SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number
1-11768
RELIV' INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Illinois 371172197
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri 63006
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(Address of principal executive offices) (Zip Code)
(314) 537-9715
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Registrant's telephone number, including area code
Securities registered pursuant to Sections 12(b) and 12(g) of the Act:
Name of each exchange
Title of Class on which registered:
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Common Stock, without par value NASDAQ National Market tier
of The NASDAQ Stock Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ___X___ Yes _______ No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of the Form 10-K or any amendment to the
Form 10-K. [ ]
Based upon the closing price of $2.063 per share of Registrant's Common
Stock as reported on NASDAQ National Market tier of The NASDAQ Stock Market at
March 15, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was then approximately $12,319,143.
(Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to the requirements of the Form and the Registrant is not
bound by this determination for any other purpose.)
The number of shares outstanding of the Registrant's Common Stock as of
March 15, 1999, was 9,650,502 (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders to be filed with the Commission within 120 days of the end of
Registrant's last fiscal year is incorporated by reference into Part III.
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PART I
Item No. 1 - Business
General
Reliv' International, Inc. (the "Company") was incorporated in Illinois
on February 11, 1985, under the name American Life Investors, Inc. The name of
the Company was changed to its current name on January 20, 1992. The Company
maintains its principal executive offices at 136 Chesterfield Industrial
Boulevard, Chesterfield, Missouri 63006.
The Company produces a line of food products including nutritional
supplements, diet management products, functional foods, a line of granola bars
and a sports drink mix. Functional foods are products designed to influence
specific functions of the body. The Company also distributes a line of premium
skin care products. These products are sold by subsidiaries of the Company to a
sales force of independent distributors who sell products directly to consumers.
The Company and its subsidiaries sell products to distributors throughout the
United States and in Australia, Canada, New Zealand, Mexico and the United
Kingdom.
The Company has two wholly-owned subsidiaries, Reliv', Inc. ("Reliv'")
and Reliv' World Corporation ("Reliv' World"). Reliv' World has five
subsidiaries - Reliv' Australia, Reliv' Canada, Reliv' New Zealand, Reliv'
Mexico and Reliv' Europe.
Reliv' was organized as an Illinois corporation on May 24, 1988, as a
wholly-owned subsidiary of the Company, and began selling nutritional supplement
products in October, 1988, in the United States.
In Australia, Canada, New Zealand, Mexico and the United Kingdom, the
Company's products are sold through Reliv' World and its subsidiaries in each of
such countries. Reliv' World was organized as an Illinois corporation on March
30, 1992, as a wholly-owned subsidiary of Reliv'. Reliv' World was organized to
conduct the foreign sales operations of the Company and to own foreign sales
operations and subsidiaries. On July 1, 1992, Reliv' declared a dividend of all
of the stock of Reliv' World and distributed all of such stock to its sole
shareholder, the Company.
In February, 1991, Reliv' entered into a joint venture agreement with
an Australian corporation and the joint venture began to market, sell and
distribute Reliv' products in Australia in May, 1991. Reliv' Australia Pty, Ltd.
("Reliv' Australia"), a wholly-owned subsidiary of Reliv' World, entered into an
agreement to purchase the joint venture interest of the Australian corporation.
Reliv' Australia also entered into an agreement with the three shareholders of
the Australian corporation under which a partnership of such persons, as a
distributor of Reliv' Australia, is to receive, for a period of 10 years from
March 1, 1992, 2 percent of sales in Australia and New Zealand (defined as the
designated retail selling price of all products, on which commissions are
payable to distributors), up to approximately $10 million (AUS) in 1992, and $12
million (AUS) in
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all subsequent years during the term, and 3 percent of sales that exceed those
figures. Since March 1, 1992, the business of the Company in Australia and sales
of the Company's products there has been conducted by Reliv' Australia.
During April, 1992, Reliv' New Zealand Limited ("Reliv' New Zealand")
was organized as a New Zealand company and as a wholly-owned subsidiary of
Reliv' World (except for nominal shares held by an officer). In June, 1992,
Reliv' New Zealand began selling the Company's products through independent
distributors in New Zealand.
On June 9, 1992, Reliv' Canada, Ltd. ("Reliv' Canada") was organized as
an Ontario, Canada corporation and as a wholly-owned subsidiary of Reliv' World.
Reliv' Canada commenced operations during October, 1992, and began selling the
Company's products to distributors in Canada in November, 1992. On December 31,
1995, Reliv' Canada was converted to a Nova Scotia, Canada unlimited liability
company, wholly-owned by Reliv' World (except for one percent owned by the
Company), under the name Reliv' Canada Company.
On June 28, 1993, Reliv' Mexico S.A. de C.V. ("Reliv' Mexico") was
organized as a Mexican corporation and as a wholly-owned subsidiary of Reliv'
World (except for one share owned by the Company). Reliv' Mexico commenced
operations in June, 1993, and began selling the Company's products to
distributors in Mexico in August, 1993. On December 20, 1994, Reliv' Mexico was
converted to a Mexican limited liability company under the name Reliv' Mexico,
S. de R.L. de C.V.
On July 1, 1995, Reliv' UK began the marketing and sale of the
Company's products in the United Kingdom in accordance with the Reliv' system
under a license and distributor arrangement with the Company. Pursuant to the
terms of the arrangement, Reliv' UK purchased all of its requirements for
products from the Company and paid Reliv' World a royalty on products sold. On
October 1, 1998, Reliv' Europe, Inc., a wholly-owned subsidiary of Reliv' World,
purchased all of Reliv' U.K.'s capital stock in return for a 3% equity ownership
in Reliv' Europe. The former owner of Reliv' U.K. forgave approximately $435,000
in advances to Reliv' U.K. Under the purchase arrangement, the former owner will
receive monthly payments equal to 1.5% of Reliv' Europe's retail sales for a
period of ten years.
Principal Products
Through its subsidiaries, the Company markets and sells a line of
related products including nutritional supplements, weight control products,
functional foods, granola bars, sports drink mixes and a premium skin care line.
The nutritional supplements include Reliv' NOW(R) and Reliv'
Classic(R). Both products are designed to provide a balanced nutritional
supplement for an individual's diet and contain a variety of vitamins and
minerals, soy and other protein sources and various herbs. The products are in
powdered form to be mixed with juice or other beverages. The Reliv' Classic
formula has a U.S.
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patent and the Reliv' NOW formula is a no-yeast derivative of the Reliv' Classic
formula. Reliv' NOW is available with all natural flavoring or in the original
formula.
Reliv' Ultrim-Plus(R) is designed as a meal replacement (for a maximum
of two meals per day) in a weight loss program. The product incorporates the
core formulation of Reliv' NOW, including vitamins, minerals, proteins and
herbs, as well as additional protein and nutrient sources. Reliv' Ultrim-Plus is
available in three flavors - vanilla, chocolate and strawberry. It is also
available in aspartame-free vanilla. The product is in powdered form for mixture
with water or milk.
Reliv' Cellebrate(R) is a patented weight loss aid designed to suppress
appetite, curb the storage of body fat, and facilitate the body's fat burning
process. Reliv' Cellebrate is in powdered form and is recommended to be used
alone or with Reliv' Ultrim Plus meal replacement.
Reliv' Celleboost(R) is also a weight loss aid designed to suppress
appetite and reduce body fat. Reliv' Celleboost is in capsule form and is
recommended to supplement Reliv' Cellebrate, Reliv' Ultrim-Plus or to be used
alone. Reliv' Celleboost was introduced in January, 1996.
Reliv' Ultra Bar(R) is a line of granola bars containing a mixture of
grains and nuts which use the core formulation of Reliv' NOW vitamins, minerals,
proteins and herbs. Flavors include yogurt, chocolate and raspberry carob. The
bars are a snack food and nutritional supplement and are used with Reliv'
Ultrim-Plus as a meal replacement in a weight loss program.
Reliv' Innergize!(R) is a patented powdered sports drink containing a
mixture of vitamins and minerals. Reliv' Innergize is available in lemon, orange
and cool punch flavors.
Reliv' Fibrestore(R) is a patented nutritional supplement containing
fiber, vitamins, minerals and herbs. The product is in powdered form for mixture
with water or juice. A modified version of the Reliv' Fibrestore formula is
marketed in Canada under the name Herbal Harmony in compliance with that
country's nutritional regulations.
Reliv' Arthaffect(R) is a nutritional supplement and functional food
containing Arthred(TM), a patented form of hydrolyzed collagen protein, which is
clinically reported to nutritionally support healthy joint function. The product
is in powdered form for mixture with water, milk or juice.
Reliv' Arthaffect was introduced in October, 1996.
Reliv' Getabetterbody(R) Weight Loss System is a weight loss system kit
containing Reliv' Ultrim Plus, Reliv' Cellebrate and Reliv' Celleboost together
with product information and other tools to be used in a weight loss program.
Reliv' ProVantage(TM) is a nutritional supplement containing soy,
designed to enhance athletic performance. The product is also of benefit to
dieters and others wanting to increase their soy intake. The product is in
powdered form for mixture with water or juice. Reliv' ProVantage was introduced
in October, 1997.
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Reliv' Healthy Pantry(TM) premium entrees are a line of soy-based
functional foods. The meals are designed to offer the advantages of soy in low
fat, easy to prepare meals. The line includes Pasta Prima Vera, Hearty Chili,
Hearty Burger and Ala King dinner. The meals are in dried form and can be
prepared quickly with a minimum of additional ingredients. Reliv' Healthy Pantry
was introduced in May, 1997.
In November, 1998, the Company introduced Reliv' SoySentials(TM), a
nutritional supplement containing soy as well as other vitamins, minerals and
herbs designed for use by women. The product is in powdered form for mixture
with water or juice.
The Company also markets a line of skin care products which is based on
compounds found only in the avocado. The products are designed to be used
individually or in combination with each other. The product line includes: (i)
Reliv' Face and Body Bar, a mild face and body soap; (ii) Reliv' Pathway(R), a
skin cleanser and primer which contains a variety of avocado based ingredients;
(iii) Reliv' Reavo(R), a skin care cream designed to reduce the appearance of
aging in the skin caused by natural and environmental causes; and (iv) Reliv'
R.P. 1.5(R), a skin care cream having the active ingredient retinyl palmitate is
designed to reduce the appearance of aging caused by environmental causes such
as exposure to the sun. The Company's skin care line also includes toners,
moisturizers, sunless tanning lotions and related items.
The Company conducts ongoing research and development on its product
line and intends to introduce additional product items. See "Research and
Development."
Patents and Trademarks
The Company has obtained U.S. patents on the formulations of Reliv'
Innergize!, Reliv' Fibrestore and Reliv' Cellebrate.
The Reliv' Classic formula has a U.S. Patent. Reliv' NOW is a trade
secret formulation which is a derivative of the Reliv' Classic formulation. The
core mixture of Reliv' NOW is incorporated in Reliv' Ultrim-Plus and the Reliv'
Ultra Bars. These products are manufactured and sold by the Company under an
Exclusive License Agreement dated December 1, 1991 ("License Agreement"). The
License Agreement is worldwide in scope and continues through the life of the
patent. Pursuant to the License Agreement, the Company is obligated to pay the
owner of the patent and the developer of the formulations, Dr. Theodore P.
Kalogris, a royalty of 5 percent of the revenues from the sale of products
containing the licensed formulas, with a minimum $10,000 and maximum $22,000
monthly royalty. The Company's obligation to pay the royalty payments will
terminate on the later of (i) 10 years from the date of the License Agreement or
(ii) the death of Dr. Kalogris, and the License Agreement will be deemed to be
paid in full at that time.
The principal ingredient of Reliv' Arthaffect is the subject of an
issued U.S. patent. Under an agreement dated November 6, 1996, Traco Labs, Inc.
("Traco"), exclusive licensee of the patent rights, sublicensed the rights to
sell the product to the Company ("Traco Agreement"). The license
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is exclusive for direct sales in certain sales areas and is for a term ending
upon the later of (i) the termination of Traco's rights to market the product or
(ii) December 31, 2014. The Traco Agreement provides that the Company will
purchase its requirements of the product from Traco, and the exclusivity of the
license is contingent on minimum purchases of the product being made by the
Company.
The principal ingredient of Reliv' Reavo is the subject of an issued
U.S. patent. On July 1, 1995, Avogen, Inc. ("Avogen") granted to the Company a
license under such patent and other proprietary rights relating to the skin care
line of products, to purchase such products from or through Avogen and to sell
and distribute the products (the "Avogen Agreement"). On April 25, 1997, the
Avogen Agreement was amended. The Avogen Agreement is worldwide in scope and
continues through the later of the last to expire of the patents subject to the
Avogen Agreement or December 31, 2014. Pursuant to the Avogen Agreement, as
amended, the Company was granted an exclusive license to market its current line
of skin care products subject to the Agreement, and is obligated to pay Avogen
royalties which vary depending on the product sold.
Trademark registrations for "Reliv'" and for the many of the Company's
product names are either issued or pending in the U.S. Patent and Trademark
Office. Trademark registrations for selected marks have been issued or applied
for in Australia, New Zealand, Canada, Mexico, the United Kingdom and several
other foreign countries. The Company considers its trademarks and tradenames to
be an important asset of its business.
Sales and Marketing
The Company sells its products to a network of independent contractors,
designated as "distributors", who in turn sell the products directly to
consumers. The Company's products are marketed and sold to distributors in the
United States, Australia, Canada, New Zealand, Mexico and the United Kingdom
through a subsidiary in each country. The marketing efforts of the Company and
these subsidiaries are focused on the development, training and support of this
network of independent distributors. The Company, through these subsidiaries,
supports an active training program for distributors in which Company
representatives and experienced distributors lead group training sessions. The
Company and these subsidiaries also create and provide distributors with
manuals, brochures and other promotional, training and informational
publications. Periodically, each subsidiary sponsors distributor meetings at
which Company representatives provide training and information concerning the
Company's products. Company subsidiaries also sponsor group telephone conference
calls for training and promotional activities.
Distributors consist principally of individuals, although a limited
number of distributors are corporations or partnerships. New distributors are
sponsored by existing distributors. A new distributor is required to complete a
distributor application and, in most areas, to purchase a package of distributor
materials (for $39.95 in the United States) consisting of a distributor manual,
business forms and promotional materials. Distributors purchase products from
Company subsidiaries or from other distributors for resale or consumption by the
distributor or his or her family.
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In each country in which the Company conducts business, distributors
operate under a uniform distributor system which compensates distributors at
varying levels based on sales volumes. Initially, a distributor is designated a
Retail Distributor and is entitled to purchase products from a Company
subsidiary or other distributors at a discount of 25 percent from the Company's
suggested retail price. A distributor is promoted to higher levels in the system
by increasing his or her sales of the Company's products, directly or through
other distributors sponsored in the distributor's sales group, and by achieving
designated sales volumes. These higher ranks of distributor are designated in
order as Affiliate, Key Affiliate, Senior Affiliate and Master Affiliate. At
each higher level, a distributor is entitled to purchase products at an
increasingly higher discount; a Master Affiliate receives a 45 percent discount.
Distributors receive retail profits equal to the difference between the
price at which they sell the product to customers and the discounted price they
paid for the product. Distributors also earn wholesale commissions on products
purchased by other distributors in the distributor's sponsored group equal to
the difference between the price at which the distributor is entitled to
purchase product at and the price at which downline distributors purchase
product. The Company pays a Master Affiliate a commission with respect to
products purchased directly from the Company by Retail Distributors, Affiliates,
Key Affiliates or Senior Affiliates directly sponsored by them or who are in
their personally sponsored group (i.e., individuals sponsored by the Master
Affiliate's distributors, directly or indirectly). The commission is equal to
the difference between the prices at which such distributors were entitled to
purchase products and the 45 percent discounted price available to Master
Affiliates. Senior Affiliates, Key Affiliates and Affiliates are entitled to
receive from their Master Affiliate a portion of the commission paid to the
Master Affiliate, based upon the purchases of products from Company subsidiaries
by distributors sponsored by them or by distributors in their personal group.
Master Affiliates are also entitled to receive additional compensation
payments of two percent to five percent of the retail sales volume of product
purchased from Company subsidiaries by Master Affiliates (and their personal
groups) whom they have sponsored, and for up to five levels of sponsorship. To
qualify for these additional compensation payments, Master Affiliates are
required to maintain certain monthly sales volumes and document specified levels
of retail sales. Master Affiliates who sponsor other distributors to the level
of Master Affiliate are entitled to become part of the Director Program, and
attain higher positions in the program based on the size of their additional
compensation payments. The levels of Director, in order, are Director, Key
Director, Senior Director, Master Director and Presidential Director.
Distributors reaching these levels receive pins and/or rings recognizing their
achievement and recognition in Company publications and at Company sponsored
activities.
In mid-1996, the Company introduced the Star Director Program, which
allows Directors to receive increased additional compensation payments based on
the number of Master Affiliates they have sponsored since the program commenced.
Directors are entitled to receive an additional one percent to three percent of
additional compensation on the retail sales volume of Master Affiliates in their
sponsorship.
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The Company also sponsors an Ambassador Program. To qualify as an
Ambassador a distributor must hold the level of Master Director and must assist
personally sponsored Master Affiliates in meeting specified levels of additional
compensation payments. The levels of Ambassador are, in order, Ambassador,
Bronze Ambassador, Silver Ambassador, Gold Ambassador and Platinum Ambassador.
As higher levels are reached, Ambassadors are entitled to increased percentages
of the retail sales volume of Master Affiliates below them through five levels
of sponsorship, and at the two highest levels, a percentage of the sixth level
of sponsorship below their personally sponsored Master Affiliates. Ambassadors
are also entitled, depending on the level, to additional benefits, such as
participation in Company sponsored events, paid hotel rooms at conventions,
health insurance and car allowances. Periodically, a group of high level
Ambassadors meet with Company executives in the "Reliv Inner Circle" to exchange
ideas on new programs, products and marketing opportunities.
The Company's Direct Select(sm) program is available in the United
States whereby distributors and their retail customers may order product in less
than case lots directly from the Company by phone. An automatic monthly reorder
program is also available. Product is shipped directly to the customer and
distributors earn a commission on Direct Select sales made to their customers.
Company subsidiaries also provide a variety of additional incentives or
bonuses to the most productive distributors.
As of December 31, 1998, 36,884 persons or entities were registered as
distributors of Company subsidiaries of which 5,198 were Master Affiliates. This
is in comparison to the December 31, 1997 totals of 37,826 distributors of which
4,374 were Master Affiliates. The number of registered distributors and Master
Affiliates in each country in which Company subsidiaries operate is as follows:
Distributors Master Affiliates
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United States 29,169 4,123
Australia 3,144 286
New Zealand 1,047 111
Canada 971 402
Mexico 1,312 226
United Kingdom 1,241 50
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Not all persons registered as distributors of Company subsidiaries are
active. Reliv' requires that persons wishing to continue as distributors renew
their distributorship annually by the payment of a fee ($20 in the United
States); the number of distributors shown in the preceding table reflects
persons who have become distributors within the past 12 months and those who
renewed their distributorship during 1998.
The Company recognizes that its sales growth is based upon the
continued development of its independent distributor force and strives to
maintain an active and motivated distributor network through a combination of
quality products, discounts, commissions and bonus payments, sales conventions
and training, personal recognition and a variety of publications and promotional
materials.
The Company recognizes that businesses in the network marketing
industry risk the possibility that a portion of sales made to distributors may
not be consumed or sold to consumers and instead, may remain as inventory in the
distributors' possession. The Company's distributor organization and
compensation system is designed and intended to promote the sale of the
Company's products to consumers by distributors. Sales training and promotional
efforts emphasize that intention. To that end, and to comply with applicable
governmental regulations of multilevel selling organizations, the Company and
each subsidiary have established specific programs and requirements for
distributors including (i) monitoring by the Company of purchases by
distributors to identify potentially excessive individual purchases, (ii)
requiring that distributors certify to a specified amount of retail sales to
receive commissions, and (iii) requiring that distributors certify the sale of
at least 70 percent of previous purchases prior to the purchase of additional
amounts of product. The Direct Select program, as described above, further
promotes sales of the Company's products to consumers. Distributors are not
required at any time to purchase product, although Master Affiliates are
required to maintain certain minimum sales levels in their personal groups to
continue receiving royalty compensation payments.
Each subsidiary maintains a policy that unused product may be returned
by customers to the selling distributor or the subsidiary or licensee for a full
refund within 30 days after purchase. Each subsidiary also maintains a policy
that any distributor who terminates his distributorship may return resalable
product for a refund of 90 percent of the purchase price less any discounts or
commissions received relating to the purchase of the products.
The Company has established a suggested retail price for each of the
Company's products in each country in which the Company conducts business, but
distributors are free to determine the price at which they will sell the
Company's products. Distributors are not assigned territories and there are no
restrictions on marketing areas for distributors.
In the United States, the Company's products are warehoused and shipped
by common carrier to distributors. A facility in Chesterfield, Missouri serves
the east and central parts of the country and the Company utilizes a public
warehouse facility in Las Vegas, Nevada to supply the West Coast. See "Item No.
2 - Properties". Products are also warehoused in, and shipped to local
distributors from: Sydney, Australia; Auckland, New Zealand; Toronto, Canada;
Mexico City,
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Mexico; and London, England. Each subsidiary of the Company maintains an office
and personnel to receive, record and fill orders from distributors. Distributors
order product from Company subsidiaries in case lots and pay for the goods prior
to shipment. In general, state or local governmental sales taxes are collected
by Company subsidiaries for taxing authorities.
Manufacturing and Product Sources
The Company established a manufacturing line at its facility in
Chesterfield, Missouri and had begun manufacture of its nutritional products in
early 1993. Shortly after manufacturing commenced, the facility was flooded in
July 1993, as a result of a break in a levee on the Missouri River. The Company
initiated the return of manufacturing to its Chesterfield facility in mid-1995
and currently manufactures all of its products (except granola bars and skin
care products) at this facility. The Company expanded its Chesterfield facility
in 1997. See "Item No. 2 - Properties".
In 1996, the Company received approval from the Australian Therapeutic
Goods Authority ("TGA") to manufacture products sold in Australia at its
Chesterfield plant and currently manufactures all of Australia's requirements of
nutritional products at its Chesterfield facility. The certification of the
Company's Chesterfield site by the Australian TGA, also satisfied Canadian
manufacturing requirements and the Company manufactures substantially all of the
nutritional products sold in Canada. The Company has not experienced any
difficulty in obtaining supplies of raw materials for its nutritional products
and does not believe it will encounter any such difficulty in the future.
The Company's granola bars are manufactured by contract manufacturers,
predominantly located in the United States, who produce the products in
accordance with formulas provided by the Company, subject to quality control
requirements and inspections by representatives of the Company. During 1998, the
Company's line of skin care products was supplied to it pursuant to the Avogen
Agreement and was purchased from Avogen and various contract manufacturers.
Arthred(TM), the principal ingredient of Reliv' Arthaffect, is supplied to the
Company by Traco. The Company has had no difficulty in obtaining contract
manufacturing and there has been no material effect on the timely supply of
goods.
Research and Development
At its Chesterfield facility, the Company conducts research, product
development and formulation, testing and quality control, all relating to food
products. Research and development costs were $319,000 in 1998, $286,000 in 1997
and $289,000 in 1996.
Employees
As of December 31, 1998, the Company and all subsidiaries had
approximately 228 full-time employees compared with 162 such employees at the
end of 1997. This resulted from an increase in sales, marketing and distribution
personnel to support increased network maketing sales and an increase in
manufacturing and warehouse employees as a result of an increase in the contract
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manufacturing business segment. In March, 1998, the Company and the local
Teamsters Union ratified an agreement covering the Company's manufacturing and
warehouse employees. The Company believes that its relationship with its
employees is satisfactory.
Product Regulation
The formulation, labeling and advertising or promotion of the Company's
products are subject to regulation by the Federal Food and Drug Administration
(FDA) which regulates the Company's products under the Federal Food, Drug and
Cosmetic Act (the "FDCA"), the Federal Trade Commission (FTC) and various
agencies of the states or countries into which the Company's products are
shipped or sold. FDA regulations include requirements and limitations with
respect to the labeling of the Company's food products and also with respect to
the formulation of those products. The skin care products sold by the Company
are also subject to FDA regulations with respect to formulation and marketing of
cosmetics. FDA regulations also limit and control the extent to which health or
other claims can be made with respect to the efficacy of any food or cosmetic.
The FDCA has been amended several times with respect to nutritional supplements,
most recently by the Nutrition Labeling and Education Act of 1990 (the "NLEA")
and the Dietary Supplement Health and Education Act of 1994 (the "DSHEA") and
related regulations. Such legislation governs the marketing and sale of
nutritional supplements, including the content and presentation of health
related information included on the labels or labeling of nutritional
supplements. The Company does not believe these laws or regulations will have a
material effect on its products or operations. Nutritional and dietary
supplements such as those manufactured and sold by the Company, for which no
therapeutic claim is made, are not subject to FDA approval prior to their sale.
The Company presently does not anticipate marketing new products which would
require FDA approval. However, these products can be removed from the market if
shown to be unsafe, and if the FDA determines, based on the labeling of
products, that the intended use of the product is for the diagnosis, cure,
mitigation treatment or prevention of disease, it can regulate those products as
drugs and require premarket clearance. In addition, if the FDA determines that
the claims concerning a product's affect on the "structure or function" of the
body do not meet the requirements of DSHEA, such claims could result in such
product being subject to regulation as a drug.
The Company's advertising of its nutritional supplement products is
also subject to regulation by the FTC under the Federal Trade Commission Act,
which prohibits unfair or deceptive trade practices, including false or
misleading advertising. The FTC in recent years has brought a number of actions
challenging claims by companies (other than the Company) for weight loss and
"fat burning" dietary supplement products and plans. The FTC has also recently
issued regulations governing the marketing of nutritional supplements.
Governmental regulations in foreign countries where the Company plans
to commence or expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain of
the Company's products. Such regulations have caused delays in introducing
certain of the Company's products in the past and such delays have had negative
affects on sales.
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The Company may be subject to additional laws or regulations
administered by the FDA or other federal, state or foreign regulatory
authorities, the repeal of laws or regulations which the Company considers
favorable, such as the DSHEA, or more stringent interpretations of current laws
or regulations, from time to time in the future. The Company is unable to
predict the nature of such future laws, regulations, interpretations or
applications, nor can it predict what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on its business in
the future.
Sales Program Regulation
The Company's distribution and sales program is subject to regulation
by the FTC and other federal and state regulation. Various state agencies
regulate multi-level distribution activities. The Company is required to
register with, and submit information to, certain of such agencies and has
complied fully. The Company actively strives to comply with all applicable state
and federal laws and regulations affecting its products and its sales and
distribution programs. The Attorney Generals of several states have taken an
active role in investigating and prosecuting companies whose compensation plans
they feel violate local anti-pyramid and/or consumer protection statutes. The
Company is unable to predict the effect such increased activity will have on its
business in the future nor is the Company able to predict the probability of
future laws, regulations or interpretations which may be passed by state or
federal regulatory authorities.
Under current law, the Company's distributors are treated for federal
income tax purposes as independent contractors and compensation paid to them is
not subject to withholding by the Company. Several bills have been introduced in
Congress which would restrict the definition of independent contractor and
possibly jeopardize the exempt status enjoyed by direct sellers. Such a change
would negatively impact the Company's recruiting efforts. The direct selling
industry is strongly opposing such bills as they relate to direct sellers. The
Company is unable to assess the likelihood of these or similar bills being
enacted. In several states, legislation has been introduced which would narrow
the definition of independent contractor for purposes of income tax withholding
as well as unemployment compensation, worker's compensation and other employee
benefits. To date, the status of direct sellers as independent contractors has
not been affected. States are becoming increasingly active in this area,
however, and there is no assurance that future legislation at the state level
affecting direct sellers will not be enacted.
Competition
The Company's products are sold in highly competitive markets against
companies with substantially greater sales volume and financial resources than
the Company and with brands that are, through advertising and other methods,
better known to consumers. The Company competes against other direct selling
companies and against companies which sell heavily advertised and promoted
products through retail stores, including supermarkets, drug stores and health
food stores. The Reliv' Ultrim-Plus, Cellebrate and Celleboost products compete
with numerous other products in the weight loss market, including nationally
advertised products such as SlimFast(tm). Many companies have entered, or have
plans to enter, the sports drink market in which Reliv' Innergize! and
ProVantage compete, a market long dominated by Gatorade(tm). Reliv' NOW, Reliv'
Classic and
12
<PAGE>
Reliv' Fibrestore compete with numerous mineral and vitamin supplement products.
The Company's skin care line competes with products sold by numerous,
well-established cosmetic companies, including several direct selling companies
such as Mary Kay and Avon. With Arthaffect, the Company has entered the
relatively new "functional foods" market, which is expected to be extremely
competitive and led by the major food companies.
International Operations
Prior to 1991, the Company marketed and sold its products solely within
the United States. In February, 1991, Reliv' entered into a joint venture with
an Australian corporation and the joint venture began marketing and selling the
Company's products in Australia in May, 1991. As of March, 1992, the Company
organized Reliv' World to conduct international operations, acquired the
business of the Australian joint venture and began conducting business in
Australia through Reliv' Australia. In June, 1992, the Company began marketing
and selling its products in New Zealand through Reliv' New Zealand, in November,
1992, began marketing and selling its products in Canada through Reliv' Canada,
and in August, 1993, began marketing and selling its products in Mexico through
Reliv' Mexico. In July, 1995, the Company began marketing and selling its
products in the United Kingdom through Reliv' UK, a licensee. In October, 1998,
Reliv' Europe acquired Reliv' U.K.
Each foreign subsidiary markets, sells and uses substantially the same
line of products, labeling and method of distribution as Reliv' in the United
States, although not all of the Company's products are available in each country
and the formulation of some of the products vary to comply with local
governmental regulations or requirements.
Reference is made to Note 18 of the Consolidated Financial Statements
contained in Part IV hereof for financial information on geographical segments.
Manufacturing and Packaging Services
In the last quarter of 1995, the Company commenced providing
manufacturing and packaging services at its Chesterfield manufacturing facility.
These services include blending, processing and packaging food products in
accordance with specifications or materials provided by the customer. Revenues
from these services during 1996 were $3,310,000, decreased to $1,525,000 in
1997, as a result of the loss of a major customer, and increased to $6,332,000
in 1998 as a result of regaining a major customer and obtaining other business.
The Company has capacity for and is actively seeking additional manufacturing
and packaging business. In 1998, one customer, Met-Rx USA, Inc., accounted for
$5,447,000 of the Company's total sales.
Reference is made to Note 18 of the Consolidated Financial Statements
contained in Part IV hereof for financial information on business segments.
Item No. 2 - Properties
The Company owns approximately six acres of land and a building
containing approximately 136,000 square feet of office, manufacturing and
warehouse space located at 136 Chesterfield
13
<PAGE>
Industrial Boulevard, Chesterfield, Missouri, 63006, where it currently
maintains its corporate headquarters. In 1998, the Company completed an
expansion to the Chesterfield facility on land owned by the Company adjacent to
existing building. Approximately 90,000 square feet of manufacturing, warehouse
and office space was added to the existing 46,000 square foot facility. The
Company obtained a construction loan of $4,430,000 to finance the expansion. As
of December 31, 1998, this loan had a principal balance of $4,355,000.
The original property was purchased in July, 1991, and, as part of the
purchase price for the premises, the Company assumed the remaining principal
balance of $850,108 of a 1984 industrial revenue bond with an original principal
sum of $975,000. In addition, the Company executed a promissory note to the
seller in the amount of $250,000. The principal balances of the bond and
promissory note at December 31, 1998, are $541,000 and $205,000, respectively.
The promissory note is secured by a deed of trust on the premises. The Company
funds payments under the industrial revenue bond and promissory note from
working capital. In 1992, the Company completed an addition to its building of
approximately 12,000 square feet used for manufacturing of its products. In May,
1993, the Company purchased 3.4 acres of land adjacent to the original facility
for $400,000.
The Company leases office space in suburban Sydney, Australia;
Mississauga, Ontario, Canada; Mexico City, Mexico; and in suburban London,
England to support its operations in those areas, and has a contract warehouse
arrangement in Auckland, New Zealand.
Item No. 3 - Legal Proceedings
On May 21, 1997, Timothy Tobin, a former director and officer of the
Company, filed a Demand for Arbitration with the American Arbitration
Association in St. Louis, Missouri. The Demand claimed damages resulting from
alleged misrepresentations made by the Company in connection with a Stock
Purchase Agreement and Consulting Agreement entered into with Mr. Tobin in
October 1992. The Company filed an Answer and Counterclaim denying Mr. Tobin's
allegations and claiming damages resulting from Mr. Tobin's breach of warranties
contained in the October 1992 agreements. The arbitration was held before the
American Arbitration Association and concluded on October 21, 1998. The
arbitrators' decision awarded no damages to Mr. Tobin on his claim or to the
Company on its counterclaim.
In May, 1998, the former sales/general manager of the Company's
Canadian subsidiary filed a lawsuit claiming unlawful termination. The
individual had been terminated by the Company in March, 1998. The Company
believes the claim is without merit and intends to vigorously defend itself.
Item No. 4 - Submission of Matters to a Vote of Security Holders
N/A
14
<PAGE>
PART II
Item No. 5 - Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock was admitted to trading on the Emerging
Company Market Place at the American Stock Exchange on March 8, 1993 and
subsequently was approved for listing on the American Stock Exchange Main Board.
Prior to that time, there was no established public trading market for the
Company's Common Stock. On September 6, 1996, the Company moved the listing of
its Common Stock to the NASDAQ National Market Tier of the NASDAQ Stock Market
under the symbol: RELV.
1998 and 1997 Quarterly Stock Price Data
----------------------------------------
HI LO
----- -----
1998
First Quarter 5.125 2.875
Second Quarter 4.875 3.063
Third Quarter 4.00 2.438
Fourth Quarter 3.750 2.031
1997
First Quarter 7.625 5.341
Second Quarter 8.625 6.00
Third Quarter 7.00 5.25
Fourth Quarter 5.75 2.75
All stock price data has been retroactively adjusted for the Company's
10% stock dividend issued in February 1997.
As of March 15, 1999, there were approximately 1,787 holders of record
of the Company's Common Stock.
On February 28, 1997, a 10% stock dividend and a cash dividend of $.01
per share was paid to shareholders of record. The cash dividend on such date was
paid on all shares after giving effect to the stock dividend. On June 13, 1997,
a cash dividend of $.02 per share was paid to shareholders of record. On January
29, 1998, a cash dividend of $.01 per share was paid to shareholders of record.
On June 22, 1998, a cash dividend of $.015 per share was paid to shareholders of
record. The amount and timing of future dividends will be subject to declaration
of the Board of Directors consistent with results of operation of the Company
and its financial condition at the time.
In March, 1995, the Company instituted an automatic dividend
reinvestment plan for its shareholders of record. Participation in the plan,
which is voluntary, provides for dividends paid by the Company to be reinvested
in shares of common stock at the then current market price. The plan also allows
participants to make additional voluntary purchases of common stock at the
market price.
Effective January 1, 1999, the Company instituted a Distributor Stock
Purchase Plan whereby qualified distributors can allocate a portion of their
commission check toward the purchase of the Company's Common Stock and can make
additional purchases of Common Stock through direct contributions. Purchases are
made at the market price. Distributors also are entitled to receive at
15
<PAGE>
the end of each year warrants to purchase the Company's Common Stock based on
the number of shares of Common Stock purchased by the distributor during the
year pursuant to the Plan.
In 1997, pursuant to a consulting agreement, the Company issued
warrants to purchase 9,600 shares of its Common Stock at a price of $6.25 per
share, with a term of two years. The issuance of these securities was exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as an issuance not involving a public offering.
Item No. 6 - Selected Financial Data
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $51,893,511 $46,836,270 $40,729,993 $28,913,873 $32,190,444
Net Income $ 1,556,929 $ 2,028,988 $ 1,507,014 $ 569,823 $ 893,766
Earnings per common share(1):
Basic .16 .21 .15 .06 .09
Diluted .16 .20 .15 .06 .09
Cash Dividends per share of Common Stock .025 .03 .02 .01 .015
Total Assets $20,252,972 $15,969,948 $11,401,665 $10,276,234 $ 9,660,013
Long-term debt and
capital lease obligations,
less current maturities $ 5,589,562 $ 5,148,625 $ 1,478,079 $ 1,416,764 $ 1,000,024
- ---------------------------------------------
<FN>
(1) All earnings per share data has been retroactively adjusted for the pro
forma effect of the Company's 10% stock dividend issued in February 1997.
</FN>
</TABLE>
Item No. 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Income and Net Sales
1998 vs. 1997
The Company's 1998 net income was $1,557,000 or $.16 per share. This
compares with net income of $2,029,000 or $.21 per share in 1997. Net income in
the United States was $1,659,000 in 1998, compared to $2,177,000 in 1997. Net
loss from international operations was $102,000 in 1998, compared with $148,000
in 1997. The decrease in income, as explained in greater detail below, resulted
from a variety of factors, including weak international results and higher
interest and overhead expenses resulting from improvements in facilities to
support the growth of the manufacturing and packaging business segment.
16
<PAGE>
Net sales increased in 1998 to $51.9 million, as compared to $46.8
million in 1997, as a result of the 14 percent increase in net sales in the
United States from $41.7 million in 1997 to $47.4 million in 1998. Net sales in
the United States, which accounts for 91 percent of total net sales, is
comprised of network marketing sales and manufacturing and packaging services.
In 1998 network marketing sales in the United States increased by 2 percent to
$41.0 million compared to $40.2 million in 1997, and net sales from
manufacturing and packaging services increased to $6.3 million from $1.5 million
in 1997. Net sales in the foreign operations declined to $4.5 million in 1998
from $5.1 million in 1997.
Net sales for the fourth quarter of 1998 were $15.0 million, an
increase from fourth quarter 1997 net sales of $10.9 million. During the period
network marketing sales in the United States remained nearly constant at $9.5
million as compared to $9.6 million in the fourth quarter 1997. Net sales in the
foreign operations decreased from $1.2 million for the quarter in 1997 to $1.1
million. The increase in net sales was due to an increase in manufacturing and
packaging services from $150,000 to $4.4 million.
The Company provides manufacturing and packaging services, including
blending, processing and packaging food products in accordance with
specifications provided by its customers. Net sales increased in 1998 to $6.3
million from $1.5 million in 1997. The increase in sales was due to the return
of a major customer along with the addition of customers. The Company's sales to
third party customers primarily consist of the Company purchasing the raw
materials, using customer-provided packaging materials and selling a finished
product to the customer. In prior years, the Company simply charged a processing
fee to the customer and did not purchase any of the raw or packaging materials.
By purchasing the raw materials, the Company feels that it can achieve better
buying efficiencies for both its own network marketing products, as well as for
its third party customers. The expansion of the Company's manufacturing and
packaging facilities has allowed for this increase in sales and will allow for
future growth in this business segment. In addition to representing another
source of income, providing manufacturing and packaging services allows the
Company to better utilize the manufacturing and product development
infrastructure, thus spreading overhead costs.
In the United States, the Company's largest market, the number of
active distributors decreased 2 percent to 29,169. The retention rate of
distributors who renew their annual agreement continued to remain high at 54
percent. Master Affiliates, distributors who have attained the highest level of
discount and are eligible for generation royalties, increased to 4,123 in the
United States in 1998 from 3,631 in 1997. In 1998 the Company processed 78,609
orders at an average retail price of $663, compared to 73,136 orders at an
average of $695 in 1997.
The increase in network marketing sales in 1998 was below expectations.
In 1998, the Company instituted a new marketing program "Family Freedom" and
introduced new sales tools in an attempt to generate greater sales levels. The
Family Freedom Program supplements existing marketing programs such as the "Road
to Presidential," "The Star Director" and "Ambassador" programs. The Star
Director Program compensates distributors who reach certain levels of sales
organization growth with bonuses based on the retail sales of their distributor
network. In 1998, $1,345,000 was paid through this program in the United States
compared to $1,329,000 in 1997 and
17
<PAGE>
$420,000 in 1996. The Ambassador Program compensates distributors at the highest
levels for their leadership and development of sales. At year end 1998 there
were 58 Ambassadors in the United States who shared in bonuses totaling $795,000
compared to 52 Ambassadors at the end of 1997 sharing bonuses of $838,000.
The United States 1998 net sales were affected by the introduction of a
new product, SoySentials, a soy-based nutritional supplement designed for use by
women. This product expands the Company's product line in the growing functional
foods category.
The Company's Direct Select Program makes products available to
consumers by ordering directly through the Company. In 1998, the program in the
United States, produced $6.3 million, or nearly 11 percent of total product
sales at retail value, compared to $5.9 million in 1997 and $4.3 million in
1996. The Company introduced the Direct Select Program in Canada in October 1997
and in Australia, New Zealand and the United Kingdom over the course of 1998.
In Australia and New Zealand net sales declined to $2,897,000 in 1998
from $3,449,000 in 1997. Fourth quarter 1998 sales decreased to $687,000 from
$753,000 in 1997. New distributor enrollments declined in Australia and New
Zealand to 1,814 from 1,820 in 1997. Distributor renewals in Australia were 54%
and in New Zealand 38% in 1998 as compared to 48% and 37% in 1997, respectively.
Reported net sales in Australia and New Zealand were also affected by the
decline in the value of their currency as compared to the United States dollar.
As of the end of 1998, the Australian and New Zealand dollars declined 6% and
9%, respectively, from their rates as of December 31, 1997. However, the
year-end rates have improved from historic lows experienced during the third
quarter of 1998.
In 1998, the Company reorganized its geographic business units into a
single worldwide organization, and placed a single executive in charge of each
of three critical business functions, manufacturing and product development,
sales and marketing, and operations and administration. The principal purposes
of this structure change was (i) to provide consistency in marketing programs,
products and administration between the United States and foreign subsidiaries,
(ii) to eliminate inefficiencies in foreign markets and (iii) to increase sales.
The Company has also added an international sales director responsible for
Mexico, Canada and the United Kingdom and has hired new sales managers in Mexico
and Canada.
Sales in Australia and New Zealand have been affected by continued
delays in the introduction of several new products due to regulatory policies,
plus increased levels of competition. The Company has received approval in
Australia and New Zealand to sell Reliv' Classic and introduced it in May, 1998.
Reliv' Classic is the number one selling product in the United States accounting
for approximately 25% of total retail sales. Fibrestore, a product which
averages in excess of 10% of sales in the United States, was introduced in
Australia in September, 1997. In addition, during 1998 a number of top selling
products have been approved for sale in several other foreign markets which
should also support sales growth. A version of another key product, Arthaffect,
is nearing approval in Australia and should be available for sale there in the
near future.
18
<PAGE>
Net sales in Canada decreased in 1998 to $1,214,000 from $1,338,000 in
1997. Fourth quarter sales decreased to $274,000 in 1998 compared to $334,000 in
1997. New distributor enrollments declined to 797 from 991 in 1997. Although the
Company was able to introduce Classic in March, 1998, sales for the year were
adversely affected by the change in sales management.
Net sales in Mexico in 1998 were $317,000 compared to $330,000 in 1997.
Net sales in the fourth quarter 1998 were $81,000 compared to $74,000 in 1997.
New distributor enrollment increased in 1998 to 445 compared to 360 in 1997.
Along with a new sales manager hired in the fourth quarter of 1998, the Company
has begun establishing new distribution centers, at facilities owned and
operated by key distributors in cities outside of Mexico City. Due to the lack
of an adequate cartage system in Mexico, this is a common method used by network
marketing companies to distribute their products.
The Company began marketing its products in the United Kingdom in July,
1995, through a licensee. Revenues under the license agreement in 1996, 1997 and
1998 were minimal and in October, 1998, the Company through a subsidiary assumed
ownership and control of the United Kingdom operations. The United Kingdom
subsidiary reported net sales of $109,000 in the fourth quarter of 1998.
1997 vs. 1996
The Company's 1997 net income was $2,029,000 or $.21 per share ($.20
per share diluted). This compares with net income of $1,507,000, or $.15 per
share in 1996. Net income in the United States was $2,177,000 in 1997, compared
to $1,686,000 in 1996. Net income from international operations was a loss of
$148,000 in 1997, compared with a loss of $179,000 in 1996.
Net sales increased in 1997 to $46.8 million, as compared to $40.7
million in 1996, as a result of the 21 percent increase in net sales in the
United States from $34.4 million in 1996 to $41.7 million in 1997. Net sales in
the United States, which accounts for 89 percent of total net sales, is
comprised of network marketing sales and contract packaging services. In 1997
network marketing sales in the United States increased by 29 percent to $40.2
million compared to $31.1 million in 1996, while net sales from contract
services declined to $1.5 million from $3.3 million in 1996. Net sales in the
foreign operations declined to $5.1 million in 1997 from $6.3 million in 1996.
The increase in network marketing sales during 1997 was a result of a
larger and more productive network of distributors, primarily in the United
States. In the United States, the Company's largest market, the number of active
distributors increased 12 percent to 29,616. The retention rate of distributors
who renew their annual agreement continued to remain high at 49 percent. Master
Affiliates, distributors who have attained the highest level of discount and are
eligible for generation royalties, increased to 3,631 in the United States in
1997 from 2,487 in 1996. In 1997 the Company processed 73,136 orders at an
average retail price of $695, compared to 53,391 orders at an average of $733 in
1996.
19
<PAGE>
The United States 1997 net sales were affected by the introductions of
two new products, Healthy Pantry Premium Entrees, a line of four hot meal
products based on the use of soy protein, and Provantage, a sports nutrition
product targeted for the fitness market. Both products expand the Company's
product line in the growing functional foods category.
1997 network marketing sales strengthened throughout the United States.
Sales remained strong in the top ten states, which account for 64 percent of
total sales, with an increase of 20 percent in these states when compared to
1996 sales. Sales in the other states increased 44 percent over 1996 levels
indicating the Company is developing strong markets outside its primary states.
Illinois, Michigan and California were the Company's primary markets in 1997
contributing 31 percent of total sales, a decrease of 4 percent when compared to
the top three markets in 1996. The above trends indicate a more diverse base of
sales growth.
In Australia and New Zealand net sales declined to $3,449,000 in 1997
from $4,723,000 in 1996. Fourth quarter 1997 sales decreased to $753,000 from
$1,260,000 in 1996. New distributor enrollments declined in Australia and New
Zealand to 1,820 from 3,108 in 1996. Distributor renewals in Australia were 48%
and in New Zealand 37% in 1997 as compared to 41% and 36% in 1996, respectively.
Reported net sales in Australia and New Zealand were also affected by the
decline in the value of their currency as compared to the United States dollar.
During the year, both the Australian and New Zealand dollars declined 18% from
their rates as of December 31, 1996.
Net sales in Canada increased in 1997 to $1,338,000 from $1,247,000 in
1996. Fourth quarter sales decreased to $334,000 in 1997 compared to $416,000 in
1996. Fourth quarter net sales in 1996 were impacted by a sales promotion that
created a large one time sales increase. New distributor enrollments declined to
991 from 1,165 in 1996. The 1996 net sales in Canada were affected by the
introductions of Reliv A-Affect, a product similar to the United States
Arthaffect that's designed to nutritionally support bone and joint conditions
and Direct Select. A-Affect currently represents 7 percent of total product
sales. Direct Select, introduced in October 1997, accounts for approximately 7.5
percent of total retail sales at year end.
In Mexico net sales declined slightly as the economy continued to
contribute to Reliv Mexico's inability to increase net sales and reach
profitability. Net sales in Mexico in 1997 were $330,000, compared to $352,000
in 1996. Net sales in the fourth quarter 1997 were $74,000 compared to $103,000
in 1996. New distributor enrollment declined in 1997 to 360 compared to 487 in
1996. In response, the Company introduced a revision to the distributor
compensation plan in August 1997 to adjust for the devaluation of the peso.
The Company began marketing its products in the United Kingdom in July,
1995, through a licensee. Revenues under the license agreement in 1996 and 1997
were minimal.
Cost of Sales:
During 1998, cost of network marketing products sold improved to 17
percent of net sales compared with 18 percent in 1997, and 19 percent in 1996.
The improvement in gross profit margins is a result of lower raw materials
costs, improved manufacturing controls and utilization of
20
<PAGE>
the facility in providing manufacturing and packaging services for unrelated
customers. Cost of network marketing products sold remained constant at 17
percent in the fourth quarter both 1998 and 1997. Cost of goods for
manufacturing and packaging services increased for the year to 101 percent from
89 percent in 1997. Even under optimal operating efficiencies, the gross margin
percentages for the manufacturing and packaging work done for unrelated
customers is substantially less than the margins obtained in the sales of the
network marketing products. However, the Company's results were affected by
start-up costs including hiring and training additional plant staff. The Company
expanded its facility in 1997 adding approximately 60,000 square feet of
warehouse and manufacturing space. The expansion space was put into full
operation during the first half of 1998.
Distributor Royalties and Discounts:
Distributor royalties and discounts as a percentage of network
marketing sales remained steady at 37 percent in both 1998 and 1997. In 1996,
distributor royalties and discounts represented 36 percent of network marketing
sales. Fourth quarter 1998 distributor royalties and discounts decreased to 35
percent from 37 percent in 1997. These expenses are governed by the distributor
agreements and are directly related to the level of sales. The Company pays a
percentage of sales up to 18 percent in royalties and as much as 45 percent in
discounts. On an annual basis, the percentage of distributor royalties and
discounts to network marketing sales has remained fairly constant. In 1998,
included in distributor royalties and discounts are royalties of $799,000 paid
through the Ambassador Program as compared to $838,000 in 1997 and $631,000 in
1996.
Selling, General and Administrative:
Selling, general and administrative expenses decreased to 35% as a
percentage of net sales for 1998, from 37 percent in 1997, and 36 percent in
1996. The percentage change is primarily due to the increase in sales of the
manufacturig and packaging business segment in comparison to total SGA expenses.
In 1998, sales meetings and convention expenses were $1,246,000 and
sales promotion incentives were $588,000, compared to $1,200,000 and $489,000 in
1997, respectively. The Star Director program, which rewards eligible
distributors with a bonus based on the retail sales of their distributor
network, paid $1,471,000 in 1998 compared to $1,329,000 in 1997 and $420,000 in
1996. The program was introduced in June 1996 and has a limit of 3% of total
product retail sales. In 1998 2.3 percent was paid and in 1997, 2.2 percent was
paid.
Consulting and professional services expenses decreased $184,000 to
$458,000 in 1998 as the Company decreased its use of marketing and public
relations companies. Staff compensation and fringes increased by 14 percent.
Staff has been increased in order to service the sales growth in the United
States, in both network marketing and manufacturing and packaging, and to
contribute additional support to the foreign operations.
Selling, general and administrative expenses as a percentage of net
sales were down in the fourth quarter 1998 as expenses were 31 percent of net
sales compared to 39 percent during the
21
<PAGE>
fourth quarter 1997. The increase in net revenues from $10,915,000 in 1997 to
$15,043,000 is the primary reason.
Interest Expense:
Interest expense in 1998 was $509,000 compared to $210,000 in 1997 and
$213,000 in 1996. Interest expense in 1998 increased due to a loan package
secured for the expansion of the Company's office and manufacturing facility,
and the addition of capital leases of furnishings and equipment.
Income Taxes:
The provision for income taxes decreased to $941,000, or 1.8 percent of
net sales in 1998, from 3.0 percent of net sales or $1,385,000 in 1997, and 2.3
percent of net sales, or $950,000 in 1996. The effective tax rate for 1998 was
38 percent. Effective tax rates for 1997 and 1996 were 41 percent and 39
percent, respectively. The 1997 effective rate was slightly higher than 1996 as
the result of the settlement of an audit by the Internal Revenue Service for the
fiscal years 1992 through 1994.
Financial Condition
The Company generated cash flows of $2,111,000 from operating
activities during 1998 and $785,000 through long-term financing and use of their
lines of credit. This compares to $2,491,000 generated from operating activities
and $3,959,000 through long-term financing in 1997. Cash and cash equivalents
increased $390,000 to $2,817,000 by year-end 1998. The Company invested
$1,756,000 in its facility, with the completion of the construction of
approximately 90,000 square feet of office and manufacturing space, and the
acquisition of office furnishings and plant equipment. In 1997, $5,055,000 was
invested in these areas. The Company used $238,000 to pay dividends in 1998.
Current assets increased to $8,358,000 at December 31, 1998 from
$6,547,000 as of December 31, 1997. Cash and cash equivalents increased $390,000
as described above. Accounts receivable decreased by $89,000 to $777,000 from
the December 31, 1997 balance of $866,000. Accounts receivable decreased due to
advances to Reliv' UK being utilized as consideration to acquire Reliv' UK and
thereby, resulting in goodwill, but was increased as a result of receivables due
from unrelated manufacturing and packaging customers. Inventories increased to
$3,929,000 from $2,643,000 at year end 1997, primarily as a result of increases
in raw material inventories necessitated by increases in sales by the
manufacturing and packaging business.
Property, plant and equipment, after dispositions, increased $2,251,000
to $14,173,000 at December 31, 1998, as a result of the completion of the
expansion of the Company's facility. Although the Company plans include some
significant purchases of equipment 1999, the total outlay for property, plant
and equipment purchases in 1999 is expected to be less than in 1998.
Current liabilities increased to $6,175,000 at December 31, 1998 from
$3,653,000 at December 31, 1997. Trade accounts payable increased to $3,568,000
from $1,433,000 at December
22
<PAGE>
31, 1997 primarily due to the increase in inventories. Accrued payroll and
payroll taxes decreased to $115,000 at December 31, 1998 from $174,000 for the
prior year end, primarily due to less accrued incentive compensation expense, as
well as other accrued bonuses.
Long-term debt increased to $5,590,000 from $5,149,000 at December 31,
1997. The Company entered into a loan agreement of $4,430,000 in September 1997
to provide financing for the expansion of its facility. The term of the
agreement is three years with a 20 year payment amortization schedule. The
Company has a term loan with a principal balance of $478,000 as of December 31,
1998, as well as long-term debt totalling $746,000, relating to the purchase of
its original building and land. The Company also has two operating lines of
credit in the amounts of $600,000 and $500,000. At December 31, 1998, the
Company utilized $314,000 of the lines of credit. As a result of the increased
long-term debt, the Company's ratio of total liabilities to total assets
increased to 59% from 55% at December 31, 1997.
Stockholders' equity increased to $8.3 million compared with $7.2
million at December 31, 1997. The improvement is due to the 1998 net income of
the Company. On January 31, 1997, the Company declared a 10% stock dividend and
a cash dividend of $0.01 per share paid on February 28, 1997 to recordholders as
of February 14, 1997. The stock dividend resulted in a transfer from retained
earnings to the common stock account in the amount of $5,848,000, which was
based on the closing price of $6.50 per share of Common Stock on the declaration
date. Average shares outstanding and all per share amounts included in the
accompanying consolidated financial statements and notes reflect the increased
number of shares as a result of the stock dividend.
The Company's working capital balance has decreased by $711,000 since
December 31, 1997. The current ratio at December 31, 1998 declined to 1.35 from
1.79. As of Deceber 31, 1998, the Company was in technical violation of a
covenant in a loan agreement covering a term loan from 1996, as well as its
lines of credit. This covenant requires that the Company maintain a current
ratio of not less than 1.5. The Company has obtained a waiver of this covenant
through June 30, 1999, and is confident that the current ratio will improve to
the required level. Management believes that the Company's internally generated
funds together with the loan agreement will be sufficient to meet working
capital requirements in 1999.
Year 2000 Issues
Most computer databases, as well as embedded microprocessors in
computer systems and industrial equipment, have been programmed to use a
two-digit number to represent the year. Computer programs that recognize a date
using "00" as the year 1900 rather than the year 2000 could result in errors or
system failures. Accordingly, all companies must analyze their systems and make
the necessary changes to ensure that automated processes will correctly
distinguish between years before and after the year 2000.
Based on a recent assessment, the Company does not believe the Year
2000 issue will have a material effect on its operations. The vast majority of
the Company's current computer hardware and software systems are Year 2000
compliant. The Company has identified some of its telecommunication hardware and
software that is not Year 2000 compliant and is in the process of
23
<PAGE>
installing the necessary upgrades. The cost of these upgrades is not material.
The Company is in the process of initiating communications with the
manufacturers of its manufacturing and warehouse equipment to ensure this
equipment will be Year 2000 ready.
Formal communications will be made with all significant suppliers and
large customers of the Company during the balance of 1999 to determine the
extent to which the Company may be vulnerable to those third parties' failure to
remediate their own potential Year 2000 problems. If the Company's most
significant vendors of goods and services, or the suppliers of the Company's
necessary energy, telecommunications and transportation needs, fail to provide
the Company with the materials and services which are necessary to produce,
distribute and sell its products, such failure could have a material adverse
effect on the results of operations, liquidity and financial condition of the
Company. There can be no guarantee that the systems of these suppliers, vendors
and customers of the Company will be timely converted to Year 2000 compliance.
Nor is there any guarantee that the Company would experience no material adverse
effects should any of the significant vendors, suppliers or customers of the
Company fail to remediate their potential Year 2000 problems. The Company has
determined it has no exposure to contingencies related to the Year 2000 for the
products it sells.
The cost of attaining Year 2000 compliance will not be material for the
Company. It is anticipated that no warehouse or manufacturing equipment will
need to be replaced. The Company is currently assessing its other office
equipment for any Year 2000 issues. The Company will primarily utilize internal
resources to manage the Year 2000 issue.
The Company believes that its computer hardware and software will meet
its administrative needs in the United States and in its foreign subisidiaries
in the foreseeable future.
Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements.
The statements contained in Item 7 (Management's Discussion and
Analysis of Financial Condition and Results of Operation) that are not
historical facts may be forward-looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Exchange Act of 1934) that are
subject to a variety of risks and uncertainties. The forward-looking statements
are based on the beliefs of the Company's management, as well as assumptions
made by, and information currently available to the Company's management.
Accordingly, these statements are subject to significant risks, uncertainties
and contingencies which could cause the Company's actual growth, results,
performance and business prospects and opportunities in 1999 and beyond to
differ materially from those expressed in, or implied by, any such
forward-looking statements. Wherever possible, words such as "anticipate,"
"plan," "expect," "believe," "estimate," and similar expressions have been used
to identify these forward-looking statements, but are not the exclusive means of
identifying such statements. These risks, uncertainties and contingencies
include, but are not limited to, the Company's ability to continue to attract,
maintain and motivate its distributors, changes in the regulatory environment
affecting network marketing sales and sales of food and dietary supplements and
other risks and uncertainties detailed in the Company's other SEC filings.
24
<PAGE>
Item No. 7A - Qualitative And Quantitative Disclosures Regarding Market Risk
The Company's earnings and cash flow are subject to fluctuations due to
changes in foreign currency rates as it has several foreign subsidiaries and
continues to explore expansion into other foreign countries. As a result,
exchange rate fluctuations may have an effect on its sales and the Company's
gross margins. Accounting practices require that the Company's results from
operations be converted to U.S. dollars for reporting purposes. Consequently,
the reported earnings of the Company in future periods may be significantly
affected by fluctuations in currency exchange rates, generally increasing with a
weaker U.S. dollar and decreasing with a strengthening U.S. dollar. Products
manufactured by the Company for sale to the Company's foreign subsidiaries are
transacted in U.S. dollars. As the Company's foreign operations expand, its
operating results will be subject to the risks of exchange rate fluctuations and
the Company may not be able to accurately estimate the impact of such changes on
its future business, product pricing, results of operations or financial
condition.
The Company also is exposed to market risk in changes in interest rates
on its long-term debt arrangements and commodity prices in some of the raw
materials it purchases for its manufacturing needs. However, neither presents a
risk that would have a material effect on the Company's results of operations or
financial condition.
Item No. 8 - Financial Statements and Supplementary Data
Reference is made to the Consolidated Financial Statements contained in
Part IV hereof.
Item No. 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item No. 10 - Directors and Executive Officers of the Registrant
Information called for by Item 10 of Part III is incorporated by reference to
the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to be
held on May 27, 1999, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
Item No. 11 - Executive Compensation
Information called for by Item 11 of Part III is incorporated by reference to
the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to be
held on May 27, 1999, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
25
<PAGE>
Item No. 12 - Security Ownership of Certain Beneficial Owners and Management
Information called for by Item 12 of Part III is incorporated by reference to
the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to be
held on May 27, 1999, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
Item No. 13 - Certain Relationships and Related Transactions
Information called for by Item 13 of Part III is incorporated by reference to
the definitive Proxy Statement for the 1999 Annual Meeting of Shareholders to be
held on May 27, 1999, to be filed with the Commission within 120 days of the end
of the Company's last fiscal year.
PART IV
Item No. 14 - Exhibits, Financial Statement Schedules and Reports on Form 8K
(a) 1. The Consolidated Financial Statements filed as part
of this report on Form 10-K are listed on the
accompanying Index to Consolidated Financial
Statements and Consolidated Financial Statement
Schedules.
2. The Consolidated Financial Statement Schedules filed
as part of this report on Form 10-K are listed on the
accompanying Index to Consolidated Financial
Statements and Consolidated Financial Statement
Schedules.
3. Exhibits:
Exhibit
Document Number
Articles of Incorporation, as amended
(incorporate by reference Exhibit 3.1 to
the Form 10-K of the Registrant for year
ended December 31, 1995) 3.1
By-laws, as amended
(incorporate by reference Exhibit 3.2
to the Form 10-K of the Registrant for
year ended December 31, 1992) 3.2
Amended Exclusive License Agreement
(incorporate by reference Exhibit 10.1
to the Form 10-K of the Registrant
for year ended December 31, 1992) 10.1
26
<PAGE>
Exhibit
Document Number
Asset Purchase Agreement
(Australian Joint Venture)
(incorporate by reference Exhibit 10.2
to the Form 10-K of the Registrant
for year ended December 31, 1992) 10.2
Master Agent Agreement
(re: Australia)
(incorporate by reference Exhibit 10.3
to the Form 10-K of the Registrant for year
ended December 31, 1992) 10.3
1995 Stock Option Plan (incorporate
by reference Exhibit 10.7 to the
Form 10-K of the Registrant for year
ended December 31, 1995) 10.4
Montgomery Employment Agreement
dated June 1, 1997 (incorporate by
reference Exhibit 10.6 to the Form 10-K of the
Registrant for year ended December 31, 1997) 10.5
Hastings Employment Agreement dated
June 1, 1997 (incorporate by
reference Exhibit 10.8 to the Form 10-K of the
Registrant for year ended December 31, 1997) 10.6
Kreher Employment Agreement dated April 13, 1994
(incorporate by reference Exhibit 10.14 to the
Registrant's Form 10-Q for quarter ended June 30, 1994) 10.7
1994 Annual Incentive Compensation Plan
(incorporate by reference Exhibit 10.11
to the Form 10-K of the Registrant
for year ended December 31, 1995) 10.8
1994 Long-Term Incentive Compensation Plan
(incorporate by reference Exhibit 10.12 to
the Form 10-K of the Registrant for
year ended December 31, 1995) 10.9
27
<PAGE>
Exhibit
Document Number
Agreement with Avogen, Inc. dated July 1, 1995
(incorporate by reference Exhibit 10.13 to the
Form 10-K of the Registrant for year ended
December 31, 1995) 10.10
Agreement with Conkle & Olesten and Avogen, Inc.
dated July 1, 1995 (incorporate by reference
Exhibit 10.14 to the Form 10-K of the Registrant
for year ended December 31, 1995) 10.11
Agreement with Traco Labs, Inc.
(incorporate by reference Exhibit 10.14
to the Form 10-K of the Registrant for
year ended December 31, 1996) 10.12
Amendment to Avogen and Conkle & Oleston
Agreements dated April 25, 1997
(incorporated by reference Exhibit 10.15
to the Form 10-K of the Registrant
for year ended December 31, 1997) 10.13
Loan Agreement dated March 20, 1996
with Southwest Bank of St. Louis 10.14
Deed of Trust Note dated January 2, 1996
in the amount of $950,000 with
Southwest Bank of St. Louis 10.15
Line of Credit Note dated March 20, 1996
in the amount of $1,000,000 with
Southwest Bank of St. Louis 10.16
Line of Credit Note dated January 2, 1996
in the amount of $500,000 with
Southwest Bank of St. Louis 10.17
Deed of Trust Note dated September 2, 1997
in the amount of $4,430,000 with
Southwest Bank of St. Louis 10.18
Reliv' International, Inc. Supplemental Executive
Retirement Plan dated June 1, 1998 10.19
Stock Purchase Agreement dated October 1, 1998
among Reliv' World Corporation,
Reliv' Europe, Inc. and Global Nutrition, Inc.
regarding purchase of Reliv' UK, Ltd. 10.20
28
<PAGE>
Exhibit
Document Number
Statement re: computation of per
share earnings (incorporated by reference
to Note 7 of the Consolidated Financial
Statements contained in Part IV) 11
Subsidiaries of the Registrant
(incorporate by reference the
the Registrants's Response to
Item 1 of Part I of this Form 10-K) 22
Consent of Ernst & Young LLP,
Independent Auditors 23
(b) N/A
(c) The Exhibits listed in subparagraph (a)(3) of this Item 14 are
attached hereto unless incorporated by reference to a previous
filing.
(d) The Schedules listed in subparagraph (a)(2) of this Item 14 are
attached hereto.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RELIV' INTERNATIONAL, INC.
By: /s/Robert L. Montgomery
-------------------------------------------------------------
Robert L. Montgomery, Chairman of the Board of Directors,
President and Chief Executive Officer, Treasurer
Date: March 30, 1999
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Robert L. Montgomery
-------------------------------------------------------------
Robert L. Montgomery, Chairman of the Board of Directors,
President and Chief Executive Officer, Treasurer
Date: March 30, 1999
By: /s/ David G. Kreher
-------------------------------------------------------------
David G. Kreher, Senior Vice President, Assistant Secretary
Date: March 30, 1999
By: /s/ Carl W. Hastings
-------------------------------------------------------------
Carl W. Hastings, Executive Vice President,
Assistant Secretary, Director
Date: March 30, 1999
By: /s/ Thomas W. Pinnock
-------------------------------------------------------------
Thomas W. Pinnock III, Director
Date: March 30, 1999
By: /s/ Stephen M. Merrick
-------------------------------------------------------------
Stephen M. Merrick, Senior Vice President, Secretary,
Director (principal financial and accounting officer)
Date: March 30, 1999
30
<PAGE>
By: /s/ Donald L. McCain
-------------------------------------------------------------
Donald L. McCain, Director
Date: March 30, 1999
By: /s/ John Akin
-------------------------------------------------------------
John Akin, Director
Date: March 30, 1999
By: /s/ Sandra S. Montgomery
-------------------------------------------------------------
Sandra S. Montgomery, Director
Date: March 30, 1999
By: /s/ Thomas T. Moody
-------------------------------------------------------------
Thomas T. Moody, Director
Date: March 30, 1999
By: /s/ Marvin W. Solomonson
-------------------------------------------------------------
Marvin W. Solomonson, Director
Date: March 30, 1999
31
<PAGE>
Reliv' International, Inc.
and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
Contents
Consolidated Financial Statements:
Report of Independent Auditors.......................................... . F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-2
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996....................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................................... F-6
Notes to Consolidated Financial Statements - December 31, 1998........... F-8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997 and 1996....................................... F-29
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
<PAGE>
[Letterhead of Ernst & Young LLP]
Report of Independent Auditors
Board of Directors and Stockholders
Reliv' International, Inc.
We have audited the accompanying consolidated balance sheets of Reliv'
International, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Reliv'
International, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
March 12, 1998
St. Louis, Missouri
F-1
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------ -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,816,804 $ 2,426,426
Accounts and notes receivable,
less allowances of $5,000 in
1998 and $7,600 in 1997 777,444 865,701
Inventories:
Finished goods 1,702,359 1,453,282
Raw materials 1,865,649 785,706
Sales aids and promotional materials 361,322 403,830
------------ ------------
3,929,330 2,642,818
Refundable income taxes 314,284 31,303
Prepaid expenses and other current assets 440,596 490,638
Deferred income taxes 79,269 90,065
------------ ------------
Total current assets 8,357,727 6,546,951
Other assets:
Goodwill, net of accumulated amortization of $13,000 512,399 --
Other assets 703,623 202,133
------------ ------------
Total other assets 1,216,022 202,133
Property, plant and equipment:
Land 829,222 790,677
Building 8,201,744 2,854,548
Machinery and equipment 2,783,923 1,723,482
Office equipment 446,205 303,235
Computer equipment and software 1,676,372 1,452,577
Construction in progress 235,511 4,797,090
------------ ------------
14,172,977 11,921,609
Less accumulated depreciation and amortization (3,493,754) (2,700,745)
------------ ------------
10,679,223 9,220,864
------------ ------------
Total assets $ 20,252,972 $ 15,969,948
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 5,189,755 $ 3,290,131
Income taxes payable 55,258 --
Borrowings under line of credit 313,825 --
Current maturities of long-term debt and
capital lease obligations 508,362 358,124
Unearned income 107,695 5,003
------------ ------------
Total current liabilities 6,174,895 3,653,258
Non-current liabilities:
Capital lease obligations, less current maturities 373,455 39,105
Long-term debt, less current maturities 5,216,107 5,109,520
Other non-current liabilities 148,349 --
------------ ------------
Total non-current liabilities 5,737,911 5,148,625
Stockholders' equity:
Common stock, no par value; 20,000,000 shares authorized,
9,653,502 shares issued and outstanding in 1998
and 9,617,307 shares issued and outstanding in 1997 9,179,764 9,135,764
Notes receivable - officers and directors (44,746) (4,633)
Retained earnings (deficit) (354,195) (1,673,164)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (440,657) (289,902)
------------ ------------
Total stockholders' equity 8,340,166 7,168,065
------------ ------------
Total liabilities and stockholders' equity $ 20,252,972 $ 15,969,948
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales at suggested retail $ 75,987,414 $ 71,066,845 $ 60,840,620
Less distributor allowances on
product purchases 24,093,903 24,230,575 20,110,627
------------ ------------ ------------
Net sales 51,893,511 46,836,270 40,729,993
Costs and expenses:
Cost of products sold 14,286,498 9,404,283 10,193,418
Distributor royalties and commissions 16,664,486 16,837,084 13,429,386
Selling, general and administrative 18,069,355 17,083,792 14,585,127
------------ ------------ ------------
49,020,339 43,325,159 38,207,931
------------ ------------ ------------
Income from operations 2,873,172 3,511,111 2,522,062
Other income (expense):
Interest expense (509,492) (210,268) (212,819)
Other income 134,249 113,145 147,771
------------ ------------ ------------
Income before income taxes 2,497,929 3,413,988 2,457,014
Provision for income taxes 941,000 1,385,000 950,000
------------ ------------ ------------
Net income $ 1,556,929 $ 2,028,988 $ 1,507,014
============ ============ ============
Earnings per common share (1) $ .16 $ .21 $ .15
Earnings per common share -
assuming dilution(1) $ .16 $ .20 $ .15
<FN>
(1) Per share data for 1996 reflects the pro forma effect of the Company's 10
percent stock dividend declared on January 31, 1997 and distributed on February
28, 1997.
</FN>
</TABLE>
See accompanying notes.
F-4
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Common Stock Notes Receivable Retained Other Treasury Stock
------------ Officers and Earnings Comprehensive --------------
Shares Amount Directors (Deficit) Income/(Loss) Shares Amount Total
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 9,311,301 $3,412,986 $(4,633) $2,714,723 $ (79,634) 214,366 $(535,826) $5,507,616
Net income - - - 1,507,014 - - - 1,507,014
Other comprehensive
income/(loss):
Foreign currency
translation adjustment - - - - 90,604 - - 90,604
-----------
Total comprehensive income $1,597,618
-----------
Common stock purchased
for treasury - - - - - 309,189 (823,808) (823,808)
Options exercised 8,113 10,266 - - - - - 10,266
Cancellation of treasury stock (295,755) (59,154) - (710,820) - (295,755) 714,974 (55,000)
Dividends paid ($.02 per share) - - - (179,370) - - - (179,370)
Stock dividend declared
January 31, 1997 876,870 5,847,728 - (5,847,728) - 22,780 - -
-------------------------------------------------------------------------------------------------
Balance at December 31, 1996 9,900,529 9,211,826 (4,633) (2,516,181) 10,970 250,580 (644,660) $6,057,322
-------------------------------------------------------------------------------------------------
Net income - - - 2,028,988 - - - 2,028,988
Other comprehensive
income/(loss):
Foreign currency
translation adjustment - - - - (300,872) - - (300,872)
-----------
Total comprehensive income $1,728,116
-----------
Common stock purchased
for treasury - - - - - 86,306 (337,127) (337,127)
Options exercised 10,438 13,125 - - - - - 13,125
Warrants exercised 29,140 - - - - - - -
Cancellation of treasury stock (314,106) (89,187) - (892,600) - (314,106) 981,787 -
Adjustment to stock dividend (8,694) - - - - (22,780) - -
Dividends paid ($.03 per share) - - - (293,371) - - - (293,371)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1997 9,617,307 9,135,764 (4,633) (1,673,164) (289,902) - - $7,168,065
-------------------------------------------------------------------------------------------------
Net income - - - 1,556,929 - - - 1,556,929
Other comprehensive
income/(loss):
Foreign currency
translation adjustment - - - - (150,755) - - (150,755)
-----------
Total comprehensive income $1,406,174
-----------
Options exercised 36,195 44,000 (44,000) - - - - -
Repayment of loan by
officers and directors - - 3,887 - - - - 3,887
Dividends paid
($.025 per share) - - - (237,960) - - - (237,960)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1998 9,653,502 $9,179,764 $(44,746) $ (354,195) $(440,657) - $ - $8,340,166
=================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net income $ 1,556,929 $ 2,028,988 $ 1,507,014
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 806,146 607,281 629,157
Provision for losses on accounts receivable 9,915 -- 78,699
Provision for deferred income taxes 9,232 (31,096) (1,974)
Foreign currency translation (gain)/loss 38,756 (23,019) 3,169
(Increase) decrease in accounts and notes
receivable (474,159) 185,115 (480,365)
(Increase) decrease in inventories (1,348,163) 30,553 (216,431)
(Increase) decrease in refundable income taxes (294,589) 21,496 183,454
(Increase) decrease in prepaid expenses and
other current assets 56,032 14,803 (61,861)
(Increase) decrease in other assets (502,034) (128,244) 69,753
Increase (decrease) in accounts payable and
accrued expenses 2,083,822 (128,082) 480,944
Increase (decrease) in income taxes payable 66,756 (68,940) (77,890)
Increase (decrease) in unearned income 102,711 (17,594) 7,839
----------- ----------- -----------
Net cash provided by operating activities 2,111,354 2,491,261 2,121,508
Investing activities
Proceeds from the sale of property, plant and
equipment 8,923 73,010 837
Purchase of property, plant and equipment (1,756,442) (5,054,726) (765,386)
Proceeds from the sale of investments -- -- 81,969
Repayment of loans to officers and directors 3,887 -- --
----------- ----------- -----------
Net cash used in investing activities (1,743,632) (4,981,716) (682,580)
Financing activities
Proceeds from long-term borrowings and line of
credit 785,307 3,958,514 363,887
Principal payments on long-term borrowings and
line of credit (344,774) (220,144) (171,097)
Principal payments under capital lease obligations (44,336) (84,723) (59,230)
Proceeds from stock options exercised -- 13,125 10,266
Dividends paid (237,960) (293,371) (179,370)
Purchase of treasury stock -- (337,127) (878,808)
----------- ----------- -----------
Net cash provided (used) by financing activities 158,237 3,036,274 (914,352)
Effect of exchange rate changes on cash and cash
equivalents (135,581) (228,163) 77,018
----------- ----------- -----------
Increase in cash and cash equivalents 390,378 317,656 601,594
Cash and cash equivalents at beginning of year 2,426,426 2,108,770 1,507,176
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,816,804 $ 2,426,426 $ 2,108,770
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Reliv' International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 556,962 $ 219,997 $ 217,698
========== ========== ==========
Income taxes $1,201,896 $1,396,476 $ 845,632
========== ========== ==========
Non cash investing and financing transactions:
Capital lease obligations entered into $ 508,830 $ 92,519 $ --
========== ========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. Nature of Business and Significant Accounting Policies
Nature of Business
Reliv' International, Inc. (the Company) produces a line of food products
including nutritional supplements, diet management products, granola bars and
sports drink mixes. The Company also distributes a line of premium skin care
products. These products are sold by subsidiaries of the Company to a sales
force of independent distributors and licensees of the Company that sell
products directly to consumers. The Company and its subsidiaries sell products
to distributors throughout the United States and in Australia, Canada, New
Zealand, Mexico and the United Kingdom. In addition, the Company provides
manufacturing and packaging services for unrelated customers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its foreign and domestic subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Product cost is
determined using standard costs, which approximate the first-in, first-out
basis. Other inventory cost is determined using the first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated on the cost basis. Depreciation and
amortization, which includes the amortization of assets recorded under capital
leases, are computed using the straight-line or accelerated method over the
useful life of the related assets.
Goodwill
Goodwill represents the cost in excess of the fair value of the net assets
acquired and is being amortized on a straight-line basis over a period of ten
years. On a periodic basis, the Company evaluates goodwill for impairment by
comparing estimated future discounted cash flows of the business to its carrying
value.
F-8
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Revenue Recognition
The Company generally receives its sales price in cash accompanying orders from
independent distributors and makes related commission payments in the following
month. The net sales price is the suggested retail price less the distributor
discount of 25 percent to 45 percent of such suggested retail price. Sales
revenue and commission expenses are recorded when the merchandise is shipped.
Unearned income represents prepaid orders for which the Company has not shipped
the merchandise.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with FASB statement No. 52, Foreign Currency Translation.
All balance sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The gains and losses resulting
from the changes in exchange rates from year to year have been reported in other
comprehensive income/loss. The effect on the statements of income of transaction
gains and losses is insignificant for all years presented.
Income Taxes
The provision for income taxes is computed using the liability method in
accordance with FASB statement No. 109, Accounting for Income Taxes. The primary
difference between financial statement and taxable income results from financial
statement accruals and reserves.
F-9
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Stock-Based Compensation
The Company accounts for stock options in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees. Since the Company grants stock options
at an exercise price not less than the fair value of the shares at the date of
grant, no compensation expense is recognized. The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting and Disclosure of Stock-Based Compensation, effective for years
beginning after December 1995. The Company has elected the disclosure-only
alternative of this pronouncement in a footnote to these financial statements
(see Note 8).
Basic and Diluted Earnings per Share
Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, Earnings per Share. All earnings per share amounts for all
periods have been presented, and, where appropriate, restated to conform to the
requirements of Statement No. 128.
Basic earnings per common share are computed using the weighted average number
of common shares outstanding during the year. Diluted earnings per common share
are computed using the weighted average number of common shares and potential
dilutive common shares that were outstanding during the period. Potential
dilutive common shares consist of outstanding stock options and warrants. See
Note 7 for additional information regarding earnings per share. On January 31,
1997, the Company declared a 10 percent stock dividend on the Company's common
stock, which was distributed on February 28, 1997 to shareholders of record on
February 14, 1997. The dividend was transferred from retained earnings to common
stock in the amount of $5,848,000, which was based on the closing price of $6.50
per share on the declaration date. Average shares outstanding and all per share
amounts included in the accompanying consolidated financial statements and notes
are based on the increased number of shares giving retroactive recognition to
the stock dividend.
Advertising
Costs of sales aids and promotional materials are capitalized as inventories.
All other advertising and promotional costs are expensed when incurred.
F-10
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies (continued)
Cash Equivalents
The Company's policy is to consider demand deposits and short-term investments
with a maturity of three months or less when purchased as cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years' financial statements to
conform to the current presentation.
2. Acquisition of Reliv UK, Ltd.
On October 1, 1998, the Company acquired the common stock of Reliv UK, Ltd.
(Reliv UK) in exchange for 250,000 shares of Reliv Europe, Inc., the holding
company of the acquired entity and certain other consideration as described
below. Prior to the acquisition, Reliv UK was a licensee of the Company. The
shares issued of Reliv Europe were valued at $12,500. In conjunction with the
acquisition, the previous owner of Reliv UK forgave approximately $435,000 in
advances to Reliv UK, and the Company converted $420,000 of its advances to
Reliv UK into 8,400,000 shares of Reliv Europe, which represents a 97% ownership
interest in Reliv Europe. Also, Reliv Europe, Inc. is to make monthly payments
of 1.5% of the retail sales of Reliv UK to the previous owner of Reliv UK for a
period of ten years. These payments are being expensed as incurred. The
operations of Reliv UK are included in the consolidated statement of operations
from the date of acquisition. The transaction was accounted for as a purchase,
and the excess cost over fair value of the net assets acquired is being
amortized on a straight-line basis over a ten-year period.
F-11
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Acquisition of Reliv UK, Ltd. (continued)
The pro forma unaudited results of operations for the years ended December 31,
1998 and 1997, assuming the purchase of Reliv UK had been consummated as of
January 1, 1997, follow:
1998 1997
------------ -------------
Net sales $52,115,582 $47,232,848
Net income 1,403,844 1,722,685
Net income per common share:
Basic $.15 $.18
Diluted $.14 $.17
3. Research and Development Expenses
Research and development expenses of $319,000, $286,000 and $289,000 in 1998,
1997 and 1996, respectively, were charged to selling, general and administrative
expenses as incurred.
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 1998 and 1997, consist of
the following:
1998 1997
------------ ------------
Trade payables $3,568,334 $1,432,901
Distributors commissions 1,172,164 1,326,579
Sales taxes 221,377 192,130
Interest expense 27,851 75,321
Payroll and payroll taxes 114,906 173,689
Other 85,123 89,511
------------ ------------
$5,189,755 $3,290,131
============ ============
F-12
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Short-Term Borrowings
In January 1996, the Company obtained two separate lines of credit amounting to
$500,000 and $600,000, respectively. Borrowings under the $500,000 line of
credit are due January 1999 and bear interest, payable monthly, at the prime
rate. Borrowings under the $600,000 line of credit are due February 2001 and
bear interest, payable monthly, at the prime rate. A portion of the Company's
inventory and property, plant and equipment with a net book value of $3,825,000
as of December 31, 1998 are pledged as security under the terms of the
agreements. The agreements include restrictive covenants, including a
requirement that the Company maintain a current ratio of 1.5 to 1.0 and a
minimum net worth of $5,500,000. As of December 31, 1998, the Company had a
current ratio of 1.35, but it has obtained a waiver of this covenant through
June 30, 1999. As of December 31, 1998, the unused portion of the credit lines
was $786,175.
6. Long-Term Debt
Long-term debt at December 31, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Industrial revenue bonds payable in monthly installments (including interest at
85% of prime) not to exceed $9,611, commencing August 1, 1991; secured by
land and building (net book value $2,709,000 at December 31, 1998); balance
due on March 1, 2005 $ 540,776 $ 597,907
Note payable in monthly installments (including interest at prime and additional
interest at 15% of prime on the balance of the industrial revenue bonds)
equal to $9,611 less installment applied to industrial revenue bond,
commencing August 1, 1991; unsecured; balance due on March 1, 2005 204,755 204,755
Term loan payable in monthly installments of $19,550, including interest at 8.5%
through April 2001; secured by equipment and inventory (net book value of
$3,825,000 at December 31, 1998) 478,260 662,133
Term loan payable in monthly installments of $38,802, including interest at
8.5%, with the balance due March 2001; secured by land and building (net book
value of $5,601,000 at December 31, 1998) 4,355,063 3,958,514
------------ ------------
5,578,854 5,423,309
Less current maturities (362,747) (313,789)
------------ -------------
$5,216,107 $5,109,520
============ =============
</TABLE>
F-13
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Long-Term Debt (continued)
Principal maturities of long-term debt at December 31, 1998 are as follows:
1999 $ 362,747
2000 396,555
2001 4,288,603
2002 88,455
2003 98,535
Thereafter 343,959
-------------
$ 5,578,854
=============
7. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings
per share - net income $ 1,556,929 $ 2,028,988 $ 1,507,014
Denominator:
Denominator for basic earnings per share -
weighted average shares 9,645,000 9,600,000 9,854,000
Effect of dilutive securities:
Employee stock options and other warrants
390,000 707,000 471,000
----------- ------------ ------------
Denominator for diluted earnings per share -
adjusted weighted average shares
$10,035,000 $ 10,307,000 $ 10,325,000
=========== ============ ============
Basic earnings per share $0.16 $0.21 $0.15
=========== ============ ============
Diluted earnings per share $0.16 $0.20 $0.15
=========== ============ ============
</TABLE>
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan
Stock Options
The Company had an incentive stock option plan for key employees which expired
in January 1995. Accordingly, no additional options can be granted under this
plan as of that date. At December 31, 1998, options for 189,200 shares and
250,800 shares were outstanding at an option price of $2.045 and $2.25 per
share, respectively. The options are exercisable at various dates through
December 1999.
F-14
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan (continued)
Stock Options (continued)
In May 1995, the Company adopted an incentive stock option plan which provides
for the grant of incentive stock options and nonqualified stock options for
employees (including officers) and other consultants and advisors to the
Company. A maximum of 1,100,000 shares can be purchased at an option price not
less than the fair market value of the stock at the time the options are
granted.
As the result of the Company's 10% stock dividend in February 1997, all
outstanding options and warrants were adjusted to reflect for the stock
dividend.
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees, (APB 25) and related interpretations in accounting for its
employee and nonemployee director stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee and nonemployee director
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of the statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rates ranging from 5.15% to 6.10% for 1996, 5.70% to 5.97% for 1997,
and 4.55% for 1998; dividend yield of .50%; volatility factor of the expected
price of the Company's stock of .658 for 1996, .624 for 1997, and .681 for 1998;
and a weighted average expected life of 4.03 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee and nonemployee director stock options have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee and
nonemployee director stock options.
F-15
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan (continued)
Stock Options (continued)
For purposes of pro forma disclosures, the estimated fair value of the options
and warrants is amortized to expense over the vesting period. The effects of
applying the pro forma disclosure provisions of SFAS No. 123 are not likely to
be representative of the effects on reported net income for future years. The
Company's pro forma information follows:
1998 1997 1996
----------------------------------------
Pro forma net income $1,450,356 $1,861,748 $1,385,941
Pro forma earnings per share:
Basic $.15 $.19 $.14
Diluted $.14 $.18 $.13
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Avg. Avg. Avg.
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
the year 1,165,900 $1.954 1,076,900 $1.841 883,850 $1.712
Granted:
Price = fair value 275,000 2.125 100,000 3.125 206,250 2.355
Price > fair value 75,000 2.3375 - - - -
Exercised (1) (38,300) 1.348 (11,000) 1.506 (10,450) 1.250
Forfeited (2,750) 1.818 - - (2,750) 1.250
=========== =========== ===========
Outstanding at end
of year 1,474,850 $2.021 1,165,900 $1.954 1,076,900 $1.841
=========== =========== ===========
Exercisable at end of
year 971,914 723,332 496,828
=========== =========== ===========
<FN>
(1) Shares issued were less than options exercised due to cashless exercise
provision.
</FN>
</TABLE>
F-16
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan (continued)
Stock Options (continued)
<TABLE>
<CAPTION>
As of December 31, 1998
Options Outstanding Options Exercisable
-------------------------------------- ----------------------------------
Range of Exercise Number Weighted Avg. Weighted Avg. Number Weighted Avg.
Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- -------------------- ----------------- -------------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
$1.25 - $2.00 443,850 1.95 $1.328 305,248 $1.329
$2.01 - $2.875 933,000 2.70 2.234 568,666 2.215
$3.125 98,000 3.96 3.125 98,000 3.125
----------------- ---------------
$1.25 - $3.125 1,474,850 2.56 $2.021 971,914 $2.028
================= ===============
</TABLE>
Warrants
In 1996, the Company, as part of a consulting agreement, issued warrants to
purchase 38,036 shares of common stock. The exercise prices of these warrants
ranged from $.045 per share to $1.932 per share and had a term of two years. In
1997, as a renewal of this agreement, the Company issued warrants to purchase
9,600 shares at an exercise price of $6.25 per share with a term of two years.
In July 1996, as part of another consulting agreement, the Company issued a
warrant to purchase 101,948 shares of common stock at an exercise price of
$4.182 per share. This warrant has a term of three years.
F-17
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan (continued)
Warrants (continued)
A summary of the Company's warrant activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Avg. Avg. Avg.
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
the year 111,548 $4.360 143,348 $3.430 3,364 $1.496
Granted:
Price < fair value - - - - 6,990 0.045
Price = fair value - - 9,600 6.250 31,046 1.932
Price > fair value - - - - 101,948 4.182
Exercised (1) - - (41,400) 1.578 - -
Forfeited - - - - - -
----------- ----------- -----------
Outstanding at end
of year 111,548 $4.360 111,548 $4.360 143,348 $3.430
=========== =========== ===========
Exercisable at end of
year 111,548 111,548 143,348
=========== =========== ===========
<FN>
(1) Shares issued were less than warrants exercised due to cashless exercise
provision.
</FN>
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
Warrants Outstanding Warrants Exercisable
------------------------------------- -----------------------------------
Range of Exercise Number Weighted Avg. Weighted Avg. Number Weighted Avg.
Prices Outstanding Remaining Life Exercise Price Exercisable Exercise Price
- --------------------- ---------------- -------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$4.182 101,948 0.496 $4.182 101,948 $4.182
$6.250 9,600 0.456 6.250 9,600 6.250
------------- --------------
$4.182 - $6.25 111,548 0.492 $4.360 111,548 $4.360
============= ==============
</TABLE>
F-18
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Stock Options, Warrants, Treasury Stock, Repurchase Agreements, and
Distributor Stock Purchase Plan (continued)
Treasury Stock and Repurchase Agreements
In October 1992, the Company entered into a stock repurchase agreement with a
former officer/director of the Company. Under the agreement, which was
retroactive to July 1992, the Company was obligated to purchase 259,686 of the
individual's shares of Company common stock. The mandatory purchase occurred in
six quarterly installments of 43,281 shares beginning in July 1992 and
concluding in December 1993. As of December 31, 1993, the Company had redeemed
all 259,686 shares required by the agreement for $657,683.
Under the same agreement, the Company also had the option to purchase an
additional 432,814 of the individual's shares on the basis of 43,281 shares each
quarter beginning in January 1995 and concluding in April 1996. Through December
31, 1996, the Company had exercised all options under the agreement and redeemed
an additional 432,814 shares for $870,218. As of December 31, 1997, all treasury
shares had been retired.
In May 1997, the former officer/director filed a demand for arbitration with
respect to the stock purchase agreement and consulting agreement entered into in
October 1992. The demand claimed damages resulting from alleged
misrepresentations made by the Company regarding these agreements. The
arbitration ruling was issued in December 1998 and awarded no damages to this
individual.
Distributor Stock Purchase Plan
In November 1998, the Company established a Distributor Stock Purchase Plan. The
plan allows distributors who have reached the "Ambassador" status the
opportunity to allocate up to 10% of their monthly compensation into the plan to
be used to purchase the Company's common stock at the current market value. The
plan also states that at the end of the year, the Company will grant warrants to
purchase additional shares of the Company's common stock based on the number of
shares purchased by the distributors under the plan during the year. The warrant
exercise price will equal the market price for the Company's common stock at the
date of issuance. The warrants issued shall be in the amount of 25% of the total
shares purchased under the plan during the year. This plan will commence in
January 1999.
F-19
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Leases
The Company leases certain manufacturing, storage and office facilities and
certain equipment and automobiles. These leases have varying terms, and certain
leases have renewal and/or purchase options. Future minimum payments under
noncancelable leases with initial or remaining terms in excess of one year
consist of the following at December 31, 1998:
Capital Operating
Leases Leases
----------- -----------
1999 $181,415 $246,126
2000 154,662 164,022
2001 148,741 92,355
2002 112,307 87,788
2003 - 1,104
Thereafter - -
----------- -----------
Total minimum lease payments 597,125 $591,395
===========
Less amount representing interest 78,055
-----------
Present value of minimum lease payments
(including current portion of $145,615) $519,070
===========
Machinery, office and computer equipment at December 31, 1998 and 1997, include
approximately $598,073 and $246,333 of equipment under leases that have been
capitalized. Accumulated depreciation and amortization for such equipment
approximated $87,149 and $154,978 at December 31, 1998 and 1997, respectively.
Rent expense for all operating leases was $324,272, $311,554 and $289,975 for
the years ended December 31, 1998, 1997 and 1996, respectively.
10. License Agreement
The Company has a license agreement with the individual who developed many of
the Company's products. This agreement provides the Company with the exclusive
worldwide license to manufacture and sell all products created by the licensor
and requires monthly royalty payments of 5 percent of net sales, with a minimum
payment of $10,000 and a maximum payment of $22,000. The agreement terminates
the earlier of December 2001 or on the death of licensor. The amount of expense
under this agreement was $264,000 for each of the years ended December 31, 1998,
1997 and 1996.
F-20
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes
The components of income before income taxes are as follows:
Year ended December 31
1998 1997 1996
-----------------------------------------
Domestic $2,637,355 $3,625,708 $2,710,323
Foreign (139,426) (211,720) (253,309)
-----------------------------------------
$2,497,929 $3,413,988 $2,457,014
=========================================
The components of the provision for income taxes are as follows:
Year ended December 31
1998 1997 1996
-----------------------------------------
Current:
Federal $801,000 $1,239,000 $758,000
Foreign 69,000 38,000 88,000
State 59,000 134,000 108,000
-----------------------------------------
Total current 929,000 1,411,000 954,000
Deferred:
Federal 3,000 (24,000) (3,000)
Foreign 9,000 - (1,000)
State - (2,000) -
-----------------------------------------
Total deferred 12,000 (26,000) (4,000)
-----------------------------------------
$941,000 $1,385,000 $950,000
=========================================
F-21
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Income Taxes (continued)
The provision for income taxes is different from the amounts computed by
applying the United States federal statutory income tax rate of 34 percent. The
reasons for these differences are as follows:
Year ended December 31
1998 1997 1996
-------------------------------------
Income taxes at statutory rate $849,000 $1,161,000 $835,000
Differences between U.S. and
foreign tax rates on foreign income 5,000 27,000 12,000
State income taxes,
net of federal benefit 39,000 88,000 71,000
Provision for IRS audit settlement - 75,000 -
Other 48,000 34,000 32,000
-------------------------------------
$941,000 $1,385,000 $950,000
=====================================
The components of the deferred tax asset and the related tax effects of each
temporary difference at December 31, 1998 and 1997, are as follows:
1998 1997
---------------------------------
Deferred tax asset:
Product refund reserve $18,000 $18,000
Obsolescence reserve 65,000 40,000
Bad debt reserve 2,000 3,000
Miscellaneous accrued expenses (5,731) 29,065
=================================
$79,269 $90,065
=================================
Federal income taxes have not been provided on the undistributed earnings of the
Company's Australian and New Zealand subsidiaries since the Company has foreign
tax credits available to offset any related federal income taxes.
The Internal Revenue Service (IRS) examinations of the Company's U.S. federal
income tax returns for fiscal years 1992 through 1994 resulted in a proposed
assessment against the Company. In early 1998, this examination was resolved
with no material adverse effect on the Company's financial position or results
of operation.
F-22
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. Employee Benefit Plans
In 1995, the Company established a 401(k) employee savings plan which covers
substantially all employees. During 1995 and 1996, employees could contribute up
to 5 percent of their gross income to the plan, and the Company matched 50
percent of the employee's contribution. Company contributions totaled $23,000 in
1996. In 1997, the Company merged a pre-existing profit sharing plan into the
401(k) plan. For 1997, employees could contribute up to 7.5 percent of their
gross income to the plan, and the Company matched 100 percent of the employee's
contribution. Company contributions under the 401(k) plan totaled $115,000 in
1997. Company contributions totaled $0 in 1996 for discretionary contributions
for the former profit sharing plan.
In 1998, employees could contribute up to 7.5 percent of their gross income to
the plan and the Company matched 75 percent of the employee's contribution.
Company contributions under the 401(k) plan totaled $126,000 in 1998.
13. Incentive Compensation Plans
Effective January 1, 1994, the Company adopted an annual incentive compensation
plan and a long-term incentive plan. These plans include three
officers/directors and are effective until termination of their employment.
Participants in the plans are entitled to receive additional compensation based
on the attainment of defined annual and long-term performance measures.
Incentive compensation under each of the plans cannot exceed the participant's
base salary rate. The base salary rates and the performance measures specified
by both plans are established annually by the Board of Directors.
The Company paid approximately $0, $240,000 and $525,000 in 1998, 1997 and 1996,
respectively, under its incentive compensation plans.
During 1998, the Company established a supplemental executive retirement plan
which allows certain employees to defer a portion of their annual salary/bonus
into a grantor trust. The participants have a choice of certain investment
vehicles, and earnings/losses on the trust assets accrue to the
benefit/detriment of the participants. The Company may also match the
participants' deferral amount. In 1998, the Company agreed to a 56% match, which
approximated $65,000.
F-23
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
14. Employment Agreements
In November 1992, the Company entered into a services agreement with a former
officer for a term retroactively commencing in July 1992 and expiring in
December 1999. The Company paid approximately $50,000 in each of the years ended
December 31, 1998, 1997 and 1996.
Effective January 1, 1994, the Company entered into employment agreements with
three officers/directors and in June 1997, entered into new employment
agreements with two of these officers/directors. The employment agreements
provide for base salary rates established annually by the Board of Directors.
The Company paid base salaries of $1,272,000, $960,000 and $960,000 in 1998,
1997 and 1996, respectively, under the terms of the agreements.
15. Related Party Transactions
An officer/director of the Company is a principal in a law firm which provides
legal services to the Company. During the years ended December 31, 1998, 1997
and 1996, the Company incurred fees to the officer/director and his firm of
approximately $396,000, $332,000 and $231,000, respectively.
Accounts and notes receivable include accounts receivable from
officers/directors of $44,746, $4,633 and $4,633 at December 31, 1998, 1997 and
1996, respectively.
During 1996, the Company paid $121,000 for goods and services to a company
wholly owned by three officers/directors and one director of the Company in
connection with promotional activities.
16. Consulting Agreements
In conjunction with an acquisition, the Company entered into a consulting
agreement with a partnership consisting of three former stockholders. Under the
agreement, which commenced in March 1992 and expires in February 2002, the
Company pays annual consulting fees to the partnership equal to 2 percent of the
gross sales amount of all products sold by the Company in Australia and New
Zealand determined by the suggested retail price up to approximately
$A10,000,000 in 1992 and $A12,000,000 in all subsequent years during the term
and 3 percent of retail sales that exceed those figures. Total expense under
this agreement approximated $78,000, $96,000 and $133,000 in 1998, 1997 and
1996, respectively.
17. Legal Procedings
In May 1998, the former sales/general manager of the Company's Canadian
subsidiary filed lawsuit claiming unlawful termination. The individual had been
terminated by the Company in March 1998. The Company believes the claim is
without merit and intends to vigorously defend itself. At this time, the outcome
of this matter is uncertain, and a range of loss cannot be reasonably estimated.
However, management believes that the final outcome will not have a material
adverse effect on the financial position or results of operations of the
Company.
F-24
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
18. Segment Information
Description of Products and Services by Segment
The Company has two reportable segments: a network marketing segment and a
manufacturing and packaging segment. The Company's network marketing segment
consists of six operating units that sell nutritional, dietary and skin care
products to a sales force of independent distributors who sell the products
directly to customers. The manufacturing and packaging segment consists of the
manufacturing operation of the Company that produces nearly all of the products
sold by the network marketing segment along with products made for unrelated
customers based on the customers' specifications.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest expense, other non-operating income and
expense and income taxes. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost plus an agreed-upon
intercompany profit on intersegment sales and transfers.
Factors Management Used to Identify the Enterprise's Reportable Segments
The Company's reportable segments are business units that perform distinctly
different functions. The manufacturing and packaging segment is evaluated on its
sales and profitability to its unrelated outside customers, along with
performance against standard costs for its intersegment sales. The network
marketing segment is evaluated on the sales and profitability of the network
marketing product line to its sales force of independent distributors.
F-25
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
18. Segment Information (continued)
Segment data for the fiscal years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Net Sales
Net sales to external customers:
Network marketing $45,561,745 $45,311,467 $37,419,875
Manufacturing and packaging 6,331,766 1,524,803 3,310,118
--------------------------------------------------
Total net sales to external customers 51,893,511 46,836,270 40,729,993
Intersegment net sales:
Manufacturing and packaging 7,387,501 6,994,590 5,736,777
--------------------------------------------------
Total net sales 59,281,012 53,830,860 46,466,770
Reconciling Items:
Intersegment net sales (7,387,501) (6,994,590) (5,736,777)
--------------------------------------------------
Total consolidated net sales $51,893,511 $46,836,270 $40,729,993
==================================================
Depreciation and amortization
Network marketing $492,920 $457,194 $452,483
Manufacturing and packaging 313,226 150,087 176,674
--------------------------------------------------
Total consolidated depreciation and
amortization expense $806,146 $607,281 $629,157
==================================================
Segment Profit
Network marketing $5,045,857 $5,116,625 $4,055,671
Manufacturing and packaging (616,995) (16,140) (200,532)
--------------------------------------------------
Total segment profit 4,428,862 5,100,485 3,855,139
Reconciling items:
Corporate expenses (1,555,690) (1,589,374) (1,333,077)
Nonoperating-net 134,249 113,145 147,771
Interest expense (509,492) (210,268) (212,819)
--------------------------------------------------
Total consolidated income before
income taxes $2,497,929 $3,413,988 $2,457,014
==================================================
</TABLE>
F-26
<PAGE>
Reliv' International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
18. Segment Information (continued)
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Segment assets
Network marketing $13,271,828 $12,740,414 $ 7,772,109
Manufacturing and packaging 4,164,340 803,108 1,420,786
--------------------------------------------------
Total segment assets 17,436,168 13,543,522 9,192,895
Reconciling items:
Corporate assets 2,816,804 2,426,426 2,208,770
--------------------------------------------------
Total consolidated assets $20,252,972 $15,969,948 $11,401,665
==================================================
Capital expenditures
Network marketing $ 433,128 $5,012,770 $ 384,818
Manufacturing and packaging 1,323,314 41,956 380,568
--------------------------------------------------
Total capital expenditures $1,756,442 $5,054,726 $ 765,386
==================================================
Geographic Area Data
1998 1997 1996
--------------------------------------------------
Net sales to external customers
United States $47,356,172 $41,718,773 $34,408,349
Australia 2,307,044 2,560,714 3,550,213
New Zealand 589,752 888,710 1,172,743
Canada 1,213,609 1,338,425 1,246,624
Mexico 317,457 329,648 352,063
United Kingdom 109,477 - -
--------------------------------------------------
Total net sales to external customers $51,893,511 $46,836,270 $40,729,992
==================================================
Assets by area
United States $16,730,842 $13,202,451 $ 8,340,211
Australia 1,878,575 1,488,667 1,472,565
New Zealand 646,584 534,465 668,501
Canada 677,550 467,467 692,905
Mexico 257,431 276,898 227,483
United Kingdom 61,990 - -
--------------------------------------------------
Total consolidated assets $20,252,972 $15,969,948 $11,401,665
==================================================
</TABLE>
Major Customer
Revenues from sales to one customer of the Company's manufacturing and packaging
segment represented approximately $5.4 million of consolidated net sales for
1998.
F-27
<PAGE>
19. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
------------------------------------------------------------
(In thousands, except per share amounts)
1998
<S> <C> <C> <C> <C>
Net sales $ 12,277 $ 11,995 $ 12,579 $ 15,043
Cost of products sold $ 2,254 $ 2,169 $ 3,728 $ 6,135
Net income $ 633 $ 513 $ 73 $ 338
Earnings per share:
Basic $ .07 $ .05 $ .01 $ .03
Diluted $ .07 $ .05 $ .01 $ .03
1997
Net sales $ 12,670 $ 11,771 $ 11,480 $ 10,915
Cost of products sold $ 2,532 $ 2,337 $ 2,521 $ 2,015
Net income $ 819 $ 595 $ 282 $ 333
Earnings per share:
Basic $ .09 $ .06 $ .03 $ .03
Diluted $ .08 $ .06 $ .03 $ .03
</TABLE>
F-28
<PAGE>
Reliv' International, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------------------
Additions
-------------------------
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end
Classification of year expenses accounts describe of year
- ----------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
- ----------------------------
<S> <C> <C> <C> <C> <C>
Deducted from asset accounts:
Allowance for doubtful
accounts $ 7,600 $ 9,887 $ -- $ 12,487(1) $ 5,000
Reserve for obsolete
inventory 109,000 180,000 -- 113,000(2) 176,000
Supporting liability
accounts
Reserve for refunds 50,000 377,000 -- 377,000(3) 50,000
---------------------------------------------------------------------
Year ended December 31, 1997
- ----------------------------
Deducted from asset accounts:
Allowance for doubtful
accounts $ 13,000 $ -- $ -- $ 5,400(1) $ 7,600
Reserve for obsolete
inventory 125,000 -- -- 16,000(2) 109,000
Supporting liability
accounts
Reserve for refunds 78,800 186,000 -- 214,800(3) 50,000
-------------------------------------------------------------------------
Year ended December 31, 1996
- ----------------------------
Deducted from asset accounts:
Allowance for doubtful
accounts $ 7,000 $ 78,700 $ -- $ 72,700(1) $ 13,000
Reserve for obsolete
inventory -- 125,000 -- -- 125,000
Supporting liability
accounts
Reserve for refunds 78,800 92,000 -- 92,000(3) 78,800
--------------------------------------------------------------------------
<FN>
(1) Uncollectable accounts written off, net of recoveries.
(2) Disposal of obsolete inventory.
(3) Amounts refunded, net of salable amounts returned.
</FN>
</TABLE>
F-29
EXHIBIT 10.14
LOAN AGREEMENT
AGREEMENT, dated March 20, 1996 by and between RELIV' INTERNATIONAL,
INC. (the COMPANY ) and SOUTHWEST BANK OF ST. LOUIS, a banking institution
organized under the laws of the State of Missouri, (the "BANK").
WHEREAS the COMPANY desires to borrow from the BANK sums not to exceed
Two Million Four Hundred And Fifty Thousand And No/1OO DOLLARS ($2,450,000.00)
and the BANK is willing, subject to and upon the terms and conditions herein set
forth, to lend such sums to the COMPANY.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I - AMOUNT AND TERMS OF LOANS
Section 1.1 - TERM LOAN
Subject to and upon the terms and conditions herein set forth, the BANK
shall lend to the COMPANY and the COMPANY shall borrow from the BANK an
aggregate principal sum of Nine Hundred And Fifty Thousand And No/100 DOLLARS
($950,000.00). Such borrowing by the COMPANY hereunder shall be made at the
offices of the BANK, St. Louis, Missouri.
Section 1.2 - TERM LOAN NOTE
The borrowing under Section 1.1 shall be evidenced by a promissory
note, Term Note, payable to the order of the BANK in the amount of Nine Hundred
And Fifty Thousand And No/100 DOLLARS ($950,000.00). Term Note will be contained
in the form of Exhibit A attached hereto, which shall be dated January 2, 1996
(the "Closing Date") and shall be duly executed by the COMPANY with blanks
appropriately completed in conformity herewith.
Term Note shall be payable in four (4) consecutive monthly interest
only payments, then shall be payable in sixty (60) consecutive monthly interest
and principal payments commencing June 2, 1996, in the amount of Nineteen
Thousand Five Hundred Forty Seven and 18/100 DOLLARS ($19,547.18), each which
shall first be applied to interest, computed as set forth in Section 1.3 below,
and then to principal. Term Note shall mature on June 2, 2001, at which time all
unpaid principal, together with all accrued and unpaid interest, shall be due
and payable.
Section 1.1(a) LINE OF CREDIT A and LINE OF CREDIT B
The BANK shall lend to the COMPANY, subject to and upon the terms and
conditions herein set forth, at any time or from time to time on or before
January 15, 1997, sums not to exceed One Million Dollars (1,000,000.00) for Line
of Credit A and Five Hundred Thousand DOLLARS ($500,000.00) for Line of Credit B
in the aggregate outstanding at any one time; provided, however,
<PAGE>
that BANK may extend such termination date for successive one year periods at
its sole option by notice to such effect at least twenty-four hours prior to
January 15, 1997, and provided, further, however, that all such borrowings from
time to time shall be payable on demand and that should demand be made at any
time prior to January 15, 1997, then COMPANY shall have no further rights to
borrow, nor shall BANK have any obligations to lend further sums under this
Section 1.1(a).
Section 1.2(a) LINE OF CREDIT NOTE A and LINE OF CREDIT NOTE B
The obligation of the COMPANY to repay the aggregate unpaid principal
amount of all line of credit loans by the BANK from time to time shall be
evidenced by Line of Credit A and Line of Credit B promissory notes to the order
of the BANK substantially in the form of Exhibit BI and 52, respectively,
attached hereto which shall be dated as of February 1, 1996 for Line of Credit A
and January 2, 1996 for Line of Credit B, and duly executed by the COMPANY with
blanks appropriately filled in conformity herewith.
Line of Credit A shall be revolving and be payable on demand or if
demand be not made then in sixty (60) consecutive monthly interest only payments
commencing March 1, 1996. The maximum available borrowings under Line of Credit
A shall be reduced by Two Hundred Thousand Dollars (200,000.00) each year
beginning February 1, 1997. The Line of Credit A shall mature on February 1,
2001 at which time all unpaid principal, together with all accrued and unpaid
interest, shall be due and payable.
Anything herein and in the Line of Credit Notes to the contrary
notwithstanding, the line of credit loans shall terminate and the balance due on
the Line of Credit Notes shall become due and payable on demand or if demand be
not made, then on February 1, 2001 for Line of Credit A and January 15, 1997 for
Line of Credit B, as same may be extended at the option of the BANK pursuant to
Section 1.1(a) above. In the event of such extension the COMPANY shall execute a
renewal line of credit note and such other documents and instruments as the BANK
shall request.
The Term Notes and Line of Credit and as any of same may be from time
to time amended, modified or renewed are referred to herein collectively as the
"Notes."
Section 1.3 - INTEREST
(a) Term Note shall bear interest from date thereof to maturity on the
unpaid principal balance thereof at the rate per annum equal to Eight and one
half percent (8.50%), fixed. Line of Credit A and B shall bear interest from
date thereof to maturity on the unpaid principal balance thereof at the rate per
annum equal to the prime rate of the BANK, said interest rate to change
simultaneously with each change in the prime rate of the BANK and after maturity
by acceleration or otherwise at a rate equal to five percent (5%) in excess of
the prime rate of the BANK in effect when such balance is due and payable.
2
<PAGE>
(b) For purposes of this Agreement, the "prime rate" of the Bank shall
mean the rate of interest announced from time to time by the BANK as its "prime
rate," such term being used only as a reference rate and not necessarily
representing the lowest or other rate charged to any particular customer of the
BANK. In the event the BANK ceases to use the term "prime rate" in setting a
base rate of interest for commercial loans, the term "prime rate" as used herein
shall be determined by reference to the rate used by the BANK as its base rate
of interest for commercial loans.
ARTICLE II - PRE PAYMENTS
Section 2.1 - OPTIONAL PREPAYMENTS
The COMPANY shall have the right from time to time to prepay the Notes
at any time in whole or in part in accordance with the terms of the Notes. Any
such prepayment may be made without premium. Any partial prepayment shall first
be applied to interest with the balance, if any, to be applied to payment of
principal in the inverse order of maturity.
ARTICLE III - CONDITIONS PRECEDENT TO BORROWING
The obligation of the BANK to lend the amount of Two Million Four
Hundred And Fifty Thousand And No/100 DOLLARS ($2,450,000.00) to the COMPANY
hereunder shall be subject to the following conditions precedent in each
instance:
Section 3.1 - BORROWING AUTHORIZATIONS
At or prior to the date of the first borrowing hereunder the COMPANY
shall provide to the BANK evidence of corporate borrowing authority acceptable
to BANK.
Section 3.2 - PROCEEDINGS; RECEIPT OF DOCUMENTS
All corporate and legal proceedings and all documents and instruments
in connection with the borrowings herein referenced shall be satisfactory in
form and substance to the BANK.
ARTICLE IV - GOOD TITLE TO PROPERTIES
The COMPANY has good and marketable title to all its properties and
assets subject to no liens, mortgages, pledges, security interest, encumbrances
or charges of any kind, except such as provided under the provisions of this
Agreements in favor of the BANK and as set forth in Schedule 4 attached hereto.
3
<PAGE>
ARTICLE V - AFFIRMATIVE COVENANTS
The COMPANY covenants and agrees that, until the Notes, together with
interest and all its other indebtedness and obligation to the BANK under this
Agreement, are paid in full, and the BANK'S commitment hereunder is terminated,
unless specifically waived in writing by the BANK:
Section 5.1 - FINANCIAL STATEMENTS AND OTHER INFORMATION
The COMPANY shall furnish to the BANK:
(a) As soon as practicable and in any event within thirty (30) days
after the close of each month, an unaudited (i) balance sheet of the COMPANY,
and (ii) profit and loss statement of the COMPANY.
(b) As soon as practicable and in any event within ninety (90) days
after the close of each fiscal year of the COMPANY, a certified audited balance
sheet and a profit and loss statement of the COMPANY whose fiscal year shall
have then ended as at the end of and for the fiscal year just closed, setting
forth corresponding figures of the previous fiscal year in comparative form and
on a consistent basis (except for changes made in accordance with generally
accepted accounting principles which are shown by appropriate notes and/or
schedules) all in reasonable detail.
(c) Promptly upon the commencement thereof, written notice of any
litigation, including arbitrations, and of any proceedings before any
governmental agency which would, if successful, materially adversely affect the
COMPANY or where the amount involved exceeds $100,000; and
(d) With reasonable promptness, such other information respecting the
business, operations and financial condition of the COMPANY as the BANK may from
time to time reasonably request.
The BANK, upon prior notice to the COMPANY, is hereby authorized to
deliver a copy of any financial statement or any other information relating to
the business, operations or financial condition of the COMPANY which may be
furnished to it or come to its attention pursuant to this Agreement or
otherwise, to any regulatory body or agency having jurisdiction over the BANK
or, to any person which shall, or shall have any right or obligation to, succeed
to all or any part of the BANK'S interest in the Notes, this Agreement and any
security herein provided for or otherwise securing the Notes
Section 5.2 INSPECTION BY BANK
The COMPANY shall allow any representative of the BANK to visit and
inspect any of the properties of the COMPANY to examine the books of account and
other records and files of the COMPANY to make copies thereof and to discuss the
affairs, business, finances and accounts of the COMPANY with its respective
directors, officers and employees.
4
<PAGE>
Section 5.3 DEMAND DEPOSIT ACCOUNTS
The COMPANY shall maintain all its demand deposit accounts with the
BANK.
Section 5.4 - CURRENT RATIO AND NET WORTH
The COMPANY shall at all times maintain a ratio of current assets to
current liabilities of not less than 1.5 to 1.0. The COMPANY will maintain at
all times a tangible net worth not less than Five Million Five Hundred Thousand
Dollars ($5,500,000.00) All of the above accounting and financial terms shall be
determined in accordance with generally accepted accounting principles.
Section 5.5 - INSURANCE
(a) COMPANY shall (i) keep all of its properties fully insured at all
times with responsible insurance carriers satisfactory to the BANK against loss
or damage by fire and other hazards, (ii) maintain adequate insurance at all
times with responsible insurance carriers satisfactory to the BANK against
liability on account of damage to persons and property and under all applicable
workmen's compensation laws, and (iii) maintain adequate insurance covering
other risks as the BANK may reasonably request with responsible insurance
carriers satisfactory to the BANK. The BANK shall be named as loss payee on all
such hazard insurance policies and an additional named insured on such liability
policies and such policies shall be payable to the BANK and the COMPANY as their
interest appear. Such policies shall not be cancelable without the giving of ten
(10) days prior written notice to the BANK nor shall any act or omission by the
COMPANY invalidate the obligation of the insurer to the BANK. A duplicate
original or certificate of each such policy of insurance shall be, delivered by
the COMPANY to the BANK upon the request of the BANK. All recoveries under any
such policy of insurance shall be applied first to the payment of interest due
on unpaid principal and the remainder shall be applied to the prepayment of
installments of principal in the inverse order of their maturities pursuant to
the Notes. For the purpose of this Section 5.5 (a), insurance shall be deemed
adequate if the same is not less extensive in coverage and amount than is
customarily maintained by other persons engaged in the same or similar business
similarly situated.
(b) The COMPANY shall, from time to time upon request of the BANK,
promptly furnish or cause to be furnished to the BANK evidence, in form and
substance satisfactory to the BANK, of the maintenance of all insurance required
by this Section 5.5(b) to be maintained, including, but not limited to such
originals or codes as the BANK may request of policies, certificates of
insurance, riders, and endorsements relating to such insurance and proof of
premium payments
Section 5.6 - PROPERTIES IN GOOD CONDITION
The COMPANY shall keep its properties in good repair, working order and
condition and, from time to time, make all needful and proper repairs, renewals,
replacements, additions and improvements thereto, so that the business carried
on may be properly and advantageously conducted at all times in accordance with
prudent business management.
5
<PAGE>
Section 5.7 MAINTENANCE OF BUSINESS
The COMPANY will continue its business and maintain its corporate
existence and its right to transact the business in which it is engaged in good
standing
Section 5.8 TAXES AND CLAIMS
The COMPANY shall duly pay and discharge (a) all taxes, assessments and
governmental levies and charges upon or against the COMPANY or its properties or
assets prior to the date on which penalties attach thereto, unless and to the
extent that such taxes are being diligently contested in good faith and by
appropriate proceedings and appropriate reserves therefor have been established,
and, if requested by the BANK, indemnity satisfactory to the BANK has been
furnished by the COMPANY to the BANK; and, upon request of the BANK, the COMPANY
shall furnish or cause to be furnished to the BANK copies of all tax bills or
assessments evidencing payment of the amounts due thereunder; and (b) all lawful
claims, whether for labor, materials, supplies, services or anything else which
might or could, if unpaid, become a lien or charge upon the properties or assets
of the COMPANY, unless and to the extent only that the same are being diligently
contested in good faith and by appropriate proceedings and appropriate reserves
there for have been established, and, if requested by the BANK, indemnity
satisfactory to the BANK has been furnished by the COMPANY to the BANK.
Section 5.9 - BOOKS AND RESERVES
The COMPANY shall:
(a) maintain, at all times, true and complete books, records and
accounts in which true and correct entries shall be made of its transactions in
accordance with generally accepted accounting principles consistently applied,
and
(b) by means of appropriate entries, not less often than at the end of
each month, reflect in its accounts and in all financial statements furnished
pursuant to Section 5.1 proper liabilities and reserves for all taxes and proper
reserves for depreciation, renewals and replacements, obsolescence and
amortization of its properties and bad debts, all in accordance with generally
accepted accounting principles consistently applied, as above described.
Section 5.10 - SECURITY
All obligations of Company provided for by this agreement and the Note
shall be secured by the existing liens and security interest given by COMPANY to
BANK
6
<PAGE>
Section 5.11 - ACCOUNTANTS
The COMPANY shall give the BANK prompt notice of any change of the
COMPANY'S independent certified public accountant and a statement of the reasons
for such change. The COMPANY must at all time utilize an independent certified
public accountant acceptable to the BANK.
ARTICLE VI - NEGATIVE COVENANTS
The COMPANY covenants and agrees that, until the Notes together with
interest and all its other indebtedness to the BANK under this Agreement are
paid in full, and the BANK'S commitment hereunder is terminated, the COMPANY
shall not, without the prior written consent of the BANK:
Section 6.1 - CAPITAL EXPENDITURES
Make or be committed to make, directly or indirectly, expenditures for
fixed or capital assets (including but not limited to the total of cash expended
and indebtedness incurred pursuant to Section 6.2(b) herein) amounting, in the
aggregate for the COMPANY, in any fiscal year of the COMPANY (on a
non-cumulative basis, to the effect that any amounts not expended in any one
period may not be expended in any subsequent one) to more than the sum of
$1,000,000.00, excluding those capital expenditures made with the proceeds of
any borrowing hereunder and all expenditures for inventory purchased for resale.
Section 6.2 - MORTGAGES, LIENS, ETC.
Create, incur, assume or suffer to exist any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind upon or defect in title to or
restriction upon the use of any of the COMPANY'S property or assets of any
character under conditional sales, finance lease of other title retention
agreements, except:
(a) Mortgages, liens, pledges and security interest in favor the BANK;
(b) Mortgages, pledges, liens and security interest existing on the
date hereof which are described in Schedule 6.2 hereto, but not the extension of
coverage to other property, extension of maturity, refunding or modification
thereof in whole or in part except as indicated on Schedule 6.2.
Section 6.3 - INDEBTEDNESS
Create, incur, assume or suffer to exist, contingently or otherwise,
any indebtedness, except
(a) Indebtedness of the COMPANY under this Agreement;
7
<PAGE>
(b) Unsecured current liabilities incurred in the ordinary course of
business other than those which are for money borrowed or are evidenced by
bonds, debentures, notes or other similar instrument;
(c) Indebtedness (not overdue) secured by mortgages, liens or security
interest permitted by Section 6.2;
(d) Indebtedness under guaranties or for other contingent liabilities,
to the extent permitted by section 6.4;
(e) Unsecured Subordinated Debt, meaning any unsecured obligation which
is expressly subordinated to the obligations of COMPANY to BANK in a form
satisfactory to the BANK and described in Schedule 6.3 attached hereto;
(f) Indebtedness existing on the date hereof described in Schedule 6.3
attached hereto, but not the extension of maturity, increase, refunding or
modification thereof in whole or in part.
Section 6.4 LOANS, INVESTMENTS AND GUARANTIES
Lend or advance money, credit or property to any person, or invest in
(by capital contribution or otherwise) , or acquire any interest whatsoever in,
or purchase or repurchase the stock or indebtedness, or all or a substantial
part of the assets or properties, of any person, or guarantee, assume, endorse
or otherwise become responsible for (directly or indirectly or by an instrument
having the effect of assuring any person's payment or performance or capability)
the indebtedness, performance, obligations, stock or dividends of any person, or
agree to do any of the foregoing, except:
(a) Endorsement of negotiable instruments for deposit or collection in
the ordinary course of business;
(b) Investments in readily marketable, direct obligations of the
Government of the United States of America maturing not more than one year after
the date of purchase thereof, commercial paper rated double "A" or better and/or
in Certificates of Deposit issued by the BANK;
(c) Investments representing the indebtedness of any person owing as a
result of the sale by the COMPANY in the ordinary course of business of products
or services or tangible personal property no longer required in its business;
Section 6.5 - COMPANY
Amend the Articles of Incorporation by By-Laws or other organization or
similar agreements of the COMPANY or liquidate, dissolve or otherwise alter the
form of the COMPANY. The
8
<PAGE>
COMPANY further agrees that it shall not: (a) sell, lease, transfer or otherwise
dispose of (whether in one transaction or a series of related transactions) any
of its assets if the aggregate value thereof represents a material part of the
aggregate value of all its assets; (b) consolidate with or merge into any other
corporations, or permit another corporation to merge into it, or acquire, in a
transaction analogous in purpose or effect to a merger or consolidation, all or
substantially all of the properties or assets of any other person; or, (c) enter
into any arrangement, directly or indirectly, with any person whereby the
COMPANY shall sell or transfer any property, real or personal, and used and
useful in its business, whether now owned or hereafter acquired, and thereafter
rent or lease such property or other property which the COMPANY intends to use
for substantially the same purpose or purposes as the property being sold or
transferred.
Section 6.6 - MANAGEMENT
Make any material change in the management of the COMPANY.
Section 6.7 - MERGER, DISSOLUTION, SALE OF ASSETS
Enter into any transactions of merger or consolidation, or transfer,
sell, assign, lease, or otherwise dispose of all or a substantial part of its
properties or assets, or any of its notes or accounts receivable, or any assets
or properties necessary or desirable for the proper conduct of its business, or
change the nature of its business, or wind up, liquidate or dissolve, or agree
to do any of the foregoing.
ARTICLE VII - DEFAULTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT
If any one or more of the following events (herein called "Events of
Default") shall occur for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body) , that is to say:
(a) If default shall be made in the due and punctual payment of the
installments of principal and interest or, any premium on, any one or more of
the Notes, or any other obligation or liabilities of the COMPANY to the BANK
whether direct, indirect, contingent, liquidated or unliquidated when and as the
same shall become due and payable, whether at maturity or by acceleration or
otherwise, such default continuing for a period of ten days after notice thereof
to the COMPANY from the BANK;
(b) If default shall be made in the performance or observance of, or
shall occur under, any covenant, agreement, or provisions contained in this
Agreement or in any instrument or
9
<PAGE>
document delivered to the BANK in connection with or pursuant to this Agreement
or if any such instrument or document shall terminate or become void or
unenforceable without the written consent of the BANK and such, action shall not
be cured within ten business days after notice thereof to the COMPANY from the
BANK;
(c) If any representation or warranty or any other statement of fact
herein or in any writing, certificate, report or statement at any time furnished
to the BANK pursuant to or in connection with, this Agreement, or otherwise,
shall be false in any material respect or misleading in any material respect;
(d) If the COMPANY shall admit in writing its inability to pay its
debts generally as they become due; file a petition in bankruptcy or petition to
take advantage of any insolvency act; make an assignment for the benefit of its
creditors; commence a proceeding for the appointment of a receiver, trustee,
liquidator or conservator of itself or of the whole or any substantial part of
its property; file a petition or answer seeking reorganization or arrangement or
similar relief under the Federal bankruptcy laws or any other applicable law or
statute of the United States or any State;
(e) If the COMPANY shall be adjudged a bankrupt; or a court of
competent jurisdiction shall enter an order, judgment or decree appointing a
receiver, trustee, liquidator or conservator of the COMPANY or of the whole or
any substantial part of its properties, or approve a petition filed against the
COMPANY seeking reorganization or similar relief under the Federal bankruptcy
laws or any other applicable law or statute of the United States or any State;
or if, under the provisions of any other law for the relief or aid of debtors, a
court of competent jurisdiction shall assume custody or control of the COMPANY
or of the whole or any substantial part of its properties; or if there is
commenced against the COMPANY and such proceeding or petition remains
undismissed for a period of 30 days; or if the COMPANY by any act indicated its
consent to, approval of or acquiescence in any such proceeding or petition; or
(f) Any default by the COMPANY under any indenture, mortgage, loan
agreement, note, deed of trust, agreement or other instrument to which it or any
of its properties is a party or by which it is bound or failure by COMPANY in
the due performance of any covenant contained in any such document; or
(g) If this Agreement or any security or any other document delivered
in connection with a purchase to this Agreement shall at any time for any reason
cease to be in full force and effect or shall be declared to be null and void,
or the validity or enforceability of any thereof shall be contested by the
COMPANY or any other obligor thereunder, or the transactions completed or
contemplated hereunder shall be contested by the COMPANY, or if the COMPANY
shall deny that it has any or further liability or obligation hereunder;
Then, and in any such event, and at any time thereafter, if such or any
other Event of Default shall then be continuing, the BANK may, at its option,
declare the Notes to be due and payable and terminate its commitment to lend any
further funds pursuant hereto, whereupon the maturity of the
10
<PAGE>
then unpaid balance of the Notes shall be accelerated and the same, and all
interest accrued thereon, as well as all other liabilities and indebtedness of
the COMPANY to the BANK whether now existing or hereafter arising and whether
direct, indirect, contingent, liquidated or unliquidated, shall forthwith become
due and payable without presentment, demand, protest or notice of any kind, all
of which is hereby expressly waived, anything contained herein or in the Notes
to the contrary notwithstanding.
Section 7.2 - SUITS FOR ENFORCEMENT
In case any one or more Events of Default shall occur and be
continuing, the BANK may proceed to protect and enforce its rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein, in
the Notes or in any document or instrument delivered in connection with or
pursuant to this Agreement, or to enforce the payment of the Notes or any other
legal or equitable right or remedy.
Section 7.3 - RIGHTS AND REMEDIES CUMULATIVE
No right or remedy herein conferred upon the BANK is intended to be
exclusive of any other right or remedy contained herein, in the Notes or in any
instrument or document delivered in connection with or pursuant to this
Agreement, and every such right or remedy shall be cumulative and shall be in
addition to every other such right or remedy contained herein and therein or now
or hereafter existing at law or in equity or by statute, or otherwise.
Section 7.4 - RIGHT AND REMEDIES NOT WAIVED
No course of dealing between the COMPANY and the BANK or any failure or
delay on the part of the BANK in exercising any rights or remedies hereunder
shall operate as a waiver of any rights or remedies of the BANK and no single or
partial exercise of any rights or remedies hereunder shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder.
ARTICLE VIII - MISCELLANEOUS
Section 8.1- COLLECTION COSTS
In the event that the BANK shall retain or engage an attorney or
attorneys to collect or enforce or protect their interests with respect to this
Agreement, or the Notes, or any instrument or document delivered pursuant to
this Agreement, or to protect the rights of any holder or holders with respect
thereto, including the representation of BANK or any holder or holders of any of
the Notes in connection with any bankruptcy, reorganization, receivership or any
other action affecting creditor's rights, and regardless of whether a suit or
action is commenced, the COMPANY shall pay all of the costs and expenses of such
collection, enforcement or protection, including reasonable
11
<PAGE>
attorneys' fees, and the BANK or the holder of any of the Notes, as the case may
be, may take judgment for all such amounts, in addition to the unpaid principal
balance of the Notes and accrued interest thereon.
Section 8.2 - SETOFF
In addition to any rights now or hereafter granted under the provisions
of the any applicable law, rule or regulation and, not by way of limitation of
any such rights, upon the occurrence of (a) any Event of Default or (b) any
event which with the lapsed of time or the giving of notice, or both, would
constitute an Event of Default, the BANK is hereby authorized by the COMPANY, at
any time or from time to time, without notice to the COMPANY or to any other
person, any such notice being hereby expressly waived,
(a) to setoff and to appropriate and to apply any and all deposits
(general or special, time or demand, including, but not limited to, indebtedness
evidenced by certificates of deposit, in each case whether matured or unmatured)
and any other indebtedness at any time held or owing by the BANK or such holder
to or for the credit or account of the COMPANY against and on account of the
obligations and liabilities of the COMPANY to such BANK or any holder of any of
the Notes, including, but not limited to, all claims of any nature or
description arising out of or connected with this Agreement, the Notes or any
instrument or document delivered in connection with or pursuant to this
Agreement, irrespective of whether or not (i) the BANK shall have made any
demand under this Agreement, the Notes or any instrument or document delivered
in connection with or pursuant to this Agreement, or (ii) the BANK shall have
declared the principal of and interest on any of the Notes or any other amounts
under this Agreement, any of the Notes or any instrument or document delivered
in connection with or pursuant to this Agreement to be due and payable as
permitted by Section 8.1 and by the terms of any of the Notes or any instrument
or document delivered in connection with or pursuant to this Agreement, and
although said obligations and liabilities, or any of them, shall be contingent
or unmatured, and
(b) pending any such setoff or appropriation or application, to hold
the amounts of all deposits as collateral and to return as unpaid any or all
checks drawn against such deposits that are presented for payment as the BANK in
its sole discretion shall decide.
Section 8.3 - MODIFICATION, WAIVERS AND APPROVALS
No modification or waiver of any provision of the Notes or of this
Agreement, no approvals required from the BANK and no consent by the BANK to any
departure therefrom by the COMPANY shall be effective unless such modification,
waiver, approval or consent shall be in writing and signed by duly authorized
officers of the BANK, and the same shall then be effective only for the period
and on the conditions and for the specific instances and purposes specified in
such writing. No notice to or demand on the COMPANY in any case shall entitle
the COMPANY to any other or further notice or demand in similar or other
circumstances
12
<PAGE>
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO FOREBEAR FROM
ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT
ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
Section 8.4 - LAW
This Agreement shall be construed in accordance with and governed by
the laws of the State of Missouri.
Section 8.5 - NOTICES
All notice, requests, demands or other communications provided for
herein shall be in writing and shall be deemed to have been given when sent by
prepaid telegram or registered or certified mail, return receipt requested,
addressed, as the case may be, to the BANK, 700 Corporate Park Drive, St. Louis,
Missouri, 63105 attention Hord Hardin II, Senior Vice President, or to the
COMPANY, P.O. Box 405, Chesterfield, MO, 63006 attention David Kreher, Executive
Vice President to such other person or address as any party shall designate to
the others from time to time in writing forwarded in like manner.
Section 8.6 - BENEFIT OF AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the
COMPANY and the BANK and their respective successors and assigns, and all
subsequent holders of the Notes, except that the obligation of the BANK to make
loans hereunder shall not inure to the benefit of any successors and assigns of
the COMPANY.
Section 8.7 CAPTIONS
The captions of the various sections and paragraphs of this Agreement
have been inserted only for the purposes of convenience; such captions are not a
part of this Agreement and shall not be deemed in any manner to modify, explain,
enlarge or restrict any of the provisions of this Agreement.
Section 8.8 - PAYMENT DUE ON HOLIDAY
Whenever any payment to be made hereunder or on the Notes shall become
due and payable on a Saturday, Sunday or a legal holiday under the laws of the
State of Missouri, such payment may
13
<PAGE>
be made on the next succeeding business day and such extension of time shall in
such case be included in computing interest on such payment.
Section 8.9 - REINSTATEMENT OF OBLIGATIONS
If at any time any payments on the Notes or any other indebtedness or
liabilities owed to the BANK theretofore made by the COMPANY or any other person
must be disgorged by the BANK for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of the COMPANY or other
person), this Agreement and the BANK'S mortgages, liens, pledges and security
interests granted hereunder shall be reinstated as to all disgorged payments as
though such payment had not been made, and the COMPANY shall sign and deliver to
the BANK all documents and things necessary to reperfect all terminated
mortgages, liens, pledges and security interests.
Section 8.10 - SEVERABILITY
If any provision of this Agreement shall be held invalid by any court
of competent jurisdiction, such holding shall not invalidate any other provision
hereof.
IN WITNESS WHEREOF, the COMPANY and the BANK have caused this Agreement
to be duly executed by their officers thereunto duly authorized as of the day
and year first above written.
RELIV' INTERNATIONAL, INC.
By: /s/ David Kreher
-----------------------------
David Kreher
Executive Vice President
SOUTHWEST BANK OF ST. LOUIS
By:/s/ Hord Hardin II
-----------------------------
Hord Hardin II
Senior Vice President
14
<PAGE>
SCHEDULE 4
LOAN AGREEMENT
Dated February 1, 1996
Between Reliv' International, Inc. and SOUTHWEST BANK OF ST LOUIS.
Property Owned by Reliv' International, Inc.
Subject to Lien, Mortgage, Pledge, Security Interest or Charge
15
<PAGE>
SCHEDULE 6.3
Unsecured Subordinated Debt and other Indebtedness:
NONE
16
<PAGE>
SCHEDULE 6.2
Mortgages, pledges, liens and security interests between RELIV' INTERNATIONAL,
INC. and SOUTHWEST BANK OF ST. LOUIS:
Security Agreement dated January 2, 1996 covering Accounts Receivable,
Inventory and Equipment.
Deed of Trust dated January 2, 1996 on "Adjusted Lot 2-A of Boundary
Adjustment Plat of Lot 2, Lot 3 and Lot 4 of the Resubdivision of Lot 1
of CHESTERFIELD INDUSTRTAL PARK, according to the plat thereof recorded
in Plat Book 230, Page(s) 99 of the St. Louis County Records. Commonly
known as 112 Chesterfield Industrial Blvd." Locator # 17U130088
17
EXHIBIT 10.15
RELIV' INTERNATIONAL, INC.
DEED OF TRUST NOTE
US $950,000.00 St. Louis, Missouri
January 2, 1996
1. FOR VALUE RECEIVED, the undersigned, Reliv' International, Inc.,
(hereinafter "Maker"), promises to pay to the order of SOUTHWEST BANK OF ST.
LOUIS (hereinafter "Holder") at 700 Corporate Park Drive, Clayton, Missouri
63105, the principal sum of Nine Hundred Fifty Thousand and 00/100 DOLLARS
($950,000.00), with interest thereon from the date hereof at the rate of 8.50%
per annum (and shall be calculated on the actual number of days on the basis of
a year of 360 days), with payments to be made as follows:
Interest only on the from time to time principal amount of indebtedness
evidenced hereby at a rate of 8.50% per annum shall be payable monthly
commencing February 2, 1996 through and including April 2, l996; and commencing
May 2, 1996, Sixty (60) payments of principal and interest in the amount of
Nineteen Thousand Five Hundred Forty-Nine and 78/100 DOLLARS ($19,549.78) shall
be payable monthly, with the balance of principal and interest due and payable
April 2, 200l, each of such payments to be applied first in payment of interest
due on the entire unpaid principal, and the remainder in reduction of the
principal, with interest after maturity, by acceleration or otherwise, at the
rate of 20% per annum.
2. Maker reserves the right to prepay any or all of the principal
amount evidenced by this Note without penalty at any time.
3. If any payment under this Note is not paid within ten (10) days
after the payment is due, then Maker shall pay to Holder a late charge of ten
percent (10%) of such payment, but in any event not less than Ten Dollars
($10.00).
4. This Note is secured by a Deed of Trust and encumbering certain real
and personal property located in the County of St. Louis, State of Missouri (the
terms and provisions of which are incorporated herein by this reference), and by
any other instruments or security, now or hereafter executed by Maker or any
other party in favor of Holder, which shall constitute additional security for
this Note and Maker has also given to Holder in connection herewith an Security
Agreement (all of which are herein collectively called the "Loan Documents").
5. It is agreed that time is of the essence in the performance of all
obligations hereunder and under the Loan Documents. If Maker shall fail to make
any payment hereunder when due, or upon the occurrence of an event of default in
the performance or observance of any of the terms, agreements, covenants or
conditions contained in the Loan Documents, then, or at any time thereafter, the
entire principal balance of this Note, irrespective of the maturity date
specified herein, together with the then accrued interest thereon, shall, at the
election of the Holder hereof, and without notice of such election, become
immediately due and payable.
<PAGE>
6. All makers, endorsers, guarantors and sureties hereof jointly and
severally waive presentment, protest, notice of dishonor, and notice of intent
to accelerate; and they also jointly and severally hereby consent to any and all
renewals, extensions or modifications of the terms hereof, including the terms
or time for payment; and further agree that any such renewal, extension or
modification of the terms hereof or time for payment or of the terms of any of
the Loan Documents or the release or substitution of any security for the
indebtedness evidenced hereby or any other indulgences shall not otherwise
affect the liability of any of said parties for the indebtedness evidenced by
this Note. Any such renewals, extensions or modifications may be made without
notice to any of said parties.
7. This Note shall be the joint and several obligation of all makers,
endorsers, guarantors, and sureties, and shall be binding upon them and their
successors and assigns and shall inure to the benefit of the successors and
assigns of Holder. All makers, endorsers, guarantors, and sureties hereof agree
jointly and severally to pay all costs of collection (including those incurred
in any bankruptcy proceedings and regardless of whether suit is filed) and
foreclosure, including reasonable attorneys' fees and costs.
8. Any forbearance of Holder in exercising any right or remedy
hereunder or under the Loan Documents, or otherwise afforded by applicable law,
shall not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by Holder of payment of any sum payable hereunder after the due date
of such payment shall not be a waiver of Holder's right to either require prompt
payment when due of all other sums payable hereunder or to declare a default for
failure to make prompt payment.
9. This Note shall be governed by the laws of the State of Missouri.
IN WITNESS WHEREOF, Maker has executed this Note as of the date first above
written.
Reliv' International, Inc. Property Address:
112 Chesterfield Indust
St. Louis, MO
By:/s/ Robert L. Montgomery Maturity Date:
------------------------------- April 2, 2001
Robert L. Montgomery,
By: /s/ David G. Kreher Mailing Address:
------------------------------- P. 0. Box 405
David G. Kreher Chesterfield, MO 63006
2
<PAGE>
STATEMENT SHEET
January 2, 1996
$950,000.00 Loan
NOTE: Disclosures in this statement are not relevant to and may be inconsistent
with disclosures required by the Federal Truth in Lending Act. Please refer to
the separate "Disclosure Statement" delivered in connection with this
transaction for such information.
AMOUNT OF LOAN $950,000.00
TITLE
SURVEY
RECORDING &
RELEASING FEES
ORIGINATION FEE
INTEREST
PAID TO Borrower $
PAID TO
PAID TO
PAID TO
PAID TO
DISBURSED
TOTAL $950,000.00 $950,000.00
SOUTHWEST BANK OF ST. LOUIS
We hereby authorize you to distribute proceeds of our Note for $950,000.00 dated
January 2, 1996, as indicated above.
Reliv' International, Inc.
By:_________________________________
Robert L. Montgomery,
By:_________________________________
David G. Kreher
3
EXHIBIT 10.16
RELIV' INTERNATIONAL, INC.
LINE OF CREDIT NOTE
$1,000,000.00 and interest St. Louis, Missouri
March 20, 1996
On Demand, and if no demand be made, then on the 1st day of February,
2001, the undersigned promise(s) to pay to the order of SOUTHWEST BANK OF ST.
LOUIS, St. Louis, Missouri, 63105 (herein called "Bank") at its office in said
City or to such other place as the holder hereof shall from time to time
designate, the principal sum of ONE MILLION AND 00/100 Dollars, or the then
outstanding and unpaid principal balance of the sums advanced hereunder together
with accrued interest. Each borrowing hereunder shall bear interest from the
date advanced by Bank at the rate of 0.00% in excess of Southwest Bank of St.
Louis' Prime Rate, to be adjusted with each change thereto, payable monthly, and
shall be calculated on the actual number of days on the basis of a year of 360
days. This note shall bear interest after maturity at the rate of three percent
(3%) over the stated rate. As used herein, the term "Prime Rate" shall mean the
rate of interest announced from time to time by the Bank as its "Prime Rate",
such term being used only as a reference rate and not necessarily representing
the lowest rate charged to any customer of the Bank. In the event the Bank
ceases to use the term "Prime Rate" in setting a base rate for commercial loans,
the term "Prime Rate" as used herein shall be determined by reference to the
rate used by the Bank as its base rate of interest for commercial loans. THE
LOAN AMOUNT REDUCES BY $200,000.00 EVERY FEBRUARY 1 BEGINNING FEBRUARY 1, 1997.
Until the occurrence of any event of default herein described
or any default or any event which with the passage of time or giving of notice,
or both, would constitute a default under any agreements listed below, or the
maturity of this note, whether by acceleration or otherwise, the undersigned may
borrow and repay and re-borrow such amounts, hereunder, except that each advance
or repayment will be in a minimum amount of ONE THOUSAND AND 00/100 Dollars or
any multiples thereof, but not exceeding the maximum amount set forth above.
Unless otherwise instructed by the undersigned, all advances under this note
will be credited to checking account No. 58726 carried on the books of Bank in
the name of RELIV' INTERNATIONAL and the undersigned agrees that Bank may make
advances at its discretion, upon oral instructions of any of the undersigned or
upon occurrence of an overdraft in said checking account.
Upon the occurrence of any of the following events of default:
failure of the undersigned to make any payments required hereunder or comply
with any of the provisions contained in this note or any other obligations of
the undersigned to Bank or to any other party, and the continuation of such
default following applicable notice and cure rights, if any, or death,
dissolution, termination of existence, insolvency, failure to pay debts as they
mature, appointment of a receiver of any part of the property of, an assignment
for the benefit of
<PAGE>
creditors, or the commencement of any proceedings under bankruptcy or insolvency
laws, by or against any of the undersigned, then or at any time thereafter, this
note and all other obligations of each of the undersigned to the Bank shall, at
the option of Bank, become due and payable without notice or demand and no
further advances will thereafter be made by Bank under the terms of this note.
Furthermore, Bank reserves the right to offset without notice all funds or other
property held by Bank against matured debts owing to Bank by undersigned. The
undersigned will pay on demand all costs of collection, legal expenses and
attorney's fees incurred or paid in collecting or enforcing this note including
representation in any bankruptcy or insolvency proceedings and whether or not
any lawsuit is ever filed with respect thereto. Each of the undersigned hereby
waives presentment, protest, demand, notice of dishonor or default and consents
to any and all renewals, extensions, and/or the release of any collateral or
party directly or indirectly liable for the payment hereof, all without notice
to and without affecting the liability of any of the undersigned. As used herein
"undersigned" shall mean each maker and each endorser, and each jointly and
severally, agrees to all the provisions hereof. This note shall be governed by
the laws of the State of Missouri and shall bind the undersigned and shall inure
to the benefit of the Bank and any holder hereof.
In addition to all other rights and security of Bank, security for this
note and all other indebtedness owing to Bank:
Security Agreements dated January 2, 1996 covering Accounts Receivable.
Inventory and Equipment.
1st Deed of Trust dated January 2, 1996 on 112 Chesterfield Ind. Blvd.
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FOREBEAR PROM ENPORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW BUCK DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN Us, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
Signature(s) below constitutes execution of note acknowledgement of
copy of note.
Reliv' International, Inc.
By: /s/ Robert L. Montgomery
-----------------------------------
Robert L. Montgomery,
By: /s/ David G. Kreher
-----------------------------------
David G. Kreher
Address: P.O. Box 405 Chesterfield. MO 63006
EXHIBIT 10.17
RELIV' INTERNATIONAL, INC.
$500,000.00 and interest St. Louis, Missouri
January 2, 1996
On Demand, and if no demand be made, then on the 15th day of January,
1997, the undersigned promise(s) to pay to the order of SOUTHWEST BANK OF ST.
LOUIS, St. Louis, Missouri, 63105 (herein called "Bank") at its office in said
City or to such other place as the holder hereof shall from time to time
designate, the principal sum of Five Hundred Thousand and 00/100 Dollars, or the
then outstanding and unpaid principal balance of the sums advanced hereunder
together with accrued interest. Each borrowing hereunder shall bear interest
from the date advanced by Bank at the rate of 0.00% in excess of Southwest Bank
of St. Louis' Prime Rate, to be adjusted with each change thereto, payable
monthly, and shall be calculated on the actual number of days on the basis of a
year of 360 days. This note shall bear interest after maturity at the rate of
three percent (3%) over the stated rate. As used herein, the term "Prime Rate"
shall mean the rate of interest announced from time to time by the Bank as its
"Prime Rate", such term being used only as a reference rate and not necessarily
representing the lowest rate charged to any customer of the Bank. In the event
the Bank ceases to use the term "Prime Rate" in setting a base rate for
commercial loans, the term "Prime Rate" as used herein shall be determined by
reference to the rate used by the Bank as its base rate of interest for
commercial loans.
Until the occurrence of any event of default herein described or any
default or any event which with the passage of time or giving of notice, or
both, would constitute a default under any agreements listed below, or the
maturity of this note, whether by acceleration or otherwise, the undersigned may
borrow and repay and re-borrow such amounts, hereunder, except that each advance
or repayment will be in a minimum amount of ONE THOUSAND AND 00/100 Dollars or
any multiples thereof, but not exceeding the maximum amount set forth above.
Unless otherwise instructed by the undersigned, all advances under this note
will be credited to checking account No. 058726 carried on the books of Bank in
the name of Reliv International, Inc. and the undersigned agrees that Bank may
make advances at its discretion, upon oral instructions of any of the
undersigned or upon occurrence of an overdraft in said checking account.
Upon the occurrence of any of the following events of default: failure
of the undersigned to make any payments required hereunder or comply with any of
the provisions contained in this note or any other obligations of the
undersigned to Bank or to any other party, and the continuation of such default
following applicable notice and cure rights, if any, or death, dissolution,
termination of existence, insolvency, failure to pay debts as they mature,
appointment of a receiver of any part of the property of, an assignment for the
benefit of
<PAGE>
creditors, or the commencement of any proceedings under bankruptcy or insolvency
laws by or against any of the undersigned, then or at any time thereafter, this
note and all other obligations of each of the undersigned to the Bank shall, at
the option of Bank, become due and payable without notice or demand and no
further advances will thereafter be made by Bank under the terms of this note.
Furthermore, Bank reserves the right to offset without notice all funds or other
property held by Bank against matured debts owing to Bank by undersigned. The
undersigned will pay on demand all costs of collection, legal expenses and
attorney's fees incurred or paid in collecting or enforcing this note including
representation in any bankruptcy or insolvency proceedings and whether or not
any lawsuit is ever filed with respect thereto. Each of the undersigned hereby
waives presentment, protest, demand, notice of dishonor or default and consents
to any and all renewals, extensions, and/or the release of any collateral or
party directly or indirectly liable for the payment hereof, all without notice
to and without affecting the liability of any of the undersigned. As used herein
"undersigned" shall mean each maker and each endorser, and each jointly and
severally, agrees to all the provisions hereof. This note shall be governed by
the laws of the State of Missouri and shall bind the undersigned and shall inure
to the benefit of the Bank and any holder hereof.
In addition to all other rights and security of Bank, security for this
note and all other indebtedness owing to Bank:
Security Agreement dated January 2, 1996 covering Accounts Receivable
and Inventory.
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US
(CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
Signature(s) below constitutes execution of note and acknowledgement of
copy of note.
Reliv' International, Inc.
By: /s/ Robert L. Montgomery
----------------------------
Robert L. Montgomery
By: /s/ David G. Kreher
----------------------------
David G. Kreher
Address: P.O. Box 405 Chesterfield. MO 63006
EXHIBIT 10.18
RELIV' INTERNATIONAL, INC. 148671-
DEED OF TRUST NOTE
US $4,430,000.00 St. Louis, Missouri
September 2, 1997
1. FOR VALUE RECEIVED, the undersigned, Reliv' International. Inc.,
(hereinafter "Maker", promises to pay to the older of SOUTHWEST BANK OF ST LOUIS
(hereinafter "Holder") at 2301 South Kingshighway, St. Louis, Missouri
63110-3498, the principal sum of FOUR MILLION FOUR HUNDRED THIRTY THOUSAND AND
NO/100 DOLLARS ($4,430,000), with interest thereon from the date hereof at the
rate of 8.50% per annum (and shall be calculated on the actual number of days on
the basis of a year of 360 days), with payments to be made as follows: Interest
only on the from time to time principal amount of indebtedness evidenced hereby
at a rate of 8.50% per annum shall be payable monthly commencing October 1, 1997
through and including March 1, 1998, and commencing April 1, 1998, Thirty-five
(35) payments of principal and interest in the amount of THIRTY-EIGHT THOUSAND
EIGHT HUNDRED TWO AND 13/100 DOLLARS ($38,802.13) shall be payable monthly, with
the balance of principal and interest due and payable March 1, 2001 each of such
payments to be applied first in payment of interest due on the entire unpaid
principal, and the remainder in reduction of the principal, with interest after
maturity, by acceleration or otherwise, at the rate of 20.00% per annum.
2. Maker reserves the right to prepay any or all of the principal
amount evidenced by this Note without penalty at any time.
3. If any payment under this Note is not paid within ten days after the
payment is due, then Maker shall pay to Holder a late charge of ten percent
(10%) of such payment, but in any event not less than Ten Dollars ($10.00).
4. This Note is secured by a Deed of Trust and encumbering certain real
and personal property located in the County of St. Louis, State of Missouri (the
terms and provisions of which are incorporated herein by this reference), and by
any other instruments or security, now or hereafter executed by Maker or any
other party in favor of Holder, which shall constitute additional security for
this Note and Maker has also given to Holder in connection herewith an N/A (all
of which are herein collectively called the "Loan Documents").
5. It is agreed that time is of the essence in the performance of all
obligations hereunder and under the Loan Documents. If Maker shall fail to make
any payment hereunder when due, or upon the occurrence of an event of default in
the performance or observance of any of the terms, agreements, covenants or
conditions contained in the Loan Documents, then, or at any time thereafter, the
entire principal balance of this Note, irrespective of the maturity date
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specified herein, together with the then accrued interest thereon, shall, at the
election of the Holder hereof and without notice of such election, become
immediately due and payable.
6. All makers, endorsers, guarantors and sureties hereof jointly and
severally waive presentment, protest, notice of dishonor, and notice of intent
to accelerate; and they also jointly and severally hereby consent to any and all
renewals, extensions or modifications of the terms hereof, including the terms
or time for payment, and further agree that any such renewal, extension or
modification of the terms hereof or time for payment or of the terms of any of
the Loan Documents or the release or substitution of any security for the
indebtedness evidenced hereby or any other indulgences shall not otherwise
affect the liability of any of said parties for the indebtedness evidenced by
this Note. Any such renewals, extensions or modifications may be made without
notice to any of said parties.
7. This Note shall be the joint and several obligation of all makers,
endorsers, guarantors, and sureties, and shall be binding upon them and their
successors and assigns and shall inure to the benefit of the successors and
assigns of Holder, all makers, endorsers, guarantors, and sureties hereof agree
jointly and severally to pay al costs of collection (including those incurred in
any bankruptcy proceedings and regardless of whether suit is filed) and
foreclosure, including reasonable attorneys' fees and costs.
8. Any forbearance of Holder in exercising any right or remedy
hereunder or under the Loan Documents, or otherwise afforded by applicable law,
shall not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by Holder of payment of any sum payable hereunder after the due date
of such payment shall not be a waiver of Holders right to either require prompt
payment when due of all other sums payable hereunder or to declare a default for
failure to make prompt payment.
9. This Note shall be governed by the laws of the State of Missouri.
IN WITNESS WHEREOF, Maker has executed this Note as of the date first
above written.
RELIV' INTERNATIONAL, INC.
By:_________________________________
Robert L. Montgomery
By:_________________________________
David G. Kreher
Property Address:
112 & 136 Chesterfield Industrial Blvd.
2nd & 3rd Deed of Trust
Maturity Date:
March 1, 2001
Mailing Address:
P. 0. Box 405
Chesterfield, MO 63006
EXHIBIT 10.19
RELIV INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Supplemental Executive Retirement Plan (the "Plan") is hereby
adopted effective as of June 1, 1998. The Plan is established and maintained by
Reliv International, Inc. (the "Company") for the purpose of providing benefits
for certain of the senior executives of the Company. Concurrently with the
adoption of this Plan, the Company has entered into that certain Trust Agreement
dated June 1, 1998 ("Trust Agreement") pursuant to which Plan benefits shall be
deposited, held and invested.
ARTICLE I
DEFINITIONS
1.1 "Account" means the account established with respect to each
Participant in accordance with Section 6.1 hereof.
1.2 "Administrator" means the person appointed as Administrator of this
Plan, if any, in accordance with Section 10.1 hereof.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Company" means Reliv International, Inc., an Illinois corporation
and any successor corporation.
1.5 "Compensation Committee" means the Compensation Committee of the
Board. Any function exercisable by such Committee may also be exercised by the
Board.
1.6 "Disability Retirement Date" means the first day of the seventh
calender month next following the date a Participant becomes totally and
permanently disabled. A Participant in
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active Service shall be totally and permanently disabled for purposes of this
Plan if he shall have failed or been unable to perform his duties as an employee
of the Company on a full time basis for an aggregate of 180 days in any one
period of 210 consecutive days and with a certification from a licensed
physician in the State of Missouri that Participant is permanently disabled.
1.7 "Normal Retirement Date" means the later of (1) the date on which
the Participant attains age 65 or (2) the fifth anniversary of the date one
becomes a Participant.
1.8 "Participant" means any executive officer of this Company or any
subsidiary who is designated as a Participant by the Compensation Committee
hereunder. A Participant shall also mean a retired or terminated Participant who
continues to be entitled to Supplemental Plan Benefits under this Plan after his
Termination of Service.
1.9 "Plan" means the Reliv International, Inc. Supplemental Executive
Retirement Plan and any amendments thereto.
1.10 "Plan Year" means the calender year.
1.11 "Plan Benefit Commencement Date" means the date on which
Supplemental Plan Benefits commence to be payable under the Plan. Such date
shall be:
(a) in the case of a disabled Participant, his Disability
Retirement Date,
(b) in the case of a retired Participant and a Participant who has
terminated employment with the Company, the thirtieth day
following the later of his Termination of Service or Normal
Retirement Date, and
(c) in the case of a deceased Participant, the first day of the
month next following the Participant's date of death while in
active Service.
1.12 "Service" means the period of full time employment of a
Participant with (i) the
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Company, or (ii) a Subsidiary (but not counting any period during which such
employer was not a Subsidiary). For this purpose, all periods of employment with
the Company or any Subsidiary (both before and after adoption of this Plan, and
before and after the employee becomes a Participant in this Plan) shall be
included as Service. However, periods of employment after a Participant's
attainment of age sixty-five shall not be counted as Service. The number of
years of Service of a Participant shall be his completed months of Service,
whether or not consecutive, divided by 12, counting each twelve months as one
year and each additional month as one-twelfth of a year.
1.13 "Subsidiary" means any corporation, at least fifty percent of the
outstanding voting stock of which is benefically owned directly or indirectly by
the Company.
1.14 "Supplemental Plan Benefit" means the benefit payable in
accordance with this Plan.
1.15 "Termination of Service" means the first day of the month next
following termination of Participant's Service whether by voluntary or
involuntary separation, retirement, disability or death.
1.16 "Valuation Date" shall mean the last business day of a each month
on which the New York Stock Exchange shall be open.
ARTICLE II
EFFECTIVE DATE
This Plan shall be effective as of June 1, 1998.
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ARTICLE III
PARTICIPANTS
Participants shall be senior executives of the Company and any
Subsidiary of the Company designated from time to time by the Compensation
Committee as Participants in the Plan. Within 10 days after the Effective Date
hereof, the Compensation Committee shall designate those persons who shall be
eligible to participate in the Supplemental Plan Benefits of the Plan for Plan
Year 1998. On or before October 31 of each Plan Year during which this Plan
shall be in effect, the Compensation Committee shall designate those persons who
shall be entitled to participate in the Plan for purposes of compensation
deferral for the immediately succeeding Plan Year. Participants entitled to
elect deferral and receive benefits under the Plan for any Plan Year shall be
those persons so designated by the Compensation Committee for such Plan Year.
Any person designated as a Participant for any Plan Year shall be entitled to
receive the Supplemental Plan Benefits as provided herein with respect to
compensation of such person which shall have been deferred, or matching
contributions by the Company, and all earnings thereon as provided herein.
ARTICLE IV
SALARY REDUCTION ELECTION
4.1 A person designated as a Participant for any Plan Year shall be
entitled to elect to reduce such persons salary or bonus compensation for such
Plan Year as follows:
(a) The election shall be made on the election form attached
hereto, signed by the Participant, dated when made and
delivered to the Compensation Committee;
(b) The election shall be completed and delivered to the
Compensation Committee on or before December 31 of the Plan
Year preceding the Plan Year for which the election is
effective.
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(c) The percentage of the total salary compensation which a
Participant shall be entitled to elect to reduce and defer
shall not exceed 25% thereof. The percentage of bonus
compensation which a Participant shall be entitled to elect to
reduce and defer shall not exceed 50% thereof.
4.2 With respect to Plan Year 1998, the first Plan Year of this Plan,
the election shall be made as follows:
(a) The election shall be completed, signed and delivered to the
Compensation Committee within 30 days after the Effective Date
of this Plan;
(b) The election shall apply, and reduction of compensation shall
be made, only to compensation for services performed after the
date of the election;
4.3 With respect to the amount of salary or bonus compensation reduced
by a Participant in accordance with this Plan:
(a) The amount thereof shall be deducted from salary or bonus
payments when otherwise due and shall not be paid to
Participant;
(b) At the time such payments would otherwise have been due, the
Company shall make payment of the amount thereof to the Trust
and shall be allocated to the Account of such Participant.
ARTICLE V
MATCHING CONTRIBUTIONS
5.1 At the election of the Company in any Plan Year, which election
shall be within the sole discretion of the Company and determined by the
Compensation Committee, the Company may elect to contribute to the Trust a
percentage of the amount of the salary reduction amounts
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<PAGE>
allocated to Participant during the Plan Year. The election of the Company with
respect to matching contributions, and the amount thereof, for any Plan Year
shall be made by the Compensation Committee by written instrument provided to
the Company on or before October 31 of the Plan Year preceding the Plan Year for
which the election is made; provided, however, that for the first Plan Year
(1998) an election is hereby made that the Company shall make matching
contributions in an amount equal to 56% of the salary reduction amounts of
Participants for such Plan Year.
5.2 In any Plan Year in which an election shall be made by the Company
to make matching contributions, at the time of each payment to the Trust of
salary reduction amounts, the Company shall make payment to the Trust of the
matching contributions provided for and the amount thereof shall be allocated to
the Accounts of the Participant.
ARTICLE VI
PARTICIPANT ACCOUNTS; ASSETS
6.1 Accounts. There shall be established and maintained with respect to
each Participant an Account hereunder.
6.2 Account Valuation. As of each Valuation Date, each Participant
Account balance shall be adjusted as follows:
(a) the Account balance shall be increased by the amount of
contributions allocated to the Participant and by the amount
of income or gain of the Trust funds allocable to the Account
since the prior Valuation Date;
(b) the Account balance shall be decreased by the amount of
distributions allocable to the Participant and all expenses
and losses allocable to the Account since the prior
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Valuation Date.
Any expenses relating to a specific Account or Accounts, including without
limitation, commissions or sales charges with respect to an investment allocable
to the Account, may be charged solely to the particular Account or Accounts.
6.3 Investment of Account Funds. All funds allocable to an Account
shall be invested in one or more investment options made available from time to
time by the Company for this purpose. Participants shall have the opportunity to
direct the investment of the funds allocable to the Particpant Account.
Investment of the funds of the Trust shall be made by the Administrator. The
Administrator shall be obligated to comply with the instructions of a
Participant with respect to investment of funds allocable to the Participant
Account, subject to such investment options and limitations as the Administrator
shall provide. The Administrator shall prescribe the form and manner in which
such directions shall be made, as well as the frequency with which such
directions may be made or changed.
6.4 No Right in Assets; Spendthrift Clause. Notwithstanding any other
provision hereof, a Participant shall not have any right, title or interest in
or to any Account or any funds or assets allocated to any Account hereunder or
any right to transfer, assign, pledge or encumber any Account or any asset of
the Trust. The designation of Accounts herein is made solely for the purpose of
determining the amount of the Supplemental Plan Benefits which may be paid to,
or for the benefit, of a Participant if and when any benefits may become payable
hereunder. No interest of any person in, or right to receive, a distribution
under this Plan shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment or other alienation or encumbrance of any kind,
nor may such interest or right to receive a distribution be taken, either
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<PAGE>
voluntarily or involuntarily for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance or claims in bankruptcy proceedings.
6.5 Participants Unsecured Creditors. Benefits under this Plan shall
not be prefunded but shall be payable by the Company as and when they become due
as provided herein out of the Trust or otherwise from the assets of the Company.
All assets in the Trust shall remain the sole property of the Company until the
occurrence of an event giving rise to a right to payment of a distribution
hereunder. Participant's interest in benefits under this Plan (and the interest
of any surviving spouse or beneficiary) shall not be greater than that of an
unsecured creditor of the Company.
ARTICLE VII
ELIGIBILITY FOR BENEFITS
7.1 Eligibility for Benefits. Subject to the provisions of Section 7.2
hereof, Supplemental Plan Benefits under this Plan shall be payable in respect
of a Participant if:
(a) the Participant's Termination of Service occurs on or after
his Normal Retirement Date except by disability or death; or
(b) the Participant becomes totally and permanently disabled, as
defined in Section 1.11 of this Plan, before his Normal
Retirement Date; or
(c) the Participant dies before his Normal Retirement Date and
while in active Service and he is survived by his spouse or
another beneficiary, as provided in Article VIII of this Plan;
or
8
<PAGE>
(d) the Participant's Termination of Service occurs on or after
the date such Participant has completed five years of service
with the Company and, if the Termination of Service occurs by
voluntary action of Participant, the Participant shall have
completed three years of service from and after the date the
Participant shall first have been designated as a Participant
in this Plan.
7.2 Forfeiture of Benefits. Notwithstanding any other provision of this
Plan, payment of a Supplemental Plan Benefit hereunder to Participant, his
surviving spouse or designated beneficiary will, at the discretion of the
Compensation Committee, be discontinued and forfeited, and the Company will have
no further obligation hereunder to Participant, his surviving spouse or
designated beneficiary, if any of the following circumstances occur:
(a) The Participant is discharged from employment with the Company
or any Subsidiary for cause;
(b) The Participant engages in competition with the Company,
directly or indirectly, or provides service to any person
engaged in competition with the Company, whether as a
principal, owner, employee, consultant or agent;
(c) The Participant commits a material violation of Participant's
then existing Employment Agreement with the Company and such
violation is not cured in accordance with the provisions
thereof; or
(d) The Participant performs acts of wilful malfeasance or gross
negligence in a matter of material importance to the Company,
and such acts are discovered by the Company at any time prior
to the date of the death of the Participant.
The Compensation Committee shall have sole discretion with respect to the
application of the
9
<PAGE>
provisions of this section and such exercise of discretion shall be conclusive
and binding upon the Participant, his surviving spouse and all other persons.
ARTICLE VIII
BENEFITS AND PAYMENT
8.1 Amount of Benefit. The amount of the Supplemental Plan Benefit
payable to a Participant, or his beneficiary, who shall become eligible for the
payment of a benefit hereunder shall be the balance of the Account allocated to
Participant on the Valuation Date immediately preceding the Plan Benefit
Commencement Date.
8.2 Payment of Benefit. Payment of a Supplemental Plan Benefit which
shall become payable hereunder shall be made at the election of the Participant
in the form of either (a) a lump sum payment payable on the Plan Benefit
Commencement Date, (b) a straight life annuity, or (c) if the Participant is
married on the Plan Benefit Commencement Date, a joint and survivor annuity. The
Supplemental Plan Benefit payable through an annuity shall commence on the Plan
Benefit Commencement Date and subsequent payments shall be due on the
anniversary of such Plan Benefit Commencement Date, with the last payment being
due on the anniversary of the Plan Benefit Commencement Date preceding the date
on which the Participant dies or, in the case of a joint and survivor annuity,
the survivor of Participant and his spouse dies. The payment of the Supplemental
Plan Benefit shall be reduced by the amount of Federal, state and local
withholding taxes, if any, required to be withheld. If the value of any
Supplemental Plan Benefit in the aggregate is less than $5,000, the Company, in
its discretion, may pay such benefit to the Participant in a single lump sum in
lieu of any further benefit payments hereunder.
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<PAGE>
8.3 Payment of Benefit to a Survivor. In the event that a Supplemental
Plan Benefit shall become payable to the surviving spouse or other beneficiary
designated by a Participant, the amount of such benefit shall be paid in a lump
sum to such surviving spouse or beneficiary on the Plan Benefit Commencement
Date.
8.4 Payment to Representatives. If an individual entitled to receive
any benefits hereunder is determined by the Compensation Committee or is
adjudged to be legally incapable of giving valid receipt and discharge for such
benefits, they shall be paid to the duly appointed and action guardian, if any,
and if no such guardian is appointed and acting, to such persons as the
Compensation Committee may designate. Such payment shall, to the extent made, be
deemed a complete discharge for such payments under this Plan.
8.5 Timing of Payments. If the Compensation Committee is unable to make
the determinations required under this Plan with respect to the amount or
eligibility for benefits hereunder in sufficient time for payments to be made
when due, the Compensation Committee shall make such payments upon the
completion of such determinations with interest at a reasonable interest rate
from the date due and may, at is option, may provisional payments, subject to
adjustment, pending such determinations.
8.6 Unclaimed Benefits. Each Participant shall keep the Compensation
Committee informed of his current address and the current address of his spouse.
The Compensation Committee shall not be obligated to search for the whereabouts
of any person. If the location of a Participant is not made known to the
Compensation Committee withing three years of the date upon which any payment of
a benefit hereunder is to be made, payment may be made as though Participant had
died at the end of the three-year period. If within one additional year after
such
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<PAGE>
three-year period has elapsed, or, within three years after the actual death of
a Participant, the Compensation Committee is unable to locate any surviving
spouse or designated beneficiary of Participant, then the Company shall have no
further obligation to pay any benefit hereunder to such Participant or surviving
spouse or any other person and such benefit shall be irrevocably forfeited.
ARTICLE IX
AMENDMENT AND TERMINATION
The Board may at any time, or from time to time, amend this Plan in any
respect or terminate this Plan without restriction and without consent of any
Participant or beneficiary, provided that any such amendment shall not impair
the right of any Participant or any surviving beneficiary of any then deceased
Participant to receive benefits earned hereunder prior to such amendment or
termination without the consent of such Participant or such surviving
beneficiary. No beneficiary of a Participant shall have any right to benefits
under this Plan or any other interest herein before becoming a surviving
beneficiary.
ARTICLE X
GENERAL PROVISIONS
10.1 Plan Administration. The general administration of this Plan shall
be the responsibility of the Compensation Committee which is hereby authorized,
in its discretion, to delegate said responsibilities to an Administrator. The
Compensation Committee shall appoint a qualified actuary or actuaries to perform
all actuarial calculations. The good faith determination of the Compensation
Committee in reliance upon such actuary or actuaries shall be final and
conclusive.
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<PAGE>
10.2 No Guarantee of Employment. Nothing contained herein shall be
construed as a contract of employment or deemed to give any Participant the
right to be retained in the employ of the Company or any Subsidiary, or to
interfere with the rights of any such employer to discharge any individual at
any time, without cause, except as may be otherwise agreed in writing or
provided by applicable law.
10.3 No Guarantee of Benefits. Nothing contained in the Plan shall
constitute a guarantee by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder.
10.4 Participant's Rights Unsecured. The Plan at all times shall be
entirely unfunded and no provision shall at any time be made with respect to
segregating any assets of the Company for payment of benefits hereunder. The
right of a Participant or his designated beneficiary to receive a distribution
hereunder shall be an unsecured claim against the general assets of the Company,
and neither the Participant nor a designated beneficiary shall have any rights
in or against any specific assets of the Company.
10.5 Governing Law. The provisions of this Plan shall be construed
according to the laws of the State of Missouri excluding the provisions of any
such laws that would require the application of the laws of another
jurisdiction.
10.6 Gender and Number. The masculine pronoun wherever used shall
include the feminine. Wherever any words are used herein in the singular, they
shall be construed as though they were also used in the plural in all cases
where they shall so apply.
10.7 Title and Headings. The title to articles and headings of sections
of this Plan are for convenience of reference and in case of any conflict the
text of the Plan, rather than such title
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and headings, shall control.
IN WITNESS WHEREOF, Reliv International, Inc. has executed this Plan as
of the Effective date provided herein.
RELIV INTERNATIONAL, INC.
By:_______________________________
Attest:
By:_____________________________
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EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of this first day of October, 1998 by and
between Reliv World Corporation, a corporation organized and existing under the
laws of the State of Illinois, U.S.A. ("Reliv"), Reliv Europe, Inc., a
corporation organized and existing under the laws of the State of Illinois,
U.S.A. ("Reliv Europe") (Reliv World and Reliv Europe sometimes hereinafter
referred to as "Purchasers") and Global Nutrition, Inc., a corporation organized
and existing under the laws of the British Virgin Islands ("Global Nutrition").
WHEREAS, Global Nutrition is the sole owner of one share of capital
stock of Reliv UK, Ltd. a corporation organized and existing under the laws of
the United Kingdom ("Reliv UK"); and
WHEREAS, Reliv UK has only one class of authorized shares, such class
being common stock;
WHEREAS, Reliv World is the holder of all of the issued and outstanding
shares of capital stock of Reliv Europe;
WHEREAS, the parties desire to enter into an agreement pursuant to
which (i) Global Nutrition shall transfer to Reliv Europe the one outstanding
share of capital stock of Reliv UK (ii) Reliv Europe shall issue and deliver to
Global Nutrition shares of its capital stock.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, and of the terms, covenants and conditions
hereinafter contained, the parties hereto agree as follows:
1. Definitions
1.1 "Assets". As used in this Agreement, the term "Assets"
shall mean the assets of Reliv UK (as of the Closing) as follows:
1.1.1 the business of Reliv UK as a going concern, the
goodwill pertaining thereto and all of Reliv UK's right, title and interest and
to the name Reliv UK and all other names used by Reliv UK, as well as all logos
relating thereto;
1.1.2 all items of inventory owned by Reliv UK including,
without limitation, all raw materials, work-in-progress and finished goods of
Reliv UK (all of which are collectively referred to hereinafter as "Inventory");
1.1.3 all vehicles, machinery, equipment (including equipment
which has previously been fully depreciated by Reliv UK and equipment loaned to
customers), furniture, fixtures and non-inventory supplies of Reliv UK
(including containers, packaging and shipping
<PAGE>
material, tools and spare parts and other similar tangible personal property
owned by Reliv UK, which are listed on Exhibit 1.1.3, all of which are
collectively referred to hereinafter as the "Equipment");
1.1.4 all of Reliv UK's right, title and interest in and to
the United Kingdom and foreign rights of Reliv UK currently owned or used by
Reliv UK (and the rights proposed to be used) in the conduct of the business of
Reliv UK, with respect to patents, patents pending, copyrights, formulae,
licenses, trademarks, trademark rights, trade names, service marks, service mark
rights, trade secrets, shop rights, know-how, technical information, techniques,
discoveries, designs, proprietary rights and non-public information of Reliv UK
and registrations, reissues and extensions thereof and applications and licenses
therefor (all of such rights being collectively referred to hereinafter as the
"Rights");
1.1.5 all books and records of Reliv UK including all in-house
mailing lists, rented mailing lists, and other customer and supplier lists,
trade correspondence, production and purchase records, promotional literature,
data storage tapes and computer disks, computer software, order forms, accounts
payable records (including invoices, correspondence and all related documents);
1.1.6 all contracts, agreements and orders for goods and
services of Reliv UK;
1.1.7 all trade receivables of Reliv UK ("Accounts
Receivable") and all advance payments, prepaid items, rights to offset and
credits of all kinds of Reliv UK;
1.1.8 all real property owned or leased by Reliv UK together
with all fixtures attached thereto; and
1.1.9 all other assets of Reliv UK.
1.2 "Commitments" shall mean all agreements, indentures, mortgages,
plans, policies, arrangements, and other instruments, including all amendments
thereto (or where they are verbal, written summaries of the material terms
thereof), fixed or contingent.
2. Sale and Delivery of Reliv UK Share.
2.1 Reliv UK Share. Subject to and on the terms and conditions hereof
in reliance on the representations and warranties of Reliv World and Reliv
Europe and in consideration of the issuance to Global Nutrition of 250,000
shares of common stock of Reliv Europe, and the covenants of Reliv World and
Reliv Europe herein, Global Nutrition agrees to sell, assign, transfer and
deliver to Reliv Europe at the Closing one share of Reliv UK (the "Share"),
together with all books and records of Reliv UK.
2
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2.2 No Encumbrances. The Share sold to Reliv Europe hereunder shall be
fully paid and non-assessable, and shall be free and clear of any and all
contracts, commitments, agreements, liens, claims, charges, restrictions or
encumbrances of any kind or nature whatsoever, whether or not of record other
than restrictions imposed by federal and applicable state securities laws.
2.3 Delivery of Possession. At the Closing, Global Nutrition shall
deliver to Reliv Europe possession of the certificate representing the Share.
The certificate representing the Share shall be duly endorsed in blank or
accompanied by duly executed stock powers.
2.4 Instruments of Transfer. At the Closing, Global Nutrition shall
deliver, or cause to be delivered, to Reliv Europe such duly executed
instruments as may be reasonably requested by Reliv Europe, including, without
limitation, powers of attorney, in form and substance reasonably satisfactory to
Reliv Europe and its counsel, for the consummation of the transactions
contemplated under this Agreement, for the vesting in Reliv Europe of all of
Global Nutrition's right, title and interest in and to the Share.
3. Purchase Consideration. Subject to and on the terms and conditions
hereof, in reliance on the representations and warranties of Global Nutrition
herein, and in consideration of the sale and transfer of the Share, Reliv World
and Reliv Europe each agree as follows:
3.1 Reliv Europe Shares. Reliv Europe shall issue and deliver to Global
Nutrition at the Closing 250,000 shares of common stock of Reliv Europe ("Reliv
Europe Shares"). The Reliv Europe Shares, when issued and delivered hereunder,
shall be duly authorized, validly issued, fully paid and non-assessable and
shall be unregistered under the Securities Act of 1933, as amended and shall
contain the legend set forth in Section 5.38 hereof.
3.2 Payments. Commencing in January, 1998 for the month of December,
1997 and for a period of 120 consecutive months thereafter, Reliv Europe shall
pay to Global Nutrition an amount equal to one and one-half percent (1.5%) of
the Retail Sales of Reliv UK, subject to the following terms:
3.2.1 "Retail Sales" shall mean the gross amount of Consumable
Product sold by Reliv UK in the month multiplied by the suggested retail selling
price thereof;
3.2.2 "Consumable Product" shall mean all products which are
intended for use or consumption and shall not include distributor manuals,
distributor kits or promotional materials;
3.2.3 On or before the 15th day of each month succeeding a
month for which a payment is due hereunder, Reliv Europe shall determine the
amount of Retail Sales of Reliv UK for such month, shall provide to Global
Nutrition a report setting forth the amount of such Retail Sales and shall
deliver to Global Nutrition a check payable to Global Nutrition in the amount
due hereunder.
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4. Closing.
4.1 Date and Location. The closing of the transaction provided for
herein shall be held on October 1, 1998 at the offices of Reliv International,
Chesterfield, Missouri, or at such other time and place as the parties shall
agree ("Closing Date"). All Closing transactions shall be deemed to take place
simultaneously, and no Closing transaction shall be deemed consummated until all
transactions to take place at the Closing have been consummated.
5. Representations and Warranties of Sellers. Global Nutrition
represents and warrants to Reliv World and Reliv Europe as follows, each of
which representation and warranty is material and is being relied upon by them
and each of which is true and correct as at the date hereof and shall be true
and correct as of the Closing, with the same effect as if each such
representation and warranty had been made at and as of the Closing:
5.1 Title to Shares, Authority. Global Nutrition is the sole owner of,
and has good and marketable title to, the Share, free and clear of any and all
contracts, commitments, agreements, liens, claims or encumbrances, whether or
not of record. Global Nutrition has all requisite capacity, power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
5.2 Capital Stock
(a) Reliv UK has authorized capital stock consisting of one
share of common stock, without par value, of which one share
is issued and outstanding, and which is duly authorized,
validly issued, fully paid, nonassessable, free of preemptive
rights, and was issued in compliance with all applicable laws.
(b) There are no outstanding offers, options, warrants,
rights, calls, commitments, obligations (verbal or written),
conversion rights, plans or other agreements (conditional or
unconditional) of any character providing for, requiring or
permitting the offer, sale, purchase or issuance of any shares
of capital stock of Reliv UK or any other securities (as such
term is defined in the Securities Act of 1933, as amended).
Except as set forth in paragraph 5.2(a), there are no equity
securities of Reliv UK that are reserved for issuance or are
outstanding.
(c) The Share is owned by Global Nutrition free and clear of
all liens, charges, encumbrances or claims of any kind
whatsoever.
5.3 Incorporation Documents. True and correct copies of the
incorporation documents and by-laws of Reliv UK, together with all amendments
thereto, have been delivered to Reliv International.
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5.4 Organization and Good Standing. Reliv UK is a corporation duly
organized, validly existing and in good standing under the laws of the United
Kingdom and is qualified to conduct business in the United Kingdom and Reliv UK
has the full corporate power and authority to own or lease its properties and
operate its properties and Assets, and to carry on its business as presently
being conducted.
5.5 Subsidiaries, Divisions and Affiliates. There are no subsidiaries,
divisions or affiliates of Reliv UK. The business of Reliv UK has been conducted
solely by Reliv UK and not through any affiliates, joint venture or other
entity, person or under any other name.
5.6 No Outstanding Obligations. There are no contracts, options or
other agreements or understandings pursuant to which Reliv UK is or may be
obligated to issue shares of its capital, and there are no obligations of Reliv
UK outstanding which may be convened into any shares of capital of such
corporation and, except as disclosed herein, there are no other shares of Reliv
UK issued or outstanding.
5.7 Equity Investments. Reliv UK does not own or have any rights to any
equity interest, directly or indirectly, in any corporation, partnership, joint
venture, firm or other entity.
5.8 Validity of Agreement. The execution, delivery and performance of
this Agreement has been duly and validly executed and delivered by Global
Nutrition. This Agreement constitutes a valid and binding obligation of Global
Nutrition enforceable in accordance with its terms, except that such enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally.
5.9 Effect of Agreement. The execution, delivery and performance of
this Agreement by Global Nutrition and consummation by Global Nutrition of the
transactions contemplated hereby, will not, with or without the giving of notice
and the lapse of time, or both, (a) violate any provision of law, statute, rule,
regulation or executive order to which Reliv UK, or Global Nutrition,
respectively, is subject; (b) violate any judgment, order, writ or decree of any
court applicable to Reliv UK, or Global Nutrition, respectively, or (c) result
in the breach of or conflict with any term, covenant, condition or provision or
result in the modification or termination or constitute a default under, or
result in the creation or imposition of any lien, security interest, charge or
encumbrance upon any of the Assets pursuant to, any corporate charter, by-law,
commitment, contract or other agreement or instrument, including any of the
Commitments, to which Reliv UK or Global Nutrition is a party or by which any of
the Assets is or may be bound or affected or from which Reliv UK or Global
Nutrition derive benefit, which breach, conflict, modification, termination,
default or encumbrance described in this clause (c) would be material to the
business of Reliv UK or any of its Assets.
5.10 Restrictions: Burdensome Agreements. Neither Reliv UK nor Global
Nutrition is a party to any contract, commitment or agreement, nor is any of
them, the Reliv UK Share or any of the Assets subject to, or bound or affected
by, any provision of the articles of incorporation,
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by-laws, or other corporate restriction, or any order, judgment, decree, law,
statute, ordinance, rule, regulation or other restriction of any kind or
character, which would, individually or in the aggregate, materially adversely
affect Reliv UK's business, the Reliv UK Share or any of the Assets.
5.11 Governmental and Other Consents. No consent, authorization or
approval of; or exemption by, any governmental, public or self-regulatory body
or authority is required in connection with the execution, delivery and
performance by Global Nutrition of this Agreement or by Global Nutrition of any
of the instruments or agreements herein referred to, or the taking of any action
hereby contemplated.
5.12 Financial Statements. Except as disclosed in Exhibit 5.12 or as
otherwise disclosed herein, the interim financial statements for Reliv UK for
the period ended June 30, 1997 (the "Reliv UK Financial Statements"), present
fairly the financial position of such company as of the date to which they
relate and have been prepared in accordance with generally accepted accounting
principles, consistently applied, and to the best of Global Nutrition's
knowledge, all items that could have a material effect on the willingness of a
prospective purchaser to acquire Reliv UK have been disclosed in the Reliv UK
Financial Statements or in the Exhibits to this Agreement.
5.13 Undisclosed Liabilities. As of June 30, 1997, Reliv UK had no
liability, and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
Reliv UK giving rise to any liability, except for (a) liabilities set forth on
the face of the balance sheet of Reliv UK dated June 30, 1997, and (b)
liabilities which have arisen after the most recent fiscal month end in the
ordinary course of business, none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law.
5.14 Compliance with Laws. Reliv UK has complied, and is currently in
compliance, with all applicable laws, statutes and ordinances, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges of national, local, and foreign governments, and all agencies thereof
and no action, suit proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
5.15 Books and Records. The books of account and other financial and
corporate records of Reliv UK are in all material respects complete, correct and
up to date, with all necessary signatures, and are in all material respect
accurately reflected in the Reliv UK Financial Statements.
5.16 Taxes. Except as reflected in the Reliv UK Financial Statements or
in respect of taxes accruing with respect to fiscal year 1997 or thereafter: (a)
Reliv UK has duly filed on a timely basis all tax returns required to be filed
by it, and has paid all assessments and
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reassessments, and all other taxes, governmental charges, penalties, interests
and fines due and payable by it on or before the date hereof and which are
claimed by any governmental authority to be due and owing; (b) Reliv UK and its
shareholders have been assessed for all taxes imposed by the United Kingdom
Government in respect of all of its tax years up to and including the tax year
ended December 31, 1996; and (c) there are no actions, suits, proceedings,
investigations or claims threatened or pending against Reliv UK with respect to
taxes, governmental charges or assessments or any other matters under discussion
with any governmental authority relating to taxes, governmental charges or
assessments asserted by any such authority.
5.17 No Consents Required. After the change in ownership of Reliv UK,
each of the Commitments included in the Assets does not require the consent of
the other parties thereto and, with respect to any of the Commitments which do
require the consent of the other parties thereto, Reliv UK has obtained such
consent and has provided or will provide Purchasers with copies thereof.
5.18 Permits, Licenses, etc. There are no permits, licenses, orders or
approvals of governmental or administrative authorities required to permit Reliv
UK to carry on its business as currently conducted.
5.19 Marketable Tide: No Liens. Reliv UK owns and has good and
marketable title to all of the personal property and assets, tangible or
intangible, as reflected on the Reliv UK Financial Statements (except for assets
disposed of in the ordinary course of business since the respective dates of the
Reliv UK Financial Statements), free and clear of all contracts of sale, liens,
mortgages, pledges, security interests, charges, restrictions, prior
assignments, encumbrances and claims of every kind.
5.20 No Untrue Statements. Neither this Agreement nor any documents,
certificates or statements furnished to Purchasers by or on behalf of Global
Nutrition in connection herewith contains any untrue statement of a material
fact or omits to state a material fact (materiality being determined in relation
to Reliv UK taken as a whole) necessary in order to make the statements
contained herein and therein not misleading. There is no fact known to Global
Nutrition, which materially adversely affects, or in the future may materially
adversely affect, the business, properties, assets, prospects or financial
condition of Reliv UK which has not been set forth in this Agreement or the
exhibits hereto or otherwise disclosed in writing to Purchasers including by
means of the financial statements for Reliv UK.
5.21 Shares Held for Investment. Global Nutrition is acquiring the
Purchasers Shares hereunder solely for their own account, for investment, and
not with a view to the distribution or resale thereof. Global Nutrition
represent and warrant that they have no present intention of selling or
distributing any of the Purchasers Shares to be acquired hereunder and that they
are not under any present necessity or constraint to dispose of any such
Purchasers Shares to satisfy any existing or contemplated debt or undertaking.
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5.22 Restrictive Legend. Global Nutrition confirm their understanding,
and agree, that:
(a) Certificates for the Purchasers shares to be issued and
delivered to them hereunder will bear substantially the following
legend:
"The securities represented by this Certificate were issued
______________ without registration under the Securities Act of 1933,
as amended. No transfer, sale or distribution of these securities or
any interest therein may be made except under an effective registration
statement under said Act covering such securities unless the
Corporation has received an opinion of counsel satisfactory to it that
such transfer or sale does not require registration under said Act."
(b) Global Nutrition shall be bound by the terms of the
foregoing legend and agree that appropriate restrictions on transfer
will be noted on Purchasers' corporate records and the records of
Purchasers's transfer agent.
5.23 Knowledge of Reliv UK and Global Nutrition. As to each
representation and warranty made by Global Nutrition under this Section 5, any
fact or information known to Reliv UK or notice received by Reliv UK, shall be
imputed to Global Nutrition as if such fact or information were known to Global
Nutrition or such notice was received by Global Nutrition.
6. Representations and Warranties of Purchasers. Purchasers represent
and warrants to Global Nutrition that the following are true and correct as of
the date hereof:
6.1 Organization and Good Standing. Each of Reliv World and Reliv
Europe is a corporation duly organized, validly existing and in good standing
under the laws of the State of Illinois and is validly existing and in good
standing under its jurisdiction of incorporation and is qualified to do business
in the jurisdiction in which such qualification is required and has the full
corporate power and authority to own, lease and operate its property and
businesses. Reliv Europe is a newly organized corporation, has no assets or
liabilities or has not engaged in any business activity. Reliv World is a
wholly-owed subsidiary of Reliv International, Inc., an Illinois corporation.
6.2 Capitalization. Reliv Europe has an authorized capitalization of
10,000,000 shares all of which are designated as common stock, no par value.
Reliv Europe has 10,000 shares of common stock issued and outstanding all of
which shares are owned by Reliv World. Reliv Europe has entered into an
agreement with Reliv World pursuant to which (i) Reliv World, or its affiliates,
has or may advance sums to Reliv Europe or Reliv UK of such corporations in
exchange for the issuance to Reliv World of a convertible note of Reliv Europe
pursuant to which the principal and any accrued interest under such note is
convertible into common stock of the corporation at the price of Five Cents
($.05) per share, (ii) to the date of this Agreement, Reliv World, or its
affiliates, has advanced to Reliv Europe for convertible notes the aggregate
amount of $ ____________.
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6.3 Corporate Authorization. The execution and performance of this
Agreement and the issuance and delivery of the Reliv Europe Shares in accordance
with the provisions hereof have been duly authorized by all necessary corporate
action on the part of Purchasers and this Agreement constitutes a valid, binding
and enforceable obligation upon Purchasers except that such performance may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally.
6.4 No Breach or Violation. The execution and performance of this
Agreement and compliance with the provisions hereof by Purchasers will not
violate, with or without the giving of notice or the passage of time, any
applicable law or regulation and will not conflict with, or result in the breach
of any of the terms, conditions or provisions of or constitute a default under,
any corporate charter, by-law, indenture, mortgage, agreement or other
instrument to which any of the Purchasers is bound.
7. Acknowledgments of Global Nutrition. Global Nutrition acknowledges
and agrees as follows:
7.1 Reliv International is a reporting company under the Securities and
Exchange Act of 1934 and Global Nutrition, and its representatives, have
received and reviewed all current reports of Reliv International filed with the
Securities Exchange Commission, including without limitation the Annual Report
on Form 10K for 1997, Quarterly Reports on Form lOQ for each of the first and
second quarters of 1998 and the Annual Report for 1997 and Proxy Materials for
the shareholders meeting in 1998.
7.2 Global Nutrition acknowledges, understands and agrees that (i) it
is the intention of Reliv Europe to conduct the business of Reliv UK at least
through December, 1998 and to provide funding for such purposes at the level
deemed appropriate by Reliv, (ii) Reliv International and Reliv Europe are
considering and investigating the possibility of conducting the business of
Reliv International in one or more countries in Europe, (iii) except as stated
herein, none of Purchasers makes, or has made, any commitment to provide
financing for or to organize, create, operate or maintain any business in Europe
or any other area.
8. Pre-Closing Covenants of Purchasers.
8.1 Satisfaction of Conditions by Purchasers. Purchasers hereby
covenant and agree with Global Nutrition, that, between the date of this
Agreement and the Closing Date or date of termination of this Agreement, as the
case may be, Purchasers shall use their best efforts to assure that the
conditions set forth in Section 13 hereof are satisfied by the Closing Date.
8.2 Confidentiality. Prior to the Closing, Purchasers will use their
best efforts to keep confidential any and all information furnished to it by
Reliv UK or Global Nutrition in the course of negotiations. If for any reason
the Closing shall not occur, Purchasers will continue to use
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their best efforts to keep such information confidential, to the extent that it
is protectable by law, and will not use it and will return to Global Nutrition
all documents or other written material regarding this transaction that were
obtained during the course of negotiations (including all drafts of all
documents).
9. Post-Closing Covenants.
9.1 Global Nutrition: Further Assurances. After the Closing hereunder,
Global Nutrition shall, at the request of Purchasers, execute, acknowledge and
deliver to Purchasers, without further consideration, all such further
assignments, conveyances, endorsements, deeds, powers of attorney, consents and
other documents and take such other action as Purchasers may reasonably request
(a) to transfer to and fully vest in Purchasers, and protect Purchaser's right,
title and interest in and to, all of the Reliv UK Shares, and Reliv UK's right
title and interest in and to the Assets and (b) otherwise to consummate the
transactions contemplated by this Agreement.
9.2 Purchasers.
9.2.1 Reliv World (or its affiliates) has or shall advance to
Reliv Europe (including Reliv UK), as needed for the operations of
Reliv UK from time to time, such advances to be evidenced by
convertible notes of Reliv Europe bearing interest at the prime rate
and convertible into common stock of Reliv Europe at the price of Five
Cents ($.05) per share; the parties acknowledge that, as of the date of
this Agreement, Reliv World has advanced to or for Reliv Europe the
aggregate amount of $___________ for such purposes and that Reliv World
shall not be obligated to advance further sums to Reliv Europe or Reliv
UK.
9.2.2 Reliv International shall enter into distributor and
license agreements with Reliv Europe generally consistent with the
distributor and license program of Reliv International.
10. Conditions Precedent to the Obligations of Purchasers.
The obligations of Purchasers pursuant to this Agreement are subject to
the satisfaction at the Closing of each of the following conditions, any or all
of which conditions may be waived by Purchasers in its sole discretion:
10.1 Accuracy of Representations and Warranties. All representations
and warranties made by Global Nutrition (contained in this Agreement, any
Exhibit hereto, or any certificate or instrument delivered to Purchasers or its
representatives by the Global Nutrition or their representatives) shall be true
on and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date (i.e., with respect to a representation that a state
of facts exists on or as of the date hereof; it is a condition that such state
of acts exists on or as of
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the Closing Date; and with respect to a representation that a state of facts has
or has not changed between a date prior to the date hereof and the date hereof;
it is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by the transactions
contemplated hereby.
10.2 Performance of Agreements. Global Nutrition shall have performed
and complied with and shall have caused Reliv UK to perform and comply with all
covenants, obligations and agreements to be performed or complied with by them
on or before the Closing Date pursuant to this Agreement.
10.3 Litigation, etc.
10.3.1 Except as set forth on Exhibit 5.22, no claim, action,
suit, proceeding, arbitration, investigation or hearing or notice of
hearing shall be pending or, insofar as is known to Global Nutrition,
threatened against or affecting Reliv UK or Global Nutrition or any of
the Assets, which (a) might result either in an action to enjoin or
prevent the consummation of the transactions contemplated by this
Agreement; or (b) in the reasonable judgment of Purchasers would
materially adversely affect the business of Reliv UK or the ability of
Purchasers to consummate the transactions contemplated by this
Agreement or to own the Assets or to operate the business of Reliv UK.
10.3.2 Reliv UK shall not be in violation of any law, statute,
ordinance, regulation or executive order, the enforcement of which
would, individually or in the aggregate, materially adversely affect
the Assets or the business of Reliv UK; or which would, individually or
in the aggregate, materially adversely affect the ability of Purchasers
to consummate the transactions contemplated by this Agreement or to own
the Assets or to operate the business of Reliv UK.
10.3.3 No law, regulation or decree shall have been proposed,
adopted or promulgated, or have become effective, the enforcement of
which would materially adversely affect the ability of Purchasers to
consummate the transactions contemplated by this Agreement or to own
the Assets or to operate any such business.
10.4 Approvals and Consents. Reliv UK shall have obtained, and
Purchasers shall have received copies of all of the approvals and consents
referred to in Section 5.27, each of which approvals and consents shall be in
full force and effect and reasonably satisfactory in form and substance to
Purchasers and their counsel.
10.5 Material Adverse Change. Purchasers shall confirm to its sole
satisfaction that there have been no material adverse changes in the financial
condition, business, operations, assets, liabilities, management or prospects of
Reliv UK.
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10.6 Actions Proceedings, etc. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated by this
Agreement shall have been reasonably satisfactory to Purchasers, such approval
not to be unreasonably withheld.
10.7 Licenses, Permits, Consents, etc. Purchasers shall have received
evidence, in form and substance reasonably satisfactory to counsel for
Purchasers, that such licenses, permits, consents, authorizations or orders of
governmental authorities as are necessary to the consummation of the
transactions contemplated by this Agreement and the continued operation of the
business of Reliv UK have been obtained.
10.8 Documentation of Rights. Reliv UK shall have delivered to
Purchasers true and complete copies of all of the documentation held by Reliv UK
relating to each of the Rights.
10.9 Officers' Financial Certificate. Purchasers shall have received a
certificate from Global Nutrition dated as of the Closing Date, satisfactory in
form and substance to Purchasers and its counsel, certifying that the Reliv UK
Financial Statements are true and correct and accurately present the financial
position of Reliv UK during that interim period.
10.10 Waiver and Release of Claims. Global Nutrition and each
shareholder, officer, employee and agent of Global Nutrition shall have executed
and delivered to Purchasers a waiver and release of any and all claims or rights
of such persons against or in Reliv UK in form satisfactory to Purchasers;
11. Options For Redemption of Reliv Europe Shares.
11.1 At any time, or from time to time, after the date of the Closing,
Reliv Europe shall have the option to purchase and redeem from Global Nutrition
25,000 shares of such corporation's shares at the purchase price of Five Cents
($.05) per share.
11.2 At any time after the Reliv Europe Shares shall have attained and
shall then have an Aggregate Value in excess of $465,000, Global Nutrition shall
have the right and option with respect to the shares achieving such Per Share
Value to sell all or any portion thereof to the issuing corporation, and the
issuing corporation shall have the right and option to purchase and redeem all
or any portion thereof at a price per share equal to the Per Share Value. The
option provided in this paragraph 11.2 for Reliv Europe shall be in addition to,
and with respect to the shares other than, the shares subject to the option
provided in paragraph 11.1.
11.3 The following provisions shall apply with respect to the options
provided in this paragraph 11;
11.3.1 "Per Share Value" shall mean an amount equal to seven
times the average annual net income of the entity, determined in
accordance with generally accepted
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accounting principles consistently applied, for two consecutive years
divided by the number of shares issued and outstanding at the time the
valuation determination is made.
11.3.2 "Aggregate Value" shall mean the Per Share Value
multiplied by the number of shares of common stock of the entity owned
by Global Nutrition.
11.4 The parties agree that the foregoing option rights shall be
incorporated in an option agreement among the parties not inconsistent with the
terms of this paragraph 11.
12. Conditions Precedent to the Obligations of the Global Nutrition.
The obligations of Global Nutrition under this Agreement are subject to
the satisfaction at the Closing of each of the following conditions, any or all
of which conditions may be waived by Global Nutrition in their sole discretion:
12.1 Accuracy of Representations and Warranties. All representations
warranties made by Purchasers in this Agreement shall be true as of the Closing
Date the same force and effect as though made on and as of the Closing Date.
12.2 Performance of Agreements. Purchasers shall have performed and
complied in all material respects with all covenants, obligations and agreements
to be performed or complied with by it on or before the Closing Date pursuant to
this Agreement.
13. Indemnification and Additional Remedies.
13.1 Indemnity by Global Nutrition. Global Nutrition shall indemnify
and hold Purchasers and their respective officers, directors and agents (each
individually referred to as a "Buyer Indemnified Party") fully harmless, on an
after-tax basis, from and against all claims, actions, suits, proceedings,
demands, judgments, losses, costs, damages, fines, taxes, penalties, expenses
and liabilities, including interest which may be imposed in connection
therewith, court costs and reasonable fees and disbursements of professionals,
(all such items being individually or collectively referred to herein as
"Losses") which may be suffered or incurred, directly or indirectly, by
Purchasers or any of their respective officers, directors or agents arising out
of as a result of or relating in any manner whatsoever to, or in connection
with:
(a) any breach of any representation, warranty or covenant on
either Seller's part contained in this Agreement;
(b) any breach or non-fulfillment of any covenant given or
made by Global Nutrition in this Agreement or any contract, document or
certificate delivered by Global Nutrition pursuant to this Agreement or
any schedule hereto;
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(c) any taxes of any kind whatsoever, or expenses, interest or
penalties relating thereto, including those that arise out of or result
from the transactions contemplated by this Agreement;
(d) any act or omission to act by Reliv UK prior to the
Closing; and
(e) any action, demand or claim by any third party against or
affecting Purchasers which, if successful, would give rise to a breach
of any of the representations, warranties or covenants of Global
Nutrition contained herein.
13.2 Indemnification by Purchasers. Purchasers shall indemnify and hold
Global Nutrition and each of its shareholders, officers, directors, employees
and agents ("Seller Indemnified Party") fully harmless, on an after-tax basis,
from and against all Losses which may be suffered or incurred, directly or
indirectly, by each Seller Indemnified Party arising out of (or as a result of
or relating in any manner whatsoever to, or in connection with:
(a) any misrepresentation or breach of any warranty on
Purchasers' part contained in this Agreement;
(b) any breach or non-fulfillment of any covenant given or
made by Purchasers in this Agreement or any contract, document or
certificate delivered by Purchasers pursuant to this Agreement or any
Exhibit hereto; and
(c) any action, demand or claim by any third party against or
affecting Global Nutrition which, if successful, would give rise to a
breach of any of the representations, warranties or covenants of
Purchasers contained herein.
13.3 Survival of Indemnification. Where Purchasers make a written claim
or claims pursuant to this section within the time periods applicable to such
claim or claims, the right to indemnification in respect of such claim or claims
shall continue in full force and effect until the claim is finally settled or
adjudicated and all payments to be made in respect of any settlement or
adjudication have been made.
13.4 Indemnification Procedure - Third Party Claims.
(a) In the case of claims or demands made by a third party
with respect to which indemnification is due, the party seeking
indemnification shall give prompt written notice, and in any event
within 20 days, to the other party of any such claims or demands made
upon it, provided that in the event of a failure to give such notice,
such failure shall not preclude the party seeking indemnification to
obtain such indemnification but its right to indemnification may be
reduced to the extent that such delay prejudiced the defense of the
claim or demand or increased the amount of liability or cost of defense
and provided that, notwithstanding anything else herein contained, no
claim for indemnity in respect of
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the breach of any representation or warranty contained herein may be
made unless notice of such claim has been given prior to the expiry of
the survival period applicable to such representation and warranty.
(b) A party given notice of a claim or demand in respect of
which indemnification is sought (hereinafter referred to as the
"Indemnifying Party" in this section) by the other party (hereinafter
referred to as the "Indemnified Party" in this section) shall have the
right, by notice to the Indemnified Party given not later than 30 days
after receipt of the notice described in Section 13.4(a) to assume the
control of the defense, compromise or settlement of the claim or
demand, provided that such assumption shall, by its terms, be without
cost to the Indemnified Party and provided the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified
Party in accordance with the terms contained herein in respect of that
claim or demand.
(c) Upon the assumption of control of any claim or demand by
the Indemnifying Party, the Indemnifying Party shall diligently proceed
with the defense, compromise or settlement of the claim or demand as
its sole expense, including, if necessary, employment of counsel
reasonably satisfactory to the Indemnified Party and, in connection
therewith, the Indemnified Party shall cooperate fully, but at the
expense of the Indemnifying Party with respect to any out-of-pocket
expenses incurred, to make available to the Indemnifying Party all
pertinent information and witnesses under the Indemnified Party's
control, make such assignments and take such other steps as in the
opinion of counsel for the Indemnifying Party are reasonably necessary
to enable the Indemnifying Party to conduct such defense. The
Indemnified Party shall also have the right to participate in the
negotiation, settlement or defense of any claim or demand at its own
expense.
(d) The final determination of any claim or demand pursuant to
this section, including all related costs and expenses, will be binding
and conclusive upon the parties as to the validity or invalidity, as
the case may be, of such claim or demand against the Indemnifying Party
hereunder.
(e) Should the Indemnifying Party fail to give notice to the
Indemnified Party as provided in Section 13.4(b), the Indemnified Party
shall be entitled to make such settlement of the claim or demand as in
its sole discretion may appear advisable, and such settlement or any
other final determination of the claim or demand shall be binding upon
the Indemnifying Party.
13.5 Subrogation. If the Indemnified Party receives payment or other
indemnification from the Indemnifying Party hereunder, the Indemnifying Party
shall be subrogated to the extent of such payment or indemnification to all
rights in respect of the subject matter of such claim to which the Indemnified
Party may be entitled, to institute appropriate action for the recovery
15
<PAGE>
thereof and the Indemnified Party agrees reasonably to assist and cooperate with
the Indemnifying Party at no expense to the Indemnified Party in enforcing such
rights.
14. Miscellaneous.
14.1 Nature and Survival of Representations, Warranties, Covenants and
Indemnification. All statements contained in this Agreement or in any exhibit or
document delivered in connection with this Agreement shall be deemed
representations and warranties by such party hereunder. All representations,
warranties, covenants and indemnities made in this Agreement or pursuant hereto
shall survive the Closing hereunder until five years from the date of Closing
except (a) with respect to any claim, written notice of which shall have been
delivered to Purchasers or Global Nutrition, as the case may be, prior to a date
five years from the date of Closing, such claim shall survive the termination of
such period and shall survive for as long as such claims is unsettled, and (b)
with respect to any litigation which shall have been commenced to resolve such
claim on or prior to such date.
14.2 Entire Agreement: Amendment. This Agreement and the documents
referred to herein constitute the entire Agreement among the parties hereto with
respect to the subject matter hereof and supersedes all prior written or oral
warranties, representations, inducements, understandings, commitments,
agreements or contracts. No amendment to or modification of the terms or
conditions hereof shall be binding unless it is in writing and signed by the
party against whom the amendment or modification is charged. No party hereto
shall be bound by or charged with any written or oral arguments,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement or in any Exhibit hereto or in
certificates and instruments to be delivered pursuant hereto on or before the
Closing.
14.3 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) the next business day after delivery to a private courier service,
when delivered to a private courier service providing documented overnight
service, and (d) on the date of delivery if delivered by telescope, receipt
confirmed, provided that a confirmation copy is sent on the next business day by
registered or certified mail, return receipt requested and postage prepaid, in
each case addressed as follows:
If to Purchasers:
Reliv International, Inc.
152 Chesterfield Industrial Boulevard
Chesterfield, MO 63005
16
<PAGE>
If to Global Nutrition:
Global Nutrition, Inc.
P.O. Box 415, St. James House
New St. James Place, St. Helier
Jersey JE4 8WH, Channel Islands
or to such other address as the recipient party may indicate by a notice
delivered to the sending party (such change of address notice to be deemed
given, delivered and received only upon actual receipt thereof by the recipient
of such notice).
14.4 Severability. Whenever possible, each paragraph of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. If any paragraph of this Agreement shall be unenforceable or
invalid under applicable law, such paragraph shall be ineffective only to the
extent and duration of such unenforceability or invalidity and the remaining
substance of such paragraph and the remaining paragraphs of this Agreement shall
in such event continue to be binding and in full force and effect.
14.5 Waivers. No failure by any party to exercise any of such party's
rights hereunder or to insist upon strict compliance with respect to any
obligation hereunder, and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver by any party to demand exact
compliance with the terms hereof Waiver by any party of any particular default
by any other party shall not affect or impair such party's rights in respect of
any subsequent default of the same or of a different nature, nor shall any delay
or omission of any party to exercise any rights arising from any default by any
other party affect or impair such party's rights as to such default or any
subsequent default. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein or in any other documents. Any
party hereto may, at or before the Closing, waive any conditions to its
obligations hereunder which are not fulfilled.
14.6 Headings; Certain Terms. The section and other headings Agreement
are for reference purposes only and shall not be deemed to Agreement or to
affect the meaning or interpretation of this Agreement. Agreement, the term
"including" means "including, but not limited to" specified; the word "or" means
"and/or," and the word "person" means individual, corporation, trust,
partnership, joint venture, government authority, or any other entity.
14.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed, shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.
14.8 Expenses. Except as and to the extent otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, Reliv UK and
17
<PAGE>
Seller shall pay their own respective expenses and the fees and expenses of
their respective counsel and other experts.
14.9 Termination of Agreement. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time, but not later
than the Closing Date by mutual consent of the parties. In the event of the
termination of this Agreement by any party as above provided, without material
fault of any party, no party shall have any liability hereunder, including any
liability for damages. In the event that a condition precedent to a party's
obligation is not met, nothing contained herein shall be deemed to require any
party to terminate this Agreement rather than to waive such condition precedent
and proceed with the Closing.
14.10 Transaction Taxes. Global Nutrition shall pay any and all taxes
imposed upon the sale of the Reliv UK Shares and transfer of ownership of Reliv
UK pursuant to this Agreement.
14.11 Binding Effect: Benefits. This Agreement shall inure to the
benefit of the parties hereto and shall be binding upon the parties hereto and
their respective successors and permitted assigns. This Agreement may not be
assigned by Seller or Purchasers without the prior express written consent of
the other party. Except as otherwise set forth herein, nothing in this
Agreement, expressed or implied, is intended to confer on any person other than
the parties hereto or their respective successors and permitted assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
14.12 Disclosures. Any disclosure by either party hereto pursuant to
any specific provision of this Agreement shall be deemed a disclosure for all
other purposes of this Agreement.
14.13 Section References. All references contained in this Agreement to
any section number are references to sections of this Agreement unless otherwise
specifically stated.
14.14 Brokers and Finders. Neither Purchasers nor Global Nutrition has
employed any broker, agent or finder or incurred any liability for any brokerage
fees, agents' commissions, finders fees or advisory fees in connection with the
transactions contemplated by this Agreement; and Global Nutrition on the one
hand, and Purchasers on the other hand, shall indemnify and hold each other
harmless in respect of any such obligation or liability based in any way on
agreements or arrangements or understandings claimed to have been made by any
thereof with any third party.
14.15 Public Announcements. No press release or other public statement
with respect to this Agreement or the transactions contemplated hereby shall be
issued by any party without that party having consulted with and obtained the
written consent of the other parties hereto; provided, however, notwithstanding
the foregoing, Purchasers, as a company subject to the U.S. securities laws and
regulations relating to publicly-held companies, may make such public
18
<PAGE>
statements at such time and in such form as may be required under such laws or
regulations as advised by its counsel.
14.16 No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any person.
14.17 Governing Law. The domestic law of the State of Missouri, U.S.A.,
and not any choice of law or conflict of law provision (whether of the State of
Missouri or any other jurisdiction) that would cause any other law to be
applied, will govern all questions concerning the construction, validity and
interpretation of this Agreement and the performance of the obligations imposed
by this Agreement.
14.18 Jurisdiction. The parties agree that the state and federal courts
located in St. Louis County, Missouri, are proper and shall be the only forums
for the judicial resolution of any dispute between the parties arising
hereunder. No party shall attempt to change venue from any such court to a court
in another jurisdiction.
14.19 Number and Gender. Each defined term used in this Agreement has a
comparable meaning when used in its plural or singular form. Each
gender-specific term used herein will have a comparable meaning whether used in
a masculine, feminine or gender-neutral form.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
RELIV WORLD CORPORATION
By: /s/ Robert L. Montgomery
-----------------------------
Robert L. Montgomery, CEO
Attest:
- -----------------------------
Secretary
RELIV EUROPE, INC.
By:
-----------------------------
Authorized Officer
Attest:
- ------------------------------
Secretary
GLOBAL NUTRITION, INC.
By:
-----------------------------
Authorized Officer
Attest:
- -------------------------------
Secretary
19
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 33-81025) pertaining to the Reliv' International, Inc. 1995 Stock
Option Plan, (Form S-8, No. 333-67639) pertaining to the Reliv' International,
Inc. 1998 Distributor Stock Purchase Plan, (Form S-8, No. 333-67921) pertaining
to the Reliv' International, Inc. 401(k) Plan, of our report dated March 12,
1999, with respect to the consolidated financial statements and schedule of
Reliv' International, Inc. included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF DECEMBER 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000768710
<NAME> RELIV' INTERNATIONAL, INC.
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,816,804
<SECURITIES> 0
<RECEIVABLES> 782,444
<ALLOWANCES> 5,000
<INVENTORY> 3,929,330
<CURRENT-ASSETS> 8,357,727
<PP&E> 14,172,977
<DEPRECIATION> 3,493,754
<TOTAL-ASSETS> 20,252,972
<CURRENT-LIABILITIES> 6,174,895
<BONDS> 5,216,107
0
0
<COMMON> 9,179,764
<OTHER-SE> (839,598)
<TOTAL-LIABILITY-AND-EQUITY> 20,252,972
<SALES> 51,893,511
<TOTAL-REVENUES> 51,893,511
<CGS> 14,286,498
<TOTAL-COSTS> 14,286,498
<OTHER-EXPENSES> 34,599,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 509,492
<INCOME-PRETAX> 2,497,929
<INCOME-TAX> 941,000
<INCOME-CONTINUING> 1,556,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,556,929
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
