EX-10.38
ASSUMPTION OF LIABILITIES AND
INDEMNIFICATION AGREEMENT
This Assumption of
Liabilities
and Indemnification Agreement (the
"Agreement") is made
and entered into effective as of the 31st day of December,
1997 (the "Effective Date"), by and between Nu Skin International,
Inc., a Utah
corporation ("NSI") and 252nd Shelf Corporation, a Delaware
corporation which is
in the process of changing its name to Nu Skin USA, Inc.
("NUSA").
Recitals
A. Immediately
prior to the Effective
Date, NUSA was a wholly-owned
subsidiary of NSI.
B. NSI's integrated business is being divided into two separate
businesses and
entities as of the
Effective Date,
pursuant to the terms
of a
Contribution and Distribution Agreement entered into between NSI
and NUSA as of
the Effective
Date (the "Contribution and Distribution Agreement"). The
separation and
reorganization is being accomplished through a contribution of
specified NSI assets to NUSA and a distribution of the outstanding
capital stock
of NUSA to NSI's stockholders.
C. As part of such
separation and
reorganization,
NSI and NUSA have
agreed to an allocation of liabilities arising from the historical
operation of
NSI's business.
The allocation is
intended to generally
have the
liabilities
follow the entity
holding the assets and
continuing the business to which such
liabilities relate or from which they arise.
D. The parties hereto have determined that the allocation of
liabilities between NSI and NUSA is to be as provided in this
Agreement.
Agreement
NOW THEREFORE,
in consideration of the foregoing premises and the
mutual covenants of the parties contained herein, the parties hereby agree as
follows:
1. DEFINITIONS.
Capitalized
terms used in this Agreement and not
otherwise defined
herein shall have the meanings ascribed to them in the
Contribution and
Distribution
Agreement.
As used in this Agreement, the
following terms shall have the following meanings:
"Benefits
Agreement" shall
mean that certain Employee Benefits
Allocation Agreement entered into by NSI and NUSA as of the
Effective Date.
<PAGE>
"Claim" shall mean:
(a) A suit,
proceeding
or investigation by or
before any
court or governmental or regulatory agency or body or a written
demand for payment of a Liability or cause of action, asserted
against NSI, NUSA
or both by a Claimant; or (b) a written demand or assertion by or
on behalf of a
Claimant that a cause
of action giving rise
or relating to a Liability exists
against NSI or NUSA.
"Claimant" shall
mean any person or entity asserting a Claim.
"Effective Date" shall mean December 31, 1997.
"Indemnified Claim"
shall mean any
Liability or Claim as
to which an
Indemnifying Party has agreed to indemnify an Indemnified
Party.
"Indemnified Loss"
shall mean a cost, expense or loss incurred in
connection with an Indemnified Claim, for which an Indemnified
Party receives or
is entitled to receive a payment from an Indemnifying Party.
"Indemnified Party"
shall mean a party or other person or entity
entitled to be indemnified from any Indemnified Claims and Indemnified
Losses
pursuant to the terms of this Agreement.
"Indemnifying Party" shall mean a party indemnifying another party
from
any Indemnified
Claims and
Indemnified
Losses pursuant to the terms of this
Agreement.
"Jointly Shared
Liabilities" shall mean Liabilities of NSI that are to
be jointly
shared, assumed and paid by NSI and NUSA as provided in this
Agreement, as
identified on the Listing of Liabilities or pursuant to the
terms
of this Agreement.
"Liabilities" of any
party hereto shall mean all losses, debts,
liabilities, damages,
obligations, claims, demands, judgments or settlements of
any nature or kind
owed by such party,
whether accrued or contingent, and
including all
penalties, costs and
expenses (legal,
accounting or
otherwise)
associated therewith,
but excluding "Taxes"
as such term is defined in the Tax
Sharing and Indemnification Agreement.
"Listing of Liabilities" shall mean the listing of Liabilities
attached
hereto as Exhibit A, which lists certain NUSA Assumed Liabilities,
NSI Retained
Liabilities and Jointly Shared Liabilities.
"NSI
Continuing
Business" shall mean the business to be
conducted by
NSI immediately
after giving effect to
the transactions
contemplated
by the
Contribution and Distribution Agreement, utilizing the NSI Retained Assets,
and
including: the
business of marketing
and distributing of Nu Skin products;
managing and licensing the Nu Skin Global Compensation Plan; licensing of the
right to use the Nu Skin trademarks and trade names,
products and
distributor
lists; providing
management services to local Nu Skin entities; developing new
formulas and
ingredients
for Nu Skin products; and all other businesses
conducted by NSI prior
to the Effective
Date, other than the NUSA Acquired
Business.
<PAGE>
"NSI Employees" shall mean all individuals who immediately prior to
the
Effective Date
were employed by NSI and who, after giving effect to the
transactions
contemplated by the Contribution and Distribution Agreement, are
intended to remain employed by NSI or in the NSI Continuing
Business.
"NSI Retained
Assets" shall mean, collectively, all assets of NSI,
other than the NUSA Acquired Assets.
"NSI Retained
Liabilities" shall
mean each of the
Liabilities of NSI
other than the NUSA
Assumed Liabilities
and the NUSA
portion of the
Jointly
Shared Liabilities.
The NSI Retained
Liabilities
shall include each of
those
Liabilities identified
as such on the Listing of Liabilities or pursuant to the
terms of this Agreement.
"NUSA Acquired Assets"
shall mean,
collectively, those
assets of NSI
transferred to and
acquired by NUSA
pursuant to the terms of the Contribution
and Distribution Agreement, as identified in Exhibit E attached
thereto.
"NUSA Acquired
Business" shall mean the business to be conducted by
NUSA immediately
after giving effect to
the transactions
contemplated by
the
Contribution and Distribution Agreement, utilizing the NUSA
Acquired Assets, and
including the
marketing and distribution of Nu Skin products in the United
States as permitted by the Intercompany Agreements (as defined in the
Contribution and Distribution Agreement).
"NUSA Assumed
Liabilities" shall
mean each of the
Liabilities of NSI
that are to be assumed
by NUSA as of the
Effective Date as
provided in this
Agreement and
identified
as NUSA Assumed Liabilities in the Listing of
Liabilities or pursuant to the terms of this Agreement.
"NUSA Employees"
shall mean all
individuals who immediately prior to
the Effective
Date were employed by NSI and who,
after giving
effect to the
transactions
contemplated by the Contribution and Distribution Agreement, are
intended to be employed by NUSA, as identified in the Benefits
Agreement.
"Settlement Payment" shall mean a payment made by a party hereto to
the
other party pursuant to and in exercise of its rights under Section
4.10 hereof.
<PAGE>
"Tax Sharing and Indemnification Agreement" shall mean that certain
Tax
Sharing and
Indemnification
Agreement entered
into by NSI and NUSA
as of the
Effective Date.
2. ASSUMPTION AND ALLOCATION OF LIABILITIES.
2.1 NSI Retained Liabilities. Except as may be otherwise
specifically provided
herein, NSI shall retain, assume, pay, perform
and discharge all of the NSI Retained Liabilities.
2.2 NUSA Assumed Liabilities. Except as otherwise specifically
provided herein, from
and after the Effective Date, NUSA shall assume,
pay, perform and discharge the NUSA Assumed Liabilities. In
addition to
those items specifically referenced as NUSA Assumed
Liabilities on the
Listing of
Liabilities, NUSA
Assumed Liabilities
shall include the
following:
(a)
Liabilities that
result from a Claim
arising out of
the operation of the NUSA Acquired Business, whether
based on events
occurring prior to or after the
Effective Date; and
(b)
Liabilities that
arise out of or relate to any
activity undertaken
by, or any
failure to act by,
NUSA after
the Effective Date.
2.3 Jointly Shared
Liabilities. From and
after the Effective
Date, NSI shall assume, pay, perform and discharge 50%,
and NUSA shall
assume, pay,
perform
and discharge 50% of the Jointly Shared
Liabilities, unless a
different allocation
of any particular
Jointly
Assumed Liabilities
is specified in the Listing of
Liabilities.
In
addition to those Liabilities identified as Jointly Shared
Liabilities
in the Listing of Liabilities, Jointly Shared Liabilities shall
include
the following:
(a)
Liabilities arising
from Claims based on events
occurring prior to the Effective Date and which: (i)
are not identified in
the Listing of
Liabilities as
either NSI Retained
Liabilities
or as NUSA Assumed
Liabilities, and
(ii) arise, in more than a de
minimis way, from the
businesses
or operations of
both the NSI Continuing Business and the NUSA
Acquired Business.
(b)
Liabilities not
identified
as either NSI
Retained
Liabilities or
NUSA Acquired Liabilities in the
Listing of Liabilities, which result from Claims for
indemnification (and
the advancement of
expenses in
connection with a proceeding as to which such a Claim
may later be asserted) arising out of facts or
circumstances existing
on or events occurring
on or
prior to the Effective Date, made against NSI
pursuant to
any law or any provision in any
certificate of incorporation, bylaws or agreement, by
any director, officer, employee or agent of NSI whose
duties involved, in
more than a de minimis way, both
the NSI Continuing
Business and the NUSA Acquired
Business.
<PAGE>
2.4 Intent of Assumption and Allocation. In applying Sections
2.1, 2.2 and 2.3, the parties intend that Liabilities not specifically
identified in the
Listing of Liabilities
but incurred (or based on
facts existing)
prior to the Effective
Date ("Unidentified
Existing
Liabilities") be allocated by a fair and reasonable application of the
principle that: (i)
NSI shall be solely
responsible for
Liabilities
arising from or relating to the NSI Retained Assets or the conduct of
the NSI Continuing
Business and in which the NUSA Acquired Assets and
NUSA Acquired
Business had no more
than a de minimis
role; and (ii)
NUSA
shall be solely responsible for Liabilities arising from or
relating to the
NUSA Acquired Assets or the conduct of the NUSA
Acquired Business
and in which the NSI Retained Assets and NSI
Continuing Business
had no more than a de minimis role. Unidentified
Existing Liabilities
in which both (i) the NSI Retained Assets or NSI
Continuing Business
and (ii) the NUSA Acquired Assets or NUSA Acquired
Business have more
than a de minimis
role shall be shared
by NSI and
NUSA in accordance
with the provisions of Section 2.3, as Jointly
Shared Liabilities.
2.5 Liability Insurance Coverage. If any Liabilities to which
this Section 2 applies are covered by any liability insurance carried
by NSI for periods prior to the Effective Date, NSI and NUSA shall
each
have access to such insurance within the aggregate limits thereof, in
proportion to their respective obligations pursuant to this
Section 2.
Any insurance
recoveries
covering Liabilities to be assumed and
allocated pursuant to Section 2.3 shall be shared by the parties in
the
proportions provided in Section 2.3
2.6 Actions
to Effect Assignment and Assumption of NUSA
Assumed Liabilities.
(a) NSI and
NUSA shall use their
reasonable best efforts
to cause all rights and obligations of NSI in respect
of the NUSA Assumed Liabilities to be assigned to and
assumed by NUSA
effective as of the Effective Date,
or as promptly thereafter as practicable.
(b) From and
after the Effective Date, NSI and NUSA shall
use their reasonable best efforts to obtain from each
obligee to which the
NUSA Assumed
Liabilities
are
owed a full release
of NSI from any liability or
obligation in
respect
of such NUSA Assumed
Liabilities, effective as of the Effective Date or as
of the
earliest possible date.
(c) Each of
NSI and NUSA shall
cooperate with the
other
and execute such
instruments and documents as may be
necessary or reasonably requested by the other party
in connection with the
assignment,
assumption
and
release of
any NUSA Assumed Liabilities as
contemplated herein.
<PAGE>
(d) If and to
the extent that NSI
and NUSA are unable to
obtain the assignment,
assumption and release of any
NUSA Assumed
Liabilities as contemplated herein, as
between NSI and NUSA,
effective as of the
Effective
Date, NUSA agrees to
pay and perform as and when due
all Liabilities and
obligations of NSI in respect of
such NUSA Assumed Liabilities, whether arising prior
to, on or after the Effective Date, and, in the event
that for any
reason NUSA does not make any such
payment or perform any
such obligation
as and when
due or NSI makes any such payment or performs any
such obligation,
NUSA shall promptly
reimburse NSI
for all costs and expenses incurred by NSI in
connection therewith.
3. INDEMNIFICATION.
3.1 By NSI. NSI shall
indemnify and hold harmless NUSA, and
each officer,
director, employee and
agent of NUSA, from
and against
any and all Liabilities and Claims which NSI has agreed to assume,
pay,
perform and
discharge pursuant to the terms of this Agreement
including: (i) all NSI
Retained Liabilities;
(ii) NSI's proportionate
share of all Jointly Shared Liabilities; (iii) all Claims relating to
or arising from such
Liabilities;
and (iv) all costs,
expenses and
obligations arising
from, relating to or
incurred in connection
with
such Liabilities and Claims.
3.2 By NUSA. NUSA
shall indemnify and
hold harmless NSI, and
each officer, director, employee and agent of NSI, from and against
any
and all Liabilities
and Claims which NUSA
has agreed to assume,
pay,
perform and
discharge pursuant to the terms of this Agreement,
including: (i) all NUSA Assumed Liabilities; (ii) NUSA's proportionate
share of all Jointly Shared Liabilities; (iii) all Claims relating to
or arising from such
Liabilities;
and (iv) all costs,
expenses and
obligations arising
from, relating to or
incurred in connection
with
such Liabilities and Claims.
3.3 Payment Terms. All
payments to be made by an Indemnifying
Party pursuant to its
obligations
under this Section 3
shall be made
within ten (10) business days of receipt of notice from the
Indemnified
Party that an
Indemnified Loss has
been incurred by the
Indemnified
Party and stating the amount of such Indemnified Loss and the basis
for
the indemnification obligation, unless the Indemnifying Party
contests
the obligation
to indemnify the
Indemnified
Party with respect to
a
claimed Indemnified Loss, as set forth in Section 3.9 below.
3.4 Taxes and Employee Benefits. Concurrently with the
execution of this Agreement, the
