<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
KAIRE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5122 84-1359178
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------------
380 LASHLEY STREET
LONGMONT, COLORADO 80501
(303) 682-0110
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
ROBERT L. RICHARDS
CHIEF EXECUTIVE OFFICER
KAIRE INTERNATIONAL, INC.
380 LASHLEY STREET
LONGMONT, COLORADO 80501
(303) 682-0110
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT PEREZ, ESQ. JAY M. KAPLOWITZ, ESQ.
Gusrae, Kaplan & Bruno Gersten, Savage, Kaplowitz
120 Wall Street & Fredericks, LLP
New York, New York 10005 101 East 52nd Street
Tel No. (212) 269-1400 New York, New York 10022
Fax No. (212) 809-5449 Tel No. (212) 752-9700
Fax No. (212) 752-9713
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. /X/
If this Form is 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 this Form is a post-effective amendment 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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH AMOUNT OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(2) 1,150,000 $6.00 $6,900,000 $2,035.50
Redeemable Common Stock Purchase Warrants(3) 1,150,000 $.10 $115,000 $33.93
Common Stock, $.01 par value(4) 1,150,000 $6.60 $7,590,000 $2,239.05
Underwriter's Warrants(5) 100,000 $-- $5 $--
Common Stock, $.01 par value(6) 100,000 $7.50 $750,000 $221.25
Common Stock Purchase Warrants(6) 100,000 $.125 $12,500 $3.69
Common Stock, $.01 par value(7) 100,000 $6.60 $660,000 $194.70
TOTAL: $4,728.12
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 150,000 shares of Common Stock subject to the Underwriter's
overallotment option and assumes the overallotment option is exercised in
full.
(3) Includes 150,000 Redeemable Common Stock Purchase Warrants subject to the
underwriter's overallotment option and assumes the overallotment option is
exercised in full. Also referred to herein as the "Public Warrants."
(4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
referred to in note (3).
(5) To be issued to the Underwriter, entitling the Underwriter to purchase up to
100,000 shares of Common Stock.
(6) Issuable upon the exercise of the Underwriter's Warrants.
(7) Issuable upon the exercise of the Underwriter's Common Stock Purchase
Warrants.
Pursuant to Rule 416, there are also being registered such additional but
indeterminate number of shares as may become issuable pursuant to anti-dilution
provisions of the Warrants registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1998
PROSPECTUS
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.
<PAGE>
KAIRE INTERNATIONAL, INC.
1,000,000 SHARES OF COMMON STOCK AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Kaire International, Inc., a Delaware corporation (the "Company") hereby
offers 1,000,000 shares of common stock, $.01 par value (the "Common Stock") of
the Company and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Public
Warrants"). The Common Stock and the Public Warrants offered hereby (sometimes
hereinafter collectively referred to as the "Securities") will be separately
tradeable immediately upon issuance and may be purchased separately. Investors
will not be required to purchase shares of Common Stock and Public Warrants
together or in any particular ratio. Each Public Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $6.60 (the "Exercise
Price"), subject to adjustment, at any time during the period, commencing on the
second anniversary of this Prospectus (the "Effective Date") until the close of
business on the sixth anniversary of the Effective Date (such period, the
"Exercise Period"), provided, however, that prior to the Exercise Period, the
Public Warrants will be exercisable only if May Davis Group, Inc. (the
"Underwriter") has consented in writing to all of the Public Warrants being
exercisable.
The Public Warrants are redeemable, in whole or in part, by the Company at a
price of $.05 per Public Warrant, at any time that they are exercisable, and
prior to their expiration, provided that (i) prior written notice of not less
than thirty days is given to the Warrantholders, (ii) the average closing bid
price of the Company's Common Stock for the twenty consecutive trading days
immediately prior to the date on which the notice of redemption is given, shall
have exceeded $10.00 per share, and (iii) Warrantholders shall have exercise
rights until the close of business on the day preceding the date fixed for
redemption, if the Public Warrants are then exercisable.
Prior to this offering (the "Offering"), there has been no public market for
the Company's Common Stock and Public Warrants, and there can be no assurance
that such a public market will develop or be sustained after the completion of
the Offering. The Offering price of the Common Stock and the exercise price and
other terms of the Public Warrants were established by negotiations between the
Company and the Underwriter and do not bear any direct relationship to the
Company's assets, book value, results of operations or any other criteria of
value. The Company has applied for the listing of the Common Stock and Public
Warrants on the NASDAQ SmallCap Market ("NASDAQ SmallCap") under the symbols
" " and " ", respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 9,
AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $6.00 $.60 $5.40
Per Warrant.............................................. $.10 $.01 $.09
Total(3)................................................. $6,100,000.00 $610,000.00 $5,490,000.00
</TABLE>
(1) Does not include additional compensation to the Underwriter consisting of
(i) a non-accountable expense allowance equal to 3% of the aggregate
purchase price of the Securities, or $183,000 ($210,450 if the Underwriter's
overallotment option is exercised in full); (ii) warrants to purchase
100,000 shares of Common Stock at $7.50 per share and 100,000 warrants at
$.125 per warrant, exercisable for an additional 100,000 shares of Common
Stock at $6.60 per share; and (iii) a three-year consulting agreement
providing for fees totalling $108,000, which is payable to the Underwriter
in full on the closing of this Offering. For additional information
concerning further agreements between the Company and the Underwriter,
including an agreement to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) After deducting Underwriting discounts and commissions, but before the
payment of the Underwriter's non-accountable expense allowance in the amount
of $183,000 ($210,450 if the Underwriter's overallotment option is exercised
in full) and other expenses of the Offering payable by the Company
(estimated at $540,294).
(3) The Company has granted the Underwriter an option to purchase up to 150,000
additional shares of Common Stock and 150,000 additional Public Warrants,
upon the same terms and conditions set forth above, solely to cover
overallotments, if any (the "Overallotment Option"). If the Overallotment
Option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be increased to
$7,015,000, $701,500 and $6,313,500, respectively. See "Underwriting."
The Common Stock and Public Warrants are being offered on a "firm
commitment" basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriter, and subject to certain other conditions and legal
matters. The Underwriter reserves the right to withdraw, cancel or modify the
Offering and to reject orders in whole or in part. It is expected that delivery
of the certificates representing the shares of Common Stock and Public Warrants
will be made at the offices of the Underwriter, in New York City, on or about
, 1998.
MAY DAVIS GROUP, INC.
The date of this Prospectus is , 1998
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
The Company intends to distribute to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make such other
periodic reports, containing unaudited financial information, as the Company may
determine to be appropriate or as may be required by law. The Company's fiscal
year ends on December 31st of each year.
A logo consisting of human facial silhouettes within a heart,
Kaire-Registered Trademark-, Pro Vine-Registered Trademark-, Nature's
Shield-Registered Trademark-, Dermunol-TM- and Immunol-TM- used in this
Prospectus are trade marks or tradenames of the Company.
Pycnogenol-Registered Trademark- is a trade name/trademark of Horphag Research
Ltd.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including financial statements and notes thereto appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise indicated herein, the
information contained in this Prospectus gives no effect to the exercise of (i)
the Overallotment Option, (ii) the Underwriter's warrants, (iii) warrants
offered hereby or issued to private investors, or (iv) options granted under the
Company's stock option plan.
THE COMPANY
Kaire International, Inc. (the "Company") develops and distributes, through
a network of independent associates, products that are intended to appeal to
health-conscious consumers. Current Company products include health care
supplements and personal care products. The Company offers a line of
approximately 50 products which it divides into nine categories, including
Antioxidant Protection, (Bodily) Defense, Digestion, Energy and Alertness,
Stress, Vital Nutrients, Weight Management, Anti-Aging and Personal Care.
The Company develops products that it believes will have market appeal to
its associates and their customers, and assists its associates in establishing
their own businesses. The Company believes that its associates can start a home
based business without significant normal start-up costs and other difficulties
usually associated with new ventures. The Company provides product development,
marketing aids, customer service, and essential record-keeping functions to its
associates. The Company also provides other support programs to its associates
including a 24 hour telephone assistance system, teleconferencing, optional
seminars, a monthly newsletter and business training systems with audio and
video tapes and a Director Management kit.
The Company's marketing strategy revolves around associates actively
recruiting interested people to become new associates for the Company. These
recruits are placed beneath the recruiting associate in his or her "network" and
are referred to by the Company as that associate's "organization." Associates
earn commissions on sales generated by the recruited associates in their
organization as well as retail profits on the sales they generate directly.
The Company believes its marketing program is designed to provide incentives
for associates to build an organization of recruited associates in their
organization to maximize their earning potential. The Company has experienced an
increase in the number of associates sponsored from approximately 1,900 at the
end of its first fiscal period of October 20th to December 31, 1992 ("Fiscal
1992") to over 400,000 as of September 30, 1997. Approximately 60,000 of the
Company's associates have had product purchases in excess of $50 during the past
year and are considered to be "active" associates by the Company.
The Company purchases most of its products directly from manufacturers and
markets them to its independent associates located in all fifty states, the
District of Columbia, Puerto Rico, Guam, and Canada. In 1995 the Company
expanded the number of its associates located in other parts of the world,
particularly Australia and New Zealand. During 1997, the Company expanded its
operations into South Korea, Trinidad and Tobago, and the United Kingdom.
The Company's first three full fiscal years were periods of rapid growth
with net sales of approximately $2,719,000, $36,895,000 and $57,841,000,
respectively, for the Company's fiscal years ended December 31, 1993, 1994 and
1995 (hereinafter "Fiscal 1993", "Fiscal 1994" and "Fiscal 1995"). As a result,
the Company had a net loss of approximately $207,000 for Fiscal 1993, and net
income of approximately $1,091,000 and $1,186,000 for Fiscal 1994 and Fiscal
1995, respectively.
By the end of Fiscal 1995, management noted that growth in the Company's
monthly net sales had begun to level off, indicating that a decline in net sales
could be anticipated due to the Company possibly having reached the maturity
level, which the Company believes is frequently encountered by companies in
3
<PAGE>
the network marketing industry, beyond which growth becomes very difficult.
During the latter part of Fiscal 1995 and continuing into the Company's fiscal
year ending December 31, 1996 ("Fiscal 1996"), management formulated a three
pronged approach to overcome this maturation, consisting of: (1) attempting to
attract more entrepreneurial minded and younger persons to the Company's
associate program; (2) introducing new products, including products directed at
more youthful end users (which was also intended to aid in the attraction of
younger associates); and (3) expanding geographically. To attract a more
entrepreneurial associate, the Company modified its associate commission
program, introduced new training materials and took efforts to enhance
communications with sales associates. This modified commission program was not
successful and, by the fall of 1996, the Company essentially restored its pre-
March 1996 commission program.
During Fiscal 1996, the Company's net sales of approximately $51,499,000
represented a decline of approximately $6,342,000 from the Fiscal 1995 net sales
level of approximately $57,841,000. This decline in net sales continued during
the first nine months of 1997 ("Nine Months 1997") with net sales of
approximately $27,887,000. During Fiscal 1996 and Nine Months 1997, the Company
incurred losses of approximately $1,803,000 and $4,182,000, respectively. At
September 30, 1997, the Company had a working capital deficit of $4,718,000. The
Company's independent certified public accountants stated in their report of
April 4, 1997 on the Company's consolidated financial statements that, due to
losses from operations and a working capital deficit, there was "substantial
doubt" about the ability of the Company to continue as a going concern.
The Company attributes this perceived trend, from net income in Fiscal 1994
and Fiscal 1995 to net losses in Fiscal 1996 and Nine Months 1997, to, among
other things, the unsuccessful modification of its associate commission
structure and increases in selling, general and administrative expenses. See
"Risk Factors--No Assurance of Return to Profitability." In order to return to
profitability, the Company has continued to pursue its three pronged approach,
pursuant to which it essentially restored its former commission structure and
reduced its general and administrative staffing levels.
The Company was incorporated under the laws of the state of Nevada on
October 20, 1992. In March 1997, the Company merged with a Delaware corporation
specifically established by the Company for the purpose of reorganizing itself
under the laws of that jurisdiction. Kaire New Zealand Ltd. and Kaire Australia
Pty. Ltd. were incorporated under the laws of their respective jurisdictions in
August 1995. In November 1995, these two companies purchased the operating
assets from predecessor corporations in which the Company had no interest. The
Company acquired a 51% interest in Kaire New Zealand, Ltd. and Kaire Australia
Pty. Ltd. at that time. Kaire Korea, Ltd. ("Kaire Korea") was incorporated in
March 1997 under the laws of South Korea. In June 1997, Kaire Korea received its
license to do business as a "door to door selling company". Kaire Trinidad, Ltd.
was incorporated under the laws of Trinidad and Tobago in May 1997 and commenced
operations in June. Kaire Europe Ltd. was incorporated in the United Kingdom in
July 1997 and commenced sales in November 1997. On December 9, 1997, the Company
entered into and completed an Agreement and Plan of Reorganization (the
"Agreement") with Interactive Medical Technologies, Ltd. ("IMT") whereby IMT
agreed to provide an additional $300,000 equity investment in the Company and
convert the $700,000 previously borrowed by the Company to equity in the Company
and for IMT to provide additional equity investments of $2,000,000 by February
15, 1998. Certain of the Company's stockholders exchanged more than 80% of the
issued and outstanding shares of the Company's Common Stock for approximately
forty five percent (45%) of IMT's common stock. It is contemplated that the
transaction will qualify as a tax free reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Unless otherwise
specified or required by the context of the following text, all references in
this Prospectus to the "Company" include the Company and all of the foregoing
subsidiaries. The Company's executive office is located at 380 Lashley Street,
Longmont, Colorado 80501 and its telephone number at that address is (303)
682-0110. The Company's web-site is located at http:\\www.kaireint.com.
4
<PAGE>
RISK FACTORS
Certain risk factors should be considered in evaluating the Company, its
business and its proposed expansion plans. Such factors include, among others,
risks associated with doing business in South Korea, the possible need for
additional financing, the risks inherent in establishing new business operations
and expanding marketing efforts, intense competition, dependence upon vendors
and substantial dilution. For a discussion of these and certain other factors,
see "Risk Factors".
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered(1)........................ 1,000,000 shares of Common Stock and
1,000,000 Public Warrants. Each Public
Warrant entitles the holder to purchase one
share of Common Stock at a price of $6.60
during a four year period (the "Exercise
Period") commencing two years after the date
of this Prospectus and lasting until the date
six years after the date hereof, provided,
however, that prior to the Exercise Period,
the Public Warrants may be exercisable only
if the Underwriter has consented in writing
to all of the Public Warrants being
exercisable. The exercise price and the
number of shares issuable upon exercise of
the Public Warrants are subject to adjustment
in certain circumstances. See "Description of
Securities."
Common Stock Outstanding Before Offering..... 4,418,353 Shares.
Common Stock Outstanding After Offering(1)... 5,418,353 Shares.
Warrants Outstanding Before Offering(2)...... 1,601,000 Warrants.
Warrants Outstanding After Offering(2)(3).... 2,601,000 Warrants.
Warrant Expiration Date...................... , 2004 (six years after the Effective Date).
Warrant Redemption........................... Redeemable by the Company, in whole or in
part at a price of $.05 per Public Warrant,
at any time that they are exercisable upon
not less than 30 days prior written notice to
the holders of the Public Warrants, provided
that the average closing bid price of the
Company's Common Stock for the twenty
consecutive trading days immediately prior to
the date on which the notice of redemption is
given, shall have exceeded $10.00 per share.
Use of Proceeds.............................. Expenses of expansion efforts in South Korea
and the United Kingdom (including start-up
costs, leasehold improvements and equipment),
repayment of indebtedness to the private
placement investors and working capital. See
"Use of Proceeds."
Proposed NASDAQ SmallCap Symbols(4)
Common Stock...............................
Warrants...................................
</TABLE>
- ------------------------
(1) Does not include (i) 150,000 shares of Common Stock and 150,000 Public
Warrants, subject to the Underwriter's Overallotment Option; (ii) 1,601,000
shares of Common Stock issuable upon the exercise of outstanding warrants;
(iii) 200,000 shares of Common Stock issuable upon the exercise of the
Underwriter's warrants including the shares of Common Stock underlying the
warrants included
6
<PAGE>
within the Underwriter's warrants; or (iv) 1,000,000 shares of Common Stock
reserved for issuance pursuant to the Company's stock option plan. See
"Management," "Underwriting" and "Description of Securities."
(2) Includes 1,430,000 warrants on the same terms as the Public Warrants offered
hereby, and 171,000 warrants with an exercise price of $.01 per warrant.
(3) Does not include (i) 150,000 Public Warrants subject to the Underwriter's
overallotment option; or (ii) the Underwriter's Warrants.
(4) The proposed trading symbols do not imply that a liquid and active market
will be developed or sustained for the securities upon completion of this
Offering.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
AND UNLESS OTHERWISE STATED)
The following summary consolidated financial information has been derived
from the financial statements of the Company and should be read in conjunction
with the financial statements and the related notes thereto appearing elsewhere
in this Prospectus. For a description of the Financial Statements from which the
following financial data has been derived, see the introduction to "Selected
Financial Information." The summary financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus. Information as to the periods
ended September 30, 1997 and September 30, 1996 is unaudited.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C> <C>
OCTOBER 20, 1992
(INCEPTION) TO
DECEMBER 31, 1992 1993 1994 1995 1996
------------------- --------- --------- --------- ---------
Net Sales........................................... $ 92 $ 2,719 $ 36,895 $ 57,841 $ 51,499
Income (Loss) from Operations....................... $ (162) $ (180) $ 1,462 $ 2,164 $ (2,764)
Net Income (Loss)................................... $ (162) $ (207) $ 1,091 $ 1,186 $ (1,803)
Net Income (Loss) Per Share--Primary................ $ (.04) $ (.05) $ .25 $ .27 $ (.41)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Net Sales................................................................................... $ 41,124 $ 27,887
(Loss) from Operations...................................................................... $ (1,332) $ (4,065)
Net (Loss).................................................................................. $ (1,210) $ (4,182)
Net (Loss) Per Share--Primary............................................................... $ (.27) $ (.95)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
<S> <C> <C> <C>
PROFORMA AS
ACTUAL ADJUSTMENTS ADJUSTED
--------- ------------- -----------
Working Capital (Deficiency)................................................... $ (4,718) $ 3,957 $ (761)
Total Assets................................................................... 5,972 3,957 9,929
Long Term Obligations.......................................................... 833 (810) 23
Total Liabilities.............................................................. 9,536 (810) 8,726
Minority Interest in Consolidated Subsidiaries................................. 156 156
Stockholders' Equity (Deficit)................................................. (3,720) 4,767 1,047
</TABLE>
8
<PAGE>
RISK FACTORS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT. ALSO, DOCUMENTS SUBSEQUENTLY FILED BY THE COMPANY WITH THE
COMMISSION WILL CONTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
THE RISK FACTORS SET FORTH BELOW AND THE MATTERS SET FORTH OR INCORPORATED IN
THE PROSPECTUS GENERALLY. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THIS
LIST OF FACTORS MAY NOT BE EXHAUSTIVE, PARTICULARLY WITH RESPECT TO FUTURE
FILINGS. BEFORE MAKING A DECISION TO PURCHASE ANY OF THE SECURITIES DESCRIBED IN
THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS IN CONNECTION WITH AN INVESTMENT IN THE COMPANY.
NO ASSURANCE OF A RETURN TO PROFITABILITY; RECENT SUBSTANTIAL LOSSES. From
its inception in late 1992 through the end of its Fiscal 1995, the Company had
experienced a rapid expansion in its net sales, growing from net sales of
approximately $2,719,000 during its first full fiscal year, Fiscal 1993, to net
sales of approximately $36,895,000 and $57,841,000, for Fiscal 1994 and Fiscal
1995, respectively. During these three fiscal years the Company's net income
experienced corresponding increases, with the Company sustaining a net loss of
approximately $207,000 during Fiscal 1993 and net income of approximately
$1,091,000 and $1,186,000 during Fiscal 1994 and Fiscal 1995, respectively.
Fiscal 1996 and Nine Months 1997 were periods of declining revenues and net
losses. During Fiscal 1996 and Nine Months 1997, the Company sustained net
losses of approximately $1,803,000 and $4,182,000, respectively, upon net sales
of approximately $51,499,000 and $27,887,000, respectively. See "Risk
Factors--Going Concern Modification in Independent Certified Public Accountants'
Report." Management believes that the foregoing net sales decreases and losses
resulted from the Company maturing as a network marketing enterprise, having
reached a leveling off of its net sales during the latter part of 1995, and the
Company's own initial efforts to overcome this maturation. In an effort to
overcome this maturation, the Company formulated several approaches. Those
approaches were to: attract a younger and more entrepreneurial minded associate
than it had attracted in the past; attract persons who had been successful
network marketers with other companies; continue to expand its line of products,
including efforts to develop products directed at a younger market; and further
expand geographically outside of the United States. Attracting new, younger and
entrepreneurial minded associates was, by its nature, the first approach
undertaken. In an effort to accomplish this, among other things, the Company
changed its commission program that had been in place since 1994. The change in
commission structure was not well received by the Company's associates and, in
addition, the Company's new commission structure attracted associates who
misused the new commission program which increased commissions on first time
sales without providing for commission recovery by the Company on product
returns and refunds. Exacerbating the Company's losses were to lesser degrees;
the time and cost of personnel devoted to promoting the new commission program,
competition in recently penetrated markets of Australia and New Zealand of
"copycat" products, the introduction of new products that were not as well
received by the market as had been expected, a new product not as consistent as
the product it replaced and a corporate infrastructure (new personnel and
facilities) with related fixed costs that had grown correspondingly with the
growth in sales in prior fiscal years. The Company, in the latter part of Fiscal
1996, reverted to essentially its former commission program. The Company
believes it has cured its product inconsistency problems and reduced the number
of general and administrative personnel. Additionally, the Company has continued
to introduce new products, recently expanded geographically into South Korea,
Trinidad and Tobago, and the United Kingdom, and its continuing efforts to
attract more entrepreneurial associates by seeking professional network
marketers to bring themselves and their existing sales organizations to the
Company. There can be no assurance that future unforeseen developments, such as
the failure to succ-essfully penetrate the three new geographically targeted
markets (especially South Korea), generate revenue growth as market competition
increases, create or secure new products that will be accepted in the market
place, contain its general and administrative overhead costs and other
unforeseen circumstances will not have a material adverse effect on the
Company's operations in its current or expanded market areas. See "Risk
Factors--Going Concern Modification in Independent Certified Public Accountants'
Report," "--Losses Sustained in Attempting to Penetrate New Markets;
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Risks Involved in Entering New Markets," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and Financial
Statements and the notes thereto.
GOING CONCERN MODIFICATION IN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
REPORT. The report dated April 4, 1997 from BDO Seidman, LLP, the independent
certified public accountants for the Company, expressed "substantial doubt"
about the Company's ability to continue as a going concern due to recurring
losses and negative working capital. The Company expects that the loss for the
Fiscal Year 1997 will exceed its loss through Nine Months 1997. There can be no
assurance that the Company will again or ever achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Consolidated Financial Statements.
LOSSES SUSTAINED IN ATTEMPTING TO PENETRATE NEW MARKETS; RISKS INVOLVED IN
ENTERING NEW MARKETS. The Company intends to complete its expansion efforts into
South Korea allocating a substantial portion of the net proceeds of this
Offering to this effort. Completing the establishment of its operations in South
Korea will require the recruitment and training of new personnel, paying
salaries of South Korean personnel and their related benefits, continuing
compliance with the laws and regulations of that country, delivering products
into that country which are subject to quarantine periods, purchasing equipment,
continuing leasehold payments and payments of other costs and expenses until
South Korean operations generate sufficient revenues to cover the foregoing and
other costs and expenses related to the Company's South Korean operations. Until
such time as South Korean operations generate sufficient revenue to cover the
foregoing costs and expenses, of which no assurance can be given, the Company's
South Korean operations will continue to sustain losses. In addition to the
foregoing, future events, including problems, delays, expenses and complications
frequently encountered by companies seeking to penetrate new markets, foreign
currency exchange fluctuations, as well as changes in governmental policies,
economic or other conditions may occur that could cause the Company to be
unsuccessful in these expansion efforts. The net proceeds of this Offering
allocated to that purpose may be expended without the Company deriving any
economic benefit. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
NEED FOR ADDITIONAL FUTURE FINANCING; POSSIBLE ADDITIONAL DILUTION. The
Company may require additional equity or debt financing in order to complete its
expansion efforts into any additional geographic areas that the Company may
target in the future or for additional working capital if it continues to
sustain losses or its South Korean or other expansion areas continues to suffer
losses. Any additional equity financing that may be obtained may dilute the
voting power and equity interests of the Company's stockholders. Any additional
debt financing that may be obtained may restrict or impair the Company's ability
to declare dividends or may impose financial restrictions on the Company's
ability to expand. There can be no assurance that the Company will be able to
obtain additional financing on terms acceptable to the Company or at all. In the
event additional financing is unavailable to the Company, the Company may be
materially adversely affected. See "Use of Proceeds."
BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 34% of the
estimated net proceeds to be received by the Company from this Offering have
been allocated to working capital and the Company will have broad discretion as
to the application of such funds. See "Use of Proceeds."
USE OF PROCEEDS TO REPAY INDEBTEDNESS. Approximately 36% of the estimated
net proceeds to be received by the Company from this offering have been
allocated to repay indebtedness and will, as a result, not be used for the
Company's future operations. See "Use of Proceeds."
GOVERNMENT REGULATION OF PRODUCTS AND MARKETING. The Company is subject to
or affected by extensive governmental regulations not specifically addressed to
network marketing. Such regulations govern, among other things, (i) product
formulation, labeling, packaging and importation, (ii) product claims and
advertising, whether made by the Company or its associates, (iii) fair trade and
distributor practices, and (iv) taxes, transfer pricing and similar regulations
that affect foreign taxable income and
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customs duties. Based on the Company's experience and research, the nature and
scope of inquiries from government regulatory authorities, and the advice it
receives from various counsel, the Company believes that it is in material
compliance with all regulations applicable to the Company. However, there can be
no assurances that the Company will not be subject to inquiries and regulatory
investigations or disputes and the effects of any adverse publicity resulting
therefrom. Any assertion or determination that the Company is not in compliance
with existing laws or regulations could potentially have a material adverse
effect on the Company's business and results of operations. In addition, in any
country or jurisdiction, the adoption of new laws or regulations or changes in
the interpretation of existing laws or regulations could generate negative
publicity and/or have a material adverse effect on the Company's business and
results of operations. The Company cannot determine the effect, if any, that
future governmental regulations or administrative orders may have on the
Company's business and results of operations. Moreover, governmental regulations
in countries where the Company plans to commence or expand operations may
prevent, delay or limit market entry of certain products or require the
reformulation of such products. Regulatory action, whether or not it results in
a final determination adverse to the Company has the potential to create
negative publicity, with detrimental effects on the motivation and recruitment
of associates and, consequently, on the Company's sales and earnings. See
"--Losses Sustained in Attempting to Penetrate New Markets; Risks Involved in
Entering New Markets" and "Business--Government Regulation."
GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling
activities are regulated by various governmental agencies. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes.
Such schemes, often referred to as "pyramid" or "chain sales" schemes, often
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 must comply with South Korea's strict Door-to-Door Sales Act, which
requires among other things, the regular reporting of revenue, the registration
of associates together with the issuance of a registration card, and the
maintaining of a current associate registry. This law also limits the amount of
certain bonuses that a registered multi-level marketing company can pay to
associates up to a maximum of 35% of revenue in a given month. See "Business--
Government Regulation."
As is the case with most network marketing companies, the Company has from
time to time received inquiries from various government regulatory authorities
regarding the nature of its business and other issues such as compliance with
local business opportunity and securities laws. To date none of these inquiries
has resulted in a finding materially adverse to the Company. There can be no
assurance that the Company will not face inquiries in the future which, either
as a result of findings adverse to the Company or as a result of adverse
publicity resulting from the initiation of such inquiries, could have a material
adverse effect on the Company's business and results of operations. See
"Business--Government Regulation."
Even though management believes that laws governing direct selling are
generally becoming more permissive in certain Asian countries, certain countries
currently have laws in place that would prohibit the Company from conducting
business in such markets. There can be no assurance that the Company will be
allowed to continue to conduct business in each of its existing markets. See
"Business--Government Regulation."
TAXATION RISKS AND TRANSFERS PRICING. The Company is subject to taxation in
the United States, where it is incorporated. In addition, each of the Company's
subsidiaries are subject to taxation in the country in which it operates,
currently ranging from a statutory tax rate of 32% in South Korea to 45% in
Trinidad and Tobago. The Company will be eligible for foreign tax credits in the
United States for the amount of foreign taxes actually paid in a given period.
In the event that the Company's operations in high tax jurisdictions such as
Trinidad and Tobago grow disproportionately to the rest of the Company's
operations, the Company will be unable to fully utilize its foreign tax credits
in the United States, which could, accordingly, result in the Company paying a
higher overall effective tax rate on its worldwide operations.
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Because the Company's subsidiaries operate outside of the United States, the
Company is subject to the jurisdiction of the relevant foreign tax authorities.
In addition to closely monitoring the subsidiaries locally based income, these
tax authorities regulate and restrict various corporate transactions, including
intercompany transfers. The Company believes that the tax authorities in South
Korea are particularly active in challenging the tax structures of foreign
corporations and their intercompany transfers. Although the Company believes
that its tax and transfer structures are in compliance in all material respects
with the laws of every jurisdiction in which it operates, no assurance can be
given that these structures will not be challenged by foreign tax authorities or
that such challenges will not have a material adverse effect on the Company's
business or results of operations.
INCREASED COMPANY EMPHASIS ON OPERATIONS OUTSIDE OF THE UNITED
STATES. Although less than 12% of the Company's revenues during Fiscal 1996
were derived from operations outside of the United States, the Company has
allocated a substantial portion of the net proceeds of this Offering to expand
its operations into South Korea and the United Kingdom, and, as a consequence,
anticipates that the percentage of the Company's revenues derived from
non-United States operations will increase in the near term and the Company's
future operations may be materially and adversely affected by economic,
political and social conditions in the countries in which it then operates, in
particular South Korea. A change in policies by any government in the Company's
markets and proposed markets, particularly South Korea, could adversely affect
the Company and its operations through, among other things, changes in laws,
rules or regulations, or the interpretation thereof, confiscatory taxation,
restrictions on currency conversion, currency repatriation or imports, or the
expropriation of private enterprises. Although the Company believes that the
general trend in Asia has been toward more open markets and trade policies and
the fostering of private business and economic activity, no assurance can be
given that this trend will continue or that such policies will not be
significantly altered in future periods. This could be especially true in the
event of a change in leadership, social or political disruption or upheaval, or
unforeseen circumstances affecting economic, political or social conditions or
policies. There can be no assurance that such activities, or other similar
activities in the Company's markets, will not result in passage of legislation
or the enactment of policies which could materially adversely affect the
Company's operations in the market areas where it operates. In addition, the
Company's ability to expand its operations into new markets will directly depend
on its ability to secure the requisite government approvals and comply with the
local government regulations. See "--Losses Sustained in Attempting to Penetrate
New Markets; Risks Involved in Entering New Markets."
CURRENCY RISKS. The Company's foreign-derived sales and selling, general
and administrative expenses are converted to U.S. dollars for reporting
purposes. Consequently, the Company's reported earnings are significantly
impacted by changes in currency exchange rates, generally increasing with a
weakening dollar and decreasing with a strengthening dollar. Given the
uncertainty of the extent of exchange rate fluctuations, the Company cannot
estimate the effect of these fluctuations on its future business, product
pricing, results of operations or financial condition. However, because the
Company's revenue is realized in local currencies and the majority of its cost
of sales is denominated in U.S. dollars, the Company's gross profits will be
positively affected by a weakening in the U.S. dollar and will be negatively
affected by a strengthening in the U.S. dollar. There can be no assurance that
any of the foregoing currency risks will not have a material adverse effect upon
the Company's results from operations or financial condition.
Fluctuations in currency exchange rates, particularly those caused by an
increase in the value of the United States dollar, could have a material adverse
effect on the Company's financial position, results of operations and cash
flows. The Company plans to reduce its exposure to fluctuations in foreign
currency through forward currency exchange contracts, the Company currently does
not use such financial instruments for trading or speculative purposes. The
Company intends to monitor its foreign currency risks and periodically take
measures to reduce the impact of foreign exchange rate fluctuations on the
Company's operating results.
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RELIANCE UPON INDEPENDENT DISTRIBUTOR NETWORK AND HIGH TURNOVER RATE OF
DISTRIBUTORS. The Company distributes its products exclusively through
independent associates. Associate agreements with the Company are voluntarily
terminable by the associates at any time. The Company's revenue is directly
dependent upon the efforts of these independent associates, and any growth in
future sales volume will require an increase in the productivity of these
associates and/or growth in the total number of associates. As is typical in the
direct selling industry, there is turnover in associates from year to year,
which requires the sponsoring and training of new associates by existing
associates to maintain or increase the overall associate force and motivate new
and existing associates. The Company experiences seasonal decreases in associate
sponsoring and product sales in some of the countries in which the Company
operates because of local holidays and customary vacation periods. The size of
the associate force can also be particularly impacted by general economic and
business conditions and a number of intangible factors such as adverse publicity
regarding the Company, or the public's perception of the Company's products,
product ingredients, Company associates or direct selling businesses in general.
Historically, the Company has experienced periodic fluctuations in the level of
associate sponsorship (as measured by associate applications). However, because
of the number of factors that impact the sponsoring of associates, and the fact
that the Company has little control over the level of sponsorship of new
associates, the Company cannot predict the timing or degree of those
fluctuations. There can be no assurance that the number or productivity of the
Company's associates will be sustained at current levels or increased in the
future. In addition, the number of associates as a percent of the population in
a given country or market could theoretically reach levels that become difficult
to exceed due to the finite number of persons inclined to pursue a direct
selling opportunity.
POTENTIAL EFFECTS OF ADVERSE PUBLICITY. The size of the distribution force
and the results of the Company's operations can be particularly impacted by
adverse publicity regarding the Company, or its competitors, including the
legality of network marketing, the quality of the Company's products and product
ingredients or those of its competitors, regulatory investigations of the
Company or the Company's competitors and their products, associate actions and
the public's perception of the Company's associates and direct selling
businesses generally. There can be no assurance that such adverse publicity will
not have a material adverse effect on the Company's ability to attract and
retain customers or associates, or on the Company's results from operations or
financial condition generally.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends on the
continued availability of certain key management personnel, including Robert L.
Richards, Michael Lightfoot, J.T. Whitworth, and Robert J. Young. The Company
maintains "key man" life insurance in the amounts of $250,000, $100,000 and
$250,000, respectively on Messrs. Richards, Lightfoot and Whitworth. Although
the Company has employment contracts with Messrs. Richards, Whitworth, and
Young, the business of the Company could be adversely affected by the loss of
services of any of the foregoing individuals. See "Management--Executive
Compensation." The Company's growth and ability to return to profitability may
depend on its ability to attract and retain other management personnel, of which
no assurance can be given.
NO WRITTEN CONTRACTS WITH SUPPLIERS OR MANUFACTURERS. The Company does not
have any written contracts with any of its suppliers or manufacturers or
commitments from any of its suppliers or manufacturers to continue to sell
products to the Company. Due to the absence of any written contract with any
supplier, there is a risk that any of the Company's suppliers or manufacturers
could discontinue selling their products to the Company for any reason. Although
the Company believes that it could establish alternate sources for most of its
products, any delay in locating and establishing relationships with other
sources could result in product shortages and back orders for the products, with
a resulting loss of revenues to the Company. In addition, the lack of a written
agreement may impair the Company's ability to enforce such agreements or enforce
its rights thereunder. There can be no assurance that the lack of written
agreements with suppliers or manufacturers will not have a material adverse
effect on the Company.
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COMPETITION. The Company competes with many companies marketing products
similar to those sold and marketed by the Company. It also competes intensely
with other network marketing companies in the recruitment of associates, of
which there are many such companies. Some of the largest of these are Nutrition
for Life International, Inc., Natures Sunshine, Inc., Herbalife International,
Inc., Amway and Rexall Sundown, Inc. Each of these companies is substantially
larger than the Company and has significantly greater financial and personnel
resources than the Company.
DEPENDENCE UPON ONE SUPPLIER. The Company has one source of Pycnogenol and
the Company purchases approximately two-thirds of that compound from that
source. The Company has no written agreements with this supplier and although
the Company believes that suitable replacement and comparable product sources
are available, there can be no assurance that the Company would be able to
obtain replacement suppliers on a timely basis, on commercially reasonable terms
or at all, in the event this supplier discontinues its association with the
Company, goes out of business or for some other reason its products become
unavailable to the Company. See "Business--Manufacturing and Supplies."
PRODUCT LIABILITY EXPOSURE. Although the Company does not engage in the
manufacture of any of the products it markets and distributes, the Company could
be exposed to product liability claims for the products which it distributes.
The Company has not had, or is not aware of, any such claims to date. Although
the Company maintains product liability insurance which it believes to be
adequate for its needs, there can be no assurance that the Company will not be
subject to claims in the future or that its insurance coverage will be adequate.
CONTROL BY OUTSIDE COMPANY. After the successful completion of this
Offering, Interactive Medical Technologies, Ltd. ("IMT") will beneficially own
approximately 66% of the Company's issued and outstanding shares of Common Stock
which as a practical matter will enable it to nominate and cause the election of
all the members of the Company's Board of Directors, control the appointment of
its officers and the day-to-day affairs and management of the Company. See
"Principal Stockholders."
INDEPENDENT DIRECTORS NOT A MAJORITY OF THE BOARD. Four of the seven
members of the Company's Board of Directors are also executive officers of the
Company. All decisions affecting the day-to-day operations of the Company will
be made by the Board of Directors, of which the majority of members are not
independent of the Company. See "Management."
FORWARD-LOOKING STATEMENTS. This Prospectus contains forward-looking
statements. Additional written or oral forward-looking statements may be made by
the Company from time to time in filings with the Commission or otherwise. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act, and Section 21E of the Securities Exchange Act of 1934
("Exchange Act"). Such statements may include, but not be limited to,
projections of revenues, income, or loss, capital expenditures, plans for future
operations, financing needs or plans, and plans relating to products or services
of the Company, as well as assumptions relating to the foregoing. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
events and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this Prospectus, including those contained in the sections entitled "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in the notes to the
Company's Financial Statements, describe factors, among others, that could
contribute to or cause such differences.
DILUTION. As a result of the sale of the Securities offered in this
Offering, there will be immediate and substantial dilution to public investors
in that the pro forma net tangible book value per share of the Company's Common
Stock after this Offering will be approximately $0.18 per share, or
approximately $5.82 (or 97%) less than the $6.00 offering price per share. See
"Dilution."
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NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING AND
EXERCISE PRICES. Prior to this Offering, there has been no market for any of
the Company's securities. The initial public offering price of the Securities
and the exercise price and other terms of the Public Warrants have been
arbitrarily determined by negotiations between the Company and the Underwriter
and such prices and terms are not necessarily related to the Company's asset
value, net worth or other established criteria of value. In addition, there can
be no assurance that a trading market will develop after this Offering for any
of the Company's Securities or that, if developed, it will be sustained. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE DOWNWARD PRESSURE ON SHARE
PRICE. Existing stockholders in the Company are subject to Rule 144 as
promulgated under the Securities Act ("Rule 144") and the restrictions
thereunder upon the disposition of shares. In general, under Rule 144, a person
who has satisfied a one-year holding period may, under certain circumstances,
sell within any three-month period a number of shares of common stock that does
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in such shares during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity or other limitation by a person who is not an
affiliate of the issuer and who has satisfied a two-year holding period.
All of the outstanding shares of Common Stock are "restricted securities,"
as that term is defined under Rule 144. The Company also has outstanding
warrants to purchase approximately 1,471,000 shares of Common Stock. The ability
of stockholders to make Rule 144 sales may increase the supply of shares of
Common Stock in the public market, and thus may have a depressive effect on the
price of the Company's securities in any market which may develop for such
securities. There can be no assurance that such Rule 144 dispositions will not
occur or not adversely affect the price of the securities offered hereby. See
"--Effect of Options, Warrants and Registration Rights" and "Shares Eligible for
Future Sale."
EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective
terms of the Underwriter's Warrants, Public Warrants sold as part of this
Offering and warrants previously sold by the Company (the "Private Warrants")
and any options that may be granted by the Company under the Company's stock
option plan, the holders thereof are given an opportunity to profit from a rise
in the market price of the Common Stock, with a resulting dilution in the
interests of the other stockholders. Further, the terms on which the Company may
obtain additional financing during the exercise periods of said warrants and
options may be adversely effected by the existence of such warrants, options and
plans. The holders of options or warrants to purchase Common Stock may exercise
such options or warrants at a time when the Company might be able to obtain
additional capital through offerings of securities on terms more favorable than
those provided by such options or warrants. In addition, the holders of the
Underwriter's Warrants and approximately 41,000 of the Private Warrants have
demand and "piggyback" registration rights, respectively, with respect to their
securities and/or the shares of the Company's Common Stock underlying said
securities. Exercise of such registration rights may involve substantial expense
to the Company. See "Management," "Certain Transactions," "Description of
Securities" and "Underwriting."
NO CASH DIVIDENDS. The Company has not paid any dividends to date. The
Company's Board of Directors does not presently intend to declare any dividends
in the foreseeable future, but instead intends to retain all earnings, if any,
for use in the Company's business operations. See "Description of Securities."
LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in
August 1993, was registered as a broker in June 1995, and became a member firm
of the National Association of Securities Dealers, Inc. (the "NASD") in June
1995. The Underwriter is principally engaged in retail brokerage and market
making activities and various corporate finance projects. The Underwriter has
acted as a placement agent in private offerings, has participated as a member of
the underwriting syndicate or as a selected dealer in one public offering, and
has acted only three times as the lead manager of public offerings of
securities. While certain of the officers of the Underwriter have significant
experience in corporate finance and the underwriting of securities, no assurance
can be given that the Underwriter's lack of experience as a
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lead managing underwriter of public offerings will not adversely affect this
Offering and the subsequent development of a liquid public trading market in the
Company's securities. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF PUBLIC WARRANTS. At any time
during their exercise period, the Public Warrants may be redeemed by the Company
at a redemption price of $.05 per Public Warrant upon 30 days prior written
notice if the average closing bid price of the Common Stock for 20 consecutive
trading days ending within 10 days of the notice exceeds $10.00. Redemption of
the Public Warrants could force the holders to exercise the Public Warrants and
pay the exercise price at a time when it may be disadvantageous for the holders
to do so, to sell the Public Warrants at the current market price for the Public
Warrants when they might otherwise wish to hold the Public Warrants, or to
accept the redemption price, which may be substantially less than the market
value of the Public Warrants at the time of redemption. See "Description of
Securities."
CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE PUBLIC
WARRANTS. Holders of the Public Warrants will have the right to exercise the
Public Warrants for the purchase of shares of Common Stock only if a current
prospectus relating to such shares is then in effect and only if the shares are
qualified for sale under the securities laws of the states in which the Public
Warrantholders reside. Although the Company intends to maintain such a current
prospectus and to seek to qualify the shares of Common Stock underlying the
Public Warrants for sale in those states where the Common Stock and Public
Warrants are to be offered, there is no assurance that it will be able to do so.
The Public Warrants may be deprived of any value if the current prospectus
encompassing the shares underlying the Public Warrants is not kept effective or
if such underlying shares are not or cannot be registered in the states in which
the Public Warrantholders reside. See "Description of Securities."
NO ASSURANCE OF NASDAQ SMALLCAP MARKET LISTING; POSSIBLE ADVERSE EFFECT ON
LIQUIDITY OF SECURITIES. Although the Company has applied for listing of its
securities on the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the Company does
not meet certain minimum criteria established by Nasdaq with respect to net
tangible assets. Without a waiver from Nasdaq, the Company will not be able to
list its securities on the Nasdaq SmallCap. If the Company does not obtain
listing on the Nasdaq SmallCap, it may attempt to have its securities listed on
the Electronic Bulletin Board. However, securities listed on the Electronic
Bulletin Board may experience reduced liquidity. If the securities offered
hereby are listed on the Electronic Bulletin Board, investors herein may
experience reduced liquidity in such securities and may have difficulty in
obtaining a satisfactory sale price, relative to the actual market price, as a
consequence. There can be no assurance that the failure to attain listing on
Nasdaq SmallCap will not adversely affect the Company's securities liquidity or
investors' ability to dispose of such securities.
RISKS OF LOW-PRICED SECURITIES. If the Company's securities are not listed
on the NASDAQ SmallCap, such securities would be subject to rules under the
Exchange Act, which impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
clients and "accredited investors" (for example, individuals with a net worth in
excess of $1,000,000 or an annual income exceeding $200,000, or $300,000
together with their spouses). For transactions covered by such rules, a
broker-dealer must make a special suitability determination of the purchaser and
have received the purchaser's written consent to the transaction prior to the
sale. Consequently, such rules may affect the ability of broker-dealers to sell
the Company's securities and the ability of purchasers in this Offering to sell
any of the Company's securities acquired in this Offering in any secondary
market that may develop for such securities.
The Commission has enacted rules that define a "penny stock" to be any
equity security that has a price (as therein defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions, including securities listed on the NASDAQ SmallCap or on designated
exchanges. For any transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to any transaction in a penny stock, of a disclosure
statement prepared by the Commission relating to the penny stock market.
Disclosure also has to be made about the risks of investing in penny stocks in
both
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public offerings and in secondary trading, and about commissions payable to both
the broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. In the event the Company's
securities are not listed on the NASDAQ SmallCap or are not otherwise exempt
from the provisions of the Commission's "penny stock" rules, such rules may also
affect the ability of broker-dealers to sell the Company's securities and the
ability of purchasers in this Offering to sell any of the securities acquired
hereby in any secondary market that may develop.
"YEAR 2000" PROBLEM. The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (Year 2000)
approaches. The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the latter
two digit year value to 00. The issue is whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data or
cause a system to fail. Management has not yet assessed the "Year 2000"
compliance expense and related potential effect on the Company's earnings. There
can be no assurance that such problem can be resolved by the Company in a timely
or cost effective fashion, or at all, or that any difficulty or inability in
resolving such problem will not have a material adverse effect upon the Company.
17
<PAGE>
DILUTION
The initial offering price per share of Common Stock is substantially higher
than the average price per share paid by the Company's existing stockholders.
Based on an initial public offering price of $6.00 per share, purchasers of the
Common Stock in this Offering will experience an immediate and substantial
dilution in net tangible book value of approximately 97% or $5.82 per share. For
the purposes of this discussion, it is assumed that no Warrants will be
exercised, and, accordingly, no value is attributed to the Warrants.
The following table presents certain information concerning the net
consolidated tangible book value per share of the Company's Common Stock as of
September 30, 1997, as adjusted to give effect to the sale of 1,000,000 shares
of Common Stock by the Company in this Offering (at an initial public offering
price of $6.00 per share and after deducting the estimated underwriting
discounts and estimated offering expenses payable by the Company):
<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $ 6.00
Net negative tangible book value per share before the
Offering(1)............................................ $ (0.88)
Increase per share attributable to new investors......... 1.06
---------
Pro forma net tangible book value per share after the
Offering................................................... 0.18
---------
Total dilution per share to new investors(2)................. $ 5.82
---------
---------
</TABLE>
- ------------------------
(1) Net tangible book value per share is determined by dividing the Company's
net tangible book value (total assets less intangible assets and total
liabilities and minority interest) at September 30, 1997 by the number of
shares of Common Stock then outstanding.
(2) Dilution per share is determined by subtracting pro forma net tangible book
value per share after this Offering from the initial public offering price
per share. The foregoing table also assumes no exercise of the Underwriter's
Warrants.
In the event the Underwriter exercises its Overallotment Option in full, the
pro forma net tangible book value per share would be $0.34 which would result in
dilution to new investors of $5.66 per share.
The following table sets forth, on a pro forma basis as of the date of this
Prospectus, the respective positions of the Company's existing stockholders and
new investors with respect to the number of shares of Common Stock purchased
from the Company, the total cash consideration paid and the average price per
share paid by the existing stockholders and by the new investors with respect to
the 1,000,000 shares of Common Stock to be issued by the Company at an initial
public offering price of $6.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE
APPROXIMATE APPROXIMATE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......................... 4,248,353 80.9% $ 316,127 5.0% $ 0.07
New Investors.................................. 1,000,000 19.1% $ 6,000,000 95.0% $ 6.00
---------- ------ ------------ ------
TOTAL.................................... 5,248,353 100% $ 6,316,127 100%
---------- ------ ------------ ------
---------- ------ ------------ ------
</TABLE>
The foregoing table assumes no exercise of any warrants.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock and 1,000,000 Public Warrants offered hereby are estimated to be
approximately $4,767,000 ($5,563,000 if the Underwriter's Overallotment Option
is exercised in full) after deducting underwriting commissions and discounts and
other expenses of this Offering. The Company expects to use the net proceeds
over the next twelve months approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR AMOUNT APPROXIMATE
OF NET PERCENTAGE
APPLICATION OF NET PROCEEDS PROCEEDS OF NET PROCEEDS
- --------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Repayment of Bridge Loans(1)..................................................... $ 1,725,000 36%
Expansion Efforts in South Korea and the United Kingdom(2)....................... $ 1,422,000 30%
Working Capital.................................................................. $ 1,620,000 34%
-------------- -----
Total...................................................................... $ 4,767,000 100%
-------------- -----
-------------- -----
</TABLE>
- ------------------------
(1) Repayment of promissory notes issued to private investors. See "Certain
Transactions."
(2) To be used for the continued international expansion efforts into South
Korea and the United Kingdom.
The Company currently estimates that the net proceeds of this Offering will
be sufficient to fund its planned operations, and continued expansion efforts
into South Korea and the United Kingdom for approximately twelve months from the
date of this Prospectus. The net proceeds may be sufficient for a greater or
lesser period of time depending on the extent of the Company's expansion
efforts. In addition, the Company may require additional financing prior to or
following such period if the Company suffers losses greater than anticipated.
The Company has no commitments or arrangements for any such additional financing
and there can be no assurance that the Company will be able to obtain additional
financing on terms acceptable to the Company or at all. In the event additional
financing is unavailable to the Company, the Company may be materially adversely
affected.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of this Offering. Future events, as well as changes in
economic, regulatory or competitive conditions or the Company's business and the
results of the Company's activities may make shifts in the allocation of funds
within the described categories or to other purposes necessary or desirable. In
the event the Company suffers losses greater than anticipated, the Company may
draw upon the net proceeds of this Offering allocated to expand the Company's
operations into Korea and the United Kingdom and/or working capital.
Prior to expenditure, proceeds will be invested principally in high grade,
short-term, interest-bearing investments. Any proceeds received upon exercise of
the Overallotment Option or any Public Warrants will be used for working
capital. There can be no assurance that the Overallotment Option or any of the
Public Warrants will be exercised.
19
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of September 30, 1997 and as adjusted to reflect the proceeds of
1,000,000 shares of Common Stock and 1,000,000 Redeemable Common Stock Purchase
Warrants for sale in this Offering. The table should be read in conjunction with
the notes below and the consolidated financial statements of the Company and the
information and the related notes thereto including elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------------
PROFORMA AS
ACTUAL ADJUSTMENTS ADJUSTED
----------- ------------- -----------
<S> <C> <C> <C>
(UNAUDITED)
SHORT TERM DEBT:
Notes Payable........................................................................ $ 2,007,389 $ -- $ 2,007,389
Capitalized lease obligation......................................................... 152,281 -- 152,281
----------- ------------- -----------
TOTAL SHORT TERM DEBT.................................................................. 2,159,670 -- 2,159,670
----------- ------------- -----------
LONG-TERM DEBT:
Notes Payable........................................................................ 810,162 (810,162)(1) --
Capital leases payable less current portion.......................................... 22,574 -- 22,574
----------- ------------- -----------
TOTAL LONG-TERM DEBT................................................................... 832,736 (810,162) 22,574
----------- ------------- -----------
Minority interest in consolidated subsidiaries....................................... 155,586 -- 155,586
----------- ------------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value 5,000,000 shares authorized: none issued and
outstanding........................................................................ -- -- --
Common Stock, $.01 par value 25,000,000 shares authorized: 4,248,353 and 5,248,353
shares issued and outstanding, actual and adjusted, respectively................... 42,484 10,000 52,484
Additional paid-in capital........................................................... 273,643 4,757,000 5,030,643
Gain on foreign currency exchange.................................................... 40,380 -- 40,380
Retained earnings (deficit).......................................................... (4,076,270) -- (4,076,270)
----------- ------------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................................................... (3,719,763) 4,767,000 1,047,237
----------- ------------- -----------
TOTAL CAPITALIZATION................................................................... $ (571,771) $ 3,956,838 $ 3,385,067
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
- ------------------------
(1) Represents notes payable issued to private investors at September 30, 1997,
to be repaid from proceeds of the Offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA AND UNLESS OTHERWISE STATED)
The selected consolidated financial data below should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The selected consolidated
financial data presented below for, and as of the end of each of, the four
fiscal years ended December 31, 1996 and for the period October 20, 1992
(inception) to December 31, 1992 have been derived from the Company's
consolidated financial statements. The financial statements as of December 31,
1995 and 1996, and for each of the years in the three-year period ended December
31, 1996, have been audited by BDO Seidman, LLP and Jones, Jensen & Company, for
the periods indicated in their reports, and are included elsewhere in this
Prospectus. The information for the nine month periods ended September 30, 1996
and 1997 is unaudited but gives effect to all adjustments (none of which was
other than normal recurring adjustments) necessary, in the opinion of management
of the Company, to present fairly this information. The results of operations
for the interim periods should not be taken as indicative of results for a full
fiscal year. The financial statements for the period October 20, 1992
(inception) to December 31, 1992 and for the year ended December 31, 1993 are
not included in this Prospectus.
This data should be read in conjunction with the consolidated financial
statements and information and the related notes thereto appearing elsewhere
herein.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
OCTOBER 20, 1992
(INCEPTION) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, ----------------------------------------------
1992 1993 1994 1995 1996
------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales................................ $ 92 $ 2,719 $ 36,895 $ 57,841 $ 51,499
Cost of Goods Sold....................... 66 839 9,368 14,476 13,321
Gross Profit............................. 26 1,880 27,527 43,365 38,178
Operating ExpensesAssociate
Commissions............................ 26 1,275 19,507 30,831 27,966
Selling, General & Administrative
Expenses............................... 162 785 6,558 10,370 12,976
Income (Loss) from Operations............ (162) (180) 1,462 2,164 (2,764)
Other Income (Expense)Net................ 0 (27) 60 (30) (27)
Net Income (Loss) Before Taxes and
Minority Interest...................... (162) (207) 1,522 2,134 (2,791)
Income Tax (Provision) Benefit........... -- -- (431) (862) 1,103
Minority Interest in Subsidiaries........ -- -- -- (86) (115)
Net Income (Loss)........................ (162) (207) 1,091 1,186 (1,803)
Net Income (Loss) Per Share-- Primary.... (.04) (.05) .25 .27 (.41)
Primary Weighted Average Number of Common
Shares Outstanding..................... 4,279,353 4,279,353 4,279,353 4,419,353 4,419,353
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Net Sales............................................................................... $ 41,124 $ 27,887
Cost of Sales........................................................................... 10,339 6,587
Gross Profit............................................................................ 30,785 21,300
Operating Expenses...................................................................... 32,117 25,365
Loss from Operations.................................................................... (1,332) (4,065)
Other Expense--Net...................................................................... (61) (161)
Net Loss Before Income Tax Benefit and Minority Interest................................ (1,393) (4,226)
Benefit from Income Taxes............................................................... 354 --
Minority Interest in (Income)Loss of Subsidiaries....................................... (171) 44
Net Loss................................................................................ (1,210) (4,182)
Net Loss Per Share--Primary............................................................. (.27) (.95)
Weighted Average Number of Common Shares Outstanding.................................... 4,419,353 4,419,353
</TABLE>
CONSOLIDATED BALANCE SHEET DATA (IN 000S):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working Capital (Deficiency)....................................... $ (141) $ (401) $ (176) $ 1,005 $ (1,382)
Total Assets....................................................... 129 308 5,514 6,787 6,350
Long-Term Obligations.............................................. -- -- -- -- --
Total Liabilities.................................................. 291 677 4,791 4,786 6,026
Minority Interest in Consolidated Subsidiaries..................... -- -- -- 85 200
Stockholders' Equity (Deficit)..................................... (162) (369) 723 1,916 124
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
PROFORMA AS
ACTUAL ADJUSTMENTS ADJUSTED
--------- ------------- -----------
<S> <C> <C> <C>
Working Capital (Deficiency)................................................... $ (4,718) $ 3,957 $ (761)
Total Assets................................................................... $ 5,972 $ 3,957 $ 9,929
Long-Term Obligations.......................................................... $ 833 $ (810) $ 23
Total Liabilities.............................................................. $ 9,536 $ (810) $ 8,726
Minority Interest in Consolidated Subsidiaries................................. $ 156 $ 156
Stockholders' Equity (Deficit)................................................. $ (3,720) $ 4,767 $ 1,047
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
The Company develops, purchases and distributes primarily natural source
products intended for nutritional or personal care purposes. The Company's
products are distributed through a network of over 400,000 associates, of which
approximately 15% are "active" (as defined herein) in several countries in four
continents, North America, Australia, Asia and Europe. The Company offers
approximately 50 products in nine categories, including Antioxidant Protection,
(Bodily) Defense, Digestion, Energy and Alertness, Stress, Vital Nutrients,
Weight Management, Anti-Aging and Personal Care.
The Company commenced operations in October 1992 with the introduction of
MARITIME PRIME. MARITIME PRIME features the ingredient Pycnogenol, a derivative
of Southern France's Maritinus Pinus tree. Pycnogenol was combined with a blend
of other natural ingredients developed by Horphag Research Ltd. ("Horphag"), a
European corporation not otherwise affiliated with the Company which is
Pycnogenol's manufacturer.
During Fiscal 1992 and Fiscal 1993, the Company's focus was on obtaining the
information on Pycnogenol and the properties associated with it from Horphag and
disseminating that information in the United States and, in Fiscal 1993, in
Canada. At inception, the Company elected to market its product by "network" as
the most effective way to disseminate product information. During these two
fiscal years, the Company also sold several complimentary products as well as an
aloe vera line of products. During 1993, the Company developed a "uni-level"
compensation plan designed to be simple and financially attractive to associates
(product distributors). By the end of Fiscal 1993, sales revenues had increased
to a rate of approximately $400,000 per month.
In Fiscal 1994, the Company experienced substantial growth in sales
revenues. By September of 1994, net sales increased to a rate of approximately
$5,000,000 per month and new associates were being sponsored at a rate exceeding
approximately 10,000 per month. New products introduced during 1994 were
nutritional- and/or Pycnogenol-based. During the summer of 1994 sales volume
briefly exceeded the Company's product delivery capacity but by the fall of
1994, this was rectified and the Company was delivering product on a timely
basis. A price increase was instituted in October 1994 to offset the weakening
of the United States dollar with respect to the French franc and a price
increase from the manufacturer of Pycnogenol via the importer.
In Fiscal 1995, the Company commenced operations in New Zealand and
Australia through its subsidiaries domiciled there. Although the subsidiaries
had a brief period of rapid growth in sales revenues, the Company believes that
sales leveled off as the apparent success of these subsidiaries became known in
the network marketing industry and competitors began offering competitive
products and/or comparable commission programs. The Company believes that most
significant competition was from competitors selling grape seed and grape skin
products which have some of the same properties as Pycnogenol, but are less
expensive to produce and could be sold for substantially less than the Company's
Pycnogenol based products. In addition, a grape supplier asserted that its
product was a generic version of Pycnogenol and could be marketed as such.
Actions ranging from letters to lawsuits by the Company and Pycnogenol's
importer and manufacturer and accompanying cease-and-desist orders were required
to end these assertions.
Based upon management's network marketing industry experience and a leveling
off of sales in the latter part of 1995, the Company anticipated that it would
reach maturity as a network marketing concern and could face the possibility of
diminishing sales unless the Company acted. In an effort to thwart the
23
<PAGE>
possibility of diminishing sales, in March 1996, the Company revised its
associate commission program to include, among other things, providing the
sponsor of an associate with a substantially higher commission on the first
purchase made by the sponsored associate (in the past, the sponsor had received
no such additional compensation on a first sale). The Company's goals in
altering its associate commission program was to encourage associates to not
only sponsor new associates but have the sponsors assist the new associates in
making sales and forming their own sales organization comprised of additional
levels of associates and, ultimately, attract a more entrepreneurial younger
associate than it had attracted in the past. The nature of the Company's
products was believed by the Company to be a draw to middle aged associates
whose apparent focus was to assist friends, relatives, etc. by introducing them
to the Company's products and not necessarily having an additional focus of
earnings. Additionally, at or about the same time, the Company introduced a
weight loss program, a line of cosmetics, Kaire World Magazine, and new and
improved training materials.
The Company believes that the changes in the Company's associate commission
program were not well received by its existing associates and attracted a number
of new associates whose primary focus was apparently directed at garnering the
larger commissions on initial product sales to associates whom they had
sponsored, as opposed to developing a self-sustaining sales organization. The
Company believes that as a consequence, sales revenues declined while product
returns increased. Also, newly introduced products, such as Immunol, Synerzyme
and the Yes! Weight Management Program, did not have the revenue impact
anticipated. In the fall of 1996, the Company essentially returned to the prior
commission program, with some increase in commissions being added to the
original structure, while greater emphasis was placed on seeking professional
network marketers versed and established in the network industry. The Company
believes that its new and improved training materials have been useful to the
Company and well received by its associates.
In 1996, the Company also decided to open new markets and expand into
additional countries. By January 1997, the Company began to establish operations
in South Korea and Trinidad and Tobago. In June 1997, the Company opened an
office in Port-of-Spain, Trinidad and Tobago. Also in June 1997, the Company
received approval from the South Korean government to begin recruitment and
engage associates in that country. In July 1997, the Company completed South
Korea's product approval and quarantine procedures and the sales of selected
products commenced. Initially, only a high-end line of skin care products
(JoBelle Gold Line) was available in South Korea. Maritime Prime was approved
late in August, 1997, and additional Kaire supplements were approved in November
1997. The Company is anticipating the approval of its AquaKaire product line in
early 1998. The Company is working towards approval of additional nutritional
and skin care products in Korea. Similar approval efforts are being undertaken
for various product lines in Canada, Trinidad and Tobago, New Zealand,
Australia, the United Kingdom and France. There can be no assurance, however,
that any of such approvals will be forthcoming in a timely fashion, or at all,
or will not be contingent on various conditions or restrictions which may be
imposed by the appropriate governmental authorities. Also, in 1996, the Company
decided to modify its commission program with the objective of increasing the
flow of funds to the Company and stabilize its financial position. The
modification consisted of the elimination of a 5% bonus, a restructuring of
supplemental bonuses for top executives, the institution of a program to pay the
car expenses of certain associates in North America, New Zealand and Australia
and a change in qualification and the number of sponsored levels paid under the
international sponsoring program. It is anticipated that this change will lower
the total bonus payout by approximately 4%.
The Company intends to continue its expansion into new marketplaces in the
world in upcoming years. There can be no assurance, however, that any such
expansion will ever occur on terms and conditions favorable to the Company, or
at all. See "Risk Factors" and "Business."
24
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected
consolidated statement of operations data expressed as a percentage of net
sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
Net Sales.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold..................................................... 25.4% 25.0% 25.9% 25.1% 23.6%
Gross Profit........................................................... 74.6% 75.0% 74.1% 74.9% 76.4%
Operating Expenses
Associate Commissions................................................ 52.9% 53.3% 54.3% 53.5% 56.0%
Selling, General and Administrative.................................... 17.8% 17.9% 25.2% 24.6% 34.9%
Income (Loss) from Operations.......................................... 3.9% 3.8% (5.4)% (3.2)% (14.5)%
Other Income (Expense) Net............................................. 0.2% (0.1)% (0.0)% (0.2)% (0.6)%
Net Income (Loss) Before Taxes and Minority Interest................... 4.1% 3.7% (5.4)% (3.4)% (15.1)%
Income Tax (Provision) Benefit......................................... (1.2)% (1.5)% 2.1% 0.9% 0.0%
Minority Interest in Subsidiaries...................................... 0.0% (0.1)% (0.2)% (0.4)% 0.1%
Net Income (Loss)...................................................... 2.9% 2.1% (3.5)% (2.9)% (15.0)%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("NINE MONTHS 1997") COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 ("NINE MONTHS 1996")
NET SALES. Nine Months 1996 was a period of declining growth and the start
of sales contraction due to competition and the effects of maturation described
above. Net Sales decreased approximately 32.2% from approximately $41,124,000 to
approximately $27,887,000 for Nine Months 1997 compared to Nine Months 1996. The
Company recognized that sales had leveled off near the end of Fiscal 1995. The
Company adopted a new marketing and compensation program in March 1996 in an
effort to stimulate sales. While sales did experience a temporary increase under
the new program, sales soon started to decline at a rate averaging approximately
4% per month. The Company believes that the new associates attracted by the new
program were focused on the large initial bonus offered by the new program. In
addition, the Company believes that many existing associates did not accept the
program and left the Company. As a result, by the end of Nine Months 1996, the
Company substantially abandoned this new program and returned to a commission
program more comparable to the program used in prior years. Nine Months 1997
represented a period where sales were continuing to decline although the rate
had declined to an average of approximately 1.4% per month and there were
several months of sales growth from the prior month during the period. The
Company continued to take steps during this period to attract professional
network marketers through several recruiting programs and to expand into
additional markets.
COST OF GOODS SOLD. Cost of goods sold for Nine Months 1996 were
approximately $10,339,000 which represented approximately 25.1% of net sales.
Cost of goods sold for Nine Months 1997 were approximately $6,587,000 which
represented approximately 23.6% of net sales. Total cost of goods sold declined
approximately 36.3% from Nine Months 1996 to Nine Months 1997 or approximately
$3,752,000. There were two primary factors affecting the decrease in this cost
of goods sold percentage decline. There was a minor product price increase in
March 1996 and a change in product mix from Nine Months 1996 to Nine Months
1997.
GROSS PROFIT. Gross profit decreased from approximately $30,785,000 in Nine
Months 1996 to approximately $21,300,000 in Nine Months 1997, or approximately
30.8%. The reason for the decline in gross profit was the decline in net sales
discussed above. Gross profit as a percentage of net sales actually
25
<PAGE>
increased from 74.9% to 76.4% for those respective time periods resulting from
the introduction of new better profit margin products.
COMMISSIONS. Associate commissions decreased from approximately $22,019,000
in Nine Months 1996 to approximately $15,626,000 in Nine Months 1997, or
approximately 29.0%. As a percentage of net sales, commissions rose from 53.5%
of net sales in Nine Months 1996 to 56.0% of net sales in Nine Months 1997.
Commissions paid declined in Nine Months 1996 due to the new program commencing
in March 1996 which redistributed commissions with a resulting lower dollar
amount of commissions paid. Commissions paid during Nine Months 1997 reflected
additional commissions added to the commission program in the latter part of
Fiscal 1996.
The March 1996 change in the program redirected commission payouts on a
first time order to the sponsoring associate. It also changed the structure of
the commission payments to attempt to redirect such payments to associates
desiring to build a sales organization to get more funds to associates
interested in building large sales organizations. The new program was not
successful as it attracted associates interested in short term gain and not long
term stability, the smaller commission associates (who receive the majority of
commission dollars paid) were negatively effected the most and the larger
associates did not support the new program. As of September 1996, the Company's
original commission program was substantially restored. The Company then
enhanced the program in an effort to stem a further decline in sales and raised
the effective commission rate by 10%. This did not effect Nine Months 1996 but
was reflected in the higher percentage of net sales that commissions represented
in Nine Months 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during Nine Months 1997 were approximately $9,739,000 or
34.9% of net sales as compared to approximately $10,098,000 or 24.6% of net
sales in Nine Months 1996. Several factors caused the decline in expenses in
Nine Months 1997 to not be proportional to the decline in net sales. The Company
instituted a program it believed would increase the number of professional
network marketers joining the Company in an effort to create stability and
leadership. The total cost of this program was approximately $1,188,000 and was
incurred from August 1996 through August 1997. The program had just commenced in
Nine Months 1996 so the majority of the expenses were incurred in Nine Months
1997. In addition, development costs of approximately $1,040,000 to commence
operations in Trinidad and Tobago, South Korea and the United Kingdom were
incurred in Nine Months 1997. These increased expenses were offset by a change
in the management of the marketing department during Nine Months 1997 which
decreased expenses through both reduced personnel salaries and reduced operating
costs. In addition, the Company instituted cost-cutting measures in its domestic
operations (of which the marketing department is a part), reducing operating
expenses for selling, general and administrative expenses from approximately
$1,200,000 per month during July through September 1996. The Company
accomplished this by reducing staff, cutting out inefficient programs and
limiting optional spending. By the second quarter of Fiscal 1997, these expenses
had been reduced to approximately $750,000 per month, a decrease of $450,000 per
month or approximately $5,400,000 on an annualized basis.
LOSS FROM OPERATIONS. Operating loss increased from an approximate
$1,332,000 during Nine Months 1996 to an approximate loss of $4,065,000 during
Nine Months 1997. These losses were the result of declining sales, fixed general
and administrative expenses and periods of increased commissions as discussed.
OTHER EXPENSES. Other expense increased by approximately $100,000 in Nine
Months 1997 as compared to Nine Months 1996. The primary reason for this
increase is the cost of additional borrowing necessitated by the inability to
achieve profitability while incurring costs associated with the above
development programs.
INCOME TAXES. The Company recorded an accrual for an income tax refund
based on the ability to carry losses incurred in Nine Months 1996 back to
previous years. The anticipated reduction in taxes from
26
<PAGE>
utilizing net operating losses against future profits was not recognized in Nine
Months 1997 under the provisions of Financial Standards Board Statement of
Financial Accounting Standards No. 109 (Accounting for Income Taxes), utilizing
its loss carryforwards as a component of income tax expense. As of September 30,
1997, the Company had approximately $4,000,000 of net operating loss available
to carry forward and offset against future earnings. As a result of this
Offering, certain limitations will be placed on the unrestricted loss
carryforwards. A valuation allowance equal to the net deferred tax asset has
been recorded, as management of the Company has not been able to determine that
it is more likely than not that the deferred tax assets will be realized.
MINORITY INTEREST. The income offset for minority interest was a reduction
in the Company's income in Nine Months 1996 of approximately $171,000 reflecting
income earned in the Australia and New Zealand subsidiaries. This represented
approximately 0.4% of net sales. For Nine Months 1997 the adjustment reduced
consolidated net loss by approximately $44,000 or 0.1% of net sales. This
reversal was a reflection of decreased revenue and worth in comparison to the
United States dollar by the Australia and New Zealand subsidiaries, thus
reducing the interest attributable to the minority stockholders.
NET LOSS. Net loss was approximately $4,182,000 or 15.0% of net sales for
Nine Months 1997 as compared to approximately $1,210,000 or 2.9% of net sales
for Nine Months 1996. The increased losses are primarily a result of declining
sales and an unsuccessful change in the commission program.
YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996") COMPARED TO YEAR ENDED DECEMBER 31,
1995 ("FISCAL 1995")
NET SALES. Fiscal 1995 and Fiscal 1996 represent the peak of Company
performance to date with respect to net sales. Revenues for Fiscal 1996 were
approximately $51,499,000 which was a decline of approximately $6,342,000 or
approximately 11.0% from Fiscal 1995 revenues of approximately $57,841,000.
Fiscal 1995 was a year of growth in domestic sales for the Company at a slower
rate than in Fiscal 1994. In addition, Australian and New Zealand operations
were acquired in November 1995 adding to the sales total for Fiscal 1995. The
Company recognized that sales were leveling off near the end of Fiscal 1995. In
response to this leveling off, the Company adopted a new marketing and
compensation program in March 1996 in an effort to stimulate sales. While sales
did respond with a temporary increase, they soon started to fall on a monthly
basis. The Company believes that the new associates attracted by the new program
were focused on the larger initial bonus offered by the new program and not
focused on the development of a sales organization and many then existing
associates did not accept the new program and left the Company. As a result, by
October 1996, the Company abandoned this new program and returned to a program
more comparable to the program used in prior years. The decline in net sales in
Fiscal 1996 was not as pronounced because net sales from Australia and New
Zealand were included for a full twelve months in Fiscal 1996 as opposed to the
two post-acquisition months in Fiscal 1995.
COST OF GOODS SOLD. Cost of goods sold for Fiscal 1996 was approximately
$13,321,000 which represented 25.9% of net sales. Cost of goods sold for Fiscal
1995 was approximately $14,476,000 or 25.0% of net sales. This represented a
decrease of approximately $1,155,000 or 8.7% from Fiscal 1995 to Fiscal 1996.
The decline in total cost of goods sold was caused by the decreased sales
revenue for Fiscal 1996. The Company believes that the increase in the cost of
goods sold percentage was related to an increase in sales returns. Also, there
was a minor price increase in Fiscal 1996, but no other adjustments in the cost
or sales price of the products sold. The refunds stemmed from the new program
which encouraged larger initial purchases as well as broadcast claims made by an
unrelated third party about the effectiveness of Pycnogenol on certain medical
conditions. While these events did generate additional sales, the Company
believes a higher percentage of those purchasing under the new program returned
the product for refunds under the Company's satisfaction guaranteed policy than
had made returns in the past. In addition, the Company released a new, more
concentrated version of its' Maritime Prime (Super Prime) late in 1996. This
product was initially not well accepted by the associates as they indicated that
the anticipated results
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from its use were not achieved. While a reformulation of the Super Prime product
apparently corrected the perceived problem, the Company also replaced this
product at its cost when so requested.
GROSS PROFIT. Gross profit decreased from approximately $43,365,000 in
Fiscal 1995 to approximately $38,178,000 in Fiscal 1996, approximately 12.0%.
The primary reason for the decline in gross profit was the decline in net sales
described above. In addition, gross profit as a percentage of net sales declined
from approximately 75.0% in Fiscal 1995 to 74.1% in Fiscal 1996 due primarily to
the increase in returns.
COMMISSIONS. Associate commissions decreased from approximately $30,831,000
in Fiscal 1995 to approximately $27,966,000 in Fiscal 1996, a decline of
approximately $2,865,000 or 9.3%. As a percentage of net sales, commissions
increased from 53.3% in Fiscal 1995 to 54.3% in Fiscal 1996. Commissions were
constant in Fiscal 1995 as the program was not changed from prior years. In
March 1996 the new program commenced. The new program was not successful as it
attracted associates interested in short term gain and not long term stability,
the smaller associates (who represent a large portion of Company associate base)
were adversely effected the most in proportion to their income and sales leaders
did not support the new program. As of September 1996, the original program was
substantially restored. The Company also enhanced the original program in an
effort to stop further declines in sales raising the effective commission rate
by 10% of sales. The Company purged inactive associates which the Company
believes made a significant number of associates qualify for higher positions in
the commission structure and increased their bonus percentages without a
corresponding increase in sponsoring and sales. This change increased the
Company's effective bonus rate by an additional 3%. The net effect of these
changes in the latter part of Fiscal 1996 was to increase commissions measured
as a percentage of net sales for Fiscal 1996 by approximately 1.9% from Fiscal
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $12,976,000 or 25.2% of net sales in
Fiscal 1996 as compared to approximately $10,370,000 or 17.9% of net sales in
Fiscal 1995, an increase of approximately $2,606,000 or 25.1%. The largest
factor in this increase was the acquisition of the interests in the New Zealand
and Kaire Australia subsidiaries in November 1995. During Fiscal 1995, the
Company incurred approximately $250,000 in selling, general and administrative
expenses through those entities. During Fiscal 1996, the first full year of
ownership of said entities, approximately $1,800,000 of their selling, general
and administrative expenses were included within the Company's overall selling,
general and administrative expenses. Also, an increased marketing effort was
undertaken in Fiscal 1996 to promote the new (commission) program and introduce
an internet marketing opportunity for associates. An additional approximate
$478,000, in comparison to approximately $410,000 in Fiscal 1995, was spent on
these marketing efforts in Fiscal 1996. Finally, personnel costs increased
approximately $746,000 from approximately $3,621,000 in Fiscal 1995 to
approximately $4,267,000 in Fiscal 1996. This was due to the addition of several
managerial positions, the installation of a Company 401(k) plan with matching
contributions and an increase in medical insurance costs in Fiscal 1996.
INCOME (LOSS) FROM OPERATIONS. Loss from operations in Fiscal 1996 was
approximately $2,764,000, a decrease of approximately $4,928,000 from Fiscal
1995's income from operations of approximately $2,164,000. The primary reasons
for this decline was the drop in net sales and corresponding decline in gross
profit. Most of the Company's selling, general and administrative expenses are
fixed and do not fluctuate with changes in net sales. These expenses did not
correspondingly decline when net sales declined resulting in a loss instead of a
profit.
OTHER INCOME (EXPENSES). There was no significant variance in other
expenses from Fiscal 1996 to Fiscal 1995. In neither year did other income or
other expense have a material effect on the overall profitability of the
Company.
INCOME TAXES. The Company's income tax provision for Fiscal 1995 was
$862,000 based on income earned during that year. In Fiscal 1996, the Company
recorded an income tax benefit of approximately
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$1,103,000 from utilizing net operating losses against prior income taxes paid.
No benefit, from utilizing net operating losses against future profits, was
reflected in Fiscal 1996 operations. This treatment was consistent with the
provisions of the Financial Standards Board Statement of Financial Accounting
Standards No. 109 (Accounting for Income Taxes) ("FASB 109"), utilizing its loss
carryforwards as a component of income tax expense, since management of the
Company has not been able to determine that it is more likely than not that the
deferred tax assets will be realized. As a result of this Offering, certain
limitations will be placed on the unrestricted loss carryforwards.
MINORITY INTEREST. The provision for Minority Interest was approximately
$86,000 in Fiscal 1995 and $115,000 in Fiscal 1996. This slight increase for
Fiscal 1996 was indicative of the increase in profitability of the foreign
subsidiaries in Fiscal 1996.
NET INCOME (LOSS). The Company's net loss was approximately $1,803,000 for
Fiscal 1996 compared to net income of approximately $1,186,000 for Fiscal 1995.
This change from profitability to a loss was primarily due to the decrease in
net sales and gross profit without a corresponding decrease in selling, general
and administrative expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 ("FISCAL
1994")
NET SALES. The Company's Fiscal 1994 represented the most dramatic growth
in the Company's history, while Fiscal 1995 represented some growth, with a
leveling off of sales in the latter part of that year. Net sales for Fiscal 1995
were approximately $57,841,000 as compared to approximately $36,895,000 for
Fiscal 1994, an increase of approximately $20,946,000 or approximately 56.8%. In
December 1993 net sales were approximately $400,000. By September 1994, net
sales had increased to approximately $5,000,000 (for that month). The Company
believes that this increase was attributable to media attention on the benefits
of antioxidants and the corresponding public focus on products such as the
Company's flagship product, Maritime Prime. In addition, the Company believes
that it had offered an innovative and attractive alternative in the network
marketing industry for associates with no initial fees, no inventory
requirements, low minimum monthly purchases and a simplified compensation plan.
During Fiscal 1995, increased competition in both products and network marketing
alternatives combined with the normal maturation of the associate base causing
sales to level off.
COST OF GOODS SOLD. Cost of goods sold for Fiscal 1995 was approximately
$14,476,000 or 25.0% of net sales. This was an increase of approximately
$5,108,000 or 54.5% from Fiscal 1994's cost of sales of $9,368,000 or 25.4% of
net sales. This dollar amount increase is attributable to the increase in net
sales from Fiscal 1994 to Fiscal 1995. The slight decline in the cost of goods
sold as a percentage of net sales is attributable to a price increase in
Pycnogenol products in October 1994, in response to an increase in the price of
Pycnogenol from the manufacturer, introduction of new products which had a
higher gross profit margin and the negotiation of more favorable freight rates.
GROSS PROFIT. Gross profit for Fiscal 1995 was approximately $43,365,000 or
75.0% of net sales. This was an increase of approximately $15,838,000 or 57.5%
from Fiscal 1994's gross profit of $27,527,000 or 74.6% of net sales. This
increase was attributable to the increase in net sales during Fiscal 1995.
COMMISSIONS. Associate commissions were approximately $30,831,000 in Fiscal
1995, an increase of approximately $11,324,000 or 57.9% from approximately
$19,507,000 in Fiscal 1994. This increase was directly related to the increase
in net sales. Commissions represented 53.3% of net sales in Fiscal 1995 as
compared to 52.9% of net sales in Fiscal 1994. The increase in the commission
percentage of net sales relates to additional commission paid to top producing
associates commencing in June 1994. The full effect of this program was
reflected in Fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for Fiscal 1995 were approximately $10,370,000 or 17.9%
of net sales. This was an increase of approximately
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$3,812,000 or 58.1% from Fiscal 1994 selling, general and administrative
expenses of approximately $6,558,000, which represented 17.8% of net sales for
Fiscal 1994. The largest portion of this increase in selling, general and
administrative expenses was in personnel expenses. The Company had approximately
25 employees in December 1993 and grew to over 150 employees by July 1994.
During Fiscal 1994, the Company added executives, middle level management,
technical and order processing personnel. The Company also invested
approximately $1,064,000 in Fiscal 1994 in telephone systems and computer
systems for its order and commission processing and reporting systems. This also
increased staffing and maintenance, depreciation and supply costs associated
with these assets. The Company expanded from leased space of approximately 5,000
square feet to its current 42,000 square fee by the end of Fiscal 1995. Finally,
the Company's costs for shipping supplies, communications, marketing and general
operations increased due to the expansion requirements of the increased sales
volume.
INCOME FROM OPERATIONS. Income from operations for Fiscal 1995 was
approximately $2,164,000 or 3.8% of net sales. This was an increase of
approximately $642,000 from Fiscal 1994 when income from operations was
approximately $1,461,000 or 4.0% of net sales. The increase is a direct result
of the increase in net sales combined with the Company's ability to keep its
costs in line as a percentage of net sales.
OTHER INCOME (EXPENSE). The Company reflected a small amount of
non-operating income in Fiscal 1994 from the investment of excess funds. In
Fiscal 1995, the Company had a small non-operating net expense due to interest
costs associated with acquiring leased equipment.
INCOME TAXES. Income taxes for Fiscal 1995 were approximately $862,000 or
1.5% of net sales. Income taxes for Fiscal 1994 were approximately $431,000 or
1.2% of net sales. The Company accrued an income tax liability for Fiscal 1995
based on income earned during that year. In Fiscal 1994, the Company recorded an
income tax expense that was reduced by the carryforward of federal and state net
operating losses from prior fiscal years. This treatment was consistent with the
provisions of FASB 109, utilizing its loss carryforwards as a component of
income tax expense in the year actually used.
NET INCOME. Net income of approximately $1,186,000 in Fiscal 1995 was an
increase of approximately $95,000 from the approximate $1,091,000 of net income
recognized in Fiscal 1994. As a percentage of net sales, net income represented
approximately 2.9% and 2.1% of net sales for Fiscal 1994 and Fiscal 1995,
respectively. The increase in net income was derived from the increase in net
sales during Fiscal 1995. Income from operations declined by only 0.1% as a
percentage of net sales, but the combined effect of interest expense, increased
income taxes due to no operating loss carryforward and the provision for the
minority interest accounted for the additional 0.5% decrease in Fiscal 1995 net
income as a percentage of net sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements in connection with its operations,
foreign development and marketing activities have been and will continue to be
significant. As of September 30, 1997, the Company had a working capital deficit
of approximately $4,718,000. The Company's independent certified public
accountants stated in their report on the consolidated financial statements that
due to losses from operations and a working capital deficit, there is
substantial doubt about the Company's ability to continue as a going concern.
The Company is dependent upon the proceeds of this Offering to continue its
foreign development activities and its domestic operations and fund its
marketing and expansion plans, as well as other working capital requirements.
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations (including assumptions regarding the progress and
timing of its foreign development efforts), that the net proceeds of this
Offering, together with anticipated revenues from operations and its current
cash equivalent balances, will be sufficient to fund the Company's operations
and capital requirements for at least 12 months following the consummation of
this Offering. In the event the Company's plans change or its assumptions change
or prove to be inaccurate, however, the Company could be required to seek
additional financing sooner than currently anticipated. The Company
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has no current arrangements with respect to, or potential sources of, any
additional financing, and it is not anticipated that existing officers,
directors and stockholders will provide any portion of the Company's future
financing requirements. Consequently, there can be no assurance that any
additional financing will be available to the Company when needed on
commercially reasonable terms, or at all.
Historically, the Company had generated significant cash flow from
operations due to significant growth and minimal capital requirements.
Additionally, the Company does not extend credit to associates, but requires
payment prior to shipping products and accordingly does not have accounts
receivable from associates other than those generated by credit issues and
underpayments. The Company's principal need for funds has been for distributor
incentives, working capital (principally inventory purchases), and the expansion
into new markets. Prior to 1997, the Company had generally relied entirely on
cash flow from operations to meet its business objectives without incurring long
term debt to unrelated third parties.
Because of the significant losses incurred by the Company over the past two
fiscal years, it has become substantially dependent on loans from its officers
and directors and private placements of its securities to fund its operations.
These financings are described below.
On or about January 1, 1997, the Company sold $300,000 in Agreement Notes to
three private investors. As partial consideration for their purchase of the
Agreement Notes, the Company issued warrants to the three investors to purchase
an aggregate of approximately 41,000 shares of Common Stock of the Company at an
exercise price of approximately $.01 per share of Common Stock. The Agreement
Notes and related interest were paid in full in July 1997.
During January 1997, the Company borrowed $200,000 for working capital
purposes from a corporation, not otherwise affiliated with the Company, pursuant
to demand promissory notes, bearing interest at the rate of 10% per month, and
guaranteed by certain officers and directors of the Company. An August 25, 1997
agreement modified the repayment provisions of principal and interest, and
required that the Company repay all interest and principal by December 31, 1997
and reduced the interest rate from 10% per month to 2% per month payable
monthly, retroactive to March 5, 1997. Furthermore, in the event that the
Company was unable to repay the principal and accrued interest on such notes in
full by December 31, 1997, the Company would then be required to make twelve
monthly payments, beginning January 1, 1998, in the amount of $18,911 each. In
connection with this transaction, the lending corporation was issued options to
purchase 50,000 shares of the Company's Common Stock at $6.60 per share. As of
September 30, 1997, such options had not been exercised.
On or about March 20, 1997, the Company completed a private placement of an
aggregate of 500,000 shares of its Common Stock and 500,000 warrants for gross
proceeds of $250,000 from five private investors (the "March 1997 Private
Placement"). Following the payment of commissions and non-accountable expenses,
an initial payment towards its non-accountable expenses for this Offering and
counsel fees and expenses for that private placement, the Company received net
proceeds of approximately $171,500.
In May 1997, Kaire Korea, Ltd., pursuant to a demand promissory note bearing
interest at the rate of 9.5% per year and guaranteed by the Company, borrowed
$500,000 from Horphag, the Company's Pycnogenol supplier. An option expiring in
May 2000 to acquire 15% of the capital stock of Kaire Korea Ltd. at the par
value of Kaire Korea Ltd.'s capital stock was granted to Horphag as partial
consideration for the note. The note provides for additional options to be
issued in the event of late payments and/or the failure to pay the entire
principal balance plus accrued interest within six months of the origination
date of the note. As of September 30, 1997, a principal balance of $475,000
remains outstanding. No options to acquire capital stock of Kaire Korea Ltd. had
been tendered as of September 30, 1997 by Horphag.
Between June 3, 1997 and December 8, 1997, the Company completed a private
placement of an aggregate of 345,000 shares of its Common Stock and $1,725,000
in principal amount of its promissory notes (10% Notes") to nine investors (the
"Summer 1997 Private Placement"). Following the payment of
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commission and non-accountable expenses, additional payments towards its
non-accountable expenses for this Offering and counsel fees and expenses, the
Company received approximately $1,400,000 in net proceeds. The 10% Notes bear
interest at a rate of ten percent per year and mature and are payable in full
(principal plus accrued but unpaid interest) upon the earlier of (a) eighteen
months after issuance, (b) the completion date of an equity financing of the
Company pursuant to which it receives gross proceeds of not less than
$3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from
the "Key Man" life insurance policies on any of its executive officers and
directors. The 10% Notes are secured by the accounts and accounts receivable of
the Company (as defined in the 10% Notes) but are subordinated to the Company's
banking obligations. The Company intends to use a portion of the net proceeds of
this Offering to repay the 10% Notes in full.
During August 1997, the Company borrowed $200,000 from two lenders, not
otherwise affiliated with the Company, pursuant to unsecured promissory notes
bearing interest at the rate of 12% per year and due in September and October
1997. These notes were paid in full in December 1997. In connection with this
borrowing, the lenders were each issued options to purchase 15,000 shares of the
Company's Common Stock at $.01 per share. As of September 30, 1997, the options
had not been exercised by either of the lenders.
During August and September 1997, the Company borrowed approximately
$492,000 from a lender, not otherwise affiliated with the Company, pursuant to
two promissory notes bearing interest at a rate of .33% per day and guaranteed
by certain officers and directors of the Company. Both notes were repaid by the
Company in December 1997.
During Nine Months 1997, two officers of the Company advanced $84,000 for
working capital requirements. On November 28, 1997, the Company issued demand
promissory notes bearing interest at the rate of 10% per year in the amount of
$258,337 to the two officers for funds provided by those individuals to that
date.
During Nine Months 1997, the Company borrowed $663,000 from two individual
stockholders and directors of the Company pursuant to demand promissory notes
bearing interest at the rate of 10% per year and secured by the Company's shares
of Aloe Commodities, Inc. In September 1997, the Company sold its shares of Aloe
Commodities, Inc., at cost, and made a partial payment on the notes. The
remaining outstanding balance of approximately $241,000 was renegotiated to two
unsecured demand promissory notes bearing interest at the rate of 10% per year.
During November 1997, the Company borrowed $700,000 from IMT. On December 9,
1997, the Company and certain of its stockholders entered into an Agreement and
Plan of Reorganization (the "Agreement") with IMT whereby IMT agreed to provide
an additional $300,000 equity investment in the Company and convert the $700,000
previously borrowed by the Company to equity in the Company and for IMT to
provide $2,000,000 additional equity investments to the Company by February 15,
1998. Also, as discussed in Note 14 to the Consolidated Financial Statements,
IMT acquired approximately 81% of the Common Stock of the Company and,
therefore, the Company is a subsidiary of IMT.
"YEAR 2000" PROBLEM. The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (year 2000)
approaches. The "Year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two digit
year value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management has not yet assessed the "Year 2000" compliance
expense and related potential effect on the Company's earnings.
RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board
("FASB") recently issued Statement of Financial Accounting Standards No. 128,
entitled "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting
Standards No. 129, entitled "Disclosure of Information About an
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Entity's Capital Structure" ("SFAS 129"). SFAS 128 provides a different method
of calculating earnings per share than is currently used in accordance with
Accounting Board Opinion ("ABP") No. 15, entitled "Earnings Per Share." SFAS 128
provides for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure. SFAS 128 and SFAS 129 are
effective for financial statements issued for periods ending after December 15,
1997. Their implementation is not expected to have a material effect on the
consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting Standard No.
130, entitled "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standard No. 131, entitled "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement displayed with the
same prominence as other financial statements. SFAS 131 supersedes Statement of
Financial Accounting Standard No. 14, entitled "Financial Reporting for Segments
of a Business Enterprise." SFAS 131 establishes standards of the way the public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by the implementation of these
standards.
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BUSINESS
The Company develops and distributes, through a network of independent
associates, products that are intended to appeal to health-conscious consumers.
Current Company products include health care supplements and personal care
products. The Company offers a line of approximately 50 products which it
divides into nine categories, including Antioxidant Protection, (Bodily)
Defense, Digestion, Energy and Alertness, Stress, Vital Nutrients, Weight
Management, Anti-Aging and Personal Care.
The Company develops products that it believes will have market appeal to
its associates and their customers, and assists its associates in establishing
their own businesses. The Company associates can start a home based business
without significant start-up costs and other difficulties usually associated
with new ventures. The Company provides product development, marketing aids,
customer service, and essential record-keeping functions to its associates
without charge. The Company also provides other support programs to its
associates including 24 hour TouchTalk system (as explained below),
international teleconferencing calls, seminars, a monthly newsletter and
business training systems with audio and video tapes and a Director Management
Kit.
It is the Company's strategy and expectation that associates actively
recruit interested people to become new associates for the Company. These
recruits are placed beneath the recruiting associate in the "network" and are
referred to by the Company as that associate's "organization." Associates earn
commissions on sales generated by the associates in their organization as well
as retail profits on the sales they generate directly. The Company's marketing
program is designed to provide incentive for associates to build an organization
of recruited associates to maximize their earning potential. Approximately
60,000 of the Company's associates have had product purchases in excess of $50
during the past year and are considered by the Company to be "active".
The Company purchases most of its products directly from manufacturers and
markets them to its independent associates located in all fifty states, the
District of Columbia, Puerto Rico, Guam, and Canada. In 1995, the Company
expanded the number of its associates located in other parts of the world,
particularly Australia and New Zealand. The Company expanded its operations into
South Korea, Trinidad and Tobago and the United Kingdom during 1997.
INDUSTRY OVERVIEW
According to The Direct Selling Association, network marketing is one of the
fastest growing segments for the distribution of products. There are
approximately 300 companies that utilize network marketing techniques. The
Direct Selling Association reports that worldwide, over 17.5 million individuals
are now involved in directly selling (of which network marketing is a major
segment) and that those involved in direct selling generate conservatively $68
billion in annual sales around the world. Network marketing sales in the United
States are estimated to be approximately $9 billion annually.
According to industry sources such as National Natural Foods Association
("NNFA"), the nutritional supplement industry is expanding because of heightened
public awareness of the positive effects of vitamins and other nutritional
supplements on health.
BUSINESS STRATEGY
The Company intends to pursue a business strategy of increasing sales and
profitability by attracting and retaining associates to its network marketing
system; increasing product sales to existing associates; expanding its marketing
activities in new international markets and developing new products.
The Company's ability to increase sales is significantly dependent on its
ability to attract, motivate and retain associates. The Company utilizes an
innovative marketing program which it believes is superior to programs offered
by many other network marketing companies. This program provides financial
incentives, including several forms of commission (bonus), a vehicle
reimbursement program, optional associate
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training and support, no sign-up costs, no inventory requirements, and low
monthly purchase requirements. Management intends to reach potential new
associates through increased advertising, teleconferencing and regional sales
meetings. The Company has experienced an increase in the number of associates
each year since inception.
A key factor in the Company's strategy is to increase product sales to its
associates by, among other things, the timely introduction of new products. In
recent years, the Company has introduced several products that achieved consumer
acceptance and contributed to increased sales. The Company's flagship product is
Maritime Prime that was introduced in November 1992. Maritime Plus was
introduced shortly thereafter, followed by Ultra Prime in 1995 and Super Prime
(each tablet containing three times the essential product ingredient of a
Maritime Prime tablet) in 1996. The Company's Aloe Vera product was introduced
in 1993, while Colloidal Silver was introduced in 1994. In June 1996, the
Company introduced the Yes! Weight Management Program, JoBelle Face Kaire Line,
Synerzyme and Immunol. During 1997, the Company introduced a Fruit and Aloe
Drink, AloElite, ArthriKaire, MSM Complex, Kavatu, and Inner Chi. The Company's
newer products (e.g., those introduced in 1997) have higher margins of profit
and one of the Company's strategies is to increase overall profitability as the
newer products' share of overall sales increases.
PRODUCT SUMMARIES
The following table sets forth for some of the Company's products the dollar
amount of the Company's revenues attributable to each such product during each
of the Company's fiscal years indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
PRODUCT (AND INTRODUCTION DATE) 1994 1995 1996
- --------------------------------------------------------------------------------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maritime Prime (October 1992).................................................... $ 24,149 $ 34,418 $ 24,827
Aloe Vera (May 1993)............................................................. $ 2,295 $ 3,274 $ 2,172
Colloidal Silver (June 1994)..................................................... $ 1,780 $ 3,463 $ 2,228
Ultra Prime (June 1995).......................................................... NA $ 1,508 $ 2,311
</TABLE>
The following table indicates how many of the Company's products were
available as of September 30, 1997 in each of the Company's current markets.
<TABLE>
<CAPTION>
PRODUCTS OFFERED
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL
PRODUCT PRODUCTS
CATEGORIES/LINES OFFERED U.S. CANADA NEW ZEALAND AUSTRALIA
- ------------------------------------------------------ ------------- --- ------------- ----------------- -------------
Antioxidant Protection................................ 6 6 5 4 0
Defense............................................... 4 3 3 2 0
Digestion............................................. 5 5 4 5 2
Energy and Alertness.................................. 3 3 3 1 1
Stress................................................ 2 2 1 2 0
Vital Nutrients....................................... 5 3 2 2 0
Weight Management..................................... 7 7 0 0 0
Anti-Aging............................................ 2 2 0 0 0
Personal Care......................................... 18 18 18 12 12
<CAPTION>
<S> <C> <C>
TRINIDAD
PRODUCT SOUTH AND
CATEGORIES/LINES KOREA TOBAGO
- ------------------------------------------------------ ----------- -------------
Antioxidant Protection................................ 4 6
Defense............................................... 0 2
Digestion............................................. 2 3
Energy and Alertness.................................. 0 3
Stress................................................ 1 2
Vital Nutrients....................................... 0 3
Weight Management..................................... 0 7
Anti-Aging............................................ 0 1
Personal Care......................................... 15 13
</TABLE>
Presented below are the dollar amounts of each of the Company's product
categories for the years ended December 31, 1995 and 1996, and for the nine
months ended September 30, 1997.
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REVENUE BY PRODUCT CATEGORY
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED
PRODUCT CATEGORY DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
- ------------------------------------ ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Antioxidant Protection.............. $ 28,731 $ 37,387 $ 33,947 $ 16,056
Defense............................. 1,780 3,463 3,000 2,022
Digestion........................... 1,986 3,141 2,534 1,519
Energy and Alertness................ -- -- 31 701
Stress.............................. -- 508 681 312
Vital Nutrients..................... 677 957 750 398
Weight Management................... 292 -- 611 70
Anti-Aging.......................... -- -- 43 541
Personal Care....................... 992 1,792 1,261 991
</TABLE>
Currently, the Company has associates in all fifty states, the District of
Columbia, Puerto Rico, Guam, Canada, Australia, New Zealand, Trinidad and
Tobago, South Korea and the United Kingdom. Management believes that significant
market potential exists for the Company's products in international markets, and
it is the Company's intention to explore expansion into Japan, Europe, Hong
Kong, Taiwan, India and the Philippines. Statistics from the World Federation of
Direct Selling Associations as reported in January 1997 indicate that the direct
sales market in the foregoing countries amounted to over $43 billion with 5.7
million individuals being involved in some form of direct marketing. This
compares to $23.6 billion in sales and 7.2 million individuals involved in the
markets currently serviced by the Company.
DISTRIBUTION AND MARKETING
The Company's products are distributed through its network marketing system
of associates. Associates are independent contractors who purchase products
directly from the Company for resale to retail consumers. Associates may elect
to work on a full-time or a part-time basis. Management believes that its
network marketing system is well suited to marketing its nutritional supplements
and other products because sales of such products are strengthened by ongoing
personal contract between retail consumers and associates, many of whom use the
Company's products.
Associates' revenues are derived from several sources. First, associates may
receive revenues by purchasing the Company's products at wholesale prices and
selling the Company's products to customers at retail prices. Second, associates
earn the right to receive bonuses (commissions) based upon purchases by members
of their organization. There are basically three types of bonuses that an
associate can earn on product purchases by their organization. The standard
bonus is available to any individual who has attained "Broker" status in the
Company. Attaining "Broker" status is done by purchasing a minimum quantity for
a month. The percentages used to determine the bonus and the number of levels in
the organization the associate receives bonuses upon is based on the
individual's status in the Company. The first status level being that of a
"Broker" and the highest being an "Executive". There are two intermediary levels
between "Broker" and "Executive." An associate achieves higher levels in the
bonus structure primarily through increased purchases by associates sponsored
directly by them (their first level) although the minimum monthly purchase as an
individual does increase between certain levels. The requirements for an
associate to reach an "Executive" level are generally monthly personal purchases
exceeding $300 and monthly volume of $900 on their first level. The program is
such that each month an associate must qualify at that level to be paid at that
level. The advantage to this is that the associate must remain active in
purchasing and sponsoring to retain their bonus, but if they miss a month, their
income is only reduced that one month. A second form of bonus is available to
those having multiple "Executives" in their first level. Based on the number of
"Executives" they have at this first level, associates will receive a percentage
of their standard bonus as an additional bonus. Finally, for those "Executives"
attaining the highest levels in the
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Company, they are allowed to participate in a percentage of the Company-wide
Gross Bonusable Sales to be divided among qualifying "Executives." Management
believes that the right of associates to earn bonuses contributes significantly
to the Company's ability to retain its productive associates.
Management believes the Company's associate compensation plan is superior to
that of other network marketing organizations because the program offers an
earning opportunity without the need to finance a large inventory of products
and requires only a modest amount of sales to meet the bonus requirements.
To become an associate, a person must simply sign an agreement to comply
with the policies and procedures of the Company. No investment is necessary to
become an associate. The Company considers approximately 60,000 of its
associates to be "active", that is, an individual associate who has ordered at
least $50 of the Company's products during the preceding 12 month period.
The Company regularly sponsors opportunity meetings in various key cities
and participates in motivational and training events in its market areas
designed to inform prospective and existing associates about the Company's
product line and selling techniques. Associates give presentations relating to
their experiences with the Company's products and the methods by which they have
developed their own organization of associates. Specific selling techniques are
explained, and emphasis is placed on the need for consistency in using such
techniques. Participants are encouraged to ask questions regarding selling
techniques and product developments, to share information with other associates
and to develop confidence in selling and goal-setting techniques. Motivation is
offered to participants in the form of recognition, gifts, excursions and tours,
which are intended to foster an atmosphere of excitement throughout the
associate organization. Prospective associates are educated about the structure,
dynamics and benefits of the Company's network marketing system. In Fiscal 1996,
the Company's management participated in approximately 300 meetings and training
events in approximately 100 cities throughout the United States, Canada, Puerto
Rico, Australia and New Zealand.
The Company continues to develop marketing strategies and programs to
motivate associates. These programs are designed to increase associates' monthly
product sales and the recruiting of new associates. An example of these programs
is the Company's KAIRE SELECT PROGRAM.
Under the Kaire Select Program, an associate may enroll in a minimum
ordering program to maintain eligibility for performance bonuses. Minimum orders
ranging from $50 to $550 per month are automatically placed by credit card or
autodraft. The associate also gets preferred pricing, no minimum purchase
requirement (once they have a qualifying select order set up), exclusive access
to some product introductions, and discounts on Company sponsored events. As a
result, this program ensures sales for the Company and the associates'
participation in bonus programs.
As part of the Company's maintenance of constant communication with its
associate network, the Company offers the following support programs to its
associates:
TOUCHTALK AND FAXBACK. An automated telephone system that associates can
call 24 hours a day to place orders, receive reports on the sales activity of
their organization and listen to selected messages on special offers, marketing
program updates, product information, and similar information. Certain
information is also available via facsimile to the associate.
24 HOUR TELECONFERENCE. A weekly teleconference on various subjects such as
technical product discussions, associate organization building and management
techniques. An associate can listen to any of the last four weekly
teleconferences.
INTERNET. The Company maintains a web-site at http:\\www.kaireint.com on
the Planet City mall. There, the user can read news letters, learn more about
products, place an order or sign up to be an associate. This web-site became
fully functional in early 1997. In addition, associates can send messages and
orders to the Company e-mail address of kaireint.com. This allows associates to
potentially be able to sponsor associates and order products 24 hours a day.
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ASSOCIATE NEWS. A monthly Company newsletter updating product information,
Company policies and procedures, associate recognition, and various news topics.
PRODUCT LITERATURE. The Company produces for its associates color
catalogues and brochures displaying and describing the Company's products.
TOLL FREE ACCESS. A toll free number is available to place orders and
sponsor new associates. The Company believes that it was one of the initial
members in the network marketing industry to permit associates to sponsor new
associates over the telephone.
BROADCAST FAX. Company announcements and product specials are automatically
sent via facsimile to associates who have requested this service.
MARKETS
The following table sets forth the countries in which the Company currently
operates, the year operations were commenced in each country, and historical
sales information by country during the past four years since formation.
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR
COUNTRY ENTERED 1992 1993 1994 1995 1996
- --------------------------------------------------------- ----------- ----------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United States/Canada..................................... 1992/1993 $ 92 $ 2,719 $ 36,895 $ 54,841 $ 46,599
Australia................................................ 1995 -- -- -- $ 600 $ 1,000
New Zealand.............................................. 1995 -- -- -- $ 2,400 $ 3,900
</TABLE>
Upon deciding to enter a new market, the Company hires local counsel to
assist ensuring that the Company's network marketing system and products comply
with all applicable regulations and that the Company's profits may be
expatriated. In addition, local counsel assists in establishing favorable
relations in the new market area by acting as liaison between the Company and
local regulatory authorities, public officials and business people. Local
counsel also is responsible for explaining the Company's products and product
ingredients to appropriate regulators and, when necessary, will arrange for
local technicians to conduct any required ingredient analysis tests of the
Company's products.
If regulatory approval is required in a foreign market, the Company's local
counsel interfaces with local regulatory agencies to confirm that all of the
ingredients of the Company's products are permissible within the new market.
During the regulatory compliance process, the Company may alter the formulation,
packaging or labeling of its products to conform to applicable regulations as
well as local variations in customs and consumer habits, and the Company may
modify certain aspects of its network marketing system as necessary to comply
with applicable regulations.
Following completion of the regulatory compliance phase, the Company
undertakes the steps necessary to meet the operational requirements of the new
market. The Company then initiates plans to satisfy inventory, distribution,
personnel and transportation requirements of the new market, and modifies its
associate training materials as may be necessary to be suitable for the new
market. The Company has prepared manuals in Korean, French and Spanish.
PRODUCTS
The Company's product line consists of primarily consumable products that
are targeted to growing consumer interest in natural health alternatives for
nutrition and personal care. In developing its product line, the Company has
emphasized quality, purity, potency, and safety.
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ANTIOXIDANT PROTECTION. This line is primarily nutritional supplements
based in antioxidants including Maritime Prime and other antioxidant blends.
Most of the products are based on exclusive formulations in several combinations
containing natural products including Pycnogenol and Arctic Root. Products
containing Pycnogenol have not been approved for direct importation into
Australia. The Company is currently seeking approval to import its products
containing Pycnogenol into Australia in conjunction with the Therapeutic Goods
Association of Australia. Maritime Plus is not available in Canada due to
Canadian regulations on the ascorbate that is contained in this product. The
Company is also working with French authorities for approval to import the
Maritime Prime line into France.
Pycnogenol has been recognized by sources not associated with the Company as
a potent antioxidant. Pycnogenol, in the Company's formulation, is believed to
be highly bioavailable and retained in the body for several days. Antioxidants
have been shown to be effective in fighting the effects of oxidation on the
body. Oxidation is the same process that causes metals to rust and apples to
turn brown. Free radicals, which are molecules damaged by oxidation, are being
studied as the causes of various infirmities in humans. A free radical is an
unstable oxygen molecule seeking, at the molecular level, to pair up with an
electron. Free radicals can be created in the atmosphere by the exposure of
oxygen to sunlight and pollution. Free radicals can also be created by natural
metabolic processes. Antioxidants are molecules which can combine with and, as a
result, neutralize free radicals. Pycnogenol provides dietary support to assist
the body in properly responding to inflammations.
DEFENSE. The products in this category are primarily oriented towards
working with the body's natural defense systems to make them more efficient. It
consists of three of the more recent additions to the Kaire line, Colloidal
Silver Kaire, Immunol and Noni.
Colloidal Silver Kaire is a solution of silver particles
electro-magnetically suspended in deionized water and provides dietary support
for the immune system. It is used by individuals for a number of purposes
including eye drops, a topical solution, nose drops and a drink.
Immunol is a shark liver based capsule which the Company believes aids the
human immune system. This product is imported exclusively by the Company, which
obtained the worldwide marketing rights to this product in March 1996 from
Marine Biologics, Inc.
Noni is the most recent addition to the product line. Derived from a fruit
grown only in the Central and South Pacific, it contains high levels of
naturally occurring vitamins, minerals, trace elements, enzymes, and
phytochemicals. The processing method of flash freezing the fruit and then
processing it into capsules retains the high level of nutrients that may be lost
through the pasteurization of liquid presentations of this product.
DIGESTION. The main constituent of this group has long been the Aloe
products. Aloe has been studied for a number of years as everything from a
topical for skin irritations and sunburn to a supplement for improving the
general health of the body. The Company has recently introduced Fruit-N-Aloe
which is a more palatable form of the Aloe juice as it is mixed with fruit
juices to get the Aloe benefits without the strong taste and AloElite, a more
concentrated form of the Aloe juice.
Two other products currently round out this line, a colon-cleansing product
for periodic use in cleaning the lower digestive system and Synerzyme, a
combination of naturally occurring enzymes and trace minerals to enhance the
efficacy of the enzymes, which may assist the body with the breakdown and
assimilation of various foods and fats.
ENERGY AND ALERTNESS. AquaKaire Daytime and Night-time are two recently
introduced Company products. They are concentrated, "clustered" water products
whose purpose is to organize the water molecules in a manner intended to
optimize the flow of electricity through the body thereby increasing energy
levels. The water in these two products is combined with a number of other
nutrients. AquaKaire Daytime is intended to make a user more active and alert.
AquaKaire Night-time is intended to allow for
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<PAGE>
sound sleep and body rest. Inner Chi is another recent addition, combining raw
honey with Chinese herbs and botanicals for a balanced, energy enhancing tonic.
STRESS. Products in this category serve two primary purposes. The first is
to provide adaptogens in an efficient medium and the second is to provide a
natural relaxant for rest and sleep. Arctic Root is an adaptogen, an herb which
works with the body to allow energy to be used by the body as needed as opposed
to stimulants and depressants which affect the body's energy as a whole, over a
certain period of time. Kavatu combines the extract from the Pacific KavaKava
plant with other nutrients to form a product allowing for a more complete rest
and sleep without the "hangover" effects of many artificial relaxants and sleep
aids.
VITAL NUTRIENTS. This category provides for many of the basic vitamins and
nutrients which are missing in the typical adult or child's diet.
WEIGHT MANAGEMENT. One of the newest members of the Company's product
"family" is a weight management program that includes a number of products
designed to work as a system to assist weight loss safely while giving the
dieter a higher level of energy while maintaining a healthy body. This system
concept is based upon a complete program including Company products, walking or
other sensible exercise available to virtually all individuals and sensible
permanent eating habits. Weight management products of the Company include LipeX
(a product designed to inhibit the absorption of fat by the body), fiber wafers
to reduce appetite, lubricate the system and inhibit fat absorption and
nutritional bars to provide both a healthy meal snack alternative and to provide
nutrients which interact with the LipeX to increase metabolism and fat burning
in the system.
The Company believes that the Weight Management Program is well designed to
promote long-term, sustained weight loss. However, the Company's experience has
been that many dieters are highly motivated to lose significant pounds quickly
and the Yes! Weight Management Program does not work quickly enough for such
persons. As a result, the Company is exploring several products which will allow
it to penetrate the rapid weight loss market.
ANTI-AGING. These products are intended to combat the effects of aging on
the human body.
DHEA. This is a hormonal product which replaces the same hormone in the
body. Research shows that as a person matures their body generates diminishing
amounts of DHEA. According to a number of research studies, DHEA is the hormone
which allows the body to know its energy level. The Company has obtained from
Dr. Steve Chernisky, author of "The DHEA Breakthrough" the exclusive rights to
his signature line of products.
ARTHRIKAIRE AND OSTEO FORMULA. ArthriKaire and Osteo Formula are Company
products introduced in June 1997. Osteo Formula is a comprehensive bone
supplement that provides 18 nutrients including four different types of calcium
for maximum absorption and assimilation. ArthriKaire is designed to provide
dietary support for joints, tendons and ligaments. This proprietary formula
combines proteoglycans, vitamins and herbs that support the integrity of
connective tissue.
PERSONAL KAIRE. This includes JoBelle Gold (a skin softener containing gold
flakes), Dermakaire (the Company's original moisturizing lotion with
Pycnogenol), and the JoBelle Skin Care System consisting of shampoo, conditioner
and body lotion as well as a "top of the line" six part face care system. An
extension of the Company's Body Kaire System product line featuring tiny gold
particles is one of the principal products the Company is distributing in South
Korea. The Company is attempting to develop an upscale image for this product
line with an appeal to a younger market than the Company's current United States
associate base.
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NEW PRODUCT DEVELOPMENT
Additional products being considered in these areas are additional
antioxidants, anti-aging, weight management, and energy products. In addition to
the introduction of single products, the Company is also focusing on promoting
groups of products to be taken in conjunction with each other to address
specific needs (such as weight loss, stress, daily wellness, etc.) that an
individual may have.
The Company continually seeks to identify, develop and introduce innovative,
effective and safe products. In Fiscal 1996 and Nine Months 1997, the Company
introduced over ten new products or services. Management believes that its
ability to introduce new products increases its associates' visibility and
competitiveness in the marketplace.
New product ideas are derived from a number of sources, including trade
publications, scientific and health journals, the Company's management and
consultants, and outside parties. Prior to introducing products into the
Company's markets, the Company's scientific consultants, legal counsel and other
representatives retained by the Company investigate product formulation matters
as they relate to regulatory compliance and other issues. The Company's products
are formulated to suit both the regulatory and marketing requirements of
particular markets.
The Company maintains its own product review and evaluation staff but relies
upon independent research, vendor research departments, research consultants and
others for product research, development and formulation services. When the
Company, one of its consultants or another party identifies a new product
concept or when an existing product must be reformulated for introduction into a
new or existing market, the new product concept or reformulation is generally
submitted to the Company's suppliers for technological development and
implementation. The Company owns the proprietary rights to a majority of its
product formulations.
The Company expended no funds on new product research and development during
Fiscal 1995 and 1996, respectively.
PRODUCT WARRANTIES AND RETURNS
The Company's product warranties and policy regarding returns of products
are similar to those of other companies in its industry. If a consumer of any of
the Company's products is not satisfied with the product, she/he may return it
to the associate from whom the purchase was made, within 90 days of purchase.
The associate is required to refund the purchase price to the consumer. The
associate may then return the unused portion of the product to the Company for
an exchange of equal value. If an associate requests a refund in lieu of an
exchange, a check or credit card credit is issued. All products are warranted
against defect by the manufacturer of those products. Most products returned to
the Company, however, are not found to be defective in manufacture.
MANAGEMENT INFORMATION SYSTEM
The Company maintains a computerized system for processing associate orders
and calculating associate commission and bonus payments enabling it to promptly
remit payments to associates. The Company believes that prompt remittance of
commissions and bonuses is vital to maintaining a motivated network of
associates and that associate loyalty has been enhanced by the Company making
commission and bonus payments as scheduled.
The Company's computer system provides each associate a detailed monthly
accounting of all sales and recruiting activity in his or her organization.
These convenient statements eliminate the need for substantial record keeping on
behalf of the associate. As a precaution, duplicate copies of the Company's
computer records are transferred daily to an off-site location for safekeeping.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test the system for the Year
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2000 compliance. It is anticipated that all reprogramming efforts will be
completed by December 31, 1998, allowing adequate time for testing.
MANUFACTURING AND SUPPLIES
The Company currently purchases all of its vitamins, nutritional supplements
and all other products and ingredients from parties that manufacture such
products to the Company's specifications and standards. During Fiscal 1996,
approximately two-thirds of the products purchased by the Company were supplied
by M.W. International, Inc. ("MWI"). MWI is the Company's source of Pycnogenol.
The Company places significant emphasis on quality control. All nutritional
supplements, raw materials and finished products are subject to sample testing,
weight testing and purity testing by independent laboratories.
The Company has no written agreements with any of its suppliers including
MWI. In the event of loss of any of its sources of supply, the Company believes
that suitable replacement sources of similar products and product ingredients
exist and are available to the Company.
TRADEMARKS AND SERVICE MARKS
Most products are packaged under the Company's "private label." The Company
has registered trademarks with the United States Patent and Trademark Office for
its name, logo and various products names. It has applied for trademark
registration in several countries outside of those it is currently operating in
for its name, logo and various product names.
COMPETITION
The Company competes with many companies marketing products similar to those
sold and marketed by the Company. It also competes intensely with other network
marketing companies in the recruitment of associates.
There are many network marketing companies with which the Company competes
for associates. Some of the largest of these are Nutrition for Life
International, Inc., Nature's Sunshine, Inc., Herbalife International, Inc.,
Amway and Rexall Sundown, Inc. Each of these companies is substantially larger
than the Company and has significantly greater financial and personnel resources
than the Company. The Company competes for associates by means of its marketing
program that includes its commission structure, training and support services,
and other benefits.
Not all competitors market all types of products marketed by the Company,
and some competitors market products and services in addition to those marketed
by the Company. For example, some competitors are known for and are identified
with sales of herbal formulations, some are known for and are identified with
sales of household cleaning and personal care products, and others are known for
and are identified with sales of nutritional and dietary supplements. The
Company's principal methods of competition for the sale of products are its
responsiveness to changes in consumer preferences and its commitment to quality,
purity, and safety.
GOVERNMENT REGULATION
Although the Company confines its activities to marketing and distribution,
the manufacturing, processing, formulation, packaging, labeling and advertising
of the Company's products are subject to regulation by federal agencies,
including the Food and Drug Administration ("FDA"), the Federal Trade Commission
("FTC"), the Consumer Product Safety Commission, the United States Department of
Agriculture, the United States Postal Service and the United States
Environmental Protection Agency. These activities are also subject to regulation
by various agencies of the jurisdictions, states and localities in which the
Company's products are sold.
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In November 1991, the FDA issued proposed regulations designed to, among
other things, amend its food labeling regulations. The proposed regulations met
with substantial opposition. In October 1994, the "Dietary Supplement Health and
Education Act of 1994" (the "Dietary Supplement Law") was enacted. Section 11 of
the Dietary Supplement Law provided that the advance notice of proposed rule
making by the FDA concerning dietary supplements was null and void. FDA
regulations that became effective on June 1, 1994 would require standard format
nutrition labeling on dietary supplements. However, because the new Dietary
Supplement Law also addresses labeling of dietary supplements, the FDA has
indicated that it would not enforce its labeling regulations until January 1,
1998. In the interim, new regulations are expected to be proposed by the FDA.
Because the FDA has not yet reconciled its existing regulations with the new
Dietary Supplement Law, the Company cannot determine to what extent any changed
or amended regulations will affect its business.
The Dietary Supplement Law did not affect the July 1, 1994 effectiveness of
the FDA's health claims regulations. Those regulations prohibit any express or
implied health claims for dietary supplements unless such claims are approved in
advance by the FDA through the promulgation of specific authorizing regulations.
Such approvals are rarely provided by the FDA. Therefore, no claim may be made
on a dietary supplement label or in printed sales literature, "that expressly or
by implication characterizes the relationship of any substance to a disease or
health-related condition." The Company cannot determine what effect currently
proposed FDA regulations, when and if promulgated, will have on its business in
the future. Such regulations could, among other things, require expanded or
different labeling, recalling or discontinuing of certain products, additional
record keeping and expanded documentation of the properties and certain products
and scientific substantiation. In addition, the Company cannot predict whether
new legislation regulating its activities will be enacted, which new legislation
could have a material adverse effect on the Company.
The Company has an ongoing compliance program with assistance from FDA
counsel regarding the nature and scope of food and drug legal matters affecting
the Company's business and products. The Company is unaware of any legal actions
pending or threatened by the FDA or any other governmental authority against the
Company.
Direct selling activities are regulated by various governmental agencies.
These laws and regulations are generally intended to prevent fraudulent or
deceptive schemes, often referred to as "pyramid" or "chain sales" schemes, that
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 complies with South Korea's strict Door-to-Door Sales Act, which
requires, among other things, the regular reporting of revenue, the registration
of distributors together with the issuance of a registration card, and the
maintaining of a current distributor registry. This law also limits the amount
of sponsoring bonuses that a registered multi-level marketing company can pay to
its distributors up to a maximum of 35% of revenue in a given month. As is the
case with most network marketing companies, the Company has from time to time
received inquiries from various government regulatory authorities regarding the
nature of their business and other issues such as compliance with local business
opportunity and securities laws. Although to date none of these inquiries has
resulted in a finding materially adverse to the Company, there can be no
assurance that the Company will not face inquiries in the future which, either
as a result of findings adverse to the Company or as a result of adverse
publicity resulting from the initiation of such inquiries, could have a material
adverse effect on the Company's business and results of operations.
Based on research conducted in opening its existing markets (including
assistance from local counsel), the nature and scope of inquiries from
government regulatory authorities and the Company's history of operations in
such markets to date, the Company believes that its method of distribution is in
compliance in all material respects with the laws and regulations relating to
direct selling activities of the countries in which the Company currently
operates. Even though management believes that laws governing direct
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selling are generally becoming more permissive, many countries currently have
laws in place that would prohibit the Company from conducting business in such
markets. There can be no assurance that the Company will be allowed to continue
to conduct business in each of its existing markets that it currently services
or any new market it may enter in the future.
The Company is subject to or affected by extensive governmental regulations
not specifically addressed to network marketing. Such regulations govern, among
other things, (i) product formulation, labeling, packaging and importation, (ii)
product claims and advertising, whether made by the Company, or its associates,
(iii) fair trade and distributor practices, and (iv) taxes, transfer pricing and
similar regulations that affect foreign taxable income and customers duties.
In South Korea, the Company has obtained the mandatory certificate of
confirmation as a qualified importer of health assistance foods under the Food
Sanitation Law ("FSL") of that country, as well as additional product approvals
for each of the special nutritional food categories of products which it imports
into that country. Each new product undergoes a 60 day post-customs
quarantine/inspection on cosmetics and 18 day post-customs quarantine/inspection
on food supplements where, in addition to compliance with ingredient
requirements, each product is inspected for compliance with South Korean
labeling requirements.
Based on the Company's experience and research (including assistance from
local counsel) and the nature and scope of inquiries from government regulatory
authorities, the Company believes that it is in material compliance with all
regulations applicable to it. Despite this belief, the Company could be found
not to be in material compliance with existing regulations as a result of, among
other things, the considerable interpretative and enforcement discretion given
to regulators or misconduct by associates. There can be no assurances that the
Company will not be subject to inquiries and regulatory investigations or
disputes and the effects of any adverse publicity resulting therefrom. Any
assertion or determination that the Company or any Company associate are not in
compliance with existing laws or regulations could have a material adverse
effect on the Company's business and results of operations. In addition, in any
country or jurisdiction, the adoption of new laws or regulations or changes in
the interpretation of existing laws or regulations could generate negative
publicity and/or have a material adverse effect on the Company's business and
results of operations. The Company cannot determine the effect, if any, that
future governmental regulations or administrative orders may have on the
Company's business and results of operations. Moreover, governmental regulations
in countries where the Company may commence or expand its operations may
prevent, delay or limit market entry of certain products or require the
reformulation of such products. Regulatory action, whether or not it results in
a final determination adverse to the Company, has the potential to create
negative publicity, with detrimental effects on the motivation and recruitment
of associates and consequently, on the Company's sales and earnings.
PROPERTIES
The Company leases approximately 42,000 square feet of office and warehouse
space in four buildings in Longmont, Colorado. The lease terms expire over a
span of one month to three years, and the current monthly rate is approximately
$16,000 per month. The Australian and New Zealand subsidiaries also lease their
office and warehouse facilities of approximately 8,000 square feet for a period
of approximately five years. The Company has entered into leases at June 1, 1997
through its South Korean and Trinidad and Tobago subsidiaries. The former is a
three year lease on the second floor in one of the office/commercial buildings
in downtown Seoul. The Trinidad and Tobago office is approximately 1,100 square
feet in downtown Port-of-Spain. That lease is for one year with two one-year
renewals. As of December 31, 1997, the Company was entering a lease of
approximately 4,800 square feet for 11 years in Solihull, England, with an
option to review the leases after 5 years, and terminate with notice. Management
of the Company believes that such properties are suitable and adequate for
current operating needs.
44
<PAGE>
EMPLOYEES
At September 30, 1997, the Company had employed approximately 96 full time
persons of whom three were executive, 17 were engaged in finance and
administrative activities, 17 in order entry, two in travel services, six in
MIS, five in purchasing, two in compliance, eight in data support services, one
in international development, two in human resources, one in associate services,
one in public relations, ten in customer relations, eleven in marketing and ten
in shipping. None of the Company's employees is represented by a collective
bargaining unit. The Company believes that its relationship with its employees
is good.
LEGAL PROCEEDINGS
To the knowledge of the management of the Company, there is no material
litigation pending or threatened against the Company nor are there any such
proceedings to which the Company is a party.
However, the Company is the subject of an investigation by the United States
Department of Justice, Office of Consumer Litigation, into the actions by
certain specifically named individuals active in the dietary supplement
industry. The Company was initially contacted in January, 1997 and was advised,
in writing, that it is not a "target" of the Department's investigation, but
that it is a "subject" (meaning that its conduct is deemed to be within the
scope of the investigation) thereof. Pursuant to the investigation, the
Department has requested further information from the Company, and the Company
has requested that a court determine whether it has any obligation to do so.
The Company has also received a voluntary request for information from the
FTC regarding a separate investigation into dietary supplement interactions with
certain disorders. The Company voluntarily produced information to the FTC with
regards to the initial request, and has received a subsequent request for
additional information. The Company is presently formulating an appropriate
response to this second request.
45
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE COMPANY POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert L. Richards................................... 52 Chief Executive Officer and Director
Michael Lightfoot.................................... 44 President
Loren E. Bagley...................................... 55 Chairman of the Board
J.T. Whitworth....................................... 61 Chief Operating Officer, Chief Financial Officer and
Director
William F. Woodburn.................................. 56 Treasurer and Director
L. Charles Laursen................................... 43 Vice President of Finance
Mark D. Woodburn..................................... 27 Secretary and Director
Steven Westlund...................................... 51 Director
Peter Benz........................................... 37 Director
</TABLE>
Set forth below is a brief background of the Company's Executive Officers
and Directors of the Company, based upon information supplied by them.
ROBERT L. RICHARDS, co-founder of the Company, has been Senior Executive
Vice President (since November 1994), Chief Executive Officer (since August
1996) and a Director of the Company since its inception in October 1992. Mr.
Richards also served as the Company's Executive Vice President and Chief
Financial Officer from 1992 to 1994. From 1989 until joining the Company, Mr.
Richards was the vice president of Continental Tax Corporation, a property tax
consulting firm. From 1982 to 1989, Mr. Richards was the president of RARADAN
Oil Company, a company engaged in the development of oil and gas joint ventures.
Mr. Richards was a Captain in the United States Air Force and an
instructor-pilot from 1970 to 1975. He is an athlete, having been National
Champion and All American in 1966 in the 3,000 meter steeplechase. He was also
on the United States Olympic Training Team (steeplechase) in 1968 and 1972. Mr.
Richards graduated from Brigham Young University with a Bachelor of Science
degree in Geology.
MICHAEL LIGHTFOOT has been President of Kaire International, Inc. since
August 1997. Mr. Lightfoot has been involved with the Company since 1993, when
he joined the Company as an associate and formed Kaire International (Canada)
Ltd. in September 1993. Prior to 1993, Mr. Lightfoot was regional general
manager for Forever Living Products, Inc. of British Columbia, Canada. Mr.
Lightfoot has over 20 years experience in network marketing.
LOREN E. BAGLEY has been Chairman of the Company's Board of Directors since
its inception. Mr. Bagley is also president and chief executive officer of Trans
Energy, Inc. ("TEI"), a company whose securities are listed on NASDAQ, having
been TEI's executive vice president from August 1991 until assuming his current
responsibilities at TEI in September 1993. From 1979 to the present, Mr. Bagley
has also been self employed in the oil and gas industry as president, chief
executive officer or vice president of various corporations which he has either
started or purchased, including Ritchie County Gathering Systems, Inc. Prior to
becoming involved in the oil and gas industry, Mr. Bagley was employed by the
United States Government with the Agriculture Department. Mr. Bagley attended
Ohio University and Salem College and received a Bachelor of Arts degree.
J.T. WHITWORTH joined the Company in 1994 as Vice President of Operations.
In 1995 he was promoted to Executive Vice President of Operations and Chief
Financial Officer. He was promoted to Chief Operating Officer and Chief
Financial Officer in 1997. He was elected a Director of the Company in 1996.
From 1983 until joining the Company, Mr. Whitworth was manager of worldwide
commerce, import, export, and corporate distribution of AGCO Corporation
("AGCO"), a major farm equipment manufacturer. During his tenure with AGCO,
which was from 1961 until 1994, he held several managerial positions.
46
<PAGE>
WILLIAM F. WOODBURN has been Treasurer and a Director of the Company since
its inception. Mr. Woodburn is also vice president in charge of TEI's operations
and has been a director of TEI since August 1991. Mr. Woodburn has been actively
engaged in the oil and gas business in various capacities for the past fourteen
years. Prior to his involvement in the oil and gas industry, Mr. Woodburn was
employed by the United States Army Corps of Engineers for twenty four years and
was resident engineer on several construction projects. Mr. Woodburn graduated
from West Virginia University with a Bachelor of Science degree in Civil
Engineering.
L. CHARLES LAURSEN, a Certified Public Accountant, joined the Company in
July 1994 as its Controller. Mr. Laursen was promoted to the position of Vice
President of Finance in May 1996. From 1990 until joining the Company, Mr.
Laursen was the controller of Solid Systems Engineering, a heavy equipment
distributor. From 1985 until 1990, Mr. Laursen was the controller of Pratt
Partnership, an industrial park complex encompassing construction, maintenance,
property management, and hotel operations. Mr. Laursen graduated from Colorado
State University with a Bachelor of Science degree in Accounting.
MARK D. WOODBURN has been Secretary and a Director of the Company since its
inception. He also serves as assistant secretary of TEI, a position which he has
held for the past four years. Mark D. Woodburn is the son of William F.
Woodburn.
STEVEN WESTLUND has been a Director of Kaire International, Inc. since
December 1997. Mr. Westlund is presently the Chief Executive Officer and
Chairman of the Board of Interactive Medical Technologies, Ltd., a nutritional
development company, and has served in those capacities since May 1995. Mr.
Westlund is also presently the Chief Executive Officer of Lorenz/Germaine Inc.,
a personal care product distributor. From May 1993 to February 1995, Mr.
Westlund was Chief Executive Officer and Chairman of the Board of Vitafort
International Corporation, a nutritional development company. Prior to May 1993,
Mr. Westlund was a consultant to several corporations in the distribution
industry specializing in restructuring and recapitalization.
PETER BENZ has been a Director of Kaire International, Inc. since December
1997. Mr. Benz is presently the President of Interactive Medical Technologies,
Ltd. and has served in that capacity since May 1995. Mr. Benz has also been the
Chairman of the Board of North American Health & Fitness Corporation. Mr. Benz
graduated from the University of Notre Dame with a Bachelor of Science degree in
Business Administration.
Directors of the Company serve until the next annual meeting of stockholders
of the Company and until their successors are elected and duly qualified.
Officers of the Company will be elected annually by the Board of Directors and
serve at the discretion of the Board of Directors.
The Board of Directors of the Company has established the following
committees: an Executive Committee, the members of which are Robert L. Richards,
J.T. Whitworth, Loren E. Bagley, Peter Benz and Steve Westlund with Loren Bagley
as Chairman; and an Audit Committee, the members of which are J.T. Whitworth,
Loren E. Bagley, Peter Benz and Steve Westlund with Loren E. Bagley as Chairman.
EXECUTIVE COMPENSATION
The following table summarizes compensation with respect to Fiscal 1994,
Fiscal 1995 and Fiscal 1996 earned by the Company's President, Chief Executive
Officer and the other executive officers of the Company who earned more than
$100,000 during Fiscal 1994, Fiscal 1995 or Fiscal 1996 (the "Named Executive
Officers"). The Named Executive Officers set forth below were officers of the
Company during the years indicated and were compensated for service in such
position in the manner set forth below.
47
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
<S> <C> <C> <C> <C>
FISCAL ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS ($) COMPENSATION
- ------------------------------------------------------------------- ----------- ---------- --------------- -------------
Nick A. Mangeris, former President................................. 1996 $ 156,984 0 20,931(5)
1995 $ 124,602 0 6,660(1)
1994 $ 120,807 0 807
Robert L. Richards, currently Chief Executive Officer.............. 1996 $ 178,666 0 10,915(6)
1995 $ 118,760 0 901(2)
1994 $ 120,641 0 639
J.T. Whitworth, currently Chief Operating Officer and Chief 1996 $ 133,700 0 15,320(7)
Financial Officer................................................ 1995 $ 97,069 0 815(3)
1994 $ 34,718 0 134
David Crockett, former Vice President of Sales..................... 1996 $ 115,264 0 10,766(8)
1995 $ 103,904 0 1,831(4)
1994 $ 49,134 0 390
</TABLE>
- ------------------------
(1) Includes the value to Mr. Mangeris of a leased car, provided by the Company
and other benefits provided to him.
(2) Includes the value to Mr. Richards of miscellaneous benefits provided to
him.
(3) Includes the value to Mr. Whitworth of miscellaneous benefits provided to
him.
(4) Includes the value to Mr. Crockett of a leased car, provided by the Company
and other benefits provided to him.
(5) Includes the value to Mr. Mangeris of a leased car, provided by the Company,
the Company's matching contributions in Fiscal 1996 to the Company's 401(k)
plan and other benefits provided to him.
(6) Includes the value to Mr. Richards of a leased car, provided by the Company,
the Company's matching contributions in Fiscal 1996 to the Company's 401(k)
plan and other benefits provided to him.
(7) Includes the value to Mr. Whitworth of a leased car, provided by the
Company, the Company's matching contributions in Fiscal 1996 to the
Company's 401(k) plan and other benefits provided to him.
(8) Includes the value to Mr. Crockett of a leased car, provided by the Company,
the Company's matching contribution in Fiscal 1996 to the Company's 401(k)
plan and other benefits provided to him.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The Company has entered into an employment agreement with Robert L. Richards
pursuant to which he will act as Chief Executive Officer of the Company for a
five year period, at an annual salary of $180,000, subject to annual increases
or bonuses as may be determined by the Board of Directors. The employment
agreement requires the Company to pay Mr. Richards in the event that he is
unable to perform his duties by reason of illness or disability during the
remaining term of the contract at an annual salary of $65,000 and the employment
agreement also requires the Company to indemnify him to the full extent
permitted under the Delaware General Corporation Law. The employment agreement
requires that he devote his full work time to his duties of the Company,
including the evaluation and negotiation of potential acquisitions.
48
<PAGE>
The Company's employment agreement with Mr. Richards contains provisions for
payments of salary and benefits following a change of control (as defined) of
the Company. Upon a change in control of the Company and his termination
thereof, Mr. Richards would be entitled to, within 30 days of such termination,
an amount equal to the Net Present Value (NPV), discounted at 5%, of the
remaining compensation due him under the term of his contract, and continued
life, health and disability insurance for a period of one year.
The Company has entered into an employment agreement with J.T. Whitworth
pursuant to which he will act as Chief Operating Officer and Chief Financial
Officer of the Company for a five year period, at an annual salary of $180,000,
subject to annual increases or bonuses as may be determined by the Board of
Directors. The employment agreement requires the Company to pay Mr. Whitworth in
the event that he is unable to perform his duties by reason of illness or
disability during the remaining term of the contract at an annual salary of
$65,000 and the employment agreement also requires the Company to indemnify him
to the full extent permitted under the Delaware General Corporation Law. The
employment agreement requires that he devote his full work time to his duties of
the Company, including the evaluation and negotiation of potential acquisitions.
The Company's employment agreement with Mr. Whitworth contains provisions
for payments of salary and benefits following a change of control (as defined)
of the Company. Upon a change in control of the Company and his termination
thereof, Mr. Whitworth would be entitled to, within 30 days of such termination,
an amount equal to the Net Present Value (NPV), discounted at 5%, of the
remaining compensation due him under the term of his contract, and continued
life, health and disability insurance for a period of one year.
The Company has entered into an employment agreement with Mr. Robert J.
Young pursuant to which he will act as Marketing Director of the Company for the
period August 11, 1997 through August 31, 1998, at an annual salary of $125,000.
The employment contract requires that he devote his full work time to his duties
of the Company.
The Company's employment agreement with Mr. Young contains a provision that
the Company reimburse him for up to $62,500 of documented educational tuition
and educational expenses incurred by him while he attends graduate school
beginning September 1, 1998 through November 1, 1999.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive compensation for their services as
directors; however, the Board of Directors may authorize the payment of
compensation to directors for their attendance at regular and special meetings
of the Board and for attendance at meetings of committees of the Board as is
customary for similar companies. Directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.
LIMITATION ON LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation or to its stockholders for monetary damages for breach of
fiduciary duty of care as a director, with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. The Company's Certificate of Incorporation
exonerates its directors from monetary liability to the extent permitted by this
statutory provision. The Company has been advised that it is the position of the
Commission that, insofar as the foregoing provision may be invoked to disclaim
liability for damages arising under the Securities Act, that provision is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
49
<PAGE>
STOCK OPTION PLAN
In July 1997, the Board of Directors adopted and the stockholders approved
the Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"). The 1997
Stock Option Plan provides for the grant of (i) options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422A of the Internal Revenue Code, as amended (the "Code"),
to certain employees, directors and consultants and (ii) options not intended to
so qualify ("Non-Qualified Stock Options") to employees (including directors and
officers who are employees of the Company), directors and consultants. The total
number of shares of Common Stock for which options may be granted under the 1997
Stock Option Plan is 1,000,000 shares.
The 1997 Stock Option Plan is to be administered by the Board of Directors
or a committee of the Board of Directors which will determine the terms of
options granted, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under the
1997 Stock Option Plan is transferable by the optionee other than by will or the
laws of descent and distribution and each option is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the 1997 Stock Option
Plan must be at least equal to the fair market value of such shares on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting rights of all classes of the Company's outstanding capital
stock, the exercise price of any Incentive Stock Option must be not less than
110% of the fair market value on the date of grant. The term of each option
granted pursuant to the 1997 Stock Option Plan may be established by the Board
of Directors or a committee of the Board of Directors, in its sole discretion;
provided, however, that the maximum term of each Incentive Stock Option granted
pursuant to the 1997 Stock Option Plan is ten years. With respect to any
Incentive Stock Option granted to a participant who owns stock possessing more
than 10% of the voting rights of all classes of the Company's outstanding
capital stock, the maximum term is five years. Options shall become exercisable
at such times and in such installments as the Board of Directors or a committee
of the Board of Directors shall provide in the terms of each individual option.
The Company has agreed with the Underwriter that for a period of two years
from the date of this Prospectus, without the Underwriter's written consent, not
more than 375,000 of the options shall be granted to persons who are officers
and/or directors of the Company on the date of the Prospectus, except that the
Underwriter will not unreasonably withhold consent to the grant or vesting of
such options based on the achievement of goals established in advance and
reasonably approved by the Company's Board of Directors and the Underwriter.
OTHER COMPENSATION
The Company provides basic health, major medical and life insurance for its
employees, including its executive officers. The Company has also adopted a
401(K) Profit Sharing Retirement Plan for eligible employees, as described
below. No other retirement, pension or similar program has been adopted by the
Company. These and other benefits may be adopted by the Company for its
employees in the future.
On January 1, 1996, the Company adopted a 401(K) Profit Sharing Retirement
Plan for its employees ("401(K) Plan"). Eligible employees include all employees
of the Company who have completed one year of employment and have attained the
age of 21. The 401(K) Plan permits employees to make voluntary contributions to
the 401(K) Plan up to a dollar limit set by law. The Company may contribute in
discretionary matching contributions equal to the Company's determined
percentage of the employee's contributions. Benefits under the 401(K) Plan are
distributable upon retirement, disability, termination of employment or certain
financial hardship, subject to regulatory requirements. Each participant's share
of the Company's contributions vests at the rate of 20% per year until after 5
years of service, at which time the participant becomes fully vested.
50
<PAGE>
For its fiscal year ended December 31, 1996, the Company made a contribution
to the 401(K) Plan of approximately $67,000, of which $5,317, $0, $3,774, $900,
$2,335, $540 and $12,866, were for the benefit of Robert L. Richards, Loren E.
Bagley, J.T. Whitworth, William F. Woodburn, L. Charles Laursen, Mark D.
Woodburn and all of the Company's executive officers as a group, respectively.
Amounts to be contributed in the future are at the discretion of the Company's
Board of Directors. Accordingly, it is not possible to estimate the amount of
benefits that will be payable to participants in the 401(K) Plan upon their
retirement. The trustees under the 401(K) Plan are J.T. Whitworth and L. Charles
Laursen.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information concerning beneficial ownership of shares of Common Stock with
respect to (i) each person known to the Company to own 5% or more of the
outstanding shares of Common Stock, (ii) each executive officer and director of
the Company, and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
AMOUNT AND APPROXIMATE
NATURE OF APPROXIMATE PERCENTAGE OF
BENEFICIAL PERCENTAGE OF COMMON COMMON STOCK OWNED
OWNERSHIP STOCK BEFORE OFFERING AFTER OFFERING
----------- ----------------------- -----------------------
<S> <C> <C> <C>
Robert L. Richards(1)(2)................................ 0 0% 0%
Michael A. Lightfoot(1)(2).............................. 0 0% 0%
Loren E. Bagley(1)(2)................................... 0 0% 0%
J.T. Whitworth(1)(2).................................... 0 0% 0%
William F. Woodburn(1)(2)............................... 0 0% 0%
L. Charles Laursen(1)(2)................................ 0 0% 0%
Mark D. Woodburn(1)(2).................................. 0 0% 0%
Steven Westlund(1)(2)................................... 0 0% 0%
Peter Benz(1)(2)........................................ 0 0% 0%
Interactive Medical Technologies, Ltd................... 3,573,351 81% 66%
2139 Pontius Avenue
Los Angeles, CA 90025
Magic Consulting Group, Inc.(3)......................... 400,000 9% 7%
c/o Eletto & Santello
75 N. Central Avenue
Elmsford, NY 10523
All executive officers and directors
as a group (9 persons)................................ 0 0% 0%
</TABLE>
- ------------------------
(1) The address for each of the above referenced persons or entities is c/o
Kaire International Inc., 380 Lashley Street, Longmont, Colorado 80501.
(2) Does not include options that may be granted under the Company's 1997 Stock
Option Plan. See "Management."
(3) Includes 100,000 shares of the Company's Common Stock and gives effect to
the exercise of warrants to purchase 300,000 shares of the Company's Common
Stock owned by such entity. See "Certain Transactions."
51
<PAGE>
CERTAIN TRANSACTIONS
In January 1997, the Company borrowed $102,500 from each of its Chairman,
Loren E. Bagley, and Treasurer and Director, William F. Woodburn, and delivered
one 10% unsecured promissory note each to Mr. Bagley and Mr. Woodburn. In July
1997, the Company borrowed an additional $229,000 from each of Messrs. Bagley
and Woodburn, executed and delivered 10% secured promissory notes to each
officer, and pledged 1,400,000 shares of Aloe Commodities, Inc., valued at an
aggregate of $250,000, as collateral for the notes. All of the foregoing notes
were due on demand. In September 1997, each of Messrs. Bagley and Woodburn
demanded payment on all of the foregoing notes. The Company sold its shares of
Aloe Commodities, Inc. and repaid a portion of the principal amount and accrued
interest to each of Messrs. Bagley and Woodburn, and negotiated the cancellation
of each of the foregoing notes in exchange for its execution and delivery of new
principal amount $120,412 10% unsecured promissory notes, one each in the favor
of Mr. Bagley and Mr. Woodburn, also payable upon demand. In December 1997, both
Mr. Bagley and Mr. Woodburn signed agreements with the Company not to demand
repayment until and unless the Company had achieved certain financial
benchmarks.
On February 4, 1997, the Company entered into a Consulting Contract with
Magic Consulting Group, Inc. ("Consultant"). Consultant received the following
compensation for its services: (i) one warrant to purchase 100,000 shares of
Common Stock of the Company for $.01 per share, (ii) 100,000 warrants to
purchase an aggregate of 100,000 shares of Common Stock of the Company at $6.60
per share, such warrants to be identical to the warrants issued by the Company
in this Offering, (iii) $2,500 per month for a period of 60 months from the date
of the Consulting Contract. As of September 30, 1997, Consultant had not
exercised its warrants to purchase shares of the Common Stock of the Company. In
March 1997, the Consultant purchased 100,000 shares of the Company's Common
Stock and 100,000 warrants for $50,000 as part of a private offering of the
Company's securities.
On August 25, 1997, the Company renegotiated the terms of a loan to a
corporation in the principal amount of $200,000 and as part of such renegotiated
terms issued to the corporation 50,000 warrants to purchase 50,000 shares of
Common Stock of the Company at $6.60 per share, such warrants to be identical to
the warrants issued by the Company in its public offering of securities.
On August 29, 1997, the Company borrowed $100,000 from a corporation for a
note bearing interest at 12%, due October 13, 1997. In connection with the
borrowing, the corporation was issued one year options to purchase 15,000 shares
of the Common Stock of the Company at $.01 per share. As of September 30, 1997,
the options had vested but had not been exercised.
On August 29, 1997, the Company borrowed $100,000 from a corporation for a
note bearing interest at 12%, due September 27, 1997. In connection with this
borrowing, the corporation was issued one year options to purchase 15,000 shares
of the Common Stock of the Company at $.01 per share. As of September 30, 1997,
the options had vested but had not been exercised.
As of September 30, 1997, the Company had borrowed $103,237 from its Chief
Operating Officer, Chief Financial Officer and Director, J.T. Whitworth.
Subsequent to September 30, 1997, the Company borrowed from Mr. Whitworth an
additional $36,834, and delivered a $140,071 principal amount 10% unsecured
promissory note to Mr. Whitworth. The promissory note is due upon demand. During
December 1997, Mr. Whitworth entered into an agreement with the Company that he
would not seek repayment of the note until the Company had reached certain
financial goals.
As of September 30, 1997, the Company had borrowed $55,865 from its Chief
Executive Officer and Director, Robert L. Richards. Subsequent to September 30,
1997, the Company borrowed from Mr. Richards an additional $62,401 and executed
a $118,266 principal amount 10% unsecured promissory note in the favor of Mr.
Richards at 10% interest. The promissory note is due upon demand. During
December 1997, Mr. Richards entered into an agreement with the Company that he
would not seek repayment of the note until the Company had reached certain
financial goals.
52
<PAGE>
On December 9, 1997, the Company and certain holders of common stock of the
Company holding approximately 81% of the issued and outstanding stock of the
Company entered into an "Agreement and Plan of Reorganization" with Interactive
Medical Technologies, Inc. ("IMT"), a Delaware corporation. IMT, as part of the
Plan of Reorganization, has committed to invest $3,000,000 in equity in the
Company, of which $1,000,000 has been invested in the Company as of December 31,
1997. Certain holders of common stock of the Company exchanged their shares for
approximately 45% of the common shares of IMT in a transaction which qualified
as a tax free reorganization pursuant to Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended. As part of the transaction, the Company's
Board of Directors was expanded by two new directors.
As part of the Plan of Reorganization, the following identified current and
former executive officers and directors (or entities in which they hold a
beneficial interest) exchanged the stated number of shares of the Company's
Common Stock for the indicated number of IMT's shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
THE COMPANY'S NUMBER OF IMT'S
NAME AND TITLE SHARES EXCHANGED SHARES RECEIVED
- ----------------------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Robert L. Richards, Chief Executive Officer and Director..................... 627,200 20,748,079
William F. Woodburn, Treasurer and Director.................................. 308,823 10,215,639
Loren E. Bagley, Chairman of the Board....................................... 308,823 10,215,639
Mark D. Woodburn, Secretary and Director..................................... 308,823 10,215,639
J.T. Whitworth, Chief Operating Officer, Chief Financial Officer and
Director................................................................... 294,000 9,726,253
Michael Lightfoot, President................................................. 61,600 2,036,745
Nick A. Mangeris, former President........................................... 767,200 25,379,516
</TABLE>
PRIVATE PLACEMENTS OF THE COMPANY'S SECURITIES
Pursuant to a Loan and Security Agreement (the "Loan Agreement"), by and
among the Company and 3 private investors, in or about January 1997, the Company
sold to such investors $300,000 of Agreement Notes. In consideration for the
purchase of the Agreement Notes, the Company granted to the holders of the
Agreement Notes, the Agreement Warrants to purchase an aggregate of
approximately 41,000 shares of Common Stock of the Company at an exercise price
of approximately $.01 per share of Common Stock (as adjusted to reflect the
anti-dilution provisions in the Agreement Warrants). The Agreement Warrants
expire in January 2000 and include "piggyback" registration rights relating to
the shares of Common Stock issuable upon exercise of the Agreement Warrants
subject to the rights of any Underwriter of such an offering to exclude a
reasonable amount of such shares if market factors require a limitation on the
number of shares to be underwritten. The Underwriter has advised the Company and
the holders of the Agreement Warrants that market conditions prevent the
inclusion of any of the shares of the Company's Common Stock underlying the
Agreement Warrants from being included in the registration statement of which
this Prospectus forms a part.
On or about March 20, 1997, the Company completed a private placement of an
aggregate of 500,000 shares and 500,000 warrants by which it received gross
proceeds of $250,000 from five private investors (the "March 1997 Private
Placement"). Following the payment of commission and non-accountable expenses,
an initial payment towards its non-accountable expenses for this Offering and
counsel fees and expenses for that private placement, the Company received net
proceeds of approximately $171,500. The Underwriter for this Offering served as
the Company's Placement Agent for the March 1997 Private Placement.
As part of the March 1997 Private Placement, the Company entered into a
Registration Rights Agreement with five private investors therein granting them
certain piggyback registration rights with respect to the securities purchased
by them. With respect to any underwritten public offering of the
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<PAGE>
Company's securities, the foregoing Registration Rights are subject to the
Underwriter's Agreement to include said securities in the registration statement
for such an offering. The Underwriter for this Offering has advised the Company
that it will not agree to include the Company's securities, sold in the March
1997 Private Placement, in the registration statement of which this Prospectus
forms a part. The holders of a majority of the Company's securities sold in the
March 1997 Private Placement have a right to demand that their securities be
included, one time, in a subsequent registration statement to be filed by the
Company and become effective as soon as practicable after the date of this
Prospectus but not later than 180 days thereafter (subject to a 90 day extension
in certain limited circumstances).
Between June 3, 1997 and December 8, 1997, the Company completed a private
placement of an aggregate of 345,000 shares and $1,725,000 in principal amount
of its ten percent promissory notes ("10% Notes") to nine private investors (the
"Summer 1997 Private Placement"). Following the payment of commission and
non-accountable expenses, additional payments towards its non-accountable
expenses for this Offering and counsel fees and expenses, the Company received
approximately $1,400,000 in net proceeds. The 10% Notes bear interest at a rate
of ten percent per annum commencing upon issuance and mature and are payable in
full (principal plus accrued but unpaid interest) upon the earlier of (a)
eighteen months after issuance, (b) the completion date of an equity financing
of the Company pursuant to which it receives gross proceeds of not less than
$3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from
the "Key Man" life insurance policies on any of its executive officers and
directors. The 10% Notes are secured by the accounts and accounts receivable of
the Company (as defined in the 10% Notes). The security interest for the 10%
Notes, however, are subordinated to the Company's banking obligations. The
Company has the right to prepay all or any of the 10% Notes at any time without
penalty but with accrued interest. The Company intends to use a portion of the
net proceeds of this Offering to repay the 10% Notes in full. See "Use of
Proceeds."
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<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.01 par value per share, 4,418,351 of which are issued and outstanding as of
the date of this Prospectus. The holders of Common Stock are entitled to receive
dividends equally when, as and if declared by the Board of Directors, out of
funds legally available therefor.
Subject to the rights that may be designated by the Board of Directors to
the holders of any shares of Preferred Stock, the holders of the Common Stock
have voting rights, one vote for each share held of record, and are entitled
upon liquidation of the Company to share ratably in the net assets of the
Company available for distribution. Shares of the Company's Common Stock do not
have cumulative voting rights. Therefore, the holders of a majority of the
shares of Common Stock may elect all of the directors of the Company and control
its affairs and day to day operations. The shares of Common Stock are not
redeemable and have no preemptive or similar rights. All 4,418,351 outstanding
shares of the Company's Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par
value $.01 per share ("Preferred Stock"). The Board of Directors of the Company,
without further stockholder action, may issue shares of Preferred Stock in any
number of series and may establish as to each such series the designation and
number of shares to be issued and the relative rights and preferences of the
shares of each series, including provisions regarding voting powers, redemption,
dividend rights, rights upon liquidation and conversion rights. The issuance of
shares of Preferred Stock by the Board of Directors could adversely affect the
rights of holders of Common Stock by, among other matters, establishing
preferential dividends, liquidation rights and voting power. The Company has not
issued any shares of Preferred Stock and has no present intention to issue
shares of Preferred Stock. The issuance thereof could discourage or defeat
efforts to acquire control of the Company through acquisition of shares of
Common Stock.
WARRANTS
The Company has authorized the issuance of up to 1,150,000 Redeemable Common
Stock Purchase Warrants (the "Public Warrants") to be sold in this Offering. As
of the date of this Prospectus, the Company had 1,601,000 warrants issued and
outstanding, 500,000 having been sold as a part of a private placement of the
Company's securities in March, 1997. The Company also has issued and outstanding
warrants to purchase approximately 41,000 shares of its Common Stock issued in
connection with a January, 1997 private placement of the Company's securities,
which are exercisable at $.01 per share of Common Stock and expire in January
2000 (the "Agreement Warrants"). Furthermore, the Company has issued and
outstanding warrants to purchase 30,000 shares of its Common Stock issued in
connection with two private placements of promissory notes in August 1997 and
warrants to purchase 50,000 shares of its Common Stock issued in connection with
the renegotiation of an earlier loan to the Company, also in August, 1997. See
"Certain Transactions." The warrants discussed in the immediately foregoing
sentence contain the same terms and conditions as the Public Warrants.
The following statements and summaries of the material provisions of the
Public Warrants are subject to the more detailed provisions of the Public
Warrants, a copy of which has been included as an Exhibit to the Registration
Statement of which this Prospectus forms a part.
RIGHTS TO PURCHASE SHARES OF COMMON STOCK
Each Public Warrant entitles the holder to purchase for one share of Common
Stock at a price of $6.60, for a period of four years commencing two years after
the date of this Prospectus, provided,
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<PAGE>
however, that if the Underwriter has consented in writing to all of the Public
Warrants being exercisable, they may be exercisable at any time after their
issuance.
Each holder of a Public Warrant may exercise such Public Warrant, in whole
or in part, by surrendering the certificate evidencing such Public Warrant, with
the form of election to purchase attached to such certificate properly completed
and executed, together with payment of the exercise price and any required
transfer taxes, to the Company. No Public Warrants may be exercised unless at
the time of exercise there is a current prospectus covering the shares of Common
Stock issuable upon the exercise of such Public Warrants under an effective
registration statement. The Company will endeavor to obtain and maintain an
effective registration statement, including such current prospectus, so long as
any of the exercisable Public Warrants remain outstanding. While it is the
Company's intention to comply with this intention, there can be no assurance
that it will be able to do so.
The exercise price and any required transfer taxes will be payable in cash
or by certified or official bank check payable to the Company. If fewer than all
of the Public Warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of Public Warrants.
Certificates evidencing the Public Warrants may be exchanged for new
certificates of different denominations by presenting the warrant certificate at
the offices of the Company.
ADJUSTMENTS
The exercise price and the number of shares of Common Stock purchasable upon
exercise of the Public Warrants are subject to adjustment upon the occurrence of
certain events including stock dividends, stock splits, reverse stock splits,
reclassification, reorganizations, consolidations, mergers, and certain
issuances and redemptions of Common Stock and securities convertible into or
exchangeable for Common Stock (below the lesser of the then exercise price of
the Public Warrants or the fair market value of the Company's Common Stock)
excluding issuances of shares of the Company's Common Stock prior to the
commencement of this Offering, any issuances of the Company's securities in
connection with this Offering and Company stock option plans. No adjustments in
the exercise price will be required to be made with respect to the Public
Warrants until cumulative adjustments amount to $.05. In the event of any
capital reorganization, certain reclassifications of the Common Stock, any
consolidation or merger involving the Company (other than a consolidation or
merger which does not result in any reclassification or change in the
outstanding shares of Common Stock), or sale of the properties and assets of the
Company, as, or substantially as, an entirety to any other corporation, Public
Warrants will thereupon become exercisable only for the number of shares of
stock or other securities, assets, or cash to which a holder of the number of
shares of Common Stock of the Company purchasable (at the time of such
reorganization, reclassification, consolidation, merger or sale) upon exercise
of such Public Warrants would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale.
OTHER RIGHTS
In the event of an adjustment in the number of shares of Common Stock
issuable upon exercise of the Public Warrants, the Company will not be required
to issue fractional shares of Common Stock upon exercise of the Public Warrants.
In lieu of fractional shares of Common Stock, there will be paid to the holders
of the Public Warrants, at the time of such exercise, an amount in cash equal to
the same fraction of the current market price of a share of Common Stock of the
Company.
Public Warrantholders do not have voting or any other rights of stockholders
of the Company and are not entitled to dividends, if any.
REDEMPTION OF PUBLIC WARRANTS
During any time the Public Warrants are exercisable, if the closing bid
price of the Common Stock for 20 consecutive trading days shall exceed $10.00
the Company may redeem the Public Warrants by paying
56
<PAGE>
holders $.05 per Public Warrant, provided that notice of such redemption is
mailed not later than 10 days after the end of such period and prescribes a
redemption date at least 30 days thereafter. Public Warrantholders will be
entitled to exercise Public Warrants at any time up to the business day next
preceding the redemption date. Additionally, the Public Warrants may not be
redeemed unless at the time of redemption there is a current prospectus covering
the shares of Common Stock issuable upon exercise of such Public Warrants under
an effective registration statement. During the two year period commencing on
the effective date of the Company's proposed initial public offering, the Public
Warrants shall only be redeemable with the Underwriter's express written
consent.
WARRANT AGREEMENT AND EXCHANGE OF WARRANTS
Upon the closing of this Offering, the Company will enter into a warrant
agreement ("Warrant Agreement") with American Securities Transfer & Trust, Inc.
("Warrant Agent"). It is anticipated that the Warrant Agreement will contain
provisions permitting the Company and the Warrant Agent, without the consent of
the Warrantholders, to supplement or amend the Warrant Agreement in order to
cure any ambiguity or defect, or to make any other provisions in regard to
matters or questions arising thereunder that the Company and the Warrant Agent
may deem necessary or desirable and that does not adversely affect the interests
of the Warrantholders. At that same time, the Company will exchange with the
Warrantholders, who purchased their warrants in the March 1997 private placement
of the Company's securities, printed warrant certificates for the typewritten
format certificates delivered to said investors in this Offering, containing
terms and conditions substantially similar to the Public Warrants.
DIVIDEND POLICY
The Company has not paid dividends to date. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors. The
payment of dividends, if any, in the future will depend upon the Company's
earnings, capital requirements and financial conditions and other relevant
factors. The Company's Board of Directors does not presently intend to declare
any dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business operations.
TRANSFER AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Company's warrants is American Securities Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,418,351 shares of
Common Stock outstanding (5,568,351 shares if the Underwriter's Overallotment
Option is exercised in full). All of the shares of Common Stock sold in this
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company which will be subject to certain limitations of Rule 144 adopted
under the Securities Act.
The 4,418,351 presently outstanding shares of Common Stock are restricted
securities and are subject to the resale limitations provided for in Rule 144.
Under Rule 144, as currently in effect, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, which has
owned restricted shares of Common Stock beneficially for at least one year, is
entitled to sell, within any three month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on an exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A
non-affiliate which has not been an affiliate of the Company for at least the
three months immediately preceding the sale and which has beneficially owned
such shares for at least two years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. In meeting the one
and two year holding periods
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<PAGE>
described above, a holder which has purchased shares can include the holding
periods of a prior owner which was not an affiliate of the Company. None of the
shares of the Company's Common stock have been owned by the holders thereof for
greater than two years.
IMT has agreed not to sell, for a period of two years from the date of this
Prospectus, any shares of the Company's Common Stock owned by them on the date
hereof without the prior written consent of the Underwriter.
Furthermore, in connection with this Offering, the Underwriter has been
granted warrants to purchase up to 100,000 shares of Common Stock and up to
100,000 warrants. The holders thereof have the right to require the Company to
register said warrants, and/or the underlying securities under certain
circumstances. In addition, the holders of said warrants have the right to
"piggy-back" said warrants and/or underlying securities on registration
statements of the Company. Any exercise of such registration rights may result
in dilution in the interest of the Company's stockholders, may hinder efforts by
the Company to arrange future financing and may have an adverse effect on the
market price for the Company's securities.
Prior to this Offering, there has been no market for any securities of the
Company. The effect, if any, of public sales of any of the Company's securities
by present securityholders or the availability of such securities for future
sale at prevailing market prices cannot be predicted. Nevertheless, the
possibility that substantial amounts of the Company's securities may be resold
in the public market may adversely affect prevailing market prices for the
Company's securities, if any such market should develop.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
between the Company and the Underwriter (a copy of which agreement is filed as
an exhibit to the registration statement of which this Prospectus forms a part),
the Company has agreed to sell to the Underwriter 1,000,000 shares of Common
Stock and 1,000,000 Public Warrants. All 1,000,000 shares and 1,000,000 Public
Warrants offered must be purchased by the Underwriter if any are purchased. The
shares and Public Warrants are being offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock and the Warrants to the public at the offering prices set forth
on the cover page of this Prospectus and that the Underwriter may allow to
certain dealers who are members in good standing with the NASD concessions, not
in excess of $ per share of Common Stock and $ per Public
Warrant. After the initial public offering, the public offering prices and
concessions may be changed by the Underwriter.
In connection with this Offering, the Underwriter and certain selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock and the Public Warrants. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such persons may bid for or purchase shares for the purpose of stabilizing
their market price. The Underwriter also may create a short position for its own
accounts by selling more shares or Public Warrants in connection with this
Offering than it is committed to purchase from the Company, and in such case may
purchase shares or Public Warrants in the open market following completion of
this Offering to cover all or a portion of such short position. The Underwriter
may also cover all or a portion of such short position by exercising the
Overallotment Option referred to above. In addition, the Underwriter may impose
"penalty bids" under contractual arrangements with dealers participating in this
Offering whereby it may reclaim from such dealer for the account of the
Underwriter, the selling concession with respect to shares and Public Warrants
that are distributed in this Offering, but subsequently purchased for the
account of the Underwriter in the open market. Any of the transactions described
in this paragraph may result in the maintenance of the price of the shares or
Public Warrants at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph are required, and,
if they are undertaken, they may be discontinued at any time.
While certain of the officers of the Underwriter have significant experience
in corporate finance and the underwriting of securities, the Underwriter has
previously underwritten only three public offerings. No assurance can be given
that the Underwriter's limited public offering experience will not affect the
Company's Offering of the Common Stock and Public Warrants and subsequent
development of a trading market, if any.
The Company has granted the Underwriter the Overallotment Option,
exercisable for 45 days from the date of this Prospectus, to purchase up to
150,000 shares of Common Stock and 150,000 Public Warrants from it, at the
public offering price less the underwriting discounts set forth on the cover
page of this Prospectus. The Underwriters may exercise this option solely to
cover overallotments in the sale of the shares of Common Stock and Public
Warrants offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the shares of Common Stock and Public
Warrants sold in this Offering of which $40,000 has been paid to date.
The underwriting agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain civil liabilities, including
liabilities under the Securities Act.
The Company has agreed to sell to the Underwriter or its designees, at a
price of $10, the Underwriter's warrants, which entitle the Underwriter to
purchase up to 100,000 shares of Common Stock
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<PAGE>
of the Company and 100,000 warrants to purchase up to an additional 100,000
shares of Common Stock of the Company, respectively. The Underwriter's warrants
will be exercisable at a price of $7.50 per share, $.125 per warrant and $6.60
per share for the shares of Common Stock underlying the foregoing warrants,
respectively, for a period of four years commencing one year from the date of
this Prospectus, and they will not be transferable except to the Underwriter and
selected dealers and officers and partners thereof. Any profit realized upon any
resale of the Underwriter's warrants or upon any sale of the shares of Common
Stock or warrants underlying same may be deemed to be additional underwriter's
compensation. The Company has registered (or file a post-effective amendment
with respect to any registration statement registering), for a period of five
years from the effective date of this Offering, the Underwriter's warrants and
the underlying securities under the Securities Act at its expense on one
occasion, and at the expense of the holders thereof on another occasion, upon
the request of a majority of the holders thereof. The Company has also agreed to
certain "piggy-back" registration rights for the holders of the Underwriter's
warrants and the underlying securities. Such piggy-back registration rights will
expire five years from the Effective Date.
The Company has agreed that for a period of not less than three years, the
Underwriter will have the right to designate a person to be a non-voting advisor
to the Company's Board of Directors who will receive the same compensation as a
member of the Board of Directors and who will be indemnified by the Company
against any claims arising out of his participation at meetings of the Board of
Directors. Alternatively, the Underwriter has the right, during such three year
period, to designate one person to be elected to the Company's Board of
Directors. The Company has agreed to use its best effort to obtain the election
of the Underwriter's designee and, if so elected, such person shall be entitled
to receive the same compensation, expense reimbursement and other benefits as
any other non-employee Directors of the Company, if any. The identity of such
person has not been determined as of the date hereof, and it is not expected
that such right will be exercised in the immediate future.
The Underwriter has informed the Company that it does not expect sales to be
made to discretionary accounts to exceed 1% of the shares of Common Stock and
Public Warrants offered hereby.
The Offering is subject to the agreement by IMT that it will not sell any
shares of Common Stock to the public for a period of two years from the date of
this Prospectus.
The Company has agreed to enter into an agreement with the Underwriter
retaining it as a financial consultant for a period of three years from the date
hereof, pursuant to which it will receive fees aggregating $108,000, which fees
will be payable in full at closing.
The Underwriting Agreement also provides that the Company, its current or
future subsidiaries, if any, and its principal stockholders, or their respective
affiliates, will for a period of three years from the Effective Date provide the
Underwriter with a right of first refusal with respect to any public or private
offering of securities to raise capital. The Underwriter must agree to undertake
any such financing on the same or better terms as any other financing proposal.
The Company will pay the Underwriter a commission equal to five percent of
the exercise price of the Public Warrants exercised, of which a portion may be
reallowed to any dealer who solicited the exercise, provided that (i) at the
time of exercise the market price of the Common Stock is greater than the
exercise price of the Public Warrants, (ii) the exercise of the Public Warrants
was solicited by the Underwriter, (iii) the Public Warrants exercised are not
held in discretionary accounts, (iv) disclosure of the compensation arrangements
have been made both at the time of this Offering and at the time of exercise,
and (v) the solicitation of the exercise of the Public Warrants is not in
violation of Regulation M under the Securities Exchange Act of 1934. The Company
has agreed not to solicit the exercise of the Public Warrants other than through
the Underwriter.
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LEGAL MATTERS
The validity of the issuances of the securities offered in this Offering
will be passed upon for the Company by Gusrae, Kaplan & Bruno, Esqs., New York,
New York. Certain legal matters in connection with this Offering will be passed
upon for the Underwriter by Gersten, Savage, Kaplowitz & Fredericks, LLP, New
York, New York.
EXPERTS
The consolidated financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP and Jones, Jensen &
Company, independent certified public accountants, to the extent and for the
periods set forth in the respective reports of such firms appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of said firms as experts in auditing and
accounting. The report of BDO Seidman, LLP for the year ended December 31, 1996
contains an explanatory paragraph regarding the Company's ability to continue as
a going concern.
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. office of the Commission a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with respect to the Securities offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and this Offering, reference is made to the Registration Statement,
including the exhibits filed therewith, which may be inspected without charge or
copies made at prescribed rates from the Commission at its principal office at
450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a web-site that contains
reports, proxies and information statements and other information regarding
issuers that file electronically with the Commission. The Commission's web-site
is located at http://www.sec.gov.
Statements contained in the Prospectus as to the contents of any contract or
other document are not necessarily complete and reference is made to each such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
Upon effectiveness of the Registration Statement, of which this Prospectus
forms a part, the Company will be subject to the reporting requirements of the
Exchange Act and in accordance therewith will file reports, proxies and other
information with the Commission.
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KAIRE INTERNATIONAL, INC.
CONTENTS
<TABLE>
<S> <C>
Reports of Independent Certified Public Accountants.............................. F-2
Independent Auditors' Report..................................................... F-3
Financial Statements:
Consolidated Balance Sheets.................................................... F-4-F-5
Consolidated Statements of Operations.......................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)...................... F-7-F-8
Consolidated Statements of Cash Flows.......................................... F-9-F-10
Summary of Accounting Policies................................................. F-11-F-14
Notes to Consolidated Financial Statements..................................... F-15-F-23
</TABLE>
F-1
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Kaire International, Inc.
Longmont, Colorado
We have audited the accompanying consolidated balance sheets of Kaire
International, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years then ended. These
consolidated 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kaire International,
Inc. and subsidiaries at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the two years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered losses from operations and has a
working capital deficit of $1,382,000 at December 31, 1996 that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Seidman, LLP
April 4, 1997
Denver, Colorado
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Kaire International, Inc.
Longmont, Colorado
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Kaire International, Inc. for the year ended December 31,
1994. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Kaire
International, Inc. for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
Jones, Jensen & Company
August 1, 1996
F-3
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 --------------------------
(UNAUDITED) 1996 1995
------------------ ------------ ------------
<S> <C> <C> <C>
Assets (Notes 1 and 6)
Current:
Cash and cash equivalents....................................... $ 533,530 $ 739,267 $ 1,770,132
Accounts receivable, less allowance of $65,900, $30,000 and
$56,000 for possible losses (Notes 5 and 6)................... 374,481 148,406 518,429
Accounts receivable--related parties (Note 3)................... 41,511 -- 238,638
Inventories (Note 5)............................................ 2,127,441 2,194,315 2,301,644
Note receivable--related party (Note 2)......................... -- 94,670 94,670
Advances to distributors........................................ 81,719 226,855 --
Prepaid expenses and other...................................... 575,920 101,225 86,584
Refundable income taxes (Note 9)................................ 250,895 1,025,000 300,000
------------------ ------------ ------------
Total current assets.............................................. 3,985,497 4,529,738 5,310,097
------------------ ------------ ------------
Property and equipment (Notes 3 and 4):
Computer equipment.............................................. 1,010,875 895,577 764,742
Computer software............................................... 641,505 596,178 508,010
Office equipment................................................ 444,845 421,915 313,033
Furniture and fixtures.......................................... 269,173 153,678 168,103
Leasehold improvements and other................................ 156,014 90,762 68,804
------------------ ------------ ------------
2,522,412 2,158,110 1,822,692
Accumulated depreciation and amortization....................... (1,256,904) (901,212) (444,181)
------------------ ------------ ------------
Net property and equipment........................................ 1,265,508 1,256,898 1,378,511
------------------ ------------ ------------
Other assets:
Investments (Note 3)............................................ -- 250,000 --
Deposits and other.............................................. 720,632 313,483 98,536
------------------ ------------ ------------
Total other assets................................................ 720,632 563,483 98,536
------------------ ------------ ------------
$ 5,971,637 $ 6,350,119 $ 6,787,144
------------------ ------------ ------------
------------------ ------------ ------------
</TABLE>
F-4
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 --------------------------
(UNAUDITED) 1996 1995
------------------ ------------ ------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable................................................ $ 3,205,261 $ 1,341,637 $ 1,198,468
Checks written in excess of deposits............................ 1,266,773 1,376,065 --
Accrued commissions payable..................................... 1,695,170 1,991,476 2,389,086
Sales and payroll taxes payable................................. 376,204 419,141 311,052
Notes payable--related parties (Note 3)......................... 399,926 75,000 220,449
Current portion of leases (Note 4).............................. 152,281 258,392 120,000
Note payable to bank (Note 5)................................... 240,000 250,000 --
Notes payable (Note 6).......................................... 1,367,463 200,000 --
Income taxes payable............................................ -- -- 65,755
------------------ ------------ ------------
Total current liabilities......................................... 8,703,078 5,911,711 4,304,810
Capital leases payable, less current portion (Note 4)............. 22,574 114,010 396,930
Deferred income taxes (Note 9).................................... -- -- 84,000
Long-term debt (Note 7)........................................... 810,162 -- --
------------------ ------------ ------------
Total liabilities................................................. 9,535,814 6,025,721 4,785,740
------------------ ------------ ------------
Minority interest in consolidated subsidiaries.................... 155,586 199,907 85,264
Commitments and contingencies (Notes 6 and 10)
Stockholders' equity (deficit) (Note 8):
Preferred stock: $.01 par value; 5,000,000 shares authorized;
-0- shares issued and outstanding............................. -- -- --
Common stock: $.01 par value; 25,000,000 shares authorized;
4,248,353, 2,940,000 and 2,940,000 shares issued and
outstanding................................................... 42,484 29,400 29,400
Additional paid-in capital...................................... 273,643 (21,304) (21,304)
Cumulative translation adjustment............................... 40,380 11,137 --
Retained earnings (deficit)..................................... (4,076,270) 105,258 1,908,044
------------------ ------------ ------------
Total stockholders' equity (deficit).............................. (3,719,763) 124,491 1,916,140
------------------ ------------ ------------
$ 5,971,637 $ 6,350,119 $ 6,787,144
------------------ ------------ ------------
------------------ ------------ ------------
</TABLE>
See accompanying report of independent certified public accountants, summary
of accounting policies and notes to consolidated financial statements.
F-5
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------- YEARS ENDED DECEMBER 31,
1997 1996 -------------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales (Note 13).................. $ 27,887,227 $ 41,124,070 $ 51,498,562 $ 57,841,350 $ 36,894,705
Cost of sales (Note 12).............. 6,586,767 10,339,409 13,321,062 14,476,630 9,367,902
------------- ------------- ------------- ------------- -------------
Gross profit......................... 21,300,460 30,784,661 38,177,500 43,364,720 27,526,803
------------- ------------- ------------- ------------- -------------
Operating expenses:
Distributor commissions............ 15,626,441 22,018,593 27,965,416 30,830,521 19,507,096
Selling general and administrative
expenses......................... 9,738,877 10,098,037 12,975,915 10,370,482 6,558,258
------------- ------------- ------------- ------------- -------------
25,365,318 32,116,630 40,941,331 41,201,003 26,065,354
------------- ------------- ------------- ------------- -------------
Income (loss) from operations........ (4,064,858) (1,331,969) (2,763,831) 2,163,717 1,461,449
------------- ------------- ------------- ------------- -------------
Other income (expenses)--net......... (160,991) (60,818) (27,312) (30,102) 60,706
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes and
minority interest.................. (4,225,849) (1,392,787) (2,791,143) 2,133,615 1,522,155
Benefit from (provision for) income
taxes (Note 9)..................... -- 353,653 1,103,000 (862,000) (431,232)
Minority interest in (income) loss of
subsidiaries....................... 44,321 (170,865) (114,643) (85,264) --
------------- ------------- ------------- ------------- -------------
Net income (loss).................... $ (4,181,528) $ (1,209,999) $ (1,802,786) $ 1,186,351 $ 1,090,923
------------- ------------- ------------- ------------- -------------
Net income (loss) per share.......... $ (.95) $ (.27) $ (.41) $ .27 $ .25
------------- ------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding................. 4,419,353 4,419,353 4,419,353 4,419,353 4,279,353
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying report of independent certified public accountants, summary
of accounting policies and notes to consolidated financial statements.
F-6
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED STOCKHOLDERS'
----------------------- PAID-IN TRANSLATION EARNINGS EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT)
------------ --------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994......... -- $ -- $ -- $ -- $ (369,230) $ (369,230)
Issuance of common stock for
cash........................... 2,800,000 28,000 (27,000) -- -- 1,000
Net income....................... -- -- -- -- 1,090,923 1,090,923
------------ --------- ----------- ----------- ------------- -------------
Balance, December 31, 1994....... 2,800,000 28,000 (27,000) -- 721,693 722,693
Contribution to capital by
subsidiaries................... -- -- 1,396 -- -- 1,396
Issuance of common stock for
services....................... 140,000 1,400 4,300 -- -- 5,700
Net income....................... -- -- -- -- 1,186,351 1,186,351
------------ --------- ----------- ----------- ------------- -------------
Balance, December 31, 1995....... 2,940,000 29,400 (21,304) -- 1,908,044 1,916,140
Cumulative translation
adjustment..................... -- -- -- 11,137 -- 11,137
Net loss......................... -- -- -- -- (1,802,786) (1,802,786)
------------ --------- ----------- ----------- ------------- -------------
Balance, December 31, 1996....... 2,940,000 29,400 (21,304) 11,137 105,258 124,491
------------ --------- ----------- ----------- ------------- -------------
</TABLE>
F-7
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL CUMULATIVE RETAINED STOCKHOLDERS'
----------------------- PAID-IN TRANSLATION EARNINGS EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT)
------------ --------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
services (unaudited)........... 633,353 6,334 58,602 -- -- 64,936
Issuance of common stock for cash
net of offering costs of
$78,543 (unaudited)............ 500,000 5,000 166,457 -- -- 171,457
Issuance of common stock in
connection with debt net of
offering costs of $15,862
(unaudited).................... 175,000 1,750 69,888 -- -- 71,638
Cumulative translation adjustment
(unaudited).................... -- -- -- 29,243 -- 29,243
Net loss (unaudited)............. -- -- -- -- (4,181,528) (4,181,528)
------------ --------- ---------- ----------- ------------- -------------
Balance September 30, 1997
(unaudited).................... 4,248,353 $ 42,484 $ 273,643 $ 40,380 $ (4,076,270) $ (3,719,763)
------------ --------- ---------- ----------- ------------- -------------
------------ --------- ---------- ----------- ------------- -------------
</TABLE>
See accompanying report of independent certified public accountants, summary
of accounting policies and notes to consolidated financial statements.
F-8
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------- YEARS ENDED DECEMBER 31,
1997 1996 -------------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)..................... $ (4,181,528) $ (1,209,999) $ (1,802,786) $ 1,186,351 $ 1,090,923
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization..... 387,644 326,372 440,873 340,254 103,056
Minority interest................. (44,321) 170,865 114,643 85,264 --
Loss on disposal of fixed
assets.......................... -- -- -- 34,240 --
Common stock issued for
services........................ 17,500 -- -- 5,700 --
Deferred income taxes............. -- -- (84,000) 26,366 57,284
Change in provision for doubtful
accounts........................ 35,900 -- (26,000) -- --
Changes in operating assets and
liabilities:
Accounts receivable............... (261,975) 3,129 384,661 32,677 (524,922)
Related party receivable.......... -- 101,596 238,638 (202,141) (23,997)
Inventories....................... 66,874 (310,078) 123,341 (90,349) (1,940,640)
Prepaid expenses and other........ (427,260) 4,177 (55,909) 102,781 (39,635)
Refundable income taxes........... 774,105 (386,000) (725,000) (300,000) (181,546)
Accounts payable.................. 1,788,624 991,453 157,490 (79,217) 1,052,590
Accrued liabilities and other..... (339,243) (61,234) (322,349) (96,959) 2,550,839
Income taxes payable.............. -- 18,689 (65,755) 14,761 50,994
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities................ (2,183,680) (351,030) (1,622,153) 1,059,728 2,194,946
------------- ------------- ------------- ------------- -------------
Investing activities:
Deposits and other assets......... (342,193) (177,869) -- -- --
Purchases of intangibles.......... (63,417) -- (172,488) (21,223) --
Purchases of property and
equipment....................... (364,302) (357,381) (243,415) (193,662) (719,970)
Advances to distributors.......... 145,136 (249,482) (224,804) (2,051) --
Investment........................ 250,000 -- (250,000) -- (20,955)
Note receivable related party..... -- -- -- -- (94,670)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities.......................... (374,776) (784,732) (890,707) (216,936) (835,595)
------------- ------------- ------------- ------------- -------------
</TABLE>
F-9
<PAGE>
KAIRE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------- YEARS ENDED DECEMBER 31,
1997 1996 -----------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Financing activities:
Checks written in excess of deposits... (109,292) 61,980 1,376,065
Proceeds from note payable to bank..... -- 250,000 250,000 -- --
Payment on note payable to bank........ (10,000) -- -- -- --
Proceeds from notes payable............ 1,492,463 -- 200,000 -- --
Proceeds from issuance of long-term
debt................................. 810,162 -- -- -- --
Payment on notes payable............... (325,000) -- -- -- (224,317)
Proceeds from notes payable related
party................................ 967,046 -- 75,000 -- --
Payment on notes payable related
party................................ (547,451) (220,450) (228,738) -- --
Payments on capital lease.............. (197,547) (106,852) (223,902) (265,734) (62,055)
Issuance of capital stock.............. 337,500 -- -- 1,396 1,000
Offering costs paid.................... (94,405) -- -- -- --
------------ ------------- ------------- ------------ ------------
Net cash provided by (used in) financing
activities............................. 2,323,476 (15,322) 1,448,425 (264,338) (285,372)
------------ ------------- ------------- ------------ ------------
Effect of foreign exchange rates changes
on cash................................ 29,243 11,359 33,570 -- --
Net increase (decrease) in cash and cash
equivalents............................ (205,737) (1,139,725) (1,030,865) 578,454 1,073,979
Cash and cash equivalents, beginning of
period................................. 739,267 1,770,132 1,770,132 1,191,678 117,699
------------ ------------- ------------- ------------ ------------
Cash and cash equivalents, end of
period................................. $ 533,530 $ 630,407 $ 739,267 $ 1,770,132 $ 1,191,678
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
</TABLE>
See accompanying report of independent certified public accountants, summary
of accounting policies and notes to consolidated financial statements.
F-10
<PAGE>
KAIRE INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
ORGANIZATION AND BUSINESS
Kaire International, Inc. ("the Company"), was incorporated in Nevada in
October 1992. The Company is engaged in the distribution of health and personal
care products through network marketers throughout the United States, Canada,
New Zealand, Australia, South Korea, Trinidad and Tobago, and the United
Kingdom.
As of March 18, 1997, the Company was merged into a newly formed Delaware
corporation of the same name with the Nevada corporation ceasing to exist. The
transaction was accounted for on a basis similar to a pooling of interest with
no change in the historical financial statements of the Company. The newly
formed corporation had no operations prior to the merger.
The Company expanded its markets in 1995 by entering New Zealand and
Australia with its health and personal care products. Kaire New Zealand Ltd.
("Kaire New Zealand") and Kaire Australia Pty. Ltd. ("Kaire Australia") were
incorporated in August 1995 and began operations on November 1, 1995. The
Company acquired a 51% interest in these two subsidiaries on the date of
incorporation.
During the nine months ended September 30, 1997, the Company expanded its
markets into South Korea, Trinidad and Tobago, and the United Kingdom. Kaire
Korea, Ltd. ("Kaire Korea") was incorporated on March 19, 1997 in South Korea as
a wholly owned subsidiary of the Company. Operations and sales began during July
1997. Kaire Europe Limited ("Kaire Europe") was incorporated as a wholly owned
subsidiary of the Company on July 24, 1997 in the United Kingdom, commencing
operations during that month. Kaire Trinidad Limited ("Kaire Trinidad"), a
wholly owned subsidiary of the Company, was incorporated on May 21, 1997 in the
Republic of Trinidad and Tabago and began operations during June 1997.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company, its 51% owned subsidiaries Kaire New Zealand and Kaire Australia,
and its wholly owned subsidiaries Kaire Korea, Kaire Europe, and Kaire Trinidad.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements for the nine months ended September 30, 1997 and 1996 are presented
on a basis consistent with the audited financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ended September 30, 1997 are not necessarily indicative of the
results to be expected for the year ending December 31, 1997.
CONCENTRATION OF RISK
The Company maintains its cash accounts in several bank accounts. Accounts
in the United States are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000. The Company's cash balance in some of its bank accounts
generally exceeds the insured limits.
The Company sells its products through network marketers throughout the
United States, Canada, New Zealand, Australia, South Korea, Trinidad and Tobago,
and the United Kingdom. Credit is extended for returned checks and or until
credit card purchases have cleared the bank.
F-11
<PAGE>
KAIRE INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
Credit losses, if any, have been provided for in the financial statements
and are based on management's expectations. The Company's accounts receivable
are subject to potential concentrations of credit risk. The Company does not
believe that it is subject to any unusual or significant risks, in the normal
course of business.
INVENTORIES
Inventories consist mainly of health and personal care products and are
stated at lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed, using
primarily the straight-line method, over the estimated useful lives of the
assets. Maintenance and repair costs are expensed as incurred.
LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the expected undiscounted future cash flow from the
use of the assets and its eventual disposition is less than the carrying amount
of the assets, an impairment loss is recognized and measured using the asset's
fair value.
DEFERRED OFFERING COSTS
Deferred offering costs include professional fees directly related to the
Company's proposed public offering. If the offering is successful, costs
incurred will be offset against the proceeds of the offering. If the offering is
unsuccessful, such costs will be expensed.
DEBT ISSUE COSTS
Debt issue costs are being amortized using the straight-line method over the
term of the notes payable.
REVENUE RECOGNITION
The Company sells its products directly to independent distributors. Sales
are recorded when products are shipped.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method". Accordingly, deferred tax
liabilities and assets are determined based on the temporary differences between
the financial statement and tax bases of assets and liabilities, using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
F-12
<PAGE>
KAIRE INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
RECEIVABLES FROM RELATED PARTIES
Due to their related party nature and terms of the receivables from related
parties, the Company cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all of these notes bear interest at a floating rate of
interest based upon the lending institutions prime lending rate. Accordingly,
the fair value approximates their reported carrying amount at September 30, 1997
and December 31, 1996 and 1995.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.
INVESTMENT IN COMMON STOCK
The Company acquired 1,400,000 shares of common stock of Aloe Commodities
International, Inc. ("Aloe") representing a 14% interest in Aloe for $250,000 in
1996. During 1997, the Company sold its investment in Aloe for $250,000 and used
the proceeds as partial payment on certain notes payable.
FOREIGN CURRENCY TRANSLATIONS
Assets and liabilities of subsidiaries, are translated at the rate of
exchange in effect on the balance sheet date; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected as a cumulative translation adjustment in
consolidated stockholders' equity. Foreign currency gains and losses resulting
from transactions are included in results of operations in the period in which
the transactions occurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain items included in the 1995 financial statements have been
reclassified to conform to the current year presentation.
NET INCOME (LOSS) PER COMMON SHARE
The net loss per share of common stock is determined using the
weighted-average number of shares outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission
F-13
<PAGE>
KAIRE INTERNATIONAL, INC.
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
("SEC") Staff Accounting Bulletin No. 83 ("SAB 83"), common shares issued by the
Company during the twelve months immediately preceding the initial public
offering at a price below the initial public offering price plus the number of
common share equivalents which result from the grant of common stock options and
warrants having exercise prices below the initial public offering price during
the same period have been included in the calculation of the shares used in
computing income (loss) per share as if they were outstanding for all periods
presented.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and
Statement of Financial Accounting Standards No. 129 "Disclosure of Information
About an Entity's Capital Structure" ("SFAS 129"). SFAS 128 provides a different
method of calculating earnings per share than is currently used in accordance
with Accounting Board Opinion ("ABP") No. 15, "Earnings Per Share." SFAS 128
provides for the calculation of "Basic" and "Diluted" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure. SFAS 128 and SFAS 129 are
effective for financial statements issued for periods ending after December 15,
1997. Their implementation is not expected to have a material effect on the
consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standard No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting
and display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that displays with the same prominence as
other financial statements. SFAS 131 supersedes Statement of Financial
Accounting Standard No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards of the way the public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on future financial statement disclosures. Results of operations and
financial position, however, will be unaffected by the implementation of these
standards.
F-14
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
1. GOING CONCERN
During 1996, the Company incurred a significant loss and deficit in working
capital. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. However, the Company is not in default on any of
its debt and has continued to pay its associates on a timely basis. There are a
number of factors which contributed to the loss including several marketing
promotions which did not generate the anticipated results, a decline in sales
from the normal business cycle of a business in this industry, the creation of a
number of videos, changes in the bonus plan effecting the total payout and the
implementation of an aggressive recruitment plan. In response to those
challenges, the Company has taken significant steps including the restructuring
of the marketing department with significant emphasis on budgeting and
performance, an overall reduction in the Company's operating expenses and the
implementation of significant controls to maintain a very conservative expense
approach.
In addition, new products that management believes will provide anticipated
high profile and user appeal will be introduced during 1997. Many of the
products introduced over the past two years are excellent products but were
either not fully promoted or lacked the spotlight appeal demanded by many of the
consumers in the portion of the network marketing industry. Management's plan
for years 1997 and beyond include selling products with more market appeal which
are properly introduced and marketed.
The Company is also actively pursuing its international growth strategy. In
early April 1997, the Company obtained a multi level marketing license for its
newly formed, wholly owned subsidiary, Kaire Korea Ltd. As of May 1, 1997, Kaire
Korea LTD (KKL) has leased office space in downtown Seoul and has hired a Korean
President to run the operations there. The Company is currently completing the
product approval and company registration process and plans to be able to start
selling products in Korea by the end of June 1997.
The Company also began operations through a distribution center in Trinidad
in January 1997. The Company is currently in the process of forming a branch
office in Trinidad which will allow for the product to be brought in at a much
reduced price saving both VAT and duties for the associates. The Company will
also be leasing office space, hiring staff and taking over the operations of the
Trinidad operation. Management's assessment is that this will open the door to
both the Caribbean and the South American market, which, although not as
lucrative as the Asian market, will be much less costly to develop.
In summary, the Company has significantly cut its operating expenses.
Marketing expenses have been reduced sharply with no real impact on the
effectiveness of the Company's marketing strategy. Domestic sales have started
to increase as have Canadian sales (which directly impact operations in the
United States), Australian sales and New Zealand sales. The Company has obtained
additional loans from the shareholders in 1997 as well as securing an initial
private placement for $250,000. It is currently seeking additional financing to
provide for these acquisitions and near term working capital. The financing
alternatives include private placements of its common stock or other equity
interest in the Company, third-party loans and equity participation, or a
combination of these methods. There are no assurances that any of these events
will occur or that the Company's plan will be successful. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
2. NOTE RECEIVABLE-RELATED PARTY
On October 18, 1994, the Company accepted a 10% promissory note receivable
from a related party in the amount of $115,549. The note is uncollateralized and
due on demand. During 1997, the Company offset the promissory note and accrued
interest against certain loans made to the Company by the related party.
F-15
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
3. RELATED PARTY TRANSACTIONS
The amounts due from a stockholder of the subsidiaries and an officer of
those companies was $238,638 at December 31, 1995. These receivables are
non-interest bearing and are due upon demand. The amounts were received in full
during the year ended December 31, 1996.
Kaire Australia and Kaire New Zealand purchased assets from a related party
during November 1995 for notes payable at 12%. The notes were uncollateralized
and require nine principal and interest payments beginning December 1995. As of
December 31, 1996 and 1995, total amounts due on the two notes were $0 and
$111,949 and $0 and $108,500, respectively. The notes were repaid in full in
1996.
During 1997, two officers of the Company advanced funds to the Company for
working capital requirements. These advances are non-interest bearing and are
due upon demand. Advances outstanding from these two officers at September 30,
1997 are $159,102.
During 1997, the Company borrowed $205,000 from two individual shareholders
and directors for notes payable at 10%. The notes are uncollateralized and are
due upon demand. During July 1997, the Company borrowed an additional $369,000
from the same shareholders and directors for notes payable at 10%, due and
payable upon demand. The Company pledged as security on the July 1997 notes
payable its investment in the shares of Aloe Commodities, Inc. During September
1997, a payment demand was made for the unpaid amounts due on both notes. The
Company sold its investment in the shares of Aloe Commodities, Inc., valued at
$250,000, which was the Company's cost of those shares and offset the note
receivable balance as stated in Note 2. The outstanding balance of the 10% notes
payable including accrued interest at September 30, 1997 is $240,824. The note
is due upon demand and is issued without collateral.
On November 28, 1997, the Company issued promissory notes at 10% payable on
demand in the amount of $262,037 to related parties for funds previously
provided by those related parties.
4. CAPITAL LEASES PAYABLE
The Company has various capital lease obligations which are collateralized
by equipment. Interest rates under the agreements range from 7.1% to 31.9%, with
monthly principal and interest payments ranging from $51 to $11,349.
Future minimum lease payments as of September 30, 1997 and December 31, 1996
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
1997................................................................................ $ 66,623 $ 308,047
1998................................................................................ 114,694 114,694
1999................................................................................ 14,888 14,888
------------- ------------
Total payments...................................................................... 196,205 437,629
Less amounts representing interest.................................................. 21,350 65,227
------------- ------------
Payments, net of interest........................................................... 174,855 372,402
Less current maturities............................................................. 152,281 258,392
------------- ------------
Total long-term obligations......................................................... $ 22,574 $ 114,010
------------- ------------
------------- ------------
</TABLE>
F-16
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
4. CAPITAL LEASES PAYABLE (CONTINUED)
At December 31, 1996 and 1995, property and equipment includes equipment
under capital lease obligations with a total cost of $757,689 and $683,634 and
accumulated amortization of $263,588 and $119,084.
5. NOTE PAYABLE TO BANK
The Company had a $250,000 line of credit agreement with a bank. The line
bears interest at 10% and matures on May 17, 1997. The line was collateralized
by inventories, accounts receivable and certain other assets. $250,000 was
outstanding under the line of credit at December 31, 1996.
During May 1997, the line of credit agreement was extended. The extended
line of credit of $240,000 bears interest at a variable rate, initially 10.5%
and matured June 18, 1997. Collateral pledged under the original agreement was
retained. At September 30, 1997, $240,000 was outstanding under the line of
credit. On December 26, 1997, the line of credit was converted to a term loan at
10.5% due January 15, 1999.
6. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 ----------------------
(UNAUDITED) 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Notes payable to individuals (1).......................................... $ -- $ 200,000 $ --
Note payable to a corporation (2)......................................... 200,000 -- --
Note payable guaranteed by Company (3).................................... 475,000 --
Note payable to a corporation (4)......................................... 100,000 -- --
Note payable to a corporation (5)......................................... 100,000 -- --
Notes payable to a corporation (6)........................................ 492,463 -- --
------------- ---------- ----------
Total notes payable....................................................... $ 1,367,463 $ 200,000 $ --
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
- ------------------------
(1) At December 31, 1996, the Company had two $100,000 notes with two
individuals. The notes bore interest at 14% and matured on June 30, 1997.
The notes were collateralized by all accounts and notes receivable and
certain other assets. In connection with this borrowing, the lenders were
each issued warrants to purchase 13,667 shares of the Company's common stock
at $.01 per share. As of September 30, 1997, total amounts due on these
notes were $0 and the warrants had not been exercised.
(2) During January 1997, the Company borrowed $200,000 from a corporation for
notes payable at 10% per month, with interest payments due monthly. The
notes are guaranteed by certain officers and directors and are due upon
demand. The Company renegotiated the terms of the original Agreement on
August 25, 1997, as the Company had not met the interest payment
requirements of the Agreement. The August 25, 1997 Agreement modifies the
repayment provisions of principal and interest, stipulating that the Company
repay all interest and principal due under the original Agreement by
December 31, 1997. Also, the interest rate was reduced from 10% per month to
2% per month payable monthly, retroactive to March 5, 1997. In the event
that the Company is unable to repay the note in full by December 31, 1997,
the Company is required to make twelve consecutive monthly payments
beginning January 1, 1998 in the amount of $18,911 to repay interest and
principal
F-17
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
6. NOTES PAYABLE (CONTINUED)
due on the note. In connection with this borrowing, the lender was issued
warrants to purchase 50,000 shares of the Company's common stock at $6.60
per share. As of September 30, 1997, the warrants had not been exercised.
(3) Kaire Korea Ltd., pursuant to a demand promissory note guaranteed by the
Company, borrowed $500,000 from a corporation during May 1997 for notes
payable at an annual interest rate of 9.5%. The notes are due in principal
installments of: $25,000 due August 31, 1997, $125,000 due September 30,
1997, $175,000 due October 31, 1997 and $175,000 due November 30, 1997. An
option to acquire 15% of the capital stock of Kaire Korea Ltd. at the par
value of Kaire Korea Ltd.'s capital stock expiring May 2000 was granted to
the lender. In the event payments on installments are delinquent by three
days, the lender is granted an option to purchase an additional 2% of the
capital stock of Kaire Korea Ltd. for each such delinquency. If the entire
promissory note is not paid within (6) months of the date of the promissory
note, the lender is granted an option to acquire an additional 5% of the
capital stock of Kaire Korea Ltd. For each month beyond the six (6) months
noted above that payment is not made in full, the lender is granted an
additional option to acquire 5% of the capital stock of Kaire Korea Ltd.
until such time the lender has a cumulative option to acquire a combined
total of 75% of the capital stock of Kaire Korea Ltd. Each option may be
exercised within thirty-six (36) months from the date of grant. At such time
the lender has accumulated options to purchase 75% of Kaire Korea Ltd. and
the promissory note remains outstanding, the Company is required to issue
the lender an option to acquire 10% of the Company's capital stock at an
option price equal to its par value. Such option would expire thirty-six
(36) months from the date of grant. At September 30, 1997, the Company had
not made the installment payment due September 30, 1997. No options to
acquire capital stock of Kaire Korea Ltd. had been tendered as of September
30, 1997.
(4) During August 1997, the Company borrowed $100,000 from a corporation for an
unsecured note bearing interest at 12% and due September 27, 1997. Upon
default, the Company's outstanding obligation of principal and interest will
bear interest at the highest rate permitted by applicable law, which has
been determined to be an annual rate of 18%, payable upon demand. As of
September 30, 1997, the Company was in default on the note. In connection
with this borrowing, the lender was issued warrants to purchase 15,000
shares of the Company's common stock at $.01 per share and 15,000 shares of
the Company's common stock at $6.60 per share. As of September 30, 1997, the
warrants had not been exercised.
(5) During August 1997, the Company borrowed $100,000 from a corporation for a
note bearing interest at 12%, due October 13, 1997 and secured by all of the
assets of the Company. Upon default, the Company's outstanding obligation of
principal and interest on the date of default will bear interest at an
annual rate of 18%, payable upon demand. In connection with the borrowing,
the lender was issued warrants to purchase 15,000 shares of the Company's
common stock at $.01 per share and 15,000 shares of the Company's common
stock at $6.60 per share. As of September 30, 1997, the warrants had not
been exercised.
(6) During August and September 1997, the Company borrowed $342,463 from a
corporation for a note payable with interest at a rate of .33% per day. The
note payable is guaranteed by certain officers and directors and due
September 20, 1997. The Company is subject to liquidation damages of $10,000
for each day the notes payable are in default. At September 30, 1997, the
Company was in default on its payment on the notes payable. Subsequent to
September 30, 1997, the Company obtained a waiver of the default provisions
on the notes payable. The Company borrowed an additional $150,000 during
F-18
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
6. NOTES PAYABLE (CONTINUED)
September 1997 from the same corporation for a note payable with interest at
a rate of .33% per day, payable upon demand.
The Company borrowed $100,000 from a corporation during January 1997 for a
note bearing interest at 14% and maturing June 30, 1997. In connection with
this borrowing, the lender was issued warrants to purchase 13,667 shares of
the Company's common stock at $.01 per share. As of September 30, 1997, the
total amount due on the note was $0 and the warrants had not been exercised.
7. LONG-TERM DEBT
During the period ended September 30, 1997, the Company borrowed $875,000
pursuant to a private offering consisting of the issuance of promissory notes
and common stock of the Company. Promissory notes are due eighteen months from
the date of issue and carry an interest rate of 10%. In connection with the
private offering, debtholders were issued 175,000 shares of the Company's common
stock. Original issue discount of $87,500 was recorded as part of the private
offering financing and is being amortized on a straight line basis over the life
of the promissory notes.
In connection with the Company's agreement with an underwriter for the
private placement of the Company's securities, the Company borrowed an
additional $850,000 during November and December 1997 in exchange for promissory
notes at 10%, due eighteen months from the date of issue. Security holders were
issued 170,000 shares of the Company's common stock.
8. STOCKHOLDERS' EQUITY
On February 1, 1997, the Board of Directors authorized a stock split,
effected in the form of a dividend of 2,800 shares of common stock for each
common share held by shareholders of record on February 1, 1997. All references
to common share and per share amounts in the accompanying financial statements
have been restated to reflect the effect of this stock dividend.
During March 1997, the Board of Directors adopted certain resolutions which
were approved by the Company's stockholders to increase the number of authorized
shares of common stock from 1,000,000 to 25,000,000 shares. The stockholders
also approved the authorization of the issuance of a new class of 5,000,000
shares of preferred stock. The preferred stock of the Company can be issued in
series. With respect to each series issued, the Board of Directors of the
Company will determine, among other things, the number of shares in the series,
voting rights and terms, dividend rates and terms, liquidation preferences and
redemption and conversion privileges.
On March 20, 1997, the Company sold 500,000 shares of common stock pursuant
to a private placement offering for $250,000 and warrants to purchase an
additional 500,000 shares of common stock at a purchase price of $6.60 per
share.
The warrants are exercisable for a period of four years commencing two years
from the date the Securities and Exchange Commission declares the Company's
registration statement effective. The effective date is the first date the
Company may offer the sale of its common stock in an initial public offering.
The Company may redeem the warrants commencing one year from the effective date
at a redemption price of $.05 per warrant if: (1) the closing bid price of the
common stock for twenty (20) consecutive trading days exceeds $10.00, (2) the
redemption occurs during the first two years following the effective date and
the Company receives the prior written consent of the underwriter for such
redemption, and (3) the warrants are exercisable.
F-19
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
9. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------- YEARS ENDED DECEMBER 31,
1997 1996 --------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Current (expense) benefit:
Federal.................................... $ -- $ 325,000 $ 1,017,000 $ (763,000) $ (322,954)
State...................................... -- 1,000 2,000 (130,000) (50,994)
------------- ----------- ------------ ----------- -----------
-- 326,000 1,019,000 (893,000) (373,948)
------------- ----------- ------------ ----------- -----------
Deferred benefit:
Federal.................................... 1,150,000 21,800 68,000 29,000 (57,284)
State...................................... 111,000 32,000 100,000 2,000 --
------------- ----------- ------------ ----------- -----------
1,261,000 53,800 168,000 31,000 (57,284)
------------- ----------- ------------ ----------- -----------
1,261,000 379,800 1,187,000 (862,000) (431,232)
Change in valuation allowance................ (1,261,000) (26,147) (84,000) -- --
------------- ----------- ------------ ----------- -----------
Income tax (expense) benefit................. $ -- $ 353,653 $ 1,103,000 $ (862,000) $ (431,232)
------------- ----------- ------------ ----------- -----------
------------- ----------- ------------ ----------- -----------
</TABLE>
The types of temporary differences between the tax basis of assets and
liabilities that give rise to a significant portion of the net deferred tax
liability and their approximate tax effects are as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1997 -----------------------
(UNAUDITED) 1996 1995
------------------- ----------- ----------
<S> <C> <C> <C>
Property and equipment............................................. $ 27,000 $ (125,000) $ (84,000)
Inventory.......................................................... -- 47,000 --
Accounts receivable allowance...................................... -- 14,000 --
Tax credit and operating loss carry forwards....................... 1,234,000 148,000 --
------------------- ----------- ----------
Less valuation allowance........................................... (1,261,000) (84,000) --
------------------- ----------- ----------
Net deferred assets (liabilities).................................. $ -- $ -- $ (84,000)
------------------- ----------- ----------
------------------- ----------- ----------
</TABLE>
A valuation allowance equal to the net deferred tax asset has been recorded,
as management of the Company has not been able to determine that is more likely
than not that the deferred tax assets will be realized.
F-20
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
9. INCOME TAXES (CONTINUED)
A reconciliation of the income taxes at the federal statutory rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------- YEARS ENDED DECEMBER 31,
1997 1996 -------------------------------------
(UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Federal income tax (benefit) computed at the
federal statutory rate..................... $ (1,437,000) $(474,000) $ (949,000) $ 763,000 $ 322,954
State income tax (benefit), net of federal
benefit.................................... (139,000) (46,000) (102,000) 130,000 50,994
Foreign tax credits.......................... (167,000) (23,000) (47,000) -- --
Increase in valuation allowance 1,261,000 26,147 84,000 -- --
Other........................................ 482,000 163,200 (89,000) (31,000) 57,284
------------- ----------- ------------- ---------- ----------
Income tax expense (benefit)................. $ -- $(353,653) $ (1,103,000) $ 862,000 $ 431,232
------------- ----------- ------------- ---------- ----------
------------- ----------- ------------- ---------- ----------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is obligated under operating leases for office space. Two leases
are on a month to month basis and three require future minimum lease payments as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------
<S> <C>
1998.................................................................................................. $ 159,800
1999.................................................................................................. 86,400
2000.................................................................................................. 35,700
2001.................................................................................................. 25,400
2002.................................................................................................. 25,400
----------
TOTAL................................................................................................. $ 332,700
----------
----------
</TABLE>
Occupancy expense for all operating leases was $301,644, $220,681, $290,600,
$175,800 and $99,915 for the nine months ended September 30, 1997 and 1996 and
the years ended December 31, 1996, 1995, and 1994.
SELF-INSURANCE
The Company is partially self insured for employee medical liabilities which
covers risk up to $10,000 per individual covered under the plan. The Company has
purchased excess medical liability coverage for individual claims in excess of
$10,000 and aggregate claims in excess of approximately $312,000 annually with a
national medical insurance carrier. Premiums and claim expenses associated with
the medical self insurance program are included in the accompanying statement of
income.
MANAGEMENT SERVICES CONTRACT
During November 1995 the Company entered into a management services contract
with a stockholder of one of its subsidiaries. The agreement requires a minimum
monthly payment of $18,835 through October 31, 1997.
F-21
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
During fiscal 1997 the Company entered into employment agreements with
Robert L. Richards and J.T. Whitworth for a five year period, each at an annual
salary of $180,000, subject to annual increases or bonuses as may be determined
by the Board of Directors.
The company also entered into an employment agreement with Robert J. Young
for the period August 11, 1997 through August 31, 1998 at an annual salary of
$125,000.
The Company's employment agreement with Mr. Young contains a provision that
he be reimbursed for up to $62,500 of documented educational expenses.
CONSULTING AGREEMENT
On February 4, 1997, the Company entered into a consulting contract with
Magic Consulting Group, Inc. ("Consultant"). Consultant is to receive the
following compensation for services: (i) one warrant to purchase 100,000 shares
of common stock of the Company for $.01 per share (ii) 100,000 warrants to
purchase an aggregate of 100,000 shares of common stock of the Company at $6.60
per share and (iii) $2,500 per month for a period of 60 months. As of September
30, 1997 no warrants were exercised.
401(K) PROFIT SHARING PLAN
On January 1, 1996 the Company established a 401(k) profit sharing
retirement plan. The plan requires one year of service and attainment of age 21
to become eligible. Employer contributions vest over a 5 year period. The
Company's contributions to the plan for the nine months ended September 30, 1997
and 1996 were approximately $41,300 and $53,250 and for the year ended December
31, 1996 were approximately $67,000.
11. STOCK OPTION PLAN
During 1997, the Company adopted a stock option plan. No options have been
granted under this Plan through September 30, 1997. The Company has reserved
1,000,000 shares of its common stock for future grants under this Plan.
12. MAJOR SUPPLIERS
During the nine months ended September 30, 1997 and 1996 and the years ended
December 31, 1996, 1995, and 1994, the Company purchased amounts of its products
from a limited number of vendors, including significant amounts from MW
International of 67%, 58%, 57%, 40% and 40% and from Manhattan Drug of 8%, 24%,
22%, 40% and 40%.
13. FOREIGN SALES
For the nine months ended September 30, 1997 and 1996 and the years ended
December 31, 1996, 1995 and 1994, the Company's net sales from foreign
operations were approximately $4,570,000, $5,739,600, $7,380,000, $1,200,000,
and $0.
F-22
<PAGE>
KAIRE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED
14. SUBSEQUENT EVENTS (UNAUDITED)
PROPOSED PUBLIC OFFERING
The Company has entered into a letter of intent with an underwriter for a
proposed public offering of 1,000,000 shares of common stock and warrants to
purchase 1,000,000 shares of common stock at a price to be determined.
AGREEMENT AND PLAN OF REORGANIZATION
Subsequent to September 30, 1997, the Company borrowed $700,000 from
Interactive Medical Technologies, Ltd., ("IMT"), a Delaware corporation. On
December 9, 1997, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with IMT whereby IMT agreed to provide an
additional $300,000 equity investment in the Company and convert the $700,000
previously borrowed by the Company to equity in the Company and for IMT to
provide additional equity investments of $2,000,000 by February 15, 1998. The
Agreement for reorganization of the Company contemplates an exchange of the
Company's shares for IMT shares whereby IMT will issue, in total, shares equal
to forty five percent (45%) of its common stock outstanding immediately prior to
the closing date of the Agreement in exchange for not less than 80% of the
issued and outstanding common shares of the Company. Therefore the Company will
be a subsidiary of IMT. The transaction is contemplated to qualify as a tax free
reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended.
15. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Interest........................................... $ 141,147 $ 100,282 $ 120,839 $ 104,502 $ 27,649
Income taxes....................................... $ -- $ -- $ -- $ 853,582 $ 504,500
Non-cash transactions:
Payment of notes payable--related party.............. $ 115,549 $ -- $ -- $ -- $ --
Equipment acquired under capital lease obligations... $ -- $ 73,370 $ 79,374 $ 174,931 $ 669,788
Equipment purchased from related party under notes
payable............................................ $ -- $ -- $ -- $ 66,865 $ --
Inventory purchased from related party under notes
payable............................................ $ -- $ -- $ -- $ 153,764 $ --
Common stock issued for services..................... $ 64,936 $ -- $ -- $ 57,002 $ --
</TABLE>
16. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996..................................... $ 56,000 $ 41,210 $ 67,210 $ 30,000
Year ended December 31, 1995..................................... $ 56,000 $ 118,855 $ 118,855 $ 56,000
Year ended December 31, 1994..................................... $ 56,000 $ -- $ -- $ 56,000
</TABLE>
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized in connection with
this Offering to give any information or to make any representations other than
those contained in this Prospectus. This Prospectus does not constitute an offer
or a solicitation in any jurisdiction to any person to whom it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the circumstances of the Company or the facts
herein set forth since the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 9
Dilution........................................ 18
Use of Proceeds................................. 19
Capitalization.................................. 20
Selected Financial Information.................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business........................................ 34
Legal Proceedings............................... 45
Management...................................... 46
Principal Stockholders.......................... 51
Certain Transactions............................ 52
Description of Securities....................... 55
Shares Eligible for Future Sale................. 57
Underwriting.................................... 59
Legal Matters................................... 61
Experts......................................... 61
Additional Information.......................... 61
Index to Financial Statements................... F-1
</TABLE>
------------------------
Until , 1998 (25 days after the date of the Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This 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.
KAIRE INTERNATIONAL, INC.
1,000,000 SHARES
OF COMMON STOCK AND
1,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
---------------------
PROSPECTUS
---------------------
MAY DAVIS GROUP, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this Offering, all of which are to be paid by the
Registrant, in connection with the issuance and distribution of the Securities
being registered, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 4,728.12
NASD Filing Fee................................................ 1,602.75
NASDAQ Listing and Filing Fees................................. 15,000.00*
Printing and Engraving Expenses................................ 100,000.00*
Accounting Fees and Expenses................................... 100,000.00*
Legal Fees and Expenses........................................ 125,000.00
Blue Sky Fees and Expenses..................................... 50,000.00*
Transfer and Warrant Agent Fees and Expenses................... 10,000.00*
Consulting Agreement with Underwriter.......................... 108,000.00*
Miscellaneous Expenses......................................... 25,963.13*
----------
TOTAL.......................................................... $540,294.00*
----------
----------
</TABLE>
- ------------------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, Section 145 of the Delaware General Corporation Law provides
that persons who are officers or directors of a corporation may be indemnified
by the corporation for acts performed in their capacities as such. The
Registrant's By-Laws authorize indemnification in accordance with and to the
extent permitted by said statute.
The Registrant's Certificate of Incorporation and By-Laws provide for
indemnification to the fullest extent permitted by law.
Reference is also made to Section of the Underwriting Agreement filed
as Exhibit 1.1 to this Registration Statement.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold the following securities within the past three
years:
A
<TABLE>
<CAPTION>
APPROXIMATE
DATE PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- --------------- ------------------------------------- ------------------------------------- -----------------
<C> <S> <C> <C>
01/05/97 Mystic Enterprises, Inc. 177,882 shares of
Common Stock
01/15/97 Robert J. Young 50,000 shares of
Common Stock
01/15/97 CCB Investments, L.L.C. 98,823 shares of
Common Stock
01/15/97 Rain Bird Enterprises, L.L.C. 98,823 shares of
Common Stock
01/15/97 Zero Investments, L.L.C. 98,823 shares of
Common Stock
02/04/97 Magic Consulting Group, Inc. Options to purchase 100,000 shares of Partial
Common Stock and Warrants to purchase Consideration for
100,000 shares of Common Stock Consulting
Agreement
03/20/97 Gusrae, Kaplan & Bruno 25,000 shares of Legal Services
Common Stock
08/25/97 Magco, Inc. $200,000 24% Note and Warrants to $200,000
purchase 50,000 shares of Common
Stock
08/29/97 The Bridge Fund N.V. $100,000 18% Note and options to $100,000
purchase 15,000 shares of Common
Stock and Warrants to purchase 15,000
shares of Common Stock
08/29/97 Corso, Ltd. $100,000 12% Note and options to $100,000
purchase 15,000 shares of Common
Stock and Warrants to purchase 15,000
shares of Common Stock
</TABLE>
II-2
<PAGE>
B
<TABLE>
<CAPTION>
DATE PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- --------- ---------------------------------------- ---------------------------------------- -----------------
<C> <S> <C> <C>
12/30/96 Art Granito $100,000 14% Note (Agreement Note) and $ 100,000
Warrants to Purchase approximately
13,667 shares of Common Stock
12/30/96 Roland Day $100,000 Agreement Note and Warrants to $ 100,000
Purchase approximately 13,667 shares of
Common Stock
01/03/97 Long Distance Direct $100,000 Agreement Note and Warrants to $ 100,000
Holdings, Inc. Purchase approximately 13,667 shares of
Common Stock
</TABLE>
C
In March 1997, the Company sold, to the persons and entities identified
below, the securities of the Company for the consideration indicated opposite
their names:
<TABLE>
<CAPTION>
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- ---------------------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
Flatford Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00
Magic Consulting Group, Inc. One Unit of the Company's Securities* $ 50,000.00
Green Ocean Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00
Moonbridge Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00
Flint Rock Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00
-----------------
TOTAL $ 250,000.00
-----------------
-----------------
</TABLE>
- ------------------------
* Each Unit consisting of 100,000 shares of Common Stock and 100,000
Redeemable Common Stock Purchase Warrants.
From June 1997 through December 1997, the Company sold, to the persons and
entities identified below, the securities of the Company for the consideration
indicated opposite their names:
II-3
<PAGE>
D
<TABLE>
<CAPTION>
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION
- ------------------------------------- ------------------------------------------------------- -----------------
<S> <C> <C>
Farid K. Farida Two Units of the Company's Securities** $ 500,000.00
Sol Arker One Half of a Unit of the Company's Securities** $ 125,000.00
Charles A. Sutton One Half of a Unit of the Company's Securities** $ 125,000.00
Jay Levy One Half of a Unit of the Company's Securities** $ 125,000.00
John J. McCarthy Two Fifths of a Unit of the Company's Securities** $ 100,000.00
Abe Weinzimer One Half of a Unit of the Company's Securities** $ 125,000.00
DG Companies, Inc. One Unit of the Company's Securities** $ 250,000.00
Annette Reed One Half of a Unit of the Company's Securities** $ 125,000.00
Michael E. Jessen One Unit of the Company's Securities** $ 250,000.00
-----------------
TOTAL $ 1,725,000.00
-----------------
-----------------
</TABLE>
- ------------------------
** Each Unit consisting of 50,000 shares of Common Stock and a $250,000 10%
Promissory Note.
These transactions were exempt from registration under the Securities Act of
1933, as amended (the "Act"), under Section 4(2) of that Act as not involving a
public offering, and as to those sales set forth under subsections C and D
above, reliance is placed upon Rule 506 of Regulation D and Section 4(6) of the
Act. No underwriter was engaged by the Company in connection with the issuances
described above. The recipients of all of the foregoing securities represented
that such securities were being acquired for investment and not with a view to
the distribution thereof. In addition, the certificates evidencing such
securities bear restrictive legends.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (2)
3.1 Registrant's Articles of Incorporation (1)
3.2 Registrant's By-Laws (1)
3.3 Registrant's Articles of Merger dated March 11, 1997 (1)
4.1 Form of Underwriter's Warrant Certificate (2)
4.2 Form of Financial Consulting Agreement to be entered into by and between the
Registrant and the Underwriter (2)
4.3 Form of Common Stock Certificate (2)
4.4 Form of Warrants delivered to Private Investors (1)
4.5 Form of Redeemable Common Stock Purchase (Public) Warrants (2)
4.7 Form of Warrant Agency Agreement (2)
5.1 Opinion of Gusrae, Kaplan & Bruno (2)
10.1 Agreement and Plan of Reorganization with Interactive Medical Technologies, Ltd.
("IMT") (1)
10.2 Registrant's Loan Agreement dated May 19, 1997 with Star Financial Bank (1)
10.3 Registrant's Employment Agreement with Robert J. Young (1)
10.4 Registrant's Employment Agreement with Robert L. Richards (1)
10.5 Registrant's Employment Agreement with J.T. Whitworth (1)
10.6 Registrant's Promissory Note with Loren E. Bagley (1)
10.7 Registrant's Promissory Note with William F. Woodburn (1)
10.8 Registrant's Promissory Note with Robert L. Richards (1)
10.9 Registrant's Promissory Note with Horphag Research Ltd. (1)
10.10 Registrant's Promissory Notes with Marden Rehabilitation Associates, Inc. (1)
10.11 Registrant's Promissory Note with Magco, Inc. (1)
10.12 Registrant's Promissory Note with IMT dated October 27, 1997 (1)
10.13 Registrant's Promissory Note with IMT dated October 30, 1997 (1)
10.14 Forms of Promissory Notes issued to Private Investors (1)
10.15 Leases (Two) for Registrant's Denver, Colorado facilities (1)
10.16 Registrant's Stock Option Plan (1)
10.17 Registrant's Promissory Note with J.T. Whitworth (1)
21.1 List of Registrant's Subsidiaries (1)
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1) (2)
23.2 Consent of BDO Seidman (1)
23.3 Consent of Jones, Jensen & Company (1)
24.1 Powers of Attorney (included on Page II-8 of this filing)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) To be Filed by Amendment.
II-5
<PAGE>
(b) Financial Statement Schedule
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) 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 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 of 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.
(5) The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Longmont,
State of Colorado, on the 10th day of February, 1998.
KAIRE INTERNATIONAL, INC.
BY: /S/ ROBERT L. RICHARDS
-----------------------------------------
Robert L. Richards,
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature appears
below constitutes and appoints Robert L. Richards and J.T. Whitworth and each of
them, his or her true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT L. RICHARDS Chief Executive Officer and
- ------------------------------ Director (Principal February 10, 1998
Robert L. Richards Executive Officer)
Chief Operating Officer and
Chief Financial Office
/s/ J.T. WHITWORTH and a Director (Principal
- ------------------------------ Financial Officer and February 10, 1998
J.T. Whitworth Principal Accounting
Officer)
/s/ LOREN E. BAGLEY Chairman of the Board of
- ------------------------------ Directors and a Director February 10, 1998
Loren E. Bagley
/s/ WILLIAM F. WOODBURN Treasurer and Director
- ------------------------------ February 10, 1998
William F. Woodburn
/s/ MARK D. WOODBURN Secretary and Director
- ------------------------------ February 10, 1998
Mark D. Woodburn
Director
- ------------------------------ February , 1998
Steven Westlund
Director
- ------------------------------ February , 1998
Peter Benz
II-7
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 09/12/1996
960265086 -- 2662005
CERTIFICATE OF INCORPORATION
OF
KAIRE INTERNATIONAL HOLDINGS, INC.
The undersigned, for the purposes of forming a corporation under the laws
of the State of Delaware, do make, file and record this Certificate, and do
certify that:
FIRST: The name of this corporation is
KAIRE INTERNATIONAL HOLDINGS, INC.
SECOND: Its Registered Office in the State of Delaware is to be located at
9 East Loockerman Street, in the City of Dover, County of Kent, 19901. The
Registered Agent in charge thereof is National Registered Agents, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The amount of the total authorized capital stock of the
corporation is One Million (1,000,000), all of which are of a par value of One
Cent ($.01) each and classified as Common stock.
FIFTH: The name and mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
V.R. Stump 2030 Main Street
Suite 1040
Irvine, California 92714
SIXTH: The duration of the corporation shall be perpetual.
SEVENTH: When a compromise or arrangement is proposed between the
corporation and its creditors or any class of them or between the corporation
and its shareholders or any class of them, a court of equity jurisdiction within
the state, on application of the corporation or of a creditor or shareholder
thereof, or on application of a receiver appointed for the corporation pursuant
to provisions of Section 291 of Title 8 of the Delaware Code or on application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation pursuant to provisions of Section 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors or of the
shareholders or class of shareholders to be affected by the proposed compromise
or arrangement or reorganization, to be summoned in such manner as the court
directs. If a majority in number representing 3/4 in value of the creditors or
class of creditors, or
<PAGE>
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or a reorganization, agree to a compromise or
arrangement or a reorganization of the corporation as a consequence of the
compromise or arrangement, the compromise or arrangement and the reorganization,
if sanctioned by the court to which the application has been made, shall be
binding on all the creditors or class of creditors, or on all the shareholders
or class of shareholders and also on the corporation.
EIGHTH: The personal liability of all of the directors of the corporation
is hereby eliminated to the fullest extent allowed as provided by the Delaware
General Corporation Law, as the same may be supplemented and amended.
NINTH: The corporation shall, to the fullest extent legally permissible
under the provisions of the Delaware General Corporation Law, as the same may be
amended and supplemented, shall indemnify and hold harmless any and all persons
whom it shall have power to indemnify under said provisions from and against any
and all liabilities (including expenses) imposed upon or reasonably incurred by
him in connection with any action, suit or other proceeding in which he may be
involved or with which he may be threatened, or other matters referred to in or
covered by said provisions both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer of the corporation. Such
indemnification provided shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any Bylaw, Agreement or Resolution
adopted by the shareholders entitled to vote thereon after notice.
Dated on September 12, 1996.
/s/ V.R. Stump
------------------------------
V.R. Stump, Incorporator
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/14/1997
971233932 -- 2662005
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
Kaire International Holdings, Inc.
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Kaire International
Holdings, Inc. resolutions were duly adopted setting forth a proposed amendment
of the Certificate of Incorporation of said corporation, declaring said
amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "First" so that, as amended, said
Article shall be and read as follows:
The name of this corporation is: Kaire International Holdings, Inc.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Kaire International Holdings, Inc. has caused this
certificate to be signed by Robert L. Richards, an Authorized Officer, this 2
day of July, 1997.
BY: /s/ [ILLEGIBLE]
------------------------------
TITLE OF OFFICER: Chief Executive Officer
------------------------------
<PAGE>
Exhibit 3.2
BY-LAWS
OF
KAIRE INTERNATIONAL, INC.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE 11- MEETING OF SHAREHOLDERS
Section I - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Law of the State Delaware ("Corporation Law").
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail, not less than ten or more than fifty days before the
meeting, upon each shareholder of record entitled to vote at such meeting, and
to any other shareholder to whom the giving of notice may be required by law.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called, and shall indicate that it is being issued by, or at the
direction of, the person or persons calling the meeting. if, at any meeting,
action is proposed to be taken that would, if taken, entitle shareholders to
receive payment for their shares pursuant to the Business corporation Act, the
notice of such meeting shall include a statement of that purpose and to that
effect. If mailed, such notice shall be directed to each such shareholder at his
address, as it appears on the records of the shareholders of the corporation,
unless he shall have previously filed with the Secretary of the Corporation a
written request that notices intended for him be mailed to some other address,
in which case, it shall be mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or
By Laws - 1
<PAGE>
by proxy, submits a signed waiver of notice either before or after such meeting.
Notice of any adjourned meeting of shareholders need not be given, unless
otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), at all meetings of
shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the corporation then issued and outstanding and
entitled to vote, shall be necessary and sufficient to constitute a quorum for
the transaction of any business. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called if a quorum
had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Articles of incorporation,
any corporate action, other than the election of directors to be taken by vote
of the shareholders, shall be authorized by a majority of votes cast at a
meeting of shareholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Articles of Incorporation,
at each meeting of shareholders, each holder of record of shares of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section I Number Election and Term of Office:
(a) The number of the directors of the corporation shall be ( ), unless and
until otherwise determined by vote of a majority of the entire Board of
Directors. The number of
By Laws - 2
<PAGE>
Directors shall not be less than three, unless all of the outstanding shares are
owned beneficially and of record by less than three shareholders, in which event
the number of directors shall not be less than the number of shareholders.
(b) Except as may otherwise be provided herein or in the Articles of
incorporation, the members of the Board of Directors of the corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the corporation, except as are in the Articles of incorporation or by
statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special Meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held. A notice, or waiver of notice, except as
required by Section 8 of this Article III, need not specify the purpose of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
By Laws - 3
<PAGE>
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. if there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
Directors shall preside.
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Articles of
Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Articles of Incorporation,
or by these By-Laws, the action of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors.
Any action authorized, in writing, by all of the directors entitled to vote
thereon and filed with the minutes of the corporation shall be the act of the
Board of Directors with the same force and effect as if the same had been passed
by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
Section 10 - Removal:
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for cause by action of the Board.
By Laws - 4
<PAGE>
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section I - Number, Qualifications, Election and Term of office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person, except the offices of
President and Secretary.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
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Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at. any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-Laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of other Corporations:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary, or any Assistant Secretary, and may
bear the corporate seal.
By Laws - 6
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(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends-and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in cash of the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined; or it may authorize the issuance, subject to such
conditions as-may be permitted by law, of scrip in registered or bearer form
over the signature of an officer or agent of the Corporation, exchangeable as
therein provided for full shares, but such scrip shall not entitle the holder to
any rights of a shareholder, except as therein provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or.
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on
By Laws - 7
<PAGE>
the day on which the resolution of the directors relating thereto is adopted.
when a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided for herein, such
determination shall apply to any adjournment thereof, unless the directors fix a
new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
Section 2 - By Directors.
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article DC
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
say provisions of the by-laws with respect to the s or the filling of vacancies
in the Board removal of director resulting from the removal by the shareholders.
If any by-laws regulating an impending election of directors is adopted, amended
or repealed by the Board of Directors, there shall be set forth in the notice of
the next meeting of shareholders for the election of directors, the by-law so
adopted, amended or repealed together with a concise statement of the changes
made.
The undersigned certify the foregoing by-laws have been adopted as
the first by-laws of the Corporation, in accordance with the requirements of
the Corporation Law.
Dated: March 11, 1997
------------------
/s/ [ILLEGIBLE]
---------------------
By Laws - 8
<PAGE>
Exhibit 3.3
ARTICLES OF MERGER
OF
KAIRE INTERNATIONAL, INC.
AND
KAIRE INTERNATIONAL HOLDINGS, INC.
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 78, Nevada Revised Statutes,
the foreign corporation and the domestic corporation herein named do hereby
adopt the following Articles of Merger.
1. Annexed hereto and made a part hereof is the Plan of Merger for
merging Kaire International, Inc., a corporation for profit organized and
existing under the laws of the State of Nevada, with and into Kaire
International Holdings, Inc., a corporation for profit organized and existing
under the laws of the State of Delaware. The said Plan of Merger has been
adopted by the Board of Directors of Kaire International, Inc. and by the Board
of Directors of Kaire International Holdings, Inc.
2. The said Plan of Merger was submitted to the stockholders of
Kaire International, Inc. by its Board of Directors pursuant to the provisions
of Section 78-320 of Chapter 78, Nevada Revised Statutes, and the manner of
approval thereof by said stockholders was as follows:
(i) The designation, the number of outstanding shares, and the
number of votes entitled to be cast by each class entitled to vote on the said
Plan of Merger are as follows:
(a) Designation of class: Common Stock
(b) Number of outstanding shares of class: 1,050
(c) Number of votes of class entitled to be cast: 1,050
(ii) Shareholder consents representing the total number of votes
cast for the merger herein provided for by each class entitled to vote on the
said Plan of Merger is as follows:
(a) Designation of class: Common Stock
(b) Number of votes of class cast for Plan of Merger:
(iii) The said number of votes represented by consents approving the
said Plan of Merger was sufficient for the approval thereof by the said class.
<PAGE>
3. The merger of Kaire International, Inc. with and into Kaire
International Holdings, Inc. is permitted by the laws of the jurisdiction of
organization of Kaire International Holdings, Inc. and has been authorized in
compliance with said laws.
4. The said Plan of Merger was not required to be submitted to the
stockholders of Kaire International Holdings, Inc. pursuant to the provisions of
the laws of its jurisdiction of organization.
5. When the merger herein provided for becomes effective, Article
ONE of the Certificate of Incorporation of Kaire International Holdings, Inc. is
amended pursuant to the annexed Plan of Merger to read as follows:
"ONE: The name of the Corporation is KAIRE INTERNATIONAL, INC."
6. The specified address of Kaire International Holdings, Inc. where
copies of process may be sent by the Secretary of State of the State of Nevada,
served pursuant to the provisions of Section 78.461, Nevada Revised Statutes, in
a proceeding to enforce any obligation or the rights of dissenting shareholders
of Kaire International, Inc., unless Kaire International Holdings, Inc. has
designated in writing to the Secretary of State of the State of Nevada a
different address for that purpose, is: National Registered Agents, 9 East
Loockerman Street, Dover, Delaware 19901.
7. The merger herein provided for shall become effective in the
State of Nevada upon the date of filing hereof.
Signed on March 11, 1997.
KAIRE INTERNATIONAL, INC.
/s/ Robert L. Richards
-----------------------------------
Chief Executive Officer
/s/ Tamyla J. McMahan
-----------------------------------
Assistant Secretary
KAIRE INTERNATIONAL, INC.
/s/ Robert L. Richards
-----------------------------------
Chief Executive Officer
/s/ Tamyla J. McMahan
-----------------------------------
Assistant Secretary
<PAGE>
STATE OF COLORADO )
) SS.:
COUNTY OF BOULDER )
On March 11, 1997, personally appeared before me, a Notary Public in and for the
State and County aforesaid, Robert L. Richards and Tamyla J. McMahan, Chief
Executive Office and Assistant Secretary of Kaire International, Inc.,
personally known to me to be the persons whose names are subscribed to the above
instrument in the said capacities, who acknowledged that they executed the said
instrument.
/s/ [ILLEGIBLE]
---------------------------
Notary Public
My Commission Expires Apr. 5, 1999
STATE OF COLORADO )
) SS.:
COUNTY OF BOULDER )
On March 11, 1997, personally appeared before me, a Notary Public in and for the
State and County aforesaid, Robert L. Richards and Tamyla J. McMahan, Chief
Executive Office and Assistant Secretary of Kaire International Holdings, Inc.,
personally known to me to be the persons whose names are subscribed to the above
instrument in the said capacities, who acknowledged that they executed the said
instrument.
/s/ [ILLEGIBLE]
---------------------------
Notary Public
My Commission Expires Apr. 5, 1999
3
<PAGE>
PLAN OF MERGER adopted by Kaire International, Inc., a corporation for profit
organized under the laws of the State of Nevada, by resolution of its Board of
Directors on September , 1996, and adopted on September , 1996 by Kaire
International Holdings, Inc., a corporation for profit organized under the laws
of the State of Delaware, by resolution of its Board of Directors on
September , 1996. The names of the corporations planning to merge are Kaire
International, Inc., a corporation for profit organized under the laws of the
State of Nevada, and Kaire International Holdings, Inc., a corporation for
profit organized under the laws of the State of Delaware. The name of the
surviving corporation into which Kaire International, Inc. plans to merge is
Kaire International Holdings, Inc.
1. Kaire International, Inc. and Kaire International Holdings, Inc., shall,
pursuant to the provisions of the General Corporation Law of the State of Nevada
and the provisions of laws of the jurisdiction of organization of Kaire
International Holdings, Inc., be merged with and into a single corporation, to
wit, Kaire International Holdings, Inc., which shall be the surviving
corporation when the merger becomes effective and which is sometimes hereinafter
referred to as the "surviving corporation," and which shall continue to exist as
said surviving corporation under the name Kaire International, Inc. pursuant to
the provisions of the laws of its jurisdiction of organization. The separate
existence of Kaire International, Inc., which is sometimes hereinafter referred
to as the "non-surviving corporation," shall cease when the merger becomes
effective in accordance with the laws of the jurisdiction of its organization.
2. The Certificate of Incorporation of the surviving corporation when the merger
becomes effective shall be the Certificate of Incorporation of said surviving
corporation except that Article ONE thereof, relating to the name of the
corporation, the purposes of the corporation, and the authorized shares of the
corporation, are hereby amended and changed so as to read as follows when the
merger becomes effective:
"ONE: The name of the corporation is KAIRE INTERNATIONAL, INC."
and said Certificate of Incorporation as herein amended and changed shall
continue in full force and effect until further amended and changed in the
manner prescribed by the provisions of the laws of its jurisdiction of
organization.
3. The present bylaws of the surviving corporation will be the bylaws of said
surviving corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by the
provisions of the laws of its jurisdiction of organization.
4. The directors and officers in office of the surviving corporation when the
merger becomes effective shall be the members of the first Board of Directors
and the first officers of the surviving corporation, all of whom shall hold
office until their respective successors are elected or appointed and qualified
or until their tenure is otherwise terminated in accordance with the bylaws of
the surviving corporation.
4
<PAGE>
5. Each issued share of stock of the non-surviving corporation when the merger
becomes effective shall be converted into one share of stock of the surviving
corporation. The issued shares of stock of the surviving corporation shall not
be converted or exchanged in any manner, but each said share which is issued
immediately prior to the merger becoming effective shall be canceled upon the
effectiveness of the merger.
6. The merger of the non-surviving corporation with and into the surviving
corporation shall be authorized in the manner prescribed by the General
Corporation Law of the State of Nevada and by the laws of the jurisdiction of
organization of the surviving corporation, and the Plan of Merger herein made
and approved shall be submitted to the stockholders of the non-surviving
corporation for their approval or rejection in the manner prescribed by the
provisions of the General Corporation Law of the State of Nevada.
7. In the event that the merger of the non-surviving corporation with and into
the surviving corporation shall have been duly authorized in compliance with the
General Corporation Law of the State of Nevada, and in the event that the Plan
of Merger shall have been approved by the stockholders entitled to vote of the
surviving corporation in the manner prescribed by the laws of the jurisdiction
of its organization, the non-surviving corporation and the surviving corporation
hereby stipulate that they will cause to be executed and filed and/or recorded
any document or documents prescribed by the laws of the State of Nevada and of
the State of Delaware, and that they will cause to be performed all necessary
acts therein and elsewhere to effectuate the merger.
8. The Board of Directors and the proper officers of the non-surviving
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the merger
herein provided for.
5
<PAGE>
EXHIBIT 4.4
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD,
TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
As stated in Section 10 hereof, in the event the Company consummates an
initial public offering of its securities and the securities sold in such
offering include common stock purchase warrants, on the closing date of such
offering, this warrant is to be surrendered at the office of the Company for
printed warrant certificates having the same terms, conditions, rights and
obligations as those sold in said initial public offering.
Warrant No.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
To Subscribe For The Purchase of up to_____________________________(__________)
Shares of Common Stock
of
KAIRE INTERNATIONAL, INC.
(a Nevada corporation)
1. Warrant.
THIS CERTIFIES THAT______________(the "Holder"), as registered owner of
this Redeemable Common Stock Purchase Warrant (the "Warrant"), of KAIRE
INTERNATIONAL, INC. (the "Company") is entitled, at any time during the four
year period (the "Exercise Period") commencing on the second anniversary date
of the declaration of effectiveness ("Effective Date") by the Securities and
Exchange Commission of an initial public offering of securities of the
Company (an "IPO"); provided, however, that the Warrants may be exercisable
prior to the second anniversary of the Effective Date with the express prior
written consent of May Davis Group, Inc., but not after the Exercise Period
has expired, to subscribe for, purchase and receive, in whole or in part, up
to________________________(_________________) shares of Common Stock, $.01 par
value (the "Common Stock"), of the Company. This Warrant shall be initially
exercisable as to each share of Common Stock covered hereby at $6.60 per
share (the "Exercise Price"). The term "Exercise Price" shall mean the
initial exercise price or such exercise price, as adjusted in the manner
provided herein, depending on the context.
This Warrant is one of the Warrants being issued by the Company in
connection with the Company's private placement to accredited investors (the
"Private Placement") of units consisting of up to an aggregate of $1,000,000
in
<PAGE>
principal amount promissory notes bearing interest at the rate of ten percent
(10%) per year, repayable as set forth therein (the "Notes"), 200,000 shares
of Common Stock and 400,000 Warrants to purchase up to 400,000 shares of
Common Stock. The Notes, shares of Common Stock and Warrants referenced in
this paragraph may hereinafter be collectively referred to as the
"Securities".
2. Exercise.
In order to exercise this Warrant, the exercise form attached hereto
must be duly executed, completed and delivered to the Company at its
principal office as set forth in Section 8.4 hereof during the Exercise
Period, together with this Warrant and payment of the Exercise Price for the
shares of the Common Stock being purchased and any required transfer tax. The
Company shall issue a certificate or certificates evidencing the shares of
Common Stock which are the subject of any such exercise as soon as
practicable after its receipt of an exercise form. The Holder shall not have
any rights whatsoever as a stockholder of the Company until such time as the
certificate or certificates evidencing shares of Common Stock issuable upon
exercise of this Warrant have been issued by the Company upon due exercise of
this Warrant by the Holder. If the rights represented hereby shall not have
been exercised at or before 5:00 p.m., Eastern Time, on the last day during
the Exercise Period, this Warrant shall become and be void and without
further force or effect and all rights represented hereby shall cease and
expire.
3. Restrictions on Transfer. Registration of Transfer.
A. Restrictions on Transfer. The registered Holder of this Warrant, by
its acceptance hereof, agrees that prior to any proposed transfer of all or
any part of this Warrant or any securities purchased upon the exercise of
this Warrant, if such transfer is not made pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Act"), such holder will, if requested by the Company, deliver to the Company:
(i) an opinion of counsel reasonably satisfactory in form and substance
to the Company that the Warrant or the securities purchased upon the
exercise of the Warrant may be transferred without registration under
the Act;
(ii) an agreement by the proposed transferee to the impression of the
restrictive investment legend set forth below on the Warrant or the
securities to be received;
(iii) an agreement by such transferee that the Company may place a
notation in the stock books of the Company or a "stop transfer order"
with any transfer agent or registrar with respect to the Warrant and the
securities purchased upon exercise of the Warrant; and
(iv) an agreement by such transferee to be bound by the provisions of
this Section 3 relating to the transfer of such Warrant or the
securities purchased upon exercise of such warrant.
Each Warrant holder agrees that each Warrant and each certificate
representing securities purchased upon exercise of this Warrant shall bear
the following legend unless such securities have been registered under the
Act:
The Securities represented by this Certificate have not been registered
under the Securities Act of 1933, as amended. These Securities have been
acquired for investment purposes and not with a view to distribution or
resale, and may not be sold, assigned, pledged, hypothecated or
otherwise transferred without an effective
2
<PAGE>
Registration Statement for such Securities under the Securities Act of
1933, as amended, and applicable state securities laws, or an opinion of
counsel satisfactory to the issuer of these securities to the effect that
registration is not required under such Act and such state securities laws.
B. Registration of Transfers. In order to make any permitted transfer
or assignment of this Warrant, the Holder must deliver to the Company the
assignment form attached hereto duly executed and completed, together with
this Warrant and payment of all transfer taxes, if any, payable in connection
therewith. Upon receipt of such form and this Warrant, the Company shall
immediately transfer this Warrant or any part thereof specified in the
assignment form on the books of the Company and shall execute and deliver a
new warrant or warrants of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of shares of Common
Stock purchasable hereunder or such portion of such number as shall be
contemplated by such assignment.
4. New Warrants to be Issued.
A. Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Warrant may be exercised or assigned in whole or in
part. In the event of the exercise or assignment hereof in part only, upon
delivery to the Company of this Warrant for cancellation, together with the
duly executed exercise or assignment form and funds sufficient to pay the
Exercise Price and any required transfer tax, the Company shall promptly
cause to be delivered to the Holder without charge a new Warrant or new
warrants of like tenor with this Warrant in the name of the Holder evidencing
the right to purchase in the aggregate the remaining number of underlying
shares of Common Stock purchasable hereunder after giving effect to any such
partial exercise or assignment.
B. Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant and of an indemnification by the Holder in favor of the Company,
reasonably satisfactory to it, the Company shall execute and deliver to the
Holder a new warrant of like tenor and date.
5. Adjustments.
Subject and pursuant to the provisions of this Section 5, the Exercise
Price and number of Common Shares subject to this Warrant shall be subject to
adjustment from time to time as set forth hereinafter.
(A) Except as hereinafter provided in the event the Company shall, at
any time or from time to time after the date hereof, sell any shares of
Common Stock for a consideration per share less than the lower of (i) the
closing bid price of the Common Stock as reported on NASDAQ on the trading
date next preceding such sale (the "Market Price"), or (ii) the Exercise
Price then in effect, or issue any shares of Common Stock as a stock dividend
to the holders of Common Stock, or subdivide or combine the outstanding
shares of Common Stock into a greater or lesser number of shares (any such
sale, issuance, subdivision or combination being herein called a "Change of
Shares"), then, and hereafter immediately before the date of such sale or the
record date for each Change of Shares, the Exercise Price for the Warrants
(whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined
by dividing (1) the product of (a) the Exercise Price in effect immediately
before such Change of Shares and (b) the sum (i) the total number of shares
of Common Stock outstanding immediately prior to such Change of Shares, and
(ii) the number of shares determined by dividing (A) the aggregate
consideration, if any, received by the Company upon such consideration,
issuance, subdivision or combination by (3) the lesser of (x) the Market
Price, or (y) the Exercise Price,
3
<PAGE>
in effect immediately prior to such Change of Shares; by (2) the total number
of shares of Common Stock outstanding immediately after such Change of Shares.
For the purposes of any adjustment to be made in accordance with this
Section 5(A) the following provisions shall be applicable: In case of the
issuance or sale of shares of Common Stock (or of other securities deemed
hereunder to involve the issuance or sale of shares of Common Stock) for a
consideration part or all of which shall be cash, the amount of the cash
portion of the consideration therefor deemed to have been received by the
Company shall be (i) the subscription price (before deducting any commissions
or any expenses incurred in connection therewith), if shares of Common Stock
are offered by the Company for subscription, or (ii) the public offering
price (before deducting therefrom any compensation paid or discount allowed
in the sale, underwriting or purchase thereof by underwriters or dealers or
others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, and otherwise than on the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of
other securities deemed hereunder to involve the issuance or sale of shares
of Common Stock) for a consideration part or all of which shall be other than
cash, the amount of the consideration therefor other than cash deemed to have
been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend
or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company other than shares
of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this
Section 5.
(E) The number of shares of Common Stock at any one time outstanding
shall be deemed to include the aggregate maximum number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise
of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(F) Upon each adjustment of the Exercise Price pursuant to this Section
5, the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained
by the applicable adjusted Exercise Price.
(G) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock,
for a consideration per share (determined as provided in Section 5(A) and as
provided below) less than the lower of (i) the Market Price, or (ii) the
Exercise Price
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in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of
dividend or other distribution), the Exercise Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior
to the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making the computation in accordance with the provisions of
Section 5 (A) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the case
may be, issuable or that may become issuable under such options, rights
or warrants (assuming exercise in full even if not then currently
exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were
issued, for a consideration equal to the minimum purchase price per
share provided for in such options, rights or warrants at the time of
issuance, plus the consideration, if any, received by the Company for
such options, rights or warrants; provided, however, that upon the
expiration or other termination of such options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this
subsection (A) (and for the purposes of subsection (E) of Section 5
hereof) shall be reduced by the number of shares as to which options,
warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Exercise
Price then in effect shall forthwith be readjusted and thereafter be the
price that it would have been had adjustment been made on the basis of
the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or
terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock issuable or
that may become issuable upon conversion or exchange of any convertible
or exchangeable securities (assuming conversion or exchange in full even
if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such
securities, for a consideration equal to the consideration received by
the Company for such securities, plus the minimum consideration, if any,
receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the expiration or other termination of the
right to convert or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares of
Common Stock deemed to be issued and outstanding pursuant to this
subsection 5 (G)(ii) (and for the purposes of subsection 5 (E) hereof)
shall be reduced by the number of shares as to which the conversion or
exchange rights shall have expired or terminated unexercised, and such
number of shares shall no longer be deemed to be issued and outstanding,
and the Exercise Price then in effect shall forthwith be readjusted and
thereafter be the price that it would have been had adjustment been made
on the basis of the issuance only of the shares actually issued plus the
shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or
exchange rights shall not have expired or terminated unexercised.
(iii) If any change shall occur in the exercise price per share
provided for in any of the options, rights or warrants referred to in
subsection 5 (B), or in the price per share or ratio at which the
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<PAGE>
securities referred to in subsection 5 (G) are convertible or exchangeable,
such options, rights or warrants or conversion or exchange rights, as the
case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities.
(H) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value or as a result of subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants) or in case of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful
and adequate provision whereby the registered holder of each Warrant then
outstanding shall have right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a
holder of the number of securities issuable upon exercise of such Warrant
immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance and shall forthwith file at the Corporate Office of the
Warrant Agent a statement signed by its President or a Vice President and by
its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provision. Such provisions shall include provision
for adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in subsection 5(A). The above provisions of this
subsection 5 (H) shall similarly apply to successive reclassifications and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(I) After each adjustment of the Exercise Price pursuant to this
Section 5, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief
summary thereof to be sent by ordinary first class mail to each registered
holder at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of any officer of the Warrant Agent
or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed, shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
(J) No adjustment shall be made:
(i) upon the issuance of the Warrants (including shares of Common Stock
issued upon exercise of those warrants);
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(ii) upon the issuance of shares of Common Stock and warrants (including
shares of Common Stock issued upon exercise of those warrants) issued
prior to or in connection with the Public Offering;
(iii) upon the issuance or sale of shares of Common Stock issuable upon
the exercise of any stock options granted under any stock option plan of
the Company; or
(iv) if the amount of said adjustment shall be less than five cents
($.05) per share of Common Stock, provided, however, that in such case,
any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so
carried forward, shall amount to at least five cents ($.05) per share of
Common Stock.
(K) The foregoing provisions notwithstanding on the effective date of
any new Exercise Price the number of shares as to which any Warrant may be
exercised shall be increased or decreased so that the total sum payable to
the Company on the exercise of such Warrant shall remain constant.
(L) The form of Warrant need not be changed because of any change
pursuant to this Section, and Warrants issued after such change may state the
same Exercise Price and the same number of shares as is stated in the
Warrants initially issued pursuant to this Agreement. However, the Company
may at any time in its sole discretion (which shall be conclusive) make any
change in the form of Warrant that the Company may deem appropriate and that
does not effect the substance thereof; and any Warrant thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
or otherwise, may be in the form as so changed.
6. Redemption of Warrants.
(A) At any time the Warrants are exercisable and on not less than
thirty (30) days notice, the Warrants may be redeemed, at the option of
the Company, at a redemption price of $.05 per Warrant, provided the
closing bid price of the Common Stock receivable upon exercise of the
Warrant for twenty consecutive trading days shall exceed $10.00 per
share (the "Target Price"), subject to adjustment as set forth in
Section 5 hereof. During the two (2) year period commencing on the
effective date of the initial public offering of the Company's
securities, the Warrants may only be redeemed with the express written
consent of the Underwriter.
(B) Providing the conditions set forth in Section 6(A) are met, and the
Company shall desire to exercise its right to redeem the Warrants, it
shall mail a notice of redemption to the Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth
(30th) day before the date fixed for redemption, at his/her last address
as shall appear on the records of the Company. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly
given whether or not the Holder receives such notice.
(C) The notice of redemption shall specify the (i) redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 p.m. (New
York time) on the trading day immediately preceding the date fixed for
redemption. The date fixed for redemption of the Warrants shall be the
Redemption Date. No failure
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<PAGE>
to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such
redemption except as to a Holder (a) to whom notice was not mailed;
or (b) whose notice was defective. An affidavit of the Secretary or
an Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(D) Except as provided herein, any right to exercise a Warrant shall
terminate at 5:00 p.m. (New York time) on the trading day immediately
proceeding the Redemption Date. On and after the Redemption Date, the
Holders shall have no further rights except to receive, upon surrender
of the Warrant, the redemption price.
(E) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Holder thereof of one or more
Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the redemption price
of each such Warrant. From and after the date fixed for redemption and
upon the deposit or setting aside by the Company of a sum sufficient to
redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption
price, shall cease.
(F) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the
Target Price shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to
such event bears to the total number of shares of Common Stock to be
outstanding immediately after such event.
7. Repurchase Rights of the Company. The Company may repurchase this
Warrant on or at any time after February 4, 1998, in the event the Company
has not consummated the IPO of its securities by that date, at an aggregate
repurchase price equal to the purchase price of the Securities; provided,
however, that if by said date all relevant parties are proceeding in good
faith, said re purchase/redemption date shall be postponed for a period of
time not exceeding 90 days.
8. Dividends and Other Distributions. In the event that the Company shall
at any time during the Exercise Period prior to the exercise in full of this
Warrant declare a non-cash dividend (other than a dividend consisting solely
of shares of Common Stock) or otherwise distribute to its stockholders any
assets, property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Company or by another, or any
other thing of value other than cash, the Holder of this Warrant shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive,
upon the exercise of such Warrant, the same property, assets,rights,
evidences of indebtedness, securities or any other thing of value that it
would have been entitled to receive at the time of such dividend or
distribution as if the Warrant had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution,
the Company shall make appropriate reserves to ensure the timely performance
of the provisions of this Section 8.
9. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon
the exercise of the Warrant. In lieu of fractional shares of Common Stock
there will
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<PAGE>
be paid to the Holder, at the time of exercise, an amount of cash equal to
the same fraction of the current market price of a share of Common Stock.
10. Exchange.
In the event the Company consummates an IPO and the securities sold in
the IPO include warrants which are exercisable to purchase shares of Common
Stock ("IPO Warrants"), on the closing date of the IPO, this Warrant shall be
surrendered by the Holder, at the aforesaid office of the Company for printed
warrant certificates having the same terms, conditions, rights and
obligations as those sold in the Company's IPO.
11. Reservation.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon
exercise of the Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common stock and
other securities, properties and rights issuable upon such exercise shall be
duly and validly issued, fully paid and nonassessable and not subject to
preemptive rights of any stockholder.
12. Certain Notice Requirements.
(A) Holder's Rights to Receive Notice. Nothing herein shall be
construed as conferring upon the Holder the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter. The Holder shall not have any right whatsoever as a stockholder of
the Company until such time as the certificate or certificates evidencing
shares of Common Stock issuable upon exercise of this Warrant have been
issued by the Company upon due exercise of this Warrant by the Holder. If,
however, at any time prior to the expiration of the Warrant or its exercise,
any of the events described in subsection 12(B) shall occur, then, in one or
more of said events, the Company shall give written notice of such event at
least fifteen (15) days prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution, conversion or exchange of securities
or subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date
of the closing of the transfer books, as the case may be.
(B) Events Requiring Notice. The Company shall be required to give the
notice described in this Section 12 upon one or more of the following events:
(i) if the Company shall declare a record date to calculate the holders of
its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash as set forth in
Section 8, or a cash dividend or distribution payable otherwise than out of
retained earnings, as indicated by the accounting treatment of such dividend
or distribution on the books of the Company, or (ii) the Company shall offer
to all the holders of its Common Stock any additional shares of capital stock
of the Company or securities convertible into or exchangeable for shares of
capital stock of the Company, or any option, right or warrant to subscribe
therefor, or (iii) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business shall be proposed to
the Company's stockholders, or (iv) a merger or consolidation pursuant to
Section 5(H) hereof.
(C) Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 5
hereof,
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<PAGE>
send notice to the Holder of such event and change (the "Price Notice"). The
Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's Chief Executive Officer or Treasurer.
(D) Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly given or made when hand delivered, or when delivered by
responsible overnight courier or by registered or certified mail, return
receipt requested, addressed as set forth below.
(i) If to the registered Holder of this Warrant, to his or her address
as stated on the books and records of the Company; and
(ii) If to the Company, to:
Kaire International, Inc.
380 Lashley Street
Longmont, Colorado 80501
Either of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 12(D).
13. Miscellaneous.
(A) Amendments. All material modifications or amendments to this
Warrant shall require the written consent of the party against whom
enforcement of the modification or amendment is sought.
(B) Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Warrant.
(C) Entire Agreement. This Warrant constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings of the parties, oral and written,
with respect to the subject matter hereof.
(D) Binding Effect. This Warrant shall inure solely to the benefit of
and shall be binding upon the Holder and the Company and their permitted
assignees, respective successors, legal representatives and assigns, and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Warrant or any
provisions herein contained.
(E) Governing Law. Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the internal laws
of the State of New York, without giving effect to the conflict of laws
provisions thereof or the actual domiciles of the Company and the Holder of
this Warrant. Any action, proceeding or claim against the Company or the
Holder arising out of or relating in any way to this Warrant shall be brought
and enforced in the courts of the State and County of New York or of the
United States of America for the Southern District of New York, and the
Company and the Holder irrevocably submit to such jurisdiction, which
jurisdiction shall be exclusive. The Holder and the Company waive any
objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum. The prevailing party in any such action shall be entitled
to recover from the other party all of its reasonable attorney's fees and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor. The Holder and the Company waive their right
to trial by jury.
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(F) Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Warrant shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validly of this Warrant or any provision hereof or the right of the Company
or any Holder to thereafter enforce each and every provision of this Warrant.
No waiver of any breach, noncompliance or nonfulfillment of any of the
provisions of this Warrant shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement
of such waiver is sought; and no wavier of any such breach, noncompliance or
nonfulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, noncompliance or nonfulfillment.
(G) Severability. In the event that any provision of this Warrant shall
be determined to be illegal or unenforceable, the remaining provisions of
this Warrant shall remain binding and in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer on the __________________ day of March, 1997.
KAIRE INTERNATIONAL, INC.
By: _____________________________________
(An Authorized Officer)
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<PAGE>
Form to be used to assign Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of all or part
of the within Warrant):
Kaire International, Inc.
380 Lashley Street
Longmont, Colorado 80501
FOR VALUE RECEIVED, _____________________, does hereby sell, assign and
transfer unto _____________________ the right to purchase
_____________________ shares of Common Stock of Kaire International, Inc.
(the "Company") evidenced by the within Warrant and does hereby authorize the
Company to transfer such right on the books of the Company.
Dated: __________________, 19____
_____________________________________
Signature
_____________________________________
Signature Guaranteed
Print Name, Address and Social Security or
Taxpayer Identification Number:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank, other
than a savings bank, or by a trust company or by a firm having membership on
a registered national securities exchange.
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<PAGE>
Form to be used to exercise Warrant:
Kaire International, Inc.
380 Lashley Street
Longmont, Colorado 80501
Date: __________________, 19___
The Undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase _________________ shares of Common Stock of Kaire
International, Inc. (a Nevada corporation) and hereby makes payment of
$____________________ (at the rate of $____________ per share) in payment of
the Exercise Price pursuant thereto and transfer taxes, if any such taxes are
required to be paid. Please issue the shares as to which this Warrant is
exercised in accordance with the instructions given below.
_____________________________________
Signature
_____________________________________
Signature Guaranteed
Print Name, Address and Social Security or
Taxpayer Identification Number:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:__________________________________________________________________________
(Print in Block Letters)
Address:_______________________________________________________________________
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank, other
than a savings bank, or by a trust company or by a firm having membership on
a registered national securities exchange.
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Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made and
entered into as of December 9, 1997, is by and among Interactive Medical
Technologies, Ltd., a Delaware corporation (hereinafter referred to as the
"Company"), Kaire International, Inc., a Delaware corporation (hereinafter
referred to as "Kaire"), each of the holders of shares of Common Stock of Kaire
(hereinafter collectively referred to as the "Kaire Stockholders") listed on
Schedule A attached hereto and each of the executive officers and/or directors
of Kaire listed on Schedule B attached hereto (hereinafter individually referred
to as a "Kaire Affiliate" and collectively referred to as the "Kaire
Affiliates").
RECITALS
WHEREAS, the Kaire Stockholders collectively own a number of shares of
common stock of Kaire (the "Kaire Shares") which constitutes not less than 80%
of the issued and outstanding common stock of Kaire as of the date of this
Agreement;
WHEREAS, the Kaire Affiliates are executive officers and/or directors of
Kaire;
WHEREAS, each of the Kaire Stockholders listed on Schedule B attached
hereto (individually a "Major Stockholder" and collectively, the "Major
Stockholders") is a corporation, limited liability company, partnership, trust
or other entity which is owned or controlled, directly or indirectly, by the
Kaire Affiliate whose name appears opposite such Major Stockholder, or in which
such Kaire Affiliate holds, directly or indirectly, a material interest or with
respect to which such Kaire Affiliate serves as an officer, director, partner,
manager or trustee (or in a similar capacity);
WHEREAS, Kaire may, if and to the extent permitted hereunder, issue
additional shares of its Common Stock after the date hereof to persons or
entities who agree to become parties to this Agreement by executing an
appropriate amendment hereto pursuant to which they shall be listed as a Kaire
Stockholder on Schedule A attached hereto or an amendment thereto and shall have
all of the rights and obligations of a Kaire Stockholder under this Agreement;
and
WHEREAS, the Company desires to acquire all of the Kaire Shares and the
Kaire Stockholders desire to exchange all of the Kaire Shares for shares of
common stock of the Company in a transaction intended to qualify under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows:
<PAGE>
1. EXCHANGE OF THE SHARES AND CONSIDERATION
1.1 Shares Being Exchanged. Subject to the terms and conditions of
this Agreement, at the closing provided for in Section 2 hereof (the "Closing"),
each of the Kaire Stockholders shall sell, assign, transfer and deliver to the
Company all of the Kaire Shares which each of them respectively own.
1.2 Consideration. Subject to the terms and conditions of this
Agreement and in consideration of the sale, assignment, transfer and delivery of
the Kaire Shares to the Company, at the Closing, the Company shall issue and
deliver to the Kaire Stockholders a number of shares of the Company's common
stock (hereinafter referred to as the "Company Shares") equal to the sum of (a)
forty seven percent (47%) of the Company's "Total Shares" (as defined below)
less (b) the number of shares determined in accordance with Section 8.13 below.
"Total Shares" shall mean the sum of (i) the total number of shares of the
Company's common stock outstanding immediately prior to the Closing, except for
shares that have been issued prior to the Closing or that are issuable upon
exercise or conversion of options, warrants or convertible securities that have
been issued prior to the Closing to investors who invest or commit to invest up
to $3,000,000 in the Company pursuant to Section 8.11 below, (ii) the Company
Shares, and (iii) any shares of the Company's common stock issuable upon
exercise or conversion of any options, warrants, rights or convertible
securities outstanding immediately prior to the Closing, except for shares
issuable upon exercise or conversion of any options, warrants, rights or
convertible securities which are exercisable or convertible at a price in excess
of $.l0 per share, shares issuable pursuant to Section 8.19 below or shares
which the Company has agreed or committed to issue after the Closing to
investors who invest or commit to invest up to $3,000,000 in the Company
pursuant to Section 8.11 below; provided that, for purposes of calculating Total
Shares, if any of such options, warrants or convertible securities by their
terms provide that the exercise or conversion price thereof and the number of
shares to be issued upon exercise or conversion thereof is to be determined as
of a certain date by reference to the market price of the Company's common stock
as of such date or some other date, the number of shares issuable upon exercise
or conversion thereof shall be deemed to be such number of shares as would have
been issued had the full exercise or conversion occurred on the date immediately
preceding the Closing Date. Each Kaire Stockholder shall receive a pro rata
portion of the Company Shares based on the number of Kaire Shares held by each
Kaire Stockholder on the date of the Closing.
2. THE CLOSING
2.1 Time and Place. The closing of the transactions contemplated by
this Agreement shall be held on December 12, 1997, or on such other date as the
parties may agree upon in writing. The date on which the Closing is to be held
is referred to herein as the "Closing Date". The Closing shall be held at the
offices of Day Campbell & McGill, 3070 Bristol Street, Suite 650, Costa Mesa,
California 92626 at 10:00 a.m. on the Closing Date, or at such other time and
place as the parties may agree upon in writing.
2.2 Deliveries by the Kaire Stockholders. At the Closing, each Kaire
Stockholder shall deliver to the Company the following: (a) stock certificates
representing the number of Kaire
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<PAGE>
Shares set forth opposite the name of such Kaire Stockholder on Schedule A
hereto, duly endorsed or accompanied by stock powers duly executed in blank and
otherwise in form acceptable for transfer on the books of Kaire, (b) an
investment letter in the form attached hereto as Exhibit 3.3 executed by such
Kaire Stockholder, and (c) a release in the form attached hereto as Exhibit 3.4
(the "Release") executed by such Kaire Stockholder.
2.3 Deliveries by Kaire. At the Closing, in addition to the
documents referred to in Section 92 hereof, Kaire shall deliver to the Company
the following: (a) certified resolutions of the Kaire Board of Directors
authorizing the execution and delivery of this Agreement and the performance by
Kaire of its obligations hereunder, and (b) a certificate of good standing of
Kaire from the Secretary of State of Delaware dated as of the most recent
practicable date.
2.4 Deliveries by the Kaire Affiliates. At the Closing, the Kaire
Affiliates shall deliver to the Company (a) a certificate or certificates signed
by the Kaire Affiliates that the representations and warranties of the Kaire
Affiliates were true and correct as of the date of this Agreement and are true
and correct as of the Closing Date as if made on the Closing Date, and (b) a
release in the form attached hereto as Exhibit 2.4 (the "Kaire Affiliate
Release") executed by each of the Kaire Affiliates.
2.5 Deliveries by the Company. At the Closing, in addition to the
documents referred to in Section 9.3 hereof, the Company shall deliver to the
Kaire Stockholders the following: (i) a stock certificate issued in the name of
each Kaire Stockholder representing the number of Company Shares each such Kaire
Stockholder is entitled to receive; (ii) certified resolutions of the Company's
Board of Directors authorizing the execution and delivery of this Agreement and
the performance by the Company of its obligations hereunder; and (iii) a
certificate of good standing of the Company from the Secretary of State of
Delaware dated as of the most recent practicable date.
3. INDIVIDUAL REPRESENTATIONS AND WARRANTIES BY THE KAIRE STOCKHOLDERS
Each of the Kaire Stockholders, severally but not jointly,
represents and warrants to the Company as follows:
3.1 Title. Such Kaire Stockholder owns the number of Kaire Shares
set forth opposite such Kaire Stockholder's name on Schedule A hereto, or any
amendment to Exhibit A hereto approved by the Company, and shall transfer to the
Company at the Closing good and valid title to said number of Kaire Shares, free
and clear of all liens, claims, options, charges, and encumbrances of every
kind, character or description.
3.2 Valid and Binding Agreement. Such Kaire Stockholder has full
power and authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and this Agreement is binding on him and
enforceable in accordance with its terms. The execution and delivery of this
Agreement and consummation of the transactions contemplated hereby do not
violate or conflict with or constitute a default under any contract, commitment,
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agreement, understanding, arrangement or restriction of any kind to which he is
a party or by which he or his property is bound, or to his knowledge any
existing applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or foreign, having
jurisdiction over him or any of his property. Such Kaire Stockholder is not and
will not be required to give any notice to or obtain any consent from any person
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
3.3 Investment Representations. Such Kaire Stockholder intends to
acquire the Company Shares for investment and not with a view to the public
distribution or resale thereof, and such Kaire Stockholder shall confirm such
intention to the Company by delivering to the Company at the Closing an
investment letter in the form attached as Exhibit 3.3 hereto executed by such
Kaire Stockholder. Such Kaire Stockholder agrees that the Company may endorse on
any stock certificate for the Company Shares to be delivered pursuant to this
Agreement an appropriate legend referring to the provisions of the investment
letter attached as Exhibit 3.3 hereto, and that the Company may instruct its
transfer agent not to transfer any Company Shares unless advised by the Company
that such provisions have been complied with.
3.4 Release. Such Kaire Stockholder has full power and authority to
execute and deliver a release in the form attached hereto as Exhibit 3.4 (the
"Release"), and upon execution and delivery thereof, the Release will be binding
on him and enforceable in accordance with its terms.
4. REPRESENTATIONS AND WARRANTIES OF KAIRE AND THE KAIRE AFFILIATES
Subject to and except as disclosed by Kaire in the Kaire Disclosure
Schedule attached hereto, Kaire and each of the Kaire Affiliates, jointly and
severally, represent and warrant to the Company as follows:
4.1 Authority. Kaire has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
herein. The execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized and approved by all
necessary corporate action on the part of Kaire. This Agreement has been duly
executed and delivered by Kaire and constitutes the valid and binding obligation
of Kaire, enforceable in accordance with its terms.
4.2 Organization.
(a) Kaire is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Kaire has the
corporate power and authority to carry on its business as presently conducted
and to own or lease its properties and assets, possesses all licenses,
franchises, rights and privileges material to the conduct of its business, and
is qualified to conduct business as a foreign corporation and is in good
standing under the laws of all
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jurisdictions where the failure to be so qualified would have a material adverse
effect on its financial position, results of operation or business.
(b) The copies of the Articles of Incorporation and all
amendments thereto of Kaire, as certified by the Secretary of State of Delaware,
and the Bylaws and all amendments thereto, as certified by the Secretary of
Kaire, which have heretofore been delivered to the Company, are complete and
correct copies of the Articles of Incorporation and Bylaws of Kaire as amended
and in effect on the date hereof. All minutes of meetings and actions in writing
without a meeting of the Board of Directors and stockholders of Kaire are
contained in the minute book of Kaire heretofore delivered to the Company for
examination, and no minutes or actions in writing without a meeting have been
included in such minute book since such delivery to the Company that have not
also been delivered to the Company.
4.3 Capitalization.
(a) The authorized capital stock of Kaire consists of
25,000,000 shares of common stock, $.01 par value, of which 4,418,351 shares are
issued and outstanding and 5,000,000 shares of preferred stock, $.01 par value,
none of which are issued and outstanding. All of the issued and outstanding
shares of common stock of Kaire were issued in compliance with applicable state
and federal securities laws, are duly authorized, validly issued, fully paid and
nonassessable, and are not subject to preemptive rights created by statute,
Kaire's Articles of Incorporation or Bylaws or any agreement to which Kaire is a
party or by which it is bound.
(b) There are no options, warrants, calls, rights, commitments
or agreements of any character to which Kaire is a party or by which it is bound
obligating Kaire to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Kaire or obligating Kaire to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.
4.4 Equity Investments. Kaire does not own any equity interest,
directly or indirectly, in any corporation, partnership or other form of
business entity, except for the corporations listed on the Kaire Disclosure
Schedule (individually, a "Kaire Subsidiary" and collectively, the "Kaire
Subsidiaries"). Each Kaire Subsidiary is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted and to own or lease its properties and assets, possesses all licenses,
franchises, rights and privileges material to the conduct of its businesses, and
is qualified to conduct business as a foreign corporation and is in good
standing under the laws of all jurisdictions where the failure to be so
qualified would have a material adverse affect on its financial position,
results of operation or business. All of the issued and outstanding shares of
capital stock of each Kaire Subsidiary are duly authorized, validly issued,
fully paid and nonassessable, and, except as disclosed in the Kaire Disclosure
Schedule, are owned by Kaire free and clear of all liens, claims, options,
charges, and encumbrances of every kind, character or description.
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4.5 Financial Statements. Kaire has delivered to the Company copies
of its audited balance sheets for the fiscal years ended December 31, 1995 and
1996 and the related statements of operations, stockholders' equity and cash
flows for the periods then ended together with appropriate notes to such
financial statements and the report thereon of BDO Seidman, LLP, certified
public accountants, and copies of its unaudited balance sheet as of September
30, 1997 and the related statement of operations, stockholders' equity and cash
flows for the nine month period then ended (the "Kaire Financial Statements"),
copies of which are attached hereto as Exhibit 4.5. The Kaire Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, and
present fairly the financial condition and the results of its operations,
changes in stockholders' equity and cash flow of Kaire as of the dates and for
the periods indicated thereon, subject in the case of the unaudited portion of
the Kaire Financial Statements to normal year-end audit adjustments, which will
not, individually or in the aggregate, be material, and the absence of certain
footnote disclosures.
4.6 Absence of Undisclosed Liabilities. At the date of the most
recent balance sheet of Kaire included in the Kaire Financial Statements and as
of the Closing Date, Kaire had and will have no liability or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due, or
to become due, other than liabilities or obligations individually or in the
aggregate less than $5,000, that is not reflected or reserved against in the
most recent balance sheet of Kaire or the accompanying notes thereto included in
the Kaire Financial Statements, except for those that may have been incurred
after the date of such balance sheet and those that are not required by
generally accepted accounting principles to be included in such balance sheet or
the accompanying notes thereto. All liabilities and obligations incurred after
the date of such balance sheet were incurred in the ordinary course of business
and are usual and normal in amount both individually and in the aggregate.
4.7 Business Changes. Since the date of the most recent balance
sheet of Kaire included in the Kaire Financial Statements, Kaire and each Kaire
Subsidiary has conducted its business only in the ordinary and usual course and,
without limiting the generality of the foregoing:
(a) There have been no changes in the condition (financial or
otherwise), business, net worth, assets, prospects, properties, employees,
operations, obligations or liabilities of Kaire or any Kaire Subsidiary which,
in the aggregate, have had or may be reasonably expected to have a materially
adverse effect on the condition, business, net worth, assets, prospects,
properties or operations of Kaire and the Kaire Subsidiaries taken as a whole.
(b) Neither Kaire nor any Kaire Subsidiary has issued, or
authorized for issuance, or entered into any commitment to issue, any equity
security, bond, note or other security of Kaire or any Kaire Subsidiary.
(c) Neither Kaire nor any Kaire Subsidiary has incurred
additional debt for borrowed money, nor incurred any obligation or liability
except in the ordinary and usual course of business.
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(d) Neither Kaire nor any Kaire Subsidiary has declared or
made any dividend, payment or other distribution on or with respect to any share
of capital stock of Kaire or any Kaire Subsidiary.
(e) Neither Kaire nor any Kaire Subsidiary has purchased,
redeemed or otherwise acquired or committed itself to acquire, directly or
indirectly, any share or shares of capital stock of Kaire or any Kaire
Subsidiary.
(f) Neither Kaire nor any Kaire Subsidiary has mortgaged,
pledged, or otherwise, voluntarily or involuntarily, encumbered any of its
assets or properties, except for liens for current taxes which are not yet
delinquent and purchase-money liens arising out of the purchase or sale of
products made in the ordinary and usual course of business.
(g) Neither Kaire nor any Kaire Subsidiary has disposed of, or
agreed to dispose of, by sale, lease, license or otherwise, any asset or
property, tangible or intangible, except in the ordinary and usual course of
business.
(h) Neither Kaire nor any Kaire Subsidiary has purchased or
agreed to purchase or otherwise acquire any securities of any corporation,
partnership, joint venture, firm or other entity.
(i) Neither Kaire nor any Kaire Subsidiary has made any
expenditure or commitment for the purchase, acquisition, construction or
improvement of a capital asset, except in the ordinary and usual course of
business.
(j) Neither Kaire nor any Kaire Subsidiary has entered into
any transaction or contract, or made any commitment to do the same, except in
the ordinary and usual course of business.
(k) Neither Kaire nor any Kaire Subsidiary has effected or
committed itself to effect any amendment or modification to its Articles of
Incorporation or Bylaws.
4.8 Properties. The most recent Kaire balance sheet included in the
Kaire Financial Statements reflects all of the real and personal property used
by Kaire in its business or otherwise held by Kaire except for (i) property
acquired or disposed of in the ordinary and usual course of the business of
Kaire since the date of the most recent Kaire balance sheet included in the
Kaire Financial Statements, and (ii) property not required under generally
accepted accounting principles to be reflected thereon. Kaire has good and
marketable title to all assets and properties listed on the most recent Kaire
balance sheet included in the Kaire Financial Statements and thereafter
acquired, free and clear of any imperfections of title, lien, claim,
encumbrance, restriction, charge or equity of any nature whatsoever, except for
the lien of current taxes not yet delinquent. All of the fixed assets and
properties listed on the most recent Kaire balance sheet included in the Kaire
Financial Statements or thereafter acquired are in satisfactory condition and
repair for the requirements of the business as presently conducted by Kaire.
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4.9 Taxes. Within the times and in the manner prescribed by law,
Kaire has filed all federal, state, and local tax returns and reports required
by law and has paid in full all taxes, assessments, known penalties and interest
(all such items are collectively referred to as "Taxes"), due to, or claimed to
be due by, any governmental authority. The most recent balance sheet of Kaire
included in the Kaire Financial Statements fully accrues all current and
deferred Taxes. Kaire is not a party to any pending action or proceeding, nor,
to the actual knowledge of Kaire or any of the Kaire Affiliates, is any such
action or proceeding threatened by any governmental authority for the assessment
or collection of Taxes. There are no liens for Taxes except for liens for
property taxes not yet delinquent
4.10 Litigation. There is no claim, action, suit or proceeding, at
law or in equity, pending against Kaire or any Kaire Subsidiary, or involving
any of their respective assets or properties, before any court, agency,
authority, arbitration panel or other tribunal (other than those, if any, with
respect to which service of process or similar notice has not been made on Kaire
or any Kaire Subsidiary), and, to the knowledge of Kaire or the Kaire
Affiliates, none have been threatened. Neither Kaire nor any Kaire Subsidiary is
subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal, nor is it in default with
respect to any notice, order, writ, injunction or decree.
4.11 Compliance with Law. All licenses, permits, clearances,
consents, certificates and other evidences of authority of Kaire and each Kaire
Subsidiary which are material to the conduct of Kaire's and each Kaire
Subsidiary's business ("Permits") are in full force and effect and neither Kaire
nor any Kaire Subsidiary is in violation of any Permit in any material respect.
Except for possible exceptions, the curing or non-curing of which would not have
a material adverse effect on the condition (financial or otherwise), business,
net worth, assets, prospects, properties or operations of Kaire, to Kaire's
knowledge, the business of Kaire and each Kaire Subsidiary has been conducted in
accordance with all applicable laws, regulations, orders and other requirements
of governmental authorities, including, without limiting the generality of the
foregoing, employment practices and procedures, the health and safety of
employees, export controls, direct selling activities, product formulation,
labeling, packaging and importation, product claims and advertising, fair trade
and distributor practices, and the use, storage, treatment, disposal, transport,
generation, release and exposure of others to Hazardous Materials. Neither Kaire
nor any Kaire Affiliate has any knowledge of the presence of Hazardous Materials
in, under or about the soil and/or groundwater of any properties at any time
owned, leased or occupied by Kaire or any Kaire Subsidiary. "Hazardous
Materials" shall mean any substance regulated or prohibited by any law or
designated by any governmental agency to be toxic, radioactive or otherwise a
danger to health or the environment. Neither Kaire nor any Kaire Subsidiary has
received any notice of any investigation, claim or proceeding against Kaire or
any Kaire Subsidiary relating to Hazardous Materials and Kaire is not aware of
any fact or circumstance which could involve Kaire or any Kaire Subsidiary in
any environmental litigation, proceeding, investigation or claim or impose any
environmental liability upon Kaire or any Kaire Subsidiary.
4.12 Contracts and Undertakings. The Kaire Disclosure Schedule
contains a complete list of all contracts, instruments, leases, licenses,
agreements, commitments and other
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undertakings to which Kaire and each Kaire Subsidiary is a party or by which it
or its properties or assets are bound, copies of which have been furnished or
made available to Company. Neither Kaire nor any Kaire Subsidiary is in default,
or alleged to be in default, under any of the contracts, instruments, leases,
licenses, agreements, commitments or undertakings listed on the Kaire Disclosure
Schedule and, to the knowledge of Kaire or the Kaire Affiliates, no other party
to any of said contracts, instruments, leases, licenses, agreements, commitments
or undertakings is in default thereunder nor, to the knowledge of Kaire or the
Kaire Affiliates, does there exist any condition or event which, after notice or
lapse of time or both, would constitute a default by any party to any of said
contracts, instruments, leases, licenses, agreements, commitments or
undertakings.
4.13 Real Property. The Kaire Disclosure Schedule contains a full
and complete list of all real property leased by Kaire and each Kaire
Subsidiary. All such real property leased by Kaire and each Kaire Subsidiary is
held under valid, subsisting and enforceable leases. To the actual knowledge of
Kaire or the Kaire Affiliates, neither real property leased by Kaire nor the
operations of Kaire or any Kaire Subsidiary thereon, violate any applicable
building code, zoning requirement or classification, or pollution control
ordinance or statute relating to the property or to such operations, and such
non-violation is not dependent, in any instance, on so-called nonconforming use
exemptions.
4.14 Proprietary Rights.
(a) The Kaire Disclosure Schedule contains a complete list of
all patents and applications for patents, trademarks, trade names, service
marks, and copyrights, and applications therefor, owned or used by Kaire or any
Kaire Subsidiary or in which it has any rights or licenses. The Kaire Disclosure
Schedule contains a complete and accurate description of all agreements of Kaire
and each Kaire Subsidiary with each officer, employee or consultant of Kaire and
each Kaire Subsidiary providing Kaire or any Kaire Subsidiary with title and
ownership to patents, patent applications, trade secrets and inventions
developed or used by Kaire or any Kaire Subsidiary in its business. All of such
agreements so described are valid, enforceable and legally binding.
(b) Kaire owns or possesses licenses or other rights to use
all patents, patent applications, trademarks, trademark applications, trade
secrets, service marks, trade names, copyrights, inventions, drawings, designs,
customer lists, proprietary know-how or information, or other rights with
respect thereto (collectively referred to as "Proprietary Rights"), used in the
business of Kaire and each Kaire Subsidiary, and the same are sufficient to
conduct the business of Kaire and each Kaire Subsidiary as it has been and is
now being conducted.
(c) To the actual knowledge of Kaire or the Kaire Affiliates,
the operations of Kaire and each Kaire Subsidiary do not conflict with or
infringe, and no one has asserted to Kaire or any Kaire Subsidiary that such
operations conflict with or infringe, any Proprietary Rights, owned, possessed
or used by any third party. There are no claims, disputes, actions, proceedings,
suits or appeals pending against Kaire or any Kaire Subsidiary with respect
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to any Proprietary Rights (other than those, if any, with respect to which
service of process or similar notice may not yet have been made on Kaire or any
Kaire Subsidiary), and, to the actual knowledge of Kaire or the Kaire
Affiliates, none has been threatened against Kaire or any Kaire Subsidiary. To
the actual knowledge of Kaire or the Kaire Affiliates, there are no facts or
alleged facts which would reasonably serve as a basis for any claim that Kaire
or any Kaire Subsidiary does not have the right to use, free of any rights or
claims of others, all Proprietary Rights in the development, manufacture, use,
sale or other disposition of any or all products or services presently being
used, furnished or sold in the conduct of the business of Kaire or any Kaire
Subsidiary as it has been and is now being conducted.
(d) To the actual knowledge of Kaire or the Kaire Affiliates,
no employee of Kaire is in violation of any term of any employment contract,
proprietary information and inventions agreement, non-competition agreement, or
any other contract or agreement relating to the relationship of any such
employee with Kaire or any previous employer.
4.15 Insurance. The Kaire Disclosure Schedule contains a complete
list of all policies of insurance to which Kaire and each Kaire Subsidiary is a
party or is a beneficiary or named insured. Kaire and each Kaire Subsidiary has
in full force and effect, with all premiums due thereon paid, the policies of
insurance set forth therein. All the insurable properties of Kaire and each
Kaire Subsidiary are insured in amounts and coverages and against risks and
losses which are adequate and usually insured against by persons holding or
operating similar properties in similar businesses.
4.16 No Conflict. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of any term or provision of, or constitute
a default under or result in a violation of (i) the Articles of Incorporation or
Bylaws of Kaire, (ii) any agreement, contract, lease, license or instrument to
which Kaire or any Kaire Subsidiary is a party or by which Kaire or any Kaire
Subsidiary or any of their respective properties or assets are bound, (iii) any
judgment, decree, order, or writ by which Kaire is bound or to which it or any
of its properties or assets are subject or (iv) any of the terms or requirements
of, or give any governmental body the right to revoke, withdraw, suspend,
cancel, terminate or modify any governmental authorization that is held by Kaire
or any Kaire Subsidiary or that otherwise relates to the business of, or any of
the assets owned or used by, Kaire or any Kaire Subsidiary.
4.17 Consent. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to Kaire or any Kaire Subsidiary in connection with the execution
and delivery of this Agreement or the consummation by Kaire of the transactions
contemplated herein. No consent, waiver or approval of third parties material to
the business or operations of Kaire or any Kaire Subsidiary is required to be
obtained by Kaire in connection with the execution and delivery of this
Agreement and the performance of Kaire's obligations hereunder.
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4.18 Brokers or Finders. Neither Kaire nor any of the Kaire
Affiliates has dealt with any broker or finder in connection with the
transactions contemplated by this Agreement. Neither Kaire nor any Kaire
Subsidiary has incurred, and shall not incur, directly or indirectly, any
liability for any brokerage or finders' fees or agents commissions or any
similar charges in connection with this Agreement or any transaction
contemplated herein.
4.19 Related Parties. To the actual knowledge of Kaire or the Kaire
Affiliates, no officer or director of Kaire or any Kaire Subsidiary, or any
affiliate of any such person, has, either directly or indirectly, (i) an
interest in any corporation, partnership, firm or other person or entity which
furnishes or sells services or products which are similar to those furnished or
sold by Kaire or any Kaire Subsidiary, or (ii) a beneficial interest in any
contract, lease, license or agreement to which Kaire or any Kaire Subsidiary is
a party or by which Kaire or any Kaire Subsidiary may be bound.
4.20 Underlying Documents. Copies of any underlying documents listed
or described as having been disclosed to the Company pursuant to this Agreement,
if requested by the Company, have been furnished to the Company. All such
documents furnished to the Company are true and correct copies, and there are no
amendments or modifications thereto that have not been disclosed to the Company.
4.21 Full Disclosure. Any information furnished to the Company by or
on behalf of Kaire in writing pursuant to this Agreement and any information
contained in the Kaire Disclosure Schedule, at any time prior to the Closing
Date, does not and will not contain any untrue statement of a material fact and
does not and will not omit to state any material fact necessary to make any
statement, in light of the circumstances under which such statement is made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in the Company
Disclosure Schedule attached hereto, the Company represents and warrants to
Kaire and the Kaire Stockholders as follows:
5.1 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to satisfaction of the
conditions set forth herein, to consummate the transactions contemplated herein.
The execution and delivery of this Agreement, the consummation of the
transactions contemplated herein, and the issuance of the Company Shares in
accordance with the terms hereof, have been duly authorized by all necessary
action on the part of the Company. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company.
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5.2 Organization.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. The
Company has the corporate power and authority to carry on its business as
presently conducted, and is qualified to do business in all jurisdictions where
the failure to be so qualified would have a material adverse effect on its
business or financial condition.
(b) The copies of the Articles of Incorporation and all
amendments thereto of the Company, as certified by the Secretary of State of
Delaware, and the Bylaws of the Company and all amendments thereto, as certified
by the Secretary of the Company, which have heretofore been delivered to Kaire
and made available to the Kaire Stockholders for examination, are complete and
correct copies of the Articles of Incorporation and Bylaws of the Company as
amended and in effect on the date hereof. All minutes of meetings and actions in
writing without a meeting of the Board of Directors and stockholders of the
Company are contained in the minute book of the Company heretofore delivered to
Kaire and made available to the Kaire Stockholders for examination, and no
minutes or actions in writing without a meeting have been included in such
minute book since such delivery to Kaire that have not also been delivered to
Kaire.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of
400,000,000 shares of Common Stock, $.001 par value, of which 93,997,418 shares
were issued and outstanding on the date hereof. All of the issued and
outstanding shares of Common Stock of the Company were issued in compliance with
applicable state and federal securities laws, are duly authorized, validly
issued, fully paid and non-assessable, and are not subject to preemptive rights
created by statute, the Company's Articles of Incorporation or Bylaws or any
agreement to which the Company is a party or is bound.
(b) Except as contemplated, permitted or required by this
Agreement or described in the Company Disclosure Schedule, there are no options,
warrants, calls, rights, commitments or agreements of any character to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of the Company or obligating the Company to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement.
5.4 Equity Investments. Company does not own any equity interest in
any corporation, partnership, or other form of business entity, except for the
corporations listed on the Company Disclosure Schedule.
5.5 Financial Statements. Company has delivered to Kaire and made
available to the Kaire Stockholders for examination copies of its audited
balance sheets for the years ended December 31, 1995 and 1996 and the related
statements of operations, stockholders' equity and cash
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flows for the periods then ended together with appropriate notes to such
financial statements, and copies of its unaudited balance sheet as of September
30, 1997 and the related statement of operations, stockholders' equity and cash
flows for the nine month period then ended (the "Company Financial Statements"),
a copy of which is attached hereto as Exhibit 5.5. The Company Financial
Statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved, and
present fairly the financial condition of the Company and the results of
operations as of the dates and for the periods indicated therein, subject in the
case of the unaudited portion of the Company Financial Statements to normal
year-end audit adjustments, which will not be material, and the absence of
certain footnote disclosures.
5.6 Absence of Undisclosed Liabilities. At the date of the most
recent balance sheet of the Company included in the Company Financial
Statements, the Company had no liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against in the most recent balance sheet of
the Company included in the Company Financial Statements, except for those that
are not required by generally accepted accounting principles to be included in
such balance sheet or the accompanying notes thereto.
5.7 Business Changes. Since the date of the most recent balance
sheet of the Company included in the Company Financial Statements and prior to
the date of this Agreement, except as disclosed in the Company Disclosure
Schedule, the Company has conducted its business only in the ordinary and usual
course.
5.8 Properties. The most recent Company balance sheet included in
the Company Financial Statements reflects all of the real and personal property
used by the Company in its business or otherwise held by the Company except for
(i) property acquired or disposed of in the ordinary and usual course of the
business of the Company since the date of the most recent Company balance sheet
included in the Company Financial Statements, and (ii) property not required
under generally accepted accounting principles to be reflected thereon. The
Company has good and marketable title to all assets and properties listed on the
most recent Company balance sheet included in the Company Financial Statements
and thereafter acquired.
5.9 Taxes. Within the times and in the manner prescribed by law, the
Company has filed all federal, state, and local tax returns required by law and
has paid all taxes, assessments, known penalties and interest (all such items
are collectively referred to as "Taxes") due to, or claimed to be due by, any
governmental authority. The most recent balance sheet of the Company included in
the Company Financial Statements fully accrues all current and deferred Taxes.
The Company is not a party to any pending action or proceeding, nor, to the
actual knowledge of the Company, is any such action or proceeding threatened by
any governmental authority for the assessment or collection of Taxes. There are
no liens for Taxes except for liens for property taxes not yet delinquent.
5.10 Litigation. There is no claim, action, suit or proceeding, at
law or in equity, pending against the Company or involving any of its assets or
properties, before any court, agency,
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authority, arbitration panel or other tribunal (other than those, if any, with
respect to which service of process or similar notice has not been made on the
Company), and, to the actual knowledge of the Company, none have been
threatened. The Company is not subject to any order, writ, injunction or decree
of any court, agency, authority, arbitration panel or other tribunal, nor is it
in default with respect to any notice, order, writ, injunction or decree.
5.11 Compliance with Law. All licenses, permits, clearances,
consents, certificates and other evidences of authority of the Company which are
material to the conduct of its business ("Permits") are in full force and effect
and the Company is not in violation of any Permit in any material respect.
Except for (a) possible exceptions, the curing or non-curing of which would not
have a material adverse effect on the condition (financial or otherwise),
business, net worth, assets, prospects, properties or operations of the Company,
and (b) the violation of provisions of the Federal Trade Commission Act
described in the Complaint (Docket No. C-3751) against the Company by the
Federal Trade Commission ("FTC"), a copy of which, together with the FTC order
issued in connection therewith, has been delivered to Kaire and made available
to the Kaire Stockholders, to the Company's knowledge, the business of the
Company has been conducted in accordance with all applicable laws, regulations,
orders and other requirements of governmental authorities, including, without
limiting the generality of the foregoing, employment practices and procedures,
the health and safety of employees, export controls, direct selling activities,
product formulation, labeling, packaging and importation, product claims and
advertising, fair trade and distributor practices and the use, storage,
treatment, disposal, transport, generation, release and exposure of others to
Hazardous Materials. The Company has no knowledge of the presence of Hazardous
Materials in, under or about the soil and/or groundwater of any properties at
any time owned, leased or occupied by the Company. "Hazardous Materials" shall
mean any substance regulated or prohibited by any law or designated by any
governmental agency to be toxic, radioactive or otherwise a danger to health or
the environment. The Company has not received any notice of any investigation,
claim or proceeding against the Company relating to Hazardous Materials and the
Company is not aware of any fact or circumstance which could involve the Company
or its Subsidiary in any environmental litigation, proceeding, investigation or
claim or impose any environmental liability upon the Company.
5.12 Contracts and Undertakings. The Company Disclosure Schedule
contains a complete list of all contracts, instruments, leases, licenses,
agreements, commitments and other undertakings to which the Company is a party
or by which it or its properties or assets are bound, copies of which have been
furnished or made available to Kaire. The Company is not in default, or alleged
to be in default, under any of the contracts, instruments, leases, licenses,
agreements, commitments or undertakings listed on the Company Disclosure
Schedule and, to the knowledge of the Company, there does not exist any
condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any of said contracts, instruments, leases,
licenses, agreements, commitments or undertakings.
5.13 Real Property. The Company Disclosure Schedule contains a full
and complete list of all real property leased by the Company. All such real
property leased by the Company is held under valid, subsisting and enforceable
leases. To the actual knowledge of the
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Company, neither real property leased by the Company nor the operations of the
Company thereon, violate any applicable building code, zoning requirement or
classification, or pollution control ordinance or statute relating to the
property or to such operations, and such non-violation is not dependent, in any
instance, on so-called nonconforming use exemptions.
5.14 Proprietary Rights.
(a) The Company Disclosure Schedule contains a complete list
of all patents and applications for patents, trademarks, trade names, service
marks, and copyrights, and applications therefor, owned or used by the Company
or in which it has any rights or licenses. The Company Disclosure Schedule
contains a complete and accurate description of all agreements of the Company
with each officer, employee or consultant of the Company providing the Company
with title and ownership to patents, patent applications, trade secrets and
inventions developed or used by the Company in its business. All of such
agreements so described are valid, enforceable and legally binding.
(b) The Company owns or possesses licenses or other rights to
use all patents, patent applications, trademarks, trademark applications, trade
secrets, service marks, trade names, copyrights, inventions, drawings, designs,
customer lists, proprietary know-how or information, or other rights with
respect thereto (collectively referred to as "Proprietary Rights"), used in the
business of the Company, and the same are sufficient to conduct the business of
the Company as it has been and is now being conducted.
(c) To the actual knowledge of the Company, the operations of
the Company do not conflict with or infringe, and no one has asserted to the
Company that such operations conflict with or infringe, any Proprietary Rights,
owned, possessed or used by any third party. There are no claims with or
disputes, actions, proceedings, suits or appeals pending against the Company
with respect to any Proprietary Rights (other than those, if any, with respect
to which service of process or similar notice may not yet have been made on the
Company), and, to the actual knowledge of the Company, none has been threatened
against the Company. To the actual knowledge of the Company, there are no facts
or alleged facts which would reasonably serve as a basis for any claim that the
Company does not have the right to use, free of any rights or claims of others,
all Proprietary Rights in the development, manufacture, use, sale or other
disposition of any or all products or services presently being used, furnished
or sold in the conduct of the business of the Company as it has been and is now
being conducted.
5.15 Insurance. The Company Disclosure Schedule contains a complete
list of all policies of insurance to which the Company is a party or is a
beneficiary or name insured. The Company has in full force and effect, with all
premiums due thereon paid, the policies of insurance set forth therein. All the
insurable properties of the Company are insured in amounts and coverages and
against risks and losses which are adequate and usually insured against by
persons holding or operating similar properties in similar businesses.
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5.16 No Conflict. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby do not and will not
conflict with, or result in a breach of any term or provision of, or constitute
a default under or result in a violation of the Articles of Incorporation or
Bylaws of the Company, any agreement, contract, lease, license, or instrument to
which the Company is a party or by which it or any of its assets are bound, or
any judgment, decree, order or writ by which the Company is bound or to which it
or any of its assets are subject
5.17 Consent. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement or the consummation by the Company of the transactions
contemplated herein, except for (a) such filings as may be required under
applicable state securities law and (b) such other consents, approvals, orders,
authorizations, registrations, declarations and filings which if not obtained or
made would not have a material adverse effect on the Company. No consent, waiver
or approval of third parties material to the business or operations of the
Company is required to be obtained by the Company in connection with the
execution and delivery of this Agreement and the performance of the Company's
obligations hereunder.
5.18 Brokers or Finders. The Company has not dealt with any broker
or finder in connection with the transactions contemplated by this Agreement
except as disclosed in the Company Disclosure Schedule. The Company has not
incurred, and shall not incur, directly or indirectly, any liability for any
brokerage or finders' fees or agents commissions or any similar charges in
connection with this Agreement or any transaction contemplated herein except as
disclosed in the Company Disclosure Schedule.
5.19 Compliance with Securities Laws. The Company has delivered to
Kaire and made available to the Kaire Stockholders for examination true and
complete copies, including exhibits and, as applicable, amendments thereto, of
the Company's Annual Report on Form l0-KSB for the fiscal year ended December
31, 1996 and all Quarterly Reports on Form 10-QSB and Current Reports on Form
8-K filed since December 31, 1996. All reports required to be filed by the
Company with the Securities and Exchange Commission (collectively, the
"Reports") have been properly filed and comply in all material respects with the
requirements of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder with respect to such Reports.
5.20 Underlying Documents. Copies of any underlying documents listed
or described as having been disclosed to Kaire or the Kaire Stockholders
pursuant to this Agreement, if requested by Kaire, have been furnished to Kaire
and made available to the Kaire Stockholders. All such documents furnished to
Kaire and made available to the Kaire Stockholders are true and correct copies,
and there are no amendments or modifications thereto that have not been
disclosed to Kaire or the Kaire Stockholders.
5.21 Full Disclosure. Any information furnished by or on behalf of
the Company in writing pursuant to this Agreement and any information contained
in the Company's Disclosure
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Schedule, at any time prior to the Closing Date, does not and will not contain
any untrue statement of a material fact and does not and will not omit to state
any material fact necessary to make any statement, in light of the circumstances
under which such statement is made, not misleading.
6. COVENANT'S RELATING TO CONDUCT OF BUSINESS OF KAIRE
During the period from the date of this Agreement and continuing
until the Closing Date, Kaire and the Majority Stockholders agree (except as
expressly contemplated by this Agreement or to the extent that the Company shall
otherwise consent in writing) that:
6.1 Ordinary Course. Kaire and each Kaire Subsidiary shall carry on
its business in the usual and ordinary course, including the payment of all
state and federal taxes, in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all reasonable
efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationship with sales associates,
customers, providers and others having business dealings with it to the end that
its goodwill and ongoing business shall be unimpaired at the Closing Date.
6.2 Dividends; Purchase of Stock. Kaire shall not and shall not
propose to (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, or (ii) repurchase or otherwise acquire any
shares of its capital stock or rights to acquire any shares of its capital
stock.
6.3 Issuance of Securities. Kaire shall not issue or sell or
authorize or propose the issuance or sale of, or purchase or propose the
purchase of, any shares of its capital stock of any class or securities
convertible into, or rights, warrants or options to acquire, any such shares or
other convertible securities, except that Kaire may issue and sell shares of its
common stock in connection with (i) the exercise of any option or warrant
outstanding on the date of the Agreement and described on the Kaire Disclosure
Schedule, (ii) the conversion of any convertible security outstanding on the
date of this Agreement and described on the Kaire Disclosure Schedule or (iii)
the cancellation of any debt outstanding on the date of this Agreement and
described on the Kaire Disclosure Schedule, provided that in each such case, the
person to whom any such shares are issued agrees to become a party to this
Agreement by executing an appropriate amendment hereto.
6.4 Governing Documents. Kaire shall not amend its Articles of
Incorporation or Bylaws.
6.5 No Acquisitions. Kaire shall not acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to Kaire except in the usual and ordinary course of business
consistent with prior practice.
6.6 No Dispositions. Kaire shall not sell, assign, transfer, pledge,
encumber or otherwise dispose of, by sale, lease, license or otherwise, any of
its assets, tangible or intangible,
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which are material, individually or in the aggregate, to Kaire except in the
usual and ordinary course of business consistent with prior practice.
6.7 No Debt. Kaire shall not incur any amount of long or short-term
debt for money borrowed, guarantee or agree to guarantee the obligations of
others, indemnify or agree to indemnify others or incur any other liabilities
other than those incurred in the usual and ordinary course of business
consistent with past practices.
6.8 Maintain Insurance. Kaire shall keep in full force and effect
insurance covering Kaire, its assets and business comparable in amount and scope
of coverage to that now maintained.
6.9 No Liens. Kaire shall not mortgage, pledge or otherwise encumber
any of its assets or properties, except for liens for current taxes which are
not yet delinquent and purchase money liens arising out of the purchase or sale
of products made on the ordinary and usual course of business.
6.10 No Capital Expenditures. Kaire shall not make any expenditure
or commitment for the purchase, acquisition, construction or improvement of a
capital asset, except in the ordinary and usual course of business.
6.11 Transaction or Contract. Kaire shall not enter into, or agree
or otherwise commit to enter into, any transaction or contract except in the
ordinary and usual course of business.
6.12 Notice. Kaire shall promptly notify the Company of any default,
the threat or commencement of any litigation, or any development that occurs
before the Closing that could in any way materially affect Kaire, its assets or
business.
7. COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE COMPANY PENDING
CLOSING
During the period from the date of this Agreement and continuing
until the Closing Date, the Company agrees (except as expressly contemplated,
required or permitted by this Agreement or to the extent that Kaire and the
Kaire Stockholders shall otherwise consent in writing) that:
7.1 Ordinary Course. The Company shall carry on its business in the
usual and ordinary course in substantially the same manner as heretofore
conducted.
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8. ADDITIONAL AGREEMENTS
8.1 Access to Information.
(a) Kaire shall afford to the Company and shall cause its
independent accountants to afford to the Company, and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Closing Date to all of Kaire's properties, books,
contracts, commitments and records and to the audit work papers and other
records of Kaire's independent accountants. During such period, Kaire shall use
reasonable efforts to furnish promptly to the Company all information concerning
the business, properties and personnel of Kaire as the Company may reasonably
request, provided that Kaire shall not be required to disclose any information
which it is legally required to keep confidential. The Company will not use such
information for purposes other than this Agreement and will otherwise hold such
information in confidence (and the Company will cause its consultants and
advisors also to hold such information in confidence) until such time as such
information otherwise becomes publicly available, and in the event of
termination of this Agreement for any reason the Company shall promptly return,
or cause to be returned, to the disclosing party all documents obtained from
Kaire, and any copies made of such documents, extracts and copies thereof.
(b) The Company shall afford to Kaire and shall cause its
independent accountants to afford to Kaire, and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Closing Date to all of the Company's properties, books,
contracts, commitments and records and to the audit work papers and other
records of the Company's independent accountants. During such period, the
Company shall use reasonable efforts to furnish promptly to Kaire such
information concerning the Company as Kaire may reasonably request, provided
that the Company shall not be required to disclose any information which it is
legally required to keep confidential. Kaire will not use such information for
purposes other than this Agreement and will otherwise hold such information in
confidence (and Kaire will cause Kaire's consultants and advisors also to hold
such information in confidence) until such time as such information otherwise
becomes publicly available, and in the event of termination of this Agreement
for any reason Kaire shall promptly return, or cause to be returned, to the
disclosing party all documents obtained from the Company, and any copies made of
such documents, extracts and copies thereof.
8.2 Legal Conditions to the Transactions Contemplated by This
Agreement. Each party will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on such party with
respect to the transactions contemplated by this Agreement and will promptly
cooperate with and furnish information to the other party in connection with any
such requirements imposed upon such other party in connection with the
transactions contemplated by this Agreement. Each party will take all reasonable
actions to obtain (and to cooperate with the other party in obtaining) any
consent, authorization, order or approval of; or any exemption by, any
governmental authority, or other third party, required to be obtained or made by
such party (or by the other party) in connection with the transactions
contemplated by this Agreement.
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8.3 Blue Sky Laws. The Company shall take such steps as may be
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the issuance of the Company Shares to
the Kaire Stockholders pursuant to this Agreement. Kaire shall use its best
efforts to assist the Company as may be necessary to comply with such laws.
8.4 Communications. Between the date hereof and the Closing Date,
neither Kaire nor the Company will, without the prior written approval of the
other party, furnish any communication to its shareholders or to the public
generally if the subject matter thereof relates to the other party or to the
transactions contemplated by this Agreement, except as may be necessary, in the
opinion of their respective counsel, to comply with the requirements of any law,
governmental order or regulation.
8.5 Update to Kaire Disclosures. Without limiting the Company's
right to rely on the representations and warranties as of the date of this
Agreement, Kaire and the Majority Stockholders shall provide the Company with
updates to the disclosures provided or made available to the Company as to
material facts which arise between the date of this Agreement and the Closing
Date and which, if they had occurred and been known prior to the date of this
Agreement, would have been required to have been disclosed in order to make the
representations and warranties contained in Article 4 true and correct as of the
date of this Agreement.
8.6 Update to Company Disclosures. Without limiting the right of
Kaire and the Kaire Stockholders to rely on the representations and warranties
as of the date of this Agreement, the Company shall provide Kaire and the Kaire
Stockholders with updates to the disclosure provided or made available to Kaire
and the Kaire Stockholders as to material facts which arise between the date of
this Agreement and the Closing Date and which, if they had occurred and been
known prior to the date of this Agreement, would have been disclosed in order to
make the representations and warranties contained in Article 5 true and correct
as of the date of this Agreement.
8.7 Good Faith. Each party shall act in good faith in an attempt to
cause all the conditions precedent to its obligations under this Agreement to be
satisfied. Each party will act in good faith and take all reasonable action
within its capability necessary to render accurate as of the Closing Date its
representations and warranties contained in this Agreement.
8.8 Securities Law Matters. The Company Shares issued to the Kaire
Stockholders shall be issued without registration under the Securities Act of
1933, as amended, (the "Act"), in reliance upon certain exemptions from the
registration requirements of the Act, including Regulation D adopted thereunder.
Accordingly, the Company Shares may not be resold by the holders thereof without
registration under the Act unless a further exemption from the registration
requirements of the Act is available for such resale. All certificates
representing the Company Shares shall bear the following legend or a legend of
similar import:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
CERTAIN
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STATE SECURITIES LAWS. NO SALE OR TRANSFER OF THESE SHARES MAY BE
MADE IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR (2) AN OPINION OF COUNSEL THAT REGISTRATION UNDER THE ACT
OR UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED SALE OR TRANSFER."
8.9 Loan to Kaire Prior to Closing. Prior to the Closing, the
Company agrees to loan Kaire the sum of Seven Hundred Thousand Dollars
($700,000) (the "Loan"). The Loan shall be made in accordance with the terms of
the loan and security agreement dated October 27, 1997 between the Company and
Kaire (the "Loan Agreement"). The Loan shall be evidenced by Kaire's secured
promissory note, in the form of the promissory note attached to the Loan
Agreement (the "Note"). The Note shall be secured by all of Kaire's assets in
accordance with the terms of the security agreement attached to the Loan
Agreement (the "Security Agreement"). Payment of the Note shall also be secured
by a pledge of stock by the holders of at least 40% of Kaire's voting stock
pursuant to a stock pledge agreement (the "Stock Pledge Agreement") and a
subordination of indebtedness by each pledgor of any indebtedness owed by Kaire
to each pledgor. Kaire acknowledges receipt of $700,000 of loan proceeds as of
the date of this Agreement.
8.10 Increase in Authorized Capital Stock. Prior to the Closing
Date, the Company shall amend its Articles of Incorporation to increase the
authorized number of shares of Common Stock to Four Hundred million
(400,000,000).
8.11 Additional Capital. (a) The Company agrees to use commercially
reasonable efforts to (i) raise additional capital in the gross minimum amount
of One Million Dollars ($1,000,000) prior to the Closing Date from the offer and
sale of the Company's convertible promissory notes (the "Convertible Notes") or
other form of investment, (ii) obtain a written commitment from one or more
investors to invest an additional $500,000 of capital in the Company on or
before December 25, 1997, by the purchase of the Company's Convertible Notes or
other form of investment, (iii) obtain a written commitment from one or more
investors to invest an additional $500,000 of capital in the Company on or
before January 15, 1998 by the purchase of the Company's Convertible Notes or
other form of investment, and (iv) obtain a written commitment from one or more
investors to invest an additional $1,000,000 of capital in the Company on or
before February 15, 1998 by the purchase of the Company's Convertible Notes or
other form of investment. The terms and conditions of the Convertible Notes or
other form of investment shall be determined by agreement of the holders thereof
and the Company. The first $700,000 of the proceeds received by the Company from
the sale of the Convertible Notes or other form of investment shall be loaned to
Kaire in accordance with Section 8.9 above. The shares of Common Stock issuable
by the Company upon conversion of the Convertible Notes or pursuant to an other
form of investment are sometimes hereinafter collectively referred to as the
"Additional Shares". The Company shall be entitled to grant registration rights
to the holders of the Additional Shares, pursuant to and in accordance with the
terms of a registration rights agreement in form and
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substance satisfactory to the Company and the holders of the Convertible Notes
or other form of investment with respect to such Additional Shares.
8.12 Use of Additional Capital. The first $700,000 of additional
capital received by the Company shall be loaned to Kaire pursuant to Section 8.9
above. On or after the Closing Date, the balance of the additional capital
received by the Company in accordance with Section 8.11 above shall be allocated
to and utilized by Kaire in such amounts, for such purposes and at such times as
the Executive Committee of Kaire's Board of Directors appointed pursuant to
Section 8.16 below shall, in its discretion, determine. All of the additional
capital received by the Company pursuant to Section 8.11 above after the Closing
and allocated to Kaire pursuant to this Section 8.12 shall be provided to Kaire
as equity capital and not as a loan.
8.13 Cancellation or Restructure of Affiliate Debt. As of the date
of this Agreement, the unpaid balance of all loans to Kaire from certain of its
officers, directors and shareholders (individually an "Affiliate" and
collectively, the "Affiliates") is $502,860 (individually, an "Affiliate Loan"
and collectively, the "Affiliate Loans"). Kaire agrees to use its best efforts
to obtain the written agreement of each Affiliate to cancel the entire amount of
his Affiliate Loan in exchange for shares of common stock of Kaire at or prior
to the Closing. The Affiliates shall not have the right to cancel any part of
their Affiliate Loans in exchange for shares of common stock of Kaire or the
Company after the Closing. If any Affiliate does not agree to cancel all of his
Affiliate Loan at or prior to the Closing, (i) the total number of Company
Shares which the Kaire Stockholders shall be entitled to receive at the Closing
shall be reduced by a number of shares determined by dividing the unconverted
portion of all Affiliate Loans (the "Unconverted Affiliate Debt") by the market
price of a share of the Company's common stock on the date immediately preceding
the Closing Date, and (ii) such Affiliate shall enter into a written agreement
with Kaire on or prior to the Closing which provides, on terms and conditions
satisfactory to the Company, that Kaire shall not be obligated to make any
payment on the Unconverted Affiliated Debt until after the end of the first
calendar quarter following the Closing Date in which Kaire has achieved positive
net cash flow (the "Initial Payment Quarter"), and that within thirty (30) days
after the end of the Initial Payment Quarter and each succeeding calendar
quarter in which Kaire has achieved positive net cash flow, Kaire shall only be
obligated to make a payment to such Affiliates, on a prorata basis, on such
Unconverted Affiliate Debt in an aggregate amount equal to 50% of the positive
net cash flow for each such calendar quarter.
8.14 Cancellation or Restructure of Certain Nonaffiliated Debt. As
of the date of this Agreement, Kaire is indebted to Randy Mason ("Mason") in the
principal amount of $350,000 (the "Mason Debt") and to the holders of Kaire's
10% promissory notes (the "Bridge Loan Note Holders") in the aggregate principal
amount of $1,725,000 (the "Bridge Loan Debt"). Kaire agrees to use its best
efforts to obtain the written agreement of Mason and the Bridge Loan Note
Holders to cancel the entire amount of the Mason Debt and the Bridge Loan Debt,
respectively, in exchange for common stock of Kaire at or prior to the Closing,
if Mason and/or the Bridge Loan Note Holders do not agree to cancel all of their
Mason Debt and Bridge Loan Debt, respectively, Kaire shall use its best efforts
to (a) enter into a written agreement with Mason at or prior to the Closing
which provides, on terms and conditions satisfactory to the Company, that any
default by Kaire with
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respect to payment of the Mason Debt prior to the Closing shall be waived and
that Kaire shall have a reasonable period of time after the Closing to repay the
Mason Debt, and (b) enter into a written agreement with the Bridge Loan Note
Holders at or prior to the Closing which provides, on terms and conditions
satisfactory to the Company, that any default by Kaire under its agreement with
the Bridge Loan Note Holders prior to the Closing, including without limitation,
any default occurring by reason of this Agreement or the consummation of any of
the transactions contemplated hereby, shall be waived.
8.15 Election of Additional Kaire Directors. At or prior to the
Closing, (a) Kaire shall amend its Bylaws or take such other action as may be
necessary to provide that the authorized number of directors on Kaire's Board of
Directors shall be seven (7), and (b) at the Closing, Kaire shall elect two (2)
persons designated by the Company to serve on Kaire's Board of Directors.
8.16 Appointment of Kaire Executive Committee. At the Closing,
Kaire's Board of Directors shall adopt and approve resolutions, in form and
substance satisfactory to the Company, which shall provide (a) for the
appointment of an Executive Committee of the Board of Directors of Kaire
consisting of five (5) members, three (3) of which shall be directors designated
by Kaire and two (2) of which shall be the two (2) new members of Kaire's Board
of Directors designated by the Company, (b) that the Kaire Executive Committee
shall be authorized and empowered, to the same extent as Kaire's Board of
Directors, to take action on (i) raising additional capital (ii) obtaining debt
financing, (iii) issuing any equity or debt securities or (iv) anything
materially affecting the operation of Kaire's business, and (c) that all action
taken by Kaire's Executive Committee must be approved by at least four (4) of
its five (5) members.
8.17 Election of Additional Company Directors. At or prior to the
Closing, (a) the Company shall amend its Bylaws, or take such other action as
may be necessary to provide that the authorized number of directors on the
Company's Board of Directors shall be five (5), and, (b) at the Closing, the
Company shall elect two (2) persons designated by Kaire to serve on the
Company's Board of Directors.
8.18 Appointment of Company Executive Committee. At the Closing, the
Company's Board of Directors shall adopt and approve resolutions, in form and
substance satisfactory to Kaire, which shall provide (a) for the appointment of
an Executive Committee of the Board of Directors of the Company consisting of
five (5) members, three (3) of which shall be directors designated by the
Company and two (2) of which shall be the two (2) new members of the Company's
Board of Directors designated by Kaire, (b) that the Company's Executive
Committee shall be authorized and empowered, to the same extent as the Company's
Board of Directors, to take action on (i) raising additional capital (ii)
obtaining debt financing, (iii) issuing any equity or debt securities or (iv)
anything materially affecting the operation of the business of the Company and
its Subsidiary, and (c) that all actions taken by the Company Executive
Committee must be approved by at least four (4) of its five (5) members.
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8.19 Consulting Fees.
8.19.1 The Company shall issue and deliver to Day Campbell & McGill
("DCM") shares of the Company's Common Stock in the amounts and at the times set
forth below:
(a) At or within 30 days after the Closing, the Company shall
issue and deliver to DCM a number of shares of the Company's common stock equal
to four percent (4%) of the Company's Total Adjusted Shares. "Total Adjusted
Shares" shall mean the sum of (i) the total number of shares of the Company's
common stock outstanding immediately prior to the Closing, including any shares
issued pursuant to Section 8.11 above, (ii) the Company Shares, (iii) the shares
issuable under this Section 8.19(a), and (iv) any shares of the Company's common
stock issuable upon exercise or conversion of any options, warrants, rights or
convertible securities outstanding immediately prior to the Closing, including
any shares issuable upon exercise or conversion of any options, warrants or
convertible securities issued pursuant to Section 8.11 above; provided that, for
purposes of calculating Total Adjusted Shares, if any of such options, warrants,
rights or convertible securities by their terms provide that the exercise or
conversion price thereof and the number of shares to be issued upon exercise or
conversion thereof is to be determined as of a certain date by reference to the
market price of the Company's common stock as of such date or some other date,
the number of shares issuable upon exercise or conversion thereof shall be
deemed to be such number of shares as would have been issued had the full
exercise or conversion occurred on the date immediately preceding the Closing
Date.
(b) After the Closing, the Company shall issue to DCM a number
of shares of the Company's common stock equal to four percent (4%) of (i) the
number of shares of the Company's common stock issued after the Closing pursuant
to Section 8.11 above (other than pursuant to (ii) below), and (ii) the number
of shares issuable upon exercise or conversion of warrants, options or
convertible securities issued after the Closing pursuant to Section 8.11 above;
provided that, for purposes of calculating the number of shares to be issued to
DCM under this Section 8.19(b), if any options, warrants or convertible
securities issued after the Closing pursuant to Section 8.11 above by their
terms provide that the exercise or conversion price thereof and the number of
shares to be issued upon exercise or conversion thereof is to be determined as
of a certain date by reference to the market price of the Company's common stock
as of such date or some other date, the number of shares issuable upon exercise
or conversion thereof shall be deemed to be such number of shares as would have
been issued had the full exercise or conversion occurred as of the date of
issuance of such options, warrants, rights or convertible securities.
(d) All of the shares of the Company's common stock which the
Company is obligated to issue to DCM pursuant to this Section 8.19 shall be
registered on a Form S-8 duly filed and accepted by the Securities and Exchange
Commission.
8.19.2 The Company shall issue to EMCO/Hanover Group, Inc. or Bruce
Barren the number of shares of the Company's common stock that the Company has
agreed to issue pursuant to that certain Consulting Agreement dated June 1,
1997.
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<PAGE>
8.20 Assistance in Restructuring Kaire Debt. The Company shall use
its best efforts to assist Kaire in negotiating with Kaire's creditors to reduce
and/or restructure the amount and/or terms of payment of Kaire's accounts
payable, debts and other liabilities.
8.21 Letter of Intent with May Davis Group. Inc. The Company
acknowledges that Kaire and May, Davis Group, Inc. have signed a letter of
intent dated February 4, 1997, a copy of which has been furnished to the
Company, regarding a proposed public offering of securities of Kaire, and that
after the Closing Date Kaire may elect to proceed with such proposed public
offering on the terms and conditions set forth in such letter of intent.
9. CONDITIONS PRECEDENT
9.1 Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of the following conditions unless waived by such party:
(a) Government Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any governmental authority necessary for the consummation of
the transactions contemplated by this Agreement shall have been filed, occurred
or been obtained.
(b) Third-Party Approvals. Any and all consents or approvals
required from third parties relating to contracts, licenses, leases and other
instruments, material to the respective businesses of the Company and Kaire,
shall have been obtained.
(c) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the transactions contemplated by this Agreement shall have been issued by any
federal or state court and remain in effect, and no litigation seeking the
issuance of such an order or injunction, shall be pending which, in the good
faith judgment of the Company's Board of Directors, has a reasonable probability
of resulting in such order, injunction or damages. In the event any such order
or injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
(d) Additional Capital. At or prior to the Closing, the
Company shall have (a) received and made available to Kaire capital in the
amount of $1,000,000 (including the $700,000 loaned to Kaire in accordance with
Section 8.9 above) from the sale of the Company's Convertible Notes or other
form of investment, (b) received a written commitment to provide, on or before
December 25, 1997, additional capital to the Company in the amount of $500,000
by the purchase of the Company's Convertible Notes or other form of investment,
(c) received a written commitment to provide, on or before January 15, 1998,
additional capital to the Company in the amount of $500,000 by the purchase of
the Company's Convertible Notes or other form of investment, and (d) received a
written commitment to provide, on or before February 15, 1998, additional
capital to the Company in the amount of $1,000,000 by the purchase of the
Company's Convertible Notes or other form of investment.
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<PAGE>
(e) Amendment to Company's Certificate of Incorporation. The
Company shall have filed, at or prior to the Closing, with the office of the
Secretary of State of Delaware a Certificate of Amendment to the Company's
Certificate of Incorporation which increases the number of authorized shares of
the Company's Common Stock to 400,000,000.
9.2 Conditions to Obligations of the Company. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction on or prior to the Closing Date of the following
conditions, unless waived by the Company:
(a) Representations and Warranties of Kaire Stockholders. The
representations and warranties of the Kaire Stockholders set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as if made at and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(b) Representations and Warranties of Kaire. The
representations and warranties of Kaire set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as if made at and as of the Closing Date, except as otherwise contemplated by
this Agreement, and the Company shall have received a certificate to such effect
signed by the chief executive officer and chief financial officer of Kaire.
(c) Representations and Warranties of Kaire Affiliates. The
representations and warranties of the Kaire Affiliates set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as if made at and as of the Closing Date, and the Company
shall have received a certificate or certificates to such effect signed by the
Kaire Affiliates.
(d) Performance of Obligations of Kaire. Kaire shall have
performed in all material respects all obligations required to be performed by
it under this Agreement prior to the Closing Date, and the Company shall have
received a certificate to such effect signed by the chief executive officer and
chief financial officer of Kaire.
(e) Opinion of Kaire's Counsel. The Company shall have
received an opinion dated the Closing Date of counsel to Kaire, substantially in
the form set forth in Exhibit 9.2(e) attached hereto, with such qualifications
thereto as are customary and reasonable.
(f) Additional Capital. At or prior to the Closing, the
Company shall have (a) received and made available to Kaire capital in the
amount of $1,000,000 (including the $700,000 loaned to Kaire in accordance with
Section 8.9 above) from the sale of the Company's Convertible Notes or other
form of investment, (b) received a written commitment to provide, on or before
December 25, 1997, additional capital to the Company in the amount of $500,000
by the purchase of the Company's Convertible Notes or other form of investment,
(c) received a written commitment to provide, on or before January 15, 1998,
additional capital to the Company in the amount of $500,000 by the purchase of
the Company's Convertible Notes or other form of investment, and (iv) received a
written commitment to provide, on or before February 15, 1998,
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<PAGE>
additional capital to the Company in the amount of $1,000,000 by the purchase of
the Company's Convertible Notes or other form of investment.
(g) Election of Directors. Kaire shall have elected the
following persons nominated by the management of the Company to serve on the
Board of Directors of Kaire effective as of the Closing Date:
Steve Westlund
Peter Benz
(h) Additional Closing Documents. The Company shall have
received the following documents and instruments:
(1) A duly executed copy of each agreement between Kaire
and the Affiliates with respect to (a) the cancellation of the Affiliate Loans
and (b) the payment by Kaire of any Unconverted Affiliate Debt, pursuant to and
in accordance with the provisions of Section 8.13 above.
(2) A duly executed copy of an agreement between Kaire
and Mason dated on or prior to the Closing Date, pursuant to and in accordance
with the provisions of Section 8.14 above.
(3) A duly executed copy of an agreement between Kaire
and the Bridge Loan Note Holders dated on or prior to the Closing Date, pursuant
to and in accordance with the provisions of Section 8.14 above.
(4) A duly executed certificate of the Secretary of
Kaire certifying that (a) the persons named in Section 9.2(g) above have been
duly elected to serve on the Kaire Board of Directors effective as of the
Closing Date, and (b) the Board of Directors has duly adopted resolutions
appointing the Kaire Executive Committee, pursuant to and in accordance with the
provisions of Section 8.16 above, and that the resolutions set forth in the
certificate are identical to those duly adopted by the Board of Directors of
Kaire.
(5) A duly executed Release from each of the Kaire
Stockholders releasing Kaire, the Kaire Subsidiaries and the Company from all
claims, debts, obligations and liabilities except for those described on Exhibit
9.2(h)(5) attached hereto.
(6) A duly executed Release from each of Kaire
Affiliates releasing Kaire, the Kaire Subsidiaries and the Company from all
claims, debts, obligations and liabilities except for those described on Exhibit
9.2(h)(6) attached hereto.
(7) Such other documents and instruments as are required
to be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by the Company.
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<PAGE>
9.3 Conditions to Obligations of Kaire. The obligations of Kaire to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions unless
waived by Kaire:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as if made at and
as of the Closing Date, except as otherwise contemplated by this Agreement, and
Kaire shall have received a certificate to such effect signed by the chief
executive officer and chief financial officer of the Company.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Closing Date, and Kaire shall
have received a certificate to such effect signed by the chief executive officer
and chief financial officer of the Company.
(c) Opinion of the Company's Counsel. The Company shall have
received an opinion dated the Closing Date of counsel to the Company,
substantially in the form set forth in Exhibit 9.3(c) attached hereto, with such
qualifications thereto as are customary and reasonable.
(d) Additional Capital. At or prior to the Closing, the
Company shall have (a) received and made available to Kaire, at or prior to the
Closing, capital in the amount of $1,000,000 (including the $700,000 loaned to
Kaire in accordance with Section 8.9 above) from the sale of the Company's
Convertible Notes or other form of investment, (b) received a written commitment
to provide, on or before December 25, 1997, additional capital to the Company in
the amount of $500,000 by the purchase of the Company's Convertible Notes or
other form of investment, (c) received a written commitment to provide, on or
before January 15, 1998, additional capital to the Company in the amount of
$500,000 by the purchase of the Company's Convertible Notes or other form of
investment, and (d) received a written commitment to provide, on or before
February 15, 1998, additional capital to the Company in the amount of $1,000,000
by the purchase of the Company's Convertible Notes or other form of investment.
(e) Election of Directors and Officers. The Board of Directors
of the Company shall have elected the following persons nominated by the
management of Kaire to serve on the Board of Directors of the Company effective
as of the Closing Date:
Robert Richards
Loren E. Bagley
(f) Additional Closing Documents. Kaire and the Kaire
Stockholders shall have received the following documents and instruments:
(1) A duly executed certificate of the secretary of the
Company certifying that (a) the persons named in Section 9.3(e) above have been
duly elected to serve on the Company's Board of Directors effective as of the
Closing Date and (b) the Board of Directors has
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<PAGE>
duly adopted resolutions appointing the Company's Executive Committee pursuant
to and in accordance with the provisions of Section 8.18 above and that the
resolutions set forth in the certificate are identical to those duly adopted by
the Company's Board of Directors;
(2) Such other documents and instruments as are required
to be delivered pursuant to the provisions of this Agreement or otherwise
reasonably requested by Kaire.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
10.1 Survival of Representations and Warranties. The respective
representations and warranties of the parties other than Kaire contained herein
shall survive the Closing, but shall expire on the second anniversary date
following the date of Closing, unless a specific claim in writing with respect
to these matters shall have been made, or any action at law or in equity shall
have been commenced or filed before such anniversary date. The representations
and warranties of Kaire contained herein shall terminate on the date of Closing.
The limitation period for the survival of the representations and warranties of
the parties contained herein shall not apply to any fraudulent breach,
representation or warranty or to any breach or inaccuracy in any representation
or warranty known to such party on or before the date of Closing. The right to
indemnification, payment of damages or other remedy based on such
representations and warranties will not be affected by any investigation
conducted with respect to, or any knowledge acquired at any time, whether before
or after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of any such representation or warranty.
10.2 Indemnification.
(a) The Kaire Affiliates and the Major Shareholders, jointly
and severally, agree to indemnify and hold the Company and its officers,
directors, stockholders, agents, affiliates and attorneys (collectively, the
"Indemnified Persons") for, and will pay to the Indemnified Persons the amount
of, any loss, liability, claim, damage (including incidental and consequential
damages), expense (including costs of investigation and defense and reasonable
attorneys' fees, or diminution of value, whether or not involving a third party
claim (collectively "Damages"), arising, directly or indirectly, from or in
connection with: (1) any breach or violation of this Agreement by Kaire or the
Kaire Affiliates; or (2) any breach of any of the representations, warranties or
covenants made in this Agreement by Kaire or the Kaire Affiliates; or (3) any
inaccuracy or misrepresentation in the Kaire Disclosure Schedule or in any
certificate, document or instrument delivered in accordance with the terms of
this Agreement by Kaire or the Kaire Affiliates.
(b) The Company agrees to indemnify and hold harmless the
Kaire Stockholders from and against all damages, claims, losses, liabilities and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) resulting from or arising out of (l) any breach or violation of this
Agreement by the Company; or (2) any breach of any of the representations,
warranties or covenants made in this Agreement by the Company; or (3) any
inaccuracy or misrepresentation in the Company Disclosure Schedule or in any
certificate, document or instrument delivered in accordance with the terms of
this Agreement by the Company.
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<PAGE>
(c) The obligations to indemnify and hold harmless pursuant to
this Section 10.2 shall survive the Closing for a period of two (2) years after
the date of Closing.
11. OBLIGATIONS OF THE COMPANY AND THE KAIRE STOCKHOLDERS AFTER THE
CLOSING
11.1 After the Closing the Company agrees that:
(a) The Company shall file a Form 8-K which contains the
audited financial statements of Kaire and proforma financial information
required by Form 8-K with the Securities and Exchange Commission within 75 days
after the Closing Date.
(b) For a period of one (1) year after the Closing Date, the
Company agrees that in any election of a director or directors of Kaire, the
Company shall vote or cause to be voted all of the Kaire Shares beneficially
owned by the Company in such a manner that immediately after such election,
Kaire's Board of Directors shall include five (5) representatives nominated by
the management of Kaire and two (2) representatives nominated by the management
of the Company.
(c) If, on or before each date set forth below, the Company
has not provided Kaire with the amount of additional capital set forth opposite
each such date, then the Company shall assign and transfer to the Kaire
Stockholders, on a prorata basis, within thirty (30) days after each such date
on which the Company failed to provide Kaire with the amount of additional
capital required to be provided by such date, a number of the Kaire Shares
received by the Company at the Closing equal to 3.3% of the total number of
shares of common stock of Kaire outstanding on the Closing Date.
December 25, 1997 $500,000
January 15, 1998 $500,000
February 15, 1998 $1,000,000
(d) If, on or before the later of (i) February 15, 1998 or
(ii) the date on which Kaire receives the signed report of BDO Seidman, LLP on
the Company's consolidated financial statements for fiscal year ended December
31, 1997, the total amount of additional capital provided by the Company to
Kaire prior to and after the Closing is less than $3,000,000, the Company shall
assign and transfer to the Kaire Stockholders, on a pro rata basis, a number of
Kaire Shares received by the Company at the Closing determined by (i)
subtracting the total amount of additional capital provided by the Company to
Kaire prior to and after the Closing from $3,000,000, dividing the result
obtained in (i) above by $3,000,000 and (iii) multiplying the fraction obtained
in (ii) above times the number of Kaire Shares received by the Company at the
Closing. By way of example, if the Company provided $1,000,000 of additional
capital to Kaire prior to the Closing and $1,000,000 of additional capital after
the Closing, and if the Company received 3,000,000 Kaire Shares at the Closing,
the Company would be obligated to assign and transfer 1,000,000 of the Kaire
Shares to the Kaire Stockholders determined as follows:
30
<PAGE>
(i) $ 3,000,000
$(2,000,000)
-----------
$ 1,000,000
(ii) $ l,000,000 = 1/3
-----------
$ 3,000,000
(iii) 1/3 x 3,000,000 shares = 1,000,000 shares
11.2 After the Closing, the Kaire Stockholders agree that:
(a) For a period of one (1) year after the Closing Date, the
Kaire Stockholders agree that in any election of a director or directors of the
Company, the Kaire Stockholders shall vote or cause to be voted all of the
Company Shares beneficially owned by them in such a manner that immediately
after such election, the Company's Board of Directors shall include three (3)
representatives nominated by the management of the Company and two (2)
representatives nominated by the management of Kaire.
12. PAYMENT OF EXPENSES
The Company and Kaire shall each pay their own fees and expenses
incurred incident to the preparation and carrying out of the transactions herein
contemplated (including legal and accounting fees).
13. TERMINATION
13.1 This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of the Company, Kaire and the
Kaire Stockholders;
(b) by the Company if there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement by
Kaire or the Kaire Stockholders;
(c) by Kaire and the Kaire Stockholders if there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement by the Company;
(d) by the Company if any condition to the Company's
obligation to consummate the transactions contemplated by this Agreement has not
been satisfied or waived by the Company;
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<PAGE>
(e) by Kaire and the Kaire Stockholders if any condition to
the obligations of Kaire and the Kaire Stockholders to consummate the
transactions contemplated by this Agreement has not been satisfied or waived by
Kaire and the Kaire Stockholders.
13.2 Effect of Termination. Termination of this Agreement in
accordance with Section 13.1 may be effected by written notice from either the
Company or Kaire and the Kaire Stockholders, as appropriate, specifying the
reasons for termination and shall not subject the terminating party to any
liability for any valid termination.
14. MISCELLANEOUS
14.1 Tax Treatment. The transaction contemplated herein is intended
to qualify as a so-called "tax-free" reorganization under the provisions of
Section 368 of the Internal Revenue Code. Kaire, the Kaire Stockholders and the
Company acknowledge, however, that they each have been represented by their own
tax advisors in connection with this transaction; that no party hereto has made
any representation or warranty to the other with respect to the treatment of
such transaction or the effect thereof under applicable tax laws, regulations,
or interpretations; and that no attorney's opinion or private revenue ruling has
been obtained with respect to the effects thereof under the Internal Revenue
Code of 1986. as amended.
14.2 Further Assurances. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
14.3 Payment of Fees and Expenses. If any legal action or any
arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
14.4 Parties in Interest. Except as otherwise expressly provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
14.5 Entire Agreement; Amendments. This Agreement, including the
Schedules, Exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof; contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be
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<PAGE>
amended only by a written instrument duly executed by the parties or their
respective successors or assigns.
14.6 Headings, Etc.. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
14.7 Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
14.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
14.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
14.10 Notices. Any and all notices, demands or other communications
required or desired to be given hereunder by any party shall be in writing and
shall be validly given or made to another party if given by personal delivery,
telex, facsimile, telegram or if deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested. If such notice, demand
or other communication is given by personal delivery, telex, facsimile or
telegram, service shall be conclusively deemed made at the time of receipt. If
such notice, demand or other communication is given by mail, such notice shall
be conclusively deemed given forty-eight (48) hours after the deposit thereof in
the United States mail addressed to the party to whom such notice, demand or
other communication is to be given as hereinafter set forth:
If to Kaire: 380 Lashley Street
Longmont, Colorado 80501
If to the Kaire Stockholders
or the Kaire Affiliates: At the addresses set forth below their
names on the signature page of this
Agreement or on Exhibit A or Exhibit B
hereto
If to Company: 2139 Pontius Avenue
Los Angeles, CA 90021
14.11 Delivery by Facsimile Transmission. Delivery of an executed
counterpart of this Agreement or any exhibit attached hereto by telefacsimile
transmission shall be equally as effective as delivery of an executed hard copy
of the same. Any party delivering an executed counterpart of this Agreement or
any exhibit attached hereto by telefacsimile transmission shall also
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<PAGE>
deliver an executed hard copy of the same, but the failure by such party to
deliver an executed hard copy shall not affect the validity, enforceability and
binding effect of this Agreement or such exhibit.
15. APPOINTMENT OF AGENT
The Kaire Stockholders hereby irrevocably constitute and appoint
Robert Richards as their true and lawful attorney (the "Agent") with full right
and power in their names and stead to take any and all action by and on behalf
of them necessary or desirable to consummate the transactions contemplated by
this Agreement, including without limitation, the right and power to receive
certificates representing the Company Shares on behalf of each of the Kaire
Stockholders, to deliver to the Company the certificates representing the Kaire
Shares, to waive performance of any of the obligations of the Company or waive
compliance by the Company with any of its covenants hereunder, to deliver the
investment letters and Releases of the Kaire Stockholders referred to in Section
2.2 hereof, and to amend or terminate this Agreement as herein provided. Any
such action taken by the Agent on behalf of a Kaire Stockholder shall be binding
upon such Kaire Stockholder. The Company shall not have any responsibility to
the Kaire Stockholders or any of them for the distribution by the Agent of the
certificates representing the Company Shares to be delivered to the Kaire
Stockholders, nor shall the Company be liable in any manner whatsoever to the
Kaire Stockholders or any or them by or on account of any act or omission of the
Agent.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.,
a Delaware corporation
By:
-------------------------------------
Its:
--------------------------------
KAIRE INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Robert L. Richards
-------------------------------------
Its: C.E.O.
[Signatures of Kaire Stockholders continued on next page]
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<PAGE>
deliver an executed hard copy of the same, but the failure by such party to
deliver an executed hard copy shall not affect the validity, enforceability and
binding effect of this Agreement or such exhibit.
15. APPOINTMENT OF AGENT
The Kaire Stockholders hereby irrevocably constitute and appoint
Robert Richards as their true and lawful attorney (the "Agent") with full right
and power in their names and stead to take any and all action by and on behalf
of them necessary or desirable to consummate the transactions contemplated by
this Agreement, including without limitation, the right and power to receive
certificates representing the Company Shares on behalf of each of the Kaire
Stockholders, to deliver to the Company the certificates representing the Kaire
Shares, to waive performance of any of the obligations of the Company or waive
compliance by the Company with any of its covenants hereunder, to deliver the
investment letters and Releases of the Kaire Stockholders referred to in Section
2.2 hereof, and to amend or terminate this Agreement as herein provided. Any
such action taken by the Agent on behalf of a Kaire Stockholder shall be binding
upon such Kaire Stockholder. The Company shall not have any responsibility to
the Kaire Stockholders or any of them for the distribution by the Agent of the
certificates representing the Company Shares to be delivered to the Kaire
Stockholders, nor shall the Company be liable in any manner whatsoever to the
Kaire Stockholders or any or them by or on account of any act or omission of the
Agent.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.,
a Delaware corporation
By: /s/ Steven Westlund
-------------------------------------
Its: CHAIRMAN AND C.E.O.
KAIRE INTERNATIONAL, INC.,
a Delaware corporation
By:
-------------------------------------
Its:
--------------------------------
[Signatures of Kaire Stockholders continued on next page]
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<PAGE>
KAIRE STOCKHOLDERS
SIGNATURE PAGE
Tenet Investment Group
_________________________________
By:
Title:
Aerostar Fiduciary Fund
_________________________________
By:
Title:
CCB Investments, L.L.C.
_________________________________
By:
Title:
Rain Bird Enterprises, L.L.C.
_________________________________
By:
Title:
_________________________________
John C. Allen Jr.
DRP Corporation
_________________________________
By:
Title:
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<PAGE>
_________________________________
David J. Crockett
Mystic Enterprises, Inc.
_________________________________
By:
Title:
_________________________________
Robert J. Young
Gusrae, Kaplan & Bruno
_________________________________
By:
Title:
37
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
All references herein to the Agreement shall mean the Agreement and
Plan of Reorganization among Interactive Medical Technologies, Ltd. (the
"Company" or "IMT"), Kaire International, Inc. ("Kaire"), the stockholders of
Kaire (the "Kaire Stockholders") and certain executive officers and directors of
Kaire (the "Kaire Affiliates") dated December 9, 1997.
Section 5.3: Capitalization -
The following options, warrants, convertible securities, calls,
rights, commitments or agreements obligating the Company to issue shares of its
common stock or to grant, extend or enter into any option, warrant, Convertible
security, call, right, commitment or agreement were outstanding on the date of
the Agreement:
A. Convertible notes in the aggregate principal amount of
$1,012,655 convertible, at a conversion price of S0.125
per share, into an aggregate of 8,01,240 shares as set
forth in the convertible note schedule attached hereto.
B. Convertible notes convertible at a discount to the
market value of the Company's common stock to be
determined as of a certain date prior to conversions, as
follows:
1. Convertible note in the principal amount of $125,000
and bearing interest at the rate of 10% per annum held
by the Wolas Family Limited Partnership. The principal
amount and accrued interest is convertible into shares
of common stock at a conversion price equal to 65% of
the market value of the Company's common stock as
determined in accordance with the terms of such
convertible note, a copy of which has been provided to
Kaire, but in no event shall the conversion price be
less than $0.04 or more than $0.08 per share.
2. Convertible note in the principal amount of $350,000
and bearing interest at the rate of 8% per annum held by
the Optimum Fund. The principal amount and accrued
interest is convertible into shares of common stock at a
conversion price equal to 70% of the market value of the
Company's common stock as determined in accordance with
the terms of such convertible note, a copy of which has
been provided to Kaire. This note was issued to an
investor pursuant to Section 8.11 of the Agreement.
3. Convertible note in the principal amount of $250,000
and bearing interest at the rate of 8% per annum held by
SAGE Capital. The principal amount and accrued interest
is convertible
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
into shares of common stock at a conversion price equal
to 70% of the market value of the Company's common stock
as determined in accordance with the terms of such
convertible note, a copy of which has been provided to
Kaire. This note was issued to an investor pursuant to
Section 8.11 of the Agreement.
C. Warrants to purchase an aggregate of 43,263,900 shares
as set forth in the Warrant Schedule attached hereto.
D. Options held by Jerry Strauss to purchase 1,000,000
shares of common stock.
E. A commitment to issue 1,000,000 shares of common stock
to Dr. Vincent Sghlatti.
F. A commitment to issue shares of common stock in the
amounts and to the persons described in Section 8.19 of
the Agreement.
Section 5.4: Equity Investments -
The Company owns an equity interest, in the amount indicated, in the
following entities, all of which are corporations-
Percent
Name State of Incorporation Ownership
E-Z Trac, Inc. California 100%
Effective Health, Inc. California 100%
See/Shell Biotechnology, Inc. California 100%
Venus Management, Inc. New York 100%
Nutra Quest, Inc. Nevada 100%
IMT (Vanuatu) Limited Republic of Vanuatu
a)Voting Percentage 51%
b) Equity Percentage TBD
Section 5.6: Absence of Undisclosed Liabilities-
The following undisclosed liabilities are amounts owed to Steven
Westlund and Peter Benz which have not been accrued to date and are not
reflected in the IMT Financial Statements attached as Exhibit 5.5 to the
Agreement:
2
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
A. Amounts in the aggregate of $175,000 are owed to Steven Westlund
for past compensation, including but not limited to, salaries and benefits.
B. Amounts in the aggregate of $175,000 are owed to Peter Benz for
past compensation, including but not limited to, salaries and benefits.
C. Steve Westlund will be entitled to compensation for his efforts
in connection with the transactions contemplated by the Agreement pursuant to
subsection 4.8 of his Employment Agreement with the Company. The amount of
compensation to be received by Mr. Westlund will be an amount determined by (i)
multiplying two and one half percent (2.5%) times (ii) the product obtained by
multiplying the market price of a share of the Company's common stock on the
date immediately preceding the Closing Date times the number of shares of the
Company's common stock issued to the Kaire Stockholders pursuant to the
Agreement. The compensation is payable in cash at such time or times as may be
agreed to by the Company and Mr. Westlund.
D. Peter Benz will be entitled to compensation for his efforts in
connection with the transactions contemplated by the Agreement pursuant to
subsection 4.8 of his Employment Agreement with the Company. The amount of
compensation to be received by Mr. Benz will be an amount determined by (i)
multiplying two and one half percent (2.5%) times (ii) the product obtained by
multiplying the market price of a share of the Company's common stock on the
date immediately preceding the Closing Date times the number of shares of the
Company's common stock issued to the Kaire Stockholders pursuant to the
Agreement. The compensation is payable in cash at such time or times as may be
agreed to by the Company and Mr. Benz.
Section 5.9: Taxes -
A. Federal and state income tax returns for the year 1996 have not
been filed to date. There are no Federal taxes due and the minimum state tax
amount ($800) is due for each California corporation.
Section 5.10: Litigation -
A. The following three legal actions are pending against the
Company:
1. Larry Sturchio vs IMT - Larry Sturchio, upon being terminated as
CEO of the Company's subsidiary Nutra Quest, Inc. (NQI), took possession of
certain NQI properties under the claim that he and not IMT was the rightful
owner of NQI. IMT was granted a temporary restraining order: I)restraining
Sturchio from representing himself as being affiliated
3
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
with NQI, 2) directing Sturchio to return all NQI properties to NT and 3)
directing Sturchio to assign all of his NQI shares to IMT. Sturchio has appealed
the ruling and the court date is scheduled later this month.
2. The second action involves a complaint filed by Siemens Credit
against IMT, Venus Management, and several related parties seeking damages for
default under a lease/purchase agreement for certain MRI equipment. Siemens is
seeking an injunction against use of the MRI[ equipment plus payment of the
entire principal and accrued interest in the amount of $1,082,796. This matter
is currently the subject of settlement negotiations pursuant to which, if
successfully concluded, the lease/purchase agreement will be assigned to a third
party thus releasing IMT of all obligations.
3. In the third action, the Rudolf Steiner Research Foundation
("Foundation") filed a complaint in the United States District Court for the
Central District of California in February 1996 against Clark H. Holcolm,
Lawrence Gibson, Murry Bettingen, Bettingen, Inc. and the Company. This action
alleges civil RICO, violation of the Securities Act of 1913, violation of
California Corporation Code, fraud, deceit and intentional misrepresentation,
negligent misrepresentation, conversion, constructive trust and breach of
contract. The Company believes it has no obligation to the Foundation in
connection with this matter and denies all the allegations. The Company has not
been contacted by the Foundation or its attorney's since the filing of the
complaint, but intends to contest the matter if so contacted.
B. There were two actions filed against NT by Federal government
agencies which were settled.
1. In 1995 the Securities Exchange Commission ("SEC') sought
injunctive relief against IMT and Dr. William Shell and Clark Holcomb, former
officers and/or directors of IMT, for alleged violations of the registration
provisions of the Federal securities laws. IMT settled with the SEC and a
consent decree was issued and signed by IMT in June, 1997. A copy of SEC Consent
Decree has been provided to Kaire and made available to the Kaire Stockholders.
2. The Federal Trade Commission ("FTC") initiated an investigation
(Docket No. C-3751) against IMT, Effective Health Inc., and William Pelzer and
William Shell M.D., former officers of IMT, for violation of the Federal Trade
Commission Act relating to certain acts and practices in connection with
labeling, advertising and promotion of certain products known as "SeQuester" and
"Lipitrol". IMT settled with the FTC and agreed to the entry of an order against
IMT (Docket No. C-3751) on June 16, 1997 pursuant to which IMT consented to the
entry of an order which, among other things, prohibits IMT directly or through
any corporation, subsidiary, division or other device, from making
misrepresentations relating to Lipitrol, SeQuester or any other weight loss, fat
reduction or cholesterol reduction product or program,
4
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
or with respect to tests or studies relating to such products or programs. In
addition, IMT agreed to pay $35,000 to the FTC over a twelve month period to
provide redress to purchasers of Lipitrol. Payment of such amount is secured by
certain assets of IMT. A copy of the FTC order has been provided to Kaire and
made available to the Kaire Stockholders.
C. Possible Claim for Rescission Rights
Certain investors who purchased 2,506,982 shares of the
Company's common stock in certain private placements during 1992 may have
rescission rights with respect to such shares, subject to any applicable
statutes of limitation that may bar such claims. None of such investors have
made any claims for rescission to date.
Section 5.12: Contracts and Undertakings -
The Company is a party to the following agreements:
1. Agreement dated June 30, 1993 between Venus Management,
Inc. and Medical Funding of America, Inc.
2. Agreements with respect to MRI equipment, dated as of
February 10, 1994 among Siemens Credit Corporation,
Venus Management, Inc. and Tri-County Mobil.
3. Resonex Equipment Lease dated as of June 30, 1993
between Venus Management Company and Medical Funding of
America.
4. Revised Proposed Acquisition agreement with Nutra Quest,
Incorporated dated June 27, 1997.
5. Real Property Lease extension document on the premises
located at 2139 Pontius Avenue, Los Angeles, California.
6. Real Property Lease at the premises located at 1717 -
1719 Stewart Street, Santa Monica.
7. Assignment and Modification of Lease on the premises
located at 1717 - 1719 Stewart Street, Santa Monica by
and between Richlar Partnership (Landlord), IMT
(Assignor) and Station X Studios LLC (Assignee).
5
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
8. Transfer of Interest Agreement for NIRI equipment - by
and between Venus Management, Inc., Medical Management
Inc., and Siemens Credit Corporation.
9. Telephone System Lease - BALBOA CAPITAL CORPORATION
Master Lease Agreement.
10. Consulting Agreement with Vincent R. Sghiatti, M.D.
11. Consulting Agreement with Bruce Barren and The
EMCO\Hanover Group, Inc. dated June 1, 1997.
12. Employment Agreement with Owen Naccarato.
13. Retainer Agreement with Day Campbell and McGill.
14. Employment Agreement with Peter Benz dated May 15, 1997.
15. Employment Agreement with Steve Westlund dated May 15,
1997.
16. Employment Agreement with Larry Stanchio (terminated in
October 1997)
17. Royalty Agreement with Francis Pizzulli with respect to
sales of microsphere and sequesterant products.
18. Royalty Agreement with Dr. Shell, M.D. and Jackie See
M.D., with respect to sales of microsphere and
sequesterant products.
Section 5.13: Real Property -
The Company is a party to the following real property leases:
A. Lease Agreement between the Company and Byron and Sarah
Roberts with respect to the premises located at 2139 Pontius,
Los Angeles, California.
B. Lease Agreement between the Company and the Richlar
Partnership (a California general partnership) with respect to
the premises located at 1717-1719 Stewart, Santa Monica,
California.
6
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
Section 5.14: Patents -
The Company or its subsidiaries hold the following patents-
A. Patent No. 4,616,658 For Non-Radioactivity Labeled
Microspheres and Use of Same to Measure Blood Flow. Dated
October 14, 1986.
B. Patent No. 4,680,171 For Visualization of a Bloodstream
Circulation with Biodegradable Microspheres. Dated July 14,
1987@
C. Patent No. 4,811,741 For Volumetric Determination of a
Fluid. Dated March 14, 1989.
D. Patent No. 4,865,850 For Dietary Fat Reduction. Dated
September 12, 1989.
E. Patent No. 5,186,922 For Use of Biodegradable Microspheies
Labeled with Imaging Energy Contrast Materials. Dated February
16, 1993.
F. Canadian Patent No. 1,255,219 For Non-Radioactivity Labeled
Microspheres and Use of Same to Measure Blood Flow. Dated June
6, 1989.
Section 5.17 Consent -
A. Pursuant to the FTC Order described in Section 5.1OB(2) of this
Disclosure Schedule, a copy of which has been provided to Kaire and made
available to the Kaire Stockholders, the Company is required to give thirty days
prior notice to the FTC with respect to the transactions contemplated by the
Agreement. The notice was given on December 1, 1997.
Section 5.18 Brokers or Finders -
The Company is obligated to pay finders fees or consulting fees in
connection with the transactions contemplated by the agreement as follows:
A. Day Campbell & McGill - Cash in the amount of 3% of up to
$3,000,000 of additional capital to be raised by the Company pursuant to the
Agreement and the number of shares of the Company's common stock determined in
accordance with Section 8.19 of the Agreement.
7
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
DISCLOSURE SCHEDULE
B. Bruce Barren or The EMCO/Hanover Group, Inc. - Cash in the amount
of 10% of capital raised by Bruce Barren for the Company, and cash in the amount
of 3% of all other capital received by the Company. Shares of the Company's
common stock in the amount determined in accordance with the Company's
Consulting Agreement with Bruce Barren and the EMCO/Hanover Group Inc., dated
June 1, 1997, a copy of which has been provided to Kaire and made available to
the Kaire Stockholders.
8
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
Convertible Note Schedule
Name $ Amount
Herman 20,000
Berman 15,000
Bakalor 10,000
Milne 10,000
Casagrande 10,000
Rusch 10,000
Shum 10,000
Henderson 10,000
Franco 50,000
Kiernan 20,000
Lockwood 5,000
Berger 10,000
Heiligman 20,000
Concilio 5,000
Harris 10,000
Soutin 28,000
Violino 5,000
Kulleseid 20,000
Reisley 20,000
Armstrong 20,000
Finkelman 10,000
Kratzer 10,000
Covelli 10,000
Rosmarin 20,000
Wallenstein 10,000
Andolino 5,000
Starks 9,700
Pupke 10,000
Zipkin 10,000
Kesten 10,000
Casagrande 10,000
Komorsky 10,000
Dr. Taragin 5,000
Madison 10,000
Ardizzone 10,000
Weissman 5,000
Schwartz 19,955
Witdorchic 2,500
Miotto 2,500
Romano 10,000
Bailey 5,000
Quo Vadis PS 10,000
Paganelli 5,000
Herbst 10,000
Calhoun 10,000
9
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
Convertible Note Schedule
Kahn $10,000
Bezold 10,000
Lindhjem 10,454
Lazar 10,000
Pugh 10,000
Anthony Thomas 10,000
Softgoods Software 5,000
Ferrari 100,000
Ferrari 20,000
Great Room Investors 5,000
Lindhjem 19,546
Adj (10,000)
Troy and Gould 50,000
Pernet 200,000
Dr. Shell 25,000
-----------
Total Dollars $ 1,012,655
10
<PAGE>
INTERACTIVE MEDICAL TECHNOLOGIES, LTD.
Warrant Schedule
Warrants Outstanding at December 1997
Exercise Issue Expiration
Name Number Price Date Date
- ---- ------ ----- ---- ----
Irwin Elson 287,000 $3.500 Apr-93 Five Years
Ladenburg 200,000 $2.72 Oct-93 Five Years
Ladenburg 100,000 $3.000 Oct-93 Five Years
Schultz 87,500 $4.000 Mar-94 Five Years
Marra 50,000 $0.750 Feb-95 Three Years
Marra 50,000 $1.000 Feb-95 Three Years from 8/95
Marra 50,000 $1.500 Feb-95 Three Years from 2/96
RAT Finanz 25,000 $1.000 Dec-94 Three years
RAI Finanz 25,000 $1.030 Jan-95 Three years
RAI Finanz 25,000 $0.660 Feb-95 Three years
RAI Finanz 25,000 $0.600 Mar-95 Three years
RAI Finanz 25,000 $0.340 Apr-95 Three years
Ewen 50,000 $0.300 Nov-95 Three years
Duncan 200,000 $0.16 May-95 Three years
Sam Shell 50,000 $0.150 Jul-95 Three years
Steve Westlund 15,000,000 $0.05 Jan-96 Three years
Peter Benz 15,000,000 $0.05 Jan-96 Three years
John Osborne 1,250,000 $0.150 Jan-96 Three years
Michael Grechko 1,000,000 $0.300 Jan-96 Three years
Dr. Shell 750,000 $0.300 May-95 Five years
Richard Shell 500,000 $0.300 May-95 Five years
Celilia Lascu 500,000 $0.150 Jan-97 Five Years
Adolph Komorsky 214,400 $0.125 Dec-96 Three years
Credit Suisse 3,000,000 $0.090 Mar-97 Three years
Sghiatti 500,000 $0.07
Sghiatti 250,000 $0.08
Sghiatti 250,000 $0.09
Merrick Okamoto 1,000,000 $0.10 July-96 Three years
George Furla 2,500,000 $0.04 June-97 Three years
Donovan Lazar 300,000 $O.07 Oct-97 Three years
----------
Total 43,263,900
11
<PAGE>
KAIRE STOCKHOLDERS
Name of Kaire Stockholder No. of Shares
------------------------- -------------
Tenant Investment Group 767,200
615 Main Street, Suite 706
Longmont, CO 80501
86-9200336
Aerostar Fiduciary Fund 627,200
615 Main Street, Suite 694
Longmont, CO 80501
CCB Investments, L.L.C. 308,823
210 Second Street
P0 Box 179
St Marys, WV 26170
Rain Bird Enterprises, L.L.C. 308,823
210 Second Street
P0 Box 393
St Marys, WV 26170
John C. Allen Jr. 84,000
P.O. Box 49
Clarksburg, WV 26302
DRP Corporation 70,000
887 E. Vine Street
Murray, UT 84107
Netherton, LTD. 98,000
53 Victoria Street
Douglas, Isle of Mann, British Isles
441624 620 631
L.N.W. International, L.P. 98,000
2901 South Ocean Blvd, Suite 302
Highland Beach, FL 33487
Schedule A
<PAGE>
Karla R Spencer 210,000
P0 Box 24
Alma, WV 26320
Zero Investments, L.L.C. 308,823
210 Second Street
P0 Box 393
St. Marys, WV 26170
The Bismarek Investment Group 70,000
2250 N. University Parkway, Suite 4880
Provo, UT 84604
J.T. Whitworth 294,000
2130 North Shore Drive
Longmont, CO 80503
Michael T. Lightfoot 61,600
20792 68th Ave
British Columbia, Canada
David J. Crockett 14,000
1679 Northwestern Road
Longmont, Co 80503
Mystic Enterprises, Inc. 177,882
P0 Box 3004
Marietta, OH 45750
Robert J. Young 50,000
2129 24th Ave.
Longmont, Co 80501
Gusrae, Kaplan & Bruno 25,000
120 Wall Street
New York, NY 10005
2
<PAGE>
Kaire International, Inc
Disclosure Schedule
All references herein to the "Agreement" shall mean the Agreement
and Plan of Reorganization among Interactive Medical Technologies, Ltd. ("IMT'),
Kaire International, Inc. ("Kaire"), the stockholders of Kaire (the "Kaire
Stockholders") and certain executive officers and directors of Kaire (the "Kaire
Affiliates") dated December 9,1997.
Section 4.3(b) Capitalization
The following warrants were outstanding on the date of this Agreement:
A. Warrants in the amount of 1,200,000 exercisable at $6.60 per share:
B. Warrants issued to Rowland Day II, Art Granito, and LDDI each in the
amount of 14,700 warrants exercisable at $.01 per warrant.
C. Warrants in the amount 100,000 issued to Magic Consulting Group,
Inc., exercisable at $.O1.
D. Warrants in the amount of 15,000 issued to Bridge Fund N.V.
exercisable at $.0l.
E. Warrants in the amount of 15,000 issued to Corso, Ltd. exercisable
at $.01.
Section 4.4 Equity Investments
The Company owns an equity interest, in the amount indicated, in the
following entities.
Name Incorporated Ownership %
---- ------------ -----------
Kaire Australia Pty. Limited Australia 51%
Kaire New Zealand Limited New Zealand 51%
Kaire Korea Ltd. South Korea 70%
Kaire Europe Limited United Kingdom 100%
<PAGE>
Section 4.9: Taxes
A. Payroll Taxes - Federal and State withholding taxes are delinquent as
follows:
Date State Federal
10/17/97 $4,320.94 $32,325.76
10/3/97 $4,158.94 $31,119.78
9/19/97 $4,108.79 $30,749.40
9/5/97 $4,118.38 $30,487.01
8/22/97 $4,322.65 $31,833.21
8/8/97 $4,062.77 $29,198.90
7/25/97 $4,594.24 $34,130.08
B. Sales Taxes in the amount of $293,750.06, inclusive of penalties and
interest as set forth in the schedule attached hereto.
Section 4.10: Litigation
A. The following is the only legal action pending against Kaire:
1). Dr. Mark Godec vs. Kaire International, Inc. in the Circuit Court of
Fairfax County, Virginia. Dr. Godec entered into a $50,000 contract
with Kaire on February 16, 1996 to provide a patented time release
pharmaceutical/grade melatonin and upon duediligence by Kaire it was
found that several misrepresentations by Godec were evident and
Kaire canceled the contract. On December 5, 1997, the Circuit Court
of Fairfax County, Virginia ruled in favor of Kaire.
B. Two requests for information were received:
1. The Department of Justice in January 1997, requested documents
regarding a pending investigation relative to certain specifically
named individuals active in the dietary supplement industry. Kaire
received written notification from the Department that it is not a
"target" but is a "subject" thereof.
2. The Federal Trade Commission in June 1997, made a request of Kaire
to voluntarily provide information relative to dietary supplement
interaction with Attention Deficit Disorder and Attention Deficit
Hyperactivity Disorder. The Commission as of the date hereof has
requested additional documents from Kaire.
<PAGE>
Section 4.12: Contracts and Undertakings
Kaire is a party to the following agreements:
1. Real property lease dated December 4, 1996 between Kaire and Country
Hills Investment for 380 Lashley Street, 310 #107 Lashley Street, 310 #108
Lashley Street, Longmont, Colorado 80501 comprising 18,729 square feet.
2. Real property lease dated July 24, 1995 between George and Joe Walck
for 400 Lashley Street, Longmont, CO. 80501 comprising 2,430 square feet.
3. Note payable in the Face of amount of $250,000 dated April 17, 1997
between Kaire and Star Bank of Columbia City, Indiana.
4. Notes payables in the face amount of $1,725,000 due 18 months after
Issuance to certain investors who participated in Kaire Private Placement
Memorandum.
5. Agreement and promissory note in the face amount of $500,000 dated May
30, 1997 to Horphag Research Limited.
6. Agreement and promissory note in the face amount of $200,000 to Magco,
Inc. dated January 8,1997.
7. Agreement and promissory note in the face amount of S400,000 to Marden
Rehabilitation Associates, Inc. dated August 29, 1997.
S. Promissory note in the face amount of $120,411.85 to Loren B. Bagley
dated September 30,1997.
9. Promissory note in the face amount of $12O,411.85 to William F.
Woodburn dated September 30, 1997.
10. Promissory note in the face amount of $3,700.26 to Mark D. Woodburn
dated November 28, 1997.
11. Promissory note in the face amount of $140,070.72 to J.T. Whitworth
dated November 28, 1997.
12. Promissory note in the face amount of$118,265.84 to Robert L. Richards
dated November 28, 1997.
13. Royalty agreement with Randall A. Mason
<PAGE>
14. Promissory note in the face amount of $700,000 to interactive Medical
Technologies, Ltd. dated October 27, 1997.
15. Employment agreement with Robert L. Richards.
16. Employment agreement with J.T. Whitworth.
17. Employment agreement with William F. Woodburn.
18. Employment agreement with Loren E. Bagely.
19. Employment agreement with Mark D. Woodburn.
20. Consulting contract with Stephen Cherniske dated January, 1997.
21. Master lease agreement with Winthrop leasing dated January 1, 1997.
22. Consulting agreement with Magic Consulting Group. Inc. dated February
4, 1997.
Section 4.13 - Real Property
Kaire is a party to the following real property leases.
A. Real property lease dated December 4, 1996 between Kaire and Country
Hills Investment for 380 Lashley Street, 310 #107 Lashley Street, 310 #108
Lashley Street, Longmont, Colorado 80501 comprising 18,729 square feet.
B. Real property lease dated July 24, 1995 between George and Joe Walck
for 400 Lashley Street, Longmont, CO. 80501 comprising 2,430 square feet.
Section 4.14 . Proprietary Rights
A. Kaire has registered the following trademarks in the United States.
Name Goods Registration #
---- ----- --------------
Kaire Logo Class 3 1,940,105
Kaire International Class 3 1,940,106
Kaire International Class 5 1,948,832
Kaire Int & Design Class 5 1,954,710
Kaire Logo Class 32 1,940,108
Kaire International Class 32 1,940,107
Kaire Int & Design Class 32 1,960,219
Nature Shield Class 5 1,951,338
<PAGE>
Provine Class 5 1,988,232
Design 2 cascaded face silhouette Class 5 1,952,958
Kaire Protectors Class 5 2,090,352
B. Several trademarks are registered or in the process of being registered
throughout the world as set forth on the schedule attached hereto.
Section 4.15 - Insurance
A. Kaire has the following business insurance policies in effect.
1) One million dollar commercial and general liability insurance
coverage with Chubb Group of Insurance Companies for general,
product, and personal ADV through policy number 7947-97-30.
2) Commercial property business insurance coverage through Chubb
Group of Insurance Companies through policy number 7947-8730.
3) Commercial umbrella of $1,000,000 through Chubb Group of
Insurance Companies through policy number 977947-87-34CWD.
B. Kaire has the following life insurance coverage.
1) J.T. Whitworth $500,000.00
2) Robert L. Richards $500,000.00
3) Michael Lightfoot $100,000.00
<PAGE>
LIST OF TAX DUE
P/I BILLED BY STATE
IS INCLUDED IN THESE #'S
- --------------------------------------------------------------------------------
STATE Jun-97 Jul-97 Aug-97 Sep-97 TOTAL
================================================================================
================================================================================
AL-ST-LOC 95.55 102.77 182.02 360.34
AR 1,390.00 1,434.00 1,189.00 3,993.00
AS-STATE 605.14 796.59 682.18 2,083.91
AZ 0.00 0.00 2,440.52 1,628.22 4,066.74
CA 23,039.49 22,863.14 37,004.09 82,908.72
CO 5,502.35 4,953.14 4,409.48 14,864.88
CO-USE TAX STATE 174.17 94.89 192.95 462.01
CT 32.76 32.76
DC 0.00 0.00 0.00 0.00 0.00
FL 382.33 380.00 327.37 187.97 1,277.67
GA 1,291.14 2,286.88 1,300.79 1,189.72 6,068.53
GUAM 0.00 0.00 0.00 0.00 0.00
HI 386.92 1,012.58 471.38 30.53 1,901.39
IA 1,352.18 1,720.54 1,372.15 1,156.71 5,601.88
ID 0.00 1,741.59 1,267.75 639.81 3,649.15
IL* 0.00 1,260.81 1,260.81
IN 0.00 3,730.15 3,454.45 2,905.07 10,089.67
KS 1,230.11 1,577.29 1,182.95 1,000.78 4,991.13
KY* 840.21 675.02 382.14 1,897.37
LA 0.00 461.93 684.78 342.93 1,489.64
MA 2,005.19 2,251.27 1,740.27 5,996.73
MD 0.00 0.00 0.00 0.00
ME 415.12 383.13 210.21 1,008.46
MI 148.47 172.45 0.00 320.92
MN 6,134.73 5,235.31 5,556.63 16,926.87
MO 2,288.16 1,757.17 2,324.09 2,312.18 8,681.60
MS 847.44 1,309.02 944.86 918.99 4,020.31
NC 0.00 2,150.39 1,916.04 1,439.90 5,506.33
ND 0.00 0.00 765.67 753.37 1,519.04
NE 712.77 1,142.17 1,020.19 630.24 3,505.37
NJ 720.92 387.10 339.58 1,447.58
NM 110.95 1,472.40 1,485.35 0.00 3,068.70
NV 1,075.63 1,242.07 1,272.72 838.41 4,428.83
NY 0.00 0.00 0.00 0.00 0.00
OH 4,713.26 4,554.00 3,207.57 12,474.83
OK 4,356.80 4,039.90 3,192.08 11,588.78
PA 0.00
RI 291.01 329.36 242.52 862.89
SC 617.97 795.81 731.02 596.94 2,741.74
SD 853.06 1,079.41 968.51 657.80 3,558.78
TN* 3,465.37 3,070.12 2,334.42 8,869.91
TX 9,327.95 9,116.84 6,923.23 25,368.02
UT 348.99 3,145.23 2,446.41 0.00 5,940.63
VA 1,148.48 1,708.52 1,565.48 1,137.23 5,560.21
VT 0.00 0.00 0.00 0.00 0.00
WA 0.00 0.00 0.00 0.00 0.00
WI 2,091.03 4,517.24 2,297.73 2,400.43 11,306.43
WV 465.37 311.06 233.59 1,010.02
WY 265.41 300.33 295.38 178.76 1,039.88
----------------------------------------------
15,002.57 97,221.90 91,305.59 90,220.00 293,750.06
- --------------------------------------------------------------------------------
<PAGE>
INTELLECTUAL PROPERTY RIGHTS - Australia/New Zealand
REGION THREE: Asia & the Pacific Rim
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LAW OFC AMEND APP FILE JNL OF TM REQ TO REGIS RENEW
TRADEMARK COUNTRY/LAW FIRM REF # DATE APP # CLS DATE FILE DATE AMALGM REGIS # DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA
(Davis Collision Cave)
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire & Kaire International 562744 9-Jun-95 669302 3 11-Aug-95 19-Sep-96 302/307 669302 14-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
582757 9-Jun-95 669303 5 11-Aug-95 19-Sep-96 669303 7-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
562767 9-Jun-95 669307 32 11-Aug-95 19-Sep-96 307/302 669302 14-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 561536 669308 3 9-Aug-95 19-Sep-96 308/309/310 669308 14-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 562729 669308 5 9-Aug-95 19-Sep-96 309/310/308 669308 14-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 562731 669310 32 9-Aug-95 19-Sep-96 310/306/309 669308 14-Jan-97 9-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Immunol 616973 719973 5 18-Oct-96 2-Oct-97 If unopposed, Cert of Registration will be
issued in Jan 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Synerzyme 616986 719972 5 18-Oct-96 14-Aug-97 If unopposed, Cert of Registration will be
issued in Nov 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Maritime Prime 616963 720997 5 1-Nov-96 27 Oct 97: Investigator cannot find identity of Dr. Karr,
option: Use FOIA to request iolo [illegible]
Trade Marks Office. To be discussed with Bob.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NEW ZEALAND
(Davis Collision Cave)
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 553419 10-Oct-95 252264 3 11-Aug-95 15 Sep 97 - DCC to file Statutory Consideration to prove
ownership of [illegible]
- ------------------------------------------------------------------------------------------------------------------------------------
563421 10-Oct-95 252265 5 11-Aug-95
- ------------------------------------------------------------------------------------------------------------------------------------
563434 10-Oct-95 252268 32 11-Aug-95 15 Jul 97 - Amended to delete "adapted for medical use"
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 563447 10-Oct-95 252267 3 11-Aug-95 27 Jun 97 DCC sent ltr of opposition to Unilever Plc
proposed [illegible]
- ------------------------------------------------------------------------------------------------------------------------------------
563462 10-Oct-95 252268 5 11-Aug-95
- ------------------------------------------------------------------------------------------------------------------------------------
563475 10-Oct-95 252269 32 11-Aug-95 N/A N/A 252269 11-Aug-97 11-Aug-02
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Immunol 617000 268650 5 24-Oct-96
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Synerzyme 617012 268651 5 24-Oct-96
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Maritime Prime 618950 269110 5 5-Nov-96
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INTELLECTUAL PROPERTY RIGHTS - Hong Kong/Japan/Malaysia
REGION THREE: Asia & the Pacific Rim
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OFC APP RENEW
TRADEMARK COUNTRY/LAW FIRM REF # APP # CLS FILE DATE ADV # DATE ADV REGIS # DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
HONG KONG (Baker & McKenzie
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire Logo (assoc w/4137) 22051 4136/95 3 11-Apr-95 3-May-97 B7768AB/97 11-Apr-95 11-Apr-02
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire Logo 22052 4137/95 5 24-Apr-95
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire Logo 22053 4138/95 32 24-Apr-95 39/1966 27-Sep-96 00594/97 11-Apr-95 11-Apr-02
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire Logo 22054 4139/95 35 11-Apr-95 9-May-97 07769A-B/97 14-Jan-97 11-Apr-02
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 22047 3240/95 3 23-Mar-95 39/1966 27-Sep-96 00417/97 20-Mar-95 20-Mar-02
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 22048 3241/95 5 23-Mar-95 6 Mar 97 [illegible] remove "for medical purposes"
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 22049 3242/95 32 23-Mar-95 15/1996 12-Apr-96 06379/96 20-Mar-95 20-Mar-02
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 22050 3243/95 35 20-Mar-95 9-May-97 7767/97 20-Mar-95 20-Mar-02
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
JAPAN (Roth & Goldman)
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 29321/95 3 28-Mar-95 Approved Unk 3304060 9-May-97 *11/10/2006
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 29322/95 5 28-Mar-95 25 Jul 97 - TIA rejected - R&G with the new appp for [illegible]
& Logo together**
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 29737/95 3 28-Mar-95 Unk 20-Mar-97
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 29738/95 5 28-Mar-95 Unk 20-Mar-97
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Maritime Prime 84510/96 5 30-Jul-96
- ------------------------------------------------------------------------------------------------------------------------------------
84511/96 32 30-Jul-96
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MALAYSIA (Roth & Goldman)
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 96/09105 3 7-Aug-96
- ------------------------------------------------------------------------------------------------------------------------------------
Kaire 96/09107 5 7-Aug-96
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 96/09104 3 7-Aug-96
- ------------------------------------------------------------------------------------------------------------------------------------
Silhouette (Logo) 96/09106 5 7-Aug-96
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Must "use" w/in 3 yrs
** 4 Sep 97: Repealed req that R&G file app for composite. We will decide on
asking owner of KERES to remove "pharmaceutical"
<PAGE>
ASIA-2
INTELLECTUAL PROPERTY RIGHTS - South Korea
REGION THREE: Asia & Pacific Rim
<TABLE>
<CAPTION>
OFC APP
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS FILE DATE ADV #
-------------------------- ---- ----- --- --------- -----
<S> <C> <C> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire (plant/fruit-based nutri prod) TK-973762 97-38887 2 14-Aug-97
(aloe vera-based drinks & several types of water) TK-973763 97-38879 5 14-Aug-97
(fish oil) TK-973764 97-38881 8 14-Aug-97
(vitamin prep, med, dietary suppl. Distl water, enzymes, other) TK-973765 97-38895 18 14-Aug-97
(cosmetics) TK-973766 97-38899 12 14-Aug-97
(shampoo & hair conditioner) TK-973767 97-38883 13 14-Aug-97
(books, non-music audio/video tapes, other printed materials) TK-973768 97-38885 52 14-Aug-97
Kaire Name, Int'l, and Logo TK-972705 96-40179 2 9-Sep-97 N/A
TK-973776 97-38889 2 14-Aug-97
TK-973777 97-38891 5 14-Aug-97
Note: Apps for Classes 5, 7, 13, & 52 all have word TK-973778 97-38893 8 14-Aug-97
"International" added; others do not - see ltr TK-973708 96-40182 10 9-Sep-97
to K & C dated 16 Sep 97 TK-973779 97-38897 10 14-Aug-97
TK-973711 96-40185 12 9-Sep-97
TK-973780 97-38901 12 14-Aug-97
TK-973781 97-38903 13 14-Aug-97
TK-973714 96-40188 45 9-Sep-97
TK-973782 97-38905 52 14-Aug-97
Silhouette (Logo) TK-973704 96-40178 2 9-Sep-97 N/A
TK-973769 97-38888 2 14-Aug-97
TK-973770 97-38880 5 14-Aug-97
TK-973771 97-38882 8 14-Aug-97
TK-973707 96-40181 10 9-Sep-97
TK-973772 97-38896 10 14-Aug-97
TK-973710 96-40184 12 9-Sep-97
TK-973773 97-38900 12 14-Aug-97
TK-973774 97-38984 13 14-Aug-97
TK-973713 97-40187 45 9-Sep-97
TK-973775 97-38886 52 14-Aug-97
DATE REGIS RENEW PURCH
TRADEMARK COUNTRY/LAW FIRM ADV REGIS # DATE DATE FROM
-------------------------- --- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire (plant/fruit-based nutri prod)
(aloe vera-based drinks & several types of water)
(fish oil)
(vitamin prep, med, dietary suppl. Distl water, enzymes, other)
(cosmetics)
(shampoo & hair conditioner)
(books, non-music audio/video tapes, other printed materials)
Kaire Name, Int'l, and Logo 1-Oct-97 If unopposed, Cost ot Regis YI
will be issued in 4 months
from 1 Oct.
Note: Apps for Classes 5, 7, 13, & 52 all have word
"International" added; others do not - see ltr YI
to K & C dated 16 Sep 97
YI
YI
Silhouette (Logo) 1-Oct-97 If unopposed, Cost ot Regis YI
will be issued in 4 months
from 1 Oct.
YI
YI
YI
</TABLE>
3
<PAGE>
Asia-2A
INTELLECTUAL PROPERTY RIGHTS - South Korea (continued)
REGION THREE: Asia & Pacific Rim
<TABLE>
<CAPTION>
OFC
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS
-------------------------- ---- ----- ---
<S> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire (plant/fruit-based nutri prod) TK-973762 97-38887 2
(aloe vera-based drinks & several types of water) TK-973763 97-38878 5
(fish oil) TK-973764 97-38881 8
(vitamin prep, med, dietary suppl. Distl water, enzymes, other) TK-973765 97-38895 10
(cosmetics) TK-973766 97-38899 12
(shampoo & hair conditioner) TK-973767 97-38883 13
(books, non-music audio/video tapes, other printed materials) TK-973768 97-38885 52
Kaire Name, Int'l, and Logo TK-972705 96-40179 2
TK-973776 97-38889 2
TK-973777 97-38891 5
Note: Apps for Classes 5, 7, 13, & 52 all have word TK-973778 97-38893 8
"International" added; others do not - see ltr TK-973708 96-40182 10
to K & C dated 16 Sep 97 TK-973779 97-38897 10
TK-973711 96-40185 12
TK-973780 97-38901 12
TK-973781 97-38903 13
TK-973714 96-40188 45
TK-973782 97-38905 52
Silhouette (Logo) TK-973704 96-40178 2
TK-973770 97-38882 5
TK-973771 96-40161 8
TK-973707 97-38896 10
TK-973772 96-40184 10
TK-973710 97-38900 12
TK-973773 97-38884 12
TK-973774 97-40187 13
TK-973713 97-40187 45
TK-973775 97-38886 52
TRADEMARK COUNTRY/LAW FIRM ASSOCIATION W/OTHER TRADEMARK APPLICATIONS
-------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire (plant/fruit-based nutri prod) 96-40178 96-40179 96-38887 96-38888 96-38888
(aloe vera-based drinks & several types of water) 97-38878 97-03850 97-38891
(fish oil) 97-38881 97-38882 97-38883
(vitamin prep, med, dietary suppl. Distl water, enzymes, other) 96-40181 95-140182 97-388995 97-38886 97-38887
(cosmetics) 97-38885 97-38986 97-038905
(shampoo & hair conditioner)
(books, non-music audio/video tapes, other printed materials)
Kaire Name, Int'l, and Logo 96-40178
96-40178 96-40179 97-38887 97-38888
97-38879 97-38880
Note: Apps for Classes 5, 7, 13, & 52 all have word 97-38881 97-38882
"International" added; others do not - see ltr 96-40181 9640178
to K & C dated 16 Sep 97 14-Aug-97 96-40181 96-40182 97-38895 97-38896
96-40184
14-Aug-97 96-40184 96-40185 97-38899 97-38900
97-38883 97-38884
96-40187 96-40178
97-38885 97-38886
Silhouette (Logo)
96-40178
96-40181 96-40182
96-40178
96-40184 96-40185
96-40178
</TABLE>
4
<PAGE>
ASIA-3
INTELLECTUAL PROPERTY RIGHTS - South Korea (continued)
REGION THREE: Asia & Pacific Rim
<TABLE>
<CAPTION>
OFC APP
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS FILE DATE
-------------------------- ---- ----- --- ---------
<S> <C> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire Name Transliteration & Logo TK-973783 97-38890 2 14-Aug-97
(Kaire International in its Korean TK-973784 97-38892 5 14-Aug-97
characters with Device TK-973785 97-38894 8 14-Aug-97
TK-973786 97-38898 10 14-Aug-97
TK-973787 97-38902 12 14-Aug-97
TK-973788 97-38904 13 14-Aug-97
TK-973789 97-38908 52 14-Aug-97
Outline of Couple Embracing Device AK-942706 96-40180 2 9-Sep-97
AK-942709 96-40183 10 9-Sep-97
AK-942712 96-40186 12 9-Sep-97
AK-942715 96-40189 15 9-Sep-97
JOBELLE TK-973019 97-40217 12 25-Aug-97
TK-973790 97-40218 13 25-Aug-97
JOBELLE Transliteration
(Conditioner/shampoo) TK-973019 97-40219 12 25-Aug-97
(Shampoo/hair rinse) TK-973782 97-40220 13 25-Aug-97
Immunol (Kim,Shin & Yu) T-5777 96-41530 8 12-Sep-96
DATE REGIS RENEW PURCH
TRADEMARK COUNTRY/LAW FIRM ADV # ADV REGIS # DATE DATE FROM
-------------------------- ----- --- ------- ---- ---- ----
<S> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire Name Transliteration & Logo
(Kaire International in its Korean
characters with Device
Outline of Couple Embracing Device 96-40180 was first app to be rejected in this YI
series. Reason: "likely to injur public and YI
morals"...We will not appeal this nor the other YI
3 apps. YI
JOBELLE
JOBELLE Transliteration
(Conditioner/shampoo)
(Shampoo/hair rinse)
Immunol (Kim,Shin & Yu) 10 years after regis
</TABLE>
5
<PAGE>
Asia 3A
INTELLECTUAL PROPERTY RIGHTS - South Korea (continued)
REGION THREE: Asia & the Pacific Rim
<TABLE>
<CAPTION>
OFC
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS ASSOCIATION W/OTHER TRADEMARK APPLICATIONS
-------------------------- ---- ----- --- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTH KOREA (Kim & Chang)*
Kaire Name Transliteration & Logo TK-973783 97-38890 2 96-40176 96-40179 96-38887 95-38888 96-38889
(Kaire in Korean with Logo) TK-973784 97-38892 5 97-38879 97-38880 97-38891
TK-973785 97-38894 7 97-38881 97-38882 97-38893
TK-973786 97-38898 10 98-40181 96-40182 97-38895 97-38896 97-38897
TK-973787 97-38902 12 96-40184 96-40135 96-38899 96-38900 96-38901
TK-973788 97-38904 13 97-38883 97-38884 97-38903
TK-973789 97-38906 52 97-38885 97-38886 97-38905
Outline of Couple Embracing Device AK-942706 96-40180 2
AK-942709 96-40183 10
AK-942712 96-40186 12
AK-942715 96-40189 45
JOBELLE TK-973019 97-40217 12
TK-973790 97-40218 13
JOBELLE Transliteration
(Conditioner/shampoo) TK-973019 97-40219 12
(Shampoo/hair rinse) TK-973782 97-40220 13
Immunol (Kim,Shin & Yu) T-5777 96-41530 8
</TABLE>
6
<PAGE>
EUROPE
INTELLECTUAL PROPERTY RIGHTS - EC/France/United Kingdom
REGION TWO: Europe
<TABLE>
<CAPTION>
APP
TRADEMARK COUNTRY/LAW FIRM APP # CLS FILE DATE ADV #
-------------------------- ----- --- --------- -----
<S> <C> <C> <C> <C>
EUROPEAN COMMUNITY (Roth & Goldman)
Note: TM is protected in (15) member countries of the
European Union: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden,
UK (Wales, Engl, Scotland, S. Ireland)
Kaire 31153 3 1-Apr-96 31153
31153 5 1-Apr-96 31153
31153 32 1-Apr-96 31153
Logo 3
5
32
FRANCE (Roth & Goldman)
Kaire 95/563813 3 NONE
95/563813 6
Sillouette (Logo) 95/588900 3 NONE
95/588900 5
UNITED KINGDOM (Roth & Goldman) ------------------------------
Kaire 2014882 3 21-Mar-96 App date & registration date
2014882 5 21-Mar-96 are the same
------------------------------
------------------------------
Sillouette (Logo) 2037179 3 20-Sep-95 App date & registration date
2037179 5 20-Sep-95 are the same
------------------------------
ADV REGIS RENEW
TRADEMARK COUNTRY/LAW FIRM DATE REGIS # DATE DATE
-------------------------- ---- ------- ---- ----
<S> <C> <C> <C> <C>
EUROPEAN COMMUNITY (Roth & Goldman)
Note: TM is protected in (15) member countries of the
European Union: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Portugal, Spain, Sweden,
UK (Wales, Engl, Scotland, S. Ireland)
----------------------------------------
Kaire 14-Jul-97 All three applications:
14-Jul-97 Interested parties can oppose a grant of
14-Jul-97 registration up until Oct 14, 1997
----------------------------------------
--------------------------------------------
Logo 3 Sep 97 - Requested Roth & Goldman to apply
to register the Logo.
--------------------------------------------
FRANCE (Roth & Goldman)
Kaire 95/563813 25-Aug-95 21-Mar-05
95/563813
Sillouette (Logo) 95/588900 1-Mar-96 20-Sep-05
95/588900
UNITED KINGDOM (Roth & Goldman)
Kaire 2014882 21-Mar-95 21-Mar-05
2014882 21-Mar-95 21-Mar-05
Sillouette (Logo) 2037179 20-Sep-95 20-Sep-05
2037179 20-Sep-95 20-Sep-05
</TABLE>
7
<PAGE>
CEN-AMER
INTELLECTUAL PROPERTY RIGHTS - Mexico
REGION ONE: North, Central & South America
<TABLE>
<CAPTION>
APP REGIS RENEW
TRADEMARK COUNTRY/LAW FIRM APP # CLS FILE DATE REGIS # DATE DATE
-------------------------- ----- --- --------- ------- ---- ----
<C> <S> <C> <C> <C> <C> <C> <C>
MEXICO (Roth & Goldman) 244,665 3 NONE 510,132 24-Nov-95 3-Oct-05
Sillouette (Logo) 244,666 5 NONE 511,968 30-Nov-95 3-Oct-05
241353 3 NONE 505296 28-Aug-95 28-Aug-05
Kaire 241352 5 NONE 505295 28-Aug-95 28-Aug-05
</TABLE>
8
<PAGE>
Trinidad-Tobago
INTELLECTUAL PROPERTY RIGHTS - Trinidad-Tobago
REGION ONE: North, Central and North America
LAW APP
OFC FILE
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS DATE
- -------------------------- ---- ----- --- ----
TRINIDAD-TOBAGO
(J.D. Seller & Co.)
Kaire
TM-108 614 26382 3 29-Jan-97
----------------------------
Jan 97: We have to trademark 595/816 020
the Logo soon TM-108 614 26383 5 29-Jan-97
595/816 020
----------------------------
<TABLE>
<CAPTION>
UNL OF TM
AMEND ADV REGIS RENEW
TRADEMARK COUNTRY/LAW FIRM DATE ADV # DATE REGIS # DATE DATE
- -------------------------- ---- ----- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
TRINIDAD-TOBAGO
(J.D. Seller & Co.)
Kaire
Jan 97: We have to trademark
-----------------------------------------------------------------
the Logo soon 11 Aug 97: Register accepted as statement of goods as proposed by 29-Jan-07
attorney
-----------------------------------------------------------------
-------------------------------------------------------------------------------------------
4 Sep 97: Examiner is adamant in asking "for medical use" as "dietary supplements" in
class 6. We promised attorneys evidence (after class 5 statement of goods not requiring the
above terms) of successful arguments against the terms.
-------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
ASIA-4
INTELLECTUAL PROPERTY RIGHTS - Taiwan
REGION THREE: Asia & the Pacific Rim
<TABLE>
<CAPTION>
LAW APP INT OF
OFC FILE AMEND TM ADV REGIS RENEW
TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS DATE DATE ADV# DATE REGIS# DATE DATE
- -------------------------- ---- ----- --- ---- ---- ---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAIWAN (Roth & Goldman)
Kaire 86003025 3 20-Jan-97
86003024 5 20-Jan-97
Kaire Silhouette (Logo) 86003022 3 20-Jan-97
86003021 5 20-Jan-97
Immunol 86003026 5 20-Jan-97
Synerzyme 86003020 5 20-Jan-97
Maritime Prime 86003023 5 20-Jan-97
-----------------------------------
Colloidal Silver Colloidal Silver is not registrable
in Taiwan because "name identifies
content" per Roth & Goldman
-----------------------------------
**Will req Taiwan attorney apply
for:
-------------------------------------
DHEA Trademark of these nutritionals is on
SABILA "Hold" until JT approves opening
AquaKaire Morning Taiwan.....
AquaKaire Evening -------------------------------------
Kava-Kava (will have a new name)
</TABLE>
10
<PAGE>
Exhibit 10.2
[LOGO] STAR
---------
FINANCIAL VARIABLE RATE
---------
BANK (R) COMMERCIAL
Member FDIC PROMISSORY
102 West Van Buren Street - P.O. Box 510 NOTE
Columbia City, Indiana 46725-0510
(219) 244-6151 "LENDER"
-------------------------------------
BORROWER
-------------------------------------
KAIRE INTERNATIONAL, INC.
380 LASHLEY ST
LONGMONT, CO 80502-1535
-------------------------------------
Telephone Number
800-524-7348
-------------------------------------
<TABLE>
<CAPTION>
- ---------------- ------------- ---------------- ------------ ------------- --------------- -----------
OFFICER INITIALS INTEREST RATE PRINCIPAL AMOUNT FUNDING DATE MATURITY DATE CUSTOMER NUMBER LOAN NUMBER
- ---------------- ------------- ---------------- ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
00002 VARIABLE $240,100.00 05/19/97 06/18/97 0050055720 06716702
</TABLE>
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of TWO HUNDRED FORTY THOUSAND ONE HUNDRED AND NO/100
Dollars ($ 240,100.00) plus interest on the unpaid principal balance at the rate
and in the manner described below and those other charges permitted by
applicable law and authorized by the terms of this Note, all without relief from
valuation and appraisement laws. All amounts received by Lender shall be applied
first to late charges and expenses, then to accrued interest, and then to
principal.
INTEREST RATE: This Note has a variable interest rate feature. Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days and the actual number of
days per year. Interest on this Note shall be calculated at the variable simple
interest rate of TWO AND NO/l00 percent (2.00%) per annum over the Index Rate.
The Initial Index Rate is EIGHT AND 50/100 percent (8.50%) per annum. Therefore,
the initial interest rate on this Note shall be TEN AND 50/100 percent (10.50%)
per annum. Any change in the interest rate resulting from a change in the Index
Rate will be effective on: ON THE FIRST DAY OF THE MONTH 06-01-97
INDEX RATE: The Index Rate for this Note shall be: THE PRIME RATE SHALL BE THE
LOWEST PRIME LENDING RATE AT LARGE MONEY CENTER BANKS AS PUBLISHED IN THE WALL
ST JOURNAL OR OTHER FINANCIAL PUBLICATIONS
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a%) per annum. The maximum interest rate on this Note shall not
exceed n/a percent (n/a%) per annum.
DEFAULT RATE: In the event of a default under this Note, the Lender may, in its
discretion, determine that all amounts owing to Lender shall bear interest as
follows: 21.00%
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule:
A SINGLE PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED INTEREST IS
DUE AND PAYABLE ON JUNE 18, 1997.
All payments will be made to Lender at its address described above and shall be
in collected funds in lawful currency of the United States of America.
RENEWAL: If checked |X| this Note is a renewal of Loan Number 06701269.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
its security interest in all such property which shall be in addition to
Lender's common law right of setoff. |X| If checked, the obligations under this
Note are also secured by a lien and/or security interest in the property
described in the documents executed in connection with this Note as well as any
other property designated as security now or in the future.
PREPAYMENT/MINIMUM FINANCE CHARGE: This Note may be prepaid in part or in full
on or before its maturity date. If this Note contains more than one installment,
all prepayments will be credited as determined by Lender and as permitted by
law, if this Note is prepaid in full, there will be: |_| No prepayment
penalty/minimum finance charge. |X| A minimum finance charge of $30.00 plus
closing costs, as permitted by law.
LATE PAYMENT CHARGE: If a payment is more than 10 days late, Borrower will be
charged a late payment charge of $100.00 or 5.00% of late installment whichever
is |_| greater; |X| less; as permitted by law.
================================================================================
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: MAY 19, 1997
BORROWER: KAIRE INTERNATIONAL, INC. BORROWER:
BY: /s/ ROBERT L RICHARDS BY:
---------------------------------- ----------------------------------
ROBERT L RICHARDS
TITLE: SENIOR EXECUTIVE V. P. TITLE:
-------------------------------- -------------------------------
CHIEF EXECUTIVE OFFICER
BORROWER: BORROWER:
BY: BY:
---------------------------------- ----------------------------------
TITLE: TITLE:
-------------------------------- -------------------------------
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor:
(a) fails to make any payment on this Note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Note or any other present or future,
written agreement regarding this or any indebtedness of Borrower to
Lender;
(c) provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows the collateral securing this Note (if any) to be lost,
stolen, destroyed, damaged in any material respect, or subjected to
seizure or confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated,
ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, or becomes the subject of
any bankruptcy, insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure in good faith for any reason
or Lender, for any reason, in good faith deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to declare the principal amount plus accrued interest under this
Note and all other present and future obligations of Borrower
immediately due and payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to take possession of any collateral in any manner permitted by law;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect
any deficiency balance with or without resorting to legal process
(if notice to Borrower of the intended disposition of the collateral
is required by law, five (5) days notice shall constitute reasonable
notification);
(f) to set-off Borrower's obligations against any amounts due to
Borrower including, but not limited to monies, instruments, and
deposit accounts maintained with Lender; and
(g) to exercise ail other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order.
3. DEMAND FEATURE: If this Note contains a demand feature, then notwithstanding
anything to the contrary contained in this Note, Lender's rights with respect to
the events of default identified above shall not be limited, restricted,
impaired or otherwise adversely affected by the demand feature of this Note.
Lender's right to demand payment, at any time, and from time to time, shall be
in Lender's sole and absolute discretion, whether or not any default has
occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements including but not limited to balance sheets and profit and loss
statements and other Information upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower guarantor or collateral.
6. SEVERABILITY: If any provision of this Note violates the law or is
unenforceable, the rest of the Note will remain valid.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will be
entitled to assign some or all of its rights and remedies described in this Note
without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding under this Note.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees and collection costs.
11. MISCELLANEOUS: This Note is being executed for commercial purposes. Borrower
and Lender agree that time is of the essence. Borrower waives presentment,
demand for payment, notice of dishonor and protest. If Lender obtains a judgment
for any amount due under this Note, interest will accrue on the judgment at ten
percent per annum. All references to Borrower in this Note shall include all of
the parties signing this Note. If there is more than one Borrower, their
obligations will be joint and several. This Note and any related documents
represent the complete and integrated understanding between Borrower and Lender
pertaining to the terms and conditions of those documents.
12. ADDITIONAL TERMS:
<PAGE>
Exhibit 10.3
KAIRE INTERNATIONAL INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered effective into August 11, 1997, between
Kaire International, Inc., a Delaware corporation having its principal place of
business at 380 Lashley Street, Longmont, Colorado 80501 ("KAIRE") and Robert J.
Young (the "Employee") and is effective on the date it is signed by the last
signatory. KAIRE and the Employee are referred to in this Agreement together as
the "Parties", "we", "our", "us", or individually as "Party."
In consideration of our rights and obligations set out below, KAIRE
and the Employee agree as follows:
A. EMPLOYMENT. KAIRE employs the Employee for the position and to provide the
services described in paragraph C. below, subject to the terms, covenants and
conditions of this Agreement.
B. TERMS OF EMPLOYMENT. The Employee's employment under this agreement will
begin on August 11, 1997 and if not otherwise terminated in this agreement,
Employee shall be permitted to cease active employment effective August 31,1998
in order to permit Employee to enroll in graduate school for a period of 15
months.
1. Employment AT WILL. The Employee will at all times while this
Agreement is in effect be an AT WILL employee, so, subject to the provisions of
paragraph L., if applicable, either Party may terminate this Agreement at any
time, with, or without cause, and with or without prior notice. Any provision
for payment of salary or other compensation on an annual basis is for accounting
purposes only and does not mean the Employee will be employed for any term. Upon
any termination of Employee, KAIRE will remain liable to pay the compensation as
described in Paragraph E below.
The Employee further understands and agrees each of the following is
an express condition of this Agreement and that KAIRE may terminate the
Employee's employment immediately without prior notice if the Employee fails to
satisfy any of these conditions:
2. Employee Provided True Information. Understanding KAIRE relied on
the Employee to be truthful, each fact the Employee provided or authorized
anyone else to provide as part of the Employee's application was true, and the
Employee provided KAIRE, with complete information it needed to consider the
Employee's application.
3. Drug Screening Medical Examination. To help ensure a safe,
healthy workplace, KAIRE has or may implement policies for employee drug
screening testing and medical examinations. Subject to such policies and
applicable law, failing or refusing to take a drug screening test or medical
examination may result in termination.
C. EMPLOYEE'S DUTIES. The Employee will provide the following services under
this Agreement, for the position of Marketing Director as per the attached job
description, and the Employee will have such further or other duties as KAIRE
assigns to the Employee from time to time.
1. Full Efforts for KAIRE. The Employee should devote the Employee's
full work time to the Employee's employment with KAIRE and may not hold any jobs
outside the Employee's employment with KAIRE or accept from any other company or
individual any pay, salary, retainer, commission, consulting fee or any other
fee arrangement or remuneration for services without full disclosure to and
prior written approval from KAIRE's Chief Executive Officer.
<PAGE>
2. Compliance with Policies and Standards. The Employee services
performed for KAIRE and its Employees, Associates, customers and others will in
all events be consistent with KAIRE's policies, standards, rules and procedures.
D. OTHER, SEPARATE AGREEMENTS BETWEEN THE PARTIES.
1. No Competition with KAIRE and Preservation of KAIRE's Confidential
Information. The Employee will not compete with KAIRE and will preserve KAIRE's
confidential information including KAIRE Associate and customer records, as
further specified in the Parties' Noncompetition, Confidentiality and Work Made
for Hire Agreement, dated August 18, 1997.
2. Work Made for Hire. Any work, invention, process, product, idea or
concept (whether or not patentable or protectable by copyright) the Employee
conceives or develops, in whole or in part, during work hours for KAIRE or at
any time using KAIRE's premises or any of its equipment or supplies will be work
made for hire owned solely by KAIRE, as further specified in the Parties'
Noncompetition, Confidentiality and Work Made for Hire Agreement, dated August
18, 1997.
E. COMPENSATION.
1. Salary. For all services the Employee provides under this Agreement,
KAIRE will pay the Employee salary as follows:
2. Payment of Salary. The Employee's annual salary of $125,000.00 will be
paid in twenty-six (26) payments every two (2) weeks in the amount of $ 4,807.69
beginning August 22, 1997 and thereafter each on the Friday of each such week,
with the initial payment period to be adjusted for KAIRE's regular pay periods
for employees, or if the Friday is a holiday, on the last workday before that
Friday. All compensation paid to the Employee is subject to employer
withholdings, e.g., for FICA, Medicare/Medicaid, any applicable occupational
privilege tax, and any court ordered deductions such as garnishments. There will
be no salary advances, unless otherwise agreed in writing by KAIRE.
3. Expenses. KAIRE will reimburse the Employee for reasonable expenses
incurred on KAIRE's behalf for which KAIRE has given prior written authority and
for which the Employee provides appropriate receipts or other evidence of
payment.
4. Educational Expense Reimbursement. KAIRE agrees to reimburse Employee
for up to $62,500.00 of documented educational tuition and educational expenses
incurred by Employee while Employee attends graduate school beginning September
1, 1998 through November 1,1999. KAIRE shall establish an escrow account in the
amount of $62,500.00 which shall be disbursed as reimbursement to Employee at
the following times: (a) $22,500.00 on or before September 1,1998, (b)
$20,000.00 on or before January 1,1999, and (c) $20,000.00 on or before July 1,
1999. At least 15 days prior to KAIRE's monthly reimbursement, Employee shall
submit written documentation of the educational expenses paid for by Employee.
KAIRE shall create the escrow account, when KAIRE receives proceeds from a
successful sale of its stock in an Initial Public Offering which is now
anticipated to be in December 1997. KAIRE shall be obligated to pay such
reimbursable educational funds as set forth regardless of whether KAIRE
establishes an escrow account. The obligation of KAIRE under this paragraph
shall survive any termination of Employee's services under this Agreement except
for Employee's voluntary resignation from employment or Employee's death or
disability or the matters set forth in Paragraph L.1.a.b. or c.
5. Shares of Stock of KAIRE. As consideration for Employee entering into
this agreement, KAIRE shall issue to Employee, 50,000 shares of KAIRE common
stock at any time prior to KAIRE's Initial Public Offering. The current value of
such shares is
<PAGE>
$500.00 and shall be deemed to be compensation to Employee and Employee shall be
responsible for any income tax and related employment expenses except for
KAIRE's employer related F.I.C.A. and Medicare/Medicaid obligation.
F. VOLUNTARY BENEFITS.
1. Employee's Eligibility. While Employee is providing full-time
employment services to KAIRE, the Employee will be eligible to participate in
any insurance, pension, profit sharing or other voluntary employee benefit KAIRE
chooses, from time to time, to offer its other comparable employees, subject to
the participation standards and other terms of any such voluntary benefit. KAIRE
has no obligation to adopt or to continue any voluntary benefit.
2. Possible Life or Disability Insurance for KAIRE's Sole Benefit. The
Employee understands that at anytime after this Agreement is executed, KAIRE may
in its sole discretion and solely for its own benefit apply for life and/or
disability insurance on the Employee in such amounts and in such form or forms
as KAIRE may choose. Subject to any applicable law, the Employee agrees to
submit to such medical examinations, to supply such information and to execute
such releases and other documents as the insurance company or companies to which
KAIRE has applied may reasonably and lawfully require as a condition of issuing,
renewing or modifying any such policy. KAIRE will maintain in separate,
confidential files any information about the Employee's health and abilities it
receives as part of any such application or policy.
3. Vacations. Holidays and Leaves. Employee shall have the right to use 10
vacation days during the time period from inception of this agreement and ending
August 31,1998. No vacation time shall accrue while Employee is attending
graduate school.
G. COLLECTION OF ACCOUNTS AND COMMISSIONS. KAIRE may in its sole discretion
waive, release, compromise or decline to collect any charge, bill, account,
commission or other payable owing from any of its customers, clients an other
sources of revenue, including any charge, etc. arising from services the
Employee performed or products the Employee produced or that would, if
collected, be payable to the Employee as commission or other compensation.
H. FEES, PAYMENTS AND COMMISSIONS FROM CLIENTS, CUSTOMERS AND THIRD PARTIES. All
fees, payments, commissions, premiums, compensation or other things of value the
Employee receives or may otherwise have a right to receive directly from KAIRE's
Associates, customers and third parties as a result services the Employee
provides or products the Employee produces under this Agreement belong to and
will immediately be paid and delivered to KAIRE. The Employee will hold any such
funds and Employee receives as KAIRE's fiduciary, and the Employee will take all
steps KAIRE reasonably requests to cause any Associate, customer, or third party
who is holding or who owes any such funds promptly to pay them to KAIRE.
I. SUPPLIES, EQUIPMENT AND FACILITIES.
1. By KAIRE. KAIRE will provide the Employee within a reasonable time with
such supplies, equipment, facilities and services as are reasonably necessary
for the performance of the Employee's duties.
2. No Ownership of KAIRE'S, Equipment or Facilities. KAIRE's provision of
any supplies, equipment or facilities to the Employee will not give the Employee
any ownership interest in any such supplies, equipment or facilities and will
not obligate KAIRE to continue providing supplies, equipment and facilities. The
Employee's use of KAIRE's property and equipment will be consistent with the
policy regarding Company Equipment in KAIRE's personnel policies not in effect
or as KAIRE may modify later.
<PAGE>
J. NO AUTHORITY TO OBLIGATE KAIRE OR TO INCUR, CREDIT. The Employee is not an
officer of KAIRE, may not incur any credit for KAIRE and has not authority to
obligate KAIRE to anything to accept orders, payments and supporting information
from existing and prospective Associates and customers on behalf of KAIRE and to
transmit them to KAIRE or to its suppliers.
K. DEATH OR DISABILITY DURING EMPLOYMENT. To the extent permitted by law, if the
Employee dies or becomes disabled while an employee of KAIRE, this Agreement
will automatically terminate and KAIRE will pay to the Employee's estate (in the
event of death) or to the Employee (in the event of disability) the compensation
that otherwise would be payable to the Employee for the Employee's services
rendered before the Employee's death or disability, less any obligations the
Employee then owes KAIRE.
The Employee will be considered "Disabled" under this Agreement if the Employee
is unable with reasonable accommodation to perform the essential requirements of
the Employee's employment for KAIRE, for a period that exceeds ninety (90)
consecutive calendar days. If the parties are unable to agree with respect to
any question about a Disability including, but not limited to: (i) whether the
Employee is Disabled, or (ii) the date which the Disability of the Employee
began, then such dispute shall be determined by arbitration under our separate
Arbitration Agreement. Until the date which a Disability occurs, the Employee's
compensation and status as an employee under this Agreement will continue.
L. TERMINATION. This Agreement may be terminated under paragraphs B, K, N or
under this paragraph.
1. Termination With Prior Notice by Either Party. In addition to
termination under paragraphs B, L.1, or N, KAIRE may terminate this Agreement
immediately without prior notice on the occurrence of any one of the following:
a. If the Employee neglects any of the Employee's duties,
b. If the Employee breaches any provision of this Agreement or
of the Parties' Noncompetition and Confidentiality and Work Made for
Hire Agreement.
c. If in representing KAIRE or in providing services to KAIRE,
the Employee commits an act of fraud, dishonesty or any other act of
negligent, reckless or willful misconduct in regard to Associates,
customers, employees, shareholders or third parties;
d. If KAIRE decides to sell or otherwise to dispose of
substantially all of KAIRE's assets, or to distribute its assets to
stockholders in liquidation, or otherwise to discontinue KAIRE's
business;
e. If any circumstance beyond KAIRE's control prevents it from
operating its business or otherwise hinders, delays or prevents
KAIRE from receiving income or increases its overhead to an extent
that causes KAIRE reasonably to decide to reduce, modify, suspend or
cease its business.
2. Survival of KAIRE's obligation under Paragraph E.4. The termination of
Employee under the provisions of Paragraph L.1.d. or e. shall not affect Kaire's
obligations under Paragraph E.4. above.
<PAGE>
M. FINAL SALARY. Subject to the provisions of paragraph E, the Employee's final
paycheck will be reduced by the amount of any lawful charge or indebtedness the
Employee owes KAIRE.
N. CONFIDENTIALITY OF AGREEMENT. The Employee will not disclose any terms of
this Agreement to any person with the exception of accountants or attorneys whom
the Employee may consult during the negotiation or performance of this
Agreement, or as may be required by law. The Employee acknowledges that this is
a material covenant of this Agreement, a breach of which will be cause for
immediate termination without prior notice.
O. ASSIGNMENT OF RIGHTS AND OBLIGATIONS. KAIRE may assign its rights or
obligations under this Agreement at anytime after the effective date without
prior notice to the Employee; the Employee may assign the Employee's rights or
obligations under this Agreement only with KAIRE's prior written agreement.
P. INTERPRETATION AND ENFORCEMENT. This Agreement expresses our entire
understanding regarding its subject matter. The only way this Agreement may be
amended, changed or waived will be through a new written agreement KAIRE signs.
This Agreement is enforceable by and against each Party and anyone else who has
or who obtains rights under this Agreement from either Party. This Agreement
will be interpreted and enforced under Colorado law. No part of this Agreement
should be construed against either Party on the basis of authorship. Any
unenforceable provision of this Agreement will be modified to the extent
necessary to make it enforceable or, if that is not possible, will be severed
from this Agreement, and the remainder of this Agreement will be enforced to the
fullest extent possible. Any enforcement involving confidential information,
proprietary information or trade secrets shall include injunctive remedies
including those set forth in COLORADO REVISED STATUTES ss. 7-74-101, et seq.
Q. KAIRE'S OPTION TO ARBITRATE DISPUTES. Under a separate arbitration agreement
between us dated August 18,1997, the parties have agreed KAIRE has the option to
arbitrate any dispute between us we cannot resolve ourselves, which includes any
dispute about any aspect of this Agreement.
R. ACKNOWLEDGMENTS. Each Party has read and considered this Agreement carefully,
believe, that Party understands each provision, and has conferred or has had the
opportunity to confer with the Party's own attorney before executing this
Agreement.
IN WITNESS OF OUR AGREEMENTS, KAIRE and the Employee have executed
this Agreement on the date(s) indicated below.
KAIRE INTERNATIONAL, INC. EMPLOYEE
By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
----------------------------- -----------------------------
Title: CEO Date: 12/3/97
-------------------------- ------------------------
Date: 3 DEC 1997
---------------------------
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of the 1st day of December, 1997, by
and between KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"),
and ROBERT L. RICHARDS, of 1510 Diamond Wail Drive, Berthoud, CO 80513
("Employee").
W I T N E S S E T H:
WHEREAS, the Company develops and distributes, through a network of
independent associates, products that are intended to appeal to health-conscious
consumers throughout the United States and select foreign countries.
WHEREAS, Employee possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business; and
WHEREAS, the Company desires to procure the services of Employee, and
Employee hereby agrees to be employed by the Company, upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Employee, and Employee hereby agrees to be employed by the Company, upon
the following terms and conditions:
ARTICLES 1
EMPLOYMENT
1.01. Office. Employee is hereby employed as the Chief Executive Officer
of the Company and in such capacity shall use his best energies and abilities in
the performance of his duties hereunder and in the performance of such other
duties as may be assigned to him from time to time by the Board of Directors of
the Company (the "Board").
1.02. Term. Subject to the terms and provisions of Article II hereof,
Employee shall be employed by the Company for a period of five (5) years,
commencing on the date hereof.
1.03. Base Salary. During the term of Employee's employment hereunder,
compensation shall be paid to Employee by the Company at the rate of $180,000
per annum (the "Base Salary"), payable bi-weekly. The rate of compensation to be
paid to Employee may be increased by the Board at any time based upon Employee's
contribution to the success of the Company and on such other factors as the
Board shall deem appropriate.
1.04. Employee Benefits. At all times during the term of Employee's
employment hereunder, Employee shall; (a) be covered by a major medical or
health benefit plan; (b) receive reimbursement for all properly substantiated
business expenses; and (c) be entitled to four (4) weeks paid vacation each year
and such holidays and sick days as are available to other executive employees of
the Company. The compensation provided to Employee hereunder shall not affect
his right to participate in the pension plan, the savings plans, stock option
plans, and similar plans or any other employee benefit plans of Kaire
International, Inc. if under the terms thereof Employee could be eligible
without regard to this Agreement.
1.05. Change in Control. (a) If Employee's employment with the Company is
terminated by the Company or by Employee for any reason other than death of
Employee following a Change in Control of the Company, Employee shall be paid,
within 30 days following of such termination, an amount in cash equal to the Net
Present Value (NPV), discounted at 5%, of the remaining compensation due him
under the remaining term of this contract. In addition, all benefits of Employee
shall be paid for one (1) year by
<PAGE>
the Company. The Company's indebtedness to Employee, if any, shall become
immediately due and payable in the event of termination or change in control,
regardless of the original terms thereof.
(b) For purposes of this Section 1.05, the following terms shall have the
following meanings:
(1) The term "person" shall be used as that term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "1934
Act").
(2) "Beneficial Ownership" shall be determined as provided in Rule
13d-3 under the 1934 Act as in effect on the effective date of this Agreement.
(3) "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of Directors (without
consideration of the rights of any class of stock other than the Common Stock to
elect Directors by a separate class vote); and a specified percentage of "Voting
Power" of a company shall mean such number of the Voting Shares as shall enable
the holders thereof to cast such percentage of all the votes which could be cast
in an annual election of directors (without consideration of the rights of any
class of stock other than the Common Stock to elect Directors by a separate
class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Company (other than such on offer made by the Company
or any subsidiary), whether or not such offer is approved or opposed by the
Board.
(5) "Change in Control" shall mean the date upon which any of the
following events occurs:
(A) The Company acquires actual knowledge that any Person
other than the Company, a subsidiary or any employee benefit plan(s) sponsored
by the Company has acquired the Beneficial Ownership, directly or indirectly, of
securities of the Company entitling such Person to 25% or more of the Voting
Power of the Company.
(B) A Tender Offer is made to acquire securities of the
Company entitling the holders thereof to 50% or more of the Voting Power of the
Company; or (ii) Voting Shares are first purchased pursuant to any other Tender
Offer;
(C) At any time less than 60% of the members of the Board
shall be individuals who were either Directors on the effective date of this
Agreement or (ii) individuals whose election, or nomination for election, was
approved by a vote (including a vote approving a merger or other agreement
providing the membership of such individuals on the Board) of at least
two-thirds of the Directors then still in office who where Directors on the
effective date of this Agreement or who were so approved.
(D) The stockholders of the Company shall approve an agreement
or plan (a "reorganization Agreement") providing for the Company to be merged,
consolidated or otherwise combined with, or for all or substantially all its
assets or stock to be acquired by, another corporation, as a consequence of
which the former stockholders of the Company will own, immediately after such
merger, consolidation, combination or acquisition, less than a majority of the
Voting Power of such surviving or acquiring corporation or the parent thereof;
or
(E) The stockholders of the Company shall approve any
liquidation of all or substantially all of the assets of the Company or any
distribution to security holders of assets of the Company having a value equal
to 30% or more of the total value of all the assets of the Company.
<PAGE>
(c) The Company agrees to pay the fees and expenses of counsel for
Employee incurred by Employee arising in connection with Employee's enforcement
or preservation of his right to collect the Change in Control payment described
in Section 1.05(a).
ARTICLE 11
TERMINATION
2.01. Illness, Disability. If during the term of Employee's employment
hereunder Employee shall be prevented, in the company's judgment, from
effectively performing all his duties hereunder by reason of illness or
disability, then the Company may, by written notice to Employee, terminate
Employee's employment hereunder. Upon delivery to Employee of such notice,
together with payment of any salary accrued under Section 1.03 hereof,
Employee's shall receive $37,500 per annum during the remaining term of this
contract and the Company shall continue to pay the health insurance premiums of
Employee during the remaining term hereof.
2.02. Death. If Employee dies during the term of his employment hereunder,
Employee's employment hereunder shall terminate and all obligations with respect
to the payment of accrued and unpaid salary under Section 1.03 hereof; shall
terminate.
2.03. Company Termination for Cause. If Kaire International, Inc.
determines that Employee has repeatedly failed to perform his duties hereunder
after written notice of such failure from Kaire International, Inc. to Employee,
has committed a violation of any of the agreements, covenants, terms or
conditions hereunder or has engaged in conduct which has injured or would injure
the business or reputation of Kaire international, Inc. or otherwise adversely
affect its interest, then, and in such event, Kaire International, Inc. may,
upon 30 days prior written notice to Employee, terminate Employee's employment
hereunder. Upon such termination, Employee shall be entitled to any Salary
accrued under Section 1.03 hereof and any indebtedness owed Employee by Company.
Any of Kaire International, Inc.'s obligations under Article 1 hereof shall
forthwith terminate.
2.04. Employee Benefits. Termination of Employee as provided in this
Article shall not affect Employee's rights and Employee benefit plans of Kaire
International, Inc. if under the terms thereof Employee could be eligible
without regard to this Agreement.
ARTICLES III
EMPLOYEE'S COVENANTS AND AGREEMENTS
3.01. Non-Disclosure of Confidential Information. Employee agrees to hold
and safeguard Confidential Information in trust for the Company, its successors
and assigns and agrees that he shall not, without the prior written consent of
the company, misappropriate or disclose or make available to anyone for use
outside the Company's organization at any time, either during his employment
with the Company or subsequent to the termination of his employment with the
Company for any reason, including, without limitation, termination by the
Company for causes, any of the Confidential Information, whether or not
developed by Employee, except as required in the performance of Employee's
duties to the company or as otherwise required by order of Court. "Confidential
Information" as used herein includes information concerning the Company's
revenues, volume, business methods, proposals, identity of customers and
prospective customers, identity of key purchasing personnel in the employ of
customers and prospective customers, amount or kind of customer's purchases form
the Company, the Company sources of supply, vendors of equipment and material,
the Company's computer programs, system documentation, the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other confidential or proprietary information belonging to the
Company or relating to the Company affairs.
3.02. Duties. Employee agrees to be a loyal full time employee of the
Company. Employee agrees to devote his best efforts to the performance of his
duties for the Company, to give proper time and
<PAGE>
attention to furthering the Company's business, and to comply with all rules,
regulations and instruments established or issued by the Company.
3.03. Return of Materials. Upon the termination of Employee's employment
with the company for any reason, including without limitation termination by the
Company for cause, Employee shall promptly deliver to the company all
correspondence, drawing, blueprints, manuals, letters, memoranda, notes,
notebooks, records, reports, flowcharts, programs, proposals and any documents
concerning the Company and, without limiting the foregoing, will promptly
deliver to the Company any and all other documents or materials containing or
constituting Confidential Information.
ARTICLE IV
MISCELLANEOUS
4.01. Authorization to Modify Restrictions. It is the intention of the
parities that the provisions of Article III hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to confirm to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Entire Agreement. This Agreement represents the entire agreement of
the parities and may be amended only by a writing signed by each of them.
4.03. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
4.04. Agreement Binding. The obligations of Employee under this Agreement
shall continue after the termination of his employment with the Company for any
reason, and shall be binding on his heirs, executors, legal representatives and
assigns and shall inure to the benefit of any successors and assignees of the
Company
4.05. Counterparts. Section Headings. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.06. Waiver. The failure of either party at any time or times to require
performance of any provisions hereof shall in no manner affect the right at a
later time to enforce such provisions thereafter. No waiver by either party of
the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach or a waiver of
the breach of any other term or covenant contained in this Agreement.
4.07. Notices. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to the Company:
Kaire International, Inc.
380 Lashley Street
Longmont, CO 80501
<PAGE>
(b) If to the Employee:
Robert L. Richards
1510 Diamond Wall Drive
Berthoud, CO 80513
Either party may specify a different address by notice in writing to the
other as provided in this Section 4.07.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first above written.
----------------------------------------
Robert L. Richards
Kaire International, Inc.
By:
----------------------------------------
Chairman of the Board
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of the 1st day of December, 1997, by
and between KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"),
and J.T. WHITWORTH, of 2130 North Shore Drive, Longmont, Colorado 80503.
W I T N E S S E T H:
WHEREAS, the Company develops and distributes, through a network of
independent associates, products that are intended to appeal to health-conscious
consumers throughout the United States and select foreign countries.
WHEREAS, Employee possesses valuable knowledge and skills that will
contribute to the successful operation of the Company's business; and
WHEREAS, the Company desires to procure the services of Employee, and
Employee hereby agrees to be employed by the Company, upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, intending to be legally bound, the Company agrees to
employ Employee, and Employee hereby agrees to be employed by the Company, upon
the following terms and conditions:
ARTICLES 1
EMPLOYMENT
1.01. Office. Employee is hereby employed as the Chief Operating Officer
and Chief Financial Officer of the Company and in such capacity shall use his
best energies and abilities in the performance of his duties hereunder and in
the performance of such other duties as may be assigned to him from time to time
by the Board of Directors of the Company (the "Board").
1.02. Term. Subject to the terms and provisions of Article II hereof,
Employee shall be employed by the Company for a period of five (5) years,
commencing on the date hereof.
1.03. Base Salary. During the term of Employee's employment hereunder,
compensation shall be paid to Employee by the Company at the rate of $180,000
per annum (the "Base Salary"), payable bi-weekly. The rate of compensation to be
paid to Employee may be increased by the Board at any time based upon Employee's
contribution to the success of the Company and on such other factors as the
Board shall deem appropriate.
1.04. Employee Benefits. At all times during the term of Employee's
employment hereunder, Employee shall; (a) be covered by a major medical or
health benefit plan; (b) receive reimbursement for all properly substantiated
business expenses; and (c) be entitled to four (4) weeks paid vacation each year
and such holidays and sick days as are available to other executive employees of
the Company. The compensation provided to Employee hereunder shall not affect
his right to participate in the pension plan, the savings plans, stock option
plans, and similar plans or any other employee benefit plans of Kaire
International, Inc. if under the terms thereof Employee could be eligible
without regard to this Agreement.
1.05. Change in Control. (a) If Employee's employment with the Company is
terminated by the Company or by Employee for any reason other than death of
Employee following a Change in Control of the Company, Employee shall be paid,
within 30 days following of such termination, an amount in cash equal to the Net
Present Value (NPV), discounted at 5%, of the remaining compensation due him
under the remaining term of this contract. In addition, all benefits of Employee
shall be paid for one (1) year by
<PAGE>
the Company. The Company's indebtedness to Employee, if any, shall become
immediately due and payable in the event of termination or change in control,
regardless of the original terms thereof
(b) For purposes of this Section 1.05, the following terms shall have the
following meanings:
(1) The term "person" shall be used as that term is used in Section
l3(d) and l4(d) of the Securities Exchange Act of 1934 as amended (the "1934
Act").
(2) "Beneficial Ownership" shall be determined as provided in Rule
13d-3 under the 1934 Act as in effect on the effective date of this Agreement.
(3) "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of Directors (without
consideration of the rights of any class of stock other than the Common Stock to
elect Directors by a separate class vote); and a specified percentage of "Voting
Power" of a company shall mean such number of the Voting Shares as shall enable
the holders thereof to cast such percentage of all the votes which could be cast
in an annual election of directors (without consideration of the rights of any
class of stock other than the Common Stock to elect Directors by a separate
class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Company (other than such on offer made by the Company
or any subsidiary), whether or not such offer is approved or opposed by the
Board.
(5) "Change in Control" shall mean the date upon which any of the
following events occurs:
(A) The Company acquires actual knowledge that any Person
other than the Company, a subsidiary or any employee benefit plan(s) sponsored
by the Company has acquired the Beneficial Ownership, directly or indirectly, of
securities of the Company entitling such Person to 25% or more of the Voting
Power of the Company.
(B) A Tender Offer is made to acquire securities of the
Company entitling the holders thereof to 50% or more of the Voting Power of the
Company; or (ii) Voting Shares are first purchased pursuant to any other Tender
Offer;
(C) At any time less than 60% of the members of the Board
shall be individuals who were either Directors on the effective date of this
Agreement or (ii) individuals whose election, or nomination for election, was
approved by a vote (including a vote approving a merger or other agreement
providing the membership of such individuals on the Board) of at least
two-thirds of the Directors then still in office who where Directors on the
effective date of this Agreement or who were so approved.
(D) The stockholders of the Company shall approve an agreement
or plan (a "reorganization Agreement") providing for the Company to be merged,
consolidated or otherwise combined with, or for all or substantially all its
assets or stock to be acquired by, another corporation, as a consequence of
which the former stockholders of the Company will own, immediately after such
merger, consolidation, combination or acquisition, less than a majority of the
Voting Power of such surviving or acquiring corporation or the parent thereof;
or
(E) The stockholders of the Company shall approve any
liquidation of all or substantially all of the assets of the Company or any
distribution to security holders of assets of the Company having a value equal
to 30% or more of the total value of all the assets of the Company.
<PAGE>
(c) The Company agrees to pay the fees and expenses of counsel for
Employee incurred by Employee arising in connection with Employee's enforcement
or preservation of his right to collect the Change in Control payment described
in Section 1.05(a).
ARTICLE II
TERMINATION
2.01. Illness, Disability. If during the term of Employee's employment
hereunder Employee shall be prevented, in the company's judgment, from
effectively performing all his duties hereunder by reason of illness or
disability, then the Company may, by written notice to Employee, terminate
Employee's employment hereunder. Upon delivery to Employee of such notice,
together with payment of any salary accrued under Section 1.03 hereof,
Employee's shall receive $37,500 per annum during the remaining term of this
contract and the Company shall continue to pay the health insurance premiums of
Employee during the remaining term hereof.
2.02. Death. If Employee dies during the term of his employment hereunder,
Employee's employment hereunder shall terminate and all obligations with respect
to the payment of accrued and unpaid salary under Section 1.03 hereof, shall
terminate.
2.03. Company Termination for Cause. If Kaire International, Inc.
determines that Employee has repeatedly failed to perform his duties hereunder
after written notice of such failure from Kaire International, Inc. to Employee,
has committed a violation of any of the agreements, covenants, terms or
conditions hereunder or has engaged in conduct which has injured or would injure
the business or reputation of Kaire International, Inc. or otherwise adversely
affect its interest, then, and in such event, Kaire International, Inc. may,
upon 30 days prior written notice to Employee, terminate Employee's employment
hereunder. Upon such termination, Employee shall be entitled to any Salary
accrued under Section 1.03 hereof and any indebtedness owed Employee by Company.
Any of Kaire International, Inc.'s obligations under Article 1 hereof shall
forthwith terminate.
2.04. Employee Benefits. Termination of Employee as provided in this
Article shall not affect Employee's rights and Employee benefit plans of Kaire
International, Inc. if under the terms thereof Employee could be eligible
without regard to this Agreement.
ARTICLES III
EMPLOYEE'S COVENANTS AND AGREEMENTS
3.01. Non-Disclosure of Confidential Information. Employee agrees to hold
and safeguard Confidential Information in trust for the Company, its successors
and assigns and agrees that he shall not, without the prior written consent of
the company, misappropriate or disclose or make available to anyone for use
outside the Company's organization at any time, either during his employment
with the Company or subsequent to the termination of his employment with the
Company for any reason, including, without limitation, termination by the
Company for causes, any of the Confidential Information, whether or not
developed by Employee, except as required in the performance of Employee's
duties to the company or as otherwise required by order of Court. "Confidential
Information" as used herein includes information concerning the Company's
revenues, volume, business methods, proposals, identity of customers and
prospective customers, identity of key purchasing personnel in the employ of
customers and prospective customers, amount or kind of customer's purchases form
the Company, the Company sources of supply, vendors of equipment and material,
the Company's computer programs, system documentation, the Company's manuals,
formulae, processes, methods, machines, compositions, ideas, improvements,
inventions or other confidential or proprietary information belonging to the
Company or relating to the Company affairs.
3.02. Duties. Employee agrees to be a loyal full time employee of the
Company. Employee agrees to devote his best efforts to the performance of his
duties for the Company, to give proper time and
<PAGE>
attention to furthering the Company's business, and to comply with all rules,
regulations and instruments established or issued by the Company.
3.03. Return of Materials. Upon the termination of Employee's employment
with the company for any reason, including without limitation termination by the
Company for cause, Employee shall promptly deliver to the company all
correspondence, drawing, blueprints, manuals, letters, memoranda, notes,
notebooks, records, reports, flowcharts, programs, proposals and any documents
concerning the Company and, without limiting the foregoing, will promptly
deliver to the Company any and all other documents or materials containing or
constituting Confidential Information.
ARTICLE IV
MISCELLANEOUS
4.01. Authorization to Modify Restrictions. It is the intention of the
parities that the provisions of Article III hereof shall be enforceable to the
fullest extent permissible under applicable law, but that the unenforceability
(or modification to confirm to such law) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder thereof. If any
provision or provisions hereof shall be deemed invalid or unenforceable, either
in whole or in part, this Agreement shall be deemed amended to delete or modify,
as necessary, the offending provision or provisions and to alter the bounds
thereof in order to render it valid and enforceable.
4.02. Entire Agreement. This Agreement represents the entire agreement of
the parities and may be amended only by a writing signed by each of them.
4.03. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
4.04. Agreement Binding. The obligations of Employee under this Agreement
shall continue after the termination of his employment with the Company for any
reason, and shall be binding on his heirs, executors, legal representatives and
assigns and shall inure to the benefit of any successors and assignees of the
Company
4.05. Counterparts, Section Headings. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. The section
headings of this Agreement are for convenience of reference only and shall not
affect the construction or interpretation of any of the provisions hereof.
4.06. Waiver. The failure of either party at any time or times to require
performance of any provisions hereof shall in no manner affect the right at a
later time to enforce such provisions thereafter. No waiver by either party of
the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach or a waiver of
the breach of any other term or covenant contained in this Agreement.
4.07. Notices. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to the Company:
Kaire International, Inc.
380 Lashley Street
Longmont, CO 80501
<PAGE>
(b) If to the Employee:
J.T. Whitworth
2130 North Shore Drive
Longmont, CO 80503
Either party may specify a different address by notice in writing to
the other as provided in this Section 4.07.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused this Agreement to be executed as of the day and year first above
written.
---------------------------------------
J.T. Whitworth
Kaire International, Inc.
By:
---------------------------------------
Chairman of the Board
<PAGE>
Exhibit 10.6
PROMISSORY NOTE
$120,411.85 Longmont, Colorado
September 30, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Loren
E. Bagley, the sum of One Hundred Twenty Thousand Four Hundred Eleven and
85/100 Dollars ($120,411.85), with interest at the rate of ten percent (10%) per
annum on the unpaid balance.
Said sum shall be payable in the manner following:
(1) Due and payable on demand.
The undersigned shall have the right to prepay without penalty. In the
event any payment due hereunder is not made when due, the entire balance shall
be immediately due at the option of holder.
In the event of default, the undersigned agrees to pay all reasonable
attorney fees and costs of collection.
Attest: Kaire International, Inc.
/s/ [illegible] By /s/ Robert L. Richards
- -------------------------- -------------------------------
Secretary Robert L. Richards, C.E.O.
STATE OF COLORADO:
COUNTY OF BOULDER, TO-WIT:
This instrument was acknowledged before me this 30th day of September,
1997, by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware
corporation, on behalf of said corporation.
My commission expires: 5-April-1999
/s/ [illegible]
----------------------------
Notary Public
<PAGE>
Exhibit 10.7
PROMISSORY NOTE
$120,411.85 Longmont, Colorado
September 30, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
William F. Woodburn, the sum of One Hundred Twenty Thousand Four Hundred Eleven
and 85/100 Dollars ($120,411.85), with interest at the rate of ten percent (10%)
per annum on the unpaid balance.
Said sum shall be payable in the manner following:
(1) Due and payable on demand.
The undersigned shall have the right to prepay without penalty. In the
event any payment due hereunder is not made when due, the entire balance shall
be immediately due at the option of holder.
This Promissory Note replaces those two (2) promissory notes dated January
31, 1997 and July 1, 1997 in the amounts of $89,450.73 and $458,000.00,
respectively.
In the event of default, the undersigned agrees to pay all reasonable
attorney fees and costs of collection.
Attest: Kaire International, Inc.
/s/ [illegible] By /s/ Robert L. Richards
- -------------------------- -------------------------------
Secretary Robert L. Richards, C.E.O.
STATE OF COLORADO:
COUNTY OF BOULDER, TO-WIT:
This instrument was acknowledged before me this 30th day of September
1997, by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware
corporation, on behalf of said corporation.
My commission expires: 5-April-1999
/s/ [illegible]
----------------------------
Notary Public
<PAGE>
Exhibit 10.8
PROMISSORY NOTE
$118,265.84 Longmont, Colorado
November 28, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Robert
L. Richards, the sum of One Hundred Eighteen Thousand Two Hundred Sixty-Five and
84/100 Dollars ($118,265.84), with interest at the rate of ten percent (10%) per
annum on the unpaid balance.
Said sum shall be payable in the manner following:
(1) Due and payable on demand.
The undersigned shall have the right to prepay without penalty. In the
event any payment due hereunder is not made when due, the entire balance shall
be immediately due at the option of holder.
In the event of default, the undersigned agrees to pay all reasonable
attorney fees and costs of collection.
Attest: Kaire International, Inc.
/s/ [illegible] By /s/ J.T. Whitworth
- -------------------------- -------------------------------
Secretary J.T. Whitworth, C.F.O.
STATE OF COLORADO:
COUNTY OF BOULDER, TO-WIT:
This instrument was acknowledged before me this 28th day of November 1997,
by J.T. Whitworth, C.F.O., of Kaire International, Inc., a Delaware
corporation, on behalf of said corporation.
My commission expires: 5-April-1999
/s/ [illegible]
----------------------------
Notary Public
<PAGE>
Exhibit 10.9
PROMISSORY NOTE
US$500,000 New York, New York
May 30, 1997
FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., ("Borrower") does
hereby unconditionally promise to pay on demand to the order of HORPHAG RESEARCH
COMPANY LIMITED, a corporation having its principal office at 1 Le Marchant
Street, St. Peter Port, Guernsey, Channel Islands ("Lender"), the principal sum
of FIVE HUNDRED THOUSAND DOLLARS (US$500,000.00) to be paid in installments plus
interest at the rate of nine and one half percent (9.5%) per annum from the date
hereof until all amounts due hereunder are paid, on the terms set forth below:
1. The principal amount of this Note, plus accrued interest thereon,
shall be due and payable in New York, New York, United States of America, as
follows:
(1) $25,000 payable on August 31, 1997
(2) $125,000 payable on September 30, 1997
(3) $175,000 payable on October 31, 1997
(4) $175,000 payable on November 30, 1997
All payments of principal and interest shall be made solely and exclusively in
United States Dollars, in same-day-funds, by deposit to such account as the
Lender may have last designated by notice to Borrower.
2. This Note may be prepaid in part or in full at any time without
penalty.
3. Borrower hereby waives presentment, protest, notice of protest,
demand of payment and notice of non-payment hereof and agrees that any changes
or modifications to this Note must be in
<PAGE>
writing and signed by the party to be charged with the change or modification.
4. Borrower agrees that if any installment is not paid when due and
the Lender refers this Note to an attorney for collection, Borrower shall
reimburse the Lender for its reasonable attorneys' fees plus court costs.
5. If any part of this Note is determined by a court to be invalid,
the other provisions hereof will remain in effect.
6. This Note shall be construed and enforced in accordance with the
substantive laws of the State of New York, United States of America.
7. BORROWER ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS NOTE OR THE RELATIONSHIP ESTABLISHED HEREBY WOULD BE EASED UPON
DIFFICULT AND COMPLEX ISSUES. ACCORDINGLY, IN AN EFFORT TO EXPEDITE THE
RESOLUTION OF ANY SUCH CONTROVERSY AND AVOID ADDITIONAL EXPENSE AND DELAY,
BORROWER AGREES THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, this Note is duly executed and delivered as of the
date first above written.
KAIRE INTERNATIONAL, INC., as Borrower
By: /s/ Robert L. Richards
Name: Robert L. Richards
Title: CEO
<PAGE>
Exhibit 10.10
$400,000.00
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of:
Marden Rehabilitation Associates, Inc.
200 Putnam Street Suite 822 Post Office Box 941
Marietta, OH 45750
hereinafter "Maker", the principal sum of $400,000.00 or such lesser portion
thereof as may have from time to time been disbursed to, or for the benefit of
the undersigned, and remaining unpaid pursuant to the books or records of Maker,
together with interest at the rate of
0.33 percent per day
on the unpaid balance until paid. This note and the associated interest shall be
payable at the above written address upon demand of Maker.
All persons now or hereafter liable for the payment of the principal or
interest due on this Note, or any part thereof, do hereby expressly waive
diligence, demand, presentment for payment, notice of dishonor, protest and
notice of protest, and agree that the time for the payment or payments of any
part of this Note may be extended without releasing or otherwise affecting their
liability on this Note.
This Note was executed in Marietta, Washington County, Ohio, on this 27th
day of August, 1997 and it is agreed that this Note shall be construed in
accordance with and governed by the laws of the State of Ohio. This Note is
issued in conjunction with a Business Loan Agreement dated the 27th day of
August, 1997, to which reference is made and is supported by other security
documents.
The undersigned, and each of them, hereby authorizes any attorney at law
to appear in any court or record in any county in the State of Ohio, or
elsewhere, where any of the undersigned resides, signed this Note, or can be
found, after the obligation evidenced hereby, or any part thereof, becomes due
and is unpaid, and waive the issuance and service of process and confess
judgment against any or all of the undersigned in favor of the holder of this
Note for the amounts then appearing due, together with the costs of suit, and
thereupon to release all errors and waive all right to appeal and stay of
execution, but no judgment against less than all of the undersigned shall be a
bar to any subsequent judgment against those of the undersigned against whom
judgment has not been taken.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY
<PAGE>
BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE
CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY
WITH THE AGREEMENT, OR ANY OTHER CAUSE.
WITNESS:
Kaire International, Inc.
By: /s/ Robert L. Richards
- ---------------------- -----------------------
Robert L. Richards
- ---------------------- Chief Executive Officer
<PAGE>
$200,000.00
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of:
Marden Rehabilitation Associates, Inc.
200 Putnam Street Suite 822 Post Office Box 941
Marietta, OH 45750
hereinafter "Maker", the principal sum of $200,000.00 or such lesser portion
thereof as may have from time to time been disbursed to, or for the benefit of
the undersigned, and remaining unpaid pursuant to the books or records of Maker,
together with interest at the rate of
0.33 percent per day
on the unpaid balance until paid. This note and the associated interest shall be
payable at the above written address upon demand of Maker.
All persons now or hereafter liable for the payment of the principal or
interest due on this Note, or any part thereof, do hereby expressly waive
diligence, demand, presentment for payment, notice of dishonor, protest and
notice of protest, and agree that the time for the payment or payments of any
part of this Note may be extended without releasing or otherwise affecting their
liability on this Note.
This Note was executed in Marietta, Washington County, Ohio, on this 29th
day of September, 1997 and it is agreed that this Note shall be construed in
accordance with and governed by the laws of the State of Ohio. This Note is
supported by other security documents.
The undersigned, and each of them, hereby authorizes any attorney at law
to appear in any court or record in any county in the State of Ohio, or
elsewhere, where any of the undersigned resides, signed this Note, or can be
found, after the obligation evidenced hereby, or any part thereof, becomes due
and is unpaid, and waive the issuance and service of process and confess
judgment against any or all of the undersigned in favor of the holder of this
Note for the amounts then appearing due, together with the costs of suit, and
thereupon to release all errors and waive all right to appeal and stay of
execution, but no judgment against less than all of the undersigned shall be a
bar to any subsequent judgment against those of the undersigned against whom
judgment has not been taken.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY
<PAGE>
CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY
GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
WITNESS:
Kaire International, Inc.
[Illegible] By: /s/ Robert L. Richards
- ---------------------- -----------------------
[Illegible] Robert L. Richards
- ---------------------- Chief Executive Officer
<PAGE>
Exhibit 10.11
$200,000.00
PROMISSORY NOTE
FOR VALUE RECEiVED, the undersigned promises to pay to he order of
MAGCO, INC.
200 Putnam Street, Suite 822 Post Office Box 4016
Marietta, OH 45750
hereinafter "Maker", the principal sum of $200,000.00, with interest from
January 8, 1997, at the rate of 10.0% per month on the unpaid balance until
paid. This note and the associated interest shall be payable at the above
written address upon demand of Maker.
All persons now or hereafter liable for the payment of the principal or
interest due on this Note, or any part thereof, do hereby expressly waive
diligence, demand, presentment for payment, notice of dishonor, protest and
notice of protest, and agree that the time for the payment or payments of any
part of this note may be extended without releasing or otherwise affecting their
liability on this Note. The undersigned hereby agrees to pay all attorney's fees
of Maker for any collection required under this Note.
This Note was executed in Marietta, Washington County, Ohio, on this 8th
day of January, 1997 and it is agreed that this Note shall be construed in
accordance with and governed by the laws of the State of Ohio.
WITNESS:
By
- ------------------------- ---------------------------
Kaire International, Inc.
Robert L. Richards, CEO
<PAGE>
EXHIBIT 10.12
EXHIBIT A-1
PROMISSORY NOTE
$500,000.00 Longmont, Colorado
October 27, 1997
FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of INTERNATIONAL MEDICAL SYSTEMS,
INC., a Delaware corporation, its successors and assigns (the "Lender") at 1717
Stewart Street, Santa Monica, California 90404, or at such other place as might
be designated in writing by the Lender, the principal sum of Five hundred
Thousand Dollars ($500,000), together with interest thereon at a rate equal to 9
percent (9%) per annum, payable on or before the date less ninety (90) days
after the effective date of the Definitive Agreement (as defined in the Loan
Agreement, defined below), or if the Definitive Agreement is not signed prior to
November 27, 1997, then on November 27, 1997. Interest will be calculated on the
basis of the actual days elapsed based on a per diem charge computed over a year
composed of three hundred sixty-five (365) days.
This Note is issued by the Borrower and accepted by the Lender pursuant to a
certain Loan and Security Agreement (the "Loan Agreement") between the Borrower
and the Lender dated October 27, 1997, and evidences a loan made pursuant to the
Loan Agreement.
The Borrower will have the right at any time and from time to time to prepay the
unpaid principal balance of this Note in whole or in part without penalty, but
with interest on the unpaid principal balance accrued to the date of prepayment.
The Borrower agrees that if, and as often as, this Note is placed in the hands
of an attorney for collection or to defend or enforce any of the Lender's rights
under this Note, the Loan Documents (as defined in the Loan Agreement) or
otherwise relating to the indebtedness hereby evidenced, the Borrower will pay
the Lender's reasonable attorneys' fees, all court costs and all other expenses
incurred by the Lender in connection therewith.
This Note is issued by the Borrower and accepted by the Lender pursuant to a
lending transaction negotiated, consummated and to be performed in Longmont,
Colorado. This Note is to be construed according to the internal laws of the
State of Colorado. All actions with respect to this Note, the Loan Documents or
any other instrument securing payment of this Note will be instituted in a state
or federal court sitting in Boulder County, Colorado. By the execution of this
Note, the Borrower irrevocably and unconditionally submits to the jurisdiction
(both subject matter and personal) of each such court and irrevocably and
unconditionally waives: (a) any objection the Borrower might now or hereafter
have to the venue in any such court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
Payment of the indebtedness hereby evidenced is secured by certain security
interests described in the Loan Documents. On the breach by the Borrower of any
provision of this Note, the option of the Lender, the entire indebtedness
evidenced by this Note will become immediately due,
1
<PAGE>
payable and collectible then or thereafter as the Lender might elect, regardless
of the date of maturity of this Note in accordance with the terms of the Loan
Agreement. Failure by the Lender to exercise such option will not constitute a
waiver of the right to exercise the same on the occurrence of any subsequent
Event of Default (as defined in the Loan Agreement).
The makers, endorsers, sureties, guarantors and all other persons who might
became liable for all or any part of this obligation severally waive presentment
for payment, protest and notice of nonpayment. Such parties consent to any
extension of time (whether one or more) of payment hereof, release of all or any
part of the collateral securing payment hereof or release of any party liable
for the payment of this obligation. Any such extension or release may be made
without notice to any such party and without discharging such party's liability
hereunder. If more than one maker executes this Note, the liability of each of
the undersigned is and shall be joint and several.
This Note is intended to strictly conform with all usury laws to the extent
applicable to the transactions contemplated hereby. The provisions of this Note
and of all agreements between the Borrower and the Lender are hereby expressly
limited so that in no contingency or event whatsoever, shall the amount
contracted for, charged, paid or agreed to be paid to the Lender for the use,
forbearance or retention of money or credit hereunder or otherwise exceed the
maximum rate permitted by law therefor. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
the Borrower and the Lender shall at the time of the execution and delivery
thereof, or at the time or performance of such provision shall be due, involve
or purport to require any payment in excess of the limits prescribed by law, the
obligation to be performed or fulfilled shall be reduced automatically to the
limit prescribed by law without the necessity of the execution of any amendment
or new document.
IN WITNESS WHEREOF, the Borrower has executed this instrument effective the date
first above written.
KAIRE INTERNATIONAL, INC.
By
-----------------------------
Its
2
<PAGE>
EXHIBIT 10.13
EXHIBIT A-2
PROMISSORY NOTE
$200,000.00 Longmont, Colorado
October 30, 1997
FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of INTERNATIONAL MEDICAL SYSTEMS,
INC., a Delaware corporation, its successors and assigns (the "Lender") at 1717
Stewart Street, Santa Monica, California 90404, or at such other place as might
be designated in writing by the Lender, the principal sum of Two hundred
Thousand Dollars ($200,000), together with interest thereon at a rate equal to 9
percent (9%) per annum, payable on or before the date less ninety (90) days
after the effective date of the Definitive Agreement (as defined in the Loan
Agreement, defined below), or if the Definitive Agreement is not signed prior to
November 27, 1997, then on November 27, 1997. Interest will be calculated on the
basis of the actual days elapsed based on a per diem charge computed over a year
composed of three hundred sixty-five (365) days.
This Note is issued by the Borrower and accepted by the Lender pursuant to a
certain Loan and Security Agreement (the "Loan Agreement") between the Borrower
and the Lender dated October 27, 1997, and evidences a loan made pursuant to the
Loan Agreement.
The Borrower will have the right at any time and from time to time to prepay the
unpaid principal balance of this Note in whole or in part without penalty, but
with interest on the unpaid principal balance accrued to the date of prepayment.
The Borrower agrees that if, and as often as, this Note is placed in the hands
of an attorney for collection or to defend or enforce any of the Lender's rights
under this Note, the Loan Documents (as defined in the Loan Agreement) or
otherwise relating to the indebtedness hereby evidenced, the Borrower will pay
the Lender's reasonable attorneys' fees, all court costs and all other expenses
incurred by the Lender in connection therewith.
This Note is issued by the Borrower and accepted by the Lender pursuant to a
lending transaction negotiated, consummated and to be performed in Longmont,
Colorado. This Note is to be construed according to the internal laws of the
State of Colorado. All actions with respect to this Note, the Loan Documents or
any other instrument securing payment of this Note will be instituted in a state
or federal court sitting in Boulder County, Colorado. By the execution of this
Note, the Borrower irrevocably and unconditionally submits to the jurisdiction
(both subject matter and personal) of each such court and irrevocably and
unconditionally waives: (a) any objection the Borrower might now or hereafter
have to the venue in any such court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
Payment of the indebtedness hereby evidenced is secured by certain security
interests described in the Loan Documents. On the breach by the Borrower of any
provision of this Note, the option of the Lender, the entire indebtedness
evidenced by this Note will become immediately due,
1
<PAGE>
payable and collectible then or thereafter as the Lender might elect, regardless
of the date of maturity of this Note in accordance with the terms of the Loan
Agreement. Failure by the Lender to exercise such option will not constitute a
waiver of the right to exercise the same on the occurrence of any subsequent
Event of Default (as defined in the Loan Agreement).
The makers, endorsers, sureties, guarantors and all other persons who might
became liable for all or any part of this obligation severally waive presentment
for payment, protest and notice of nonpayment. Such parties consent to any
extension of time (whether one or more) of payment hereof, release of all or any
part of the collateral securing payment hereof or release of any party liable
for the payment of this obligation. Any such extension or release may be made
without notice to any such party and without discharging such party's liability
hereunder. If more than one maker executes this Note, the liability of each of
the undersigned is and shall be joint and several.
This Note is intended to strictly conform with all usury laws to the extent
applicable to the transactions contemplated hereby. The provisions of this Note
and of all agreements between the Borrower and the Lender are hereby expressly
limited so that in no contingency or event whatsoever, shall the amount
contracted for, charged, paid or agreed to be paid to the Lender for the use,
forbearance or retention of money or credit hereunder or otherwise exceed the
maximum rate permitted by law therefor. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
the Borrower and the Lender shall at the time of the execution and delivery
thereof, or at the time or performance of such provision shall be due, involve
or purport to require any payment in excess of the limits prescribed by law, the
obligation to be performed or fulfilled shall be reduced automatically to the
limit prescribed by law without the necessity of the execution of any amendment
or new document.
IN WITNESS WHEREOF, the Borrower has executed this instrument effective the date
first above written.
KAIRE INTERNATIONAL, INC.
By
-----------------------------
Its
2
<PAGE>
EXHIBIT 10.14
This Note has not been registered under the Securities Act of 1933, as amended
(the "1933 Act") and the securities laws of any state. The Note has been
acquired for investment purposes only and not with a view to distribution or
resale, and may not be sold, assigned, made subject to a security interest,
pledged, hypothecated, transferred or otherwise disposed of unless and until
registered under the 1933 Act, or an opinion of counsel satisfactory to Kaire
International, Inc. is received that registration is not required under such
1933 Act or such state securities laws.
KAIRE INTERNATIONAL, INC.
$___,000.00
10% PROMISSORY NOTE
KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to_______________________ or registered
assigns (the "Holder") upon the earlier of (a) eighteen months after the date of
issuance of this Note (b) the completion date of an equity financing of the
Company pursuant to which it receives gross proceeds of not less than
$3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from
the "Key Man" life insurance policies on any of its executive officers and/or
directors (the "Maturity Date"), at the principal offices of the Company, the
principal sum of _____________________Thousand Dollars and no cents
($____,000.00) in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts, and to pay interest on the outstanding principal sum hereof at the rate
of ten percent (10%) per annum from the date hereof until the Company's
obligation with respect to the payment of such principal sum shall be discharged
as herein provided (the "Note"). Interest shall be due and payable on the
Maturity Date and shall accrue and be payable in like coin or currency to the
Holder hereof at the office of the Company as hereinafter set forth. In the
event that for any reason whatsoever any interest or other consideration payable
with respect to this Note shall be deemed to be usurious by a court of competent
jurisdiction under the laws of the State of New York or the laws of any other
state governing the repayment hereof, then so much of such interest or other
consideration as shall be deemed to be usurious shall be held by the Holder as
security for the repayment of the principal amount hereof or shall otherwise be
waived.
This Note is issued pursuant to the terms of a Subscription Agreement by
and between the Company and the Holder (the "Subscription Agreement"), a copy of
which agreement is available for inspection at the Company's principal office.
Notwithstanding any provision to the contrary contained herein, this Note is
subject and entitled to certain terms, conditions, covenants, rights and
2
<PAGE>
agreements contained in the Subscription Agreement. Any transferee or
transferees of this Note, by their acceptance hereof, assume the obligations of
the Holder in the Subscription Agreement with respect to the conditions and
procedures for transfer of this Note. Reference to the Subscription Agreement
shall in no way impair the absolute and unconditional obligation of the Company
to pay both principal and interest hereon as provided herein.
This Note is one of several notes of the Company issued in connection with
a Private Placement offering of the Company of up to $1,250,000 in Notes
("Notes.")
1. Transfers of Note to Comply with the 1933 Act
The Holder agrees that this Note may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (1) to a person who, in
the opinion of counsel to the Company, is a person to whom the Note may legally
be transferred without registration and without delivery of a current prospectus
under the 1933 Act and any applicable state securities laws with respect thereto
and then only against receipt of an agreement of such person to comply with the
provisions of this Section 1 with respect to any resale or other disposition of
the Note; or (2) to any person who complies with the provisions of this Section
1 with respect to any resale or other disposition of the Note; or (3) to any
person upon delivery of a prospectus then meeting the requirements of the 1933
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
2. Prepayment
The principal amount of this Note may be prepaid by the Company, in whole
or in part without premium or penalty, at any time. Upon any prepayment of the
entire principal amount of this Note, all accrued, but unpaid, interest shall be
paid to the Holder on the date of prepayment.
3. Covenants of Company
a. The Company covenants and agrees that, so long as this Note shall
be outstanding, it will:
(i) Do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to the Company as its
counsel may advise;
(ii) At all times maintain, preserve, protect and keep its property
used and useful in the conduct of its business so that the business
carried on in connection therewith may be properly and advantageously
conducted in
3
<PAGE>
the ordinary course at all times;
(iii)Keep adequately insured by financially sound insurers, all
property of a character usually insured by similar corporations and
carry such other insurance as is usually carried by similar
corporations; and
(iv) At all times keep true and correct books, records and accounts.
4. Events of Default
a. This Note shall become due and payable immediately upon any of
the following events, herein called "Events of Default":
(i) Default in the payment of the principal or accrued interest on
this Note, when and as the same shall become due and payable, whether
by acceleration or otherwise;
(ii) Default in the due observance or performance of any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof, if such default shall continue
uncured for thirty (30) days after written notice, specifying such
default, shall have been given to the Company by the Holder;
(iii)The entry of a final judgment, arbitration award or order against
the Company in an amount exceeding $100,000 which judgment remains
unsatisfied for ninety (90) days after the date of such entry;
(iv) Application for, or consent to, the appointment of a receiver,
trustee or liquidator for the Company or of its property;
(v) Admission in writing of the Company's inability to pay its debts
as they mature;
(vi) General assignment by the Company for the benefit of creditors;
(vii)Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with
creditors; or
(viii)Entering against the Company of a court order approving a
petition filed against it under the federal bankruptcy laws, which
order shall not have been vacated or set aside or otherwise terminated
within ninety (90) days.
4
<PAGE>
b. In case any one or more of the Events of Default specified above
shall happen or be continuing, the Holder may proceed to protect and enforce his
or her right by suit in the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note or may proceed to enforce the payment of this Note or to enforce any other
legal or equitable rights as such Holder may have.
c. In the event that the Company shall default in the payment of the
principal and interest on the later of the Maturity Date or its presentment for
payment, the total principal amount of and interest due upon all unpaid Notes
shall be automatically be due and payable.
5. Miscellaneous
a. This note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
b. The Company may consider and treat the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected by any notice to the contrary. Subject to the limitations herein
stated, the registered owner of this Note shall have the right to transfer this
Note by assignment, and the transferee thereof shall, upon his registration as
owner of this Note, become vested with all the powers and rights of the
transferor. Registration of any new owners shall take place upon presentation
of this Note to the Company at is principal offices, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders of transferees of the Note not
registered at the time of sending the communication.
c. Payments of interest shall be made as specified above to the
registered owner of this Note. Payment of principal shall be made to the
registered owner of this Note upon presentation of this Note on or after
maturity. No interest shall be due on this Note for such period of time that
may elapse between the maturity of this Note and its presentation for payment.
d. The Holder shall not, by virtue, hereof, be entitled to any
rights of a stockholder in the Company, whether at law or in equity, and the
rights of the Holder are limited to those expressed in this Note.
5
<PAGE>
e. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Note, if mutilated, the Company
shall execute and deliver a new Note of like tenor and date. Any such new Note
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Note so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
f. This Note shall be construed and enforced in accordance with the
laws of the State of New York without regard to the conflicts of laws principles
thereof or the actual domiciles of the Company and the Holder. The Company and
the Holder hereby consent to the jurisdiction of the Courts of the State of New
York and the United States District Courts situated therein in connection with
any action concerning the provisions of this Note instituted by the Holder
against the Company.
IN WITNESS WHEREOF, KAIRE INTERNATIONAL, INC., has caused this Note to be
signed in its name by its President.
KAIRE INTERNATIONAL, INC.
Date: ________________________, 1997 By: _______________________________
6
<PAGE>
EXHIBIT 10.15
LEASE AGREEMENT
1. This agreement is made this 20th day of November, 1995 effective
November 14, 1995.
2. PARTIES: The parties to this Lease are the owners of property,
George J. Walck and Joseph C. Walck, individuals (herein "Landlord"), and the
lessee of property, Kaire International, Inc. a Nevada corporation (herein
"Tenant").
3. PURPOSE: The purpose of this Lease Agreement (herein "Lease") is
to provide for the lease of commercial office space and use of existing common
areas.
4. AGREEMENT: In consideration of the promises and agreements
contained herein, Landlord leases to Tenant and Tenant rents from Landlord
certain office space as described herein, for the terms stated herein.
5. PREMISES: The property herein leased by Landlord to Tenant is
the exclusive use of six thousand four hundred (6,400) square feet of unfinished
commercial office space being the first floor of the structure located at and
commonly known as 400 Lashley Street, Building D2, Longmont Boulder County,
Colorado, plus exclusive use of the parking area north and west of such
structure and non-exclusive use of two parking spaces behind the convenience
store adjacent to the structure to be occupied by Tenant (herein "Premises").
Every reference herein to "Exclusive Premises" or "Premises" shall be a
reference only to the 6,400 square feet of actual office space rented. Landlord
may at its option construct a new parking area west of the structure in which
the Premises are situated with such parking lot to be of an equivalent condition
and of an equivalent size to that now existing on the north side of the
Premises.
6. TERM: (A) The term of this lease shall be from the Effective Date
of this agreement set forth above and terminating at 11:59 p.m. on the last day
of February, 1996.
(B) The parties have agreed that Tenant shall have two options to
extend this Lease for a period of one additional one year from March 1, 1996 on
the same terms contained herein, and for a second year, with rent to be adjusted
for the second option year based on the increase or decrease in the Consumer
Price Index from the base period until February 1, 1996. The CPI to be utilized
will be the "All Urban Consumers, Western States Average" most recently
published before the base period date and any adjustment date. The base period
for the purpose of adjustment shall be November 1, 1995. Tenant shall give
Landlord 45 days prior notice of Tenant's election to exercise an option granted
herein.
(C) If Landlord and Tenant agree to enter into a new lease of the
Premises after the expiration of the term of this lease agreement as set forth
in Paragraph 6(A) and (B) above, the parties recognize that the lease rental
payments shall be adjusted to the then current market conditions and may also be
adjusted to account for the then current real property tax liabilities of
Landlord.
7. OCCUPANCY: (A) Tenant will receive possession of the Premises
upon the first day of the term of his lease.
<PAGE>
8. RENT: (A) Beginning on the Effective Date of this agreement as
set forth above and continuing during the period of this lease while Tenant's
employees are not occupying the Premises as office space but not to extend
beyond August 1,1996, Tenant shall pay to Landlord a monthly rental amount of
$2,560.00. Rental amounts due shall be prorated for any partial calendar month
period.
(B) Beginning on the earlier of (i) the date Tenant's employees
occupy the Premises (ii) August 1,1996, Tenant shall pay to Landlord a monthly
rental of $2,827.00. Rental amounts due shall be prorated for any partial
calendar month.
(C) The rental amounts due from Tenant shall be paid on the first
day of each month with any adjustment to the monthly rental amount owing in the
month Tenant occupies the Premises pursuant to (B) above being paid on the first
day of month following Tenant's occupation of the Premises pursuant to (B).
(D) The rental amounts payable by Tenant hereunder shall be paid
directly to First National Bank of Longmont, to be credited to the account of
Landlord according the terms of the certain deed of trust dated October 15, 1991
between Landlord and Bank. Tenant's checks to Landlord shall be joint checks
made payable to Landlord and First National Bank of Longmont.
9. SECURITY DEPOSIT: Tenant shall deposit with Landlord prior to the
beginning of the term of this Lease the amount of $2,500.00 to be held by
Landlord for the faithful performance of all of the terms, conditions and
covenants of this Lease. The Landlord may apply such deposit to cure any default
under the term of this Lease and shall account to the Tenant for the balance.
Landlord shall account to Tenant within sixty days after the end of this Lease
or other termination of this Lease for the application of any amounts of the
deposit to obligations of the Tenant, and shall return the balance. Tenant is
given the right to use such security deposit as payment of the last month's rent
for the last month Tenant occupies the Premises under the terms of this lease
agreement.
10. USE:
10.1 USE: Tenant shall use the Premises as commercial office space
and a parking area to conduct only such activities as are consistent with
Tenant's normal course of business.
10.2 SUITABILITY. (A) Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises or with respect to the suitability of the Premises for the conduct
of Tenant's business. Any costs related to Tenant's modification of the Premises
shall be paid by Tenant, except that Landlord may remove the following items in
a timely manner deemed to be within 10 days of Tenant's written notice to
Landlord of Tenant's request that they be removed: rollup doors and openers,
infrared heaters and thermostats, plumbing items as o requested by Tenant,
electrical items or fixtures as requested by Tenant. Landlord shall have the
first right of refusal to salvage materials to be removed or salvaged by Tenant
in the process of Tenant's renovation on alteration of the Premises.
Tenant acknowledges the existence of a service pit in the Premises.
Tenant accepts such automotive pit in "as is" condition except Tenant shall not
be liable for any environmental contamination existing due to the prior use of
the service pit and Landlord shall indemnify, defend and hold Tenant harmless
from any liability for any environmental condition existing prior to the
effective date of this agreement.
<PAGE>
(B) The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises were at such time in satisfactory and
suitable condition for Tenant's intended uses. The parties will perform a
walk-through of the Premises in advance of Tenant taking possession, and will
note any deficiencies in writing, which shall be cured by Landlord within a
reasonable time. It is understood by the parties that the Premises are presently
unfinished and that Tenant intends at its option to renovate the Premises into a
commercial office use.
10.3 USES PERMITTED: (A) Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation or requirement of
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Landlord shall be responsible for compliance of the
structure, as well as exterior walls, interior walls, and water, plumbing, gas,
electricity, heating, air conditioning and other utility delivery systems, with
any law, statute, ordinance or governmental rule or regulation of requirement
which applies to or controls such structure or utility delivery system except
for renovations performed by Tenant. In the event any changing, adjusting, or
retrofitting of any portion of the Premises is required in order to comply with
the Americans with Disabilities Act, or any legislation, rules or regulations
with a similar purpose during the term of this lease agreement, the parties
shall discuss the responsibility of the parties' responsibility of bearing the
cost of such compliance. If the parties cannot agree on a sharing arrangement of
such costs, Tenant shall have the following options: (i) Tenant may elect to
terminate its tenancy with all sums due hereunder being prorated to the date of
Tenant vacating the Premises, or (ii) Tenant bearing the expense of ADA
compliance and thereafter Tenant may offset future rental payments due hereunder
against the expense incurred by Tenant.
(B) Tenant shall at its sole cost and expense promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be enforced and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to the commercial office space use and occupancy
of the Premises by Tenant, except Landlord shall have the responsibility of
complying with any requirements regarding its liability under paragraph 10.3 (A)
hereof upon the structure in which the Premises are located and the utility
delivery systems of such structure except for the renovations performed by
Tenant.
11. UTILITY SERVICES: Tenant agrees, at its own expense, to
establish in its name, and to pay for, all water, gas, power and electric
current and all other similar utilities used by Tenant on the Exclusive Premises
from and after the delivery of possession to Tenant by Landlord. Landlord and
Tenant acknowledge separate meters exist for all such utility services to the
Exclusive Premises. If any such charges are not paid when due, Landlord may pay
the same, and any amount so paid by Landlord shall thereupon become due to
Landlord from Tenant as additional rent. Landlord shall not be liable in damages
or otherwise for any failure or interruption of any utility service being
furnished to the Premises, and no such failure or interruption shall entitle
Tenant to terminate this Lease.
12. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS:
<PAGE>
12.1 MAINTENANCE AND REPAIRS:
12.11. Landlord shall keep in good order, condition and repair the
foundations, exterior walls, and the roof of the Premises and the parking lot,
and as necessary, or when required by governmental authority (except for ADA
compliance as set forth in Paragraph 10.3 above) make modifications or
replacements thereof, and further, Landlord shall keep in good order, condition
and repair the interior surface of exterior walls and all doors, and as
necessary, or when required by governmental authority, make modifications or
replacements thereof.
12.12. Landlord shall maintain and keep in good order, conditions
and repair the Premises, including all utility service delivery systems
installed therein including HYAC units and shall replace all broken glass with
glass of the same or similar quality. Tenant will give Landlord timely notice of
any damage to the Premises or repair needed in the Premises. Except in an
emergency situation, or in order to prevent significant loss to the Premises,
Landlord shall give Tenant twenty-four hours advance notice of its intent to
undertake any repair upon the Premises. If Landlord believes Tenant shall be
responsible for the cost of any such repair under paragraph 12.13 hereof,
Landlord shall give Tenant twenty-four hours notice of Landlord's position. Such
twenty-four hour notice requirements are intended to allow Landlord and Tenant
to coordinate repair activity and to resolve any repair cost liability issue
between them in advance of undertaking repair work. Landlord shall make all
repairs in a timely manner.
12.13. Notwithstanding the obligation of Landlord to maintain and
repair the Premises as established in this section 12, Tenant shall be obligated
to reimburse to Landlord the cost and expense of all repair or maintenance of
the Premises caused or occasioned by the actions or inactions of its officers,
agents, employees, licensees and invitees, whether or not a result of
negligence. Upon the repair or maintenance of any portion of the Premises,
Landlord shall notify Tenant in writing of its obligation for the cost of repair
or maintenance, and Tenant will reimburse Landlord its full liability within ten
days of such written notice. Tenant shall not be responsible for the cost of
maintenance which is the result of normal wear and tear upon the Premises by
Tenant.
12.14. Landlord shall have no liability to Tenant for any damage,
inconvenience or interference with the use of the Premises by Tenant as a result
of Landlord conducting any repair or maintenance upon the Premises, provided,
however, Landlord will undertake such repairs or maintenance in a manner so as
to cause minimal disruption of Tenant's business.
12.15. Tenant shall on the expiration or the sooner termination of
its right to possession surrender to Landlord the Premises, including all
modifications, changes, additions and improvements constructed or placed by
Tenant herein, with all equipment in or appurtenant thereto, except all movable
non-fixtures owned by Tenant and all non-permanently attached additions or
improvements, broom-clean, free of sub-tenancies, and in good condition and
repair, reasonable wear and tear excepted. Any non-fixtures or personal property
belonging to Tenant or any subtenant, if not removed at such termination and if
Landlord shall so elect, shall be deemed abandoned and become the property of
Landlord without any payment or offset therefor.
12.2. ALTERATIONS AND ADDITIONS: (A) Tenant shall not make any
alterations or additions to the Premises nor make any contract therefor without
prior written consent of Landlord. Landlord shall have the right to approve all
proposed alterations or additions which approval shall not be unreasonably
withheld. Tenant shall submit any
<PAGE>
proposed modifications or changes to Landlord and in the event Landlord has
failed to respond in writing within 15 days, such changes or modifications shall
be deemed approved. Any permanently attached alterations, additions and
improvements made by Tenant to or upon the premises shall at once when made and
installed be deemed to have become the property of Landlord.
(B) At the expiration of the lease term or extended term, Tenant
shall promptly remove any non-permanent attached additions or improvements
placed in the Premises by Tenant unless otherwise agreed, and shall repair any
damage occasioned by such removal, and in default thereof, Landlord may effect
such removal and repair at Tenant's expense.
13. ENTRY BY LANDLORD: (A) Landlord and the authorized
representatives of Landlord may enter the Premises at any time, without notice,
pursuant to a perceived emergency involving the Premises or to avoid damage or
loss to the Premises. Landlord shall thereafter timely advise Tenant of any such
entry.
(B) Landlord and the authorized representatives of Landlord may
enter the Premises at any time for any appropriate reason, including but not
limited to, verifying the need for repair of the Premises, showing the Premises
to any prospective purchaser from Landlord, or, during the final month of the
term of this Lease, to show the Premises to any prospective tenant, only after
twenty-four hours advance notice to Tenant. Landlord and Tenant agree Landlord
or its representatives may be guided through the Premises by an agent of Tenant,
and that Landlord shall have access to view all of the Premises. Any viewing of
the Premises will be in such a manner as to not unreasonably interfere with
Tenant's business.
14. LIENS: (A) Tenant will keep the Premises free and clear of all
mechanic's liens on account of work done by Tenant or persons claiming under
Tenant. Tenant agrees to and shall indemnify and save Landlord free and harmless
against liability, loss, damage, cost, attorney's fees and all other expense on
account of claims of lien of laborers or materialmen or others for work
performed or materials or supplies furnished for Tenant or persons claiming
under Tenant.
(B) In the event any lien is filed upon the Premises as the result
of any claim or demand against Tenant, Tenant agrees to immediately undertake
removal of the lien filing upon the Premises, and shall, within ninety (90) days
of the filing of such lien upon the Premises, either pay the claim and lien in
full, or obtain judicial resolution of the claim and lien, or deposit the full
amount necessary to resolve the claim and lien with the registry of the court
having jurisdiction over the claim and lien, or obtain a bond to obtain release
of the lien. If Tenant shall fail to remove such lien within such ninety (90)
day period, Landlord may give Tenant notice of Landlord's intent to pay such
claim and lien in an amount necessary to remove such lien. If Tenant shall
thereafter fail to remove such lien within fifteen (15) days of Landlord's
notice to Tenant of intent to pay the claim and lien, Landlord may then pay the
claim and lien. Any amount so paid, together with reasonable attorney's fees
incurred in connection therewith, and interest at the rate of eighteen (18)
percent per annum. from the date of payment by Landlord, shall be immediately
due and owing from Tenant to Landlord, and Tenant agrees to and shall pay the
same.
(C) Should any claim of lien be filed against the Premises or any
action affecting the title to such property be commenced, the party receiving
notice of such lien or action shall forthwith give the other party written
notice thereof.
<PAGE>
15. INDEMNITY: (A) Tenant shall indemnify and hold harmless Landlord
from and against any and all claims arising from Tenant's use of the Premises or
the conduct of its business or from any activity, work or thing done, permitted
or suffered by Tenant in or about the Premises.
(B) Tenant shall indemnify and hold harmless Landlord from and
against any and all claims arising from any act or negligence of Tenant or any
of its agents, contractors or employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in or about any such claim or
any action or proceeding brought thereon.
(C) Landlord shall indemnify and hold harmless Tenant from and
against any and all claims arising from any act or negligence of Landlord or any
of its agents, contractors or employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in or about any such claim or
any action or proceeding brought thereon.
16. INSURANCE: (A) Landlord shall maintain standard general
liability and property damage insurance insuring the Premises, in reasonable
amounts to provide full replacement coverage and shall provide to Tenant a copy
of a certificate indicating such coverages.
(B) Tenant shall at all times during the term hereof, and at is own
cost and expense, procure and continue in force general liability insurance
coverage upon Tenant, its officers, agents, employees, licensees, and invitees,
regarding Tenant's utilization of commercial office space upon the Premises,
with a limit of liability of not less than $1,000,000.00 per occurrence. The
policy or policies shall name Landlord as an additional insured, shall insure
Landlord's contingent liability, if any, under this Lease, shall be issued by an
insurance company which is acceptable to Landlord and licensed to do business in
the Sate of Colorado, and shall provide that the insurance shall not be canceled
unless thirty-days' prior written notice shall be given to Landlord. The policy
or policies or certificate thereof shall be delivered to Landlord by Tenant upon
commencement of the Lease term or within 10 days of execution of this Lease,
whichever event last occurs.
(C) Tenant may maintain such property damage insurance as it wishes
upon the equipment, and non-fixtures it may maintain upon the Premises. Tenant
acknowledges Landlord does not provide any property damage insurance upon the
property of Tenant upon the Premises.
17. RECONSTRUCHON: (A) In the event the Premises are damaged by fire
or other peril, Landlord shall (1) diligently commence repair, reconstruction
and restoration of the Premises and pursue completion thereof, in which event
this Lease shall continue in full force and effect; or (2) within 30 days of the
damage occurring, give notice to Tenant of its election to terminate this Lease.
Upon any termination of the Lease, the parties shall be released thereby without
further obligations to the other coincident with the surrender of possession of
the Premises to Landlord, except for items which have theretofore accrued and be
then unpaid except that the rental amounts owing hereunder shall abate as of the
date of the occurrence of the damage.
(B) In the event such damage to the Premise results in more than
twenty-five (25) percent of loss of use of the premises, and it is reasonably
determined that repair, construction and restoration can not be completed within
sixty (60) days of the damage occurring, Tenant may terminate this Lease by
written notice to Landlord, effective not later than the sixtieth day after such
damage occurred with the rental amounts owing hereunder being abated as of the
date of occurrence of the damage.
<PAGE>
(C) In the event of repair, reconstruction and restoration as herein
provided, the rent paid shall be abated proportionately with the degree in which
Tenant's use of the Premises is impaired commencing from the date of destruction
and continuing during the period of such repair, reconstruction or restoration.
18. CONDEMNATION: If the entire Premises or so much thereof as to
make the balance not reasonably adequate for the conduct of Tenant's business
shall be taken under a power of eminent domain, this Lease shall automatically
terminate as of the date on which the condemning authority takes title or
possession, whichever first occurs. Any award for any taking of all or any part
of Premises under the power of eminent domain shall be the property of Landlord,
and a sale by Landlord to any authority having the power of eminent domain,
either under threat of condemnation or while condemnation proceedings are
pending, shall be deemed a taking under the power of eminent domain for all
purposes under this paragraph.
19. ASSIGNMENT AND SUBLEASE: Tenant shall not voluntarily or by
operation of law assign, license, transfer, mortgage or otherwise encumber all
or any part of Tenant's interest in this Lease or in the Premises, without the
prior written consent of Landlord in each instance, which such consent Landlord
shall not unreasonably withhold. Such reasonable determination of consent to
assignment or other transfer listed shall include determinations upon the nature
of the business of the assignee and its then existing financial circumstances.
Tenant shall have the right to sublease the Premises. No subletting or
assignment, even with the consent of Landlord, shall release Tenant of its
obligations to pay the rent and to perform all of the other obligations to be
performed by Tenant hereunder.
20. TAXES: All real property taxes and special improvement
assessments shall be paid by Landlord. All property tax for personal property
owned by Tenant on the Premises shall be paid by Tenant.
21. BANKRUPTCY-INSOLVENCY: (A) Tenant agrees that in the event all
or substantially all of Tenant's assets be placed in the hands of a receiver or
trustee other than in bankruptcy, and such receivership or trusteeship continues
for a period of 30 days, or should Tenant make an assignment for the benefit of
creditors, then this Lease may be terminated by Landlord upon written notice to
Tenant, to be effective upon delivery of such notice.
(B) In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust made by Landlord covering the Premises, Tenant shall attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as the
landlord under this Lease provided the mortgagee or purchaser recognizes the
Tenant's right of quiet enjoyment hereunder.
22. QUIET POSSESSION: Landlord agrees that Tenant, upon paying the
rent and performing the covenants and conditions of this Lease, may quietly
have, hold and enjoy the Premises during the term hereof or any extension
thereof.
23. DEFAULTS: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(a) any failure by Tenant to pay the rent or any other monetary sums
required to be paid hereunder where such failure continues for five days after
written notice by Landlord to Tenant;
<PAGE>
(b) the abandoment of the Premises by Tenant;
(c) a failure by Tenant to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for 20 days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within said 20 day period, Tenant shall not be deemed
to be in default if Tenant shall within such period commence such cure and
thereafter diligently pursue the same to completion; or
(d) the making by Tenant of any general assignment or general
arrangement for the benefit of creditors, the appointment of a trustee or
receiver, other than in bankruptcy, to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where possession is not restored to Tenant within 30 days, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within 30 days.
24. REMEDIES: (A) (1) In the event of any such material default or
breach by Tenant, Landlord shall have each and every right and remedy available
to it under Colorado law, at the time of execution of this Lease or hereafter
established, including but not limited to, the right to maintain this Lease in
full force and effect and recover the rent and other monetary charges as they
become due, without terminating Tenant's right to possession irrespective of
whether Tenant shall have abandoned the Premises, or to terminate Tenant's right
to possession to the Premises and to terminate this Lease.
(2) In the event of any material default or breach by
Landlord, Tenant shall have each and every right and remedy available to it
under Colorado law including the right to offset future rental amounts due
hereunder in amounts necessary to compensate Tenant for any monetary advances
made by Tenant on Landlord's behalf for obligations of Landlord hereunder.
(B) Landlord and Tenant understand and agree that after default by
Tenant, as established in this Lease, Landlord has the opportunity to, and to
the extent established by law, the obligation to, attempt to relet the Premises
at such rent and upon such conditions and for such a term and to do all acts
necessary to maintain or preserve the Premises as are reasonable and necessary.
(C) in addition to all remedies stated hereinabove, each party shall
have the remedy to seek damages from the other party for any and all losses
resulting from the default of the other party under this Lease.
(D) Upon Landlord advancing or otherwise directly paying for Tenant
any sum of money as the result of the failure of Tenant to pay or to timely pay
any obligation under this Lease, such advancement or payment by Landlord shall
accrue interest at the rate of eighteen (18) percent per annum from the date of
advancement or payment by Landlord until the date of repayment by Tenant to
Landlord.
25. SIGNS: Tenant shall not erect or install any exterior signs or
window or door signs, advertising media or window or door lettering or placards
without Landlord's prior written consent.
<PAGE>
26. MISCELLANEOUS:
26.1. NO RESTRICTIVE COVENANT: It is agreed that this Lease contains
no restrictive covenants in favor of Tenant.
26.2. SUBORDINATION: Upon written request of Landlord, or any first
mortgagee or beneficiary of a first deed of trust of Landlord, Tenant will in
writing subordinate its rights hereunder to the interest of any ground lessor of
the land upon which the premises are situated, as well as to the lien or any
first mortgage or first deed of trust, now or hereafter in force against the
land and buildings of which the Premises are in part, and upon any building
hereafter placed upon the land of which the Premises are a part, and to all
advances made or hereafter to be made upon the security thereof provided the
mortgage agrees to recognize Tenant's right of quiet enjoyment.
26.3 NON-SMOKING: The parties agree that all smoking shall be
prohibited in the building during the term of this lease and any extensions
thereof.
26.4 USE OF MAIL DROP: Landlord may have mail delivered to the
Premises utilizing the mailbox in the entry way. Landlord shall not access the
Premises to obtain such mail except during normal business hours of Tenant.
Tenant shall have no liability for protecting Landlord's mail delivered to the
mailbox.
26.5 SECURITY SYSTEM: Tenant may at its option, install a security
system in the Premises to protect its operations. In the event such a system is
installed, Tenant shall provide Landlord with emergency number to reach the
Tenant's employee authorized to disable the security system after business
hours, to permit Landlord to enter the Premises in case of an emergency.
Landlord shall provide Tenant with telephone numbers where Landlord may be
reached after business hours in case of emergency.
26.6. ENTIRE AGREEMENT: This Lease, along with the Addendum
hereto, constitutes the entire agreement between Landlord and Tenant relative to
the Premises demised, and this Lease and the Addendum may be altered, amended or
revoked only by an instrument in writing signed by both Landlord and Tenant.
26.7. SEVERABILITY: If any term or provision of this Lease shall, to
any extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law, and it is the intention of the parties hereto
that if any provision of this Lease is capable of two constructions, one of
which would render the provision void and the other of which would render the
provision valid, then the provision shall have the meaning which renders it
valid.
26.8. COSTS OF SUIT. (A) Should Landlord, without fault on
Landlord's part, be a party to any litigation instituted by any third party
against the Tenant, or by or against any person holding under or using the
Premises by license of Tenant, or for the foreclosure of any lien for labor or
material furnished to or for Tenant or any such other person or otherwise
arising out of or resulting from any act or transaction of Tenant or of any such
other person, Tenant covenants to save and hold Landlord harmless from any
judgment rendered against Landlord or the premises or any part thereof, and
costs and expenses, including reasonable attorney's fees, incurred by Landlord
in or in connection with such litigation.
<PAGE>
(B) Should Tenant, without fault on Tenant's part, be a party to any
litigation instituted by any third party against the Landlord, or by or against
any person claiming an interest in the Premises through Landlord, or for the
foreclosure of any lien for labor or material furnished to or for Landlord or
any such other person or otherwise arising out of or resulting from any act or
transaction of Landlord or of any such other person, Landlord covenants to save
and hold Tenant harmless from any judgment rendered against Tenant, and costs
and expenses, including reasonable attorney's fees, incurred by Tenant in or in
connection with such litigation.
(C) In the event any suit or litigation occurs as a result of this
Lease between Landlord and Tenant, the prevailing party in any such litigation
shall be entitled to an award of reasonable attorney's fees and costs. Such
award of fees and costs, and the amount thereof, shall be determined by and in
the discretion of the court presiding in such litigation.
26.9. TIME: Time is of the essence of this Lease and each and every
hereof, except as to the conditions relating to the delivery of possession of
the Premises to Tenant.
26.10. WAIVER: No covenant, term or condition or other breach
thereof shall be deemed waived, except by written consent of the party against
whom the waiver is claimed, and any waiver or the breach of any covenant, term
or condition shall not be deemed to be a waiver of any other covenant, term or
condition.
26.11. LANDLORD ACCESS TO PERFORM SPECIFIC MAINTENANCE: Landlord
shall have access to the electrical and telephone panels at mutually agreeable
times for Landlord to perform its maintenance obligations as necessary.
26.12. INSTALLATION OF ADDITIONAL WIRES: Landlord and Tenant agree
that Tenant may, upon approval of the City, erect additional outside wires
extending from the premises to any other structure occupied by Tenant. Any such
additional installation shall be at Tenant's own expense. Landlord agrees that
Tenant may erect such additional wires or utility service as is reasonably
necessary for the conduct of Tenant's business, provided that the premises shall
be restored to their original condition, fair wear and tear excepted, upon
termination of the tenancy. At the option of Landlord, any modifications for
utility service installed by Tenant, which are fixtures to the building, may be
left intact and turned over to Landlord in "as is" condition. Landlord shall
notify Tenant of its intention with respect to such installations not later than
30 days prior to expiration of the term of this agreement.
26.13. MEMORANDUM OF LEASE: Tenant may at its option and expense,
record a memorandum setting forth the existence of this Lease.
26.14. SIGNS: Tenant shall place no signs on the Leased Premises
without prior written consent of Landlord, which consent shall not be
unreasonably withheld. All signs shall comply with applicable sign codes and
shall be a Tenant's expense. Landlord makes no representation as to the
availability of singe rights under applicable codes and Tenant shall make its
own determination of applicable codes.
IN WITNESS WHEREOF the parties have signed this Lease on the
respective dates below, and agreed as of the effective date above.
<PAGE>
"Landlord" "Tenant"
KAIRE INTERNATIONAL, INC., A
/s/ G Walck COLORADO CORPORATION
- ----------------------------
George J. Walck
By: /s/ Robert L. Richards
---------------------------------
Robert L. Richards
Executive Vice-President and CFO
/s/ J Walck
- ----------------------------
Joseph C. Walck
<PAGE>
Revision to lease.
Paragraph 8.D. is deleted and replaced with the following:
The parties recognize that landlord is a debtor in possession while under
the protection of chapter 13 Bankruptcy. The provisions of the bankruptcy are
such that with consent of the First National Bank, the monies paid under this
lease for 6400 square feet of ground floor space will be paid to George or Joe
Walck personally. In the event that the bank's consent is not forthcoming,
checks will be issued jointly payable to the Landlord and the First National
Bank of Longmont.
Landlord at Landlords' sole expense shall receive First National Bank's
consent or court order consenting to issuance of checks to George or Joe Walck
personally.
It is understood that the lease payments for the upstairs 6400 square foot
space as covered under a separate lease shall continue to be joint checked to
the Landlord and the First National Bank.
Approved: Approved: Approved:
/s/ Robert L. Richards /s/ J Walck /s/ G Walck
Bob Richards Joe Walck George Walck
Kaire International Landlord Landlord
<PAGE>
LEASE AGREEMENT
1. The EFFECTIVE DATE of this lease is [Illegible]
2. PARTIES: The parties to this lease are [Illegible] J. Walck, and Joseph C.
Walck, individuals [Illegible] lessee of property, Kaire International, Inc, a
[Illegible] "Tenant").
3. PURPOSE: The purpose of this lease [Illegible] "Lease") is to provide for the
lease of commercial office space and use of existing common areas.
4. AGREEMENT: In consideration of the promises and agreements contained herein,
Landlord leases to Tenant and Tenant rents from Landlord certain office space as
described herein, for the terms stated herein.
5. PREMISES: The property herein leased by Landlord to Tenant is the exclusive
use of thirty-five hundred seventy-six (3,576) square feet of commercial office
space in the northern one-half of the second floor of the structure located at
and commonly known as 400 Lashley Street, Building D2, Longmont, Boulder County,
Colorado, plus non-exclusive use of six hundred twelve (612) square feet of
access halls, stairs, and restrooms in the structure, plus non-exclusive use of
the parking area to he established north of such structure (herein "Premises").
Every reference herein to "Exclusive Premises" shall be a reference only to the
3,576 square feet of actual office space rented.
6. TERM: The term of this Lease shall be one (1) year commencing January 1, 1995
and terminating at 11:59 p.m. on the last day of December 1995.
7. OCCUPANCY: Tenant will receive possession of the Premises upon the first day
of the term of this lease, or earlier upon the substantial completion (or
availability for move-in) and acceptance by Tenant of the tenant finish of the
Premises, as more fully stated in the Addendum to this Lease.
8. RENT: (A) Tenant shall pay as rent the sum of $5.00 per square foot for the
3,882 square feet rented (3,576 plus one-half of 612) for a total rental for
the term of this Lease of nineteen thousand four hundred ten dollars
($19,410.00), which will be paid in full in advance contemporaneous with signing
this Lease.
(B) In consideration of the advance payment by Tenant of the full annual rent
for the one year term of this Lease, Landlord and Tenant agree that as of
December 31, 1995, if Tenant, or a sub-lessee of Tenant, is in legal possession
of the Premises under this Lease, the total rental for the one year term of this
Lease is agreed to be discounted by $920.00 to a total annual rental of
$18,490.00.
<PAGE>
9. SECURITY DEPOSIT: Tenant shall deposit with Landlord prior to the beginning
of the term of this Lease the amount of $698.00 to be held by Landlord for the
faithful performance of all of the terms, conditions and convenants of this
Lease. In addition, as of December 31, 1995, upon the reduction of total annual
rent as provided in paragraph 8(B) hereof, the $920.00 difference between
$19,410.00 paid with the signing of this Lease and the total rental of
$18,490.00, shall be combined with the $698.00 deposited by Tenant at the
beginning of the term of this Lease to total a security deposit held by Landlord
at the end of this Lease of $1,618.00. The Landlord may apply such deposit to
cure any default under the term of this Lease and shall account to the Tenant
for the balance. The Tenant may not apply the deposit hereunder to the payment
of the rent or performance of other obligations under this Lease. Landlord shall
account to Tenant within sixty days after the end of this Lease or other
termination of this Lease for the application of any amounts of the deposit to
obligations of the Tenant, and shall return the balance.
10. USE:
10.1 USE: Tenant shall use the Premises as commercial office space and a parking
area to conduct only such activities as are consistent with Tenant's normal
course of business.
10.2 SUITABILITY. (A) Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the Premises or
with respect to the suitability of the Premises for the conduct of Tenant's
business. Landlord and Tenant agree that tenant finish will be provided by
Landlord as stated and agreed to in the Addendum to this Lease.
(B) The taking of possession of the Premises by Tenant shall conclusively
establish that the Premises were at such time in satisfactory art suitable
condition for Tenant's intended uses. The parties will perform a walk-through of
the Premises in advance of Tenant taking possession, art will note any
deficiencies in writing, which shall be cured within a reasonable time.
10.3 PARKING AREA: The Premises includes the non-exclusive parking area located
north of the structure in which the Exclusive Premises are located. Further
understandings and agreements about the parking area, its use and control, are
stated and agreed to in the Addendum which is attached hereto.
10.4 USES PROHIBITED: (A) Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation or requirement of duly
constituted public authorities now in force or which may hereafter be enacted or
promulgated. Landlord shall be responsible for compliance of the structure, as
well as exterior walls, interior walls, and water, plumbing, gas, electricity,
heating, air conditioning and other utility delivery systems, with any law,
statute, ordinance or governmental rule or regulation of requirement which
applies to or controls such structure or utility delivery systems. Landlord
shall specifically be responsible for changing, adjusting, or retrofitting any
portion of the Premises required in order to comply with the Americans with
Disabilities Act, or any legislation, rules or regulations with a similar
purpose.
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(B) Tenant shall at its sole cost and expense promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be enforced and with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted relating
to the commercial office space use and occupancy of the Premises by Tenant,
except Landlord shall have the responsibility of complying with any requirements
regarding its liability under paragraph 10.4(A) hereof upon the structure in
which the Premises are located and the utility delivery systems of such
structure.
11. UTILITY SERVICES: Tenant agrees, at its own expense, to establish in its
name, and to pay for, all water, gas, power and electric current and all other
similar utilities used by Tenant on the Exclusive Premises from and after the
delivery of possession to Tenant by Landlord. Landlord and Tenant acknowledge
separate meters exist for all such utility services to the Exclusive Premises.
If any such charges are not paid when due, Landlord may pay the same, and any
amount so paid by Landlord shall thereupon become due to Landlord from Tenant as
additional rent. Landlord shall not be liable in damages or otherwise for any
failure or interruption of any utility service being furnished to the Premises,
and no such failure or interruption shall entitle Tenant to terminate this
Lease.
12. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS; OWNERSHIP:
12.1. MAINTENANCE AND REPAIRS:
12.11. Landlord shall keep in good order, condition and repair the foundations,
exterior walls, and the roof of the Premises, and as necessary, or when required
by governmental authority, make modifications or replacements thereof, and
further, Landlord shall keep in good order, condition and repair the interior
surface of exterior walls and all doors, and as necessary, or when required by
governmental authority, make modifications or replacements thereof.
12.12 Landlord shall maintain and keep in good order, condition and repair the
Premises, including all utility service delivery systems installed Therein, and
shall replace all broken glass with glass of the same or similar quality. Tenant
will give Landlord timely notice of any damage to the Premises or repair needed
in the Premises. Except in an emergency situation, or in order to prevent
significant loss to the Premises, Landlord shall give Tenant twenty-four hours
advance notice of its intent to undertake any repair upon the Premises. If
Landlord believes Tenant shall be responsible for the cost of any such repair
under paragraph 12.13 hereof, Landlord shall give Tenant twenty-four notice of
Landlord's position. Such twenty-four notice requirements are intended to allow
Landlord and Tenant to coordinate repair activity and to resolve any repair cost
liability issue between them in advance of undertaking repair work. Landlord
shall make all repairs in a timely manner.
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12.13 Notwithstanding the obligation of Landlord to maintain and repair the
Premises as established in this section 12, Tenant shall be obligated to
reimburse to Landlord the cost and expense of all repair or maintenance of the
Premises caused or occasioned by the actions or inactions of its officers,
agents, employees, licensees and invitees, whether or not a result of
negligence. Upon the repair or maintenance of any portion of the Premises,
Landlord shall notify Tenant in writing of its obligation for the cost of repair
or maintenance, and Tenant will reimbuse Landlord its full liability within ten
days of such written notice. Tenant shall not be responsible for the cost of
maintenance which is the result of normal wear and tear upon the Premises by
Tenant.
12.14 Landlord shall have no liability to Tenant for any damage, inconvenience
or interference with the use of the Premises by Tenant as a result of Landlord
conducting any repair or maintenance upon the Premises.
12.15 Tenant shall on the expiration or the sooner termination of its right to
possession surrender to Landlord the Premises, including all modifications,
changes, additions and improvements constructed or placed by Tenant herein, with
all equipment in or appurtenant thereto, except all movable non-fixtures owned
by Tenant, broom-clean, free of sub-tenancies, and in good condition and repair,
reasonable wear and tear excepted. Any non-fixtures or personal property
belonging to Tenant or any subtenant, if not removed at such termination and if
Landlord shall so elect, shall be deemed abandoned and become the property of
Landlord without any payment or offset therefor. If Landlord shall not so elect,
Landlord may remove such fixtures or property from the Premises and store them
at Tenant's risk and expense.
12.2 ALTERATIONS AND ADDITIONS: (A) Tenant shall not make any alterations or
additions to the Premises nor make any contract therefor. Any alterations,
additions and improvements made by Tenant to or upon the premises shall at once
when made and installed be deemed to have become the property of Landlord;
provided, however, if prior to termination of this Lease, or within 15 days
thereafter, Landlord so directs by written notice to Tenant.
(B) Tenant shall promptly remove the additions or improvements placed in the
Premises by Tenant and shall repair any damage occasioned by such removal, and
in default thereof, Landlord may effect such removal and repairs at Tenant's
expense.
12.3. OWNERSHIP: Tenant has no right to become the owner of the real property on
which the Premises are located nor the owner of the Premises.
13. ENTRY BY LANDLORD: (A) Landlord and the authorized representatives of
Landlord may enter the Premises at any time, without notice, pursuant to a
perceived emergency involving the Premises or to avoid damage or loss to the
Premises. Landlord shall thereafter timely advise Tenant of any such entry.
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(B) Landlord and the authorized representatives of Landlord may enter the
Premises at any time for any appropriate reason, including but not limited to,
verifying the need for repair of the Premises, showing the Premises to any
prospective purchaser from Landlord, or, during the final month of the term of
this Lease, to show the Premises to any prospective tenant, only after
twenty-four hours advance notice to Tenant. Landlord and Tenant agree Landlord
or its representatives may be guided through the Premises by an agent of Tenant,
and that Landlord shall have access to view all of the Premises. Any viewing of
the Premises will be in such a manner as to not unreasonably interfere with
Tenant's business.
14. LIENS: (A) Tenant will keep the Premises free and clear of all mechanic's
liens on account of work done by Tenant or persons claiming under Tenant. Tenant
agrees to and shall indemnify and save Landlord free and harmless against
liability, loss, damage, cost, attorney's fees art all other expenses on account
of claims of lien of laborers or materialmen or others for work performed or
materials or supplies furnished for Tenant or persons claiming under Tenant.
(B) In the event any lien is filed upon the Premises as the result of any claim
or demand against Tenant, Tenant agrees to immediately undertake removal of the
lien filing upon the Premises, and shall, within ninety (90) days of the filing
of such lien upon the Premises, either pay the claim and lien in full, or obtain
judicial resolution of the claim and lien, or deposit the full amount necessary
to resolve the claim and lien with the registry of the court having jurisdiction
over the claim and lien, or obtain a bond to obtain release of the lien. If
Tenant shall fail to remove such lien within such ninety (90) day period,
Landlord may give Tenant notice of Landlord's intent to pay such claim art lien
in an amount necessary to remove such lien. If Tenant shall thereafter fail to
remove such lien within fifteen (15) days of Landlord's notice to Tenant of
intent to pay the claim and lien, Landlord may then pay the claim and lien. Any
amount so paid, together with reasonable attorney's fees incurred in connection
therewith, and interest at the rate of eighteen (18) per cent per annum, from
the date of payment by Landlord, shall be immediately due and owing from Tenant
to Landlord, and Tenant agrees to and shall pay the same.
(C) Should any claims of lien be filed against the Premises or any action
affecting the title to such property be commenced, the party receiving notice of
such lien or action shall forthwith give the other party written notice thereof.
15. INDEMNITY: (A) Tenant shall indemnify and hold harmless Landlord from and
against any and all claims arising from Tenant's use of the Premises or the
conduct of its business or from any activity, work or thing done, permitted or
suffered by Tenant in or about the Premises.
(B) Tenant shall indemnify and hold harmless Landlord from and against any and
all claims arising from any act or negligence of Tenant or any of its agents,
contractors or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in or about any such claim or any action or
proceeding brought thereon.
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(C) Landlord shall indemnify and hold harmless Tenant from and against any and
all claims arising from any act or negligence of Landlord or any of its agents,
contractors or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in or about any such claim or any action or
proceeding brought thereon.
16. INSURANCE: (A) Landlord shall maintain standard general liability and
property damage insurance insuring the Premises, in reasonable amounts, and
shall provide to Tenant a copy of a certificate indicating such coverages.
(B) Tenant shall at all times during the term hereof, and at its own cost and
expense, procure and continue in force general liability insurance coverage upon
Tenant, its officers, agents, employees, licensees, and invitees, regarding
Tenant's utilization of commercial office space upon the Premises, with a limit
of liability of not less than $1,000,000.00 per occurrance. The policy or
policies shall name Landlord as an additional insured, shall insure Landlord's
contingent liability, if any, under this Lease, shall be issued by an insurance
company which is acceptable to Landlord and licensed to do business in the state
of Colorado, and shall provide that the insurance shall not be canceled unless
thirty days' prior written notice shall be given to Landlord. The policy or
policies or certificate thereof shall be delivered to Landlord by Tenant upon
commencement of the Lease term or within 10 days of execution of this Lease,
whichever event last occurs.
(C) Tenant may maintain such property damage insurance as it wishes upon the
furniture, equipment, and non-fixtures it may maintain upon the Premises. Tenant
acknowledges Landlord does not provide any property damage insurance upon the
property of Tenant upon the Premises.
17. RECONSTRUCTION: (A) In the event the Premises are damaged by fire or other
peril, Landlord shall (1) diligently commence repair, reconstruction and
restoration of the Premises and pursue completion thereof, in which event this
Lease shall continue in full force and effect; or (2) within 30 days of the
damage occurring, give notice to Tenant of its election to terminate this Lease.
Upon any termination of the Lease, the parties shall be released thereby without
further obligations to the other coincident with the surrender of possession of
the Premises to Landlord, except for items which have theretofore accrued and be
then unpaid.
(B) In the event such damage to the Premises results in more than twenty-five
(25) per cent of loss of use of the premises, and it is reasonably determined
that repair, reconstruction and restoration can not be completed within sixty
(60) days of the damage occurring, Tenant may terminate this Lease by written
notice to Landlord, effective not later than the sixtieth day after such damage
occurred.
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(C) In the event of repair, reconstruction and restoration as herein provided,
the rent paid under paragraph 8 hereof shall be abated proportionately with the
degree in which Tenant's use of the Premises is impaired commencing from the
date of destruction and continuing during the period of such repair,
reconstruction or restoration.
18. CONDEMNATION: If the entire Premises or so much thereof as to make the
balance not reasonably adequate for the conduct of Tenant's business shall be
taken under a power of eminent domain, this Lease shall automatically terminate
as of the date on which the condemning authority takes title or possession,
whichever first occurs. Any award for any taking of all or any part of Premises
under the power of eminent domain shall be the property of Landlord, and a sale
by Landlord to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending, shall be
deemed a taking under the power of eminent domain for all purposes under this
paragraph.
19. ASSIGNMENT AND SUBLEASE: Tenant shall not voluntarily or by operating of law
assign, license, transfer, mortgage or otherwise encumber all or any part of
Tenant's interest in this Lease or in the Premises, and shall not sublet or
license all or any part of the Premises, without the prior written consent of
Landlord in each instance, which such consent Landlord shall not unreasonably
withhold. Such reasonable determination of consent to subletting shall include
determinations upon the nature of the business of the sublessee and its then
existing financial circumstances. No subletting or assignment, even with the
consent of Landlord, shall release Tenant of its obligations to pay the rent and
to perform all of the other obligations to be performed by Tenant hereunder.
20. BANKRUPTCY - INSOLVENCY: (A) Tenant agrees that in the event all or
substantially all of Tenant's assets be placed in the hands of a receiver or
trustee other than in bankruptcy, and such receivership or trusteeship continues
for a period of 30 days, or should Tenant make an assignment for the benefit of
creditors, then this Lease may be terminated by Landlord upon written notice to
Tenant, to be effective upon delivery of such notice.
(B) In the event any proceedings are brought for foreclosure, or in the event of
the exercise of the power of sale under any mortgage or deed of trust made by
Landlord covering the Premises, Tenant shall attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as the landlord under this
Lease.
21. QUIET POSSESSION: Landlord agrees that Tenant, upon paying the rent and
performing the covenants and conditions of this Lease, may quietly have, hold
and enjoy the Premises during the term hereof or any extension thereof.
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22. DEFAULTS: The occurrence of any of the following shall constitute a material
default and breach of this Lease by Tenant:
(a) any failure by Tenant to pay the rent or any other monetary sums required to
be paid hereunder where such failure continues for five days after written
notice by Landlord to Tenant;
(b) the abandonment of the premises by Tenant;
(c) a failure by Tenant to observe and perform any other provision of this Lease
to be observed or performed by Tenant, where such failure continues for 20 days
after written notice thereof by Landlord to Tenant; provided, however, that if
the nature of the default is such that the same cannot reasonably be cured
within said 20 day period, Tenant shall not be deemed to be in default if Tenant
shall within such period commence such cure and thereafter diligently pursue the
same to completion; or
(d) the making by Tenant of any general assignment or general arrangement for
the benefit of creditors, the appointment of a trustee or receiver, other than
in bankruptcy, to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within 30 days, or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within 30 days.
23. REMEDIES: (A)(1) In the event of any such material default or breach by
Tenant, Landlord shall have each and every right and remedy available to it
under Colorado law, at the time of execution of this Lease or hereafter
established, including but not limited to, the right to maintain this Lease in
full force and effect and recover the rent and other monetary charges as they
become due, without terminating Tenant's right to possession irrespective of
whether Tenant shall have abandoned the Premises, or to terminate Tenant's right
to possession to the Premises and to terminate this Lease.
(2) In the event of any material default or breach by Landlord, Tenant shall
have each and every right and remedy available to it under Colorado law.
(B) Landlord and Tenant understand and agree that after default by Tenant, as
established in this Lease, Landlord has the opportunity to, and to the extent
established by law, the obligation to, attempt to relet the Premises at such
rent and upon such conditions and for such a term and to do all acts necessary
to maintain or preserve the Premises as are reasonable and necessary.
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(C) In addition to all remedies stated hereinabove, each party shall have the
remedy to seek damages from the other party for any and all losses resulting
from the default of the other party under this Lease.
(D) Upon Landlord advancing or otherwise directly paying for Tenant any sum of
money as the result of the failure of Tenant to pay or to timely pay any
obligation under this Lease, such advancement or payment by Landlord shall
accrue interest at the rate of eighteen (18) per cent per annum from the date of
advancement or payment by Landlord until the date of repayment by Tenant to
Landlord.
24. SIGNS: Tenant shall not erect or install any exterior signs or window or
door signs, advertising media or window or door lettering or placards without
Landlord's prior written consent.
25. MISCELLANEOUS:
25.1 NO RESTRICTIVE COVENANT: It is agreed that this Lease contains no
restrictive covenants in favor of Tenant.
25.2 SUBORDINATION: Upon written request of Landlord, or any first mortgagee or
beneficiary of a first deed of trust of Landlord, Tenant will in writing
subordinate its rights hereunder to the interest of any ground lessor of the
land upon which the premises are situated, as well as to the lien or any first
mortgage or first deed of trust, now or hereafter in force against the land and
buildings of which the Premises are in part, and upon any building hereafter
placed upon the land of which the Premises are a part, and to all advances made
or hereafter to be made upon the security thereof.
25.3 ADDENDUM: An Addendum (herein "Addendum") is entitled as such, attached
hereto, and incorporated herein by reference which states the agreements of the
Landlord and Tenant regarding completion of the tenant finish of the Premises,
and the parking area which is part of the Premises.
25.4 ENTIRE AGREEMENT: This Lease, along with the Addendum hereto, constitutes
the entire agreement between Landlord and Tenant relative to the Premises
demised, and this Lease and the Addendum may be altered, amended or revoked only
by an instrument in writing signed by both Landlord and Tenant.
25.5 SEVERABILITY: If any term or provision of this Lease shall, to any extent,
be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law, and it is the intention of the parties hereto
that if any provision of this Lease is capable of two constructions, one of
which would render the provision void and the other of which would render the
provision valid, then the provision shall have the meaning which renders it
valid.
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25.6 COSTS OF SUIT: (A) Should Landlord, without fault on Landlord's part, be a
party to any litigation instituted by any third party against the Tenant, or by
or against any person holding under or using the Premises by license of Tenant,
or for the foreclosure of any lien for labor or material furnished to or for
Tenant or any such other person or otherwise arising out of or resulting from
any act or transaction of Tenant or of any such other person, Tenant covenants
to save and hold Landlord harmless from any judgment rendered against Landlord
or the premises or any part thereof, and costs and expenses, including
reasonable attorney's fees, incurred by Landlord in or in connection with such
litigation.
(B) Should Tenant, without fault on Tenant's part, be a party to any litigation
instituted by any third party against the Landlord, or by or against any person
claiming an interest in the Premises through Landlord, or for the foreclosure of
any lien for labor or material furnished to or for Landlord or any such other
person or otherwise arising out of or resulting from any act or transaction of
Landlord or of any such other person, Landlord covenants to save and hold Tenant
harmless from any judgment rendered against Tenant, and costs and expenses,
including reasonable attorney's fees, incurred by Tenant in or in connection
with such litigation.
(C) In the event any suit or litigation occurs as a result of this Lease between
Landlord and Tenant, the prevailing party in any such litigation shall be
entitled to an award of reasonable attorney's fees and costs. Such award of fees
and costs, and the amount thereof, shall be determined by and in the discretion
of the court presiding in such litigation.
25.7 TIME: Time is of the essence of this Lease end each and every provision
hereof, except as to the conditions relating to the delivery of possession of
the Premises to Tenant.
25.8 WAIVER: No covenant, term or condition or other breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver or the breach of any covenant, term or condition shall
not be deemed to be a waiver of any other covenant, term or condition.
IN WITNESS WHEREOF the parties have signed this Lease on the respective dates
below, and agreed as of the effective date above.
Dated 12/12/94 Dated 12 DECEMBER 1994
/s/ George J. Walck - Landlord Kaire International, Inc.,
- -------------------------------- a Colorado corporation - Tenant
George J. Walck - Landlord
Dated 12/12/94 By /s/ Robert L Richard
------------------------------
/s/ Joseph C. Walck Title EXEC VP & CFO
- --------------------------------
Joseph C. Walck
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ADDENDUM to Lease Agreement (one page)
George J. Walck and Joseph C. Walck as Landlords and
Kaire International, Inc. as Tenant -
Dated ______________________, 1994
A.1. TENANT FINISH: (a) Landlord and Tenant acknowledge they have agreed to the
tenant finish of the premises to be leased, including floor plan, extent of
tenant finish and quality of tenant finish. Such details are stated in the
letter from Landlord to Tenant dated December 2, 1994, a copy of which is
attached hereto and incorporated herein by reference, plus tenant finish shall
include window coverings (venetial blinds or vertical blinds, at Landlord's
choice).
(b) Landlord shall complete the tenant finish by January 1, 1995. Landlord will
diligently pursue completion of the tenant finish, but shall not be liable to
Tenant for any delay in completing the tenant finish due to any cause beyond the
control of Landlord.
A.2. PARKING AREA: (a) Landlord and Tenant have agreed to the specifications of
a gravel parking area on the north side of the structure in which the Exclusive
Premises are located, to be used by employees of Tenant. Such parking area has
been constructed at the direction and cost of Tenant. Tenant shall hold Landlord
harmless upon such cost.
(b) In order to obtain inmmediate use of the parking area, Landlord has
represented to the City of Longmont Planning Department that it will complete,
by June 30, 1995, the landscaping required by the site plan upon The property
approved in 1990. Landlord agrees with the Tenant to timely complete such
landscaping, at its cost.
(c) Landlord and Tenant agree the parking lot is for the non-exclusive use of
Tenant, and that Landlord and employees of Landlords' electrical construction
corporation may park in the parking area.
(d) Tenant shall supervise utilization of the parking area by its employees, and
may mark the parking area, at its expense, if it wishes, with Landlord's prior
consent to the configuration of any marking.
(e) Landlord agrees to maintain public liability insurance in a reasonable
amount covering the parking area. Landlord will be solely responsible for
maintenance and upkeep of the parking area, except Tenant will be responsible
for any damage to the parking area caused by the negligence of its officers,
agents, employees, licensees or invitees.
(f) Landlord and Tenant will jointly arrange, and equally pay one-half of the
cost of, snow removal from the parking area needed during the term of this
Lease.
A-3. NON-SMOKING BUILDING: Smoking of cigarettes, cigars, and pipes is not
permitted within the structure in which the Exclusive Premises are located.
Tenant will inform its officer, agents, employees, licensees, and invitees of
such policy, and take reasonable actions to enforce such policy among such
persons.
<PAGE>
ADDENDUM TO LEASE AGREEMENT
THIS AGREEMENT entered into between George J. Walck and Joseph C. Walck,
individuals (herein "Landlord") and Kaire International, Inc., a Colorado
corporation (herein "Tenant") with respect to real property located at 400
Lashley Street, City of Longmont, Boulder County, Colorado. The First National
Bank of Longmont (herein "the Bank") is not a party to this Agreement, but has
signed below, without liability, solely as evidence of having given its consent
to the terms hereof, as required by terms of a Deed of Trust between Landlord
and the Bank dated October 15, 1991.
THIS ADDENDUM incorporates by reference a certain Lease Agreement between
the same parties dated January 1, 1995, and includes herein as applicable all
additional terms therein not expressly inconsistent with the terms of this
Addendum. A copy of said Lease Agreement is attached hereto as Exhibit A.
THE PURPOSE of this Addendum is to extend the description of premises
described in the January 1, 1995 Lease Agreement to include additional space,
described below, and to extend the term of the tenancy of both the January 1,
1995 Lease Agreement, and of the premises described in this Addendum, to
Midnight on February 28, 1996.
IN CONSIDERATION of the mutual covenants, conditions and promises
contained herein, Landlord leases to Tenant and Tenant agrees to lease from
Landlord that additional office space described herein in paragraph 3 below, for
the period of time stated in paragraph 2 below.
1. Effective Date. The effective date of this Addendum is July 19, 1995.
2. Period of Lease. The period of the tenancy shall extend from July 19,
1995 through February 28, 1996 for all premises covered by this Addendum, which
the parties agree shall also extend the period of occupancy of the premises
described in the January 1, 1995 Lease Agreement to February 28, 1996.
3. Premises. The premises covered by the January 1, 1995 lease shall
remain the same as stated in the original lease. The premises included in this
Addendum include the entire southern half or remainder of the second floor of
the premises located at 400 Lashley Street, consisting of 2,430 square feet of
available office space. Kaire International shall have exclusive possession of
the entire of the second floor of the building.
4. Rental Amount. Tenant shall pay as rent for the premises the sum of
$5.50 per square foot for the 2,430 square feet of leasable space, for a total
rent during the first term of this addendum of $8,191.15, payable in monthly
installments of $1,113.75 each (the first payment for 11 days in July in the
amount of $394.90 shall be paid on Friday, July 21, 1995), commencing with the
August payment.
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5. Payment of Rent. The parties agree that, pursuant to the notice by
First National Bank of Longmont, dated April 25, 1995, receipt of which is
acknowledged, Tenant shall make all payments of rent directly to the First
National Bank of Longmont, to be credited to the account of Landlord according
to terms of a certain Deed of Trust dated October 15, 1991 between Landlord and
the Bank. Copies of the notice and Deed of Trust are attached hereto as Exhibits
B and C respectively, and are incorporated herein by reference. Tenant's checks
to Landlord shall be joint checks made payable to Landlord and the First
National Bank. Landlord shall promptly endorse said rent checks upon receipt and
shall transmit the same to the Bank.
Payments due to Landlord hereunder for contribution to common utilities
shall be made directly to Landlord, who covenants and agrees to keep all
utilities payments current during the term of this Lease and to insure that no
stoppage of utility service occurs as a result of nonpayment of utilities by
Landlord.
All monies and things of value received by Landlord from Tenant for
payment of utilities are agreed to be received expressly in trust for payment of
utilities and Landlord agrees to indemnify and hold Tenant harmless of all loss,
if any, resulting from Landlord's failure to make any utilities payments when
due.
6. Adjustment/Credit for Lease Payments Previously Paid. The parties agree
that although the premises described in the January 1, 1995 Lease Agreement were
due to be occupied on January 1, 1995, the actual date of occupancy was February
18, 1995. The parties have compromised the issue and agreed that Tenant shall
receive one month's lease payment credit in the month of January, 1996, and
Tenant shall commence making lease payments in February, 1996, at the rate of
$5.50 per square foot for the month of February. Payment shall be made by joint
check payable to Landlord and the First National Bank according to the
provisions of paragraph 5 above.
7. Option to Extend Lease. The parties have agreed that Tenant shall have
the option to extend this Lease for a period of one additional one year on the
same terms contained herein, and for a second year, with rent to be adjusted
based on the increase or decrease in the Consumer Price Index. The CPI to be
utilized will be the "All Urban Consumers, Western States Average." The base
period for the purpose of adjustment shall be January, 1995. Tenant shall be
afforded a right of first refusal to lease any additional space in or about the
premises located at 400 Lashley Street which Landlord may offer for Lease at any
time within the term hereof, including the period of any renewal option.
Landlord is under no obligation to conform the term, rental, or provisions of an
offer to lease any such additional space to the terms and provisions of the
January 1, 1995 Lease, as originally undertaken or as amended herein.
Tenant shall notify Landlord of its election to renew the tenancy not
later than 90 days before the expiration of the lease term, including any
extension thereof.
8. Termination Contingency. Tenant's liability to occupy and pay rent for
the premises leased pursuant to the January 1, 1995 Lease Agreement, and
pursuant to this
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Addendum, for the months of January and February, 1996, is expressly conditioned
upon Tenant's ability to secure approval of the City of Longmont for an
extension of the use of the public right of way permit allowing overhead
telephone and computer wires to be erected and maintained across Fourth Avenue.
The use of public right of way permit presently in effect expires on January 1,
1996. Tenant shall make reasonable efforts to secure approval of the City to
extend the permit to include the termination date of this agreement (February
28, 1996).
Tenant shall make timely application for extension of the permit, and
notify Landlord of the status of the application not later than October 1, 1995.
9. Installation of Additional Wires. Although not expressly a termination
contingency as described in paragraph 8 above, Landlord and Tenant agree that
Tenant may, upon approval of the City, erect additional outside wires extending
from the premises to any other structure occupied by Tenant. Any such additional
installation shall be at Tenant's own expense. Landlord agrees that Tenant may
erect such additional wires or utility service as is reasonably necessary for
the conduct of Tenant's business, provided that the premises shall be restored
to their original condition, fair wear and tear excepted, upon termination of
the tenancy. At the option of Landlord, any modifications for utility service
installed by Tenant, which are fixtures to the building, may be left intact and
turned over to Landlord in "as is" condition. Landlord shall notify Tenant of
his intention with respect to such installations not later than 30 days prior to
expiration of the term of this agreement.
10. Bankruptcy Effects. Joseph C. Walck is presently a debtor in a Chapter
13 proceeding pending in the U.S. Bankruptcy Court. With respect to his
ownership of an interest in the premises, he is a "debtor in possession" with
full power and authority to enter into this agreement. In Tenant's sole
discretion, to promote enforceability of the lease by Tenant, Tenant may request
and secure the Court's approval of the Lease Agreement and this Addendum, to
insure continuity of occupancy in the event of conversion of the case from
Chapter 13 to a liquidation under Chapter 7. In the event Tenant wishes to
secure approval of the Court, Landlord agrees to cooperate in good faith with
Tenant, as necessary, to secure the Court's approval of the agreement, and
Landlord shall take no action contrary to the Tenant's request for Court
approval.
11. Understanding of Parties and First National Bank of Longmont. The
parties are proceeding with this Lease Addendum pursuant to a letter from Thomas
L. Stover, attorney for the First National Bank of Longmont, dated July 13,
1995, which states the Bank's consent to the parties entry into a commercially
reasonable lease without prior Bank approval of specific terms. Nonetheless, the
parties agree that the Bank shall be provided a copy of this Lease Addendum for
its records.
12. Additional Provisions.
(a) Trash Dumpster. Landlord and Tenant shall each maintain and pay for
their own trash disposal facilities.
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<PAGE>
(b) Concerning Parking. For the time that Kaire has the entire second
floor of the building leased, Kaire may use the six parking spaces immediately
in front of the building to the north side of the glass entry doors. Walck shall
have the sole use of the other parking spaces to the south of the glass doors.
Kaire may use the two parallel parking spaces behind the convenience store,
leaving one space for Walck at this location. All doors to the building,
specifically the large delivery roll up doors, are to be kept clear at all times
for deliveries.
(c) Concerning Lockup of the Building. Kaire is to lock and unlock both
the back doors at the rear stairwell during business hours each day. The main
glass front door is to be locked each day at 6:00 p.m. and remain locked at
night if anyone from Kaire or Walck is working in the building after 6:00 p.m.
(d) Security System. For so long as Tenant occupies the entire second
floor of the building, Tenant will install and maintain an electronic fire and
security system to protect its operations. Tenant shall provide Landlord
emergency numbers to reach the Kaire employee authorized to disable the security
system after hours, to permit Landlord to enter the premises in case of
emergency without setting off the security system. Routine entries by Landlord
for inspection and repair shall be made during normal business hours when Kaire
employees are present in the premises. Landlord shall provide Tenant emergency
telephone numbers where Landlord may be reached after hours in case of
emergency.
(e) Restricted Access. Due to risk of personal injury, no Kaire employee
or visitor or guest is to enter Walck's warehouse area unless in the company of
a Walck employee.
(f) Landlord Approval of Installations. Landlord shall be entitled to
review and approve any revisions to the building contemplated by Tenant in
connection with installation of communication, fire and security systems,
general remodeling and any other modifications of the building or existing
service systems. Landlord agrees to be reasonable and accommodating to Tenant in
its review of revisions, and the parties contemplate that most requests for
approval will be oral rather than in written form, due to the cost of preparing
drawings for each change.
(g) Non-Smoking. The parties agree that all smoking shall be prohibited in
the building during the term of this lease and any extension thereof.
(h) Cleaning of the Stairwells. Kaire shall be responsible for the
cleaning and maintenance of all stairwells accessing the second floor of the
building.
(i) Parties to Seek City Approval. Landlord shall promptly seek approval
of the City of Longmont for extension of the non-conforming use permit to
maintain the gravel parking lot, and Tenant shall promptly seek approval of the
City for approval of the non-conforming use of the public right of way for its
maintenance of telephone and computer cable over Fourth Avenue.
4
<PAGE>
Kaire/Walck Lease Addendum
July 19, 1995
Page 5 of 5 pages
DATED this 24th day of July, 1995
/s/ George J. Walck /s/ Joseph C. Walck
- ------------------------- -------------------------
George J. Walck, Landlord Joseph C. Walck, Landlord
KAIRE INTERNATIONAL, INC.,
a Colorado corporation -- Tenant
By: /s/ J.T. Whitworth
-----------------------------------
J.T. Whitworth, Vice-President
of Operations
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<PAGE>
THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL
COUNSEL BEFORE SIGNING
================================================================================
BUSINESS LEASE
This lease, dated December 4, 1996, is between Country Hills Investments,
as Landlord, and Kaire International, Inc., as Tenant.
In consideration of the payment of the rent and the performance of the
covenants and agreements by the Tenant set Forth herein, the Landlord does
hereby lease to the Tenant the following described premises situate in Boulder
County, in the State of Colorado; the address of which is 380 Lashley, 310
Lashley #l07 and 310 Lashley #108 Longmont, CO 80501
Said premises, with all the appurtenances, are leased to the Tenant from
the date of March 1, 1997, until the date of March 1, 1999 at and for a rental
for the full term of $223,433.44 payable in monthly installments of $9,309.73,
in advance, on the 1st day of each calendar month during the term of this lease,
payable at 2249 N. Country Club Loop, Westminster, CO 80234, without notice.
THE TENANT, IN CONSIDERATION OF THE LEASING OF THE PREMISES AGREES AS FOLLOWS:
1. The Tenant shall pay the rent for the premises above-described.
2. The Tenant shall, at the expiration of this tease, surrender the
premises in as good a condition as when the Tenant entered the premises,
ordinary wear and tear excepted. The Tenant shall keep all sidewalks on and
around the premises free and clear of ice and snow, keep the entire exterior
premises free from all litter, dirt, debris and obstructions; and keep the
premises in a clean and sanitary condition as required by the ordinances of the
city and county in which the property is situate.
3. The Tenant shall not sublet any part of the premises, nor assign the
lease, or any interest therein, without the written consent of the Landlord.
4. The Tenant shall use the premises only as offices and shall not use the
premises for any purposes prohibited by the laws of the United States or the
State of Colorado, or of the ordinances of the city or town in which said
premises are located, and shall neither permit nor suffer any disorderly
conduct, noise or nuisance having a tendency to annoy or disturb any persons
occupying adjacent premises.
5. The Tenant shall neither hold, nor attempt to hold, the Landlord, its
agents, contractors and employees, liable for any injury, damage, claims or loss
to person or property occasioned by any accident, condition or casualty to,
upon, or about the premises including, but not limited to, defective wiring, the
breaking or stopping of the plumbing or sewage upon the premises, unless such
accident, condition or casualty is directly caused by intentional or reckless
acts or omission of the Landlord. Notwithstanding any duty the Landlord may have
hereunder to repair or maintain the premises, in the event that the improvements
upon the premises are damaged by the negligent, reckless or intentional act or
omission of the Tenant or any employees, agents, invitees, licensees or
contractors, the Tenant shall bear the full cost of such repair or replacement.
The Tenant shall hold Landlord, Landlords agents and their respective successors
and assigns, harmless and indemnified from all injury, loss, claims or damage to
any person or property while on the demised premises or any other part of
Landlords property, or arising in any way out of Tenant, business, which is
occasioned by an act or omission of Tenant, its employees, agents, invitees,
licensees or contractors. The Landlord is not responsible for any damage or
destruction to the Tenant's personal property.
6. The Tenant shall neither permit nor suffer said premises, or the walls
or floors thereof to be endangered by overloading, nor said premises to he used
for any purpose which would render the insurance thereon void or the insurance
risk more hazardous, nor make any alterations in or changes in, upon, or about
said premises without first obtaining the written consent of the Landlord.
7. The Tenant shall obtain and keep in full force, at Tenant's expense,
fire and liability insurance as may be reasonably required by the Landlord.
Tenant shall provide copies of such insurance policies upon the Landlord's
request.
8. The Tenant shall permit she Landlord to place a "For Rent" sign upon
the leased premises at any time after sixty (60) days before the end of this
lease.
9. The Tenant shall allow the Landlord to enter upon the premises at any
reasonable hour.
IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LANDLORD AND TENANT AS FOLLOWS:
10. The Tenant shall be responsible for paying the following: |X| Electric
|_| Gas |X| Water |X| Sewer |X| Phone |X| Refuse Disposal |X| Janitorial
Services Other ____________________.
The |X| Landlord |_| Tenant agrees to keep all the improvements upon the
premises, including but not limited to, structural components, exterior walls,
roofs, sewer connections, plumbing, wiring and glass in good maintenance and
repair at their expense. In the event the Landlord is responsible for repair of
the premises, the Tenant shall be obliged to notify the Landlord of any
condition upon the premises requiring repair and the Landlord shall be provided
a reasonable time to accomplish said repair.
11. No assent, express or implied, to any breach or default of any one or
more of the agreements hereof shall be deemed or taken to be a waiver of any
succeeding or other breach or default.
12. If after the expiration of this lease, the Tenant shall remain in
possession of the premises and continue to pay rent without a written agreement
as to such possession, then such tenancy shall be regarded as a month-to-month
tenancy, at a monthly rental, payable in advance, equivalent to the last month's
rent paid under this lease, and subject to all the terms and conditions of ibis
lease.
13. If the premises are left vacant and any part of the rent reserved
hereunder is not paid, then the Landlord may, without being obligated to do so,
and without terminating this lease, retake possession of the said premises and
rent the same for such rent, and upon such conditions as the Landlord may think
best, making such changes and repairs as may be required, giving credit for the
amount of rent so received less all expenses of such changes and repairs, and
the Tenant shall be liable for the balance of the rent herein reserved until the
expiration of the term of this lease.
14. The Landlord acknowledges receipt of a deposit in the amount of $8,380
to beheld by the Landlord for the faithful performance of all of the terms,
conditions and convenants of this lease. The Landlord may apply the deposit to
cure any default under the terms of this lease and shall account to the Tenant
for the balance. The Tenant may not apply the deposit hereunder to the payment
of the rent reserved hereunder or the performance of other obligations.
================================================================================
<PAGE>
15. If the Tenant shall be in arrears in payment of any installment of
rent, or any portion thereof, or in default of any other covenants or agreements
set forth in this lease, and the default remains uncorrected for a period of
three (3) days after the Landlord has given written notice thereof pursuant to
applicable law, then the Landlord may, at the Landlord's option, undertake any
of the following remedies without limitation: (a) declare the term of the lease
ended; (b) terminate the Tenant's right to possession of the premises and
reenter and repossess the premises pursuant to applicable provisions of the
Colorado Forcible Entry and Retainer Statute; (c) recover all present and future
damages, costs and other relief to which the Landlord is entitled; (d) pursue
breach of contract remedies; and/or (e) pursue any and all available remedies in
law or equity. In the event possession is terminated by a reason of default
prior to expiration of the term, the Tenant shall be responsible for the rent
occurring for the remainder of the term, subject to the Landlord's duty to
mitigate such damages. Pursuant to applicable law [13-40-104(d.5), (e.5) and
13-40-107.5, C.R.S.] which is incorporated by this reference, in the event
repeated or substantial default(s) under the lease occur, the Landlord may
terminate the Tenant's possession upon a written Notice to Quit, without a right
to cure. Upon such termination, the Landlord shall have available any and all of
the above-listed remedies.
16. If the property or the premises shall be destroyed in whole or in part
by fire, the elements, or other casualty and if, in the sole opinion of the
Landlord, they cannot be repaired within ninety (90) days from said injury and
the Landlord informs the Tenant of said decision; or if the premises are damaged
in any degree and the Landlord informs the Tenant it does not desire to repair
same and desires to terminate this lease; then this lease shall terminate on the
date of such injury. In the event of such termination, the Tenant shall
immediately surrender the possession of the premises and all rights therein to
the Landlord; shall be granted a license to enter the premises at reasonable
times to remove the Tenant's property; and shall not be liable for rent accruing
subsequent to said event. The Landlord shall have the right to immediately enter
and take possession of the premises and shall not be liable for any loss, damage
or injury to tile property or person of the Tenant or occupancy of, in or upon
the premises.
If the Landlord repairs the premises within ninety (90) days, this lease
shall continue in full force and effect and the Tenant shall not be required to
pay rent for any portion of said ninety (90) days during which the premises are
wholly unfit for occupancy.
17. In the event any dispute arises concerning the terms of this lease or
the non-payment of any sums under this lease, and the matter is turned over to
an attorney, the party prevailing in such dispute shall be entitled, in addition
to other damages or costs, to receive reasonable attorneys' fees from the other
party.
18. In the event any payment required hereunder is not made within ten
(10) days after the payment is due, a late charge in the amount of 5% of the
payment will be paid by the Tenant.
19. In the event of a condemnation or other taking by any governmental
agency, all proceeds shall he paid to the Landlord hereunder, the Tenant waiving
all right to any such payments.
20. This lease is made with the express understanding and agreement that
in the event the Tenant becomes insolvent, the Landlord may declare this lease
ended, and all rights of the Tenant hereunder shall terminate and cease.
21. The Tenant and the Landlord further agree:
See Additional Provisions attached
This lease shall be subordinate to all existing and future security
interests on the premises. All notices shall be in writing and be personally
delivered or sent by first class mail, unless otherwise provided by law, to the
respective parties. If any term or provision of this lease shall be invalid or
unenforceable, the remainder of this lease shall not be affected thereby and
shall be valid and enforceable to the full extent permitted by law. This lease
shall only be modified by amendment signed by both parties. This lease shall be
binding on the parties, their personal representatives, successors and assigns.
When used herein, the singular shall include the plural.
Attest: Country Hills Investments
---------------------------- -----------------------------------------
Date
by: /s/ [Illegible] 12/4/96
-----------------------------------------
Date
Attest: Kaire International, Incl
---------------------------- -----------------------------------------
Date
by: /s/ Robert L Richard 16 JAN 97
-----------------------------------------
Date
GUARANTEE
For value received, I guarantee the payment of the rent and the
performance of the convenants and agreements by the Tenant in the within lease.
- ----------------------------------- -----------------------------------------
Signature Date
ASSIGNMENT AND ACCEPTANCE
For value received _____________________________________ assignor, assigns
all right, title and interest in and to the within lease to ___________________,
assignee, the heirs, successors and assigns of the assignee, with the express
understanding and agreement that the assignor shall remain liable for the full
payment of the rent reserved and the performance of all the covenants and
agreements made in the lease by the Tenant. The assignor will pay the rent and
fully perform the covenants and agreements in case the assignee fails to do so.
In consideration of this assignment, the assignee assumes and agrees to make all
the payments and perform all the covenants and agreements contained in the lease
and agreed to by the Tenant.
- ----------------------------------- -----------------------------------------
Assignor Date Assignee Date
CONSENT OF ASSIGNMENT
Consent to the assignment of the within lease to ________________________
is hereby given, on the express condition, however, that the assignor shall
remain liable for the prompt payment of the rent and performance of the
covenants on the part of the Tenant as herein mentioned, and that no further
assignment of said lease or sub-letting of the premises, or any part thereof,
shall be made without further written agreement.
- ----------------------------------- -----------------------------------------
Signature Date Signature Date
LANDLORD'S ASSIGNMENT
In consideration of One Dollar, in hand paid, I hereby assign to
______________________ my interest in the within lease, and the rent therein
reserved.
-----------------------------------------
Landlord Date
<PAGE>
ADDITIONAL PROVISIONS
A. The Tenant agrees, throughout the term of this lease, at Tenant's sole cost,
to provide and keep in force the following insurance: Public Liability Insurance
and Property Damage Insurance for the protection of the Lessee and Lessor
against comprehensive claims for bodily injury or property damage occurring upon
the premises with a combined single limit coverage of not less than $500,000,
insuring against claims of any and all personal injury, death, or damage to
person, or property occurring in or about the leased premises. The lessor to be
named in said policies as an insured. The Lessee shall deliver to Lessor
Certificates of Insurance certifying that such insurance is in full force and
effect and such policies shall provide for ten (10) days prior written notice to
the Lessor in the event of modification, cancellation, or termination.
B. The Landlord shall maintain the Common Area, sidewalks, driveways, parking
lot, lawns and shrubbery, including snow removal (over two(2) inches).
C. Signs must conform to City of Longmont sign code and must be approved by
Landlord prior to installation.
D. Landlord shall pay for major repairs or replacement of HVAC, electrical and
plumbing to the leased space provided that such repairs and replacement were not
caused by the misuse or neglegence of Tenant. Tenant shall conduct semi-annual
inspections and servicing (including filter changes) on the heating and air
conditioning units for said space during the term of this lease. Landlord shall
be responsible for freon maintenance.
E. Tenant shall have the right to extend the term of this Lease for an
additional one (1) year. This option shall be valid only if all of Tenant's
obligations in this Lease have been fully performed and all defaults, if any,
have been cured. This option may be exercised by giving the Landlord written
notice of intent to extend at least sixty (60) days prior to the expiration of
the initial term.
All provisions of the initial lease shall remain the same except for the
rent which shall be increased by the amount of the Denver/Boulder CPI for the
prior two years, as compiled by the U.S. Bureau of Labor Statistics.
Country Hills Investment Kaire International, Inc.
By: /s/ [Illegible] By: /s/ Robert L Richard
------------------------ -----------------------------
<PAGE>
EXHIBIT 10.16
KAIRE INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of this 1997 Stock Option Plan ("Plan") of Kaire
International, Inc., a Delaware corporation (the "Company"), is to provide the
Company with a means of attracting and retaking the services of highly motivated
and qualified key employees (including officers), directors and consultants. The
Plan is intended to advance the interest of the Company by affording to key
employees (including officers), directors and consultants, upon whose skill,
judgment, initiative and efforts the Company is largely dependent for the
successful conduct of its business, an opportunity for investment in the Company
and the incentives inherent in stock ownership in the Company. In addition, the
Plan contemplates the opportunity for investment in the Company by employees of
companies that do business with the Company. For purposes of this Plan, the term
Company shall include subsidiaries, if any, of the Company.
2. Legal Compliance.
It is the intent of the Plan that all options granted under it
("Options") shall be either "Incentive Stock Options" ("ISOs"), as such term is
defined in Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), or non-qualified stock options ("NQOs"); provided, however, ISOs shall
be granted only to employees of the Company. An Option shall be identified as an
ISO or an NQO in writing in the document or documents evidencing the grant of
the Option. All Options that are not so identified as ISOs are intended to be
NQOs. In addition, the Plan provides for the grant of NQOs to employees of
companies that do business with the Company. It is the further intent of the
Plan that it conform in all respects with the requirements of Rule 16b-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended ("Rule 16b-3"). To the extent that any aspect of the Plan or its
administration shall at any time be viewed as inconsistent with the requirements
of Rule 16b-3 or, in connection with ISOs, the Code, such aspect shall be deemed
to be modified, deleted or otherwise changed as necessary to ensure continued
compliance with such provision.
3. Non-Exclusivity of the Plan.
Nothing contained in the Plan is intended to amend, modify, or
rescind any previously approved compensation plans, programs or options entered
into by the Company. This Plan shall be construed to be in addition to and
independent of any and all such other arrangements. Neither the adoption of the
Plan by the Board nor the submission of the Plan to the stockholders of the
Company for approval shall be construed as creating any limitations on the power
or authority of the Board to adopt, with or without stockholder approval, such
additional or other compensation arrangements as the Board may from time to time
deem desirable.
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<PAGE>
4. Administration of the Plan.
4.1 Plan Committee.
The Plan shall be administered by a committee ("Committee").
The members of the Committee shall be appointed from time to time by the Board
of Directors of the Company ("Board") and shall consist of not less than two (2)
nor more than five (5) persons who are not eligible to receive Options under the
Plan and who are not, and have not at any time within one year (except as
provided in Section 4.6), been eligible to receive stock options pursuant to the
Plan or the terms of any other plan of the Company or its affiliates. Such
persons shall be directors of the Company.
4.2 Grants of Options by the Committee.
In accordance with the provisions of the Plan, the Committee,
by resolution, shall select those eligible persons to whom Options shall be
granted ("Optionees"); shall determine the time or times at which each Option
shall be granted, whether an Option is an ISO or an NQO and the number of shares
to be subject to each Option; and shall fix the time and manner in which the
Option may be exercised, the Option exercise price, and the Option period.
The Committee shall determine the form of option agreement to
evidence the foregoing terms and conditions of each Option, which need not be
identical, in the form provided for in Section 8. Such option agreements may
include such other provisions as the Committee may deem necessary or desirable
consistent with the Plan, the Code and Rule 16b-3.
4.3 Committee Procedures.
The Committee from time to time may adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Committee shall keep minutes of its
meetings and records of its actions. A majority of the members of the Committee
shall constitute a quorum for the transaction of any business by the Committee.
The Committee may act at any time by an affirmative vote of a majority of those
members voting. Such vote may be taken at a meeting (which may be conducted in
person or by any telecommunication medium) or by written consent of Committee
members without a meeting.
4.4 Finality of Committee Action.
The Committee shall resolve all questions arising under the
plan and option agreements entered into pursuant to the Plan. Each
determination, interpretation, or other action made or taken by the Committee
shall be final and conclusive and binding on all persons, including, without
limitation, the Company, its stockholders, the Committee and each
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<PAGE>
of the members of the Committee, and the directors, officers, employees and
consultants of the Company, including Optionees and their respective successors
in interest
4.5 Non-Liability of Committee Members.
No Committee member shall be liable for any action or
determination made by him in good faith with respect to the Plan or any Option
granted under it.
4.6 Director NQOs.
(a) Each director of the Company shall be automatically
granted an NQO to purchase five-thousand (5,000) shares of the Company's Common
Stock (as defined in Section 6), and thereafter on each anniversary of their
first election or appointment as director, each director of the Company shall be
automatically granted an NQO to purchase five-thousand (5,000) shares of the
Company's Common Stock (as defined in Section 6).
(b) Except as expressly authorized by this Section 4.6,
directors of the Company who are members of the Committee are not otherwise
eligible to participate in the Plan.
(c) Upon the grant of an NQO to a director, the director shall
receive a written option agreement substantially in the form provided for in
Section 8. Such director shall not be an "Optionee" as defined in Section 4.2 of
the Plan.
(d) The exercise price for each NQO granted under this Section
shall be one hundred percent (100%) of the Fair Market Value (as defined in
Section 9) of the Company's Common Stock (as defined in Section 6) on the date
of grant as determined by the Committee pursuant to Section 9 of the Plan. Each
NQO granted under this Section shall be for a term of five years and shall be
subject to earlier termination as hereinafter provided.
(e) An NQO granted under this Section may be exercised in
whole or consecutive installments, cumulative or otherwise, during its term;
provided, however, no NQO granted under this Section shall be exercisable before
six (6) months after the date of grant of such NQO. In addition, NQOs granted
under this Section are subject to the rights and obligations of Optionees, as
provided in Section 12 of the Plan; provided, however, that the "stock swap
feature" provided for in Section 12 of the Plan shall be available with respect
to all NQOs granted under this Section.
(f) NQOs granted under this Section shall be subject to the
exercise and non-transferability terms of Section 15 of the Plan. In the event
of the termination of service on the Board by the holder of any NQO granted
under this Section, then the outstanding NQOs of such holder shall expire one
year after such termination, or their stated expiration date, whichever occurs
first.
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<PAGE>
(g) Notwithstanding Sections 4.1 and 7 of the Plan, the grant
of an NQO under this Section shall not disqualify such director as a
disinterested person for purposes of serving on the Committee. The Committee
shall have no power under Sections 4.2 and 8 of the Plan to determine the grant
or terms of NQOs under this Section, but shall retain its general authority
under Section 4.4 of the Plan to interpret and administer the Plan; provided,
however, that, to the extent practicable, an individual member of the Committee
should disqualify himself or herself from participation on any questions which
is unique to his or her NQOs.
5. Board Power to Amend, Suspend, or Terminate the Plan.
The Board may, from time to time, make such changes in or additions
to the Plan as it may deem proper and in the best interest of the Company and
its stockholders. The Board may also suspend or terminate the Plan at any time,
without notice, and in its sole discretion.
Notwithstanding the foregoing, no such change, addition, suspension,
or termination by the Board shall (i) materially impair any option previously
granted under the Plan without the express written consent of the optionee; or
(ii) materially increase the number of shares subject to the Plan, materially
increase the benefits accruing to optionees under the Plan, materially modify
the requirements as to eligibility to participate in the Plan or alter the
method of determining the option exercise price described in Section 9, without
stockholder approval.
6. Shares Subject to the Plan.
For the purposes of the Plan, the Committee is authorized to grant
Options for up to 1,000,000 shares of the Company's common stock ("Common
Stock"), or the number and kind of shares of stock or other securities which, in
accordance with Section 14, shall be substituted for such shares of Common Stock
or to which such shares shall be adjusted. The Committee is authorized to grant
options under the Plan with respect to such shares. Any or all unsold shares
subject to an Option which for any reason expires or otherwise terminates
(excluding shares returned to the Company in payment of the exercise price for
additional shares) may again be made subject to grant under the Plan.
7. Optionees.
Options shall be granted only to full-time elected or appointed
officers or other full-time key employees of the Company, to employees of
companies that do business with the Company or to consultants to the Company
designated by the Committee from time to time as Optionees, including, without
limitation, members of the Board who are also full-time officers or key
employees at the time of grant. In no event, however, may a member of the
Committee be granted an Option under the Plan. Any Optionee may hold more than
one option to purchase Common Stock, whether such option is an Option held
pursuant to the Plan or otherwise. An Optionee who is an employee of the Company
("Employee Optionee") and
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<PAGE>
who holds an Option must remain a continuous full or part-time employee of the
Company from the time of grant of the Option to him until the time of its
exercise, except as provided in Section 11.3.
8. Grants of Options.
The Committee shall have the sole discretion to grant Options under
the Plan and to determine whether any Option shall be an ISO or an NQO. The
terms and conditions of the Options granted under the Plan may differ from one
another as the Committee, in its absolute discretion, shall determine as long as
all Options granted under the Plan satisfy the requirements of the Plan. Upon
determination by the Committee that an Option is to be granted to an Optionee, a
written option agreement evidencing such Option shall be given to the Optionee,
specifying the number of shares subject to the Option, the Option exercise
price, whether the Option is an ISO or an NQO, and the other individual terms
and conditions of such Option. Such option agreement may incorporate generally
applicable provisions from the Plan, a copy of which shall be provided to all
Optionees at the time of their initial grants under the Plan. The Option shall
be deemed granted as of the date specified in the grant resolution of the
Committee, and the option agreement shall be dated as of the date of such
resolution.
9. Option Exercise Price.
The price per share to be paid by the Optionee at the time an ISO is
exercised shall not be less than one hundred percent (100%) of the Fair Market
Value (as hereinafter defined) of one share of the optioned Common Stock on the
date on which the Option is granted. No ISO may be granted under the Plan to any
person who, at the time of such grant, owns (within the meaning of Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any parent
thereof, unless the exercise price of such ISO is at least equal to one hundred
and ten percent (110%) of Fair Market Value on the date of grant. The price per
share to be paid by the Optionee at the time an NQO is exercised shall not be
less than eighty-five (85%) of the Fair Market Value on the date on which the
NQO is granted, at determined by the Committee.
For purposes of the Plan, the "Fair Market Value" of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares of
the Company's Common Stock are then trading, if any, on such date, or if shares
were not traded on such date, then on the next preceding trading day during
which a sale occurred; or (ii) if the Company's Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Common Stock is then listed as a National Market Issue under
the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Common Stock on
such date as reported by NASDAQ or such successor quotation system; or (iii) if
the Company's Common Stock is not publicly traded on an exchange and not quoted
on NASDAQ or a successor quotation system, the mean between the closing bid and
asked prices for the Common Stock on such
5
<PAGE>
date as determined in good faith by the Committee; or (iv) if the Company's
Common Stock is not publicly traded, the fair market value established by the
Committee acting in good faith. In addition, with respect to any ISO, the Fair
Market Value on any given date shall be determined in a manner consistent with
any regulations issued by the Secretary of the Treasury for the purpose of
determining fair market value of securities subject to an ISO plan under the
Code.
10. Ceiling of ISO Grants.
The aggregate Fair Market Value (determined at the time any ISO is
granted) of the Common Stock with respect to which an Optionee's ISOs, together
with incentive stock options granted under any other plan of the Company and any
parent, are exercisable for the first time by such Optionee during any calendar
year shall not exceed $100,000. In the event that an Optionee holds such
incentive stock options that become first exercisable (including as a result of
acceleration of exercisability under the Plan) in any one year for shares having
a Fair Market Value at the date of grant in excess of $100,000, then the most
recently granted of such ISOs, to the extent that they are exercisable for
shares having an aggregate Fair Market Value in excess of such limit, shall be
deemed to be NQOs.
11. Duration, Exercisability, and Termination of Options.
11.1 Option Period.
The option period shall be determined by the Committee with
respect to each Option granted. In no event, however, may the option period
exceed ten (10) years from the date on which the Option is granted, or five (5)
years in the case of a grant of an ISO to an Optionee who is a ten percent (10%)
shareholder at the date on which the Option is granted as described in
Section 9.
11.2 Exercisability of Options and Acceleration of Excercisability.
Each Option shall be exercisable in whole or in consecutive
installments, cumulative or otherwise, during its term as determined in the
discretion of the Committee; provided, however, no Option shall be exercisable
before six (6) months after the date of grant of such Option.
Notwithstanding the foregoing, the Committee at the time of
grant may provide that the vesting of the right to exercise a given Option or
portion thereof may be accelerated, during the term of the Option, under one or
more of the following circumstances: (i) if the Common Stock of the Company
shall be the subject of a tender offer by any person other than the Company
which, by its terms, could result in the offerer acquiring more than twenty-five
percent (25%) of the then outstanding shares of Common Stock of the Company, or
(ii) if the shareholders shall consider, or be asked to consider, merging or
consolidating the Company with any other person, or transferring all or
substantially all of its assets to any other person, or (iii) if more than
twenty-five percent (25%) of the Company's then outstanding
6
<PAGE>
voting shares shall be purchased by any person other than the Company, such that
granted but unexercisable Options may be exercised at any time following the
first public announcement of such event; provided, however, that in no event
shall an option be exercised prior to six months after the date of grant or
beyond its stated term.
11.3 Termination of Options due to Termination of Employment,
Disability, or Death of Optionee; Termination for "Cause", or
Resignation in Violation of an Employment Agreement.
All Options granted under the Plan to any Employee Optionee
shall terminate and may no longer be exercised if the Employee Optionee ceases,
at any time during the period between the grant of the Option and its exercise,
to be an employee of the Company; provided, however, the Committee may alter the
termination date of the Option if the Optionee transfers to an affiliate of the
Company.
Notwithstanding the foregoing, (i) if the Employee Optionee's
employment with the Company shall have terminated for any reason (other than
involuntary dismissal for "cause" or voluntary resignation in violation of any
agreement to remain in the employ of the company, including, without limitation,
any such agreement pursuant to Section 16), he may, at any time before the
expiration of three (3) months after such termination or before expiration of
the Option, whichever shall first occur, exercise the Option (to the extent that
the Option was exercisable by him in the date of the termination of his
employment); (ii) if the Employee Optionee's employment shall have terminated
due to disability (as defined in Section 22(e)(3) of the Code and subject to
such proof of disability as the Committee may require), such Option may be
exercised by the Employee Optionee (or by his guardian(s), or conservator(s), or
other legal representative(s)) before the expiration of twelve (12) months after
such termination or before expiration of the Option, whichever shall first occur
(to the extent that the Option was exercisable by him on the date of the
termination of his employment); (iii) in the event of the death of the Employee
Optionee, an Option exercisable by him at the date of his death shall be
exercisable by his legal representative(s), legatee(s), or heir(s), or by his
beneficiary or beneficiaries so designated by him as permitted by Section 15, as
the case may be, within twelve (12) months after his death or before the
expiration of the Option, whichever shall first occur (to the extent that the
Option was exercisable by him on the date of his death); and (iv) if the
Employee Optionee's employment is terminated for "cause" or in violation of any
agreement to remain in the employ of the Company, including, without limitation,
any such agreement pursuant to Section 16, he may, at any time before the
expiration of thirty (30) days after such termination or before the expiration
of the Option, whichever shall first occur, exercise the Option (to the extent
that the Option was exercisable by him on the date of termination of his
employment). For purposes of the Plan, "cause" may include, without limitation,
any illegal or improper conduct (1) which injures or impairs the reputation,
goodwill, or business of the Company; (2) which involves the misappropriation of
funds of the Company, or the misuse of data, information, or documents acquired
in connection with employment by the Company; or (3) which violates any other
directive or policy promulgated by the Company. A termination for "cause" may
also include any
7
<PAGE>
resignation in anticipation of discharge for "cause" or resignation accepted by
the Company in lieu of a formal discharge for "Cause."
12. Manner of Option Exercise; Rights and Obligations of Optionees.
12.1 Written Notice of Exercise.
An Optionee may elect to exercise an Option in whole or in
part, from time to time, subject to the terms and conditions contained in the
Plan and in the agreement evidencing such Option, by giving written notice of
exercise to the Company at its principal executive office.
12.2 Cash Payment for Optioned Shares.
If an Option is exercised for cash, such notice shall be
accompanied by a cashier's or personal check, or money order, made payable to
the Company for the full exercise price of the shares purchased.
12.3 Stock Swap Feature.
At the time of the Option exercise, and subject to the
discretion of the Committee to accept payment in cash only, the Optionee may
determine whether the total purchase price of the shares to be purchased shall
be paid solely in cash or by transfer from the Optionee to the Company of
previously acquired shares of Common Stock, or by a combination thereof. In the
event that the Optionee elects to pay the total purchase price in whole or in
part with previously acquired shares of Common Stock, and subject to the
discretion of the Committee to accept payment in cash only, the value of such
shares shall be equal to their Fair Market Value on the date of exercise,
determined by the Committee in the same manner used for determining Fair Market
Value at the time of grant for purposes of Section 9.
12.4 Investment Representation for Non-Registered Shares and
Legality of Issuance.
The receipt of shares of Common Stock upon the exercise of an
Option shall be conditioned upon the Optionee (or any other person who exercises
the Option on his or her behalf as permitted by Section 11.3) providing to the
Committee a written representation that, at the time of such exercise, it is the
intent of such person(s) to acquire the shares for investment only and not with
a view toward distribution. The certificate for unregistered shares issued for
investment shall be restricted by the Company as to transfer unless the Company
receives an opinion of counsel satisfactory to the Company to the effect that
such restriction is not necessary under then pertaining law. The providing of
such representation and such restrictions on transfer shall not, however, be
required upon any person's receipt of shares of Common Stock under the Plan in
the event that, at the time of grant of the Option relating to such receipt or
upon such receipt, whichever is the appropriate
8
<PAGE>
measure under applicable federal or state securities laws, the shares subject to
the Option shall be (i) covered by an effective and current registration
statement under the Securities Act of 1933, as amended, and (ii) either
qualified or exempt from qualification under applicable state securities laws.
The Company shall, however, under no circumstances be required to sell or issue
any shares under the Plan if, in the opinion of the Committee, (i) the issuance
of such shares would constitute a violation by the Optionee or the Company of
any applicable law or regulation of any governmental authority, or (n) the
consent or approval of any governmental body is necessary or desirable as a
condition of, or in connection with, the issuance of such shares.
12.5 Stockholder Rights of Optionee.
Upon exercise, the Optionee (or any other person who exercises
the Option on his behalf as permitted by Section 11.3) shall be recorded on the
books of the Company as the owner of the shares, and the Company shall deliver
to such record owner one or more duly issued stock certificates evidencing such
ownership. No person shall have any rights as a stockholder with respect to any
shares of Common Stock covered by an Option granted pursuant to the Plan until
such person shall have become the holder of record of such shares. Except as
provided in Section 14, no adjustments shall be made for cash dividends or other
distributions or other rights as to which there is a record date preceding the
date such person becomes the holder of record of such shares.
12.6 Holding Period for Tax Purposes.
The Plan does not provide that an Optionee must hold shares of
Common Stock acquired under the Plan or any minimum period of time. Optionees
are urged to consult with their own tax advisors with respect to the tax
consequences to them of their individual participation in the Plan.
13. Successive Grants.
Successive grants of Options may be made to any Optionee under the
Plan.
14. Adjustments.
If the outstanding Common Stock shall be hereafter increased or
decreased, or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation, by reason of a
recapitalization, reclassification, reorganization, merger, consolidation, share
exchange, or other business combination in which the Company is the surviving
parent corporation, stock split-up, combination of shares, or dividend or other
distribution payable in capital stock or rights to acquire capital stock,
appropriate adjustment shall be made by the Committee in the number and kind of
shares for which options may be granted under the Plan. In addition, the
Committee shall made appropriate adjustment in the number and kind of shares as
to which outstanding and unexercised options shall be exercisable, to the end
that the proportionate interest of the
9
<PAGE>
holder of the option shall, to the extent practicable, be maintained as before
the occurrence of such event. Such adjustment in outstanding options shall be
made without change in the total price applicable to the unexercised portion of
the option but with a corresponding adjustment in the exercise price per share.
In the event of the dissolution or liquidation of the Company, any
outstanding and unexercised options shall terminate as of a future date to be
fixed by the Committee.
In the event of a Reorganization (as hereinafter defined), then,
a. If there is no plan or agreement with respect to the Reorganization
("Reorganization Agreement"), or if the Reorganization Agreement does not
specifically provide for the adjustment, change, conversion, or exchange of the
outstanding and unexercised options for cash or other property or securities of
another corporation, then any outstanding and unexercised options shall
terminate as of a future date to be fixed by the Committee; or
b. If there is a Reorganization Agreement, and the Reorganization
Agreement specifically provides for the adjustment, change, conversion, or
exchange of the outstanding and unexercised options for cash or other property
or securities of another corporation, then the Committee shall adjust the shares
under such outstanding and unexercised options, and shall adjust the shares
remaining under the Plan which are then available for the issuance of options
under the Plan if the Reorganization Agreement makes specific provisions
therefor, in a manner not inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion, or exchange of such options
and shares.
The term "Reorganization" as used in this Section 14 shall mean any
reorganization, merger, consolidation, share exchange, or other business
combination pursuant to which the Company is not the surviving parent
corporation after the effective date of the Reorganization, or any sale or lease
of all or substantially all of the assets of the Company. Nothing herein shall
require the Company to adopt a Reorganization Agreement, or to make provision
for the adjustment, change, conversion, or exchange of any options, or the
shares subject thereto, in any Reorganization Agreement which its does adopt.
The Committee shall provide to each optionee then holding an
outstanding and unexercised option not less than thirty (30) calendar days'
advanced written notice of any date fixed by the Committee pursuant to this
Section 14 and of the terms of any Reorganization Agreement providing for the
adjustment, change, conversion, or exchange of outstanding and unexercised
options. Except as the Committee may otherwise provide, each optionee shall have
the right during such period to exercise his option only to the extent that the
option was exercisable on the date such notice was provided to the optionee.
Any adjustment to any outstanding ISO pursuant to this Section 14,
if made by reason of a transaction described in Section 424(a) of the Code,
shall be made so as to conform to the requirements of that Section and the
regulation thereunder. If any other
10
<PAGE>
transaction described in Section 424(a) of the Code affects the Common Stock
subject to any unexercised ISO theretofore granted under the Plan (hereinafter
for purposes of this Section 14 referred to as the -old option"), the Board of
Directors of the Company or of any surviving or acquiring corporation may take
such action as it deems appropriate, in conformity with the requirements of that
Code Section and the regulations thereunder, to substitute a new option for the
old option, in order to make the new option, as nearly as may be practicable,
equivalent to the old option, or to assume the old option.
No modification, extension, renewal, or other change in any option
granted under the Plan may be made, after the grant of such option, without the
optionee's consent, unless the same is permitted by the provisions of the Plan
and the option agreement. In the case of an ISO, optionees are hereby advised
that certain changes may disqualify the ISO from being considered as such under
Section 422 of the Code, or constitute a modification, extension, or renewal of
the ISO under Section 424(h) of the Code.
All adjustments and determinations under this Section 14 shall be
made by the Committee in good faith in its sole discretion.
15. Non-Transferability of Options.
An Option shall be exercisable only by the Optionee, or in the event
of his disability, by his guardian(s), conservator(s), or other legal
representative(s), during the Optionee's lifetime. In the event of the death of
the Optionee, an Option shall be exercisable by his legal representative(s),
legatee(s), or heir(s), as the case may be, or by such person(s) as he may
designate as his beneficiary or beneficiaries in a signed statement included as
a part of the option agreement.
No Option shall be transferable by the Optionee, either voluntary or
involuntarily, except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules thereunder.
Any attempt to exercise, transfer or otherwise dispose of an
interest in an Option in contravention of the terms and conditions of the Plan,
or of the option agreement for the Option, shall immediately void the Option.
16. Continued Employment.
As determined in the sole discretion of the Committee at the time of
grant and if so stated in a writing signed by the Company, each Option may have
as a condition the requirement of an Employee Optionee to remain in the employ
of the Company, or of its affiliates, and to render to it his or her exclusive
service, at such compensation as may be determined from time to time by it, for
a period not to exceed the term of the Option, except for earlier termination of
employment by or with the express written consent of the Company or on account
of disability or death. The failure of any Employee Optionee to abide by such
11
<PAGE>
agreement as to any Option under the Plan may result in the termination of all
of his or her then outstanding Options granted pursuant to the Plan.
Neither the creation of the Plan nor the granting of Option(s) under
it shall be deemed to create a right in an Employee Optionee to continued
employment with the Company, and each such Employee Optionee shall be and shall
remain subject to discharge by the Company as though the Plan had never come
into existence. Except as specifically provided by the Committee in any
particular case, the loss of existing or potential profit in options granted
under this Plan shall not constitute an element of damages in the event of
termination of the employment of an employee by contract or otherwise.
17. Tax Withholding.
The exercise of any option granted under the Plan is subject to the
condition that if at any time the Company shall determine, in its discretion,
that the satisfaction of withholding tax or other withholding liabilities under
any federal, state or local law is necessary or desirable as a condition of, or
in connection with, such exercise or a later lapsing of time or restrictions on
or disposition of the shares of Common Stock received upon such exercise, then
in such event, the exercise of the option shall not be effective unless such
withholding shall have been effected or obtained in a manner acceptable to the
Company. When an optionee is required to pay to the Company an amount required
to be withheld under applicable income tax laws in connection with the exercise
of any option, the optionee may, subject to the approval of the Committee, which
approval shall not have been disapproved at any time after the election is made,
satisfy, the obligation, in whole or in part, by electing to have the Company
withhold shares of Common Stock having a value equal to the amount required to
be withhold. The value of the Common Stock withheld pursuant to the election
shall be determined by the Committee, in accordance with the criteria set forth
in Section 9, with reference to the date the amount of tax to be withheld is
determined ("Tax Determination Date"). The optionee shall pay to the Company in
cash any amount required to be withheld that would otherwise result in the
withholding of a fractional share. The election by an optionee who is a director
or officer of the Company within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended ("Section 16 of the 1934 Act"), to be
effective, must meet all of the following requirements: (i) the election must be
made on or prior to Tax Determination Date; (ii) the election must be
irrevocable; (iii) the exercise of an option may only be made six months or more
subsequent to the grant of that option (except that this limitation will not
apply in the event death or disability of the optionee occurs prior to the
expiration of the six-month period); and (iv) the election must be made either
(a) six months or more prior to the Tax Determination Date, or (b) within a
ten-day "window period" beginning on the third business day following the
release of the Company's annual or quarterly summary statement of sales and
earnings and ending on the twelfth business day following the date of such
release. Where the Tax Determination Date of a director or officer of the
Company within the meaning of Section 16 of the 1934 Act is deferred until six
months after exercise and that director or officer elects to have the Company
withhold shares pursuant to the terms of this Section 17, the full amount
12
<PAGE>
of option shares shall be issued or transferred to him upon exercise but he
will be unconditionally obligated to tender back to the Company on the Tax
Determination Date the proper number of shares of Common Stock to satisfy
withholding requirements, plus cash for any fractional amount.
18. Compliance with Rule 701.
18.1 Rule 701.
Until the Company is eligible to register securities issuable
under the Plan by means of Form 5-8 or a similar successor form, in addition to
complying with the provisions of Section 2, the Company also shall comply with
the requirements of Rule 701 under the Securities Act of 1933 ("1933 Act")
relating to an exemption from registration for employee stock option plans.
These requirements include, but are not limited to, the following:
(a) Copy of the Plan.
The Company shall provide each participant with a copy of the
Plan.
(b) Limitations on Amount.
The amount of securities offered and sold in reliance on Rule
701 shall not exceed the greater of $500,000 or either of the following amounts:
(i) The aggregate offering price of securities of the Company
subject to outstanding offers in reliance on Rule 701 plus
securities of the Company sold in the preceding 12 months in
reliance on Rule 701 shall not exceed 15% of the Company's
total assets (measured at the end of the last fiscal year).
(ii) The number of the Company's securities subject to outstanding
offers in reliance on Rule 701 plus the Company's securities
sold in the preceding 12 months in reliance on Rule 701 shall
not exceed 15% of the outstanding securities of that class.
18.2 General Limitation.
In no event shall the aggregate offering price of the Company's
securities subject to outstanding offers made in reliance on Rule 701 plus the
Company's securities sold in the preceding 12 months in reliance on Rule 701
exceed $5,000,000.
18.3 Restrictive Legend.
13
<PAGE>
All stock certificates issued by the Company shall contain
appropriate legend setting forth restrictions on resale or transfer of the
securities.
19. Term of Plan.
19.1 Effective Date.
Subject to shareholder approval, the Plan shall become
effective on July 15, 1997.
19.2 Termination Date.
Except as to options previously granted and outstanding under
the plan, the Plan shall terminate at midnight on July 15, 2007, and no Option
shall be granted after that time. Options then outstanding may continue to be
exercised in accordance with their terms. The Plan may be suspended or
terminated at any earlier time by the Board within the limitations set forth in
Section 5.
20. Governing Law.
The Plan and all rights and obligations under it shall be construed
and enforced in accordance with the laws of the State of Colorado.
14
<PAGE>
Exhibit 10.17
PROMISSORY NOTE
$140,070.72 Longmont, Colorado
November 28, 1997
FOR VALUE RECEIVED, the undersigned promises to pay to the order of J.T.
Whitworth, the sum of One Hundred Forty Thousand Seventy and 72/100 Dollars
($140,070.72), with interest at the rate of ten percent (10%) per annum on the
unpaid balance.
Said sum shall be payable in the manner following:
(1) Due and payable on demand.
The undersigned shall have the right to prepay without penalty. In the
event any payment due hereunder is not made when due, the entire balance shall
be immediately due at the option of holder.
In the event of default, the undersigned agrees to pay all reasonable
attorney fees and costs of collection.
Attest: Kaire International, Inc.
/s/ [illegible] By /s/ Robert L. Richards
- -------------------------- -------------------------------
Secretary Robert L. Richards, C.E.O.
STATE OF COLORADO:
COUNTY OF BOULDER, TO-WIT:
This instrument was acknowledged before me this 28th day of November 1997,
by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware
corporation, on behalf of said corporation.
My commission expires: 5-April-1999
/s/ [illegible]
----------------------------
Notary Public
<PAGE>
Exhibit 21.1
List of Subsidiaries
Kaire Trinidad Limited
Kaire Europe Limited
Kaire Korea, Ltd.
Kaire New Zealand Limited
Kaire Australia Pty. Limited
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Kaire International, Inc.
Longmont, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 4, 1997, relating to the
consolidated financial statements of Kaire International, Inc. which is
contained in that Prospectus. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Denver, Colorado
February 10, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Kaire International, Inc.
Longmont, Colorado
We consent to the use in this Registration Statement of Kaire International,
Inc. on Form S1, of our report dated August 1, 1996 on Kaire International, Inc.
for the year ended December 31, 1994 and to all references to our firm included
in this Registration Statement.
Jones, Jensen & Company
/s/ Jones, Jensen & Company
Salt Lake City, Utah
February 6, 1998
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<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1997 DEC-31-1996 DEC-31-1995
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<PP&E> 2,522,412 2,158,110 1,822,692
<DEPRECIATION> (1,256,904) (901,212) (444,181)
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<OTHER-SE> 3,762,247 (95,091) (1,886,740)
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<SALES> (27,887,227) (51,498,562) (57,841,350)
<TOTAL-REVENUES> (27,887,227) (51,498,562) (57,841,350)
<CGS> 6,586,767 13,321,062 14,476,630
<TOTAL-COSTS> 25,365,318 40,941,331 41,201,003
<OTHER-EXPENSES> 160,991 27,312 30,102
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (4,225,849) (2,791,143) 2,133,615
<INCOME-TAX> 0 (1,103,000) 862,000
<INCOME-CONTINUING> (4,181,528) (1,802,786) 1,186,351
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