SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X| Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
RELIV' INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
|X| No Fee Required
RELIV' INTERNATIONAL, INC.
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri 63005
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON MAY 24, 2001
To: Shareholders of Reliv' International, Inc.
The annual meeting of the shareholders of Reliv' International, Inc. will
be held at the Doubletree Hotel and Conference Center, 16625 Swingley Ridge
Road, Chesterfield, Missouri 63017, on Thursday, May 24, 2001, at 10:00 a.m.,
Central Daylight Savings Time, for the following purposes:
1. To elect 12 directors to hold office during the year following the
Annual Meeting or until their successors are elected (Item No. 1 on
proxy card);
2. To approve the adoption of the Reliv' International, Inc. 2001 Stock
Option Plan (Item No. 2 on proxy card);
3. To ratify the appointment of Ernst & Young LLP as auditors of the
Company for 2001 (Item No. 3 on proxy card); and
4. To transact such other business as may properly come before the
meeting.
The close of business on April 9, 2001, has been fixed as the record date
for determining the shareholders entitled to receive notice of and to vote at
the annual meeting.
BY ORDER OF THE BOARD OF DIRECTORS
April 19, 2001
----------------------------------
Stephen M. Merrick, Secretary
YOUR VOTE IS IMPORTANT
It is important that as many shares as possible be
represented at the Annual Meeting. Please date, sign, and
promptly return the proxy in the enclosed envelope. Your
proxy may be revoked by you at any time before it has been
voted.
RELIV' INTERNATIONAL, INC.
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri 63005
PROXY STATEMENT
Information Concerning the Solicitation
This statement is furnished in connection with the solicitation of proxies
to be used at the annual shareholders meeting (the "Annual Meeting") of Reliv'
International, Inc. (the "Company"), a Delaware corporation, to be held on
Thursday, May 24, 2001. The proxy materials are being mailed to shareholders of
record on April 19, 2001.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mail,
but certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Quorum and Voting
Only shareholders of record at the close of business on April 9, 2001, are
entitled to vote at the Annual Meeting. On that day, there were issued and
outstanding 9,654,505 shares of Common Stock. Each share has one vote. A simple
majority of the outstanding shares is required to be present in person or by
proxy at the meeting for there to be a quorum for purposes of proceeding with
the Annual Meeting. A simple majority of the shares present in person or by
proxy at the Annual Meeting, at which a quorum is present, is required to elect
directors and approve the Company's 2001 Stock Option Plan. Abstentions and
withheld votes have the effect of votes against these matters. Broker non-votes
(shares held of record by a broker for which a proxy is not given) will be
counted for purposes of determining shares outstanding for purposes of a quorum,
but will not be counted as present for purposes of determining the vote on any
matter considered at the meeting.
A shareholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted by
notifying the Secretary of the Company in writing. If a shareholder specifies
how the proxy is to be voted with respect to any of the proposals for which a
choice is provided, the proxy will be voted in accordance with such
specifications. If a shareholder fails to so specify with respect to such
proposals, the proxy will be voted "FOR" the nominees for directors contained in
these proxy materials.
Stock Ownership by Management and Others
The following table provides information concerning the beneficial
ownership of Common Stock of the Company by each director and nominee for
director, certain executive officers, and by all directors and officers of the
Company as a group as of April 9, 2001. In addition, the table provides
information concerning the beneficial owners known to the Company to hold more
than 5 percent of the outstanding Common Stock of the Company as of April 9,
2001.
Amount and nature of
Name of beneficial owner beneficial ownership(1) Percent of class(1)(2)
------------------------ ----------------------- ----------------------
Robert L. and Sandra S. Montgomery(3) 2,558,791 25.43%
Carl W. Hastings(4) 840,247 8.50%
David G. Kreher 288,784 2.92%
Stephen M. Merrick(5) 669,340 6.80%
Donald L. McCain 381,053 3.89%
Marvin W. Solomonson 347,925 3.59%
Thomas T. Moody 152,774 1.58%
Thomas W. Pinnock III 97,101 1.00%
John B. Akin 40,880 *
Donald E. Gibbons, Jr 135,960 1.39%
All Directors and Executive Officers
as a (11 persons) 5,512,855 55.10%
*less than one percent
(1) In each case the beneficial owner has sole voting and investment power. The
figures include the following number of shares of Common Stock for which an
individual has the right to acquire beneficial ownership, within sixty (60)
days from April 9, 2001, through the exercise of stock options: Mr.
Montgomery - 408,857, Dr. Hastings - 232,288, Mr. Kreher - 221,034, Mr.
Merrick - 194,250, Mr. McCain - 131,750, Mr. Solomonson - 35,500, Mr. Moody
- 36,742, Mr. Pinnock - 63,000, Mr. Akin - 40,000, and Mr. Gibbons -
100,000.
(2) The calculation of percent of class is based upon the number of shares of
Common Stock outstanding as of April 9, 2001.
(Footnotes continued on next page)
2
(3) Mr. Robert L. Montgomery is Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. Ms. Montgomery is a
director of the Company. The Montgomerys' mailing address is 136
Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005.
(4) Dr. Carl W. Hastings is Executive Vice President and a director of the
Company. Dr. Hastings' mailing address is 136 Chesterfield Industrial
Boulevard, Chesterfield, Missouri 63005.
(5) Stephen M. Merrick is Senior Vice President, Secretary and a director of
the Company. Mr. Merrick's mailing address is 136 Chesterfield Industrial
Boulevard, Chesterfield, Missouri 63005.
PROPOSAL ONE - ELECTION OF DIRECTORS
Twelve directors will be elected at the Annual Meeting to serve for terms
of one year expiring on the date of the Annual Meeting in 2002. Each director
elected will continue in office until a successor has been elected. If a nominee
is unable to serve, which the Board of Directors has no reason to expect, the
persons named in the accompanying proxy intend to vote for the balance of those
named and, if they deem it advisable, for a substitute nominee.
Information Concerning Nominees
The following is information concerning nominees for election as directors
of the Company. Each of such persons is presently a director of the Company.
ROBERT L. MONTGOMERY, age 59, Chairman of the Board, Chief Executive
Officer, President and Treasurer of the Company. Mr. Montgomery became Chairman
of the Board of Directors and Chief Executive Officer of the Company on February
15, 1985, and President on July 1, 1985. Mr. Montgomery has been a director of
the Company since 1985. Mr. Montgomery is also the President and a director of
Reliv', Inc. and President and a director of Reliv' World Corporation, both
wholly-owned subsidiaries of the Company. Mr. Montgomery was, from 1982 to July,
1985, President of Spectrum Foods, Inc., a corporation engaged in the
development, manufacture and sale of specialized food products utilizing soy as
a base. Mr. Montgomery, together with Dr. Carl W. Hastings, founded Spectrum
Foods in 1981. From 1970 to 1980, Mr. Montgomery was the Executive Vice
President of Modern Income Life Insurance Company and from 1965 to 1979 was an
agent, manager and Vice President of Modern American Life Insurance Company. Mr.
Montgomery received a B.A. degree in economics from the University of Missouri
in Kansas City, Missouri in 1965.
DR. CARL W. HASTINGS, age 59, Executive Vice President of Manufacturing and
Product Development, Assistant Secretary and a director of the Company. Dr.
Hastings has been employed by the Company since February, 1991, and became
Executive Vice President of the Company on July 1, 1992. He has been a director
of the Company since February, 1990. Dr. Hastings is also a director of Reliv',
Inc. and Reliv' World Corporation. Dr. Hastings holds B.S. and M.S. degrees and
a Ph.D. degree in food science from the University of Illinois. For more than
the past 20 years, Dr.
3
Hastings has been engaged in a variety of employment and consulting capacities
as a food scientist. From May, 1988 to December, 1990, Dr. Hastings was employed
as President of Grove Country Foods, Inc. which was a principal supplier to
Reliv', Inc.
DAVID G. KREHER, age 48, Senior Vice President, Chief Operating Officer and
Assistant Secretary of the Company. He is also Secretary and a director of
Reliv', Inc. and Reliv' World Corporation. Mr. Kreher was employed by the
Company in August, 1991, and became Senior Vice President on July 1, 1992. Mr.
Kreher was named Chief Operating Officer in January, 2001. From 1988 to August,
1991, Mr. Kreher was owner and President of Creative Options Corporation in
Washington, D.C., a firm that provided specialized advertising services. From
1981 to 1988, Mr. Kreher was Chief Operating Officer of Sandven Advertising &
Marketing in Kansas City, Missouri. Mr. Kreher holds a B.S. degree in accounting
from Southwest Missouri State University. Mr. Kreher has been a director of the
Company since June 1, 1994. Mr. Kreher is the brother of Sandra S. Montgomery.
STEPHEN M. MERRICK, age 59, Senior Vice President/Corporate and
International Development, Secretary, General Counsel and a director of the
Company since July 20, 1989; and Senior Vice President, Secretary and a director
of Reliv', Inc. and Reliv' World Corporation. Mr. Merrick is also a principal of
the law firm of Merrick & Klimek, P.C. of Chicago, Illinois, and has been
engaged in the practice of law for over 30 years. Mr. Merrick has represented
the Company and its subsidiaries since the founding of the Company. Mr. Merrick
received a Juris Doctor degree from Northwestern University School of Law in
1966. Mr. Merrick is also Vice President and a director of CTI Industries
Corporation (NASDAQ-CTIB).
THOMAS W. PINNOCK III, age 50, independent distributor for Reliv', Inc. Mr.
Pinnock has been an independent distributor for Reliv', Inc. since January 15,
1990. He has been a director of the Company since April 29, 1992. Mr. Pinnock
was commissioned as a U.S. Army Officer in 1978 and commanded an armored company
in the 1st Infantry Division. For a period of more than five years prior to the
time he became a Reliv' distributor, Mr. Pinnock was a reporter for the Orlando
Sentinal. Mr. Pinnock holds a B.A. degree from Valencia College, Orlando,
Florida and studied journalism at the University of Florida and the Defense
Department School of Journalism.
THOMAS T. MOODY, age 42, independent distributor for Reliv', Inc. Mr. Moody
has been an independent distributor for Reliv', Inc. since July, 1989. Mr. Moody
received a B.A. degree from St. Mary's College in Winona, Minnesota in 1981. He
has been a director of the Company since October 20, 1989.
DONALD L. MCCAIN, age 57, has been a director of the Company since July 20,
1989, and is also a director of Reliv', Inc. and Reliv' World Corporation. Mr.
McCain is the Chairman and co-owner of The Baughan Group Inc., formerly
Robertson International Inc., a worldwide supplier and manufacturer of mining
equipment and supplies with plants and facilities throughout the United States
and South Africa. Mr. McCain acquired his interest in The Baughan Group in
September, 1995. He is also Chairman and co-owner of Coal Age Incorporated, a
mining equipment manufacturer and rebuilding company. He acquired his interest
in Coal Age, Inc. in September, 1994. Mr. McCain co-founded G&T Resources, Inc.,
an owner and operator of nursing homes, in 1980 and was engaged in the
management of that company until he sold his interest in September, 1994. Prior
to that time, Mr. McCain privately invested in real estate and owned and
operated Expertune, Inc., a company with two locations that specialized in fast
oil changes. Mr. McCain was
4
employed in the food processing industry for fifteen years. Most of that time
was with Archer Daniels Midland Company as a manager of plant operations.
JOHN B. AKIN, age 72, has been a director of the Company since June, 1986.
Mr. Akin retired as Vice President, A.G. Edwards & Sons and resident manager of
the Decatur, Illinois branch office in 1995. Mr. Akin had been associated with
A.G. Edwards & Sons as a stock broker, manager and officer since April, 1973.
Mr. Akin holds a B.A. degree from the University of Northern Iowa, Cedar Falls,
Iowa.
SANDRA S. MONTGOMERY, age 55, has been a director of the Company since
April 29, 1992. For more than the past five years, Mrs. Montgomery has been
engaged actively in the business of the Company. Mrs. Montgomery is also a
director of Reliv', Inc. Sandra S. Montgomery and Robert L. Montgomery are
husband and wife.
MARVIN W. SOLOMONSON, age 48, has been a director of the Company since June
1, 1994. Mr. Solomonson is the manager of a bond offering for Midwest Central
Holdings, L.L.C. Mr. Solomonson was the founder and owner of Solomonson
Investment Services, engaged in the marketing of investments and insurance
products, and operated that business from 1983 until he sold it in December,
1998, to pursue his current position. Since 1993, Mr. Solomonson has also served
as President and Chief Executive Officer for the following corporations:
Superior Family Foods, Inc. and Service Contracts, Inc. dba Dealership Services.
DICK VERMEIL, age 64, is Head Coach of the Kansas City Chiefs as of January
2001. He enters his 11th season as an NFL head coach in 2001. From 1997-1999,
Mr. Vermeil coached the St. Louis Rams and guided that team to a win in Super
Bowl XXXIV following the 1999 season. From 1976-1982, Mr. Vermeil led the
Philadelphia Eagles as Head Coach, appearing in Super Bowl XV after the 1980
season. Mr. Vermeil served several stints and held three different positions
(Offensive Coordinator, Special Teams Coach, Running Backs Coach) with the Los
Angeles Rams in 1969 and during the 1971-1973 seasons. Mr. Vermeil also coached
at the NCAA Division I collegiate level at Stanford University between 1965-1968
as an Assistant Coach and at UCLA in 1970 and 1974-1975 as Offensive Coordinator
and Head Coach. Mr. Vermeil started his career coaching football at the high
school and college levels between the years 1959-1964. Mr. Vermeil holds B.A.
and M.A. degrees from San Jose State University.
LYNN STILES, age 58, is Vice-President of Football Operations of the Kansas
City Chiefs. Mr. Stiles, who served as Kansas City's Vice-President of Player
Personnel from 1992-1996, spent three seasons (1997-1999) in St. Louis as that
club's Vice-President of Football Operations, helping lead the Rams with Mr.
Vermeil to a win in Super Bowl XXXIV. From 1987-1991, Mr. Stiles served in a
number of positions (Special Teams Coach, Tight Ends Coach, Assistant Offensive
Line Coach) with the San Francisco 49ers under head coaches Bill Walsh and
George Siefert and won Super Bowls XXIII and XXIV in 1988 and 1989. From
1979-1986, Mr. Stiles worked in the Philadelphia Eagles organization, serving as
Special Teams and Tight Ends Coach through 1981, and Director of Player
Personnel from 1982-1986. Mr. Stiles was Head Coach at San Jose State from
1976-1978 and served as Assistant Head Coach and Defensive Coordinator for UCLA
from 1970-1975. Mr. Stiles attended the University of Utah, earning all-academic
and all-conference honors.
5
Executive Officers Other Than Nominees
DONALD E. GIBBONS, JR., age 45, is Vice President of U.S. Sales of the
Company. Mr. Gibbons was employed by the Company in June, 1991, and became Vice
President of Finance. He became Vice President of Distributor Relations in 1992,
and accepted the position of Vice President of U.S. Sales in June, 1994, a
position he still holds. Mr. Gibbons was an executive correspondent for the
governor of Illinois 1974-1976. From 1978 to 1990, Mr. Gibbons was a journeyman
electrician with I.B.E.W. Local 193. In 1981, Mr. Gibbons, with his wife
Elizabeth, became an independent distributor in a network marketing company and
operated that home business for 5 years. Mr. Gibbons received a B.A. degree in
accountancy from the University of Illinois, Springfield, graduating with
highest honors.
Committees of the Board of Directors
The Company's Board of Directors has standing Management, Compensation, and
Audit Committees. The Company has no standing nominating committee.
The Management Committee is composed of Mr. Montgomery, Dr. Hastings, Mr.
Kreher, Mr. McCain and Mr. Merrick. The Management Committee has all of the
authority of the Board of Directors during the interim periods between Board
meetings, except for certain specified powers that are stated in the Company
bylaws. The Management Committee met 10 times during 2000.
The Compensation Committee is composed of Mr. McCain, Mr. Merrick and Mr.
Akin. The Compensation Committee reviews and makes recommendations to the Board
of Directors concerning the compensation of officers and key employees of the
Company. The Compensation Committee met 2 times during 2000.
The Company has a standing Audit Committee which is composed of Mr. McCain,
Mr. Akin and Mr. Solomonson. Each appointed member of the Committee satisfies
the definition of "independent" as defined by Nasdaq Marketplace Rule
4460(d)(2). The Company's Board of Directors has adopted a written charter for
the Audit Committee as provided in Appendix A. The Audit Committee reviews and
makes recommendations to the Company about its financial reporting requirements.
Information regarding the functions performed by the Committee, its membership,
and the number of meetings held during the fiscal year, is set forth in the
"Report of the Audit Committee," included in this Annual Proxy Statement below.
The Board of Directors met 4 times during 2000. No director attended less
than 75% of the combined Board of Director and Committee meetings.
Executive Compensation
The following table sets forth a summary of the compensation paid during
the last three fiscal years to the Chief Executive Officer of the Company and to
each of the four most highly compensated officers of the Company who were
officers of the Company at December 31, 2000, and any executive officer who left
during the last fiscal year who would have been included in this group (the
"Named Executives").
6
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------- --------------
Salary Bonus Options/ All other
Name and Principal Position Year ($) ($) SARs(#) compensation
($)
- ------------------------------------------------------------------------------------------------------------------
Robert L. Montgomery 2000 $546,238 -- -- $99,893(8)
Chief Executive Officer 1999 $589,073 -- 450,800(5) $12,646(9)
and President 1998 $642,625 -- 75,000(7) $16,160(10)
Carl W. Hastings 2000 $309,719 -- -- $39,690(8)
Executive Vice President 1999 $334,010 -- 245,600(5) $ 9,533(9)
1998 $364,375 -- 65,000(7) $44,495(10)
David G. Kreher 2000 $225,250 $ 76,824(1) -- $19,583(8)
Senior Vice President and Chief 1999 $242,917 -- 208,600(5) $ 6,870(9)
Operating Officer 1998 $265,000 -- 55,000(7) $32,935(10)
Donald E. Gibbons, Jr. 2000 $175,000 $ 23,488(2) -- $11,708(8)
Vice President of U.S. Sales 1999 $175,000 $ 3,000(4) 50,000(6) $ 6,790(9)
1998 $175,000 $ 5,000(4) -- $ 7,673(10)
Steven D. Albright 2000 $105,000 $ 6,150(3) -- $ 5,721(8)
Controller 1999 $ 95,000 $ 3,000(4) 20,000(6) $ 3,209(9)
1998 $ 94,167 $ 5,000(4) -- $ 2,998(10)
- ---------------------
(1) Reflects bonus payments totaling $40,299 pursuant to a worldwide sales
incentive program based on worldwide sales volume plus a bonus of $36,525
related to Mr. Kreher's management of the manufacturing operations of the
Company.
(2) Reflects bonus payments totaling $22,488 pursuant to a U.S. sales incentive
program based on U.S. sales volume plus a $1,000 year-end bonus.
(3) Reflects bonus payment totaling $5,150 pursuant to a worldwide sales
incentive program based on worldwide sales volume plus a $1,000 year-end
bonus.
(4) Reflects year-end bonus.
(5) Non-qualified and incentive stock options issued on December 15, 1999,
pursuant to the Company's 1999 Stock Option Plan (See Option/SAR Grants
table below).
(6) Incentive stock options issued on December 15, 1999, pursuant to the
Company's 1999 Stock Option Plan (See Option/SAR Grants table below).
(7) Incentive stock options issued on December 30, 1998, pursuant to the
Company's 1995 Stock Option Plan. For Mr. Montgomery, these options are
exercisable for 21,174 shares on January 1, 2000; an additional 26,913
shares on January 1, 2001; and the remaining 26,913 shares on January 1,
2002. For Dr. Hastings, these options are exercisable for 21,667 shares on
issuance; an additional 21,667 shares on December 30, 1999; and the
remaining 21,666 shares on December 30, 2000. For Mr. Kreher, the options
are exercisable for 18,333 shares on issuance; an additional 18,333 shares
on December 30, 1999; and the remaining 18,334 shares on December 30, 2000.
For Mr. Merrick, these options are exercisable for 13,333 shares on
issuance; and additional 13,333 shares on December 30, 1999; and the
remaining 13,334 shares on December 30, 2000.
7
(8) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan, of $7,500 for
each of Messrs. Montgomery, Hastings, Kreher and Gibbons and $3,938 for Mr.
Albright. Also includes the portion of premiums paid by the Company on life
insurance policies on each executive's life attributable to the death
benefit which each executive's estate is entitled to. The allocated portion
of premium paid was $6,804 for Mr. Montgomery, $2,245 for Dr. Hastings,
$675 for Mr. Kreher and $643 for Mr. Gibbons. (See "Employment
Agreements".) The total also includes the taxable fringe benefit on the
cashless exercise of stock options on December 1, 2000. The value realized
upon exercise was $85,589 for Mr. Montgomery, $29,945 for Dr. Hastings,
$11,408 for Mr. Kreher, $3,565 for Mr. Gibbons, and $1,783 for Mr.
Albright.
(9) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan of $6,250 for
each of Messrs. Montgomery, Kreher and Gibbons, $7,500 for Dr. Hastings,
and $2,969 for Mr. Albright. Also includes the portion of premiums paid by
the Company on life insurance policies on each executive's life
attributable to the death benefit which each executive's estate is entitled
to. The allocated portion of premium paid was $6,396 for Mr. Montgomery,
$2,033 for Dr. Hastings, $620 for Mr. Kreher, $540 for Mr. Gibbons and $240
for Mr. Albright. (See "Employment Agreements.")
(10) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan, of $7,500 for
each of Messrs. Montgomery, Hastings, Kreher and Gibbons and $2,825 for Mr.
Albright. Also includes portion of premiums paid by the Company on life
insurance policies on each executive's life attributable to the death
benefit which each executive's estate is entitled to. The allocated portion
of premium paid was $8,660 for Mr. Montgomery, $2,620 for Dr. Hastings,
$435 for Mr. Kreher and $173 for each of Messrs. Gibbons and Albright. (See
"Employment Agreements".) Also includes contributions to the Company's
Supplemental Executive Retirement Plan of $34,375 for Dr. Hastings and
$25,000 for Mr. Kreher.
The Company has never granted any stock appreciation rights. During the
period from January 1, 1997 to December 31, 2000, there have been no awards or
payments made for long term incentive compensation and there have been no
restricted stock awards to any of the Named Executives.
During fiscal year ended December 31, 2000, the Company granted no options
to purchase the Company's Common Stock to the Named Executives. The following
table provides information related to options to purchase the Company's Common
Stock exercised by the Named Executives during the fiscal year ended December
31, 2000, and the number and value of such options held as of the end of such
fiscal year:
8
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of securities underlying Value of unexercised in-
Shares Value unexercised options/SARs at the-money options/SARs
acquired on realized year end (#) at fiscal year end ($)
Name exercise (#) ($) exercisable/unexercisable exercisable/unexercisable
---- ------------ -------- ------------------------------- -------------------------
Robert L. Montgomery 52,718 $ 88,962 328,857/196,943 $374.63/2,125.38(1)
Carl W. Hastings 23,955 $ 40,424 232,288/ 78,312 $7,711.00/9,789.00(1)
David G. Kreher 9,125 $ 15,398 221,034/ 42,566 $10,304.25/$5,320.75(1)
Donald E. Gibbons, Jr. 2,851 $ 4,811 100,000/0 $6,250.00/0(1)
Steven D. Albright 1,425 $ 2,405 25,000/0 $2,500.00/0(1)
- ----------------------
(1) The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's
Common Stock on December 29, 2000.
Report of the Audit Committee
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditor's independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting. The Committee held 2 meetings during fiscal year 2000.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors.
9
Donald L. McCain, Audit Committee Chair
John B. Akin, Audit Committee Member
Marvin W. Solomonson, Audit Committee Member
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of the Company is
composed of three members of the Board of Directors. The Compensation Committee
is responsible for establishing the standards and philosophy of the Board of
Directors regarding executive compensation, for reviewing and evaluating
executive compensation and compensation programs, and for recommending levels of
salary and other forms of compensation for executives of the Company to the
Board of Directors. The full Board of Directors of the Company is responsible
for setting and administering salaries, bonus payments and other compensation
awards to executives of the Company.
Compensation Philosophy
The philosophy of the Compensation Committee, and of the Board of Directors
of the Company, regarding executive compensation includes the following
principal components:
o To attract and retain quality executive talent, which is regarded as
critical to the long and short term success of the Company, in
substantial part by offering compensation programs which provide
attractive rewards for successful effort.
o To provide a reasonable level of base compensation to senior
executives and to provide annual incentive compensation based on the
success and profitability of the Company.
o To create a mutuality of interest between executive officers of the
Company and shareholders through long-term compensation structures,
particularly stock option programs, so that executive officers share
the risks and rewards of strategic-decision making and its effect on
shareholder value.
The Compensation Committee has recommended, and the Board of Directors has
determined, to take appropriate action to comply with the provisions of Section
162(m) of the Internal Revenue Code so that executive compensation will be
deductible as an expense to the fullest extent allowable.
The Company's executive compensation program consists of two key elements:
(i) an annual component consisting of base salary and annual bonus and (ii) a
long-term component, principally stock options.
Annual Base Compensation
The Compensation Committee recommends annual salary levels for each of the
Named Executives, and for other senior executives of the Company, to the Board
of Directors. The
10
recommendations of the Compensation Committee for base salary levels for senior
executives of the Company are determined annually, in part, by evaluating the
responsibilities of the position and examining market compensation levels and
trends for similar positions in the marketplace.
Additional factors which the Compensation Committee considers in
recommending annual adjustments to base salaries include: results of operation
of the Company, sales, shareholder returns, and the experience,
work-performance, leadership and team building skills of each executive. The
Company receives information from the Chief Executive Officer with regard to
these matters. While each of these factors is considered in relatively equal
weight, the Compensation Committee does not utilize performance matrices or
measured weightings in its review. Each year, the Compensation Committee
conducts a structured review of base compensation of senior executives with
input from the Chief Executive Officer.
Two of the senior executives of the Company are employed under Employment
Agreements with the Company which provide a minimum base salary: Robert L.
Montgomery and Carl W. Hastings. Over the period 1995 through 1998, the Company
experienced increases in sales and profits and the base salary levels of each of
these executives was increased over this time to levels above the minimums
provided in their respective Agreements. In mid-1999, in light of the results of
operation for the first six months of the year, on the recommendation of the
Compensation Committee and with the agreement of each of these executives, the
annualized rate of the base salaries of these executives and David G. Kreher was
reduced by 20%. In mid-2000, on the recommendation of the Compensation Committee
and in light of improved results for the year to date, the annualized rate of
the base compensation of these three executives was increased by one-half of the
amount of the reduction taken in 1999.
Annual Incentive Compensation.
In March 1994, the Compensation Committee recommended the adoption of a
1994 Annual Incentive Compensation Plan (the "1994 Plan"). The 1994 Plan was
adopted by the Board of Directors on April 13, 1994, to be effective for 1994
and subsequent years, and supersedes all prior incentive compensation plans. The
purpose of the 1994 Plan is to provide competitive rates of incentive
compensation to executive officers of the Company for accomplishing periodic
financial objectives. Under the 1994 Plan, incentive compensation measured as a
percentage of base compensation will be paid to participants based upon
achieving specific objectives. The performance criterion for each executive will
vary and include both corporate and individual results. The criterion may
include profits, return on average equity, sales and expense control and may
include other measures. The measures selected for each executive will reflect
the Company's business objectives which the individual can directly affect.
Target performance levels for each measure of performance are recommended
by the Compensation Committee and approved by the Board of Directors. The target
performance levels will be based upon historic patterns of Company performance
and strategic objectives. Under the 1994 Plan, incentive compensation is limited
to a percentage of each executive's base salary.
No incentive compensation was earned or paid under the 1994 Plan for 2000.
For certain executives, an incentive program based on sales volume was approved
for 2000 and three of the Named Executives -- David G. Kreher, Donald E.
Gibbons, Jr. and Steven D. Albright -- received incentive compensation under
this program. Mr. Kreher also received incentive compensation related to his
management
11
of the manufacturing operations of the Company under an incentive program
recommended by the Compensation Committee.
Long-Term Component - Stock Options
The long-term component of compensation provided to executives of the
Company has been in the form of stock options. The Compensation Committee has
recommended to the Board of Directors that a significant portion of the total
compensation to executives be in the form of incentive stock options. Stock
options are granted with an exercise price equal to or greater than the fair
market value of the Company's Common Stock on the date of the grant. Stock
options are exercisable between one and ten years from the date granted. Such
stock options provide incentive for the creation of shareholder value over the
long-term since the full benefit of the compensation package for an executive
cannot be realized unless an appreciation in the price of the Company's Common
Stock occurs over a specified number of years.
The magnitude of the stock option awards is determined annually by the
Compensation Committee and the Board of Directors. Generally, the relative
number of options granted to an executive has been based on the relative salary
level of the executive.
On December 4, 1995, options to purchase 220,000, 92,400, 70,400, 11,000
and 5,500 shares of the Company's Common Stock were granted to Messrs.
Montgomery, Hastings, Kreher, and Gibbons, and Albright respectively, under the
1995 Stock Option Plan (the "1995 Plan"). These options expired on December 4,
2000. On December 18, 1997, options to purchase 50,000 and 5,000 shares of the
Company's Common Stock were granted to Messrs. Gibbons and Albright,
respectively. On December 30, 1998, options to purchase 75,000, 65,000, and
55,000 shares of the Company's Common Stock were issued to Messrs. Montgomery,
Hastings, and Kreher respectively. On December 15, 1999, options to purchase
200,000, 140,000, 125,000, 50,000 and 20,000 shares of the Company's Common
Stock were granted to Messrs. Montgomery, Hastings, Kreher, Gibbons and
Albright, respectively, under the 1999 Stock Option Plan (the "1999 Plan"). In
addition to the incentive stock options that were issued in 1999, non-qualified
stock options to purchase 250,800, 105,600, and 83,600 shares of the Company's
Common Stock were granted in 1999 to Messrs. Montgomery, Hastings, and Kreher,
respectively, to replace incentive stock options that were previously issued in
1994 and expired in December 1999 unexercised. These options were issued as part
of the overall compensation plan for these executives and are consistent with
Ernst & Young LLP's report and recommendations. At present, options have been
granted under the Company's 1999 Plan to purchase substantially all of the
shares of Common Stock authorized for issuance under the 1999 Plan.
CEO Compensation
The Compensation Committee utilizes the same standards and methods for
recommending annual base compensation for the Chief Executive Officer of the
Company as it does for other senior executive officers of the Company.
In 1997, the Company entered into an Employment Agreement with Robert L.
Montgomery, Chief Executive Officer of the Company, providing that Mr.
Montgomery's base annual compensation would not be less than $485,000. During
the period 1996 through 1998, the Company experienced increasing sales and
profits and Mr. Montgomery's base annual compensation was
12
increased to $642,625 in 1998. During mid-1999, in light of results of operation
of the Company through June 30, 1999, the Compensation Committee recommended,
and Mr. Montgomery agreed, along with other senior executive officers of the
Company, to reduce his annual rate of compensation by 20% for the balance of
1999, resulting in an overall annual base compensation during 1999 of $589,073.
In mid-2000, the annualized base rate of Mr. Montgomery's compensation was
increased by one-half of the amount of the reduction taken in 1999. In 2000, no
annual incentive compensation was paid to Mr. Montgomery.
The Compensation Committee recommended that Mr. Montgomery (and other
senior executives of the Company), receive incentive stock options, consistent
with observed market practices, so that a significant portion of his total
compensation will be based upon, and consistent with, returns to shareholders.
Mr. Montgomery was granted incentive options to purchase up to 200,000 shares of
the Company's Common Stock in 1999 and 75,000 shares in 1998. In addition, Mr.
Montgomery was granted non-qualified stock options to purchase up to 250,800
shares of the Company's Common Stock in 1999 to replace incentive stock options
that had expired unexercised. In 2000, no stock options were granted to Mr.
Montgomery by the Company.
Compensation Committee:
Donald L. McCain, John B. Akin, Stephen M. Merrick
Compensation Committee Interlocks and Insider Participation
Stephen M. Merrick, a member of the Compensation Committee, is a Senior
Vice President of the Company. Mr. Merrick is a principal of the law firm of
Merrick & Klimek, P.C., which has served as General Counsel to the Company and
its subsidiaries since December 1, 1998. During the year ended December 31,
2000, the aggregate amounts paid or incurred by the Company to Merrick & Klimek,
P.C. for services to the Company and its subsidiaries was $269,000.
Comparative Stock Price Performance Graph
The following graph compares, for the period January 1, 1996 to December
31, 2000, the cumulative total return (assuming reinvestment of dividends) on
the Company's Common Stock with (i) NASDAQ Stock Market Index (U.S.) and (ii) a
peer group including the following companies: Herbalife International, Inc.,
Nature's Sunshine Products, Inc., Nutrition For Life International, Inc., Rexall
Showcase International, Inc. and USANA Health Sciences, Inc. The peer group
consists of other companies marketing nutritional products through direct sales.
The graph assumes an investment of $100 on January 1, 1996, in the Company's
Common Stock and each of the other investment categories.
13
TOTAL SHAREHOLDER RETURNS
[THE FOLLOWING CHART IS REPRESENTED BY A LINE GRAPH]
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index Dec96 Dec97 Dec98 Dec99 Dec00
- ------------------------------------------------------------------------------------------
RELIV INTERNATIONAL INC 195.24 -46.96 -30.80 -49.75 21.24
NASDAQ US INDEX 23.04 22.48 41.02 85.85 -39.82
PEER GROUP 94.96 36.50 -45.05 -23.78 -39.80
INDEXED RETURNS
Base Years Ending
Period
Company Name / Index Dec95 Dec96 Dec97 Dec98 Dec99 Dec00
- ------------------------------------------------------------------------------------------
RELIV INTERNATIONAL INC 100 295.24 156.60 108.37 54.46 66.03
NASDAQ US INDEX 100 123.04 150.69 212.51 394.94 237.68
PEER GROUP 100 194.96 266.11 146.24 111.47 67.10
Peer Group Companies
- --------------------------------------------------------------------------------
ADVANCED NUTRACEUTICALS INC (FORMERLY NUTRITION FOR LIFE INTL)
HERBALIFE INTL INC -CL A
NATURES SUNSHINE PRODS INC
REXALL SUNDOWN INC
USANA HEALTH SCIENCES INC
The historical stock prices of the Company's Common Stock shown on the
above graph is not necessarily indicative of future price performance.
On March 8, 1993, the Company's Common Stock was listed on The Emerging
Company Marketplace of the American Stock Exchange (AMEX) and, in July 1993,
graduated to the main board of the AMEX. On September 6, 1996, the Company moved
the listing of its Common Stock to the NASDAQ National Market Tier of the NASDAQ
Stock Market. Per share value as of December 31, 1995, 1996, 1997, 1998, 1999
and 2000 is based on the Common Stock's closing price as of such date.
The information under this heading and under the heading "Compensation
Committee Report on Executive Compensation" shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 and shall not otherwise be deemed filed under
such Acts.
Employment Agreements
In June, 1997, the Company entered into an Employment Agreement with Robert
L. Montgomery replacing a prior agreement. The Agreement is for a term of six
years commencing
14
on January 1, 1997, and provides for Mr. Montgomery to receive base annual
compensation during the term of not less than $485,000. Mr. Montgomery is also
to participate in the annual incentive compensation and the long-term incentive
compensation plans of the Company adopted in April, 1994, the Company's stock
option plan and such other compensation plans as the Company may from time to
time have for executives of the Company. In the event of Mr. Montgomery's death
during the term of the Agreement, payments equal to his total compensation under
the Agreement will be made to his heirs for a period of six months. The
Agreement also allows Mr. Montgomery the option, upon reaching age 60, to reduce
his level of service to the Company by approximately one-half with a
corresponding decrease in position and compensation. Mr. Montgomery also has the
option upon reaching age 60 to terminate his active service, and continue in a
consulting capacity. The term of the consulting period shall be 10 years and Mr.
Montgomery will receive approximately 20% of his prior annual compensation as a
consulting fee. The Agreement includes the obligation of Mr. Montgomery to
maintain the confidentiality of confidential information of the Company and
contains a covenant of Mr. Montgomery not to compete with the Company.
In June, 1997, the Company entered into an Employment Agreement with Dr.
Hastings replacing a prior agreement. The Agreement is for a period of six years
commencing on January 1, 1997, and provides for Dr. Hastings to receive base
annual compensation during the term of not less than $275,000. Dr. Hastings is
also to participate in the annual incentive compensation and long-term incentive
compensation plans of the Company adopted in April, 1994, the Company's stock
option plan and such other compensation plans as the Company may from time to
time have for executives of the Company. In the event of Dr. Hastings' death
during the term of the Agreement, payments equal to his total compensation under
the Agreement will be made to his heirs for a period of six months. The
Agreement also allows Dr. Hastings the option, upon reaching age 60, to reduce
his level of service to the Company by approximately one-half with a
corresponding decrease in position and compensation. Dr. Hastings also has the
option upon reaching age 60 to terminate his active service, and continue in a
consulting capacity. The term of the consulting period shall be 10 years and Dr.
Hastings will receive approximately 20% of his prior annual compensation as a
consulting fee. The Agreement includes the obligation of Dr. Hastings to
maintain the confidentiality of confidential information of the Company and to
assign to the Company any and all inventions made or conceived by him during the
term of the agreement and a covenant of Dr. Hastings not to compete with the
Company.
In April, 1994, the Company entered into an Employment Agreement with David
G. Kreher, Senior Vice President and Chief Operating Officer, effective from
January 1, 1994. The initial term of the Agreement expired December 31, 1996,
thereafter automatically renewing for one year terms. The Agreement provides for
Mr. Kreher to receive base annual compensation of not less than $125,000. Mr.
Kreher is also to participate in the annual incentive compensation and long-term
incentive compensation plans of the Company adopted in April, 1994, the
Company's stock option plan and such other compensation plans as the Company may
from time to time have for executives of the Company. In the event of Mr.
Kreher's death during the term of the Agreement, payments equal to his total
compensation under the Agreement will be made to his heirs for a period of six
months. The Agreement includes the obligation of Mr. Kreher to maintain the
confidentiality of confidential information of the Company.
In March, 1997, the Company entered into Split Dollar Agreements with
Robert L. Montgomery, Carl W. Hastings, David G. Kreher and Donald E. Gibbons,
whereby the Company
15
pays the premiums on life insurance policies covering these executive's lives.
Upon the death of an executive, the Company shall be entitled to receive the
greater of (i) one-third of the insurance proceeds, (ii) the cash surrender
value of the policy and (iii) the total premiums paid under the policy, with the
executive receiving the balance of the insurance proceeds. On termination of the
Agreement prior to an executive's death, the executive shall have the right to
purchase the policy for the greater of (i) the cash surrender value of the
policy and (ii) the total premiums paid under the policy. The policy amounts are
$3,124,000 for Mr. Montgomery, $1,770,000 for Dr. Hastings, $750,000 for each of
Messrs. Kreher and Gibbons, and $500,000 for Mr. Albright.
In March, 1997, the Company entered into Salary Continuation Plan
Agreements with David G. Kreher, Donald E. Gibbons Jr. and Steven D. Albright.
The Agreements provide for continuation of these executive's salaries upon
termination of employment or retirement, after these executives have reached the
age of 55 and have been employed by the Company for 15 years. Salary
continuation payments are also made in the event the executive is terminated
prior to reaching these thresholds for other than cause as defined in the
Agreements. Payments are to be made for a period of 10 years and the amount of
the payments are based on the executive's age at time of retirement or
termination of employment.
Compensation of Directors
Members of the Board of Directors who were not employees of the Company
received $900 per attendance at meetings of the Board of Directors and
Committees thereof. Members of the Management Committee who were not employees
of the Company also received compensation of $1,000 per month for their services
and $2,000 per attendance at meetings of the Board of Directors or any
Committees of the Board. On any date at which a Board member attends more than
one meeting of the Board or Committee of the Board, the attendance fee is 150%
of the basic attendance fee. In addition to the options issued to the Named
Executives as described above, during fiscal 2000 options were issued to Mr.
McCain (50,000 shares).
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ Stock Market. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no Form 5's were required, the Company
believes that during calendar year 2000, all Section 16(a) filing requirements
applicable to the officers, directors and ten percent beneficial owners were
complied with.
Board of Directors Affiliations and Related Transactions
As of December 31, 2000, Mr. Montgomery owed the Company $59,250 as a
balance remaining on overpayments of incentive compensation. During 2000, the
highest balance owed to the Company was $164,250. This balance was comprised of
a loan for $75,000 taken out against a corporate life insurance policy and a
balance of $89,250 on the incentive compensation
16
overpayment. During 2000, the insurance loan was repaid and $30,000 was repaid
towards the incentive compensation advance.
No other executives had a balance due to the Company in excess of $60,000
during the year.
PROPOSAL TWO -APPROVAL OF THE 2001 STOCK OPTION PLAN
General
In the opinion of the Board of Directors, the Company and its stockholders
will benefit substantially from having certain officers and key employees
acquire shares of the Company's Common Stock pursuant to options granted under
the Company's 2001 Stock Option Plan. Such options, in the opinion of the Board,
will be a highly effective incentive, and will create a commonality of purpose
between the Company's officers and key employees and its shareholders with
respect to the Company's strategies for profitable growth and share-value
appreciation. In the opinion of the Board, the Company's ability to provide
these stock options to its officers and other key employees in the future will
benefit the Company's long-term financial performance. In addition, the Board
believes the interests of the Company would be served if options could be
granted to consultants, advisors and other individuals who can contribute to the
success of the Company's business. The Board of Directors previously adopted the
Company's 1999 Stock Option Plan. Virtually all of the 1,000,000 shares of
Common Stock that were authorized for issuance under that plan have been
exhausted. Accordingly, the Board of Directors believes it is in the Company's
best interests to adopt a new stock option plan which, if adopted, will
authorize the Company to award stock options to its officers and other key
employees and permit the Company to offer options pursuant to the plan to
certain consultants and advisors.
The Plan and Participants
On March 22, 2001, the Board of Directors approved for adoption the 2001
Stock Option Plan (the "Plan") which enables the Company to grant "incentive
stock options," as defined under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options. The Plan
authorizes the grant of options to purchase up to an aggregate of 1,000,000
shares of the Company's Common Stock, to (i) officers and other full-time
salaried employees of the Company and its subsidiaries with managerial,
professional or supervisory responsibilities and (ii) consultants and advisors
who render bona fide services to the Company and its subsidiaries, in each case,
where the Committee determines that such officer, employee, consultant or
advisor has the capacity to make a substantial contribution to the success of
the Company. As used herein with respect to the Plan, references to the Company
include subsidiaries of the Company.
The purposes of the Plan are to enable the Company to attract and retain
persons of ability as officers and other key employees with managerial,
professional or supervisory responsibilities, to retain able consultants and
advisors, and to motivate such persons to use their best efforts on behalf of
the Company by providing them with an equity participation in the Company. The
full text of the Plan is set forth in Appendix B hereto, and the following
description is qualified in its entirety by reference to Appendix B.
The Plan will be administered by the Company's Board of Directors or a
Committee, which will be appointed by the Company's Board of Directors and must
consist of two or more members of the Board of Directors, each of whom must be a
non-employee Director within the meaning of
17
Rule 16b-3 under the Securities Exchange Act of 1934. Under the terms of the
Plan, the Committee will have the authority to determine, subject to the terms
and conditions of the Plan, and the persons to whom options are granted, the
number of options granted to each optionee and the terms and conditions of each
option, including its duration.
The Plan can be amended, suspended, reinstated or terminated by the Board
of Directors; provided, however, that without approval of the Company's
shareholders, no amendment shall be made which (i) increases the maximum number
of shares of Common Stock which may be subject to stock options granted under
the Plan, except for specified adjustment provisions, (ii) extends the term of
the Plan (iii) increases the period during which a stock option may be exercised
beyond ten years from the date of the grant, (iv) materially increases the
benefits accruing to optionees under the Plan, (v) materially modifies the
requirements as to eligibility for participation in the Plan or (vi) will cause
stock options granted under the Plan to fail to meet the requirements of Rule
16(b)-3. Unless previously terminated by the Board of Directors, the Plan will
terminate on March 22, 2011, and no additional options may be granted under the
Plan after that date.
Option Terms and Grants
Stock options may be granted to purchase Common Stock under the Plan at not
less than the fair market value of the shares as of the date of grant (or 110%
of fair market value in the case of incentive stock options granted to any
officer or employee holding in excess of 10% of the combined voting power of all
classes of the Company's Common Stock as of the date of grant). No optionee may
be granted incentive stock options under the Plan to purchase Common Stock
having a fair market value (determined as of the date of grant) which exceeds
$100,000 with respect to incentive stock options which are exercisable for the
first time by such optionee in any calendar year, under all stock option plans
of the Company as of the date of grant. The maximum number of shares for which
options may be issued to an employee of the Company during any calendar year may
not exceed 100,000. Other than the limitations set forth above, there is no
limitation on the number of non-qualified stock options which may be granted to
any optionee pursuant to the Plan.
Incentive stock options may be granted for a term of up to five years in
the case of optionees who own in excess of 10% of the combined voting power of
all classes of the Company's Common Stock and up to ten years, in the
Committee's sole discretion, in the case of all other optionees. Non-qualified
stock options may be granted for a term of up to ten years.
The Plan provides that if a stock option or portion thereof expires or is
terminated, canceled or surrendered for any reason without being exercised in
full, the unpurchased shares of Common Stock which were subject to such stock
option or portion thereof shall be available for future grants of stock options
under the Plan.
Pursuant to the terms of the Plan, the option price for all options must be
paid in cash, by check, bank draft or money order, with Common Stock of the
Company owned by the optionee and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares to be so purchased,
or a combination thereof.
As of the date hereof, no options have been granted pursuant to the Plan.
Options granted pursuant to the Plan will not be assignable or transferable
except by will or the laws on intestate succession. Options acquired pursuant to
the Plan may be exercised by the
18
optionee (or the optionee's legal representative) only while the optionee is
employed by the Company, or within six months after termination of employment
due to a permanent disability, or within three months after termination of
employment due to retirement. The executor or administrator of a deceased
optionee's estate or the person or persons to whom the deceased optionee's
rights thereunder have passed by will or by the laws of descent or distribution
shall be entitled to exercise the option within the sixth months after the
decedent's death. Options expire immediately in the event an optionee is
terminated with or without cause or resigns; provided, however, in the event the
Company terminates the employment of an optionee who at the time of such
termination was an officer of the Company and had been continuously employed by
the Company during the two year period immediately preceding such termination,
for any reason except "good cause" (as defined in the Plan), each stock option
held by such optionee (which had not then previously lapsed or terminated and
which had been held by such optionee for more than six (6) months prior to such
termination) shall be exercisable for a period of three months after such
termination to the extent otherwise exercisable during that period. All of the
aforementioned exercise periods set forth in this paragraph are subject to the
further limitation that an option shall not, in any case, be exercisable beyond
its stated expiration date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted pursuant to the Plan, and the number of shares
which may be granted pursuant to the Plan, are subject to adjustment in certain
events, including stock splits, recapitalization and reorganizations.
Federal Tax Aspects of the Plan
Set forth below is a general summary of the federal income tax consequences
associated with the Plan.
An employee will not be deemed to have received income upon the grant of an
incentive stock option or, except as noted below, upon the exercise of such
option. Unless shares acquired upon exercise are disposed of within two years of
the date of grant or within one year of exercise, upon the sale of such shares,
the optionee will generally recognize capital gain or loss measured by the
difference between the amount realized on the sale and the price paid for the
shares. If a sale is made prior to either of such dates, an optionee's gain on
the sale of the shares will be treated as ordinary income to the extent of the
lesser of the excess of the fair market value of the shares at the time of
exercise over the option price and the excess of the amount realized on the sale
of stock over the option price. The Company will be allowed a deduction at the
time of sale in the amount of ordinary income recognized by the optionee. The
balance of any gain realized will be treated as long-term or short-term capital
gain depending upon the length of time the shares were held by the optionee.
Generally, the excess of the fair market value of an incentive stock option
at the time of exercise (or, if the stock subject to the option is restricted
within the meaning of Code Section 83, at such time as the shares become
transferable or are not longer subject to a substantial risk of forfeiture) over
the option price constitutes an item of tax preference for purposes of
calculating "alternative minimum taxable income" and may result in imposition of
the "alternative minimum tax" for the participant pursuant to Section 55 of the
Code.
Non-qualified options granted under the Plan are not intended to qualify
for the favorable federal income tax treatment accorded to incentive stock
options under the Plan. An optionee should
19
not recognize any income for federal income tax purposes at the time of the
grant of non-qualified options under the Plan. When non-qualified options are
exercised, however, the excess of the fair market value of the shares of Common
Stock acquired pursuant to such exercise, determined at the time of exercise,
over the option price will constitute ordinary income to the optionee. Subject
to applicable limitations, the Company is entitled to a corresponding income tax
deduction equal to the amount of such ordinary income for the taxable year in
which the optionee is required to recognize such income for federal income tax
purposes.
Vote Required for Approval of the Plan
The Company's Board of Directors has approved the Plan. However, the Plan
will not be adopted unless the holders of at least a majority of the shares of
Common Stock present or represented at the meeting and entitled to vote thereon
vote "FOR" approval of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PLAN.
PROPOSAL THREE - SELECTION OF AUDITORS
The Board of Directors have selected and approved Ernst & Young LLP as the
principal independent auditor to audit the financial statements of the Company
for 2001, subject to ratification by the shareholders. It is expected that a
representative of the firm of Ernst & Young LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE FOR "FOR" SUCH
RATIFICATION.
Stockholder Proposals for 2002 Proxy Statement
Proposals by shareholders for inclusion in the Company's Proxy Statement
and form of Proxy relating to the 2002 Annual Meeting of stockholders, which is
scheduled to be held on May 23, 2002, should be addressed to the Secretary,
Reliv' International, Inc., 136 Chesterfield Industrial Boulevard, P.O. Box 405,
Chesterfield, Missouri 63006-0405, and must be received at such address no later
than December 20, 2001. Upon receipt of any such proposal, the Company will
determine whether or not to include such proposal in the Proxy Statement and
Proxy in accordance with applicable law. It is suggested that such proposal be
forwarded by certified mail, return receipt requested.
20
Other Matters to Be Acted Upon at the Meeting
The management of the Company knows of no other matters to be presented at
the meeting. Should any other matter requiring a vote of the shareholders arise
at the meeting, the persons named in the proxy will vote the proxies in
accordance with their best judgment.
BY ORDER OF THE
BOARD OF DIRECTORS
Dated: April 19, 2001
-----------------------------
Stephen M. Merrick, Secretary
21
APPENDIX A
AUDIT COMMITTEE CHARTER
OF RELIV' INTERNATIONAL, INC.
1. Organization
There shall be a committee of the Board of Directors of Reliv'
International, Inc. (the "Company") to be known as the Audit Committee. This
charter (the "Charter") shall govern the operations of the Audit Committee. The
Committee shall review and reassess the adequacy of this Charter at least
annually, and shall submit any revisions to this Charter to the Board of
Directors for their approval. The Audit Committee shall be composed of at least
three (3) directors who are independent of the management of the Company. A
director shall be deemed independent if he is free of any relationship that, in
the opinion of the Board of Directors, would interfere with exercise of
independent judgment as a Committee member. To ensure that an Audit Committee
member satisfies the definition of "independent" according to Nasdaq's
Marketplace Rules, an Audit Committee member may not:
o have been employed by the Company or its affiliates in the current or
past three years;
o have accepted any compensation from the Company or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary compensation);
o have an immediate family member who is, or has been in the past three
years, employed by the Company or its affiliates as an executive
officer;
o have been a partner, controlling shareholder or an executive officer
of any for-profit business to which the Company made, or from which it
received, payments (other than those which arise solely from
investments in the Company's securities) that exceed five percent of
the organization's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years; or
o have been employed as an executive of another entity where any of the
Company's executives serve on that entity's Compensation Committee.
All Audit Committee members shall be able to read and understand fundamental
financial statements, including but not limited to balance sheets, income
statements and cash flow statements. At least one Audit Committee member shall
have past employment experience in finance or accounting, a requisite
professional certification in accounting, or other comparable experience or
background which results in said director's sophistication in financial matters.
2. Statement of Policy
The Audit Committee shall provide assistance to the Company's directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting and financial reporting
practices of the Company, and the quality and integrity of the financial reports
of the Company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the
Company. In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities, and counsel or other experts for this purpose.
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3. Responsibilities and Processes
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. In carrying out its
responsibilities, the Audit Committee believes its policies and procedures
should remain flexible, in order to best react to changing conditions and to
ensure to the directors and shareholders that the corporate accounting and
reporting practices of the Company are in accordance with all applicable
requirements and are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
3.1 Provide an open avenue of communication between the independent
auditor, the internal auditor, management and the Board of Directors. The
Committee shall have a clear understanding with management and the independent
auditors that the independent auditors are ultimately accountable to the Board
and the Audit Committee.
3.2 Meet at least one time per year or more frequently as circumstances
require. The Audit Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
3.3 Review and recommend to the Directors the independent auditors to be
selected to audit the financial statements of the Company, and approve the
compensation of the independent auditors. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace the
independent auditors (or to nominate the independent auditor to be proposed for
shareholder approval in any proxy statement).
3.4 Review and concur in the appointment, replacement, reassignment or
dismissal of the internal auditor.
3.5 Confirm and assure the independence of the independent auditors. The
Audit Committee has the responsibility for ensuring its receipt from the
independent auditors of a formal written statement delineating all relationships
between the auditors and the Company. The Audit Committee also has the
responsibility for actively engaging in a dialogue with the independent auditors
with respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor and for taking, or
recommending that the full Board take appropriate action to oversee the
independence of the independent auditors.
3.6 Meet with the independent auditors and internal auditors to review the
scope of the proposed audit for the current year and the audit procedures to be
utilized, and at the conclusion thereof review such audit, including any
comments or recommendations of the independent or internal auditors.
3.7 Review with the independent auditors and the internal auditor(s) the
adequacy and effectiveness of the accounting and financial controls of the
Company, and elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed controls or
procedures are desirable. The Audit Committee should also review
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with the independent and internal auditors the coordination of audit efforts to
assure completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
3.8 Inquire of management, the internal auditor(s), and the independent
auditors about significant business risks or exposures and assess the steps
management has taken to minimize such risk to the Company.
3.9 Review with management, the independent auditors and the internal
auditor(s) the interim financial report prior to the filing of the quarterly
report on Form 10-Q. The Audit Committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the Audit
Committee by the independent auditors under generally accepted auditing
standards. The Chairman of the Audit Committee may represent the entire Audit
Committee for purposes of this review.
3.10 The Audit Committee shall review with management, the independent
auditors and the internal auditor(s) the financial statements to be included in
the Annual Report on Form 10-K, including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the Audit Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Audit Committee by the independent
auditors under generally accepted auditing standards.
3.11 Review with the Board of Directors and the independent auditors at the
completion of the annual examination:
(a) The Company's annual financial statements and related footnotes;
(b) The independent auditor's audit of the financial statements and
his report thereon;
(c) Any significant changes required in the independent auditor's
audit plan;
(d) Any serious difficulties or disputes with management encountered
during the course of the audit; and
(e) Other matters relating to the conduct of the audit which are to be
communicated to the Audit Committee under generally accepted auditor
standards.
3.12 Consider and review with management and the internal auditor(s):
(a) Significant findings during the year and management's responses
thereto;
(b) Any difficulties encountered in the course of their audits,
including any restrictions on the scope of their work or access to required
information;
(c) Any changes required in the planned scope of their audit plan;
(d) The internal auditing department budget and staffing; and
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(e) Internal auditing's compliance with appropriate accounting
standards.
3.13 Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Audit Committee with and without
members of management present to discuss results of examinations. Among the
items to be discussed in these meetings are the independent auditors' evaluation
of the Company's financial, accounting, and auditor personnel, and the
cooperation that the independent auditors received during the course of the
audit.
3.14 Review legal and regulatory matters that may have a material impact on
the financial statements, related company compliance policies, and programs and
reports received from regulators.
3.15 Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the Board of
Directors.
3.16 Investigate any matter brought to its attention within the scope of
its duties.
3.17 Report Committee actions to the Board of Directors with such
recommendations as the Audit Committee may deem appropriate.
3.18 The duties and responsibilities of a member of the Audit Committee are
in addition to those duties set out for a member of the Board of Directors.
Effective this 5th day of June, 2000, by order of this Company's Board of
Directors.
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Stephen M. Merrick, Secretary
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APPENDIX B
RELIV' INTERNATIONAL, INC.
2001 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of the Reliv' International, Inc. 2001 Stock Option Plan (the
"Plan") are to enable the Company to attract and retain the services of officers
and other key employees with managerial, professional or supervisory
responsibilities, to retain able consultants and advisors and to motivate such
persons to use their best efforts on behalf of the Company.
2. GENERAL PROVISIONS
2.1 Definitions
As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, including any and all
amendments thereto.
(c) "Committee" means the committee appointed by the Board of Directors
from time to time to administer the Plan pursuant to Section 2.2.
(d) "Common Stock" means the Company's Common Stock, no par value.
(e) "Fair Market Value" means, with respect to a specific date, the value
of the Common Stock as determined in good faith by the Committee on
the basis of such quotations and other considerations as the Committee
deems appropriate.
(f) "Incentive Stock Option" means an option granted under the Plan which
is intended to qualify as an incentive stock option under Section 422
of the Code.
(g) "NASDAQ" means the NASDAQ Stock Market.
(h) "Non-Qualified Stock Option" means an option granted under the Plan
which is not an Incentive Stock Option.
(i) "Participant" means a person to whom a Stock Option has been granted
under the Plan.
(j) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended from time to time, or any successor
rule.
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(k) "Stock Option" means an Incentive Stock Option or a Non-Qualified
Stock Option granted under the Plan.
(l) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of the Stock Option, each of the corporations
other than the last corporation in the unbroken chain owns 50% or more
of the total voting power of all classes of stock in one of the other
corporations in such chain.
2.2 Administration of the Plan
(a) The Plan shall be administered by the Board of Directors or a
Committee appointed by the Board of Directors, which Committee shall
at all times consist of two (2) or more persons, each of whom shall be
a member of the Board of Directors. Each member of the Committee shall
be a non-employee director (as such term is defined in Rule 16b-3).
The Board of Directors may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, howsoever
caused, shall be filled by the Board of Directors. The Committee shall
select one of its members as Chairman, and shall hold meetings at such
times and places as it may determine.
(b) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan and
Stock Options granted under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in
and revoke such rules and regulations (and in the exercise of this
power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan or any agreement evidencing the grant of any
Stock Option in a manner and to the extent it shall deem necessary to
make the Plan fully effective); (iii) determine those persons to whom
Stock Options shall be granted and the number of Stock Options to be
granted to any person; (iv) determine the terms of Stock Options
granted under the Plan, consistent with the provision of the Plan; and
(v) generally, exercise such powers and perform such acts in
connection with the Plan as are deemed necessary or expedient to
promote the best interests of the Company. The interpretation and
construction by the Committee of any provision of the Plan or of any
Stock Option shall be final, binding and conclusive.
(c) The Committee may act only by a majority of its members then in
office; however, the Committee may authorize any one (1) or more of
its members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in
good faith with respect to the Plan, and the Company shall indemnify
and hold harmless each member of the Committee against any cost or
expense (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Committee) arising
out of any act or omission in connection with the administration or
interpretation of the Plan, unless arising out of such person's own
fraud or bad faith.
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2.3 Effective Date
The Plan shall become effective upon its adoption by the Board of
Directors, and Stock Options may be granted upon such adoption and from time to
time thereafter, subject, however, to approval of the Plan by affirmative vote
of the holders of the shares of the Common Stock, within 12 months after the
adoption of the Plan by the Board of Directors. If the Plan is not approved at
such annual or special meeting or at any adjournments thereof, this Plan and all
Stock Options previously granted thereunder shall become null and void.
2.4 Duration
If approved by the shareholders of the Company, as provided in Section 2.3,
unless sooner terminated by the Board of Directors, the Plan shall remain in
effect for a period of ten (10) years following its adoption by the Board of
Directors.
2.5 Shares Subject to the Plan
The maximum number of shares of Common Stock which may be subject to Stock
Options granted under the Plan shall be 1,000,000. The Stock Options shall be
subject to adjustment in accordance with Section 4.1, as appropriate, and shares
to be issued upon exercise of Stock Options may be either authorized and
unissued shares of Common Stock or authorized and issued shares of Common Stock
purchased or acquired by the Company for any purpose. If a Stock Option or
portion thereof shall expire or is terminated, cancelled or surrendered for any
reason without being exercised in full, the unpurchased shares of Common Stock
which were subject to such Stock Option or portion thereof shall be available
for future grants of Stock Options under the Plan.
2.6 Amendments
The Plan may be suspended, terminated or reinstated, in whole or in part,
at any time by the Board of Directors. The Board of Directors may from time to
time make such amendments to the Plan as it may deem advisable, including, with
respect to Incentive Stock Options, amendments deemed necessary or desirable to
comply with Section 422 of the Code and any regulations issued thereunder;
provided, however, that without the approval of the Company's shareholders no
amendment shall be made which:
(a) Increases the maximum number of shares of Common Stock which may be
subject to Stock Options granted under the Plan (other than as
provided in Section 4.1, as appropriate); or
(b) Extends the term of the Plan; or
(c) Increases the period during which a Stock Option may be exercised
beyond ten (10) years from the date of grant; or
(d) Otherwise materially increases the benefits accruing to Participants
under the Plan;
(e) Materially modifies the requirements as to eligibility for
participation in the Plan; or
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(f) Will cause Stock options granted under the Plan to fail to meet the
requirements of Rule 16b-3.
Except as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's rights
under any Stock Options previously granted to such Participant.
2.7 Participants and Grants
Stock Options may be granted by the Committee to (i) officers and other
salaried employees of the Company and its Subsidiaries with managerial,
professional or supervisory responsibilities and (ii) consultants and advisors
who render bona fide services to the Company and its Subsidiaries, in each case,
where the Committee determines that such officer, employee, consultant or
advisor has the capacity to make a substantial contribution to the success of
the Company. The Committee may grant Stock Options to purchase such number of
shares of Common Stock (subject to the limitations of Sections 2.5, 3.6 and 3.9)
as the Committee may, in its sole discretion, determine. In granting Stock
Options under the Plan, the Committee, on an individual basis, may vary the
number of Incentive Stock Options or Non-Qualified Stock Options as between
Participants and may grant Incentive Stock Options and/or Non-Qualified Stock
Options to a Participant in such amounts as the Committee may determine in its
sole discretion.
3. STOCK OPTIONS
3.1 General
All Stock Options granted under the Plan shall be evidenced by written
agreements executed by the Company and the Participant to whom granted, which
agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from time to
time determine, or, in the case of Incentive Stock Options, as may be required
by Section 422 of the Code, or any other applicable law.
3.2 Price
Subject to the provisions of Section 3.6(d) and 4.1, the purchase price per
share of Common Stock subject to a Stock Option shall, in no case, be less than
one hundred percent (100%) of the Fair Market Value of a share of Common Stock
on the date the Stock Option is granted.
3.3 Period
The duration or term of each Stock Option granted under the Plan shall be
for such period as the Committee shall determine but in no event more than ten
(10) years from the date of grant thereof.
3.4 Exercise
Subject to Section 4.4, Stock Options may be exercisable immediately upon
granting of the Stock Option or at such other time or times as the Committee
shall specify when granting the Stock Option. Once exercisable, a Stock Option
shall be exercisable, in whole or in part, by delivery of
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a written notice of exercise to the Secretary of the Company at the principal
office of the Company specifying the number of shares of Common Stock as to
which the Stock Option is then being exercised together with payment of the full
purchase price for the shares being purchased upon such exercise. Until the
shares of Common Stock as to which a Stock Option is exercised are issued, the
Participant shall have none of the rights of a shareholder of the Company with
respect to such shares.
3.5 Payment
The purchase price for shares of Common Stock as to which a Stock Option
has been exercised and any amount required to be withheld, as contemplated by
Section 4.3, may be paid:
(a) In United States dollars in cash, or by check, bank draft or money
order payable in United States dollars to the order of the Company; or
(b) By the delivery by the Participant to the Company of whole shares of
Common Stock having an aggregate Fair Market Value on the date of
payment equal to the aggregate of the purchase price of Common Stock
as to which the Stock Option is then being exercised or by the
withholding of whole shares of Common Stock having such Fair Market
Value upon the exercise of such Stock Option; or
(c) By a combination of both (a) and (b) above.
The Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay the
purchase price payable by such Participant upon the exercise of a Stock Option.
3.6 Special Rules for Incentive Stock Options
Notwithstanding any other provision of the Plan, the following provisions
shall apply to Incentive Stock Options granted under the Plan:
(a) Incentive Stock Options shall only be granted to Participants who are
employees of the Company or its Subsidiaries.
(b) To the extent that the aggregate Fair Market Value of Common Stock,
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant during any calendar year under this Plan
and any other Plan of the Company or a Subsidiary exceeds $100,000,
such Stock Options shall be treated as Non-Qualified Stock Options.
(c) Any Participant who disposes of shares of Common Stock acquired upon
the exercise of an Incentive Stock Option by sale or exchange either
within two (2) years after the date of the grant of the Incentive
Stock Option under which the shares were acquired or within one (1)
year of the acquisition of such shares, shall promptly notify the
Secretary of the Company at the principal office of the Company of
such disposition, the amount realized, the purchase price per share
paid upon the exercise and the date of disposition.
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(d) No Incentive Stock Option shall be granted to a Participant who, at
the time of the grant, owns stock representing more than ten percent
(10%) of the total combined voting power of all classes of stock
either of the Company or any parent or Subsidiary of the Company,
unless the purchase price of the shares of Common Stock purchasable
upon exercise of such Incentive Stock Option is at least one hundred
ten percent (110%) of the Fair Market Value (at the time the Incentive
Stock Option is granted) of the Common Stock and the Incentive Stock
Option is not exercisable more than five (5) years from the date it is
granted.
3.7 Termination of Employment or Relationship with Company
(a) In the event a Participant's employment by, or relationship with, the
Company shall terminate for any reason other than those reasons
specified in Sections 3.7(b), (c), (d) or (e) hereof while such
Participant holds Stock Options granted under the Plan, then all
rights of any kind under any outstanding Option held by such
Participant which shall not have previously lapsed or terminated shall
expire immediately.
(b) If a Participant's employment by, or relationship with, the Company or
its Subsidiaries shall terminate as a result of such Participant's
total disability, each Stock Option held by such Participant (which
has not previously lapsed or terminated) shall be exercisable by such
Participant for a period of six months after termination but only to
the extent the Option is otherwise exercisable during that period.
Notwithstanding the foregoing, the Committee may in the event of such
disability accelerate the date after which a Stock Option is
exercisable, in whole or in part, which change shall be in the
Committee's sole discretion and be final, binding and conclusive. For
purposes of this paragraph, "total disability" shall mean permanent
mental or physical disability as determined by the Committee.
(c) In the event of the death of a Participant, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
be exercisable by the executor or administrator of the Participant's
estate or by the person or persons to whom the deceased Participant's
rights thereunder shall have passed by will or by the laws of descent
or distribution, for a period of six (6) months after such
Participant's death but only to the extent the Option is otherwise
exercisable during that period. Notwithstanding the foregoing, the
Committee may in the event of such death accelerate the date after
which a Stock Option is exercisable, in whole or in part, which change
shall be in the Committee's sole discretion and be final, binding and
conclusive.
(d) If a Participant's employment by the Company shall terminate by reason
of such Participant's retirement in accordance with Company policies,
each Stock Option held by such Participant at the date of termination
(which has not previously lapsed or terminated) shall be exercisable
for a period of three (3) months after termination, but only to the
extent the Option is otherwise exercisable during that period.
(e) In the event the Company terminates the employment of a Participant
who at the time of such termination was an officer of the Company and
had been continuously employed by the Company during the two (2) year
period immediately preceding such termination, for any reason except
"good cause" (hereafter defined) and except
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upon such Participant's death, total disability or retirement in
accordance with Company policies, each Stock Option held by such
Participant (which has not previously lapsed or terminated and which
has been held by such Participant for more than six (6) months prior
to such termination) shall be exercisable for a period of three (3)
months after such termination, but only to the extent the Option is
otherwise exercisable during that period. A termination for "good
cause" shall be deemed to have occurred only if the Participant in
question (i) is terminated by written notice for dishonesty, because
of his conviction of a felony, or because of his violation of any
material provision of any employment or other agreement with the
Company or any of its Subsidiaries, or (ii) shall voluntarily resign
or terminate his employment with the Company or any of its
Subsidiaries under or followed by such circumstances as would
constitute a breach of any material provision of any employment or
other agreement between him and the Company or any of its
Subsidiaries, or (iii) shall have committed an act of dishonesty not
discovered by the Company or any of its Subsidiaries prior to the
cessation of his employment with the Company or any of its
Subsidiaries, but which would have resulted in his discharge if
discovered prior to such date, or (iv) shall, either before or after
cessation of his employment with the Company or any of its
Subsidiaries, without the written consent of the Company or any of its
Subsidiaries, use (except for the benefit of the Company or any of its
Subsidiaries) or disclose to any other person any confidential
information relating to the business or any trade secrets of the
Company or any of its Subsidiaries obtained as a result of or in
connection with such employment.
3.8 Effect of Leaves of Absence
It shall not be considered a termination of employment when a Participant
is on military or sick leave or such other type leave of absence which is
considered as continuing intact the employment relationship of the Participant
with the Company or any of its Subsidiaries. In case of such leave of absence,
the employment relationship shall be deemed to have continued until the later of
(i) the date when such leave shall have lasted ninety (90) days in duration, or
(ii) the date as of which the Participant's right to employment shall have no
longer been guaranteed either by statute or contract.
3.9 Limitation on Number of Options Granted to Employees
The maximum number of shares for which options may be granted to an
employee of the Company during any calender year shall not exceed 100,000.
4. MISCELLANEOUS PROVISIONS
4.1 Adjustments Upon Changes in Capitalization
(a) In the event of changes to the outstanding shares of Common Stock of
the Company through reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend,
stock consolidation or otherwise, or in the event of a sale of all or
substantially all of the assets of the Company, an appropriate and
proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding
adjustment changing the number or kind of shares
B - 7
and/or the purchase price per share of unexercised Stock Options or
portions thereof which shall have been granted prior to any such
change shall likewise be made.
(b) Notwithstanding the foregoing, in the case of a reorganization, merger
or consolidation, or sale of all or substantially all of the assets of
the Company, in lieu of adjustments as aforesaid, the Committee may in
its discretion accelerate the date after which a Stock Option may or
may not be exercised or the stated expiration date thereof.
Adjustments or changes under this Section shall be made by the
Committee, whose determination as to what adjustments or changes shall
be made, and the extent thereof, shall be final, binding and
conclusive.
4.2 Non-Transferability
No Stock Option shall be transferable except by will or the laws of descent
and distribution, nor shall any Stock Option be exercisable during the
Participant's lifetime by any person other than the Participant or his guardian
or legal representative.
4.3 Withholding
The Company's obligations under this Plan shall be subject to applicable
federal, state and local tax withholding requirements. Federal, state and local
withholding tax due at the time of a grant or upon the exercise of any Stock
Option may, in the discretion of the Committee, be paid in shares of Common
Stock already owned by the Participant or through the withholding of shares
otherwise issuable to such Participant, upon such terms and conditions as the
Committee shall determine. If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company of
all such federal, state and local taxes required to be withheld by the Company,
then the Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to such Participant an amount equal
to any federal, state or local taxes of any kind required to be withheld by the
Company.
4.4 Compliance with Law and Approval of Regulatory Bodies
No Stock Option shall be exercisable and no shares will be delivered under
the Plan except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and state
securities laws and withholding tax requirements and with the rules of NASDAQ
and of all other domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued to evidence shares for which a Stock Option
is exercised may bear legends and statements the Committee shall deem advisable
to assure compliance with federal and state laws and regulations. No Stock
Option shall be exercisable and no shares will be delivered under the Plan,
until the Company has obtained consent or approval from regulatory bodies,
federal or state, having jurisdiction over such matters as the Committee may
deem advisable. In the case of the exercise of a Stock Option by a person or
estate acquiring the right to exercise the Stock Option as a result of the death
of the Participant, the Committee may require reasonable evidence as to the
ownership of the Stock Option and may require consents and releases of taxing
authorities that it may deem advisable.
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4.5 No Right to Employment
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the granting of
any Stock Options hereunder, shall confer upon any Participant under the Plan
any right to continue in the employ of the Company or any Subsidiary, or shall
in any way affect the right and power of the Company or any Subsidiary to
terminate the employment of any Participant at any time with or without
assigning a reason therefore, to the same extent as might have been done if the
Plan had not been adopted.
4.6 Exclusion from Pension Computations
By acceptance of a grant of a Stock Option under the Plan, the recipient
shall be deemed to agree that any income realized upon the receipt or exercise
thereof or upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or "compensation"
in determining the amount of any contribution to or payment or any other benefit
under any pension, retirement, incentive, profit-sharing or deferred
compensation plan of the Company or any Subsidiary.
4.7 Abandonment of Options
A Participant may at any time abandon a Stock Option prior to its
expiration date. The abandonment shall be evidenced in writing, in such form as
the Committee may from time to time prescribe. A Participant shall have no
further rights with respect to any Stock Option so abandoned.
4.8 Severability
If any of the terms or provisions of the Plan conflict with the
requirements of Rule 16b-3, then such terms or provisions shall be deemed
inoperative to the extent they so conflict with the requirements of Rule 16b-3.
4.9 Interpretation of the Plan
Headings are given to the Sections of the Plan solely as a convenience to
facilitate reference, such headings, numbering and paragraphing shall not in any
case be deemed in any way material or relevant to the construction of the Plan
or any provision hereof. The use of the masculine gender shall also include
within its meaning the feminine. The use of the singular shall also include
within its meaning the plural and vice versa.
4.10 Use of Proceeds
Funds received by the Company upon the exercise of Stock Options shall be
used for the general corporate purposes of the Company.
4.11 Construction of Plan
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The place of administration of the Plan shall be in the State of Illinois,
and the validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall be
determined solely in accordance with the laws of the State of Illinois.
BOARD OF DIRECTORS APPROVAL March 22, 2001
SHAREHOLDER APPROVAL
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