-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfeAJdlPO4uK68VumxnSKxY15J7I1rZ60yLvMd3bDDr6sib5ddIeN7ch8/95+TFw Ng9IndmSlpq05f+9H0IVlA== 0000768710-99-000001.txt : 19990402 0000768710-99-000001.hdr.sgml : 19990402 ACCESSION NUMBER: 0000768710-99-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RELIV INTERNATIONAL INC CENTRAL INDEX KEY: 0000768710 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 371172197 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19932 FILM NUMBER: 99579603 BUSINESS ADDRESS: STREET 1: 136 CHESTERFIELD INDUSTRIAL BLVD STREET 2: P O BOX 405 CITY: CHESTERFIELD STATE: MO ZIP: 63006-0405 BUSINESS PHONE: 3145379715 MAIL ADDRESS: STREET 1: 136 CHESTERFIELD INDUSTRIAL BLVD STREET 2: P O BOX 405 CITY: CHESTERFIELD STATE: MO ZIP: 63006-0405 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LIFE INVESTORS INC DATE OF NAME CHANGE: 19920315 10-K 1 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 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 -------- --------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 136 Chesterfield Industrial Boulevard Chesterfield, Missouri 63006 ---------------------- ----- (Address of principal executive offices) (Zip Code) (314) 537-9715 -------------- 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: -------------- -------------------- 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. 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 2 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. 3 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. 4 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 5 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. 6 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. 7 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 ------------ ----------------- 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 8 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, 9 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 10 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. 11 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 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 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 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 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.
Year ended December 31 1998 1997 1996 1995 1994 ------------------------------------------------------------------------------- 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 - --------------------------------------------- (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.
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 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 $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 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 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 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 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 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 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 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 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 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 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 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 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 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 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. [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 Reliv' International, Inc. and Subsidiaries Consolidated Balance Sheets
December 31 1998 1997 ------------ ----------- 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 ============ ============
See accompanying notes. F-2 Reliv' International, Inc. and Subsidiaries Consolidated Balance Sheets
December 31 1998 1997 ------------ ------------ 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 ============ ============
See accompanying notes. F-3 Reliv' International, Inc. and Subsidiaries Consolidated Statements of Income
Year ended December 31 1998 1997 1996 ------------ ------------ ------------ 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 (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.
See accompanying notes. F-4 Reliv' International, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Accumulated Common Stock Notes Receivable Retained Other Treasury Stock ------------ Officers and Earnings Comprehensive -------------- Shares Amount Directors (Deficit) Income/(Loss) Shares Amount Total ------------------------------------------------------------------------------------------------ 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 =================================================================================================
See accompanying notes. F-5 Reliv' International, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31 1998 1997 1996 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes. F-6 Reliv' International, Inc. and Subsidiaries Consolidated Statements of Cash Flows (continued)
Year ended December 31 1998 1997 1996 ---------- ---------- ---------- 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 $ -- ========== ========== ==========
See accompanying notes. F-7 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 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 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 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 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 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:
1998 1997 ------------ ------------- 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 ============ =============
F-13 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:
Year ended December 31 1998 1997 1996 ----------- ------------ ------------ 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 =========== ============ ============
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 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 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:
1998 1997 1996 ------------------------------------------------------------------------------------- Weighted Weighted Weighted Avg. Avg. Avg. Exercise Exercise Exercise Options Price Options Price Options Price ------------------------------------------------------------------------------------ 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 =========== =========== =========== (1) Shares issued were less than options exercised due to cashless exercise provision.
F-16 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)
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 - -------------------- ----------------- -------------------- ------------------- --------------- ------------------ $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 ================= ===============
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 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:
1998 1997 1996 ------------------------------------------------------------------------------------- Weighted Weighted Weighted Avg. Avg. Avg. Exercise Exercise Exercise Warrants Price Warrants Price Warrants Price ------------------------------------------------------------------------------------ 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 =========== =========== =========== (1) Shares issued were less than warrants exercised due to cashless exercise provision.
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 - --------------------- ---------------- -------------------- ----------------- ----------------- ----------------- $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 ============= ==============
F-18 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 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 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 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 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 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 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 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:
1998 1997 1996 -------------------------------------------------- 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 ==================================================
F-26 Reliv' International, Inc. and Subsidiaries Notes to Consolidated Financial Statements 18. Segment Information (continued)
1998 1997 1996 -------------------------------------------------- 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 ==================================================
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 19. Quarterly Financial Data (Unaudited)
First Second Third Fourth ------------------------------------------------------------ (In thousands, except per share amounts) 1998 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
F-28 Reliv' International, Inc. and Subsidiaries Schedule II - Valuation and Qualifying Accounts For the years ended December 31, 1998, 1997 and 1996
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 - ---------------------------- 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 -------------------------------------------------------------------------- (1) Uncollectable accounts written off, net of recoveries. (2) Disposal of obsolete inventory. (3) Amounts refunded, net of salable amounts returned.
F-29 EX-10 2 LOAN AGREEMENT 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, 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 (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 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 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 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 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 (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 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 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 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 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 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 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 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 SCHEDULE 6.3 Unsecured Subordinated Debt and other Indebtedness: NONE 16 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 EX-10 3 DEED OF TRUST NOTE 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. 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 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 EX-10 4 LINE OF CREDIT NOTE 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 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 EX-10 5 LINE OF CREDIT NOTE 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 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 EX-10 6 DEED OF TRUST NOTE 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 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 EX-10 7 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 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 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 2 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. 3 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. 4 (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 5 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 6 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 7 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 (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 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. 10 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 11 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. 12 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 13 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:_____________________________ 14 EX-10 8 STOCK PURCHASE AGREEMENT 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 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 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. 3 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. 4 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, 5 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 6 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. 7 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 $ ____________. 8 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 9 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 10 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. 11 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 12 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; 13 (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 14 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 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 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 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 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 EX-23 9 CONSENT OF INDEPENDENT AUDITORS 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 EX-27 10 FINANCIAL DATA SCHEDULE
5 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. 0000768710 RELIV' INTERNATIONAL, INC. 12-mos DEC-31-1998 JAN-01-1998 DEC-31-1998 2,816,804 0 782,444 5,000 3,929,330 8,357,727 14,172,977 3,493,754 20,252,972 6,174,895 5,216,107 0 0 9,179,764 (839,598) 20,252,972 51,893,511 51,893,511 14,286,498 14,286,498 34,599,592 0 509,492 2,497,929 941,000 1,556,929 0 0 0 1,556,929 .16 .16
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