EX-10.37
TAX SHARING AND INDEMNIFICATION AGREEMENT
THIS TAX SHARING AND
INDEMNIFICATION
AGREEMENT (the
"Agreement") is
dated as of December 31, 1997, is by and among Nu Skin
International,
Inc., a
Utah corporation
("NSI"), Nu Skin USA, Inc., a Delaware corporation ("NUSA"),
and the shareholders
of NSI and NUSA and
their successors
and assigns (the
"Shareholders").
RECITALS
WHEREAS, NSI and NUSA have entered into a Contribution and
Distribution
Agreement dated as of December 31, 1997 (the "Distribution
Agreement"); and
WHEREAS, pursuant to
the Distribution Agreement, NSI shall distribute
all the issued and outstanding common stock of NUSA (pro rata) to the
Shareholders (the "Distribution"); and
WHEREAS, there are no tax allocation agreements between NSI and
NUSA;
WHEREAS, NSI and NUSA
each have been taxed
as an "S corporation"
as
that term is defined
in Section 1361 of the Code at all times
during their
respective existences;
WHEREAS, the
Shareholders
intend to transfer
the stock of NSI
along
with the stock of other corporations to Nu Skin Asia
Pacific, Inc., a
Delaware
corporation ("NSAP") in exchange for stock of NSAP.
WHEREAS, NSI
will receive or has received an opinion of Price
Waterhouse that the Distribution, taking into account the
contribution of NSI by
the Shareholders
to NSAP, will qualify for tax-free
treatment under Section
368(a)(1)(D) and 355 of the Code;
WHEREAS, NSI,
NUSA and the
Shareholders
desire to enter into this
Agreement to provide for the allocation among NSI, NUSA and the
Shareholders of
all responsibilities,
liabilities and
benefits relating to
or affecting Taxes
(as hereinafter defined) paid or payable by any of them for all
taxable periods,
whether beginning
before, on or after the Distribution Date (as hereinafter
defined), to indemnify NSI if the Contribution and Distribution
fails to qualify
for tax-free treatment
under Section
368(a)(1)(D) and 355
of the Code, and to
provide for certain other matters. This Agreement also provides, among other
things, for NUSA, NSI
and the Shareholders
to assist each other for an interim
period in the preparation of Tax Returns (as hereinafter defined)
required to be
filed after the Distribution Date.
<PAGE>
NOW, THEREFORE,
in consideration of
the mutual covenants and promises
contained herein,
and other good and
valuable
consideration, the
receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
AGREEMENT
ARTICLE I.
DEFINITIONS
Section 1.1 As used in this Agreement, the following terms shall have
the following
meanings (such meanings to be equally
applicable
to both the
singular and the
plural forms of the
terms defined).
Capitalized
terms used
herein and not otherwise defined shall have the meanings
given to them in
the
Distribution Agreement.
"Action" shall have the meaning ascribed to such term in Section
4.1.
"Change" shall mean
(i) any audit,
amendment or other change in a Tax
Return, or (ii) the expiration of the statute of limitations with
respect to any
Tax Item allocated to NUSA and/or NSI in the Workpapers; provided,
such Tax Item
was not subject to a Change by application of clause (i) of this
definition.
"Closing Balance
Sheets" shall mean the NUSA Closing Balance Sheet and
the NSI Closing Balance Sheet.
"Code" means the Internal Revenue Code of 1986, as amended,
and shall
include corresponding provisions of any subsequently enacted
federal tax laws.
"Corporate-Level
Restructuring Taxes"
shall mean Restructuring Taxes
payable by NSI or NUSA.
"Corporate-Level
Taxes" means Taxes
that are taxed to NSI or NUSA and
not to the Shareholders.
"Distribution" shall
have the meaning ascribed to such term in the
recitals.
"Final Determination"
shall mean the final resolution of the liability
for any Tax Item for a taxable period, (i) by IRS Form 870 or
870-AD (or any
successor forms
thereto), on the date
of acceptance by or on behalf of the IRS
with respect to United States Federal taxes, or by a comparable form under the
laws of other jurisdictions; except that a Form 870 or 870-AD or
comparable form
that reserves
(whether by its terms
or by operation
of law) the right of
the
taxpayer to file a claim for refund and/or the right of the taxing
authority to
assert a further
deficiency
for any Tax Item
shall not constitute a Final
Determination for such Tax Item; (ii) by a decision, judgment, decree, or other
order by a
court of competent jurisdiction, which has become final and
unappealable; (iii) by a closing agreement or accepted offer in
compromise under
Section 7121 or 7122 of the Code, with respect to Federal Taxes,
or comparable
agreements as to other Taxes under the laws of other jurisdictions; (iv) by an
allowance of a refund or credit in respect of any overpayment of Tax, but only
after the expiration of all periods during which such refund may be
recovered by
the Tax imposing jurisdiction; or (v) by any other final
disposition,
including
by reason of the expiration of the applicable statute of
limitations.
<PAGE>
"IRS" shall mean the Internal Revenue Service.
"NSI Businesses"
means the businesses conducted by NSI immediately
following the Distribution.
"NSI Closing Balance
Sheet" shall mean the balance sheet of NSI, dated
as of December 31, 1997.
"NSI Group" shall mean NSI and all of its future subsidiaries.
"NSI" shall have the meaning ascribed to such term in the
preamble.
"NUSA Businesses"
means the businesses
conducted by NUSA
immediately
following the Distribution.
"NUSA Closing
Balance Sheet" shall mean the balance
sheet of NUSA ,
dated as of December 31, 1997.
"NUSA Group" shall mean NUSA and all of its future
subsidiaries.
"NUSA" shall have the meaning ascribed to such term in the
preamble.
"Permanent Tax Item" shall mean any Tax Item other than a Temporary
Tax
Item.
"Reorganization" shall
mean NSI's distribution of all of the NUSA
shares to the Shareholders.
"Restricted Period"
shall mean the two-year period following the
Distribution Date.
"Restructuring Taxes"
means any Taxes
(other than Transfer Taxes)
resulting from
the Reorganization or the Distribution including, without
limitation, any Tax
arising pursuant to,
or as a result of, Section 311 of the
Code.
"Settlement Amount"
shall have the
meaning ascribed to such term in
Section 4.1.
<PAGE>
"Tax Benefit" means
any item of loss,
deduction, credit or
any other
Tax Item which decreases Taxes paid or payable.
"Tax Detriment" means any item or income, gain, recapture of credit or
any other Tax Item which increases Taxes paid or payable.
"Tax Item" means any
return, form, filing, questionnaire or other
document required to
be filed (or which may be filed), including requests for
extensions of time, filings made with estimated tax payments,
claims for refund
and amended returns that may be filed, for any period with any taxing
authority
(whether domestic or
foreign) in connection
with any Tax or Taxes
(whether or
not a payment is required to be made with respect to such
filing).
"Tax Returns"
means any return, declaration, statement, report,
schedule, certificate,
form, information return or any other document (and
related or supporting
information)
including an amended
tax return filed with
respect to Taxes.
"Taxes" means all forms of taxation, whenever created or imposed,
and
whether of the United
States or elsewhere, and whether imposed by a local,
municipal,
governmental, state,
federation or other body, and without limiting
the generality of the foregoing, shall include income, sales, use, ad valorem,
gross receipts,
value added, franchise, transfer, recording, withholding,
payroll, employment,
excise, occupation,
and property taxes, together with any
related interest, penalties and additions to any such tax, or
additional amounts
imposed by any taxing
authority (domestic
or foreign)
upon NSI or NUSA
their
divisions or branches or upon the Shareholders.
"Temporary Tax Item"
shall mean any Tax Item to the
extent the Tax
Detriment or Tax Benefit relating to such Tax Item in one
tax period creates or
results from a corresponding Tax Benefit or Tax Detriment,
respectively,
in a
different tax period;
provided, that if the
parties cannot agree whether a Tax
Item is a Temporary Tax Item, then generally accepted accounting principles in
effect on the Distribution Date shall determine if a Tax Item is a
Temporary Tax
Item.
"Transfer Taxes" shall mean any real property transfer or gains,
sales,
use, transfer,
value added,
stock transfer, and stamp taxes, any transfer,
recording,
registration, and
other fees, and any
similar Taxes which
become
payable in connection with the Distribution or Reorganization.
"Workpapers" shall
mean the workpapers
underlying the
preparation of
the 1997 Federal Tax Return of NSI and the Closing Balance
Sheets.
<PAGE>
ARTICLE II.
PREPARATION AND FILING OF TAX RETURNS
Section 2.1 Manner of Preparation. All Tax Returns of NSI or NUSA
filed
after the Distribution
Date shall be prepared
on a basis which is
consistent
with the tax opinions
obtained from Price
Waterhouse in
connection
with the
Reorganization and the
Distribution (in the absence of a controlling change in
law or circumstances)
and shall be filed on a timely basis (including pursuant
to extensions) by the party responsible for such filing under this
Agreement. In
the absence
of a controlling change in law or circumstances, or except as
otherwise agreed in writing, all Tax Returns of NSI or NUSA filed
after the date
of this Agreement
shall be prepared on a basis consistent with the elections,
accounting methods,
conventions,
and principles of
taxation used for the most
recent taxable periods for which Tax Returns of NSI involving
similar Tax Items
have been filed,
except that,
with respect to Tax Items not
relating to the
Reorganization or Distribution, one party may take an inconsistent
position to
the extent that, with respect to Tax Items not relating to the
Reorganization or
Distribution, such
position does not
create a Tax Detriment to the other party
or to the Shareholders of the other party.
Section 2.2 Pre-Distribution Tax Returns.
(a) All federal or state income Tax Returns that are
required
to be filed for periods beginning before the Distribution Date
shall be
prepared and filed by the Shareholders or by NSI.
(b) All Tax Returns for state and local sales, use, property,
transfer and other Taxes for periods beginning before the
Distribution
Date which are not
measured by income
shall be prepared and
filed by
NSI. NSI shall
prepare all Federal and state payroll Tax Returns
required to be filed
by it after the
Distribution which
include any
period beginning before the Distribution Date.
(c) All foreign
Tax Returns and any other Tax Returns not
described elsewhere
in this Section 2.2
that are required to be filed
for any period beginning before the Distribution Date shall be
prepared
and filed by NSI.
Section 2.3
Post-Distribution
Corporate Tax Returns.
All Tax Returns
for periods beginning
after the Distribution
Date with respect to NSI shall be
prepared and filed by
NSI. All tax
returns for
periods beginning after the
Distribution Date with
respect to NUSA shall be prepared and filed by NUSA. The
Shareholders shall file all Tax Returns required to be filed by
them that relate
to or include Tax Items associated with NSI or NUSA.
<PAGE>
ARTICLE III.
PAYMENT OF TAXES
Section 3.1 Tax for Taxable Periods Beginning Prior to the
Distribution
Date.
(a) The Shareholders
shall pay all Taxes
due (or receive all
refunds) in
connection
with the filing of
NSI's federal
income Tax
Returns for all taxable periods ending on or before the
Distribution
Date.
(b) NSI or the
Shareholders shall pay
to the relevant taxing
authority all non-U.S. federal income Taxes for the Tax Returns for
all
taxable periods ending on or before the Distribution Date with respect
to which NSI and the Shareholders each have a respective filing
responsibility under relevant state, local or foreign law.
(c) NSI shall be responsible for the payment of all Taxes
due
or payable with respect to taxable periods beginning on or before the
Distribution Date that
are required to be
reported on the Tax Returns
described in Sections 2.2(b) and 2.2(c).
Section 3.2 NSI and
Shareholder
Tax Deficiencies and Refunds for
Periods Prior to the
Distribution
Date. If there is a Change in a Tax
Return
filed by NSI and with
respect to which NSI,
for a taxable period
prior to the
Distribution Date, has
tax liability pursuant
to Section 3.1,
irrespective of
whether such Change occurs before, on or after the Distribution
Date, NSI shall
pay and discharge
any Tax or receive
any refund of Tax
associated
with such
Change. For taxable
periods beginning prior to the Distribution Date, the
Shareholders shall
bear the burden of any Tax arising from a Change in Tax
Returns filed by them
that relate to or include Tax Items associated with NSI
and with respect to
which they are liable,
and shall have the
benefit of any
refund of Tax associated with such Change, irrespective of whether such
Change
occurs before, on or after the Distribution Date.
Section 3.3 Transfer Taxes. NUSA or the Shareholders
shall pay to the
relevant taxing authority all Transfer Taxes.
Section 3.4 Indemnities, Payments, Temporary Tax Items and Code
Section
336(e).
(a) NUSA and Shareholders Indemnity Obligations. NUSA and the
Shareholders shall indemnify and hold harmless NSI against:
(i) any
and all Restructuring
Taxes
and
Corporate-Level Restructuring Taxes imposed as a result of the
completion of the
Distribution or
Reorganization, except
to
the extent that such taxes result solely from NSI's breach of
the covenants contained in Section 5.4, and
(ii) any and all Taxes for which NUSA or the
Shareholders have agreed to be responsible pursuant to Article
III of this Agreement.
<PAGE>
(b) NSI Indemnity
Obligations. NSI shall
indemnify and hold
harmless NUSA and the Shareholders against any Restructuring
Taxes or
Corporate-Level
Restructuring Taxes
imposed upon or incurred by the
Shareholders or NUSA if NSI breaches the covenants contained in
Section
5.4 and such breach
results in the failure of the Distribution or
Reorganization
to qualify
for tax-free treatment under Section
368(a)(1)(D) or
Section 355 of the Code or similar provisions of the
state or local law.
The Shareholders
shall be indemnified and held
harmless under this
Section 3.4(b) without regard to the fact that NSI
received an opinion or ruling from the IRS as contemplated by Section
5.4(b).
(c) All pa
