been inserted for convenience of reference
only and does not constitute a part of the Collateral Agreement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. The Security Interests.................................... 1
2. Definitions............................................... 2
3. Representations and Warranties of the
Pledgor and GRIT........................................ 6
4. Representations and Warranties
of the Collateral Agent................................. 7
5. Certain Covenants of the Pledgor.......................... 7
6. Administration of the Collateral
and Valuation of the Securities......................... 9
7. Income and Voting Rights on Collateral.................... 14
8. Remedies upon Events of Default........................... 15
9. The Collateral Agent...................................... 17
10. Miscellaneous............................................. 21
11. Termination of Collateral Agreement....................... 22
12. No Personal Liability of Trustees......................... 22
</TABLE>
Exhibit A - Certificate for Substituted Collateral
Exhibit B - Certificate for Additional Collateral
i
<PAGE> 3
COLLATERAL AGREEMENT
THIS COLLATERAL AGREEMENT, dated as of November __, 1995, among HDV GRIT
Holdings, Inc., a Michigan corporation (the "Pledgor"), HDV Grantor Retained
Income Trust, a trust duly created under the laws of ______ (such trust and the
trustees thereof acting in their capacity as such being referred to herein as
"GRIT"), The Bank of New York, a New York banking corporation, as collateral
agent (the "Collateral Agent") hereunder for the benefit of AJL PEPS Trust, a
trust duly created under the laws of the State of New York (such trust and the
trustees thereof acting in their capacity as such being referred to herein as
the "Trust" or "Purchaser");
WITNESSETH:
WHEREAS, pursuant to the Purchase Agreement (the "Purchase
Agreement"), dated as of November __, 1995, between the Pledgor, GRIT and
Purchaser, the Pledgor has agreed to sell, GRIT has agreed to cause Pledgor to
sell and Purchaser has agreed to purchase American Depositary Shares
(collectively the "ADSs" and each an "ADS"), each representing one half of one
share of common stock, no par value (the "Common Stock"), of Amway Japan
Limited, a Japanese corporation (the "Company"), subject to the terms and
conditions of the Purchase Agreement; and
WHEREAS, concurrently herewith, the Trust and the Collateral
Agent are entering into a collateral agreement (the "Van Andel Collateral
Agreement") with the Jay Van Andel Trust (together with the trustee thereof
acting in their capacity as such, the "Van Andel Pledgor") and Jay Van Andel, in
order to secure obligations of the Van Andel Pledgor and Jay Van Andel under
their purchase agreement (the "Van Andel Purchase Agreement") with the Trust;
NOW, THEREFORE, to secure the performance by the Pledgor and
GRIT of their obligations under the Purchase Agreement and to secure the
observance and performance of the covenants and agreements contained herein and
in the Purchase Agreement, the parties hereto agree as follows:
1. The Security Interests.
In order to secure the observance and performance of the
covenants and agreements contained herein and in the Purchase Agreement:
<PAGE> 4
(a) Effective upon and subject to the receipt by Seller of the
Firm Purchase Price on the Firm Payment Date, the Pledgor hereby grants, sells,
conveys, assigns, transfers and pledges unto the Collateral Agent, as agent of
and for the benefit of the Trust, a security interest in and to, and a lien upon
and right of set-off against, all of their right, title and interest in and to
(i) the Pledged Items described in paragraph (b); (ii) all additions to and
substitutions for such Pledged Items; (iii) all income, proceeds and collections
received or to be received, or derived or to be derived, now or any time
hereafter from or in connection with the Pledged Items; and (iv) all powers and
rights now owned or hereafter acquired under or with respect to the Pledged
Items (such Pledged Items, additions, substitutions, proceeds, collections,
powers and rights being herein collectively called the "Collateral"). The
Collateral Agent shall have all of the rights, remedies and recourses with
respect to the Collateral afforded a secured party by the New York Uniform
Commercial Code, in addition to, and not in limitation of, the other rights,
remedies and recourses afforded to the Collateral Agent by this Agreement.
(b) On the Firm Payment Date, the Pledgor shall deliver, and
GRIT shall cause Pledgor to deliver, to the Collateral Agent in pledge hereunder
certificated American Depositary Receipts ("ADRs") representing _____ ADSs,
registered in the name of the Collateral Agent or its nominee.
(c) Effective upon and subject to the receipt by the Pledgor
of the Additional Purchase Price, on the Option Closing Date, the Pledgor shall
deliver, and GRIT shall cause Pledgor to deliver, to the Collateral Agent in
pledge hereunder ADRs representing 1.XX times the Additional ADS Base Amount of
ADSs, registered in the name of the Collateral Agent or its nominee.
2. Definitions.
Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to them in the Purchase Agreement. Capitalized terms
used herein shall have the meanings as follows:
"Authorized Officer" of the Pledgor or GRIT, as the case may
be, means any trustee or officer as to whom such party shall have delivered
notice to the Collateral Agent that such trustee or officer is authorized to act
hereunder on behalf of such party.
"Business Day" means any day except a Saturday, Sunday
or other day on which banking institutions in New York City are
2
<PAGE> 5
authorized or obligated by law or regulation to close or a day on
which the New York Stock Exchange, Inc. is closed.
"Cash Delivery Obligations" means, at any time (A) if no
Reorganization Event shall have occurred prior to such time, zero, and (B) from
and after any Reorganization Event, 1.XX, times each Dilution Adjustment that
shall have been applied to the Exchange Ratio pursuant to Section 6.1 of the
Purchase Agreement at or prior to the Reorganization Event, times the product
of: (i) the Firm ADS Base Amount plus the Additional ADS Base Amount (if any);
and (ii) the Transaction Value of any property other than Marketable Common
Stock received by the Pledgor in such Reorganization Event.
"Collateral" has the meaning specified in the granting
clause hereof.
"Collateral Agent" means the financial institution identified
as such in the preliminary paragraph hereof, or any successor appointed in
accordance with Section 9.
"Collateral Agreement" means this Collateral Agreement
and any exhibits hereto.
"Collateral Event of Default" has the meaning specified
in Section 6(e).
"Collateral Requirement" means, as of any date and with
respect to: (i) any ADSs, 100%; (ii) any Marketable Common Stock, 100%; (iii)
any U.S. Government Securities pledged in respect of Cash Delivery Obligations,
105%; (iv) any other U.S. Government Obligations, 150%, provided that upon and
after any failure to cure an Insufficiency Determination by 4:00 p.m. New York
City time on the Business Day next following telephonic notice of such
Insufficiency Determination as described in Section 6(e), the Collateral
Requirement relating to any U.S. Government Securities shall be 200%. The
portion of any pledged U.S. Government Securities that shall be deemed at any
time to be in respect of Cash Delivery Obligations shall be as provided in
Section 6(e).
"Eligible Collateral" means (i) ADSs, (ii) U.S. Government
Securities, and (iii) from and after any Reorganization Event, Marketable Common
Stock, provided, in each case, that the Pledgor (or, in the case of any
Collateral that may be pledged by GRIT, GRIT) has good and marketable title
thereto, free of all Liens (other than the Liens created by this Collateral
Agreement) and Transfer Restrictions and that the Collateral Agent has a valid,
first priority perfected security interest therein and first lien thereon, and
provided further that to the extent the number of shares of Marketable Common
3
<PAGE> 6
Stock pledged hereunder exceeds at any time the Maximum Deliverable Number
thereof, such excess shares shall not be Eligible Collateral.
"Event of Default" means the occurrence of: (i) an event
described in Section 7(a) or (b) of the Purchase Agreement, (ii) a Collateral
Event of Default, (iii) a failure by Pledgor and GRIT to have caused the
Collateral to meet the requirements described in Section 5(d) on the Exchange
Date, (iv) if a Reorganization Event shall have occurred prior to the Exchange
Date, failure by Pledgor and GRIT to cause to be delivered to Purchaser on the
Exchange Date the consideration then required to be delivered pursuant to
Section 6.2 of the Purchase Agreement, or (v) any Event of Default as defined in
the Van Andel Collateral Agreement (other than in clause (iii) or (iv) of the
definition of "Event of Default" therein).
"Ineligible Collateral" means Collateral that does not
constitute "Eligible Collateral".
"Lien" means any lien, mortgage, security interest, pledge,
charge or encumbrance of any kind.
"Market Value" means, as of any date: (a) with respect to any
ADS (except as otherwise provided in Section 6(e)(2)), the ADS Equivalent Price
on such date; (b) with respect to any U.S. Government Security, the product of
(x) (i) the average unit bid price for such security as published on the Trading
Day prior to such date in the New York edition of The Wall Street Journal or The
New York Times or, if not so published, (ii) the lowest bid price quoted (which
quotation shall be evidenced in writing) on the Trading Day prior to such date
by either of two nationally recognized dealers making a market in such security
which are members of the National Association of Securities Dealers, Inc. and
(y) the number of such units comprised in the outstanding principal amount of
such security; and (c) with respect to any share of Marketable Common Stock, the
Closing Price thereof on the Trading Day prior to such date; provided that the
"Market Value" of any Ineligible Collateral shall be zero.
"Maximum Deliverable Number" means, on any date, with respect
to the ADSs, the product of: (i) 1.XX; and (ii) the Firm ADS Base Amount plus
the Additional ADS Base Amount (if any); multiplied successively by each number
by which the Exchange Ratio shall have been multiplied on or prior to such date
pursuant to the adjustments provided for under Section 6.1 or Section 6.3 of the
Purchase Agreement. The Maximum Deliverable Number of shares of Marketable
Common Stock means, on any date, the product of: (i) 1.XX; and (ii) the Firm ADS
Base Amount plus the Additional ADS Base Amount (if any); and (iii) one-half of
4
<PAGE> 7
the number of shares of Marketable Common Stock received by the Pledgor in the
Reorganization Event for each share of Common Stock; multiplied successively by
each number by which the Exchange Ratio shall have been multiplied on or prior
to such date and after the date of such Reorganization Event pursuant to the
adjustments provided for under Article VI of the Purchase Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Pledge Value" means, as of any date and with respect to any
particular type of Collateral, an amount equal to the aggregate Market Value of
such Collateral divided by the Collateral Requirement for such Collateral.
"Pledge Value Requirement" means, as of any date, (a) the
aggregate Market Value on such date of the Maximum Deliverable Number of ADSs on
such date or, from and after a Reorganization Event, shares of Marketable Common
Stock, plus (b) from and after a Reorganization Event, the Cash Delivery
Obligations.
"Pledged Items" means, as of any date, any and all securities
and instruments delivered by the Pledgor or GRIT to be held by the Collateral
Agent under this Collateral Agreement as Collateral, whether Eligible Collateral
or Ineligible Collateral.
"Prior Collateral" has the meaning specified in Section
6(b)(1).
"Responsible Officer" means, when used with respect to the
Collateral Agent, any vice president, assistant vice president, assistant
treasurer or assistant secretary located in the division or department of the
Collateral Agent responsible for performing the obligations of the Collateral
Agent under this Collateral Agreement, or in any other division or department of
the Collateral Agent performing operations substantially equivalent to those
performed by such division or department pursuant hereto, or any other officer
of the Collateral Agent or any successor Collateral Agent customarily performing
functions similar to those performed by any of the aforesaid officers, and also
means, with respect to any matter relating to this Collateral Agreement or the
Collateral, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
5
<PAGE> 8
"Transfer Restriction" means, with respect to any item of Collateral,
any condition to or restriction on the ability of the holder thereof to sell,
assign or otherwise transfer such item of Collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of Collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such item of Collateral be consented to or approved by any
Person, including, without limitation, the issuer thereof or any other obligor
thereon, (ii) any limitations on the type or status, financial or otherwise, of
any purchaser, pledgee, assignee or transferee of such item of Collateral, (iii)
any requirement of the delivery of any certificate, consent, agreement, opinion
of counsel, notice or any other document of any Person to the issuer of, any
other obligor on or any registrar or transfer agent for, such item of
Collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such item of Collateral and (iv) any registration or
qualification requirement for such item of Collateral pursuant to any federal or
state securities law; provided that the required delivery of any assignment from
the seller, pledgor, assignor or transferor of such item of Collateral, together
with any evidence of the corporate or other authority of such Person, shall not
constitute a "Transfer Restriction."
"Trustee" or "Trustees" means any trustee or trustees of the
Trust identified on the signature pages hereto, or any successor as such trustee
or trustees.
"UCC" means the Uniform Commercial Code as in effect in
the State of New York.
"U.S. Government Securities" means direct obligations of the
United States of America that mature on a date that is one year or less from the
date such obligations are pledged hereunder, but in any event prior to the
Exchange Date.
3. Representations and Warranties of the Pledgor.
The Pledgor hereby represents and warrants to the Collateral
Agent and the Trust that:
(a) No Transfer Restrictions. No Transfer Restrictions exist
with respect to or otherwise apply to the assignment of, or transfer by the
Pledgor of possession of, any items of Collateral to the Collateral Agent
hereunder, or the subsequent sale or transfer of such items of Collateral by the
Collateral Agent pursuant to the terms hereof.
6
<PAGE> 9
(b) Title to Collateral; Perfected Security Interest. The
Pledgor has good and marketable title to the Pledged Items, free of all Liens
(other than the Lien created by this Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent hereunder,
the Collateral Agent will obtain a valid, first priority perfected security
interest in, and a first lien upon, such Collateral subject to no other Lien;
none of such Collateral is or shall be pledged by the Pledgor as collateral for
any other purpose.
4. Representations and Warranties of the Collateral
Agent.
The Collateral Agent represents and warrants to the Pledgor,
GRIT and the Trust that:
(a) Corporate Existence and Power. The Collateral Agent is a
banking corporation, duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to enter into, and perform its obligations under, this
Collateral Agreement.
(b) Authorization and Non-Contravention. The execution,
delivery and performance by the Collateral Agent of this Collateral Agreement
have been duly authorized by all necessary corporate action on the part of the
Collateral Agent (no action by the shareholders of the Collateral Agent being
required) and do not and will not violate, contravene or constitute a default
under any provision of applicable law or regulation or of the charter or by-laws
of the Collateral Agent or of any material agreement, judgment, injunction,
order, decree or other instrument binding upon the Collateral Agent.
(c) Binding Effect. This Collateral Agreement
constitutes a valid and binding agreement of the Collateral Agent
enforceable against the Collateral Agent in accordance with its
terms.
5. Certain Covenants of the Pledgor and GRIT.
The Pledgor and GRIT agree that, so long as any of their
obligations under the Purchase Agreement remain outstanding:
(a) Title to Collateral. Each of the Pledgor and GRIT shall at
all times hereafter have good and marketable title to the Collateral pledged by
it, free of all Liens (other than the Liens created by this Collateral
Agreement) and Transfer
7
<PAGE> 10
Restrictions, and, subject to the terms of this Collateral Agreement, will at
all times hereafter have good, right and lawful authority to assign, transfer
and pledge such Collateral and all such additions thereto and substitutions
therefor under this Collateral Agreement.
(b) Pledge Value Requirement. The Pledgor and GRIT shall cause
the aggregate Pledge Value of the Collateral to be equal to or greater than the
Pledge Value Requirement at all times, and shall pledge additional Collateral in
the manner described in Section 6(f) as necessary to cause such requirement to
be met.
(c) Pledge upon Reorganization Event. Upon the occurrence of a
Reorganization Event, the Pledgor and GRIT shall immediately cause to be
delivered to the Collateral Agent, in the manner provided in Section 6(d): (i)
U.S. Government Securities having an aggregate Market Value at least equal to
105% of the Cash Delivery Obligations; and (ii) shares of Marketable Common
Stock in an amount at least equal to the Maximum Deliverable Number thereof, or,
at Pledgor's election, U.S. Government Securities having an aggregate Market
Value at least equal to 150% of such Maximum Deliverable Number of shares of
Marketable Common Stock; in each case to be held as substitute Collateral
hereunder.
(d) Pledge of Purchase Agreement Consideration.
Notwithstanding the Pledgor's right to substitute Collateral pursuant to Section
6(b), the Pledgor and GRIT shall cause the Collateral to include, on the
Exchange Date, unless a Reorganization Event shall have occurred, a number of
ADSs at least equal to the number of ADSs required to be delivered under the
Purchase Agreement on the Exchange Date.
(e) Further Assurances. The Pledgor and GRIT shall, at their
expense and in such manner and form as the Trust or the Collateral Agent may
require, give, execute, deliver, file and record any financing statement,
notice, instrument, document, agreement or other papers that may be necessary or
desirable in order to create, preserve, perfect, substantiate or validate any
security interest granted pursuant hereto or to enable the Collateral Agent to
exercise and enforce its rights and the rights of the Trust hereunder with
respect to such security interest. To the extent permitted by applicable law,
the Pledgor and GRIT hereby authorize the Collateral Agent to execute and file,
in the name of the Pledgor or GRIT or otherwise, Uniform Commercial Code
financing or continuation statements (which may be carbon, photographic,
photostatic or other reproductions of this Agreement or of a financing statement
relating to this Agreement) which the Collateral Agent in its sole discretion
may
8
<PAGE> 11
deem necessary or appropriate to further perfect, or maintain the perfection of
the security interests granted hereby.
6. Administration of the Collateral and Valuation of
the Securities.
(a) Valuation of Collateral. The Collateral Agent shall
determine on each Business Day whether the Pledge Value is at least equal to the
Pledge Value Requirement and whether an Insufficiency Determination or
Collateral Event of Default shall have occurred and, from and after any
substitution of U.S. Government Securities for pledged ADSs or Marketable Common
Stock pursuant to paragraph (b) of this Section 6, shall determine the Pledge
Value on each Business Day and shall provide written notice of the Pledge Value
to the Pledgor.
(b) Substitution of Collateral. The Pledgor may substitute
Collateral in accordance with the following provisions:
(1) Unless an Event of Default or a failure by the Pledgor or
GRIT to meet any of its obligations under Section 5(b) or (c) hereof
has occurred and is continuing, the Pledgor shall have the right at any
time and from time to time to deposit Eligible Collateral with the
Collateral Agent in substitution for Pledged Items previously deposited
hereunder ("Prior Collateral") and to obtain the release from the Lien
hereof of such Prior Collateral.
(2) If a Pledgor wishes to deposit Eligible Collateral with
the Collateral Agent in substitution for Prior Collateral, it shall (i)
give written notice to the Collateral Agent identifying the Prior
Collateral to be released from the Lien hereof, (ii) deliver to the
Collateral Agent concurrently with such Eligible Collateral a
certificate of an Authorized Officer of the Pledgor substantially in
the form of Exhibit A hereto and dated the date of such delivery, (A)
identifying the items of Eligible Collateral being substituted for the
Prior Collateral and the Prior Collateral that is to be transferred to
the Pledgor and (B) certifying that the representations and warranties
contained in such Exhibit A hereto are true and correct on and as of
the date thereof and (iii) deliver to the Collateral Agent concurrently
with such Eligible Collateral an opinion (dated the date of such
delivery) of counsel (who may be an employee of the Pledgor) addressed
to the Collateral Agent confirming the representations contained in
paragraph 3(b) of Exhibit A hereto. The Pledgor and GRIT hereby
covenant and agree to take all actions required under Section 6(d) and
any other actions
9
<PAGE> 12
necessary to create for the benefit of the Collateral Agent a valid,
first priority perfected security interest in, and a first lien upon,
such Eligible Collateral deposited with the Collateral Agent in
substitution for Prior Collateral.
(3) No such substitution shall be made unless and until the
Collateral Agent shall have determined that the aggregate Pledge Value
of all of the Collateral at the time of such proposed substitution,
after giving effect to the proposed substitution, shall at least equal
the Pledge Value Requirement.
(c) Additional Collateral. The Pledgor or GRIT may pledge
additional Collateral hereunder at any time. Concurrently with the delivery of
any additional Eligible Collateral, the Pledgor or GRIT, as the case may be,
shall deliver (i) a certificate of an Authorized Officer of the Pledgor or GRIT,
as the case may be, substantially in the form of Exhibit B hereto and dated the
date of such delivery, (A) identifying the additional items of Eligible
Collateral being pledged and (B) certifying that with respect to such items of
additional Eligible Collateral the representations and warranties contained in
such Exhibit B hereto are true and correct on and as of the date thereof and
(ii) an opinion, dated the date of such delivery, of counsel (who may be an
employee of the Pledgor or GRIT) addressed to the Collateral Agent confirming
the representations contained in paragraph 2(b) of Exhibit B hereto. The Pledgor
and GRIT hereby covenant and agree to take all actions required under Section
6(d) and any other actions necessary to create for the benefit of the Collateral
Agent a valid, first priority perfected security interest in, and a first lien
upon, such additional Eligible Collateral.
(d) Delivery of Collateral. The Pledgor and GRIT shall deliver
the Collateral to the Collateral Agent in accordance with the following
provisions:
(1) Pledged ADSs. In the case of Collateral consisting of
ADSs, by delivery to the Collateral Agent of certificated ADRs
representing such ADSs, registered in the name of the Collateral Agent
or its nominee;
(2) Pledged U.S. Government Securities. In the case of
Collateral consisting of U.S. Government Securities, by transfer
thereof through the Book Entry System of the Federal Reserve System to
the account of the Collateral Agent or to an account (other than an
account of the Pledgor or GRIT) designated by the Collateral Agent; and
10
<PAGE> 13
(3) Pledged Marketable Common Stock. In the case of Collateral
consisting of shares of Marketable Common Stock, by delivery of
certificates evidencing such shares, registered in the name of the
Collateral Agent or its nominee or, if such Marketable Common Stock is
not issuable in certificated form but is held in book entry form by The
Depository Trust Company, by transfer to an account of the Collateral
Agent or to an account (other than an account of the Pledgor or GRIT)
designated by the Collateral Agent with The Depository Trust Company.
Each such delivery of Marketable Common Stock shall be accompanied by
an opinion of counsel satisfactory to the Collateral Agent that the
Collateral Agent has obtained a valid, first priority perfected
security interest in, and a first lien upon, such shares of Marketable
Common Stock.
Upon delivery of any Pledged Item under this Collateral Agreement, the
Collateral Agent shall examine such Pledged Item and any opinions and
certificates delivered pursuant to Sections 6(b) or (c) or otherwise pursuant to
the terms hereof in connection therewith to determine that they comply as to
form with the requirements for Eligible Collateral. The Pledgor hereby
designates the Collateral Agent as the person in whose name any Collateral held
in book entry form in the Federal Reserve System shall be registered.
(e) Insufficiency Determination.
(1) If on any Business Day the Collateral Agent determines
that the aggregate Pledge Value of the Collateral is less than the
Pledge Value Requirement (any such determination, an "Insufficiency
Determination"), the Collateral Agent shall promptly notify the Pledgor
of such determination by telephone call to an Authorized Officer of the
Pledgor followed by a written confirmation of such call.
(2) If, by 4:00 p.m., New York City time on the Business Day
following the day on which telephonic notice shall have been given
pursuant to the preceding paragraph (e)(1), the Pledgor or GRIT shall
have failed to deliver, in the manner set forth in paragraphs (c) and
(d) of this Section 6, sufficient additional Eligible Collateral so
that, after giving effect to such delivery, the aggregate Pledge Value
of the Collateral is at least equal to the Pledge Value Requirement,
then (x) the Collateral Requirement with respect to any U.S. Government
Securities pledged hereunder (other than in respect of Cash Delivery
Obligations) shall be increased from 150% to 200%, and (y) unless a
Collateral Event of Default shall have occurred and be continuing, the
Collateral Agent shall:
11
<PAGE> 14
(i) commence sales, in the manner described in
paragraph (3) below, of such portion of the Collateral
consisting of U.S. Government Securities as may be required to
be sold in order to generate proceeds sufficient to purchase
ADSs or, after a Reorganization Event, shares of Marketable
Common Stock, as described in the following clause (ii); and
(ii) commence purchases, in the manner described in
paragraph (3) below, of ADSs or, after a Reorganization Event,
shares of Marketable Common Stock, in an amount sufficient to
cause the aggregate Pledge Value of the Collateral to be at
least equal to the Pledge Value Requirement.
Notwithstanding the foregoing, the Collateral Agent shall discontinue
sales and purchases pursuant to the preceding clauses (i) and (ii),
respectively, if at any time a Collateral Event of Default shall have
occurred and be continuing. The Collateral Agent shall determine the
Market Value and the Pledge Value of the Collateral after each purchase
of ADSs or shares of Marketable Common Stock pursuant to the preceding
clause (ii) in order to determine whether the Pledge Value Requirement
is met and whether a Collateral Event of Default has occurred. Solely
for purposes of such calculation, the Market Value of the ADSs or
shares of Marketable Common Stock shall be: (A) the most recent ask
price as reported in the composite transactions for the principal
securities exchange on which the ADSs or shares of Marketable Common
Stock, as the case may be, are then listed or, if such securities are
not so listed, the last quoted ask price for such securities in the
over-the-counter market as reported by The Nasdaq National Market or,
if not so reported, by the National Quotation Bureau or a similar
organization; or (B) if higher, in the case of ADSs, the most recent
available ADS Equivalent Price.
A "Collateral Event of Default" shall mean, at any time, the
occurrence of any of the following: (A) failure of the aggregate Market
Value of the Collateral to equal or exceed the Pledge Value
Requirement; (B) failure of the Market Value of any U.S. Government
Securities pledged at such time (not including any U.S. Government
Securities pledged in respect of Cash Delivery Obligations at such
time) to have an aggregate Market Value of at least 105% of the Market
Value of a number of ADSs (or, from and after any Reorganization Event,
shares of Marketable Common Stock) equal to (x) the Maximum Deliverable
Number thereof minus (y) the number thereof pledged as Collateral
hereunder at such time; or (C) from and after any Reorganization Event,
12
<PAGE> 15
failure of the U.S. Government Securities pledged in respect of Cash
Delivery Obligations to have an aggregate Market Value at least equal
to 105% of the Cash Delivery Obligations at such time, if, in the case
of a failure described in this clause (C), such failure shall continue
to be in effect at 4:00 p.m., New York City time, on the Business Day
following the day on which telephonic notice in respect thereof shall
have been given pursuant to paragraph (e)(1) above. For purposes of
this Agreement, the portion of any pledged U.S. Government Securities
that shall be deemed to be in respect of Cash Delivery Obligations at
any time shall be a portion having a Market Value equal to 105% of the
Cash Delivery Obligations at such time (or, if less, the aggregate
Market Value of all U.S. Government Securities pledged at such time).
(3) Collateral sold and ADSs or shares of Marketable Common
Stock purchased by the Collateral Agent pursuant to the preceding
paragraphs (e)(i) and (ii) may be sold and purchased on any securities
exchange or in any over-the-counter market or in any private purchase
transaction, and at such price or prices, in each case as the
Collateral Agent may deem satisfactory. The Pledgor and GRIT covenant
and agree that they will execute and deliver such documents and take
such other action as the Collateral Agent deems necessary or advisable
in order that any such sales and purchases may be made in compliance
with law.
(f) Release of Excess Collateral. If on any Business Day the
Collateral Agent determines that the aggregate Pledge Value of the Pledgor's
Eligible Collateral exceeds the Pledge Value Requirement and no Event of Default
or failure by the Pledgor to meet any of its obligations under Sections 5 or 6
hereof has occurred and is continuing, the Pledgor or GRIT may obtain the
release from the Lien hereof of any Collateral having an aggregate Pledge Value
on such Business Day less than or equal to such excess, upon delivery to the
Collateral Agent of a written notice from an Authorized Officer of the Pledgor
or GRIT indicating the items of Collateral to be released. Such Collateral shall
be released only after the Collateral Agent shall have determined that the
aggregate Pledge Value of all of the Collateral remaining after such release as
determined on such Business Day is at least equal to the Pledge Value
Requirement.
(g) Delivery of Purchase Agreement Consideration. On the
Exchange Date, unless a Reorganization Event shall have occurred prior thereto,
the Collateral Agent shall deliver to the Trust ADRs then held by it hereunder
representing the number of ADSs then required to be delivered under the Purchase
Agreement. If a Reorganization Event shall have occurred prior to the
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<PAGE> 16
Exchange Date, then, if so instructed by the Pledgor by the close of business on
the Business Day preceding the Exchange Date, the Collateral Agent shall deliver
to the Trust, to the extent permitted to be delivered in lieu of cash required
to be delivered on such date under Section 6.2 of the Purchase Agreement, shares
of the Marketable Common Stock then held by the Collateral Agent hereunder. Upon
such delivery, the Trust shall hold such ADSs or shares of Marketable Common
Stock, as the case may be, absolutely and free from any claim or right
whatsoever.
7. Income and Voting Rights on Collateral. (a) Unless an Event
of Default or failure by the Pledgor or GRIT to meet any of its obligations
under Section 5(b) or (c) hereof has occurred and is continuing, the Pledgor
shall be entitled to receive for its own account all dividends, interest and, if
any, principal and premium relating to all of the Collateral, unless the payment
thereof to the Pledgor would reduce the aggregate Pledge Value of the Collateral
below the Pledge Value Requirement. The Collateral Agent agrees to remit to the
Pledgor on the Business Day received or the first Business Day thereafter all
such payments received by it. If an Event of Default or failure by the Pledgor
or GRIT to meet any of its obligations under Section 5(b) or (c) hereof has
occurred and is continuing, all such payments made or accrued after and during
the continuance of such default or failure shall be retained by the Collateral
Agent, and any such payments which are received by the Pledgor or GRIT shall be
received in trust for the benefit of the Trust, shall be segregated from other
funds of the Pledgor and GRIT and shall forthwith be paid over to the Collateral
Agent. Any such payments so retained by, or paid over to, the Collateral Agent
shall be held by the Collateral Agent as Collateral hereunder.
(b) Unless an Event of Default has occurred and is continuing,
the Pledgor shall have the right, from time to time, to vote and to give
consents, ratifications and waivers with respect to the Collateral, and the
Collateral Agent shall, upon receiving a written request from the Pledgor,
deliver to the Pledgor or as specified in such request such proxies, powers of
attorney, consents, ratifications and waivers in respect of any of the
Collateral which is registered in the name of the Collateral Agent or its
nominee as shall be specified in such request and be in form and substance
satisfactory to the Collateral Agent.
If an Event of Default shall have occurred and be continuing,
the Collateral Agent shall have the right to the extent permitted by law, and
the Pledgor and GRIT shall take all such action as may be necessary or
appropriate to give effect to such right, to vote and to give consents,
ratifications and
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<PAGE> 17
waivers, and take any other action with respect to any or all of the Collateral
with the same force and effect as if the Collateral Agent were the absolute and
sole owner thereof.
8. Remedies upon Events of Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent may exercise on behalf of the Trust all the
rights of a secured party under the Uniform Commercial Code (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
without being required to give any notice, except as herein provided or as may
be required by mandatory provisions of law, shall: (i) deliver all Collateral
consisting of ADSs or shares of Marketable Common Stock (but not, in either
case, in excess of the number thereof deliverable under the Purchase Agreement
at such time) to the Trust on the date of the Acceleration Notice relating to
such Event of Default (or, in the case of an Event of Default described in
clause (iii) or (iv) of the definition thereof, on the Exchange Date) (in either
case, the "Delivery Date"), whereupon the Trust shall hold such ADSs or shares
of Marketable Common Stock absolutely free from any claim or right of whatsoever
kind, including any equity or right of redemption of the Pledgor or GRIT which
may be waived, and the Pledgor and GRIT, to the extent permitted by law, hereby
specifically waive all rights of redemption, stay or appraisal which either of
them has or may have under any law now existing or hereafter adopted; and (ii)
if such delivery shall be insufficient to satisfy in full all of the obligations
of Pledgor and GRIT under the Purchase Agreement, sell all of the remaining
Collateral, or such lesser portion thereof as may be necessary to generate
proceeds sufficient to satisfy in full all of the obligations of Pledgor and
GRIT under the Purchase Agreement, at public or private sale or at any broker's
board or on any securities exchange, for cash, upon credit or for future
delivery, and at such price or prices as the Collateral Agent may deem
satisfactory. The Pledgor and GRIT covenant and agree that they will execute and
deliver such documents and take such other action as the Collateral Agent deems
necessary or advisable in order that any such sale may be made in compliance
with law. Upon any such sale the Collateral Agent shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely and
free from any claim or right of whatsoever kind, including any equity or right
of redemption of the Pledgor or GRIT which may be waived, and the Pledgor and
GRIT, to the extent permitted by law, hereby specifically waive all rights of
redemption, stay or appraisal which either of them has or may have under any law
now existing or hereafter adopted. The notice (if any) of such sale required by
Section 9 of the UCC shall (1) in case of a public
15
<PAGE> 18
sale, state the time and place fixed for such sale, (2) in case of sale at a
broker's board or on a securities exchange, state the board or exchange at which
such sale is to be made and the day on which the Collateral, or the portion
thereof so being sold, will first be offered for sale at such board or exchange,
and (3) in the case of a private sale, state the day after which such sale may
be consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix in the notice of such sale. At any such sale the Collateral may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may
determine. The Collateral Agent shall not be obligated to make any such sale
pursuant to any such notice. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the Collateral
Agent until the selling price is paid by the purchaser thereof, but the
Collateral Agent shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The Collateral
Agent, instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the security
interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) Power of Attorney. Upon any delivery or sale of all or any
part of any Collateral made either under the power of delivery or sale given
hereunder or under judgment or decree in any judicial proceedings for
foreclosure or otherwise for the enforcement of this Collateral Agreement, the
Collateral Agent is hereby irrevocably appointed the true and lawful attorney of
the Pledgor and GRIT, in the name and stead of the Pledgor or GRIT, to make all
necessary deeds, bills of sale and instruments of assignment, transfer or
conveyance of the property thus delivered or sold. For that purpose the
Collateral Agent may execute all such documents and instruments. This power of
attorney shall be deemed coupled with an interest, and the Pledgor and GRIT
hereby ratify and confirm all that their respective attorneys acting under such
power, or such attorneys' successors or agents, shall lawfully do by virtue of
this Collateral Agreement. If so requested by the Collateral Agent, by the
Trustees or by any purchaser of the Collateral or a portion thereof, the Pledgor
and GRIT shall further ratify and confirm any such delivery or sale by executing
and delivering to the Collateral Agent, to the
16
<PAGE> 19
Trustees or to such purchaser or purchasers at the expense of the Pledgor and
GRIT all proper deeds, bills of sale, instruments of assignment, conveyance of
transfer and releases as may be designated in any such request.
(c) Application of Collateral and Proceeds. In the case of an
Event of Default, the Collateral Agent may proceed to realize upon the security
interest in the Collateral against any one or more of the types of Collateral,
at any one time, as the Collateral Agent shall determine in its sole discretion
subject to the foregoing provisions of this Section 8. The proceeds of any sale
of, or other realization upon, or other receipt from, any of the remaining
Collateral shall be applied by the Collateral Agent in the following order of
priorities:
first, to the payment to the Trust of an amount equal to: (A)
the aggregate Market Value of a number of ADSs equal to (1) the number
of ADSs required to be delivered under the Purchase Agreement on the
Delivery Date minus (2) the number of ADSs delivered by the Collateral
Agent to the Trust on the Delivery Date as described above; or (B) from
and after a Reorganization Event, the sum of (1) the Cash Delivery
Obligations on the Delivery Date and (2) the aggregate Market Value on
the Delivery Date of a number of shares of Marketable Common Stock
equal to (x) the number thereof permitted to be delivered on the
Delivery Date under Section 6(b) of the Purchase Agreement minus (y)
the number thereof delivered by the Collateral Agent to the Trust on
the Delivery Date as described above;
second, to the payment to the Collateral Agent of the expenses
of such sale or other realization, including reasonable compensation to
the Collateral Agent and its agents and counsel, and all expenses,
liabilities and advances incurred or made by the Collateral Agent in
connection therewith, including brokerage fees in connection with the
sale by the Collateral Agent of any Pledged Item; and
finally, if all of the obligations of the Pledgor and GRIT
hereunder and under the Purchase Agreement have been fully discharged
or sufficient funds have been set aside by the Collateral Agent at the
request of the Pledgor or GRIT for the discharge thereof, any remaining
proceeds shall be released to the Pledgor.
17
<PAGE> 20
9. The Collateral Agent.
The Collateral Agent accepts its duties and responsibilities
hereunder as agent for the Trust, on and subject to the following terms and
conditions:
(a) Performance of Duties. The Collateral Agent undertakes to
perform such duties and only such duties as are expressly set forth herein and,
beyond the exercise of reasonable care in the performance of such duties, no
implied covenants or obligations shall be read into this Collateral Agreement
against the Collateral Agent. No provision hereof shall be construed to relieve
the Collateral Agent from liability for its own grossly negligent action,
grossly negligent failure to act or its own wilful misconduct, subject to the
following:
(1) The Collateral Agent may consult with counsel, and the
advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
hereunder in good faith and in accordance with such advice or opinion
of counsel.
(2) The Collateral Agent shall not be liable with respect to
any action taken, suffered or omitted by it in good faith (i)
reasonably believed by it to be authorized or within the discretion or
rights or powers conferred on it by this Collateral Agreement or (ii)
in accordance with any direction or request of the Trustees.
(3) The Collateral Agent shall not be liable for any error of
judgment made in good faith by any of its officers, unless the
Collateral Agent was grossly negligent in ascertaining the pertinent
facts.
(4) In the absence of bad faith on its part, the Collateral
Agent may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any note, notice,
resolution, consent, certificate, affidavit, letter, telegram, teletype
message, statement, order or other document believed by it to be
genuine and correct and to have been signed or sent by the proper
Person or Persons.
(5) No provision of this Collateral Agreement shall require
the Collateral Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such
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<PAGE> 21
funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(6) The Collateral Agent may perform any duties hereunder
either directly or by or through agents or attorneys, and the
Collateral Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care
by it hereunder. In furtherance thereof, any subsidiary owned or
controlled by the Collateral Agent, or its successors, as agent for the
Collateral Agent, may perform any or all of the duties of the
Collateral Agent relating to the valuation of securities and other
instruments constituting Collateral hereunder.
(7) In no event shall the Collateral Agent be personally
liable for any taxes or other governmental charges imposed upon or in
respect of (i) the Collateral or (ii) the income or other distributions
thereon.
(8) Unless and until the Collateral Agent shall have received
notice from the Pledgor or GRIT, or unless and until a Responsible
Officer of the Collateral Agent shall have actual knowledge to the
contrary, the Collateral Agent shall be entitled to deem and treat all
Collateral delivered to it hereunder as Eligible Collateral hereunder,
provided that the Collateral Agent has carried out the duties specified
in Section 6 with respect to such Collateral at the time of delivery
thereof.
The Collateral Agent shall not be responsible for the correctness of the
recitals and statements herein which are made by the Pledgor or GRIT or for any
statement or certificate delivered by the Pledgor or GRIT pursuant hereto.
Except as specifically provided herein, the Collateral Agent shall not be
responsible for the validity, sufficiency, collectibility or marketability of
any Collateral given to or held by it hereunder or for the validity or
sufficiency of the Purchase Agreement or the Lien on the Collateral purported to
be created hereby.
(b) Knowledge. The Collateral Agent shall not be deemed to
have knowledge of any Event of Default (except a Collateral Event of Default),
unless and until a Responsible Officer of the Collateral Agent shall have actual
knowledge thereof or shall have received written notice thereof.
(c) Merger. Any corporation or association into which the
Collateral Agent may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its agency business and assets
as a whole or substantially as a whole, or any corporation or association
resulting from any such
19
<PAGE> 22
conversion, sale, merger, consolidation or transfer to which it is a party,
shall, subject to the prior written consent of the Trust, be and become a
successor Collateral Agent hereunder and vested with all of the title to the
Collateral and all of the powers, discretions, immunities, privileges and other
matters as was its predecessor without, except as provided above, the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
(d) Resignation. The Collateral Agent and any successor
Collateral Agent may at any time resign by giving thirty days' written notice by
registered or certified mail to the Pledgor and notice to the Trust in
accordance with the provisions of Section 10(d) hereof. Such resignation shall
take effect upon the appointment of a successor Collateral Agent by the Trust.
(e) Removal. The Collateral Agent may be removed at any time
by an instrument or concurrent instruments in writing delivered to the
Collateral Agent and to the Pledgor and signed by the Trust.
(f) Appointment of Successor. (1) If the Collateral Agent
hereunder shall resign or be removed, or be dissolved or shall be in the course
of dissolution or liquidation or otherwise become incapable of acting hereunder,
or if it shall be taken under the control of any public officer or officers or
of a receiver appointed by a court, a successor may be appointed by the Trust by
an instrument or concurrent instruments in writing signed by the Trust or by its
attorneys in fact fully authorized. A copy of such instrument or concurrent
instruments shall be sent by registered mail to the Pledgor.
(2) Every such temporary or permanent successor Collateral
Agent appointed pursuant to the provisions hereof shall be a trust company or
bank in good standing, having a reported capital and surplus of not less than
$100,000,000 and capable of holding the Collateral in the State of New York, if
there be such an institution willing, qualified and able to accept the duties of
the Collateral Agent hereunder upon customary terms.
(g) Acceptance by Successor. Every temporary or permanent
successor Collateral Agent appointed hereunder shall execute, acknowledge and
deliver to its predecessor and also to the Pledgor an instrument in writing
accepting such appointment hereunder, whereupon such successor, without any
further act, deed or conveyance, shall become fully vested with all the estates,
properties, rights, powers, duties and obligations of
20
<PAGE> 23
its predecessors. Such predecessor shall, nevertheless, on the written request
of its successor or the Pledgor, execute and deliver an instrument transferring
to such successor all the estates, properties, rights and powers of such
predecessor hereunder. Every predecessor Collateral Agent shall deliver all
Collateral held by it as the Collateral Agent hereunder to its successor. Should
any instrument in writing from the Pledgor be required by a successor Collateral
Agent for more fully and certainly vesting in such successor the estates,
properties, rights, powers, duties and obligations hereby vested or intended to
be vested in the predecessor, any and all such instruments in writing shall, at
the request of the temporary or permanent successor Collateral Agent, be
forthwith executed, acknowledged and delivered by the Pledgor.
10. Miscellaneous.
(a) Benefit of Agreement; Successors and Assigns. Whenever any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party. All the covenants and agreements
herein contained by or on behalf of the Pledgor, GRIT and the Collateral Agent
shall bind, and inure to the benefit of, their respective successors and assigns
whether so expressed or not, and shall be enforceable by and inure to the
benefit of the Trust and its successors and assigns.
(b) Separability. To the extent permitted by law, the
unenforceability or invalidity of any provision or provisions of this Collateral
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
(c) Amendments and Waivers. Any term, covenant, agreement or
condition of this Collateral Agreement may be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retrospectively or prospectively) but only by a writing signed by the Collateral
Agent, the Pledgor, GRIT and the Trust.
(d) Notices. (1) Any notice provided for herein, unless
otherwise specified, shall be in writing (including transmittals by telex or
telecopier) and shall be given to a party at the address set forth opposite such
party's name on the signature pages hereto or at such other address as may be
designated by notice duly given in accordance with this Section 10(d) to each
other party hereto.
(2) Each such notice given pursuant to paragraph (1) shall be
effective (i) if sent by certified mail (return receipt requested), 72 hours
after being deposited in the United States
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<PAGE> 24
mail, postage prepaid; (ii) if given by telex or telecopier, when such telex or
telecopied notice is transmitted, or (iii) if given by any other means, when
delivered at the address specified in this Section 10(d).
(e) Governing Law. This Collateral Agreement shall in all
respects be construed in accordance with and governed by the laws of the State
of New York; provided that as to Pledged Items located in any jurisdiction other
than the State of New York, the Collateral Agent on behalf of the Trust shall
have all of the rights to which a secured party is entitled under the laws of
such other jurisdiction.
(f) Counterparts. This Collateral Agreement may be executed,
acknowledged and delivered in any number of counterparts and such counterparts
taken together shall constitute one and the same instrument.
11. Termination of Collateral Agreement.
This Collateral Agreement and the rights hereby granted by the
Pledgor and GRIT in the Collateral shall cease, terminate and be void upon
fulfillment of all of the obligations of the Pledgor and GRIT under the Purchase
Agreement, and the Pledgor and GRIT shall have no further liability hereunder
upon such termination. Any Collateral remaining at the time of such termination
shall be fully released and discharged from the Lien hereof and delivered to the
Pledgor by the Collateral Agent, all at the expense of the Pledgor.
12. No Personal Liability of Trustees.
By executing this Collateral Agreement none of the Trustees
assumes any personal liability hereunder.
22
<PAGE> 25
IN WITNESS WHEREOF, each of the Pledgor and GRIT has caused
this Collateral Agreement to be duly executed on its behalf, and the Collateral
Agent has caused this Collateral Agreement to be duly executed on its behalf,
all as of the date hereof.
PLEDGOR:
HDV GRIT HOLDINGS, INC.
By_______________________________
Name:
Title:
By_______________________________
Name:
Title:
Address for Notices:
[Street]
[City, State & Zip Code]
[Telex No. (specify ITT
or WU) and answerback]
[Telecopier No.]
Attention: [___________]
23
<PAGE> 26
GRIT:
_____________, as trustee
Richard M. DeVos, Jr.
_____________, as trustee
Jerry L. Tubergen
each as trustee of
HDV GRANTOR RETAINED INCOME TRUST
Address for Notices:
[Street]
[City, State & Zip Code]
[Telex No. (specify ITT
or WU) and answerback]
[Telecopier No.]
Attention: [___________]
24
<PAGE> 27
COLLATERAL AGENT:
THE BANK OF NEW YORK,
as Collateral Agent
By____________________________
Name:
Title:
Address for Notices:
101 Barclay Street - 21W
New York, New York 10286
[Telex No. (specify ITT
or WU) and answerback]
Telecopier No.: (212) 815-5999
Attention: Peter Lagatta
THE TRUST:
______________, as trustee
William R. Latham III
______________, as trustee
James B. O'Neill
______________, as trustee
Donald J. Puglisi
each as trustee of
AJL PEPS TRUST
Address for Notices:
[Street]
[City, State & Zip Code]
[Telex No. (specify ITT
or WU) and answerback]
[Telecopier No.]
Attention: [___________]
25
<PAGE> 28
Exhibit A
to
Collateral Agreement
CERTIFICATE FOR SUBSTITUTED COLLATERAL
HDV GRIT HOLDINGS, INC.
The undersigned, a [_______________________] of HDV GRIT
HOLDINGS, INC. (the "Pledgor"), hereby certifies, pursuant to Section 6(b) of
the Collateral Agreement dated as of November __, 1995 among the Pledgor, HDV
Grantor Retained Income Trust, The Bank of New York, as Collateral Agent, and
AJL PEPS Trust (the "Collateral Agreement"; terms defined in the Collateral
Agreement being used herein as defined therein), that:
1. The Pledgor is delivering the following securities to the
Collateral Agent to be held by the Collateral Agent as substituted
Collateral (the "Substituted Collateral"):
2. The Pledgor requests that the Collateral Agent transfer to
the Pledgor the following Prior Collateral, pursuant to Section 6(b) of
the Collateral Agreement:
3. The Pledgor hereby represents and warrants to the
Collateral Agent and the Trust that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the
Pledgor of possession of, any items of Substituted Collateral to the
Collateral Agent under the Collateral Agreement, or the subsequent sale
or transfer of such items of Substituted Collateral by the Collateral
Agent pursuant to the terms of the Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The
Pledgor has good and marketable title to the Substituted Collateral,
free of all Liens (other than the Lien created by the Substituted
Collateral Agreement) and Transfer Restrictions. Upon delivery of the
Collateral to the Collateral Agent, the Collateral Agent will obtain a
valid, first priority perfected security interest in, and a first
<PAGE> 29
lien upon, such Substituted Collateral subject to no other Lien; none
of such Substituted Collateral is or shall be pledged by the Pledgor as
collateral for any other purpose.
This Certificate may be relied upon by the Trust as fully and to the
same extent as if this Certificate had been specifically addressed to the Trust.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
[__] day of [_______, 199_].
______________________
Name:
Title:
2
<PAGE> 30
Exhibit B
to
Collateral Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
HDV GRIT HOLDINGS, INC. [/HDV GRANTOR RETAINED INCOME TRUST]
The undersigned, a __________________ of HDV GRIT HOLDINGS,
INC. (the "Pledgor") [/a _____________ of HDV GRANTOR RETAINED INCOME TRUST
("GRIT")], hereby certifies, pursuant to Section 6(c) of the Collateral
Agreement, dated as of November __, 1995, among the Pledgor, GRIT, The Bank of
New York, as Collateral Agent and AJL PEPS Trust (the "Collateral Agreement";
terms defined in the Collateral Agreement being used herein as defined therein),
that:
1. The Pledgor [/GRIT] is delivering the following securities
to the Collateral Agent to be held by the Collateral Agent as
additional Collateral (the "Additional Collateral"):
2. The Pledgor [/GRIT] hereby represents and Warrants to the
Collateral Agent that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the
Pledgor [/GRIT] of possession of, any items of Substituted Collateral
to the Collateral Agent under the Collateral Agreement, or the
subsequent sale or transfer of such items of Additional Collateral by
the Collateral Agent pursuant to the terms of the Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The
Pledgor [/GRIT] has good and marketable title to the Additional
Collateral, free of all Liens (other than the Lien created by the
Additional Collateral Agreement) and Transfer Restrictions. Upon
delivery of the Collateral to the Collateral Agent, the Collateral
Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such Additional Collateral subject to no
other Lien; none of such Additional Collateral is or shall
1
<PAGE> 31
be pledged by the Pledgor [/GRIT] as collateral for any
other purpose.
This Certificate may be relied upon by the Trust as fully and
to the same extent as if this Certificate had been specifically addressed to the
Trust.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this [__] day of [_______, 199_].
______________________
Name:
Title:
<PAGE> 1
FUND EXPENSE AGREEMENT
Agreement dated as of November [__], 1995 between Morgan
Stanley & Co. Incorporated ("Morgan Stanley") and The Bank of New York (the
"Service Provider"), in its capacities as administrator, custodian and paying
agent [and collateral agent] for AJL PEPS Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State
of New York pursuant to a Trust Agreement dated as of August 17, 1995, as
amended and restated as of November [__], 1995 (the "Trust Agreement"); and
WHEREAS, Morgan Stanley, as sponsor under the Trust Agreement,
desires to make provision for the payment of certain initial and on-going
expenses of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Definitions. (a) Capitalized terms used herein and not
defined herein shall have the meanings ascribed thereto in the Trust Agreement.
(b) The following terms shall have the following meanings:
"Additional Expense" means the Ordinary Expense the incurring
of which will require the Service Provider to provide the Additional Expense
Notice pursuant to Section 3(a) hereof and any Ordinary Expense incurred
thereafter.
"Additional Expense Notice" means the notice required to be
given by the Service Provider to Morgan Stanley pursuant to Section 3(a)(i)
hereof.
"Closing Date" shall have the meaning ascribed thereto in the
Underwriting Agreement.
"Ordinary Expense" of the Trust means any expense of the Trust
other than any expense of the Trust arising under Section 6.6 of the
Administration Agreement, Section 15 of the Custodian Agreement, Section 5.4(b)
of the Paying Agent Agreement and Section 7.6 of the Trust Agreement [and
Section [__] of the Collateral Agreement].
<PAGE> 2
"Up-front Fee Amount" means the amount set forth as such on
Schedule I hereto payable as a one-time payment to the Service Provider in
respect of its collective services as Administrator, Custodian and Paying Agent
[and Collateral Agent] for the entire term of the Trust.
"Up-front Expense Amount" means the amount set forth as such on
Schedule I hereto payable as a one-time payment to the Service Provider in
respect of Ordinary Expenses anticipated to be incurred by the Administrator on
behalf of the Trust, pursuant to the Administration Agreement, during the term
of the Trust.
2. Agreement to Pay Up-front Fees and Expenses. Morgan Stanley
agrees to pay to the Service Provider in New York Clearing House funds on the
Closing Date (as defined in the Underwriting Agreement) the Up-front Fee Amount
and the Up-front Expense Amount.
3. Agreement to Pay Additional Expenses. (a) Prior to
incurring any Ordinary Expense on behalf of the Trust that, together with all
prior ordinary expenses incurred by the Administrator on behalf of the Trust,
would cause the aggregate amount of Ordinary Expenses of the Trust to exceed the
Up-front Expense Amount, the Administrator shall provide to Morgan Stanley (i)
prompt written notice to the effect that aggregate amount of Ordinary Expenses
of the Trust will exceed the Up-front Expense Amount, and (ii) an accounting, in
such detail as shall be reasonably acceptable to Morgan Stanley, of all Ordinary
Expenses incurred on behalf of the Trust through the date of the Additional
Expense Notice.
(b) From and after the date of the Additional Expense Notice,
the Service Provider agrees that it will not, without the prior written consent
of Morgan Stanley, incur on behalf of the Trust (i) any single expense in excess
of $[______] or (ii) in any calendar [period], expenses aggregating in excess of
$[_______]. Subject to the foregoing, the Service Provider shall give notice to
Morgan Stanley in writing promptly following the incurring of any Additional
Expense. Such notice shall be accompanied by any demand, bill, invoice or other
similar document in respect of such Additional Expense.
(c) Subject to the first sentence of paragraph (b) of this
Section 3, Morgan Stanley agrees to pay to the Service Provider from time to
time the amount of any Additional Expense. Payment by Morgan Stanley of any
Additional Expense shall be made in New York Clearing House funds by the later
of (i) five Business Days after the
2
<PAGE> 3
receipt by Morgan Stanley of written notice from the Service Provider of the
incurring thereof or (ii) the due date for the payment of such Additional
Expense .
(d) Morgan Stanley may contest in good faith the reasonableness
of any Additional Expense and the parties shall attempt to resolve amicably the
disagreement; provided that if the parties cannot resolve the dispute by
the due date hereunder with respect to such Additional Expense, subject to the
first sentence of paragraph (b) of this Section 3, Morgan Stanley shall pay the
amount of such Additional Expense subject to later adjustment and credit if such
dispute is resolved in favor of Morgan Stanley.
4. Condition to Payment. Morgan Stanley's obligations
under paragraphs 2 and 3 hereof shall be subject to the condition that the
Trust's [____] Premium Exchangeable Participating Shares shall have been issued
and paid for on the Closing Date.
5. Trust Termination; Refund of Unused Expense Funds.
If at the termination of the Trust in accordance with Section 8.3 of the Trust
Agreement the aggregate amount of Ordinary Expenses incurred by the Service
Provider on behalf of the Trust through the date of termination shall be less
than the Up-front Expense Amount, the Service Provider shall, promptly following
the date of such termination, pay to Morgan Stanley in New York Clearing House
funds the amount of such excess.
6. Termination of Administration Agreement. In the
event of the termination of the Administration Agreement in accordance with
Section 4.1 thereof, the Service Provider shall promptly pay to Morgan Stanley
the portion of its Up-front Fee Amount ratable for the period from the date of
the termination of the Administration Agreement to the Exchange Date together
with any unexpended portion of the Up-front Expense Amount.
7. Statements and Reports. The Service Provider shall
collect and safekeep all demands, bills, invoices or other written
communications received from third parties in connection with any Ordinary
Expenses and shall prepare and maintain adequate books and records showing all
receipts and disbursements of funds in connection therewith. Morgan Stanley
shall have the right to inspect and to copy, at its expense, all such documents,
books and records at all reasonable times and from time to time during the term
of this Agreement.
3
<PAGE> 4
8. Term of Contract. This Agreement shall continue in effect
until the termination of the Trust in accordance with Section 8.3 of the Trust
Agreement.
9. No Assignment. No party to this Agreement may assign its
rights or delegate its duties hereunder without the prior written consent of the
other party.
10. The Service Provider agrees that it will not consent to any
amendment to any of the Administration Agreement, the Custodian Agreement or the
Paying Agent Agreement [or the Collateral Agreement] without the prior written
consent of Morgan Stanley.
11. Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the matters contained herein
and supersedes all prior agreements or understandings. No amendment or
modification of this Agreement shall be valid unless the amendment or
modification is in writing and is signed by all the parties to this Agreement.
12. Notices. All notices, demands, reports, statements,
approvals or consents given by any party under this Agreement shall be in
writing and shall be delivered in person or by telecopy or other facsimile
communication or sent by first-class U.S. mail, registered or certified, postage
prepaid, to the appropriate party at its address on the signature pages hereof
or at such other address subsequently notified to the other parties hereto. Any
party may change its address for purposes hereof by delivering a written notice
of the change to the other parties. All notices given under this Agreement shall
be deemed received (a) in the case of hand delivery, on the day of delivery, (b)
in the case of telecopy or other facsimile communication, on the day of
transmission, and (c) in the case of mailing, on the third day after such notice
was deposited in the mail.
13. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
14. Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in counterpart
with all of such counterparts constituting one and the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their authorized representatives the date first above written.
MORGAN STANLEY & CO.
INCORPORATED
By
-----------------------
Address:
1585 Broadway
New York, NY10036
THE BANK OF NEW YORK
By
-----------------------
Address:
101 Barclay Street
New York, NY 10286
5
<PAGE> 1
FUND INDEMNITY AGREEMENT
Agreement dated as of November [__], 1995 between Morgan
Stanley & Co. Incorporated ("Morgan Stanley") and William R. Latham, III, James
B. O'Neill and Donald J. Puglisi (collectively, the "Trustees"), not in their
individual capacities but solely as trustees of AJL PEPS Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State
of New York pursuant to a Trust Agreement dated as of August 17, 1995, as
amended and restated as of November [__], 1995 (the "Trust Agreement"); and
WHEREAS, Morgan Stanley, as sponsor under the Trust Agreement,
desires to make provision for the payment of certain indemnification expenses of
the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Definitions. Capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Trust Agreement.
2. Agreement to Pay Expenses. Morgan Stanley agrees to
pay to the Trust, and hold the Trust harmless from, any expenses of the Trust
arising under Sections 2.2(f) and 6.6 of the Administration Agreement, Section
15 of the Custodian Agreement, Section 5.4(b) of the Paying Agent Agreement and
Section 7.6 of the Trust Agreement (collectively, "Indemnification Expenses").
Subject to paragraph [__] hereof, payment hereunder by Morgan Stanley shall be
made in New York Clearing House funds no later than five Business Days after the
receipt by Morgan Stanley, pursuant to paragraph 3 hereof, of written notice of
any claim for Indemnification Expenses.
3. Notice of Receipt of Claim. The Trustees shall give
notice to, or cause notice to be given to, Morgan Stanley in writing of any
claim for Indemnification Expenses or any threatened claim for Indemnification
Expenses immediately upon their acquiring knowledge thereof. Such written notice
shall be accompanied by any demand, bill, invoice or other communication
received from any third party claimant (a "Claimant") in respect of such
Indemnification Expense.
<PAGE> 2
4. Right to Contest. The Trustees agree that Morgan
Stanley may, and Morgan Stanley is authorized on behalf of the Trustees and the
Trust to, contest in good faith with any Claimant any amount contained in any
claim for Indemnification Expense, provided, that if, within such time
period as Morgan Stanley shall determine to be reasonable, Morgan Stanley and
such Claimant are unable to resolve amicably any disagreement regarding such
claim for Indemnification Expense, Morgan Stanley shall retain counsel
reasonably satisfactory to the Trustees to represent the Trustees in any
resulting proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. It is understood that Morgan Stanley shall not, in
respect of the legal expenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel). Morgan Stanley shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the Claimant, Morgan Stanley agrees
to indemnify the Trustees and the Trust from and against any loss or liability
by reason of such settlement or judgment.
5. Statements and Reports. The Trustees shall collect
and safekeep all demands, bills, invoices or other written communications
received from third parties in connection with any claim for Indemnification
Expenses and shall prepare and maintain adequate books and records showing all
receipts and disbursements of funds in connection therewith. Morgan Stanley
shall have the right to inspect and to copy, at its expense, all such documents,
books and records at all reasonable times and from time to time during the term
of this Agreement.
6. Term of Contract. This Agreement shall continue in effect
until the termination of the Trust in accordance with Section [__] of the Trust
Agreement.
7. No Assignment. No party to this Agreement may assign
its rights or delegate its duties hereunder without the prior written consent of
the other parties, except that the Trust may delegate any and all duties
hereunder to the Administrator to the extent permitted by law.
8. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the matters contained herein and
supersedes all prior agreements or understandings. No amendment or modification
of this Agreement shall be valid unless the amendment or
2
<PAGE> 3
modification is in writing and is signed by all the parties to this Agreement.
9. Notices. All notices, demands, reports, statements,
approvals or consents given by any party under this Agreement shall be in
writing and shall be delivered in person or by telecopy or other facsimile
communication or sent by first-class U.S. mail, registered or certified, postage
prepaid, to the appropriate party at its address on the signature pages hereof
or at such other address subsequently notified to the other parties hereto. A
copy of any communication to Morgan Stanley shall be furnished to [Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017, Attention: Linda
Simpson, Esq.], provided that the failure to furnish such copy shall not affect
the effectiveness of any such communication. Any party may change its address
for purposes hereof by delivering a written notice of the change to the other
parties. All notices given under this Agreement shall be deemed received (a) in
the case of hand delivery, on the day of delivery, (b) in the case of telecopy
or other facsimile communication, on the day of transmission, and (c) in the
case of mailing, on the third day after such notice was deposited in the mail.
10. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11. Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of New York.
12. Counterparts. This Agreement may be signed in counterpart
with all of such counterparts constituting one and the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their authorized representatives the date first above written.
MORGAN STANLEY & CO.
INCORPORATED
By_______________________
Address:
1585 Broadway
New York, NY 10036
_________________________
William R. Latham, III
Address:
_________________________
James B. O'Neill
Address:
_________________________
Donald J. Puglisi
Address:
4
<PAGE> 1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, N.Y. 10017
212-450-4000
November 9, 1995
AJL PEPS Trust
c/o The Bank of New York
101 Barclay Street
New York, NY 10286
Gentlemen:
We have acted as counsel for AJL PEPS Trust (the "Trust") in connection
with the preparation and filing of a Registration Statement on Form N-2
(Registration Nos. 33-61915 and 811-07341) filed with the Securities and
Exchange Commission on August 18, 1995, and amended thereafter, relating to the
sale of Premium Exchangeable Participating Shares (the "PEPS"), pursuant to an
Underwriting Agreement relating thereto (the "Underwriting Agreement").
We have examined such records, certificates and other documents and
such questions of law as we have considered necessary and appropriate for the
purposes of this opinion. Based on the foregoing, we are of the opinion that:
1. The Trust has been duly created and is validly existing as a trust
under the laws of the State of New York.
2. The PEPS to be sold by the Trust pursuant to the Underwriting
Agreement have been duly authorized and, when sold in accordance with the
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
<PAGE> 2
AJL PEPS Trust 2 November 5, 1995
We are members of the Bar of the State of New York, and the foregoing
opinion is limited to the laws of the State of New York and the Federal law of
the United States of America.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and consent to the references to our firm in the
Registration Statement and in the Prospectus of the Trust included therein.
Very truly yours,
<PAGE> 1
2.n.(i)
November 9, 1995
AJL PEPS Trust
c/o The Bank of New York
101 Barclay Street
New York, NY 10286
Re: Registration Statement on Form N-2
Registration No. 33-61915
Ladies and Gentlemen:
We have acted as tax counsel to the AJL PEPS Trust (the "Trust") in
connection with the registration of its Premium Exchangeable Participating
Shares (the "PEPS"). In connection therewith, we have prepared the discussion
set forth under the caption "Federal Income Tax Considerations" (the
"Discussion") in the Prospectus (the "Prospectus") that is part of Amendment
No.4 to the Registration Statement on Form N-2 (Registration No. 33-61915) filed
by the Trust with the Securities and Exchange Commission on November 9, 1995.
We hereby confirm our opinion as set forth in the Discussion. In
rendering our opinion, we have examined (i) the form of Amended and Restated
Trust Agreement Constituting AJL PEPS Trust, (ii) the forms of Purchase
Agreement and (iii) the forms of Collateral Agreement included as exhibits to
the Registration Statement, and have assumed that the obligations contemplated
thereunder will be performed in accordance with their terms.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Federal
Income Tax Considerations" in the Prospectus. The issuance of such
<PAGE> 2
AJL PEPS TRUST 2 November 9, 1995
consent does not concede that we are an "expert" for the purposes of the
Securities Act of 1933.
Very truly yours,
Davis Polk & Wardwell
<PAGE> 1
CONSENT OF WHITE & CASE
SPECIAL U.S. TAX COUNSEL'S CONSENT
- ----------------------------------
We consent to the reference to our firm in this Registration Statement
of AJL PEPS TRUST on Form N-2, as amended, under the headings "Federal Income
Tax Considerations" and "Legal Matters." In giving this consent, we do not
hereby admit that we are within the category of persons whose consent is
required within Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
WHITE & CASE
Washington, D.C.
November 8, 1995
<PAGE> 1
Exhibit 2.n.(iii)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 4 to Registration
Statement (No. 33-61915) of AJL PEPS Trust on Form N-2 of our report dated
November 9, 1995, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 9, 1995
<PAGE> 1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is entered into as of the 7th day of
November 1995, between William R. Latham, III, James D. O'Neill and Donald J.
Puglisi (collectively, the "Trustees"), not in their individual capacities but
solely as trustees of AJL PEPS TRUST, a trust organized and existing under the
laws of New York (the "Trust"), MORGAN STANLEY & CO. INCORPORATED and MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED or one of its affiliates (together
with Morgan Stanley & Co. Incorporated, the "Purchasers" and each individually
a "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of PEPS.
1.1 Sale and Issuance of Units. Subject to the terms and conditions
of this Agreement, the Trustees agree to sell to each Purchaser, and each
Purchaser agrees to purchase from the Trustees, one Premium Exchangeable
Participating Share, representing undivided beneficial interests in the Trust
(the "PEPS") at an aggregate purchase price of $50,000.
1.2 Closing. The purchase and sale of the PEPS shall take place at
the offices of Davis Polk & Wardwell, New York, N.Y., at 10:00 a.m. on November
7, 1995, or at such other time ("Closing Date") and place as the Trustees and
the Purchasers mutually agree upon. At or after the Closing, the Trustees
shall deliver to the Purchasers certificates representing the PEPS, registered
in the name of the respective Purchasers or their nominees. Payment for the
PEPS shall be made on the Closing Date by the Purchasers by bank wire transfers
or by delivery of certified or official bank checks, in either case in
immediately available funds, of an amount equal to the purchase price of the
PEPS purchased by such Purchaser.
2. Representations, Warranties and Covenants of each Purchaser. Each
Purchaser hereby represents and warrants to, and covenants for the benefit of,
the Trust that:
2.1 Purchase Entirely for Own Account. This Agreement is made by the
Trustees as with such Purchaser in reliance upon such Purchaser's
representation to the Trustees as, which by such Purchaser's execution of this
<PAGE> 2
Agreement such Purchaser hereby confirms, that the PEPS are being acquired for
investment for such Purchaser's own account, and not as a nominee or agent and
not with a view to the resale or distribution by such Purchaser of any of the
PEPS, and that such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the PEPS, but subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Agreement, such
Purchaser further represents that such Purchaser does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to any
of the PEPS.
2.2 Investment Experience. Such Purchaser acknowledges that it can
bear the economic risk of the investment for an indefinite period of time and
has such knowledge and experience in financial and business matters (and
particularly in the business in which the Trust operates) as to be capable of
evaluating the merits and risks of the investment in the PEPS. Such Purchaser
is an "accredited investor" as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933 (the "Act").
2.3 Restricted Securities. Such Purchaser understands that the PEPS
are characterized as "restricted securities" under the United States securities
laws inasmuch as they are being acquired from the Trustees in a transaction not
involving a public offering and that under such laws and applicable regulations
such PEPS may be resold without registration under the Act only in certain
circumstances. In this connection, such Purchaser represents that it
understands the resale limitations imposed by the Act and is generally familiar
with the existing resale limitations imposed by Rule 144.
2.4 Further Limitations on Disposition. Such Purchaser further agrees
not to make any disposition directly or indirectly of all or any portion of the
PEPS unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) Such Purchaser shall have furnished the Trustees with an opinion
of counsel, reasonably satisfactory to the Trustees, that such disposition will
not require
2
<PAGE> 3
registration of such PEPS under the Act.
(c) Notwithstanding the provisions of subsections (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by such Purchaser to any affiliate of such Purchaser, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if it were the original Purchaser hereunder.
2.5 Legends. It is understood that the certificate evidencing the
PEPS may bear either or both of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or hypothecated
in the absence of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel reasonably satisfactory to
the Trustees of AJL PEPS Trust that such registration is not required."
(b) Any legend required by the laws of any other applicable
jurisdiction.
Each Purchaser and the Trustees agree that the legend contained in
paragraph (a) above shall be removed at a holder's request when they are no
longer necessary to ensure compliance with federal securities laws.
2.6 Amendment to Trust Agreement; Split of PEPS. Each Purchaser
consents to (a) the execution and delivery by the Trustees and Morgan Stanley
& Co. Incorporated, as sponsor of the Trust, of an Amended and Restated Trust
Agreement in the form attached hereto and (b) the split of such Purchasers
PEPS. Subsequent to the determination of the public offering price per PEPS
and related underwriting discount for the PEPS to be sold to the Underwriters
(as defined in the aforementioned Amended and Restated Trust Agreement) but
prior to the sale of the PEPS to the Underwriters, each PEPS purchased hereby
shall be split into a greater number of PEPS so that immediately following such
split the value of each PEPS held by the Purchasers will equal the aforesaid
public offering price less the related underwriting discount.
2.7 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
----------------------------------------
William R. Latham III,
as trustee
----------------------------------------
James B. O'Neill,
as trustee
----------------------------------------
Donald J. Puglisi,
as trustee
MORGAN STANLEY & CO. INCORPORATED
By:
------------------------------------
Title:
Address: 1585 Broadway Avenue
New York, NY 10036
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By:
------------------------------------
Title:
Address: World Financial Center
North Tower
250 Vesey Street
New York, NY 10281
4
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> NOV-09-1995
<PERIOD-END> NOV-09-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 100,000
<RECEIVABLES> 0
<ASSETS-OTHER> 12,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,000
<TOTAL-LIABILITIES> 12,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 2
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 50,000
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 50,000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<S> <C> <C>
**3.1 -- Articles of Association of the Registrant, as amended (English translation)
4.1 -- Share Handling Regulations (unofficial English translation followed by the
original Japanese version) (incorporated by reference to Exhibit 4.1 of the
Registration Statement on Form F-1, as amended (Registration No. 33-78400))
4.2 -- Deposit Agreement dated as of February 18, 1993, as amended and restated as of
June 28, 1994 among the Registrant, Morgan Guaranty Trust Company of New York,
as Depositary, and all holders of ADRs issued thereunder (incorporated by
reference to exhibit (a)(2) of the Registration Statement on Form F-6, as
amended (Registration No. 33-78994))
**5.1 -- Opinion of Nishimura & Sanada, counsel to the Registrant, as to the legality of
the securities being registered
10.1 -- First Amendment to Amended and Restated Trademark License Agreement, dated as
of July 31, 1995, between Amway Corporation and the Registrant
*23.1 -- Independent Auditors' Consent
**23.2 -- Consent of Nishimura & Sanada (included in Exhibit 5.1)
**23.3 -- Consent of White & Case
23.4 -- Consent of Jones, Day, Reavis & Pogue
*24.1 -- Powers of Attorney
**99.1 -- Consent of person to be nominated as director
</TABLE>
- ---------
* Previously filed on October 24, 1995 with the Registrant's Amendment No. 1 to
Registration Statement on Form F-3.
** Previously filed on October 18, 1995 with the Registrant's initial
Registration Statement on Form F-3.
E-2
<PAGE> 1
FIRST AMENDMENT TO AMENDED AND RESTATED
TRADEMARK LICENSE AGREEMENT
Agreement made and entered into this 31st day of July, 1995 by
and between Amway Corporation ("Amway"), a corporation organized and existing
under the laws of the State of Michigan, U.S.A. and having its principal office
and place of business at 7575 Fulton Road East, Ada, Michigan 49355, U.S.A. and
Amway Japan Limited ("AJL"), a joint stock company organized and existing under
the laws of Japan and having its principal office and place of business at Arco
Tower, 8-1, Shimomeguro 1-chome, Meguro-Ku, Tokyo 153, Japan.
W I T N E S S E T H:
WHEREAS, Amway and AJL entered into an Amended and Restated
Trademark License Agreement dated December 16, 1993 ("Amended Agreement"),
which terminated and superseded the existing Trademark License Agreement dated
June 16, 1983, as amended (the "Prior Agreement"). All capitalized terms
herein shall have the definitions set forth in the Amended Agreement.
WHEREAS, pursuant to the Prior Agreement and the Amended
Agreement, Amway licensed certain trademarks, tradenames, servicemarks and
logos for use by AJL and also licensed certain product formulas to enable AJL
to manufacture or contract for the manufacture of certain products in Japan in
consideration of the payment of certain license fees by AJL, all as more fully
described in the Amended Agreement.
<PAGE> 2
2
WHEREAS, the parties previously determined that it was to
their respective economic advantage to modify the provisions for payment of the
license fees by AJL as described in the Prior Agreement and now desire to
modify the payment provisions as described in Paragraphs 2(a) and 2(e) of the
Amended Agreement for a certain time period; and
WHEREAS, the parties now desire to document their agreement as
to the payment of royalties by AJL exclusively for the three (3) upcoming AJL
fiscal years 1996, 1997, 1998 (September 1, 1995 through August 31, 1998) in
accordance with the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, the parties agree as follows:
1. Exclusively for AJL's three (3) fiscal years ending August
31, 1996, 1997 and 1998 (the "Amended Years") the parties agree that, to the
extent described herein and subject to Paragraph 2 hereof, Paragraphs 2(a) and
2(e) of the Amended Agreement shall not be enforced. Instead, in lieu of
certain license fees payable by AJL with respect to sales of certain products
(as hereinafter described) for the Amended Years, AJL agrees to execute six
negotiable promissory notes (herein so called) payable to Amway at six month
intervals beginning February 28, 1996, in the form of attached Exhibit A, each
in the amount of Three Hundred Eleven Million Eighty Seven Thousand One Hundred
Eighty-Five Yen (Y.311,087,185) and Amway agrees to accept the Promissory Note
in satisfaction of such license fees. The
<PAGE> 3
3
aggregate amount payable pursuant to the Promissory Notes (Y.1,866,523,108) is
the amount (discounted by 12%) calculated to be payable by AJL pursuant to
Paragraph 2(a) of the Amended Agreement based on a percentage of AJL's
cumulative estimated sales for certain products during the Amended Years
("Adjusted Royalty Base") as described in Attachment I attached hereto and
incorporated herein by reference for all purposes.
2. The parties agree to accept both the listing of individual
products and projected royalty bases set forth in Attachment I as the permanent
basis for assessment of the trademark license fees payable by AJL to Amway for
the Amended Years for said products, but only to the extent the actual
aggregate royalty bases for sales of such products during the Amended Years do
not exceed the Adjusted Royalty Base of Y.39,099,952,231. This Amendment shall
not apply or have any force or effect with respect to products that are not
included in Attachment I; rather AJL shall pay the royalty required pursuant to
Paragraph 2(a) of the Amended Agreement for any such products.
3. Notwithstanding any other provision in this Agreement, on
or before October 31, 1998, AJL agrees to pay Amway an amount equal to the
royalty payable by it pursuant to Paragraph 2(a) of the Amended Agreement on
its actual cumulative Net Sales in excess of the Adjusted Royalty Base.
4. The Promissory Notes shall be signed by an authorized
representative of AJL and delivered by hand by AJL to
<PAGE> 4
4
Amway at its principal office and place of business at Ada, Michigan on or
before the close of business on July 31, 1995.
5. The parties agree that this Amendment shall only apply to
the Amended Years; subject to further agreement of the parties, for all periods
thereafter Paragraphs 2(a) and 2(e) of the Amended Agreement shall be followed
and complied with in all respects.
6. In all other respects, the Amended Agreement shall remain
unchanged and in full force and effect.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date first set
forth above.
AMWAY CORPORATION
By: /s/ Lawrence M. Call
-----------------------------------
Lawrence M. Call
Senior Vice President - Finance
and Chief Financial Officer
AMWAY JAPAN LIMITED
By: /s/ Richard S. Johnson
-----------------------------------
Richard S. Johnson
President and Representative
Director
<PAGE> 5
ATTACHMENTS
-----------
EXHIBIT A - Form of Negotiable Promissory Note from AJL to Amway
for Y.311,087,185
ATTACHMENT I - Projected Royalty Bases for Fiscal Years 1996 through
1998
<PAGE> 6
EXHIBIT A
---------
NEGOTIABLE PROMISSORY NOTE
--------------------------
Y.311,087,185 July 31, 1995
For value received, Amway Japan Limited, a joint stock company
organized and existing under the laws of Japan, promises to pay to the order of
Amway Corporation, a Michigan corporation, the principal sum of Three Hundred
Eleven Million Eighty Seven Thousand One Hundred Eighty Five Yen
(Y.311,087,185) on February 28, 1996 without interest thereon.
All rights of Amway Corporation under this Promissory Note may
be assigned. The liability of Amway Japan Limited to any assignee shall be
immediate and absolute, and Amway Japan Limited agrees not to set up any claim
against the assignee as a defense, counterclaim or set-off to any action
brought by any assignee for the unpaid balance owed under this Promissory Note.
In the event of default hereunder, Amway Japan Limited agrees
to pay all costs of collection and enforcement including reasonable attorneys'
fees.
AMWAY JAPAN LIMITED
By:
----------------------------------
Richard S. Johnson
President and Representative
Director
<PAGE> 7
ATTACHMENT I (Page 1 of 4)
------------
<TABLE>
<CAPTION>
Royalty Amount (Yen)
-------------------------------------------------------
FYE 96-98
Stock Projected 4% 8% MAX
Number Description Royalty Base Name Formula Total
- ------ ----------- ------------ ---- ------- -----
ARTISTRY II
- -----------
<S> <C> <C> <C> <C> <C>
A5619J Two-way Foundation 295,875,000 11,835,000 11,835,000 23,670,000
A7588J Face Powder 38,250,000 1,530,000 1,530,000 3,060,000
A4507J Pressed Powder Refill 14,625,000 585,000 585,000
A7589J Pressed Powder Compact 20,250,000 810,000 810,000 1,620,000
A7607J Mascara 11,865,000 474,600 474,600
A7610J Eyebrow Pencil 10,125,000 405,000 405,000
A7604J Eyeliner Pencil 6,075,000 243,000 243,000
A7590J Eyecolor 14,250,000 570,000 570,000
A5091J Lipcolor 67,800,000 2,712,000 2,712,000 5,424,000
A7628J Cheek Color 11,625,000 465,000 465,000 930,000
A7652J Two-way Case 14,531,250 581,250 581,250
A7653J Eyecolor Case 2,208,750 88,350 88,350
A7654J Cheek Color Case 1,511,250 60,450 60,450
A7655J Make-up Case 4,368,750 174,750 174,750
A7574J Base Controller 38,985,000 1,559,400 1,559,400 3,118,800
A5689J Moisture Foundation 162,000,000 6,480,000 6,480,000 12,960,000
E1210J Massage Cream 6,504,750,000 260,190,000 260,190,000 520,380,000
E8708J Facial Pack 2,960,325,000 118,413,000 118,413,000 236,826,000
A4099J Lip Brush 8,801,750 356,070 356,070
A4100J Cosmetic Brush Set 7,986,000 319,440 319,440
A4102J Eyelash Curler 3,996,000 159,840 159,840
A4103J Pencil Sharpener 1,720,500 68,820 68,820
A4104J Face Powder Brush 5,957,250 238,290 238,290
AD6231J Spatula pk25 157,500 6,300 6,300
AD6232J Blusher Brushes pk5 480,000 19,200 19,200
AD6233J Eyecolor Sponge Appl pk5 1,140,000 45,600 45,600
AD6234J Eyecolor Brush Appl pk5 360,000 14,400 14,400
AD6235J Pressed Powder Puff 1,272,000 50,880 50,880
AD6236J Loose Powder Puff 1,350,000 54,000 54,000
AD6237J Foundation Sponges 6,075,000 243,000 243,000
AD6238J Make-up Mirror pk4 1,835,000 77,400 77,400
AD6242J Spare Tip pk5 180,000 7,200 7,200
Disp. Lip Brush pk25 150,000 6,000 6,000
Disp. Mascara Brush pk25 22,500 900 900
Nailcolor Demonstrator 2,160,000 86,400 86,400
Lipcolor Starter Pack 5,460,000 218,400 218,400
ARTISTRY III
- ------------
A5752J Two-way Foundation 2,949,822,500 117,996,900 117,996,900 235,993,800
A5753J Two-way Foundation
A5754J Two-way Foundation
A5755J Two-way Foundation
A5756J Two-way Foundation
A5757J Two-way Foundation
A5758J Concealer 333,061,875 13,322,475 13,322,475
A5759J Concealer
A5760J Face Powder 1,283,572,500 51,342,900 51,342,900 102,685,800
A5761J Pressed Powder Refill 456,435,000 18,257,400 18,257,400
</TABLE>
<PAGE> 8
ATTACHMENT I (Page 2 of 4)
------------
<TABLE>
<CAPTION>
Royalty Amount (Yen)
-------------------------------------------------------
FYE 96-98
Stock Projected 4% 8% MAX
Number Description Royalty Base Name Formula Total
- ------ ----------- ------------ ---- ------- -----
<S> <C> <C> <C> <C> <C>
A5762J Pressed Powder Compact 719,066,250 28,762,650 28,762,650 57,525,300
A5763J Mascara 820,125,000 32,805,000 32,805,000
A5764J Mascara
A5765J Mascara
A5766J Eyebrow Pencil 589,657,500 23,586,300 23,586,300 47,172,600
A5767J Eyebrow Pencil
A5768J Eyeliner Pencil 406,792,500 16,271,700 16,271,700
A5769J Eyeliner Pencil
A5770J Eyeliner Pencil
A5771J Eyecolor 1,684,485,000 67,379,400 67,379,400
A5772J Eyecolor
A5773J Eyecolor
A5774J Eyecolor
A5775J Eyecolor
A5776J Eyecolor
A5777J Eyecolor
A5778J Eyecolor
A5779J Eyecolor
A5780J Eyecolor
A5781J Eyecolor
A5782J Eyecolor
A5783J Eyecolor
A5784J Eyecolor
A5785J Eyecolor
A5786J Eyecolor
A5787J Eyecolor
A5788J Eyecolor
A5789J Eyecolor
A5790J Eyecolor
A5791J Lipcolor 5,079,307,500 203,172,300 203,172,300
A5792J Lipcolor
A5793J Lipcolor
A5794J Lipcolor
A5795J Lipcolor
A5796J Lipcolor
A5797J Lipcolor
A5798J Lipcolor
A5799J Lipcolor
A5800J Lipcolor
A5801J Lipcolor
A5802J Lipcolor
A5803J Lipcolor
A5804J Lipcolor
A5805J Lipcolor
A5806J Lipcolor
A5807J Lipcolor
A5808J Lipcolor
A5809J Lipcolor
</TABLE>
<PAGE> 9
ATTACHMENT I (Page 3 of 4)
------------
<TABLE>
<CAPTION>
Royalty Amount (Yen)
-------------------------------------------------------
FYE 96-98
Stock Projected 4% 8% MAX
Number Description Royalty Base Name Formula Total
- ------ ----------- ------------ ---- ------- -----
<S> <C> <C> <C> <C> <C>
A5810J Lipcolor
A5811J Cheek Color 891,562,500 35,662,500 35,662,500
A5812J Cheek Color
A5813J Cheek Color
A5814J Cheek Color
A5819J Two-way Case 980,707,500 39,228,300 39,228,300
A5820J Eyecolor Case 150,300,000 6,012,000 6,012,000
A5821J Cheek Color Case 131,950,875 5,278,035 5,278,035
A5822J Make-up Case 452,343,750 18,093,750 18,093,750
A5838J Liquid Nail Color Remover 365,478,750 14,619,150 14,619,150 29,238,300
Lip Brush 193,050,000 7,722,000 7,722,000
Brush Case 99,791,250 3,991,650 3,991,650
Eyelash Curler 111,360,000 4,454,400 4,454,400
Pencil Sharpener 41,339,250 1,653,570 1,653,570
Face Powder Brush 191,700,000 7,668,000 7,668,000
Brush for Cheek Color Case 14,715,000 588,600 588,600
Eyecolor Tip for Eye C. Case 36,881,250 1,475,250 1,475,250
Spatula pk5 4,905,000 196,200 196,200
EyeC. Brush for EyeC. Case 78,468,750 3,138,750 3,138,750
Eyecolor Brush - lg. 70,245,000 2,809,800 2,809,800
Eyecolor Brush - sm. 51,097,500 2,043,900 2,043,900
Pressed Powder Puff pk6 32,091,000 1,283,640 1,283,640
Face Powder Puff pk5 30,243,750 1,209,750 1,209,750
Make-up Sponge-2 way pk5 171,900,000 6,876,000 6,876,000
Make-up Mirror 49,987,500 1,999,500 1,999,500
Eyeshadow Tip 36,506,250 1,460,250 1,460,250
Demo Case 795,937,500 31,837,500 31,837,500
Spare Gum Eyelash Curl pk 7,301,250 292,050 282,050
Cheek Brush 70,762,500 2,830,500 2,830,500
Eyebrow Brush 42,457,500 1,698,300 1,698,300
Eyebrow Brush & Comb 33,022,500 1,320,900 1,320,900
Tweezers 75,262,500 3,010,500 3,010,500
Eyebrow Scissors 91,237,500 3,649,500 3,649,500
Make-up Sponge-moi/liq fdn 58,868,750 2,358,750 2,358,750
E944J Disinfectant Spray 333,396,000 13,335,840 13,335,840 26,671,680
AD563J Replacement Nets 93,970,800 3,758,832 3,758,832
E1681J Soft Buds 822,816,000 32,912,640 32,912,640
AD5113J Drain Back Cap 61,866,000 2,474,640 2,474,640
E1407J Cal/Fiber Peach 1Ltr 344,802,218 13,792,089 13,792,089 27,584,177
E2455J Cal/Fiber Peach 200ml 570,039,750 22,801,590 22,801,590 45,603,180
E2607J Cal/Fiber Gr. Apple 1Ltr 450,818,212 18,032,728 18,032,728 36,065,457
E2608J Cal/Fiber Gr. Apple 200ml 861,749,550 34,469,982 34,469,982 68,939,964
E858J Tea Kettle 1,237,680,000 49,507,200 48,507,200
E1405J Coffee Maker/Grinder 1,031,557,500 41,262,300 41,262,300
E9863J Induction Range 601,065,000 24,042,600 24,042,600
E3110J Induction Range II 10,259,055,000 410,362,200 410,362,200
E2771J 4 Piece Knife Set 1,619,345,063 64,773,803 64,773,803
E1190J Beauty Bar Soap 860,625,000 34,425,000 34,425,000
</TABLE>
<PAGE> 10
ATTACHMENT I (Page 4 of 4)
<TABLE>
<CAPTION>
Royalty Amount (Yen)
-------------------------------------------------------
FYE 96-98
Stock Projected 4% 8% MAX
Number Description Royalty Base Name Formula Total
- ------ ----------- ------------ ---- ------- -----
<S> <C> <C> <C> <C>
E1191J Beauty Bar Soap Gift Set 499,061,250 19,962,450 19,962,450
E2040J Citrus Fresh Bath Essence 704,860,950 28,194,438 28,194,438
E2041J Burch Moist Bath Essence 1,028,500,950 41,140,038 41,140,038
E2042J Bath Essence Gift Set 839,336,400 33,573,456 33,573,456
--------------------------------------------------------------------------------
Total Projected Royalty Base 52,133,269,642 2,085,330,786 742,734,529 2,828,065,315
==================================================================================
Adjusted Royalty Base 39,099,952,231 1,563,888,089 557,050,887 2,121,048,986
(75% of above)
12% incentive reduction (4,691,994,268) (187,679,771) (66,846,108) (254,525,878)
--------------------------------------------------------------------------------
Total promissory note in yen 34,407,957,964 1,376,318,319 480,204,789 1,866,523,108
==================================================================================
</TABLE>
<PAGE> 1
SPECIAL U.S. COUNSEL'S CONSENT
- ------------------------------
To the Board of Directors and Shareholders
of Amway Japan Limited:
We consent to the reference to our firm in this Registration Statement of Amway
Japan Limited on Form F-3 under the heading "Legal Matters." In giving this
consent, we do not hereby admit that we are within the category of persons
whose consent is required within Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
JONES, DAY, REAVIS & POGUE
Cleveland, Ohio
September 21, 1995
