<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-26362
-------
NUTRITION FOR LIFE INTERNATIONAL, INC.
--------------------------------------
(Exact name of Registrant as specified in its charter)
TEXAS 76-0416176
----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9101 JAMEEL
Houston, Texas 77040
--------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 460-1976
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each Class on Which Registered
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
$.01 par value common stock
---------------------------
(Title of Class)
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NUTRITION FOR LIFE INTERNATIONAL, INC.
(Registrant)
Date: January 25, 1999 By: /s/ John R. Brown, Jr.
-----------------------
John R. Brown, Jr., Vice President-Finance
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
- ---------
The following persons serve as members of the Board of Directors of
Nutrition For Life International, Inc. (the "Company"):
F. WAYNE BALLENGER, age 52, has served as President of First Commercial
Capital since 1995. He has also served as President of Puncture Guard LLC since
December 1994. From March 1992 to December 1994, he served as director of sales
and marketing for Petrolon, Inc., a multi-level marketing organization.
Immediately prior thereto, he served as a vice president of Southwest Bank of
Texas with commercial lending responsibilities. Mr. Ballenger received a B.B.A.
degree from the University of the South in 1968. Mr. Ballenger became a
director of the Company in November 1995.
DAVID P. BERTRAND, age 55, has served as President and Chairman of the
Board of Directors of the Company and its predecessors since 1984. Mr. Bertrand
received a B.S. degree in education in 1966 and a Master of Education degree in
administration and supervision in 1969, both from McNeese State University in
Lake Charles, Louisiana. Mr. Bertrand is the brother-in-law of Jana B. Mitcham.
M. F. FLORENCE, age 62, has served as President of Sherfam Inc. since 1989.
Sherfam Inc. is a holding company, principally of pharmaceutical companies and
is the parent of Shermfin Corp., which is a principal shareholder of the
Company. From 1958 to 1989, Mr. Florence was associated with the firm of Wm.
Eisenberg & Co., a firm of chartered accountants in Canada. He served as a
partner of the firm from 1964 to 1989. Mr. Florence received a Bachelor of
Commerce degree from the University of Toronto. He is the recipient of a
Chartered Accountant degree from the Institute of Chartered Accountants of
Ontario. Mr. Florence is President of Citadel Gold Mines, Inc. Mr. Florence is
also a Director of Barr Laboratories, Inc., a publicly held corporation whose
common shares are listed on the American Stock Exchange. Mr. Florence has served
as a director of the Company since 1994.
RICHARD S. KASHENBERG, age 43, has served as President of Adam Nutrition,
Inc. since November 1997. He served as President of NION Laboratories from 1982
to 1996, and as a consultant to NION through October 1997. NION has been a
principal supplier of products sold by the Company. Mr. Kashenberg served as
President and Director of Nutrition Express Corporation of Utah, Inc. from 1991
until its merger with the Company in 1994. Mr. Kashenberg received a Bachelor's
degree from Vanier College. Mr. Kashenberg has served as a director of the
Company since 1994.
JANA B. MITCHAM, age 50, has served as Executive Vice President, Secretary
and Director of the Company and its predecessors since 1984. Ms. Mitcham
received a B.A. degree in 1974 in special education from McNeese State
University and undertook graduate work in special education at the Korean
Extension of the University of Maryland. Ms. Mitcham is a Fellow with Boston
Bio-Science Research Foundation and a member of the Board of Directors of the
Multi-Level Marketing International Association. Ms. Mitcham is the sister-in-
law of David P. Bertrand.
2
<PAGE>
The Company entered into an agreement in 1995 with Shermfin Corp. wherein it
agreed that, for so long as Shermfin Corp. owns 10% or more of the outstanding
Common Stock of the Company, Shermfin Corp. will be entitled to designate one
person to serve as a member of the Company's Board of Directors. Shermfin
Corp.'s designee is M. F. Florence. See Item 13.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
Based solely on the Company's review of copies of Section 16(a) reports filed
by officers, directors and greater than 10% shareholders with the Securities and
Exchange Commission, which have been received by the Company and written
representations from these persons that no other reports were required for those
persons, the Company believes that all filing requirements applicable to those
persons were complied with for the fiscal year ended September 30, 1998.
OFFICERS
- --------
The following executive officers have been elected by the Board of Directors
of the Company. It is expected that the Board will elect officers annually
following each Annual Meeting of Shareholders. Information is provided below
regarding the names and ages of all executive officers of the Company who are
not directors of the Company, their position with the Company and the period
they have served as executive officers of the Company.
JOHN R. BROWN, JR., age 61, became Vice President-Finance of the Company in
September, 1996, and had previously served the Company on a part-time basis
commencing in December 1995. From April, 1989 until he joined the Company, Mr.
Brown was a management consultant performing merger and acquisition services,
systems analyses, financial reporting assistance, and other services for both
publicly and privately held companies. From June, 1987 to March, 1989 he was
Vice President-Finance & Administration for Environmental Protective Industries,
Inc., an environmental services organization. Mr. Brown is a Certified Public
Accountant and has over 20 years experience in public accounting with both
national and local firms. Mr. Brown received a B.S. degree in mechanical
engineering from Stanford University and an M.B.A. degree from the University of
Texas at Austin.
DAVID O. RODRIGUE, age 50, became Vice President and Chief Financial Officer
of the Company in January, 1998. From 1993 until he joined the Company, Mr.
Rodrigue served as Vice President-Finance and Chief Financial Officer of
Positron Corporation, a publicly-held company engaged in medical imaging. From
1989 to 1993, he functioned as a consultative chief financial officer to several
privately-held companies. Mr. Rodrigue is a Certified Public Accountant and was
previously employed by Coopers & Lybrand. He received B.S. and M.B.A. degrees
from Louisiana State University.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation paid
by the Company to the Chief Executive Officer and each of the five other
executive officers of the Company (the "named executive officers") during the
fiscal years ended September 30, 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
- --------------------------
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------------
ANNUAL COMPENSATION
----------------------------------------- AWARDS PAYOUTS
Other ------ -------
Annual Restricted
Name and Principal Year Salary Bonus Compen- Stock Options/ LTIP All other
Position ($) sation Awards SARs Payouts Compensation($)(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David P. Bertrand 1996 $162,000 $530,812 $15,750 0 0 0 $12,885
Chief Executive
Officer 1997 412,434 0 0 0 $40,200 0 6,485
1998 363,969 0 0 0 20,000 0 6,744
Jana B. Mitcham 1996 156,000 526,649 15,500 0 0 0 9,013
Executive Vice 1997 387,793 0 0 0 37,800 0 4,985
President 1998 342,172 0 0 0 20,000 0 5,184
Barry C. Loder(2) 1996 121,184 57,500 11,208 0 0 0 0
Vice President and 1997 161,243 0 0 0 55,000 0 0
Chief Financial 1998 64,762 0 0 0 0 0 0
Officer
Ronnie D. Meaux(3) 1996 87,430 53,160 9,400 0 0 0 6,392
Vice President, 1997 87,101 6,000 0 $12,250 0 $2,619 0
Treasurer and 1998 87,739 0 0 0 0 0 0
Assistant Secretary
John R. Brown, Jr.(4) 1996 30,030 6,900 0 0 10,000 0 0
Vice-President-Finance 1997 76,357 0 0 0 0 0 0
1998 88,628 7,500 0 0 0 0 0
David O. Rodrigue(5) 1996 0 0 0 0 0 0 0
Vice President and 1997 0 0 0 0 0 0 0
Chief Financial 1998 73,431 0 0 0 25,000 0 0
Officer
</TABLE>
________________
(1) The Company has obtained insurance policies on the lives of Mr.
Bertrand and Ms. Mitcham, of which benefit amounts of $1,060,000 and
$660,000 on the lives of Mr. Bertrand and Ms. Mitcham, respectively,
constitute "keyman" insurance and are payable to the Company.
Approximately 51% of the aggregate insurance benefits on the lives of Mr.
Bertrand and Ms. Mitcham are payable to beneficiaries designated by Mr.
Bertrand and Ms. Mitcham. In addition, part of the cash value may be used
as retirement benefits for the executive officers. The premiums paid by
the Company allocable to these items are included in the table.
(2) Mr. Loder joined the Company as Vice President and Chief Financial
Officer in March 1995, and became Chief Operating Officer in April 1997.
He resigned in January 1998.
4
<PAGE>
(3) Mr. Meaux resigned his position with the Company in February 1998.
(4) Mr. Brown commenced work with the Company on a part-time basis in
December 1995 and became a full-time employee and officer of the Company in
September 1996.
(5) Mr. Rodrigue joined the Company in January 1998.
EMPLOYMENT AGREEMENTS
- ---------------------
In 1995 the Company entered into employment agreements with Mr. Bertrand and
Ms. Mitcham which expired on September 30, 1996. The terms of the agreements
were essentially identical. Mr. Bertrand received an annual salary of $162,000
and Ms. Mitcham received an annual salary of $156,000. Each was also entitled
to 5% of the first $2,000,000 of annual pre-tax income of the Company, 4% of the
amount in excess of $2,000,000 but less than $2,500,000, and 3% of the amount
over $2,500,000. Mr. Bertrand was also granted the right to create a special
bonus pool for key employees to receive up to 2% of the pre-tax income between
$2,000,001 and $2,500,000 and up to 4% of the pre-tax income greater than
$2,500,000.
Effective October 1, 1996, the Company entered into new employment agreements
with Mr. Bertrand and Ms. Mitcham. The terms of these agreements are
essentially identical, except that Mr. Bertrand's annual salary is $400,000 and
Ms. Mitcham's annual salary is $376,000. Mr. Bertrand and Ms. Mitcham are each
also entitled to a bonus if the Company has pre-tax annual income between $3
million and $20 million. Each is entitled to receive 5% of any annual pre-tax
income between $3 million and $5 million; four percent of the annual pre-tax
income between $5 million and $10 million; and three percent of the annual pre-
tax income between $10 million and $20 million. The term of each agreement is
three years. Each of the agreements may be earlier terminated upon mutual
agreement, death, disability or conviction of the officer, or a material breach
of the agreement by the officer. In March 1998 each of Mr. Bertrand and Ms.
Mitcham agreed to a 25% reduction in their annual salaries.
OPTION GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1998
- -----------------------------------------------------
The following table sets forth information with respect to stock option
grants to the named executive officers during the fiscal year ended September
30, 1998:
<TABLE>
<CAPTION>
Potential Realizable
Value at
Individual Grants Assumed Annual Rates of
Stock Price Appreciation
For Option Term
Number of Percent of
Name Securities Total
underlying options/ Exercise
Options/SARs SARs granted or Expiration 5% ($) 10% ($)
granted (#) to employees base price date
in fiscal ($/Sh)
year
<S> <C> <C> <C> <C> <C> <C>
David P. Bertrand 20,000 31% $5.13 03/01 $64,462 $163,359
Jana B. Mitcham 20,000 31 5.13 03/01 64,462 163,359
Barry C. Loder 0 0 0 0 0
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Ronnie D. Meaux 0 0 0 0 0 0
John R. Brown, Jr. 0 0 0 0 0 0
David O. Rodrigue 25,000 38 5.75 01/08 90,404 229,100
</TABLE>
OPTION EXERCISES AND YEAR-END VALUES
- ------------------------------------
The following table shows option exercises by the named executive officers
during the fiscal year ended September 30, 1998 and the number and value of
unexercised options at September 30, 1998.
<TABLE>
<CAPTION>
Value of
Number of Value Number of Unexercised
Shares Under- Realized Unexercised Options In-the-Money
Name Lying Options ($) At Year End (#) Options at
---- Exercised (#) --- Exercisable/ Year End ($)
------------- Unexercisable Exercisable/
------------- Unexercisable(1)
----------------
<S> <C> <C> <C> <C>
David P. Bertrand 0 0 121,000/28,000 $98,478/0
Jana B. Mitcham 0 0 114,600/27,200 93,978/0
Barry C. Loder 50,000 $150,400 0/0 0/0
Ronnie D. Meaux 24,500 154,963 0/0 0/0
John R. Brown, Jr. 0 0 6,666/3,334 0/0
David O. Rodrigue 0 0 0/25,000 0/0
</TABLE>
____________________
(1) Based on the price of the Common Stock of $3.00 on September 30, 1998 as
reported by The Nasdaq Stock Market.
COMPENSATION COMMITTEE REPORT
- -----------------------------
The Compensation Committee (the "Committee") of the Board of Directors has
been established by the Board to periodically review the compensation philosophy
for the Company's executives, and to recommend to the Board compensation
packages for the Company's executives. The Committee also reviews and
recommends to the Board any additions to or revisions of the Company's stock
option plans. The Committee consists exclusively of non-employee directors,
appointed by resolution of the entire Board. No member of the Committee is
permitted to receive any award under the Company's incentive stock option plans.
The Committee members receive annual, fixed grants of stock options pursuant to
the Company's 1995 Non-Discretionary Stock Option Plan.
The Committee's objective is to set executive compensation at levels which (i)
are fair and reasonable to the shareholders, (ii) link executive compensation to
long-term and short-term interest of the shareholders, and (iii) are sufficient
to attract, motivate and retain outstanding individuals for executive positions.
Fairness to the shareholders is balanced with the need to attract, retain and
motivate outstanding individuals by comparing the Company's executive
compensation with the compensation of executives at other companies. The
Committee's overall goal is to achieve strong performance by the Company and its
executives by affording the executives the
6
<PAGE>
opportunity to be rewarded for strong performance. The Committee attempts to
provide both short-term and long-term incentive pay. To accomplish its
objectives, the Committee has structured the executive compensation program with
three primary components. These primary components are base salary, annual
incentives, and long-term incentives.
During the fiscal year ended September 30, 1997, the Committee determined to
undertake a review of the Company's executive compensation program, with
particular emphasis on the Company's Chief Executive Officer and Executive Vice
President. The Company had experienced dramatic growth in the fiscal year ended
September 30, 1996, but also was experiencing problems due to regulatory
scrutiny and negative media reports. The Committee determined that it would be
in the best interest of the Company and its shareholders for the Committee to
review the existing compensation arrangements and to provide a compensation
program which recognized, among other factors, the Company's growth, problem
areas which could result in short-term performance difficulties, and appropriate
incentives to provide impetus for the long-term growth of the Company. The
Company retained an independent compensation consultant to assist it in its
review of the executive compensation program. The review included compensation
programs of publicly traded peer companies similar in characteristics to the
Company, as well as compensation paid by other network marketing companies with
different product lines.
Effective in October 1996, the Company entered into employment agreements
with David P. Bertrand, the Company's President and Chief Executive Officer, and
Jana B. Mitcham, the Company's Executive Vice President and Secretary. The
employment agreements are described in "Employment Agreements." The Committee
determined that the base salaries for Mr. Bertrand and Ms. Mitcham should be
increased, based on the progress made by the Company, the tremendous effort and
energy devoted by them to the Company's business, and the recommendations of the
independent compensation consultant based on review of base salaries of other
companies.
In March 1998, after consultation with the Committee, Mr. Bertrand and Ms.
Mitcham agreed to a 25% reduction in their annual salaries. Concurrent with the
salary reductions, the Company granted to each of Mr. Bertrand and Ms. Mitcham
stock options to purchase up to 20,000 shares of the Company's Common Stock at
$5.13 per share, the closing trading price of the Common Stock on the date of
the grant. The Committee recommended these actions in furtherance of its
objectives of linking compensation with Company performance and providing
incentive for key executives.
The Committee also periodically reviews other executive salaries. In addition
to the external competitive compensation market, base salary levels reflect each
officer's performance over time and each individual's role in the Company.
Consequently, employees with higher levels of sustained performance over time
and/or employees assuming greater responsibilities will typically be paid
correspondingly higher salaries. Individual performance criteria used to assess
performance include leadership, professionalism, initiative and dependability.
However, individual performance assessments are made qualitatively and in total,
and no specific weightings are attached to these performance indicators, nor is
a formula utilized in determining appropriate salary increases or salary levels.
7
<PAGE>
In January 1998, David O. Rodrigue joined the Company as Vice President and
Chief Financial Officer. Mr. Rodrigue's annual salary is $105,000 and he is
entitled to receive bonuses as determined by the Company. Mr. Rodrigue was
granted options at the inception of his employment to purchase up to 25,000
shares of the Common Stock at $5.75 per share, the then closing trading price of
the Common Stock. The options are exercisable in one-third annual installments
commencing January 1999. The Committee believes that the compensation package
for Mr. Rodrigue is reasonable in relation to industry standards and for
companies comparable in size and in the Company's geographic area. The
Committee also believes that the compensation program for Mr. Rodrigue has
accomplished the objective of linking shareholder and financial performance to
Mr. Rodrigue's total compensation.
In reviewing the employment agreements of Mr. Bertrand and Ms. Mitcham, the
Committee recommended that their annual compensation relate to and be contingent
upon the performance of the Company. As a result, much of their compensation
package is subject directly to annual bonus compensation measured by the
Company's achievement of certain specified income criteria. No bonus was paid
to either of these persons in the fiscal year ended September 30, 1998 due to
the failure to achieve these income criteria.
The Committee periodically reviews the performance of other executive
officers to determine whether bonuses should be paid to those persons. The
Committee has not established specific performance measures for determining the
award of bonuses. The Committee believes that bonuses should be provided to
reward key employees based on Company and individual performance and to provide
competitive cash compensation opportunities to the Company's executives.
However, based primarily on the Company's financial results in the fiscal year
ended September 30, 1998, no bonuses were paid to any executive officers other
than John R. Brown, Jr. who received a bonus of $7,500.
The Company's stock option plans are designed to focus executive efforts on
long-term goals of the Company and to maximize total return to the Company's
shareholders. The Committee believes that stock options advance the interests
of employees and shareholders by providing value to the executives through stock
price appreciation only. Options terminate if the employee's employment with
the Company is terminated. All options awarded must have an exercise price of
at least 100% of fair market value on the date of grant.
The exact number of shares actually granted to a particular participant
reflects both the participant's performance and role in the Company, as well as
the Company's financial success, and its future business plans. All of these
factors are assessed subjectively and are not weighted. In determining each
grant, the Committee also considers the number of stock options which are
outstanding, and the total number of options to be awarded.
In making grants during the fiscal year ended September 30, 1998, the
Committee also considered the number of outstanding options previously granted
to each officer. Due to the decline in the Company's stock price during the
year, all of the options granted to executive officers of the Company in fiscal
1998 were "out-of-the-money" at the fiscal year end of September 30, 1998. The
Committee believes that its awards were consistent with the Company's
compensation philosophy to increase the emphasis placed on long-term incentives
and to be competitive in its total compensation program.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended,
public companies are precluded from receiving a tax deduction on compensation
paid to executive officers in excess of $1,000,000, unless the compensation is
excluded from the $1,000,000 limit
8
<PAGE>
as a result of being classified performance-based. At this time, the Company's
executive officers cash compensation levels do not exceed the payment limit and
will most likely not be affected by the regulations in the near future.
Nonetheless, the Committee intends to review its executive pay plans over time
in light of these regulations.
COMPENSATION COMMITTEE
F. Wayne Ballenger
M. F. Florence
Richard S. Kashenberg
COMPENSATION OF DIRECTORS
- -------------------------
Directors who are not employees of the Company receive $18,000 per year, $400
for each Board meeting attended, and $200 for each committee meeting of the
Board attended. Directors who are also employees of the Company receive no
additional compensation for serving as Directors. The Company reimburses its
Directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the Board of Directors.
In November 1995, the Board of Directors of the Company adopted the 1995 Non-
Discretionary Stock Option Plan for directors of the Company who are not
eligible to participate in the other Plans (the "Non-Discretionary Plan.") The
Non-Discretionary Plan provides that the Company grant options to purchase 5,000
shares of the Company's Common Stock to each eligible director on the date of
adoption of the Non-Discretionary Plan (November 28, 1995), to each person who
thereafter becomes a director of the Company and, as of December 1 of each year
(commencing in 1996), options to purchase an additional 5,000 shares of Common
Stock will be granted to each eligible director. The exercise price of the
options is the fair market value of the Common Stock on the date the options are
granted. The options are exercisable in full as of the date of grant. The
shares acquired upon exercise of these options cannot be sold for six months
following the date of grant. During the fiscal year ended September 30, 1998,
the Company granted options to purchase 5,000 shares of Common Stock at a price
of $7.00 per share to each of F. Wayne Ballenger, M.F. Florence and Richard S.
Kashenberg. Each option granted pursuant to the Non-Discretionary Plan will
expire five years from the date of grant, except that an option will expire, if
not exercised, 30 days after the optionee ceases to be a director of the
Company.
Options granted pursuant to the Non-Discretionary Plan will not qualify for
the special tax benefits given to incentive stock options under Section 422 of
the Code. Accordingly, all of the stock options granted pursuant to the Non-
Discretionary Plan may be deemed to be non-statutory stock options. The options
are generally non-transferable.
9
<PAGE>
Corporate Performance Graph
- ---------------------------
The following graph compares the yearly cumulative return on the Company's
Common Stock since July 10, 1995 (the date the Company's Common Stock began
trading on The Nasdaq Stock Market) with that of the Index for The Nasdaq Stock
Market (U.S. Companies) and a peer group including the following companies:
BeautiControl Cosmetics, Inc., Herbalife International, Inc., Nature's Sunshine
Products, Inc and Reliv' International, Inc.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Total Return Analysis
7/10/95 9/29/95 9/30/96 9/30/97 9/30/98
- ----------------------------------------------------------------------------------------------------
Nutrition For Life $ 100 $ 304.29 $ 506.40 $ 277.08 $ 104.93
- ----------------------------------------------------------------------------------------------------
Peer Group $ 100 $ 332.96 $ 414.28 $ 404.00 $ 218.69
- ----------------------------------------------------------------------------------------------------
Nasdaq Composite (US) $ 100 $ 106.85 $ 125.63 $ 172.60 $ 173.43
- ----------------------------------------------------------------------------------------------------
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from Bloomberg Financial Markets.
</TABLE>
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 20, 1999, the ownership of
the Company's Common Stock held by: (i) each person who owns of record or who is
known by the Company to own beneficially more than 5% of such stock, (ii) each
of the directors and nominees for election as directors of the Company, (iii)
each of the current executive officers of the Company and (iv) all of the
Company's directors and executive officers as a group. The number of shares and
the percentage of the class beneficially owned by the persons named in the table
and by all directors and executive officers as a group, includes, in addition to
shares actually issued and outstanding, unissued shares which are subject to
issuance upon exercise of options or warrants.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES -------------
BENEFICIAL OWNER OWNED OWNERSHIP
- ---------------- ---------
<S> <C> <C>
Apotex Foundation 650,000(1) 11.2%
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Bernard Sherman 1,215,390(1) 20.9
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Shermfin Corp. 565,390(1) 9.7
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
M.F. Florence 591,390(1)(2) 10.2
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Jana B. Mitcham 443,704(3) 7.6
10618 Great Plains
Houston, TX 77064
David P. Bertrand 355,492(4) 6.1
10622 Great Plains
Houston, TX 77064
Richard S. Kashenberg 70,372(5) 1.2
11010 Hopkins St., Unit B
Mira Loma, CA 91752
F. Wayne Ballenger 20,000(6) .3
3134 Meadway Drive
Houston, TX 77082
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION> NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER OWNED OWNERSHIP
- ---------------- ---------
<S> <C> <C>
John R. Brown, Jr. 10,000(7) .2
2534 Pomeran
Houston, TX 77080
David O. Rodrigue 25,000(8) .4
17810 Cypress Spring Dr.
Spring, TX 77388
All Officers and Directors 1,515.958 26.1
as a Group (7 Persons)
</TABLE>
________________________________
(1) Mr. Sherman may be deemed a beneficial owner of the shares held by the
Apotex Foundation due to his affiliations with the Apotex Foundation.
Messrs. Sherman and Florence may be deemed beneficial owners of the shares
held by Shermfin Corp. due to their affiliations with Shermfin Corp. In
July, 1994, Mr. Sherman and Shermfin Corp. consented to the issuance of an
Order of the Securities and Exchange Commission (the "Commission") that
they cease and desist from violations of certain reporting and anti-fraud
provisions of the Securities Exchange Act of 1934. Mr. Sherman and
Shermfin Corp. consented to this Order without admitting or denying the
findings of the Commission that they had failed to file reports of
beneficial ownership of the common stock of Kinesis, Inc. with the
Commission on Form 3 and Schedule 13G. The Company has no relationship
with Kinesis, Inc.
(2) Includes options to acquire (i) 6,000 shares of Common Stock at $1.665 per
share, (ii) options to acquire 5,000 shares of Common Stock at $19.75 per
share, (iii) options to acquire 5,000 shares of Common Stock at $12.38 per
share, (iv) options to acquire 5,000 shares of Common Stock at $7.00 per
share and (v) options to acquire 5,000 shares of Common Stock at $2.38 per
share.
(3) Includes Warrants to purchase 5,000 shares of Common Stock at $3.75 per
share and options to acquire (i) 42,000 shares of Common Stock at $1.665
per share, (ii) 16,800 shares of Common Stock at $1.875 per share, (iii)
16,800 shares of Common Stock at $2.25 per share, (iv) 37,800 shares of
Common Stock at $13 per share, of which options to acquire 12,600 shares
become exercisable in November 1999 and (v) 20,000 shares of Common Stock
at $5.13 per share. Also includes 11,554 shares of Common Stock owned by
her daughter, 9,000 shares of Common Stock owned by her husband, and
options held by her husband to acquire 4,800 shares of Common Stock at
$1.665 per share and 3,600 shares of Common Stock at $13.00 per share, of
which options to acquire 1,200 shares become exercisable November 1999.
Does not include options to acquire 25,000 shares at $3.00 per share which
become exercisable in one-third annual installments commencing in December
1999.
(4) Includes options to acquire (i) 42,000 shares of Common Stock at $1.665 per
share, (ii) 19,200 shares of Common Stock at $1.875 per share, (iii) 19,200
shares of Common Stock at $2.25 per share, (iv) 40,200 shares of Common
Stock at $13.00 per share, of which options to acquire 13,400 shares become
exercisable in November 1999 and
12
<PAGE>
(v) 20,000 shares of Common Stock at $5.13 per share. Also includes options
held by his wife to acquire 4,800 shares of Common Stock at $1.665 per
share and 3,600 shares of Common Stock at $13.00 per share, of which
options to acquire 1,200 shares become exercisable in November 1999. Does
not include options to acquire 25,000 shares at $3.00 per share which
become exercisable in one-third annual installments commencing in December
1999.
(5) Includes options to acquire (i) 6,000 shares of Common Stock at $1.665 per
share, (ii) 5,000 shares of Common Stock at $19.75 per share, (iii) 5,000
shares of Common Stock at $12.38 per share, and (iv) 5,000 shares of Common
Stock at $7.00 per share, and (v) 5,000 shares of Common Stock at $2.38 per
share.
(6) Includes options to acquire (i) 5,000 shares of Common Stock at $19.75 per
share; (ii) 5,000 shares of Common Stock at $12.38 per share, (iii) 5,000
shares of Common Stock at $7.00 per share and (iv) 5,000 shares of Common
Stock at $2.38 per share.
(7) Includes options to acquire 10,000 shares of Common Stock at $11.50 per
share, of which options to acquire 3,333 shares become exercisable in
September 1999. Does not include options to acquire 10,000 shares which
become exercisable in one-third annual installments commencing in December
1999.
(8) Includes options to acquire 25,000 shares of Common Stock at $5.75 per
share, of which options to acquire 8,333 shares become exercisable in each
of January 2000 and January 2001. Does not include options to acquire
15,000 shares at $3.00 per share which become exercisable in one-third
annual installments commencing in December 1999.
ITEM 13. CERTAIN RELATIONSHPS AND RELATED TRANSACTIONS
In March 1995, the Company entered into an agreement with Shermfin Corp.
regarding conversion to Common Stock of debt owed by the Company to Shermfin
Corp. The Company and Shermfin Corp. also agreed that, for so long as Shermfin
Corp. owns 10% or more of the outstanding Common Stock of the Company, Shermfin
Corp. will be entitled to designate one person to serve as a member of the
Company's Board of Directors. Shermfin Corp. designated M.F. Florence to serve
on the Board.
NION Laboratories, which was a subsidiary of Shermfin Corp. until June
1995, has been a key supplier to the Company of nutritional supplements and
other consumer-related products. The Company purchased from NION approximately
$494,000, $4,190,000 and $5,234,000 of goods during the fiscal years ended
September 30, 1998, 1997 and 1996, respectively. Richard S. Kashenberg, a
director of the Company, served as the chief executive officer of NION until
December 31, 1996 and as a consultant to NION through October 31, 1997. The
Company believes that the terms it has obtained from NION are at least as
favorable as could have been obtained from third parties.
In August and September 1998, the Company purchased approximately 41,000
copies of a book entitled Making A Difference While You're Making A Living,
------------------------------------------------
written by the Company's President, David P. Bertrand, and Mr. Bertrand's son,
J. Mark Bertrand, who is also an employee of the Company. The cost to the
Company was $5 per book. New Paradigm Publishing, a company established by J.
Mark Bertrand, published the book. The Company sold approximately 3,000 copies
of the book at its Annual Convention in August 1998 at an average selling price
of approximately $10.95 per copy. The book has been placed in the Company's
product catalog at
13
<PAGE>
per copy prices ranging from $8.95 to $12.95, based upon quantity ordered, and
the Company is using the book as part of the materials provided to new
distributors in the Company's starter kits. Additionally, in September 1998,
approximately 19,000 copies of the book were shipped to distributors as part of
the Company's Business Training System program for that month. New Paradigm
Publishing has agreed to accept the return of any books ordered, but not sold by
the Company, and to refund to the Company the $5 per book purchase price for any
copies returned to it by the Company.
14
