-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DNgSpvubFmhbtnWV2Kfo/8WIzCT6UftyXWwM8hY0H4vIo8mWdpkqFuWMo4jybVko dnF/Ulbv79iIxHh0ijuawQ== 0001047469-98-004954.txt : 19980212 0001047469-98-004954.hdr.sgml : 19980212 ACCESSION NUMBER: 0001047469-98-004954 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19980211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAIRE INTERNATIONAL INC CENTRAL INDEX KEY: 0001036915 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841359178 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-46085 FILM NUMBER: 98532293 BUSINESS ADDRESS: STREET 1: 380 LASHLEY ST CITY: LONGMONT STATE: CO ZIP: 80501-6048 BUSINESS PHONE: 3036820110 MAIL ADDRESS: STREET 1: 380 LASHLEY STREET CITY: LONGMONT STATE: CO ZIP: 80501 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ KAIRE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 5122 84-1359178 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
------------------------------ 380 LASHLEY STREET LONGMONT, COLORADO 80501 (303) 682-0110 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ ROBERT L. RICHARDS CHIEF EXECUTIVE OFFICER KAIRE INTERNATIONAL, INC. 380 LASHLEY STREET LONGMONT, COLORADO 80501 (303) 682-0110 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------------ COPIES TO: ROBERT PEREZ, ESQ. JAY M. KAPLOWITZ, ESQ. Gusrae, Kaplan & Bruno Gersten, Savage, Kaplowitz 120 Wall Street & Fredericks, LLP New York, New York 10005 101 East 52nd Street Tel No. (212) 269-1400 New York, New York 10022 Fax No. (212) 809-5449 Tel No. (212) 752-9700 Fax No. (212) 752-9713
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH AMOUNT OFFERING AGGREGATE AMOUNT OF CLASS OF SECURITIES TO BE PRICE OFFERING REGISTRATION TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE Common Stock, $.01 par value(2) 1,150,000 $6.00 $6,900,000 $2,035.50 Redeemable Common Stock Purchase Warrants(3) 1,150,000 $.10 $115,000 $33.93 Common Stock, $.01 par value(4) 1,150,000 $6.60 $7,590,000 $2,239.05 Underwriter's Warrants(5) 100,000 $-- $5 $-- Common Stock, $.01 par value(6) 100,000 $7.50 $750,000 $221.25 Common Stock Purchase Warrants(6) 100,000 $.125 $12,500 $3.69 Common Stock, $.01 par value(7) 100,000 $6.60 $660,000 $194.70 TOTAL: $4,728.12
(1) Estimated solely for purposes of calculating the registration fee. (2) Includes 150,000 shares of Common Stock subject to the Underwriter's overallotment option and assumes the overallotment option is exercised in full. (3) Includes 150,000 Redeemable Common Stock Purchase Warrants subject to the underwriter's overallotment option and assumes the overallotment option is exercised in full. Also referred to herein as the "Public Warrants." (4) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants referred to in note (3). (5) To be issued to the Underwriter, entitling the Underwriter to purchase up to 100,000 shares of Common Stock. (6) Issuable upon the exercise of the Underwriter's Warrants. (7) Issuable upon the exercise of the Underwriter's Common Stock Purchase Warrants. Pursuant to Rule 416, there are also being registered such additional but indeterminate number of shares as may become issuable pursuant to anti-dilution provisions of the Warrants registered hereby. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1998 PROSPECTUS INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. KAIRE INTERNATIONAL, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS Kaire International, Inc., a Delaware corporation (the "Company") hereby offers 1,000,000 shares of common stock, $.01 par value (the "Common Stock") of the Company and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Public Warrants"). The Common Stock and the Public Warrants offered hereby (sometimes hereinafter collectively referred to as the "Securities") will be separately tradeable immediately upon issuance and may be purchased separately. Investors will not be required to purchase shares of Common Stock and Public Warrants together or in any particular ratio. Each Public Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $6.60 (the "Exercise Price"), subject to adjustment, at any time during the period, commencing on the second anniversary of this Prospectus (the "Effective Date") until the close of business on the sixth anniversary of the Effective Date (such period, the "Exercise Period"), provided, however, that prior to the Exercise Period, the Public Warrants will be exercisable only if May Davis Group, Inc. (the "Underwriter") has consented in writing to all of the Public Warrants being exercisable. The Public Warrants are redeemable, in whole or in part, by the Company at a price of $.05 per Public Warrant, at any time that they are exercisable, and prior to their expiration, provided that (i) prior written notice of not less than thirty days is given to the Warrantholders, (ii) the average closing bid price of the Company's Common Stock for the twenty consecutive trading days immediately prior to the date on which the notice of redemption is given, shall have exceeded $10.00 per share, and (iii) Warrantholders shall have exercise rights until the close of business on the day preceding the date fixed for redemption, if the Public Warrants are then exercisable. Prior to this offering (the "Offering"), there has been no public market for the Company's Common Stock and Public Warrants, and there can be no assurance that such a public market will develop or be sustained after the completion of the Offering. The Offering price of the Common Stock and the exercise price and other terms of the Public Warrants were established by negotiations between the Company and the Underwriter and do not bear any direct relationship to the Company's assets, book value, results of operations or any other criteria of value. The Company has applied for the listing of the Common Stock and Public Warrants on the NASDAQ SmallCap Market ("NASDAQ SmallCap") under the symbols " " and " ", respectively. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 9, AND "DILUTION." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) Per Share................................................ $6.00 $.60 $5.40 Per Warrant.............................................. $.10 $.01 $.09 Total(3)................................................. $6,100,000.00 $610,000.00 $5,490,000.00
(1) Does not include additional compensation to the Underwriter consisting of (i) a non-accountable expense allowance equal to 3% of the aggregate purchase price of the Securities, or $183,000 ($210,450 if the Underwriter's overallotment option is exercised in full); (ii) warrants to purchase 100,000 shares of Common Stock at $7.50 per share and 100,000 warrants at $.125 per warrant, exercisable for an additional 100,000 shares of Common Stock at $6.60 per share; and (iii) a three-year consulting agreement providing for fees totalling $108,000, which is payable to the Underwriter in full on the closing of this Offering. For additional information concerning further agreements between the Company and the Underwriter, including an agreement to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) After deducting Underwriting discounts and commissions, but before the payment of the Underwriter's non-accountable expense allowance in the amount of $183,000 ($210,450 if the Underwriter's overallotment option is exercised in full) and other expenses of the Offering payable by the Company (estimated at $540,294). (3) The Company has granted the Underwriter an option to purchase up to 150,000 additional shares of Common Stock and 150,000 additional Public Warrants, upon the same terms and conditions set forth above, solely to cover overallotments, if any (the "Overallotment Option"). If the Overallotment Option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be increased to $7,015,000, $701,500 and $6,313,500, respectively. See "Underwriting." The Common Stock and Public Warrants are being offered on a "firm commitment" basis, subject to prior sale, when, as and if delivered to and accepted by the Underwriter, and subject to certain other conditions and legal matters. The Underwriter reserves the right to withdraw, cancel or modify the Offering and to reject orders in whole or in part. It is expected that delivery of the certificates representing the shares of Common Stock and Public Warrants will be made at the offices of the Underwriter, in New York City, on or about , 1998. MAY DAVIS GROUP, INC. The date of this Prospectus is , 1998 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ------------------------ The Company intends to distribute to its stockholders annual reports containing financial statements audited and reported upon by its independent public accountants after the close of each fiscal year, and will make such other periodic reports, containing unaudited financial information, as the Company may determine to be appropriate or as may be required by law. The Company's fiscal year ends on December 31st of each year. A logo consisting of human facial silhouettes within a heart, Kaire-Registered Trademark-, Pro Vine-Registered Trademark-, Nature's Shield-Registered Trademark-, Dermunol-TM- and Immunol-TM- used in this Prospectus are trade marks or tradenames of the Company. Pycnogenol-Registered Trademark- is a trade name/trademark of Horphag Research Ltd. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including financial statements and notes thereto appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Except as otherwise indicated herein, the information contained in this Prospectus gives no effect to the exercise of (i) the Overallotment Option, (ii) the Underwriter's warrants, (iii) warrants offered hereby or issued to private investors, or (iv) options granted under the Company's stock option plan. THE COMPANY Kaire International, Inc. (the "Company") develops and distributes, through a network of independent associates, products that are intended to appeal to health-conscious consumers. Current Company products include health care supplements and personal care products. The Company offers a line of approximately 50 products which it divides into nine categories, including Antioxidant Protection, (Bodily) Defense, Digestion, Energy and Alertness, Stress, Vital Nutrients, Weight Management, Anti-Aging and Personal Care. The Company develops products that it believes will have market appeal to its associates and their customers, and assists its associates in establishing their own businesses. The Company believes that its associates can start a home based business without significant normal start-up costs and other difficulties usually associated with new ventures. The Company provides product development, marketing aids, customer service, and essential record-keeping functions to its associates. The Company also provides other support programs to its associates including a 24 hour telephone assistance system, teleconferencing, optional seminars, a monthly newsletter and business training systems with audio and video tapes and a Director Management kit. The Company's marketing strategy revolves around associates actively recruiting interested people to become new associates for the Company. These recruits are placed beneath the recruiting associate in his or her "network" and are referred to by the Company as that associate's "organization." Associates earn commissions on sales generated by the recruited associates in their organization as well as retail profits on the sales they generate directly. The Company believes its marketing program is designed to provide incentives for associates to build an organization of recruited associates in their organization to maximize their earning potential. The Company has experienced an increase in the number of associates sponsored from approximately 1,900 at the end of its first fiscal period of October 20th to December 31, 1992 ("Fiscal 1992") to over 400,000 as of September 30, 1997. Approximately 60,000 of the Company's associates have had product purchases in excess of $50 during the past year and are considered to be "active" associates by the Company. The Company purchases most of its products directly from manufacturers and markets them to its independent associates located in all fifty states, the District of Columbia, Puerto Rico, Guam, and Canada. In 1995 the Company expanded the number of its associates located in other parts of the world, particularly Australia and New Zealand. During 1997, the Company expanded its operations into South Korea, Trinidad and Tobago, and the United Kingdom. The Company's first three full fiscal years were periods of rapid growth with net sales of approximately $2,719,000, $36,895,000 and $57,841,000, respectively, for the Company's fiscal years ended December 31, 1993, 1994 and 1995 (hereinafter "Fiscal 1993", "Fiscal 1994" and "Fiscal 1995"). As a result, the Company had a net loss of approximately $207,000 for Fiscal 1993, and net income of approximately $1,091,000 and $1,186,000 for Fiscal 1994 and Fiscal 1995, respectively. By the end of Fiscal 1995, management noted that growth in the Company's monthly net sales had begun to level off, indicating that a decline in net sales could be anticipated due to the Company possibly having reached the maturity level, which the Company believes is frequently encountered by companies in 3 the network marketing industry, beyond which growth becomes very difficult. During the latter part of Fiscal 1995 and continuing into the Company's fiscal year ending December 31, 1996 ("Fiscal 1996"), management formulated a three pronged approach to overcome this maturation, consisting of: (1) attempting to attract more entrepreneurial minded and younger persons to the Company's associate program; (2) introducing new products, including products directed at more youthful end users (which was also intended to aid in the attraction of younger associates); and (3) expanding geographically. To attract a more entrepreneurial associate, the Company modified its associate commission program, introduced new training materials and took efforts to enhance communications with sales associates. This modified commission program was not successful and, by the fall of 1996, the Company essentially restored its pre- March 1996 commission program. During Fiscal 1996, the Company's net sales of approximately $51,499,000 represented a decline of approximately $6,342,000 from the Fiscal 1995 net sales level of approximately $57,841,000. This decline in net sales continued during the first nine months of 1997 ("Nine Months 1997") with net sales of approximately $27,887,000. During Fiscal 1996 and Nine Months 1997, the Company incurred losses of approximately $1,803,000 and $4,182,000, respectively. At September 30, 1997, the Company had a working capital deficit of $4,718,000. The Company's independent certified public accountants stated in their report of April 4, 1997 on the Company's consolidated financial statements that, due to losses from operations and a working capital deficit, there was "substantial doubt" about the ability of the Company to continue as a going concern. The Company attributes this perceived trend, from net income in Fiscal 1994 and Fiscal 1995 to net losses in Fiscal 1996 and Nine Months 1997, to, among other things, the unsuccessful modification of its associate commission structure and increases in selling, general and administrative expenses. See "Risk Factors--No Assurance of Return to Profitability." In order to return to profitability, the Company has continued to pursue its three pronged approach, pursuant to which it essentially restored its former commission structure and reduced its general and administrative staffing levels. The Company was incorporated under the laws of the state of Nevada on October 20, 1992. In March 1997, the Company merged with a Delaware corporation specifically established by the Company for the purpose of reorganizing itself under the laws of that jurisdiction. Kaire New Zealand Ltd. and Kaire Australia Pty. Ltd. were incorporated under the laws of their respective jurisdictions in August 1995. In November 1995, these two companies purchased the operating assets from predecessor corporations in which the Company had no interest. The Company acquired a 51% interest in Kaire New Zealand, Ltd. and Kaire Australia Pty. Ltd. at that time. Kaire Korea, Ltd. ("Kaire Korea") was incorporated in March 1997 under the laws of South Korea. In June 1997, Kaire Korea received its license to do business as a "door to door selling company". Kaire Trinidad, Ltd. was incorporated under the laws of Trinidad and Tobago in May 1997 and commenced operations in June. Kaire Europe Ltd. was incorporated in the United Kingdom in July 1997 and commenced sales in November 1997. On December 9, 1997, the Company entered into and completed an Agreement and Plan of Reorganization (the "Agreement") with Interactive Medical Technologies, Ltd. ("IMT") whereby IMT agreed to provide an additional $300,000 equity investment in the Company and convert the $700,000 previously borrowed by the Company to equity in the Company and for IMT to provide additional equity investments of $2,000,000 by February 15, 1998. Certain of the Company's stockholders exchanged more than 80% of the issued and outstanding shares of the Company's Common Stock for approximately forty five percent (45%) of IMT's common stock. It is contemplated that the transaction will qualify as a tax free reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. Unless otherwise specified or required by the context of the following text, all references in this Prospectus to the "Company" include the Company and all of the foregoing subsidiaries. The Company's executive office is located at 380 Lashley Street, Longmont, Colorado 80501 and its telephone number at that address is (303) 682-0110. The Company's web-site is located at http:\\www.kaireint.com. 4 RISK FACTORS Certain risk factors should be considered in evaluating the Company, its business and its proposed expansion plans. Such factors include, among others, risks associated with doing business in South Korea, the possible need for additional financing, the risks inherent in establishing new business operations and expanding marketing efforts, intense competition, dependence upon vendors and substantial dilution. For a discussion of these and certain other factors, see "Risk Factors". 5 THE OFFERING Securities Offered(1)........................ 1,000,000 shares of Common Stock and 1,000,000 Public Warrants. Each Public Warrant entitles the holder to purchase one share of Common Stock at a price of $6.60 during a four year period (the "Exercise Period") commencing two years after the date of this Prospectus and lasting until the date six years after the date hereof, provided, however, that prior to the Exercise Period, the Public Warrants may be exercisable only if the Underwriter has consented in writing to all of the Public Warrants being exercisable. The exercise price and the number of shares issuable upon exercise of the Public Warrants are subject to adjustment in certain circumstances. See "Description of Securities." Common Stock Outstanding Before Offering..... 4,418,353 Shares. Common Stock Outstanding After Offering(1)... 5,418,353 Shares. Warrants Outstanding Before Offering(2)...... 1,601,000 Warrants. Warrants Outstanding After Offering(2)(3).... 2,601,000 Warrants. Warrant Expiration Date...................... , 2004 (six years after the Effective Date). Warrant Redemption........................... Redeemable by the Company, in whole or in part at a price of $.05 per Public Warrant, at any time that they are exercisable upon not less than 30 days prior written notice to the holders of the Public Warrants, provided that the average closing bid price of the Company's Common Stock for the twenty consecutive trading days immediately prior to the date on which the notice of redemption is given, shall have exceeded $10.00 per share. Use of Proceeds.............................. Expenses of expansion efforts in South Korea and the United Kingdom (including start-up costs, leasehold improvements and equipment), repayment of indebtedness to the private placement investors and working capital. See "Use of Proceeds." Proposed NASDAQ SmallCap Symbols(4) Common Stock............................... Warrants...................................
- ------------------------ (1) Does not include (i) 150,000 shares of Common Stock and 150,000 Public Warrants, subject to the Underwriter's Overallotment Option; (ii) 1,601,000 shares of Common Stock issuable upon the exercise of outstanding warrants; (iii) 200,000 shares of Common Stock issuable upon the exercise of the Underwriter's warrants including the shares of Common Stock underlying the warrants included 6 within the Underwriter's warrants; or (iv) 1,000,000 shares of Common Stock reserved for issuance pursuant to the Company's stock option plan. See "Management," "Underwriting" and "Description of Securities." (2) Includes 1,430,000 warrants on the same terms as the Public Warrants offered hereby, and 171,000 warrants with an exercise price of $.01 per warrant. (3) Does not include (i) 150,000 Public Warrants subject to the Underwriter's overallotment option; or (ii) the Underwriter's Warrants. (4) The proposed trading symbols do not imply that a liquid and active market will be developed or sustained for the securities upon completion of this Offering. 7 SUMMARY CONSOLIDATED FINANCIAL DATA (AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED) The following summary consolidated financial information has been derived from the financial statements of the Company and should be read in conjunction with the financial statements and the related notes thereto appearing elsewhere in this Prospectus. For a description of the Financial Statements from which the following financial data has been derived, see the introduction to "Selected Financial Information." The summary financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Prospectus. Information as to the periods ended September 30, 1997 and September 30, 1996 is unaudited. CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEARS ENDED DECEMBER 31, ------------------------------------------ OCTOBER 20, 1992 (INCEPTION) TO DECEMBER 31, 1992 1993 1994 1995 1996 ------------------- --------- --------- --------- --------- Net Sales........................................... $ 92 $ 2,719 $ 36,895 $ 57,841 $ 51,499 Income (Loss) from Operations....................... $ (162) $ (180) $ 1,462 $ 2,164 $ (2,764) Net Income (Loss)................................... $ (162) $ (207) $ 1,091 $ 1,186 $ (1,803) Net Income (Loss) Per Share--Primary................ $ (.04) $ (.05) $ .25 $ .27 $ (.41)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1996 1997 --------- --------- Net Sales................................................................................... $ 41,124 $ 27,887 (Loss) from Operations...................................................................... $ (1,332) $ (4,065) Net (Loss).................................................................................. $ (1,210) $ (4,182) Net (Loss) Per Share--Primary............................................................... $ (.27) $ (.95)
CONSOLIDATED BALANCE SHEET DATA:
AS OF SEPTEMBER 30, 1997 ------------------------------------- PROFORMA AS ACTUAL ADJUSTMENTS ADJUSTED --------- ------------- ----------- Working Capital (Deficiency)................................................... $ (4,718) $ 3,957 $ (761) Total Assets................................................................... 5,972 3,957 9,929 Long Term Obligations.......................................................... 833 (810) 23 Total Liabilities.............................................................. 9,536 (810) 8,726 Minority Interest in Consolidated Subsidiaries................................. 156 156 Stockholders' Equity (Deficit)................................................. (3,720) 4,767 1,047
8 RISK FACTORS THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT. ALSO, DOCUMENTS SUBSEQUENTLY FILED BY THE COMPANY WITH THE COMMISSION WILL CONTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND THE MATTERS SET FORTH OR INCORPORATED IN THE PROSPECTUS GENERALLY. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THIS LIST OF FACTORS MAY NOT BE EXHAUSTIVE, PARTICULARLY WITH RESPECT TO FUTURE FILINGS. BEFORE MAKING A DECISION TO PURCHASE ANY OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONNECTION WITH AN INVESTMENT IN THE COMPANY. NO ASSURANCE OF A RETURN TO PROFITABILITY; RECENT SUBSTANTIAL LOSSES. From its inception in late 1992 through the end of its Fiscal 1995, the Company had experienced a rapid expansion in its net sales, growing from net sales of approximately $2,719,000 during its first full fiscal year, Fiscal 1993, to net sales of approximately $36,895,000 and $57,841,000, for Fiscal 1994 and Fiscal 1995, respectively. During these three fiscal years the Company's net income experienced corresponding increases, with the Company sustaining a net loss of approximately $207,000 during Fiscal 1993 and net income of approximately $1,091,000 and $1,186,000 during Fiscal 1994 and Fiscal 1995, respectively. Fiscal 1996 and Nine Months 1997 were periods of declining revenues and net losses. During Fiscal 1996 and Nine Months 1997, the Company sustained net losses of approximately $1,803,000 and $4,182,000, respectively, upon net sales of approximately $51,499,000 and $27,887,000, respectively. See "Risk Factors--Going Concern Modification in Independent Certified Public Accountants' Report." Management believes that the foregoing net sales decreases and losses resulted from the Company maturing as a network marketing enterprise, having reached a leveling off of its net sales during the latter part of 1995, and the Company's own initial efforts to overcome this maturation. In an effort to overcome this maturation, the Company formulated several approaches. Those approaches were to: attract a younger and more entrepreneurial minded associate than it had attracted in the past; attract persons who had been successful network marketers with other companies; continue to expand its line of products, including efforts to develop products directed at a younger market; and further expand geographically outside of the United States. Attracting new, younger and entrepreneurial minded associates was, by its nature, the first approach undertaken. In an effort to accomplish this, among other things, the Company changed its commission program that had been in place since 1994. The change in commission structure was not well received by the Company's associates and, in addition, the Company's new commission structure attracted associates who misused the new commission program which increased commissions on first time sales without providing for commission recovery by the Company on product returns and refunds. Exacerbating the Company's losses were to lesser degrees; the time and cost of personnel devoted to promoting the new commission program, competition in recently penetrated markets of Australia and New Zealand of "copycat" products, the introduction of new products that were not as well received by the market as had been expected, a new product not as consistent as the product it replaced and a corporate infrastructure (new personnel and facilities) with related fixed costs that had grown correspondingly with the growth in sales in prior fiscal years. The Company, in the latter part of Fiscal 1996, reverted to essentially its former commission program. The Company believes it has cured its product inconsistency problems and reduced the number of general and administrative personnel. Additionally, the Company has continued to introduce new products, recently expanded geographically into South Korea, Trinidad and Tobago, and the United Kingdom, and its continuing efforts to attract more entrepreneurial associates by seeking professional network marketers to bring themselves and their existing sales organizations to the Company. There can be no assurance that future unforeseen developments, such as the failure to succ-essfully penetrate the three new geographically targeted markets (especially South Korea), generate revenue growth as market competition increases, create or secure new products that will be accepted in the market place, contain its general and administrative overhead costs and other unforeseen circumstances will not have a material adverse effect on the Company's operations in its current or expanded market areas. See "Risk Factors--Going Concern Modification in Independent Certified Public Accountants' Report," "--Losses Sustained in Attempting to Penetrate New Markets; 9 Risks Involved in Entering New Markets," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and Financial Statements and the notes thereto. GOING CONCERN MODIFICATION IN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT. The report dated April 4, 1997 from BDO Seidman, LLP, the independent certified public accountants for the Company, expressed "substantial doubt" about the Company's ability to continue as a going concern due to recurring losses and negative working capital. The Company expects that the loss for the Fiscal Year 1997 will exceed its loss through Nine Months 1997. There can be no assurance that the Company will again or ever achieve profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and Consolidated Financial Statements. LOSSES SUSTAINED IN ATTEMPTING TO PENETRATE NEW MARKETS; RISKS INVOLVED IN ENTERING NEW MARKETS. The Company intends to complete its expansion efforts into South Korea allocating a substantial portion of the net proceeds of this Offering to this effort. Completing the establishment of its operations in South Korea will require the recruitment and training of new personnel, paying salaries of South Korean personnel and their related benefits, continuing compliance with the laws and regulations of that country, delivering products into that country which are subject to quarantine periods, purchasing equipment, continuing leasehold payments and payments of other costs and expenses until South Korean operations generate sufficient revenues to cover the foregoing and other costs and expenses related to the Company's South Korean operations. Until such time as South Korean operations generate sufficient revenue to cover the foregoing costs and expenses, of which no assurance can be given, the Company's South Korean operations will continue to sustain losses. In addition to the foregoing, future events, including problems, delays, expenses and complications frequently encountered by companies seeking to penetrate new markets, foreign currency exchange fluctuations, as well as changes in governmental policies, economic or other conditions may occur that could cause the Company to be unsuccessful in these expansion efforts. The net proceeds of this Offering allocated to that purpose may be expended without the Company deriving any economic benefit. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." NEED FOR ADDITIONAL FUTURE FINANCING; POSSIBLE ADDITIONAL DILUTION. The Company may require additional equity or debt financing in order to complete its expansion efforts into any additional geographic areas that the Company may target in the future or for additional working capital if it continues to sustain losses or its South Korean or other expansion areas continues to suffer losses. Any additional equity financing that may be obtained may dilute the voting power and equity interests of the Company's stockholders. Any additional debt financing that may be obtained may restrict or impair the Company's ability to declare dividends or may impose financial restrictions on the Company's ability to expand. There can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company or at all. In the event additional financing is unavailable to the Company, the Company may be materially adversely affected. See "Use of Proceeds." BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately 34% of the estimated net proceeds to be received by the Company from this Offering have been allocated to working capital and the Company will have broad discretion as to the application of such funds. See "Use of Proceeds." USE OF PROCEEDS TO REPAY INDEBTEDNESS. Approximately 36% of the estimated net proceeds to be received by the Company from this offering have been allocated to repay indebtedness and will, as a result, not be used for the Company's future operations. See "Use of Proceeds." GOVERNMENT REGULATION OF PRODUCTS AND MARKETING. The Company is subject to or affected by extensive governmental regulations not specifically addressed to network marketing. Such regulations govern, among other things, (i) product formulation, labeling, packaging and importation, (ii) product claims and advertising, whether made by the Company or its associates, (iii) fair trade and distributor practices, and (iv) taxes, transfer pricing and similar regulations that affect foreign taxable income and 10 customs duties. Based on the Company's experience and research, the nature and scope of inquiries from government regulatory authorities, and the advice it receives from various counsel, the Company believes that it is in material compliance with all regulations applicable to the Company. However, there can be no assurances that the Company will not be subject to inquiries and regulatory investigations or disputes and the effects of any adverse publicity resulting therefrom. Any assertion or determination that the Company is not in compliance with existing laws or regulations could potentially have a material adverse effect on the Company's business and results of operations. In addition, in any country or jurisdiction, the adoption of new laws or regulations or changes in the interpretation of existing laws or regulations could generate negative publicity and/or have a material adverse effect on the Company's business and results of operations. The Company cannot determine the effect, if any, that future governmental regulations or administrative orders may have on the Company's business and results of operations. Moreover, governmental regulations in countries where the Company plans to commence or expand operations may prevent, delay or limit market entry of certain products or require the reformulation of such products. Regulatory action, whether or not it results in a final determination adverse to the Company has the potential to create negative publicity, with detrimental effects on the motivation and recruitment of associates and, consequently, on the Company's sales and earnings. See "--Losses Sustained in Attempting to Penetrate New Markets; Risks Involved in Entering New Markets" and "Business--Government Regulation." GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling activities are regulated by various governmental agencies. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes. Such schemes, often referred to as "pyramid" or "chain sales" schemes, often promise quick rewards for little or no effort, require high entry costs, use high pressure recruiting methods and/or do not involve legitimate products. The Company must comply with South Korea's strict Door-to-Door Sales Act, which requires among other things, the regular reporting of revenue, the registration of associates together with the issuance of a registration card, and the maintaining of a current associate registry. This law also limits the amount of certain bonuses that a registered multi-level marketing company can pay to associates up to a maximum of 35% of revenue in a given month. See "Business-- Government Regulation." As is the case with most network marketing companies, the Company has from time to time received inquiries from various government regulatory authorities regarding the nature of its business and other issues such as compliance with local business opportunity and securities laws. To date none of these inquiries has resulted in a finding materially adverse to the Company. There can be no assurance that the Company will not face inquiries in the future which, either as a result of findings adverse to the Company or as a result of adverse publicity resulting from the initiation of such inquiries, could have a material adverse effect on the Company's business and results of operations. See "Business--Government Regulation." Even though management believes that laws governing direct selling are generally becoming more permissive in certain Asian countries, certain countries currently have laws in place that would prohibit the Company from conducting business in such markets. There can be no assurance that the Company will be allowed to continue to conduct business in each of its existing markets. See "Business--Government Regulation." TAXATION RISKS AND TRANSFERS PRICING. The Company is subject to taxation in the United States, where it is incorporated. In addition, each of the Company's subsidiaries are subject to taxation in the country in which it operates, currently ranging from a statutory tax rate of 32% in South Korea to 45% in Trinidad and Tobago. The Company will be eligible for foreign tax credits in the United States for the amount of foreign taxes actually paid in a given period. In the event that the Company's operations in high tax jurisdictions such as Trinidad and Tobago grow disproportionately to the rest of the Company's operations, the Company will be unable to fully utilize its foreign tax credits in the United States, which could, accordingly, result in the Company paying a higher overall effective tax rate on its worldwide operations. 11 Because the Company's subsidiaries operate outside of the United States, the Company is subject to the jurisdiction of the relevant foreign tax authorities. In addition to closely monitoring the subsidiaries locally based income, these tax authorities regulate and restrict various corporate transactions, including intercompany transfers. The Company believes that the tax authorities in South Korea are particularly active in challenging the tax structures of foreign corporations and their intercompany transfers. Although the Company believes that its tax and transfer structures are in compliance in all material respects with the laws of every jurisdiction in which it operates, no assurance can be given that these structures will not be challenged by foreign tax authorities or that such challenges will not have a material adverse effect on the Company's business or results of operations. INCREASED COMPANY EMPHASIS ON OPERATIONS OUTSIDE OF THE UNITED STATES. Although less than 12% of the Company's revenues during Fiscal 1996 were derived from operations outside of the United States, the Company has allocated a substantial portion of the net proceeds of this Offering to expand its operations into South Korea and the United Kingdom, and, as a consequence, anticipates that the percentage of the Company's revenues derived from non-United States operations will increase in the near term and the Company's future operations may be materially and adversely affected by economic, political and social conditions in the countries in which it then operates, in particular South Korea. A change in policies by any government in the Company's markets and proposed markets, particularly South Korea, could adversely affect the Company and its operations through, among other things, changes in laws, rules or regulations, or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, currency repatriation or imports, or the expropriation of private enterprises. Although the Company believes that the general trend in Asia has been toward more open markets and trade policies and the fostering of private business and economic activity, no assurance can be given that this trend will continue or that such policies will not be significantly altered in future periods. This could be especially true in the event of a change in leadership, social or political disruption or upheaval, or unforeseen circumstances affecting economic, political or social conditions or policies. There can be no assurance that such activities, or other similar activities in the Company's markets, will not result in passage of legislation or the enactment of policies which could materially adversely affect the Company's operations in the market areas where it operates. In addition, the Company's ability to expand its operations into new markets will directly depend on its ability to secure the requisite government approvals and comply with the local government regulations. See "--Losses Sustained in Attempting to Penetrate New Markets; Risks Involved in Entering New Markets." CURRENCY RISKS. The Company's foreign-derived sales and selling, general and administrative expenses are converted to U.S. dollars for reporting purposes. Consequently, the Company's reported earnings are significantly impacted by changes in currency exchange rates, generally increasing with a weakening dollar and decreasing with a strengthening dollar. Given the uncertainty of the extent of exchange rate fluctuations, the Company cannot estimate the effect of these fluctuations on its future business, product pricing, results of operations or financial condition. However, because the Company's revenue is realized in local currencies and the majority of its cost of sales is denominated in U.S. dollars, the Company's gross profits will be positively affected by a weakening in the U.S. dollar and will be negatively affected by a strengthening in the U.S. dollar. There can be no assurance that any of the foregoing currency risks will not have a material adverse effect upon the Company's results from operations or financial condition. Fluctuations in currency exchange rates, particularly those caused by an increase in the value of the United States dollar, could have a material adverse effect on the Company's financial position, results of operations and cash flows. The Company plans to reduce its exposure to fluctuations in foreign currency through forward currency exchange contracts, the Company currently does not use such financial instruments for trading or speculative purposes. The Company intends to monitor its foreign currency risks and periodically take measures to reduce the impact of foreign exchange rate fluctuations on the Company's operating results. 12 RELIANCE UPON INDEPENDENT DISTRIBUTOR NETWORK AND HIGH TURNOVER RATE OF DISTRIBUTORS. The Company distributes its products exclusively through independent associates. Associate agreements with the Company are voluntarily terminable by the associates at any time. The Company's revenue is directly dependent upon the efforts of these independent associates, and any growth in future sales volume will require an increase in the productivity of these associates and/or growth in the total number of associates. As is typical in the direct selling industry, there is turnover in associates from year to year, which requires the sponsoring and training of new associates by existing associates to maintain or increase the overall associate force and motivate new and existing associates. The Company experiences seasonal decreases in associate sponsoring and product sales in some of the countries in which the Company operates because of local holidays and customary vacation periods. The size of the associate force can also be particularly impacted by general economic and business conditions and a number of intangible factors such as adverse publicity regarding the Company, or the public's perception of the Company's products, product ingredients, Company associates or direct selling businesses in general. Historically, the Company has experienced periodic fluctuations in the level of associate sponsorship (as measured by associate applications). However, because of the number of factors that impact the sponsoring of associates, and the fact that the Company has little control over the level of sponsorship of new associates, the Company cannot predict the timing or degree of those fluctuations. There can be no assurance that the number or productivity of the Company's associates will be sustained at current levels or increased in the future. In addition, the number of associates as a percent of the population in a given country or market could theoretically reach levels that become difficult to exceed due to the finite number of persons inclined to pursue a direct selling opportunity. POTENTIAL EFFECTS OF ADVERSE PUBLICITY. The size of the distribution force and the results of the Company's operations can be particularly impacted by adverse publicity regarding the Company, or its competitors, including the legality of network marketing, the quality of the Company's products and product ingredients or those of its competitors, regulatory investigations of the Company or the Company's competitors and their products, associate actions and the public's perception of the Company's associates and direct selling businesses generally. There can be no assurance that such adverse publicity will not have a material adverse effect on the Company's ability to attract and retain customers or associates, or on the Company's results from operations or financial condition generally. DEPENDENCE ON KEY PERSONNEL. The Company's future success depends on the continued availability of certain key management personnel, including Robert L. Richards, Michael Lightfoot, J.T. Whitworth, and Robert J. Young. The Company maintains "key man" life insurance in the amounts of $250,000, $100,000 and $250,000, respectively on Messrs. Richards, Lightfoot and Whitworth. Although the Company has employment contracts with Messrs. Richards, Whitworth, and Young, the business of the Company could be adversely affected by the loss of services of any of the foregoing individuals. See "Management--Executive Compensation." The Company's growth and ability to return to profitability may depend on its ability to attract and retain other management personnel, of which no assurance can be given. NO WRITTEN CONTRACTS WITH SUPPLIERS OR MANUFACTURERS. The Company does not have any written contracts with any of its suppliers or manufacturers or commitments from any of its suppliers or manufacturers to continue to sell products to the Company. Due to the absence of any written contract with any supplier, there is a risk that any of the Company's suppliers or manufacturers could discontinue selling their products to the Company for any reason. Although the Company believes that it could establish alternate sources for most of its products, any delay in locating and establishing relationships with other sources could result in product shortages and back orders for the products, with a resulting loss of revenues to the Company. In addition, the lack of a written agreement may impair the Company's ability to enforce such agreements or enforce its rights thereunder. There can be no assurance that the lack of written agreements with suppliers or manufacturers will not have a material adverse effect on the Company. 13 COMPETITION. The Company competes with many companies marketing products similar to those sold and marketed by the Company. It also competes intensely with other network marketing companies in the recruitment of associates, of which there are many such companies. Some of the largest of these are Nutrition for Life International, Inc., Natures Sunshine, Inc., Herbalife International, Inc., Amway and Rexall Sundown, Inc. Each of these companies is substantially larger than the Company and has significantly greater financial and personnel resources than the Company. DEPENDENCE UPON ONE SUPPLIER. The Company has one source of Pycnogenol and the Company purchases approximately two-thirds of that compound from that source. The Company has no written agreements with this supplier and although the Company believes that suitable replacement and comparable product sources are available, there can be no assurance that the Company would be able to obtain replacement suppliers on a timely basis, on commercially reasonable terms or at all, in the event this supplier discontinues its association with the Company, goes out of business or for some other reason its products become unavailable to the Company. See "Business--Manufacturing and Supplies." PRODUCT LIABILITY EXPOSURE. Although the Company does not engage in the manufacture of any of the products it markets and distributes, the Company could be exposed to product liability claims for the products which it distributes. The Company has not had, or is not aware of, any such claims to date. Although the Company maintains product liability insurance which it believes to be adequate for its needs, there can be no assurance that the Company will not be subject to claims in the future or that its insurance coverage will be adequate. CONTROL BY OUTSIDE COMPANY. After the successful completion of this Offering, Interactive Medical Technologies, Ltd. ("IMT") will beneficially own approximately 66% of the Company's issued and outstanding shares of Common Stock which as a practical matter will enable it to nominate and cause the election of all the members of the Company's Board of Directors, control the appointment of its officers and the day-to-day affairs and management of the Company. See "Principal Stockholders." INDEPENDENT DIRECTORS NOT A MAJORITY OF THE BOARD. Four of the seven members of the Company's Board of Directors are also executive officers of the Company. All decisions affecting the day-to-day operations of the Company will be made by the Board of Directors, of which the majority of members are not independent of the Company. See "Management." FORWARD-LOOKING STATEMENTS. This Prospectus contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Commission or otherwise. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). Such statements may include, but not be limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, and plans relating to products or services of the Company, as well as assumptions relating to the foregoing. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Prospectus, including those contained in the sections entitled "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in the notes to the Company's Financial Statements, describe factors, among others, that could contribute to or cause such differences. DILUTION. As a result of the sale of the Securities offered in this Offering, there will be immediate and substantial dilution to public investors in that the pro forma net tangible book value per share of the Company's Common Stock after this Offering will be approximately $0.18 per share, or approximately $5.82 (or 97%) less than the $6.00 offering price per share. See "Dilution." 14 NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING AND EXERCISE PRICES. Prior to this Offering, there has been no market for any of the Company's securities. The initial public offering price of the Securities and the exercise price and other terms of the Public Warrants have been arbitrarily determined by negotiations between the Company and the Underwriter and such prices and terms are not necessarily related to the Company's asset value, net worth or other established criteria of value. In addition, there can be no assurance that a trading market will develop after this Offering for any of the Company's Securities or that, if developed, it will be sustained. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE DOWNWARD PRESSURE ON SHARE PRICE. Existing stockholders in the Company are subject to Rule 144 as promulgated under the Securities Act ("Rule 144") and the restrictions thereunder upon the disposition of shares. In general, under Rule 144, a person who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of shares of common stock that does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume in such shares during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity or other limitation by a person who is not an affiliate of the issuer and who has satisfied a two-year holding period. All of the outstanding shares of Common Stock are "restricted securities," as that term is defined under Rule 144. The Company also has outstanding warrants to purchase approximately 1,471,000 shares of Common Stock. The ability of stockholders to make Rule 144 sales may increase the supply of shares of Common Stock in the public market, and thus may have a depressive effect on the price of the Company's securities in any market which may develop for such securities. There can be no assurance that such Rule 144 dispositions will not occur or not adversely affect the price of the securities offered hereby. See "--Effect of Options, Warrants and Registration Rights" and "Shares Eligible for Future Sale." EFFECT OF OPTIONS, WARRANTS AND REGISTRATION RIGHTS. For the respective terms of the Underwriter's Warrants, Public Warrants sold as part of this Offering and warrants previously sold by the Company (the "Private Warrants") and any options that may be granted by the Company under the Company's stock option plan, the holders thereof are given an opportunity to profit from a rise in the market price of the Common Stock, with a resulting dilution in the interests of the other stockholders. Further, the terms on which the Company may obtain additional financing during the exercise periods of said warrants and options may be adversely effected by the existence of such warrants, options and plans. The holders of options or warrants to purchase Common Stock may exercise such options or warrants at a time when the Company might be able to obtain additional capital through offerings of securities on terms more favorable than those provided by such options or warrants. In addition, the holders of the Underwriter's Warrants and approximately 41,000 of the Private Warrants have demand and "piggyback" registration rights, respectively, with respect to their securities and/or the shares of the Company's Common Stock underlying said securities. Exercise of such registration rights may involve substantial expense to the Company. See "Management," "Certain Transactions," "Description of Securities" and "Underwriting." NO CASH DIVIDENDS. The Company has not paid any dividends to date. The Company's Board of Directors does not presently intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. See "Description of Securities." LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in August 1993, was registered as a broker in June 1995, and became a member firm of the National Association of Securities Dealers, Inc. (the "NASD") in June 1995. The Underwriter is principally engaged in retail brokerage and market making activities and various corporate finance projects. The Underwriter has acted as a placement agent in private offerings, has participated as a member of the underwriting syndicate or as a selected dealer in one public offering, and has acted only three times as the lead manager of public offerings of securities. While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, no assurance can be given that the Underwriter's lack of experience as a 15 lead managing underwriter of public offerings will not adversely affect this Offering and the subsequent development of a liquid public trading market in the Company's securities. See "Underwriting." POTENTIAL ADVERSE EFFECT OF REDEMPTION OF PUBLIC WARRANTS. At any time during their exercise period, the Public Warrants may be redeemed by the Company at a redemption price of $.05 per Public Warrant upon 30 days prior written notice if the average closing bid price of the Common Stock for 20 consecutive trading days ending within 10 days of the notice exceeds $10.00. Redemption of the Public Warrants could force the holders to exercise the Public Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Public Warrants at the current market price for the Public Warrants when they might otherwise wish to hold the Public Warrants, or to accept the redemption price, which may be substantially less than the market value of the Public Warrants at the time of redemption. See "Description of Securities." CURRENT PROSPECTUS AND BLUE SKY REGISTRATION REQUIRED TO EXERCISE PUBLIC WARRANTS. Holders of the Public Warrants will have the right to exercise the Public Warrants for the purchase of shares of Common Stock only if a current prospectus relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the states in which the Public Warrantholders reside. Although the Company intends to maintain such a current prospectus and to seek to qualify the shares of Common Stock underlying the Public Warrants for sale in those states where the Common Stock and Public Warrants are to be offered, there is no assurance that it will be able to do so. The Public Warrants may be deprived of any value if the current prospectus encompassing the shares underlying the Public Warrants is not kept effective or if such underlying shares are not or cannot be registered in the states in which the Public Warrantholders reside. See "Description of Securities." NO ASSURANCE OF NASDAQ SMALLCAP MARKET LISTING; POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF SECURITIES. Although the Company has applied for listing of its securities on the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the Company does not meet certain minimum criteria established by Nasdaq with respect to net tangible assets. Without a waiver from Nasdaq, the Company will not be able to list its securities on the Nasdaq SmallCap. If the Company does not obtain listing on the Nasdaq SmallCap, it may attempt to have its securities listed on the Electronic Bulletin Board. However, securities listed on the Electronic Bulletin Board may experience reduced liquidity. If the securities offered hereby are listed on the Electronic Bulletin Board, investors herein may experience reduced liquidity in such securities and may have difficulty in obtaining a satisfactory sale price, relative to the actual market price, as a consequence. There can be no assurance that the failure to attain listing on Nasdaq SmallCap will not adversely affect the Company's securities liquidity or investors' ability to dispose of such securities. RISKS OF LOW-PRICED SECURITIES. If the Company's securities are not listed on the NASDAQ SmallCap, such securities would be subject to rules under the Exchange Act, which impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established clients and "accredited investors" (for example, individuals with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with their spouses). For transactions covered by such rules, a broker-dealer must make a special suitability determination of the purchaser and have received the purchaser's written consent to the transaction prior to the sale. Consequently, such rules may affect the ability of broker-dealers to sell the Company's securities and the ability of purchasers in this Offering to sell any of the Company's securities acquired in this Offering in any secondary market that may develop for such securities. The Commission has enacted rules that define a "penny stock" to be any equity security that has a price (as therein defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions, including securities listed on the NASDAQ SmallCap or on designated exchanges. For any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to any transaction in a penny stock, of a disclosure statement prepared by the Commission relating to the penny stock market. Disclosure also has to be made about the risks of investing in penny stocks in both 16 public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. In the event the Company's securities are not listed on the NASDAQ SmallCap or are not otherwise exempt from the provisions of the Commission's "penny stock" rules, such rules may also affect the ability of broker-dealers to sell the Company's securities and the ability of purchasers in this Offering to sell any of the securities acquired hereby in any secondary market that may develop. "YEAR 2000" PROBLEM. The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (Year 2000) approaches. The "Year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the latter two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. Management has not yet assessed the "Year 2000" compliance expense and related potential effect on the Company's earnings. There can be no assurance that such problem can be resolved by the Company in a timely or cost effective fashion, or at all, or that any difficulty or inability in resolving such problem will not have a material adverse effect upon the Company. 17 DILUTION The initial offering price per share of Common Stock is substantially higher than the average price per share paid by the Company's existing stockholders. Based on an initial public offering price of $6.00 per share, purchasers of the Common Stock in this Offering will experience an immediate and substantial dilution in net tangible book value of approximately 97% or $5.82 per share. For the purposes of this discussion, it is assumed that no Warrants will be exercised, and, accordingly, no value is attributed to the Warrants. The following table presents certain information concerning the net consolidated tangible book value per share of the Company's Common Stock as of September 30, 1997, as adjusted to give effect to the sale of 1,000,000 shares of Common Stock by the Company in this Offering (at an initial public offering price of $6.00 per share and after deducting the estimated underwriting discounts and estimated offering expenses payable by the Company): Initial public offering price per share...................... $ 6.00 Net negative tangible book value per share before the Offering(1)............................................ $ (0.88) Increase per share attributable to new investors......... 1.06 --------- Pro forma net tangible book value per share after the Offering................................................... 0.18 --------- Total dilution per share to new investors(2)................. $ 5.82 --------- ---------
- ------------------------ (1) Net tangible book value per share is determined by dividing the Company's net tangible book value (total assets less intangible assets and total liabilities and minority interest) at September 30, 1997 by the number of shares of Common Stock then outstanding. (2) Dilution per share is determined by subtracting pro forma net tangible book value per share after this Offering from the initial public offering price per share. The foregoing table also assumes no exercise of the Underwriter's Warrants. In the event the Underwriter exercises its Overallotment Option in full, the pro forma net tangible book value per share would be $0.34 which would result in dilution to new investors of $5.66 per share. The following table sets forth, on a pro forma basis as of the date of this Prospectus, the respective positions of the Company's existing stockholders and new investors with respect to the number of shares of Common Stock purchased from the Company, the total cash consideration paid and the average price per share paid by the existing stockholders and by the new investors with respect to the 1,000,000 shares of Common Stock to be issued by the Company at an initial public offering price of $6.00 per share.
SHARES PURCHASED TOTAL CONSIDERATION ------------------------- --------------------------- AVERAGE APPROXIMATE APPROXIMATE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------------- ------------ ------------- ----------- Existing Stockholders.......................... 4,248,353 80.9% $ 316,127 5.0% $ 0.07 New Investors.................................. 1,000,000 19.1% $ 6,000,000 95.0% $ 6.00 ---------- ------ ------------ ------ TOTAL.................................... 5,248,353 100% $ 6,316,127 100% ---------- ------ ------------ ------ ---------- ------ ------------ ------
The foregoing table assumes no exercise of any warrants. 18 USE OF PROCEEDS The net proceeds to the Company from the sale of 1,000,000 shares of Common Stock and 1,000,000 Public Warrants offered hereby are estimated to be approximately $4,767,000 ($5,563,000 if the Underwriter's Overallotment Option is exercised in full) after deducting underwriting commissions and discounts and other expenses of this Offering. The Company expects to use the net proceeds over the next twelve months approximately as follows:
APPROXIMATE DOLLAR AMOUNT APPROXIMATE OF NET PERCENTAGE APPLICATION OF NET PROCEEDS PROCEEDS OF NET PROCEEDS - --------------------------------------------------------------------------------- -------------- --------------- Repayment of Bridge Loans(1)..................................................... $ 1,725,000 36% Expansion Efforts in South Korea and the United Kingdom(2)....................... $ 1,422,000 30% Working Capital.................................................................. $ 1,620,000 34% -------------- ----- Total...................................................................... $ 4,767,000 100% -------------- ----- -------------- -----
- ------------------------ (1) Repayment of promissory notes issued to private investors. See "Certain Transactions." (2) To be used for the continued international expansion efforts into South Korea and the United Kingdom. The Company currently estimates that the net proceeds of this Offering will be sufficient to fund its planned operations, and continued expansion efforts into South Korea and the United Kingdom for approximately twelve months from the date of this Prospectus. The net proceeds may be sufficient for a greater or lesser period of time depending on the extent of the Company's expansion efforts. In addition, the Company may require additional financing prior to or following such period if the Company suffers losses greater than anticipated. The Company has no commitments or arrangements for any such additional financing and there can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company or at all. In the event additional financing is unavailable to the Company, the Company may be materially adversely affected. The foregoing represents the Company's best estimate of its allocation of the net proceeds of this Offering. Future events, as well as changes in economic, regulatory or competitive conditions or the Company's business and the results of the Company's activities may make shifts in the allocation of funds within the described categories or to other purposes necessary or desirable. In the event the Company suffers losses greater than anticipated, the Company may draw upon the net proceeds of this Offering allocated to expand the Company's operations into Korea and the United Kingdom and/or working capital. Prior to expenditure, proceeds will be invested principally in high grade, short-term, interest-bearing investments. Any proceeds received upon exercise of the Overallotment Option or any Public Warrants will be used for working capital. There can be no assurance that the Overallotment Option or any of the Public Warrants will be exercised. 19 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of September 30, 1997 and as adjusted to reflect the proceeds of 1,000,000 shares of Common Stock and 1,000,000 Redeemable Common Stock Purchase Warrants for sale in this Offering. The table should be read in conjunction with the notes below and the consolidated financial statements of the Company and the information and the related notes thereto including elsewhere herein.
SEPTEMBER 30, 1997 ---------------------------------------- PROFORMA AS ACTUAL ADJUSTMENTS ADJUSTED ----------- ------------- ----------- (UNAUDITED) SHORT TERM DEBT: Notes Payable........................................................................ $ 2,007,389 $ -- $ 2,007,389 Capitalized lease obligation......................................................... 152,281 -- 152,281 ----------- ------------- ----------- TOTAL SHORT TERM DEBT.................................................................. 2,159,670 -- 2,159,670 ----------- ------------- ----------- LONG-TERM DEBT: Notes Payable........................................................................ 810,162 (810,162)(1) -- Capital leases payable less current portion.......................................... 22,574 -- 22,574 ----------- ------------- ----------- TOTAL LONG-TERM DEBT................................................................... 832,736 (810,162) 22,574 ----------- ------------- ----------- Minority interest in consolidated subsidiaries....................................... 155,586 -- 155,586 ----------- ------------- ----------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred Stock, $.01 par value 5,000,000 shares authorized: none issued and outstanding........................................................................ -- -- -- Common Stock, $.01 par value 25,000,000 shares authorized: 4,248,353 and 5,248,353 shares issued and outstanding, actual and adjusted, respectively................... 42,484 10,000 52,484 Additional paid-in capital........................................................... 273,643 4,757,000 5,030,643 Gain on foreign currency exchange.................................................... 40,380 -- 40,380 Retained earnings (deficit).......................................................... (4,076,270) -- (4,076,270) ----------- ------------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................................................... (3,719,763) 4,767,000 1,047,237 ----------- ------------- ----------- TOTAL CAPITALIZATION................................................................... $ (571,771) $ 3,956,838 $ 3,385,067 ----------- ------------- ----------- ----------- ------------- -----------
- ------------------------ (1) Represents notes payable issued to private investors at September 30, 1997, to be repaid from proceeds of the Offering. 20 SELECTED CONSOLIDATED FINANCIAL DATA (AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND UNLESS OTHERWISE STATED) The selected consolidated financial data below should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. The selected consolidated financial data presented below for, and as of the end of each of, the four fiscal years ended December 31, 1996 and for the period October 20, 1992 (inception) to December 31, 1992 have been derived from the Company's consolidated financial statements. The financial statements as of December 31, 1995 and 1996, and for each of the years in the three-year period ended December 31, 1996, have been audited by BDO Seidman, LLP and Jones, Jensen & Company, for the periods indicated in their reports, and are included elsewhere in this Prospectus. The information for the nine month periods ended September 30, 1996 and 1997 is unaudited but gives effect to all adjustments (none of which was other than normal recurring adjustments) necessary, in the opinion of management of the Company, to present fairly this information. The results of operations for the interim periods should not be taken as indicative of results for a full fiscal year. The financial statements for the period October 20, 1992 (inception) to December 31, 1992 and for the year ended December 31, 1993 are not included in this Prospectus. This data should be read in conjunction with the consolidated financial statements and information and the related notes thereto appearing elsewhere herein. CONSOLIDATED STATEMENT OF OPERATIONS DATA:
OCTOBER 20, 1992 (INCEPTION) YEARS ENDED DECEMBER 31, TO DECEMBER 31, ---------------------------------------------- 1992 1993 1994 1995 1996 ------------------- ---------- ---------- ---------- ---------- Net Sales................................ $ 92 $ 2,719 $ 36,895 $ 57,841 $ 51,499 Cost of Goods Sold....................... 66 839 9,368 14,476 13,321 Gross Profit............................. 26 1,880 27,527 43,365 38,178 Operating ExpensesAssociate Commissions............................ 26 1,275 19,507 30,831 27,966 Selling, General & Administrative Expenses............................... 162 785 6,558 10,370 12,976 Income (Loss) from Operations............ (162) (180) 1,462 2,164 (2,764) Other Income (Expense)Net................ 0 (27) 60 (30) (27) Net Income (Loss) Before Taxes and Minority Interest...................... (162) (207) 1,522 2,134 (2,791) Income Tax (Provision) Benefit........... -- -- (431) (862) 1,103 Minority Interest in Subsidiaries........ -- -- -- (86) (115) Net Income (Loss)........................ (162) (207) 1,091 1,186 (1,803) Net Income (Loss) Per Share-- Primary.... (.04) (.05) .25 .27 (.41) Primary Weighted Average Number of Common Shares Outstanding..................... 4,279,353 4,279,353 4,279,353 4,419,353 4,419,353
21
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1997 ---------- ---------- Net Sales............................................................................... $ 41,124 $ 27,887 Cost of Sales........................................................................... 10,339 6,587 Gross Profit............................................................................ 30,785 21,300 Operating Expenses...................................................................... 32,117 25,365 Loss from Operations.................................................................... (1,332) (4,065) Other Expense--Net...................................................................... (61) (161) Net Loss Before Income Tax Benefit and Minority Interest................................ (1,393) (4,226) Benefit from Income Taxes............................................................... 354 -- Minority Interest in (Income)Loss of Subsidiaries....................................... (171) 44 Net Loss................................................................................ (1,210) (4,182) Net Loss Per Share--Primary............................................................. (.27) (.95) Weighted Average Number of Common Shares Outstanding.................................... 4,419,353 4,419,353
CONSOLIDATED BALANCE SHEET DATA (IN 000S):
AS OF DECEMBER 31, ----------------------------------------------------- 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- Working Capital (Deficiency)....................................... $ (141) $ (401) $ (176) $ 1,005 $ (1,382) Total Assets....................................................... 129 308 5,514 6,787 6,350 Long-Term Obligations.............................................. -- -- -- -- -- Total Liabilities.................................................. 291 677 4,791 4,786 6,026 Minority Interest in Consolidated Subsidiaries..................... -- -- -- 85 200 Stockholders' Equity (Deficit)..................................... (162) (369) 723 1,916 124
AS OF SEPTEMBER 30, 1997 ------------------------------------- PROFORMA AS ACTUAL ADJUSTMENTS ADJUSTED --------- ------------- ----------- Working Capital (Deficiency)................................................... $ (4,718) $ 3,957 $ (761) Total Assets................................................................... $ 5,972 $ 3,957 $ 9,929 Long-Term Obligations.......................................................... $ 833 $ (810) $ 23 Total Liabilities.............................................................. $ 9,536 $ (810) $ 8,726 Minority Interest in Consolidated Subsidiaries................................. $ 156 $ 156 Stockholders' Equity (Deficit)................................................. $ (3,720) $ 4,767 $ 1,047
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. OVERVIEW The Company develops, purchases and distributes primarily natural source products intended for nutritional or personal care purposes. The Company's products are distributed through a network of over 400,000 associates, of which approximately 15% are "active" (as defined herein) in several countries in four continents, North America, Australia, Asia and Europe. The Company offers approximately 50 products in nine categories, including Antioxidant Protection, (Bodily) Defense, Digestion, Energy and Alertness, Stress, Vital Nutrients, Weight Management, Anti-Aging and Personal Care. The Company commenced operations in October 1992 with the introduction of MARITIME PRIME. MARITIME PRIME features the ingredient Pycnogenol, a derivative of Southern France's Maritinus Pinus tree. Pycnogenol was combined with a blend of other natural ingredients developed by Horphag Research Ltd. ("Horphag"), a European corporation not otherwise affiliated with the Company which is Pycnogenol's manufacturer. During Fiscal 1992 and Fiscal 1993, the Company's focus was on obtaining the information on Pycnogenol and the properties associated with it from Horphag and disseminating that information in the United States and, in Fiscal 1993, in Canada. At inception, the Company elected to market its product by "network" as the most effective way to disseminate product information. During these two fiscal years, the Company also sold several complimentary products as well as an aloe vera line of products. During 1993, the Company developed a "uni-level" compensation plan designed to be simple and financially attractive to associates (product distributors). By the end of Fiscal 1993, sales revenues had increased to a rate of approximately $400,000 per month. In Fiscal 1994, the Company experienced substantial growth in sales revenues. By September of 1994, net sales increased to a rate of approximately $5,000,000 per month and new associates were being sponsored at a rate exceeding approximately 10,000 per month. New products introduced during 1994 were nutritional- and/or Pycnogenol-based. During the summer of 1994 sales volume briefly exceeded the Company's product delivery capacity but by the fall of 1994, this was rectified and the Company was delivering product on a timely basis. A price increase was instituted in October 1994 to offset the weakening of the United States dollar with respect to the French franc and a price increase from the manufacturer of Pycnogenol via the importer. In Fiscal 1995, the Company commenced operations in New Zealand and Australia through its subsidiaries domiciled there. Although the subsidiaries had a brief period of rapid growth in sales revenues, the Company believes that sales leveled off as the apparent success of these subsidiaries became known in the network marketing industry and competitors began offering competitive products and/or comparable commission programs. The Company believes that most significant competition was from competitors selling grape seed and grape skin products which have some of the same properties as Pycnogenol, but are less expensive to produce and could be sold for substantially less than the Company's Pycnogenol based products. In addition, a grape supplier asserted that its product was a generic version of Pycnogenol and could be marketed as such. Actions ranging from letters to lawsuits by the Company and Pycnogenol's importer and manufacturer and accompanying cease-and-desist orders were required to end these assertions. Based upon management's network marketing industry experience and a leveling off of sales in the latter part of 1995, the Company anticipated that it would reach maturity as a network marketing concern and could face the possibility of diminishing sales unless the Company acted. In an effort to thwart the 23 possibility of diminishing sales, in March 1996, the Company revised its associate commission program to include, among other things, providing the sponsor of an associate with a substantially higher commission on the first purchase made by the sponsored associate (in the past, the sponsor had received no such additional compensation on a first sale). The Company's goals in altering its associate commission program was to encourage associates to not only sponsor new associates but have the sponsors assist the new associates in making sales and forming their own sales organization comprised of additional levels of associates and, ultimately, attract a more entrepreneurial younger associate than it had attracted in the past. The nature of the Company's products was believed by the Company to be a draw to middle aged associates whose apparent focus was to assist friends, relatives, etc. by introducing them to the Company's products and not necessarily having an additional focus of earnings. Additionally, at or about the same time, the Company introduced a weight loss program, a line of cosmetics, Kaire World Magazine, and new and improved training materials. The Company believes that the changes in the Company's associate commission program were not well received by its existing associates and attracted a number of new associates whose primary focus was apparently directed at garnering the larger commissions on initial product sales to associates whom they had sponsored, as opposed to developing a self-sustaining sales organization. The Company believes that as a consequence, sales revenues declined while product returns increased. Also, newly introduced products, such as Immunol, Synerzyme and the Yes! Weight Management Program, did not have the revenue impact anticipated. In the fall of 1996, the Company essentially returned to the prior commission program, with some increase in commissions being added to the original structure, while greater emphasis was placed on seeking professional network marketers versed and established in the network industry. The Company believes that its new and improved training materials have been useful to the Company and well received by its associates. In 1996, the Company also decided to open new markets and expand into additional countries. By January 1997, the Company began to establish operations in South Korea and Trinidad and Tobago. In June 1997, the Company opened an office in Port-of-Spain, Trinidad and Tobago. Also in June 1997, the Company received approval from the South Korean government to begin recruitment and engage associates in that country. In July 1997, the Company completed South Korea's product approval and quarantine procedures and the sales of selected products commenced. Initially, only a high-end line of skin care products (JoBelle Gold Line) was available in South Korea. Maritime Prime was approved late in August, 1997, and additional Kaire supplements were approved in November 1997. The Company is anticipating the approval of its AquaKaire product line in early 1998. The Company is working towards approval of additional nutritional and skin care products in Korea. Similar approval efforts are being undertaken for various product lines in Canada, Trinidad and Tobago, New Zealand, Australia, the United Kingdom and France. There can be no assurance, however, that any of such approvals will be forthcoming in a timely fashion, or at all, or will not be contingent on various conditions or restrictions which may be imposed by the appropriate governmental authorities. Also, in 1996, the Company decided to modify its commission program with the objective of increasing the flow of funds to the Company and stabilize its financial position. The modification consisted of the elimination of a 5% bonus, a restructuring of supplemental bonuses for top executives, the institution of a program to pay the car expenses of certain associates in North America, New Zealand and Australia and a change in qualification and the number of sponsored levels paid under the international sponsoring program. It is anticipated that this change will lower the total bonus payout by approximately 4%. The Company intends to continue its expansion into new marketplaces in the world in upcoming years. There can be no assurance, however, that any such expansion will ever occur on terms and conditions favorable to the Company, or at all. See "Risk Factors" and "Business." 24 RESULTS OF OPERATIONS The following table sets forth for the periods indicated, selected consolidated statement of operations data expressed as a percentage of net sales.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------- -------------------- 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- Net Sales.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold..................................................... 25.4% 25.0% 25.9% 25.1% 23.6% Gross Profit........................................................... 74.6% 75.0% 74.1% 74.9% 76.4% Operating Expenses Associate Commissions................................................ 52.9% 53.3% 54.3% 53.5% 56.0% Selling, General and Administrative.................................... 17.8% 17.9% 25.2% 24.6% 34.9% Income (Loss) from Operations.......................................... 3.9% 3.8% (5.4)% (3.2)% (14.5)% Other Income (Expense) Net............................................. 0.2% (0.1)% (0.0)% (0.2)% (0.6)% Net Income (Loss) Before Taxes and Minority Interest................... 4.1% 3.7% (5.4)% (3.4)% (15.1)% Income Tax (Provision) Benefit......................................... (1.2)% (1.5)% 2.1% 0.9% 0.0% Minority Interest in Subsidiaries...................................... 0.0% (0.1)% (0.2)% (0.4)% 0.1% Net Income (Loss)...................................................... 2.9% 2.1% (3.5)% (2.9)% (15.0)%
NINE MONTHS ENDED SEPTEMBER 30, 1997 ("NINE MONTHS 1997") COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ("NINE MONTHS 1996") NET SALES. Nine Months 1996 was a period of declining growth and the start of sales contraction due to competition and the effects of maturation described above. Net Sales decreased approximately 32.2% from approximately $41,124,000 to approximately $27,887,000 for Nine Months 1997 compared to Nine Months 1996. The Company recognized that sales had leveled off near the end of Fiscal 1995. The Company adopted a new marketing and compensation program in March 1996 in an effort to stimulate sales. While sales did experience a temporary increase under the new program, sales soon started to decline at a rate averaging approximately 4% per month. The Company believes that the new associates attracted by the new program were focused on the large initial bonus offered by the new program. In addition, the Company believes that many existing associates did not accept the program and left the Company. As a result, by the end of Nine Months 1996, the Company substantially abandoned this new program and returned to a commission program more comparable to the program used in prior years. Nine Months 1997 represented a period where sales were continuing to decline although the rate had declined to an average of approximately 1.4% per month and there were several months of sales growth from the prior month during the period. The Company continued to take steps during this period to attract professional network marketers through several recruiting programs and to expand into additional markets. COST OF GOODS SOLD. Cost of goods sold for Nine Months 1996 were approximately $10,339,000 which represented approximately 25.1% of net sales. Cost of goods sold for Nine Months 1997 were approximately $6,587,000 which represented approximately 23.6% of net sales. Total cost of goods sold declined approximately 36.3% from Nine Months 1996 to Nine Months 1997 or approximately $3,752,000. There were two primary factors affecting the decrease in this cost of goods sold percentage decline. There was a minor product price increase in March 1996 and a change in product mix from Nine Months 1996 to Nine Months 1997. GROSS PROFIT. Gross profit decreased from approximately $30,785,000 in Nine Months 1996 to approximately $21,300,000 in Nine Months 1997, or approximately 30.8%. The reason for the decline in gross profit was the decline in net sales discussed above. Gross profit as a percentage of net sales actually 25 increased from 74.9% to 76.4% for those respective time periods resulting from the introduction of new better profit margin products. COMMISSIONS. Associate commissions decreased from approximately $22,019,000 in Nine Months 1996 to approximately $15,626,000 in Nine Months 1997, or approximately 29.0%. As a percentage of net sales, commissions rose from 53.5% of net sales in Nine Months 1996 to 56.0% of net sales in Nine Months 1997. Commissions paid declined in Nine Months 1996 due to the new program commencing in March 1996 which redistributed commissions with a resulting lower dollar amount of commissions paid. Commissions paid during Nine Months 1997 reflected additional commissions added to the commission program in the latter part of Fiscal 1996. The March 1996 change in the program redirected commission payouts on a first time order to the sponsoring associate. It also changed the structure of the commission payments to attempt to redirect such payments to associates desiring to build a sales organization to get more funds to associates interested in building large sales organizations. The new program was not successful as it attracted associates interested in short term gain and not long term stability, the smaller commission associates (who receive the majority of commission dollars paid) were negatively effected the most and the larger associates did not support the new program. As of September 1996, the Company's original commission program was substantially restored. The Company then enhanced the program in an effort to stem a further decline in sales and raised the effective commission rate by 10%. This did not effect Nine Months 1996 but was reflected in the higher percentage of net sales that commissions represented in Nine Months 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses during Nine Months 1997 were approximately $9,739,000 or 34.9% of net sales as compared to approximately $10,098,000 or 24.6% of net sales in Nine Months 1996. Several factors caused the decline in expenses in Nine Months 1997 to not be proportional to the decline in net sales. The Company instituted a program it believed would increase the number of professional network marketers joining the Company in an effort to create stability and leadership. The total cost of this program was approximately $1,188,000 and was incurred from August 1996 through August 1997. The program had just commenced in Nine Months 1996 so the majority of the expenses were incurred in Nine Months 1997. In addition, development costs of approximately $1,040,000 to commence operations in Trinidad and Tobago, South Korea and the United Kingdom were incurred in Nine Months 1997. These increased expenses were offset by a change in the management of the marketing department during Nine Months 1997 which decreased expenses through both reduced personnel salaries and reduced operating costs. In addition, the Company instituted cost-cutting measures in its domestic operations (of which the marketing department is a part), reducing operating expenses for selling, general and administrative expenses from approximately $1,200,000 per month during July through September 1996. The Company accomplished this by reducing staff, cutting out inefficient programs and limiting optional spending. By the second quarter of Fiscal 1997, these expenses had been reduced to approximately $750,000 per month, a decrease of $450,000 per month or approximately $5,400,000 on an annualized basis. LOSS FROM OPERATIONS. Operating loss increased from an approximate $1,332,000 during Nine Months 1996 to an approximate loss of $4,065,000 during Nine Months 1997. These losses were the result of declining sales, fixed general and administrative expenses and periods of increased commissions as discussed. OTHER EXPENSES. Other expense increased by approximately $100,000 in Nine Months 1997 as compared to Nine Months 1996. The primary reason for this increase is the cost of additional borrowing necessitated by the inability to achieve profitability while incurring costs associated with the above development programs. INCOME TAXES. The Company recorded an accrual for an income tax refund based on the ability to carry losses incurred in Nine Months 1996 back to previous years. The anticipated reduction in taxes from 26 utilizing net operating losses against future profits was not recognized in Nine Months 1997 under the provisions of Financial Standards Board Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes), utilizing its loss carryforwards as a component of income tax expense. As of September 30, 1997, the Company had approximately $4,000,000 of net operating loss available to carry forward and offset against future earnings. As a result of this Offering, certain limitations will be placed on the unrestricted loss carryforwards. A valuation allowance equal to the net deferred tax asset has been recorded, as management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. MINORITY INTEREST. The income offset for minority interest was a reduction in the Company's income in Nine Months 1996 of approximately $171,000 reflecting income earned in the Australia and New Zealand subsidiaries. This represented approximately 0.4% of net sales. For Nine Months 1997 the adjustment reduced consolidated net loss by approximately $44,000 or 0.1% of net sales. This reversal was a reflection of decreased revenue and worth in comparison to the United States dollar by the Australia and New Zealand subsidiaries, thus reducing the interest attributable to the minority stockholders. NET LOSS. Net loss was approximately $4,182,000 or 15.0% of net sales for Nine Months 1997 as compared to approximately $1,210,000 or 2.9% of net sales for Nine Months 1996. The increased losses are primarily a result of declining sales and an unsuccessful change in the commission program. YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996") COMPARED TO YEAR ENDED DECEMBER 31, 1995 ("FISCAL 1995") NET SALES. Fiscal 1995 and Fiscal 1996 represent the peak of Company performance to date with respect to net sales. Revenues for Fiscal 1996 were approximately $51,499,000 which was a decline of approximately $6,342,000 or approximately 11.0% from Fiscal 1995 revenues of approximately $57,841,000. Fiscal 1995 was a year of growth in domestic sales for the Company at a slower rate than in Fiscal 1994. In addition, Australian and New Zealand operations were acquired in November 1995 adding to the sales total for Fiscal 1995. The Company recognized that sales were leveling off near the end of Fiscal 1995. In response to this leveling off, the Company adopted a new marketing and compensation program in March 1996 in an effort to stimulate sales. While sales did respond with a temporary increase, they soon started to fall on a monthly basis. The Company believes that the new associates attracted by the new program were focused on the larger initial bonus offered by the new program and not focused on the development of a sales organization and many then existing associates did not accept the new program and left the Company. As a result, by October 1996, the Company abandoned this new program and returned to a program more comparable to the program used in prior years. The decline in net sales in Fiscal 1996 was not as pronounced because net sales from Australia and New Zealand were included for a full twelve months in Fiscal 1996 as opposed to the two post-acquisition months in Fiscal 1995. COST OF GOODS SOLD. Cost of goods sold for Fiscal 1996 was approximately $13,321,000 which represented 25.9% of net sales. Cost of goods sold for Fiscal 1995 was approximately $14,476,000 or 25.0% of net sales. This represented a decrease of approximately $1,155,000 or 8.7% from Fiscal 1995 to Fiscal 1996. The decline in total cost of goods sold was caused by the decreased sales revenue for Fiscal 1996. The Company believes that the increase in the cost of goods sold percentage was related to an increase in sales returns. Also, there was a minor price increase in Fiscal 1996, but no other adjustments in the cost or sales price of the products sold. The refunds stemmed from the new program which encouraged larger initial purchases as well as broadcast claims made by an unrelated third party about the effectiveness of Pycnogenol on certain medical conditions. While these events did generate additional sales, the Company believes a higher percentage of those purchasing under the new program returned the product for refunds under the Company's satisfaction guaranteed policy than had made returns in the past. In addition, the Company released a new, more concentrated version of its' Maritime Prime (Super Prime) late in 1996. This product was initially not well accepted by the associates as they indicated that the anticipated results 27 from its use were not achieved. While a reformulation of the Super Prime product apparently corrected the perceived problem, the Company also replaced this product at its cost when so requested. GROSS PROFIT. Gross profit decreased from approximately $43,365,000 in Fiscal 1995 to approximately $38,178,000 in Fiscal 1996, approximately 12.0%. The primary reason for the decline in gross profit was the decline in net sales described above. In addition, gross profit as a percentage of net sales declined from approximately 75.0% in Fiscal 1995 to 74.1% in Fiscal 1996 due primarily to the increase in returns. COMMISSIONS. Associate commissions decreased from approximately $30,831,000 in Fiscal 1995 to approximately $27,966,000 in Fiscal 1996, a decline of approximately $2,865,000 or 9.3%. As a percentage of net sales, commissions increased from 53.3% in Fiscal 1995 to 54.3% in Fiscal 1996. Commissions were constant in Fiscal 1995 as the program was not changed from prior years. In March 1996 the new program commenced. The new program was not successful as it attracted associates interested in short term gain and not long term stability, the smaller associates (who represent a large portion of Company associate base) were adversely effected the most in proportion to their income and sales leaders did not support the new program. As of September 1996, the original program was substantially restored. The Company also enhanced the original program in an effort to stop further declines in sales raising the effective commission rate by 10% of sales. The Company purged inactive associates which the Company believes made a significant number of associates qualify for higher positions in the commission structure and increased their bonus percentages without a corresponding increase in sponsoring and sales. This change increased the Company's effective bonus rate by an additional 3%. The net effect of these changes in the latter part of Fiscal 1996 was to increase commissions measured as a percentage of net sales for Fiscal 1996 by approximately 1.9% from Fiscal 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were approximately $12,976,000 or 25.2% of net sales in Fiscal 1996 as compared to approximately $10,370,000 or 17.9% of net sales in Fiscal 1995, an increase of approximately $2,606,000 or 25.1%. The largest factor in this increase was the acquisition of the interests in the New Zealand and Kaire Australia subsidiaries in November 1995. During Fiscal 1995, the Company incurred approximately $250,000 in selling, general and administrative expenses through those entities. During Fiscal 1996, the first full year of ownership of said entities, approximately $1,800,000 of their selling, general and administrative expenses were included within the Company's overall selling, general and administrative expenses. Also, an increased marketing effort was undertaken in Fiscal 1996 to promote the new (commission) program and introduce an internet marketing opportunity for associates. An additional approximate $478,000, in comparison to approximately $410,000 in Fiscal 1995, was spent on these marketing efforts in Fiscal 1996. Finally, personnel costs increased approximately $746,000 from approximately $3,621,000 in Fiscal 1995 to approximately $4,267,000 in Fiscal 1996. This was due to the addition of several managerial positions, the installation of a Company 401(k) plan with matching contributions and an increase in medical insurance costs in Fiscal 1996. INCOME (LOSS) FROM OPERATIONS. Loss from operations in Fiscal 1996 was approximately $2,764,000, a decrease of approximately $4,928,000 from Fiscal 1995's income from operations of approximately $2,164,000. The primary reasons for this decline was the drop in net sales and corresponding decline in gross profit. Most of the Company's selling, general and administrative expenses are fixed and do not fluctuate with changes in net sales. These expenses did not correspondingly decline when net sales declined resulting in a loss instead of a profit. OTHER INCOME (EXPENSES). There was no significant variance in other expenses from Fiscal 1996 to Fiscal 1995. In neither year did other income or other expense have a material effect on the overall profitability of the Company. INCOME TAXES. The Company's income tax provision for Fiscal 1995 was $862,000 based on income earned during that year. In Fiscal 1996, the Company recorded an income tax benefit of approximately 28 $1,103,000 from utilizing net operating losses against prior income taxes paid. No benefit, from utilizing net operating losses against future profits, was reflected in Fiscal 1996 operations. This treatment was consistent with the provisions of the Financial Standards Board Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes) ("FASB 109"), utilizing its loss carryforwards as a component of income tax expense, since management of the Company has not been able to determine that it is more likely than not that the deferred tax assets will be realized. As a result of this Offering, certain limitations will be placed on the unrestricted loss carryforwards. MINORITY INTEREST. The provision for Minority Interest was approximately $86,000 in Fiscal 1995 and $115,000 in Fiscal 1996. This slight increase for Fiscal 1996 was indicative of the increase in profitability of the foreign subsidiaries in Fiscal 1996. NET INCOME (LOSS). The Company's net loss was approximately $1,803,000 for Fiscal 1996 compared to net income of approximately $1,186,000 for Fiscal 1995. This change from profitability to a loss was primarily due to the decrease in net sales and gross profit without a corresponding decrease in selling, general and administrative expenses. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 ("FISCAL 1994") NET SALES. The Company's Fiscal 1994 represented the most dramatic growth in the Company's history, while Fiscal 1995 represented some growth, with a leveling off of sales in the latter part of that year. Net sales for Fiscal 1995 were approximately $57,841,000 as compared to approximately $36,895,000 for Fiscal 1994, an increase of approximately $20,946,000 or approximately 56.8%. In December 1993 net sales were approximately $400,000. By September 1994, net sales had increased to approximately $5,000,000 (for that month). The Company believes that this increase was attributable to media attention on the benefits of antioxidants and the corresponding public focus on products such as the Company's flagship product, Maritime Prime. In addition, the Company believes that it had offered an innovative and attractive alternative in the network marketing industry for associates with no initial fees, no inventory requirements, low minimum monthly purchases and a simplified compensation plan. During Fiscal 1995, increased competition in both products and network marketing alternatives combined with the normal maturation of the associate base causing sales to level off. COST OF GOODS SOLD. Cost of goods sold for Fiscal 1995 was approximately $14,476,000 or 25.0% of net sales. This was an increase of approximately $5,108,000 or 54.5% from Fiscal 1994's cost of sales of $9,368,000 or 25.4% of net sales. This dollar amount increase is attributable to the increase in net sales from Fiscal 1994 to Fiscal 1995. The slight decline in the cost of goods sold as a percentage of net sales is attributable to a price increase in Pycnogenol products in October 1994, in response to an increase in the price of Pycnogenol from the manufacturer, introduction of new products which had a higher gross profit margin and the negotiation of more favorable freight rates. GROSS PROFIT. Gross profit for Fiscal 1995 was approximately $43,365,000 or 75.0% of net sales. This was an increase of approximately $15,838,000 or 57.5% from Fiscal 1994's gross profit of $27,527,000 or 74.6% of net sales. This increase was attributable to the increase in net sales during Fiscal 1995. COMMISSIONS. Associate commissions were approximately $30,831,000 in Fiscal 1995, an increase of approximately $11,324,000 or 57.9% from approximately $19,507,000 in Fiscal 1994. This increase was directly related to the increase in net sales. Commissions represented 53.3% of net sales in Fiscal 1995 as compared to 52.9% of net sales in Fiscal 1994. The increase in the commission percentage of net sales relates to additional commission paid to top producing associates commencing in June 1994. The full effect of this program was reflected in Fiscal 1995. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for Fiscal 1995 were approximately $10,370,000 or 17.9% of net sales. This was an increase of approximately 29 $3,812,000 or 58.1% from Fiscal 1994 selling, general and administrative expenses of approximately $6,558,000, which represented 17.8% of net sales for Fiscal 1994. The largest portion of this increase in selling, general and administrative expenses was in personnel expenses. The Company had approximately 25 employees in December 1993 and grew to over 150 employees by July 1994. During Fiscal 1994, the Company added executives, middle level management, technical and order processing personnel. The Company also invested approximately $1,064,000 in Fiscal 1994 in telephone systems and computer systems for its order and commission processing and reporting systems. This also increased staffing and maintenance, depreciation and supply costs associated with these assets. The Company expanded from leased space of approximately 5,000 square feet to its current 42,000 square fee by the end of Fiscal 1995. Finally, the Company's costs for shipping supplies, communications, marketing and general operations increased due to the expansion requirements of the increased sales volume. INCOME FROM OPERATIONS. Income from operations for Fiscal 1995 was approximately $2,164,000 or 3.8% of net sales. This was an increase of approximately $642,000 from Fiscal 1994 when income from operations was approximately $1,461,000 or 4.0% of net sales. The increase is a direct result of the increase in net sales combined with the Company's ability to keep its costs in line as a percentage of net sales. OTHER INCOME (EXPENSE). The Company reflected a small amount of non-operating income in Fiscal 1994 from the investment of excess funds. In Fiscal 1995, the Company had a small non-operating net expense due to interest costs associated with acquiring leased equipment. INCOME TAXES. Income taxes for Fiscal 1995 were approximately $862,000 or 1.5% of net sales. Income taxes for Fiscal 1994 were approximately $431,000 or 1.2% of net sales. The Company accrued an income tax liability for Fiscal 1995 based on income earned during that year. In Fiscal 1994, the Company recorded an income tax expense that was reduced by the carryforward of federal and state net operating losses from prior fiscal years. This treatment was consistent with the provisions of FASB 109, utilizing its loss carryforwards as a component of income tax expense in the year actually used. NET INCOME. Net income of approximately $1,186,000 in Fiscal 1995 was an increase of approximately $95,000 from the approximate $1,091,000 of net income recognized in Fiscal 1994. As a percentage of net sales, net income represented approximately 2.9% and 2.1% of net sales for Fiscal 1994 and Fiscal 1995, respectively. The increase in net income was derived from the increase in net sales during Fiscal 1995. Income from operations declined by only 0.1% as a percentage of net sales, but the combined effect of interest expense, increased income taxes due to no operating loss carryforward and the provision for the minority interest accounted for the additional 0.5% decrease in Fiscal 1995 net income as a percentage of net sales. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements in connection with its operations, foreign development and marketing activities have been and will continue to be significant. As of September 30, 1997, the Company had a working capital deficit of approximately $4,718,000. The Company's independent certified public accountants stated in their report on the consolidated financial statements that due to losses from operations and a working capital deficit, there is substantial doubt about the Company's ability to continue as a going concern. The Company is dependent upon the proceeds of this Offering to continue its foreign development activities and its domestic operations and fund its marketing and expansion plans, as well as other working capital requirements. The Company anticipates, based on its currently proposed plans and assumptions relating to its operations (including assumptions regarding the progress and timing of its foreign development efforts), that the net proceeds of this Offering, together with anticipated revenues from operations and its current cash equivalent balances, will be sufficient to fund the Company's operations and capital requirements for at least 12 months following the consummation of this Offering. In the event the Company's plans change or its assumptions change or prove to be inaccurate, however, the Company could be required to seek additional financing sooner than currently anticipated. The Company 30 has no current arrangements with respect to, or potential sources of, any additional financing, and it is not anticipated that existing officers, directors and stockholders will provide any portion of the Company's future financing requirements. Consequently, there can be no assurance that any additional financing will be available to the Company when needed on commercially reasonable terms, or at all. Historically, the Company had generated significant cash flow from operations due to significant growth and minimal capital requirements. Additionally, the Company does not extend credit to associates, but requires payment prior to shipping products and accordingly does not have accounts receivable from associates other than those generated by credit issues and underpayments. The Company's principal need for funds has been for distributor incentives, working capital (principally inventory purchases), and the expansion into new markets. Prior to 1997, the Company had generally relied entirely on cash flow from operations to meet its business objectives without incurring long term debt to unrelated third parties. Because of the significant losses incurred by the Company over the past two fiscal years, it has become substantially dependent on loans from its officers and directors and private placements of its securities to fund its operations. These financings are described below. On or about January 1, 1997, the Company sold $300,000 in Agreement Notes to three private investors. As partial consideration for their purchase of the Agreement Notes, the Company issued warrants to the three investors to purchase an aggregate of approximately 41,000 shares of Common Stock of the Company at an exercise price of approximately $.01 per share of Common Stock. The Agreement Notes and related interest were paid in full in July 1997. During January 1997, the Company borrowed $200,000 for working capital purposes from a corporation, not otherwise affiliated with the Company, pursuant to demand promissory notes, bearing interest at the rate of 10% per month, and guaranteed by certain officers and directors of the Company. An August 25, 1997 agreement modified the repayment provisions of principal and interest, and required that the Company repay all interest and principal by December 31, 1997 and reduced the interest rate from 10% per month to 2% per month payable monthly, retroactive to March 5, 1997. Furthermore, in the event that the Company was unable to repay the principal and accrued interest on such notes in full by December 31, 1997, the Company would then be required to make twelve monthly payments, beginning January 1, 1998, in the amount of $18,911 each. In connection with this transaction, the lending corporation was issued options to purchase 50,000 shares of the Company's Common Stock at $6.60 per share. As of September 30, 1997, such options had not been exercised. On or about March 20, 1997, the Company completed a private placement of an aggregate of 500,000 shares of its Common Stock and 500,000 warrants for gross proceeds of $250,000 from five private investors (the "March 1997 Private Placement"). Following the payment of commissions and non-accountable expenses, an initial payment towards its non-accountable expenses for this Offering and counsel fees and expenses for that private placement, the Company received net proceeds of approximately $171,500. In May 1997, Kaire Korea, Ltd., pursuant to a demand promissory note bearing interest at the rate of 9.5% per year and guaranteed by the Company, borrowed $500,000 from Horphag, the Company's Pycnogenol supplier. An option expiring in May 2000 to acquire 15% of the capital stock of Kaire Korea Ltd. at the par value of Kaire Korea Ltd.'s capital stock was granted to Horphag as partial consideration for the note. The note provides for additional options to be issued in the event of late payments and/or the failure to pay the entire principal balance plus accrued interest within six months of the origination date of the note. As of September 30, 1997, a principal balance of $475,000 remains outstanding. No options to acquire capital stock of Kaire Korea Ltd. had been tendered as of September 30, 1997 by Horphag. Between June 3, 1997 and December 8, 1997, the Company completed a private placement of an aggregate of 345,000 shares of its Common Stock and $1,725,000 in principal amount of its promissory notes (10% Notes") to nine investors (the "Summer 1997 Private Placement"). Following the payment of 31 commission and non-accountable expenses, additional payments towards its non-accountable expenses for this Offering and counsel fees and expenses, the Company received approximately $1,400,000 in net proceeds. The 10% Notes bear interest at a rate of ten percent per year and mature and are payable in full (principal plus accrued but unpaid interest) upon the earlier of (a) eighteen months after issuance, (b) the completion date of an equity financing of the Company pursuant to which it receives gross proceeds of not less than $3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from the "Key Man" life insurance policies on any of its executive officers and directors. The 10% Notes are secured by the accounts and accounts receivable of the Company (as defined in the 10% Notes) but are subordinated to the Company's banking obligations. The Company intends to use a portion of the net proceeds of this Offering to repay the 10% Notes in full. During August 1997, the Company borrowed $200,000 from two lenders, not otherwise affiliated with the Company, pursuant to unsecured promissory notes bearing interest at the rate of 12% per year and due in September and October 1997. These notes were paid in full in December 1997. In connection with this borrowing, the lenders were each issued options to purchase 15,000 shares of the Company's Common Stock at $.01 per share. As of September 30, 1997, the options had not been exercised by either of the lenders. During August and September 1997, the Company borrowed approximately $492,000 from a lender, not otherwise affiliated with the Company, pursuant to two promissory notes bearing interest at a rate of .33% per day and guaranteed by certain officers and directors of the Company. Both notes were repaid by the Company in December 1997. During Nine Months 1997, two officers of the Company advanced $84,000 for working capital requirements. On November 28, 1997, the Company issued demand promissory notes bearing interest at the rate of 10% per year in the amount of $258,337 to the two officers for funds provided by those individuals to that date. During Nine Months 1997, the Company borrowed $663,000 from two individual stockholders and directors of the Company pursuant to demand promissory notes bearing interest at the rate of 10% per year and secured by the Company's shares of Aloe Commodities, Inc. In September 1997, the Company sold its shares of Aloe Commodities, Inc., at cost, and made a partial payment on the notes. The remaining outstanding balance of approximately $241,000 was renegotiated to two unsecured demand promissory notes bearing interest at the rate of 10% per year. During November 1997, the Company borrowed $700,000 from IMT. On December 9, 1997, the Company and certain of its stockholders entered into an Agreement and Plan of Reorganization (the "Agreement") with IMT whereby IMT agreed to provide an additional $300,000 equity investment in the Company and convert the $700,000 previously borrowed by the Company to equity in the Company and for IMT to provide $2,000,000 additional equity investments to the Company by February 15, 1998. Also, as discussed in Note 14 to the Consolidated Financial Statements, IMT acquired approximately 81% of the Common Stock of the Company and, therefore, the Company is a subsidiary of IMT. "YEAR 2000" PROBLEM. The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (year 2000) approaches. The "Year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. Management has not yet assessed the "Year 2000" compliance expense and related potential effect on the Company's earnings. RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 128, entitled "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting Standards No. 129, entitled "Disclosure of Information About an 32 Entity's Capital Structure" ("SFAS 129"). SFAS 128 provides a different method of calculating earnings per share than is currently used in accordance with Accounting Board Opinion ("ABP") No. 15, entitled "Earnings Per Share." SFAS 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS 128 and SFAS 129 are effective for financial statements issued for periods ending after December 15, 1997. Their implementation is not expected to have a material effect on the consolidated financial statements. In June 1997, FASB issued Statement of Financial Accounting Standard No. 130, entitled "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standard No. 131, entitled "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement displayed with the same prominence as other financial statements. SFAS 131 supersedes Statement of Financial Accounting Standard No. 14, entitled "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards of the way the public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to fully evaluate the impact, if any, the standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by the implementation of these standards. 33 BUSINESS The Company develops and distributes, through a network of independent associates, products that are intended to appeal to health-conscious consumers. Current Company products include health care supplements and personal care products. The Company offers a line of approximately 50 products which it divides into nine categories, including Antioxidant Protection, (Bodily) Defense, Digestion, Energy and Alertness, Stress, Vital Nutrients, Weight Management, Anti-Aging and Personal Care. The Company develops products that it believes will have market appeal to its associates and their customers, and assists its associates in establishing their own businesses. The Company associates can start a home based business without significant start-up costs and other difficulties usually associated with new ventures. The Company provides product development, marketing aids, customer service, and essential record-keeping functions to its associates without charge. The Company also provides other support programs to its associates including 24 hour TouchTalk system (as explained below), international teleconferencing calls, seminars, a monthly newsletter and business training systems with audio and video tapes and a Director Management Kit. It is the Company's strategy and expectation that associates actively recruit interested people to become new associates for the Company. These recruits are placed beneath the recruiting associate in the "network" and are referred to by the Company as that associate's "organization." Associates earn commissions on sales generated by the associates in their organization as well as retail profits on the sales they generate directly. The Company's marketing program is designed to provide incentive for associates to build an organization of recruited associates to maximize their earning potential. Approximately 60,000 of the Company's associates have had product purchases in excess of $50 during the past year and are considered by the Company to be "active". The Company purchases most of its products directly from manufacturers and markets them to its independent associates located in all fifty states, the District of Columbia, Puerto Rico, Guam, and Canada. In 1995, the Company expanded the number of its associates located in other parts of the world, particularly Australia and New Zealand. The Company expanded its operations into South Korea, Trinidad and Tobago and the United Kingdom during 1997. INDUSTRY OVERVIEW According to The Direct Selling Association, network marketing is one of the fastest growing segments for the distribution of products. There are approximately 300 companies that utilize network marketing techniques. The Direct Selling Association reports that worldwide, over 17.5 million individuals are now involved in directly selling (of which network marketing is a major segment) and that those involved in direct selling generate conservatively $68 billion in annual sales around the world. Network marketing sales in the United States are estimated to be approximately $9 billion annually. According to industry sources such as National Natural Foods Association ("NNFA"), the nutritional supplement industry is expanding because of heightened public awareness of the positive effects of vitamins and other nutritional supplements on health. BUSINESS STRATEGY The Company intends to pursue a business strategy of increasing sales and profitability by attracting and retaining associates to its network marketing system; increasing product sales to existing associates; expanding its marketing activities in new international markets and developing new products. The Company's ability to increase sales is significantly dependent on its ability to attract, motivate and retain associates. The Company utilizes an innovative marketing program which it believes is superior to programs offered by many other network marketing companies. This program provides financial incentives, including several forms of commission (bonus), a vehicle reimbursement program, optional associate 34 training and support, no sign-up costs, no inventory requirements, and low monthly purchase requirements. Management intends to reach potential new associates through increased advertising, teleconferencing and regional sales meetings. The Company has experienced an increase in the number of associates each year since inception. A key factor in the Company's strategy is to increase product sales to its associates by, among other things, the timely introduction of new products. In recent years, the Company has introduced several products that achieved consumer acceptance and contributed to increased sales. The Company's flagship product is Maritime Prime that was introduced in November 1992. Maritime Plus was introduced shortly thereafter, followed by Ultra Prime in 1995 and Super Prime (each tablet containing three times the essential product ingredient of a Maritime Prime tablet) in 1996. The Company's Aloe Vera product was introduced in 1993, while Colloidal Silver was introduced in 1994. In June 1996, the Company introduced the Yes! Weight Management Program, JoBelle Face Kaire Line, Synerzyme and Immunol. During 1997, the Company introduced a Fruit and Aloe Drink, AloElite, ArthriKaire, MSM Complex, Kavatu, and Inner Chi. The Company's newer products (e.g., those introduced in 1997) have higher margins of profit and one of the Company's strategies is to increase overall profitability as the newer products' share of overall sales increases. PRODUCT SUMMARIES The following table sets forth for some of the Company's products the dollar amount of the Company's revenues attributable to each such product during each of the Company's fiscal years indicated.
FISCAL YEAR ENDED DECEMBER 31, ------------------------------- PRODUCT (AND INTRODUCTION DATE) 1994 1995 1996 - --------------------------------------------------------------------------------- --------- --------- --------- (DOLLARS IN THOUSANDS) Maritime Prime (October 1992).................................................... $ 24,149 $ 34,418 $ 24,827 Aloe Vera (May 1993)............................................................. $ 2,295 $ 3,274 $ 2,172 Colloidal Silver (June 1994)..................................................... $ 1,780 $ 3,463 $ 2,228 Ultra Prime (June 1995).......................................................... NA $ 1,508 $ 2,311
The following table indicates how many of the Company's products were available as of September 30, 1997 in each of the Company's current markets.
PRODUCTS OFFERED ------------------------------------------------------------ TOTAL PRODUCT PRODUCTS CATEGORIES/LINES OFFERED U.S. CANADA NEW ZEALAND AUSTRALIA - ------------------------------------------------------ ------------- --- ------------- ----------------- ------------- Antioxidant Protection................................ 6 6 5 4 0 Defense............................................... 4 3 3 2 0 Digestion............................................. 5 5 4 5 2 Energy and Alertness.................................. 3 3 3 1 1 Stress................................................ 2 2 1 2 0 Vital Nutrients....................................... 5 3 2 2 0 Weight Management..................................... 7 7 0 0 0 Anti-Aging............................................ 2 2 0 0 0 Personal Care......................................... 18 18 18 12 12 TRINIDAD PRODUCT SOUTH AND CATEGORIES/LINES KOREA TOBAGO - ------------------------------------------------------ ----------- ------------- Antioxidant Protection................................ 4 6 Defense............................................... 0 2 Digestion............................................. 2 3 Energy and Alertness.................................. 0 3 Stress................................................ 1 2 Vital Nutrients....................................... 0 3 Weight Management..................................... 0 7 Anti-Aging............................................ 0 1 Personal Care......................................... 15 13
Presented below are the dollar amounts of each of the Company's product categories for the years ended December 31, 1995 and 1996, and for the nine months ended September 30, 1997. 35 REVENUE BY PRODUCT CATEGORY
YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED PRODUCT CATEGORY DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997 - ------------------------------------ ----------------- ----------------- ----------------- ------------------ (DOLLARS IN THOUSANDS) Antioxidant Protection.............. $ 28,731 $ 37,387 $ 33,947 $ 16,056 Defense............................. 1,780 3,463 3,000 2,022 Digestion........................... 1,986 3,141 2,534 1,519 Energy and Alertness................ -- -- 31 701 Stress.............................. -- 508 681 312 Vital Nutrients..................... 677 957 750 398 Weight Management................... 292 -- 611 70 Anti-Aging.......................... -- -- 43 541 Personal Care....................... 992 1,792 1,261 991
Currently, the Company has associates in all fifty states, the District of Columbia, Puerto Rico, Guam, Canada, Australia, New Zealand, Trinidad and Tobago, South Korea and the United Kingdom. Management believes that significant market potential exists for the Company's products in international markets, and it is the Company's intention to explore expansion into Japan, Europe, Hong Kong, Taiwan, India and the Philippines. Statistics from the World Federation of Direct Selling Associations as reported in January 1997 indicate that the direct sales market in the foregoing countries amounted to over $43 billion with 5.7 million individuals being involved in some form of direct marketing. This compares to $23.6 billion in sales and 7.2 million individuals involved in the markets currently serviced by the Company. DISTRIBUTION AND MARKETING The Company's products are distributed through its network marketing system of associates. Associates are independent contractors who purchase products directly from the Company for resale to retail consumers. Associates may elect to work on a full-time or a part-time basis. Management believes that its network marketing system is well suited to marketing its nutritional supplements and other products because sales of such products are strengthened by ongoing personal contract between retail consumers and associates, many of whom use the Company's products. Associates' revenues are derived from several sources. First, associates may receive revenues by purchasing the Company's products at wholesale prices and selling the Company's products to customers at retail prices. Second, associates earn the right to receive bonuses (commissions) based upon purchases by members of their organization. There are basically three types of bonuses that an associate can earn on product purchases by their organization. The standard bonus is available to any individual who has attained "Broker" status in the Company. Attaining "Broker" status is done by purchasing a minimum quantity for a month. The percentages used to determine the bonus and the number of levels in the organization the associate receives bonuses upon is based on the individual's status in the Company. The first status level being that of a "Broker" and the highest being an "Executive". There are two intermediary levels between "Broker" and "Executive." An associate achieves higher levels in the bonus structure primarily through increased purchases by associates sponsored directly by them (their first level) although the minimum monthly purchase as an individual does increase between certain levels. The requirements for an associate to reach an "Executive" level are generally monthly personal purchases exceeding $300 and monthly volume of $900 on their first level. The program is such that each month an associate must qualify at that level to be paid at that level. The advantage to this is that the associate must remain active in purchasing and sponsoring to retain their bonus, but if they miss a month, their income is only reduced that one month. A second form of bonus is available to those having multiple "Executives" in their first level. Based on the number of "Executives" they have at this first level, associates will receive a percentage of their standard bonus as an additional bonus. Finally, for those "Executives" attaining the highest levels in the 36 Company, they are allowed to participate in a percentage of the Company-wide Gross Bonusable Sales to be divided among qualifying "Executives." Management believes that the right of associates to earn bonuses contributes significantly to the Company's ability to retain its productive associates. Management believes the Company's associate compensation plan is superior to that of other network marketing organizations because the program offers an earning opportunity without the need to finance a large inventory of products and requires only a modest amount of sales to meet the bonus requirements. To become an associate, a person must simply sign an agreement to comply with the policies and procedures of the Company. No investment is necessary to become an associate. The Company considers approximately 60,000 of its associates to be "active", that is, an individual associate who has ordered at least $50 of the Company's products during the preceding 12 month period. The Company regularly sponsors opportunity meetings in various key cities and participates in motivational and training events in its market areas designed to inform prospective and existing associates about the Company's product line and selling techniques. Associates give presentations relating to their experiences with the Company's products and the methods by which they have developed their own organization of associates. Specific selling techniques are explained, and emphasis is placed on the need for consistency in using such techniques. Participants are encouraged to ask questions regarding selling techniques and product developments, to share information with other associates and to develop confidence in selling and goal-setting techniques. Motivation is offered to participants in the form of recognition, gifts, excursions and tours, which are intended to foster an atmosphere of excitement throughout the associate organization. Prospective associates are educated about the structure, dynamics and benefits of the Company's network marketing system. In Fiscal 1996, the Company's management participated in approximately 300 meetings and training events in approximately 100 cities throughout the United States, Canada, Puerto Rico, Australia and New Zealand. The Company continues to develop marketing strategies and programs to motivate associates. These programs are designed to increase associates' monthly product sales and the recruiting of new associates. An example of these programs is the Company's KAIRE SELECT PROGRAM. Under the Kaire Select Program, an associate may enroll in a minimum ordering program to maintain eligibility for performance bonuses. Minimum orders ranging from $50 to $550 per month are automatically placed by credit card or autodraft. The associate also gets preferred pricing, no minimum purchase requirement (once they have a qualifying select order set up), exclusive access to some product introductions, and discounts on Company sponsored events. As a result, this program ensures sales for the Company and the associates' participation in bonus programs. As part of the Company's maintenance of constant communication with its associate network, the Company offers the following support programs to its associates: TOUCHTALK AND FAXBACK. An automated telephone system that associates can call 24 hours a day to place orders, receive reports on the sales activity of their organization and listen to selected messages on special offers, marketing program updates, product information, and similar information. Certain information is also available via facsimile to the associate. 24 HOUR TELECONFERENCE. A weekly teleconference on various subjects such as technical product discussions, associate organization building and management techniques. An associate can listen to any of the last four weekly teleconferences. INTERNET. The Company maintains a web-site at http:\\www.kaireint.com on the Planet City mall. There, the user can read news letters, learn more about products, place an order or sign up to be an associate. This web-site became fully functional in early 1997. In addition, associates can send messages and orders to the Company e-mail address of kaireint.com. This allows associates to potentially be able to sponsor associates and order products 24 hours a day. 37 ASSOCIATE NEWS. A monthly Company newsletter updating product information, Company policies and procedures, associate recognition, and various news topics. PRODUCT LITERATURE. The Company produces for its associates color catalogues and brochures displaying and describing the Company's products. TOLL FREE ACCESS. A toll free number is available to place orders and sponsor new associates. The Company believes that it was one of the initial members in the network marketing industry to permit associates to sponsor new associates over the telephone. BROADCAST FAX. Company announcements and product specials are automatically sent via facsimile to associates who have requested this service. MARKETS The following table sets forth the countries in which the Company currently operates, the year operations were commenced in each country, and historical sales information by country during the past four years since formation.
YEARS ENDED -------------------------------------------------------------------- YEAR COUNTRY ENTERED 1992 1993 1994 1995 1996 - --------------------------------------------------------- ----------- ----------- --------- --------- --------- --------- (IN THOUSANDS) United States/Canada..................................... 1992/1993 $ 92 $ 2,719 $ 36,895 $ 54,841 $ 46,599 Australia................................................ 1995 -- -- -- $ 600 $ 1,000 New Zealand.............................................. 1995 -- -- -- $ 2,400 $ 3,900
Upon deciding to enter a new market, the Company hires local counsel to assist ensuring that the Company's network marketing system and products comply with all applicable regulations and that the Company's profits may be expatriated. In addition, local counsel assists in establishing favorable relations in the new market area by acting as liaison between the Company and local regulatory authorities, public officials and business people. Local counsel also is responsible for explaining the Company's products and product ingredients to appropriate regulators and, when necessary, will arrange for local technicians to conduct any required ingredient analysis tests of the Company's products. If regulatory approval is required in a foreign market, the Company's local counsel interfaces with local regulatory agencies to confirm that all of the ingredients of the Company's products are permissible within the new market. During the regulatory compliance process, the Company may alter the formulation, packaging or labeling of its products to conform to applicable regulations as well as local variations in customs and consumer habits, and the Company may modify certain aspects of its network marketing system as necessary to comply with applicable regulations. Following completion of the regulatory compliance phase, the Company undertakes the steps necessary to meet the operational requirements of the new market. The Company then initiates plans to satisfy inventory, distribution, personnel and transportation requirements of the new market, and modifies its associate training materials as may be necessary to be suitable for the new market. The Company has prepared manuals in Korean, French and Spanish. PRODUCTS The Company's product line consists of primarily consumable products that are targeted to growing consumer interest in natural health alternatives for nutrition and personal care. In developing its product line, the Company has emphasized quality, purity, potency, and safety. 38 ANTIOXIDANT PROTECTION. This line is primarily nutritional supplements based in antioxidants including Maritime Prime and other antioxidant blends. Most of the products are based on exclusive formulations in several combinations containing natural products including Pycnogenol and Arctic Root. Products containing Pycnogenol have not been approved for direct importation into Australia. The Company is currently seeking approval to import its products containing Pycnogenol into Australia in conjunction with the Therapeutic Goods Association of Australia. Maritime Plus is not available in Canada due to Canadian regulations on the ascorbate that is contained in this product. The Company is also working with French authorities for approval to import the Maritime Prime line into France. Pycnogenol has been recognized by sources not associated with the Company as a potent antioxidant. Pycnogenol, in the Company's formulation, is believed to be highly bioavailable and retained in the body for several days. Antioxidants have been shown to be effective in fighting the effects of oxidation on the body. Oxidation is the same process that causes metals to rust and apples to turn brown. Free radicals, which are molecules damaged by oxidation, are being studied as the causes of various infirmities in humans. A free radical is an unstable oxygen molecule seeking, at the molecular level, to pair up with an electron. Free radicals can be created in the atmosphere by the exposure of oxygen to sunlight and pollution. Free radicals can also be created by natural metabolic processes. Antioxidants are molecules which can combine with and, as a result, neutralize free radicals. Pycnogenol provides dietary support to assist the body in properly responding to inflammations. DEFENSE. The products in this category are primarily oriented towards working with the body's natural defense systems to make them more efficient. It consists of three of the more recent additions to the Kaire line, Colloidal Silver Kaire, Immunol and Noni. Colloidal Silver Kaire is a solution of silver particles electro-magnetically suspended in deionized water and provides dietary support for the immune system. It is used by individuals for a number of purposes including eye drops, a topical solution, nose drops and a drink. Immunol is a shark liver based capsule which the Company believes aids the human immune system. This product is imported exclusively by the Company, which obtained the worldwide marketing rights to this product in March 1996 from Marine Biologics, Inc. Noni is the most recent addition to the product line. Derived from a fruit grown only in the Central and South Pacific, it contains high levels of naturally occurring vitamins, minerals, trace elements, enzymes, and phytochemicals. The processing method of flash freezing the fruit and then processing it into capsules retains the high level of nutrients that may be lost through the pasteurization of liquid presentations of this product. DIGESTION. The main constituent of this group has long been the Aloe products. Aloe has been studied for a number of years as everything from a topical for skin irritations and sunburn to a supplement for improving the general health of the body. The Company has recently introduced Fruit-N-Aloe which is a more palatable form of the Aloe juice as it is mixed with fruit juices to get the Aloe benefits without the strong taste and AloElite, a more concentrated form of the Aloe juice. Two other products currently round out this line, a colon-cleansing product for periodic use in cleaning the lower digestive system and Synerzyme, a combination of naturally occurring enzymes and trace minerals to enhance the efficacy of the enzymes, which may assist the body with the breakdown and assimilation of various foods and fats. ENERGY AND ALERTNESS. AquaKaire Daytime and Night-time are two recently introduced Company products. They are concentrated, "clustered" water products whose purpose is to organize the water molecules in a manner intended to optimize the flow of electricity through the body thereby increasing energy levels. The water in these two products is combined with a number of other nutrients. AquaKaire Daytime is intended to make a user more active and alert. AquaKaire Night-time is intended to allow for 39 sound sleep and body rest. Inner Chi is another recent addition, combining raw honey with Chinese herbs and botanicals for a balanced, energy enhancing tonic. STRESS. Products in this category serve two primary purposes. The first is to provide adaptogens in an efficient medium and the second is to provide a natural relaxant for rest and sleep. Arctic Root is an adaptogen, an herb which works with the body to allow energy to be used by the body as needed as opposed to stimulants and depressants which affect the body's energy as a whole, over a certain period of time. Kavatu combines the extract from the Pacific KavaKava plant with other nutrients to form a product allowing for a more complete rest and sleep without the "hangover" effects of many artificial relaxants and sleep aids. VITAL NUTRIENTS. This category provides for many of the basic vitamins and nutrients which are missing in the typical adult or child's diet. WEIGHT MANAGEMENT. One of the newest members of the Company's product "family" is a weight management program that includes a number of products designed to work as a system to assist weight loss safely while giving the dieter a higher level of energy while maintaining a healthy body. This system concept is based upon a complete program including Company products, walking or other sensible exercise available to virtually all individuals and sensible permanent eating habits. Weight management products of the Company include LipeX (a product designed to inhibit the absorption of fat by the body), fiber wafers to reduce appetite, lubricate the system and inhibit fat absorption and nutritional bars to provide both a healthy meal snack alternative and to provide nutrients which interact with the LipeX to increase metabolism and fat burning in the system. The Company believes that the Weight Management Program is well designed to promote long-term, sustained weight loss. However, the Company's experience has been that many dieters are highly motivated to lose significant pounds quickly and the Yes! Weight Management Program does not work quickly enough for such persons. As a result, the Company is exploring several products which will allow it to penetrate the rapid weight loss market. ANTI-AGING. These products are intended to combat the effects of aging on the human body. DHEA. This is a hormonal product which replaces the same hormone in the body. Research shows that as a person matures their body generates diminishing amounts of DHEA. According to a number of research studies, DHEA is the hormone which allows the body to know its energy level. The Company has obtained from Dr. Steve Chernisky, author of "The DHEA Breakthrough" the exclusive rights to his signature line of products. ARTHRIKAIRE AND OSTEO FORMULA. ArthriKaire and Osteo Formula are Company products introduced in June 1997. Osteo Formula is a comprehensive bone supplement that provides 18 nutrients including four different types of calcium for maximum absorption and assimilation. ArthriKaire is designed to provide dietary support for joints, tendons and ligaments. This proprietary formula combines proteoglycans, vitamins and herbs that support the integrity of connective tissue. PERSONAL KAIRE. This includes JoBelle Gold (a skin softener containing gold flakes), Dermakaire (the Company's original moisturizing lotion with Pycnogenol), and the JoBelle Skin Care System consisting of shampoo, conditioner and body lotion as well as a "top of the line" six part face care system. An extension of the Company's Body Kaire System product line featuring tiny gold particles is one of the principal products the Company is distributing in South Korea. The Company is attempting to develop an upscale image for this product line with an appeal to a younger market than the Company's current United States associate base. 40 NEW PRODUCT DEVELOPMENT Additional products being considered in these areas are additional antioxidants, anti-aging, weight management, and energy products. In addition to the introduction of single products, the Company is also focusing on promoting groups of products to be taken in conjunction with each other to address specific needs (such as weight loss, stress, daily wellness, etc.) that an individual may have. The Company continually seeks to identify, develop and introduce innovative, effective and safe products. In Fiscal 1996 and Nine Months 1997, the Company introduced over ten new products or services. Management believes that its ability to introduce new products increases its associates' visibility and competitiveness in the marketplace. New product ideas are derived from a number of sources, including trade publications, scientific and health journals, the Company's management and consultants, and outside parties. Prior to introducing products into the Company's markets, the Company's scientific consultants, legal counsel and other representatives retained by the Company investigate product formulation matters as they relate to regulatory compliance and other issues. The Company's products are formulated to suit both the regulatory and marketing requirements of particular markets. The Company maintains its own product review and evaluation staff but relies upon independent research, vendor research departments, research consultants and others for product research, development and formulation services. When the Company, one of its consultants or another party identifies a new product concept or when an existing product must be reformulated for introduction into a new or existing market, the new product concept or reformulation is generally submitted to the Company's suppliers for technological development and implementation. The Company owns the proprietary rights to a majority of its product formulations. The Company expended no funds on new product research and development during Fiscal 1995 and 1996, respectively. PRODUCT WARRANTIES AND RETURNS The Company's product warranties and policy regarding returns of products are similar to those of other companies in its industry. If a consumer of any of the Company's products is not satisfied with the product, she/he may return it to the associate from whom the purchase was made, within 90 days of purchase. The associate is required to refund the purchase price to the consumer. The associate may then return the unused portion of the product to the Company for an exchange of equal value. If an associate requests a refund in lieu of an exchange, a check or credit card credit is issued. All products are warranted against defect by the manufacturer of those products. Most products returned to the Company, however, are not found to be defective in manufacture. MANAGEMENT INFORMATION SYSTEM The Company maintains a computerized system for processing associate orders and calculating associate commission and bonus payments enabling it to promptly remit payments to associates. The Company believes that prompt remittance of commissions and bonuses is vital to maintaining a motivated network of associates and that associate loyalty has been enhanced by the Company making commission and bonus payments as scheduled. The Company's computer system provides each associate a detailed monthly accounting of all sales and recruiting activity in his or her organization. These convenient statements eliminate the need for substantial record keeping on behalf of the associate. As a precaution, duplicate copies of the Company's computer records are transferred daily to an off-site location for safekeeping. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test the system for the Year 41 2000 compliance. It is anticipated that all reprogramming efforts will be completed by December 31, 1998, allowing adequate time for testing. MANUFACTURING AND SUPPLIES The Company currently purchases all of its vitamins, nutritional supplements and all other products and ingredients from parties that manufacture such products to the Company's specifications and standards. During Fiscal 1996, approximately two-thirds of the products purchased by the Company were supplied by M.W. International, Inc. ("MWI"). MWI is the Company's source of Pycnogenol. The Company places significant emphasis on quality control. All nutritional supplements, raw materials and finished products are subject to sample testing, weight testing and purity testing by independent laboratories. The Company has no written agreements with any of its suppliers including MWI. In the event of loss of any of its sources of supply, the Company believes that suitable replacement sources of similar products and product ingredients exist and are available to the Company. TRADEMARKS AND SERVICE MARKS Most products are packaged under the Company's "private label." The Company has registered trademarks with the United States Patent and Trademark Office for its name, logo and various products names. It has applied for trademark registration in several countries outside of those it is currently operating in for its name, logo and various product names. COMPETITION The Company competes with many companies marketing products similar to those sold and marketed by the Company. It also competes intensely with other network marketing companies in the recruitment of associates. There are many network marketing companies with which the Company competes for associates. Some of the largest of these are Nutrition for Life International, Inc., Nature's Sunshine, Inc., Herbalife International, Inc., Amway and Rexall Sundown, Inc. Each of these companies is substantially larger than the Company and has significantly greater financial and personnel resources than the Company. The Company competes for associates by means of its marketing program that includes its commission structure, training and support services, and other benefits. Not all competitors market all types of products marketed by the Company, and some competitors market products and services in addition to those marketed by the Company. For example, some competitors are known for and are identified with sales of herbal formulations, some are known for and are identified with sales of household cleaning and personal care products, and others are known for and are identified with sales of nutritional and dietary supplements. The Company's principal methods of competition for the sale of products are its responsiveness to changes in consumer preferences and its commitment to quality, purity, and safety. GOVERNMENT REGULATION Although the Company confines its activities to marketing and distribution, the manufacturing, processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by federal agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the United States Department of Agriculture, the United States Postal Service and the United States Environmental Protection Agency. These activities are also subject to regulation by various agencies of the jurisdictions, states and localities in which the Company's products are sold. 42 In November 1991, the FDA issued proposed regulations designed to, among other things, amend its food labeling regulations. The proposed regulations met with substantial opposition. In October 1994, the "Dietary Supplement Health and Education Act of 1994" (the "Dietary Supplement Law") was enacted. Section 11 of the Dietary Supplement Law provided that the advance notice of proposed rule making by the FDA concerning dietary supplements was null and void. FDA regulations that became effective on June 1, 1994 would require standard format nutrition labeling on dietary supplements. However, because the new Dietary Supplement Law also addresses labeling of dietary supplements, the FDA has indicated that it would not enforce its labeling regulations until January 1, 1998. In the interim, new regulations are expected to be proposed by the FDA. Because the FDA has not yet reconciled its existing regulations with the new Dietary Supplement Law, the Company cannot determine to what extent any changed or amended regulations will affect its business. The Dietary Supplement Law did not affect the July 1, 1994 effectiveness of the FDA's health claims regulations. Those regulations prohibit any express or implied health claims for dietary supplements unless such claims are approved in advance by the FDA through the promulgation of specific authorizing regulations. Such approvals are rarely provided by the FDA. Therefore, no claim may be made on a dietary supplement label or in printed sales literature, "that expressly or by implication characterizes the relationship of any substance to a disease or health-related condition." The Company cannot determine what effect currently proposed FDA regulations, when and if promulgated, will have on its business in the future. Such regulations could, among other things, require expanded or different labeling, recalling or discontinuing of certain products, additional record keeping and expanded documentation of the properties and certain products and scientific substantiation. In addition, the Company cannot predict whether new legislation regulating its activities will be enacted, which new legislation could have a material adverse effect on the Company. The Company has an ongoing compliance program with assistance from FDA counsel regarding the nature and scope of food and drug legal matters affecting the Company's business and products. The Company is unaware of any legal actions pending or threatened by the FDA or any other governmental authority against the Company. Direct selling activities are regulated by various governmental agencies. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as "pyramid" or "chain sales" schemes, that promise quick rewards for little or no effort, require high entry costs, use high pressure recruiting methods and/or do not involve legitimate products. The Company complies with South Korea's strict Door-to-Door Sales Act, which requires, among other things, the regular reporting of revenue, the registration of distributors together with the issuance of a registration card, and the maintaining of a current distributor registry. This law also limits the amount of sponsoring bonuses that a registered multi-level marketing company can pay to its distributors up to a maximum of 35% of revenue in a given month. As is the case with most network marketing companies, the Company has from time to time received inquiries from various government regulatory authorities regarding the nature of their business and other issues such as compliance with local business opportunity and securities laws. Although to date none of these inquiries has resulted in a finding materially adverse to the Company, there can be no assurance that the Company will not face inquiries in the future which, either as a result of findings adverse to the Company or as a result of adverse publicity resulting from the initiation of such inquiries, could have a material adverse effect on the Company's business and results of operations. Based on research conducted in opening its existing markets (including assistance from local counsel), the nature and scope of inquiries from government regulatory authorities and the Company's history of operations in such markets to date, the Company believes that its method of distribution is in compliance in all material respects with the laws and regulations relating to direct selling activities of the countries in which the Company currently operates. Even though management believes that laws governing direct 43 selling are generally becoming more permissive, many countries currently have laws in place that would prohibit the Company from conducting business in such markets. There can be no assurance that the Company will be allowed to continue to conduct business in each of its existing markets that it currently services or any new market it may enter in the future. The Company is subject to or affected by extensive governmental regulations not specifically addressed to network marketing. Such regulations govern, among other things, (i) product formulation, labeling, packaging and importation, (ii) product claims and advertising, whether made by the Company, or its associates, (iii) fair trade and distributor practices, and (iv) taxes, transfer pricing and similar regulations that affect foreign taxable income and customers duties. In South Korea, the Company has obtained the mandatory certificate of confirmation as a qualified importer of health assistance foods under the Food Sanitation Law ("FSL") of that country, as well as additional product approvals for each of the special nutritional food categories of products which it imports into that country. Each new product undergoes a 60 day post-customs quarantine/inspection on cosmetics and 18 day post-customs quarantine/inspection on food supplements where, in addition to compliance with ingredient requirements, each product is inspected for compliance with South Korean labeling requirements. Based on the Company's experience and research (including assistance from local counsel) and the nature and scope of inquiries from government regulatory authorities, the Company believes that it is in material compliance with all regulations applicable to it. Despite this belief, the Company could be found not to be in material compliance with existing regulations as a result of, among other things, the considerable interpretative and enforcement discretion given to regulators or misconduct by associates. There can be no assurances that the Company will not be subject to inquiries and regulatory investigations or disputes and the effects of any adverse publicity resulting therefrom. Any assertion or determination that the Company or any Company associate are not in compliance with existing laws or regulations could have a material adverse effect on the Company's business and results of operations. In addition, in any country or jurisdiction, the adoption of new laws or regulations or changes in the interpretation of existing laws or regulations could generate negative publicity and/or have a material adverse effect on the Company's business and results of operations. The Company cannot determine the effect, if any, that future governmental regulations or administrative orders may have on the Company's business and results of operations. Moreover, governmental regulations in countries where the Company may commence or expand its operations may prevent, delay or limit market entry of certain products or require the reformulation of such products. Regulatory action, whether or not it results in a final determination adverse to the Company, has the potential to create negative publicity, with detrimental effects on the motivation and recruitment of associates and consequently, on the Company's sales and earnings. PROPERTIES The Company leases approximately 42,000 square feet of office and warehouse space in four buildings in Longmont, Colorado. The lease terms expire over a span of one month to three years, and the current monthly rate is approximately $16,000 per month. The Australian and New Zealand subsidiaries also lease their office and warehouse facilities of approximately 8,000 square feet for a period of approximately five years. The Company has entered into leases at June 1, 1997 through its South Korean and Trinidad and Tobago subsidiaries. The former is a three year lease on the second floor in one of the office/commercial buildings in downtown Seoul. The Trinidad and Tobago office is approximately 1,100 square feet in downtown Port-of-Spain. That lease is for one year with two one-year renewals. As of December 31, 1997, the Company was entering a lease of approximately 4,800 square feet for 11 years in Solihull, England, with an option to review the leases after 5 years, and terminate with notice. Management of the Company believes that such properties are suitable and adequate for current operating needs. 44 EMPLOYEES At September 30, 1997, the Company had employed approximately 96 full time persons of whom three were executive, 17 were engaged in finance and administrative activities, 17 in order entry, two in travel services, six in MIS, five in purchasing, two in compliance, eight in data support services, one in international development, two in human resources, one in associate services, one in public relations, ten in customer relations, eleven in marketing and ten in shipping. None of the Company's employees is represented by a collective bargaining unit. The Company believes that its relationship with its employees is good. LEGAL PROCEEDINGS To the knowledge of the management of the Company, there is no material litigation pending or threatened against the Company nor are there any such proceedings to which the Company is a party. However, the Company is the subject of an investigation by the United States Department of Justice, Office of Consumer Litigation, into the actions by certain specifically named individuals active in the dietary supplement industry. The Company was initially contacted in January, 1997 and was advised, in writing, that it is not a "target" of the Department's investigation, but that it is a "subject" (meaning that its conduct is deemed to be within the scope of the investigation) thereof. Pursuant to the investigation, the Department has requested further information from the Company, and the Company has requested that a court determine whether it has any obligation to do so. The Company has also received a voluntary request for information from the FTC regarding a separate investigation into dietary supplement interactions with certain disorders. The Company voluntarily produced information to the FTC with regards to the initial request, and has received a subsequent request for additional information. The Company is presently formulating an appropriate response to this second request. 45 MANAGEMENT The directors and executive officers of the Company are as follows:
NAME AGE COMPANY POSITIONS - ----------------------------------------------------- --- ----------------------------------------------------- Robert L. Richards................................... 52 Chief Executive Officer and Director Michael Lightfoot.................................... 44 President Loren E. Bagley...................................... 55 Chairman of the Board J.T. Whitworth....................................... 61 Chief Operating Officer, Chief Financial Officer and Director William F. Woodburn.................................. 56 Treasurer and Director L. Charles Laursen................................... 43 Vice President of Finance Mark D. Woodburn..................................... 27 Secretary and Director Steven Westlund...................................... 51 Director Peter Benz........................................... 37 Director
Set forth below is a brief background of the Company's Executive Officers and Directors of the Company, based upon information supplied by them. ROBERT L. RICHARDS, co-founder of the Company, has been Senior Executive Vice President (since November 1994), Chief Executive Officer (since August 1996) and a Director of the Company since its inception in October 1992. Mr. Richards also served as the Company's Executive Vice President and Chief Financial Officer from 1992 to 1994. From 1989 until joining the Company, Mr. Richards was the vice president of Continental Tax Corporation, a property tax consulting firm. From 1982 to 1989, Mr. Richards was the president of RARADAN Oil Company, a company engaged in the development of oil and gas joint ventures. Mr. Richards was a Captain in the United States Air Force and an instructor-pilot from 1970 to 1975. He is an athlete, having been National Champion and All American in 1966 in the 3,000 meter steeplechase. He was also on the United States Olympic Training Team (steeplechase) in 1968 and 1972. Mr. Richards graduated from Brigham Young University with a Bachelor of Science degree in Geology. MICHAEL LIGHTFOOT has been President of Kaire International, Inc. since August 1997. Mr. Lightfoot has been involved with the Company since 1993, when he joined the Company as an associate and formed Kaire International (Canada) Ltd. in September 1993. Prior to 1993, Mr. Lightfoot was regional general manager for Forever Living Products, Inc. of British Columbia, Canada. Mr. Lightfoot has over 20 years experience in network marketing. LOREN E. BAGLEY has been Chairman of the Company's Board of Directors since its inception. Mr. Bagley is also president and chief executive officer of Trans Energy, Inc. ("TEI"), a company whose securities are listed on NASDAQ, having been TEI's executive vice president from August 1991 until assuming his current responsibilities at TEI in September 1993. From 1979 to the present, Mr. Bagley has also been self employed in the oil and gas industry as president, chief executive officer or vice president of various corporations which he has either started or purchased, including Ritchie County Gathering Systems, Inc. Prior to becoming involved in the oil and gas industry, Mr. Bagley was employed by the United States Government with the Agriculture Department. Mr. Bagley attended Ohio University and Salem College and received a Bachelor of Arts degree. J.T. WHITWORTH joined the Company in 1994 as Vice President of Operations. In 1995 he was promoted to Executive Vice President of Operations and Chief Financial Officer. He was promoted to Chief Operating Officer and Chief Financial Officer in 1997. He was elected a Director of the Company in 1996. From 1983 until joining the Company, Mr. Whitworth was manager of worldwide commerce, import, export, and corporate distribution of AGCO Corporation ("AGCO"), a major farm equipment manufacturer. During his tenure with AGCO, which was from 1961 until 1994, he held several managerial positions. 46 WILLIAM F. WOODBURN has been Treasurer and a Director of the Company since its inception. Mr. Woodburn is also vice president in charge of TEI's operations and has been a director of TEI since August 1991. Mr. Woodburn has been actively engaged in the oil and gas business in various capacities for the past fourteen years. Prior to his involvement in the oil and gas industry, Mr. Woodburn was employed by the United States Army Corps of Engineers for twenty four years and was resident engineer on several construction projects. Mr. Woodburn graduated from West Virginia University with a Bachelor of Science degree in Civil Engineering. L. CHARLES LAURSEN, a Certified Public Accountant, joined the Company in July 1994 as its Controller. Mr. Laursen was promoted to the position of Vice President of Finance in May 1996. From 1990 until joining the Company, Mr. Laursen was the controller of Solid Systems Engineering, a heavy equipment distributor. From 1985 until 1990, Mr. Laursen was the controller of Pratt Partnership, an industrial park complex encompassing construction, maintenance, property management, and hotel operations. Mr. Laursen graduated from Colorado State University with a Bachelor of Science degree in Accounting. MARK D. WOODBURN has been Secretary and a Director of the Company since its inception. He also serves as assistant secretary of TEI, a position which he has held for the past four years. Mark D. Woodburn is the son of William F. Woodburn. STEVEN WESTLUND has been a Director of Kaire International, Inc. since December 1997. Mr. Westlund is presently the Chief Executive Officer and Chairman of the Board of Interactive Medical Technologies, Ltd., a nutritional development company, and has served in those capacities since May 1995. Mr. Westlund is also presently the Chief Executive Officer of Lorenz/Germaine Inc., a personal care product distributor. From May 1993 to February 1995, Mr. Westlund was Chief Executive Officer and Chairman of the Board of Vitafort International Corporation, a nutritional development company. Prior to May 1993, Mr. Westlund was a consultant to several corporations in the distribution industry specializing in restructuring and recapitalization. PETER BENZ has been a Director of Kaire International, Inc. since December 1997. Mr. Benz is presently the President of Interactive Medical Technologies, Ltd. and has served in that capacity since May 1995. Mr. Benz has also been the Chairman of the Board of North American Health & Fitness Corporation. Mr. Benz graduated from the University of Notre Dame with a Bachelor of Science degree in Business Administration. Directors of the Company serve until the next annual meeting of stockholders of the Company and until their successors are elected and duly qualified. Officers of the Company will be elected annually by the Board of Directors and serve at the discretion of the Board of Directors. The Board of Directors of the Company has established the following committees: an Executive Committee, the members of which are Robert L. Richards, J.T. Whitworth, Loren E. Bagley, Peter Benz and Steve Westlund with Loren Bagley as Chairman; and an Audit Committee, the members of which are J.T. Whitworth, Loren E. Bagley, Peter Benz and Steve Westlund with Loren E. Bagley as Chairman. EXECUTIVE COMPENSATION The following table summarizes compensation with respect to Fiscal 1994, Fiscal 1995 and Fiscal 1996 earned by the Company's President, Chief Executive Officer and the other executive officers of the Company who earned more than $100,000 during Fiscal 1994, Fiscal 1995 or Fiscal 1996 (the "Named Executive Officers"). The Named Executive Officers set forth below were officers of the Company during the years indicated and were compensated for service in such position in the manner set forth below. 47 SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION --------------------------- FISCAL ALL OTHER NAME AND POSITION YEAR SALARY ($) BONUS ($) COMPENSATION - ------------------------------------------------------------------- ----------- ---------- --------------- ------------- Nick A. Mangeris, former President................................. 1996 $ 156,984 0 20,931(5) 1995 $ 124,602 0 6,660(1) 1994 $ 120,807 0 807 Robert L. Richards, currently Chief Executive Officer.............. 1996 $ 178,666 0 10,915(6) 1995 $ 118,760 0 901(2) 1994 $ 120,641 0 639 J.T. Whitworth, currently Chief Operating Officer and Chief 1996 $ 133,700 0 15,320(7) Financial Officer................................................ 1995 $ 97,069 0 815(3) 1994 $ 34,718 0 134 David Crockett, former Vice President of Sales..................... 1996 $ 115,264 0 10,766(8) 1995 $ 103,904 0 1,831(4) 1994 $ 49,134 0 390
- ------------------------ (1) Includes the value to Mr. Mangeris of a leased car, provided by the Company and other benefits provided to him. (2) Includes the value to Mr. Richards of miscellaneous benefits provided to him. (3) Includes the value to Mr. Whitworth of miscellaneous benefits provided to him. (4) Includes the value to Mr. Crockett of a leased car, provided by the Company and other benefits provided to him. (5) Includes the value to Mr. Mangeris of a leased car, provided by the Company, the Company's matching contributions in Fiscal 1996 to the Company's 401(k) plan and other benefits provided to him. (6) Includes the value to Mr. Richards of a leased car, provided by the Company, the Company's matching contributions in Fiscal 1996 to the Company's 401(k) plan and other benefits provided to him. (7) Includes the value to Mr. Whitworth of a leased car, provided by the Company, the Company's matching contributions in Fiscal 1996 to the Company's 401(k) plan and other benefits provided to him. (8) Includes the value to Mr. Crockett of a leased car, provided by the Company, the Company's matching contribution in Fiscal 1996 to the Company's 401(k) plan and other benefits provided to him. EMPLOYMENT AGREEMENTS AND ARRANGEMENTS The Company has entered into an employment agreement with Robert L. Richards pursuant to which he will act as Chief Executive Officer of the Company for a five year period, at an annual salary of $180,000, subject to annual increases or bonuses as may be determined by the Board of Directors. The employment agreement requires the Company to pay Mr. Richards in the event that he is unable to perform his duties by reason of illness or disability during the remaining term of the contract at an annual salary of $65,000 and the employment agreement also requires the Company to indemnify him to the full extent permitted under the Delaware General Corporation Law. The employment agreement requires that he devote his full work time to his duties of the Company, including the evaluation and negotiation of potential acquisitions. 48 The Company's employment agreement with Mr. Richards contains provisions for payments of salary and benefits following a change of control (as defined) of the Company. Upon a change in control of the Company and his termination thereof, Mr. Richards would be entitled to, within 30 days of such termination, an amount equal to the Net Present Value (NPV), discounted at 5%, of the remaining compensation due him under the term of his contract, and continued life, health and disability insurance for a period of one year. The Company has entered into an employment agreement with J.T. Whitworth pursuant to which he will act as Chief Operating Officer and Chief Financial Officer of the Company for a five year period, at an annual salary of $180,000, subject to annual increases or bonuses as may be determined by the Board of Directors. The employment agreement requires the Company to pay Mr. Whitworth in the event that he is unable to perform his duties by reason of illness or disability during the remaining term of the contract at an annual salary of $65,000 and the employment agreement also requires the Company to indemnify him to the full extent permitted under the Delaware General Corporation Law. The employment agreement requires that he devote his full work time to his duties of the Company, including the evaluation and negotiation of potential acquisitions. The Company's employment agreement with Mr. Whitworth contains provisions for payments of salary and benefits following a change of control (as defined) of the Company. Upon a change in control of the Company and his termination thereof, Mr. Whitworth would be entitled to, within 30 days of such termination, an amount equal to the Net Present Value (NPV), discounted at 5%, of the remaining compensation due him under the term of his contract, and continued life, health and disability insurance for a period of one year. The Company has entered into an employment agreement with Mr. Robert J. Young pursuant to which he will act as Marketing Director of the Company for the period August 11, 1997 through August 31, 1998, at an annual salary of $125,000. The employment contract requires that he devote his full work time to his duties of the Company. The Company's employment agreement with Mr. Young contains a provision that the Company reimburse him for up to $62,500 of documented educational tuition and educational expenses incurred by him while he attends graduate school beginning September 1, 1998 through November 1, 1999. COMPENSATION OF DIRECTORS Directors of the Company do not receive compensation for their services as directors; however, the Board of Directors may authorize the payment of compensation to directors for their attendance at regular and special meetings of the Board and for attendance at meetings of committees of the Board as is customary for similar companies. Directors will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties to the Company. LIMITATION ON LIABILITY OF DIRECTORS The Delaware General Corporation Law permits a corporation, through its Certificate of Incorporation, to exonerate its directors from personal liability to the corporation or to its stockholders for monetary damages for breach of fiduciary duty of care as a director, with certain exceptions. The exceptions include a breach of the director's duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, improper declarations of dividends, and transactions from which the directors derived an improper personal benefit. The Company's Certificate of Incorporation exonerates its directors from monetary liability to the extent permitted by this statutory provision. The Company has been advised that it is the position of the Commission that, insofar as the foregoing provision may be invoked to disclaim liability for damages arising under the Securities Act, that provision is against public policy as expressed in the Securities Act and is therefore unenforceable. 49 STOCK OPTION PLAN In July 1997, the Board of Directors adopted and the stockholders approved the Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"). The 1997 Stock Option Plan provides for the grant of (i) options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422A of the Internal Revenue Code, as amended (the "Code"), to certain employees, directors and consultants and (ii) options not intended to so qualify ("Non-Qualified Stock Options") to employees (including directors and officers who are employees of the Company), directors and consultants. The total number of shares of Common Stock for which options may be granted under the 1997 Stock Option Plan is 1,000,000 shares. The 1997 Stock Option Plan is to be administered by the Board of Directors or a committee of the Board of Directors which will determine the terms of options granted, including the exercise price, the number of shares subject to the option and the terms and conditions of exercise. No option granted under the 1997 Stock Option Plan is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable during the lifetime of the optionee only by such optionee. The exercise price of all stock options granted under the 1997 Stock Option Plan must be at least equal to the fair market value of such shares on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting rights of all classes of the Company's outstanding capital stock, the exercise price of any Incentive Stock Option must be not less than 110% of the fair market value on the date of grant. The term of each option granted pursuant to the 1997 Stock Option Plan may be established by the Board of Directors or a committee of the Board of Directors, in its sole discretion; provided, however, that the maximum term of each Incentive Stock Option granted pursuant to the 1997 Stock Option Plan is ten years. With respect to any Incentive Stock Option granted to a participant who owns stock possessing more than 10% of the voting rights of all classes of the Company's outstanding capital stock, the maximum term is five years. Options shall become exercisable at such times and in such installments as the Board of Directors or a committee of the Board of Directors shall provide in the terms of each individual option. The Company has agreed with the Underwriter that for a period of two years from the date of this Prospectus, without the Underwriter's written consent, not more than 375,000 of the options shall be granted to persons who are officers and/or directors of the Company on the date of the Prospectus, except that the Underwriter will not unreasonably withhold consent to the grant or vesting of such options based on the achievement of goals established in advance and reasonably approved by the Company's Board of Directors and the Underwriter. OTHER COMPENSATION The Company provides basic health, major medical and life insurance for its employees, including its executive officers. The Company has also adopted a 401(K) Profit Sharing Retirement Plan for eligible employees, as described below. No other retirement, pension or similar program has been adopted by the Company. These and other benefits may be adopted by the Company for its employees in the future. On January 1, 1996, the Company adopted a 401(K) Profit Sharing Retirement Plan for its employees ("401(K) Plan"). Eligible employees include all employees of the Company who have completed one year of employment and have attained the age of 21. The 401(K) Plan permits employees to make voluntary contributions to the 401(K) Plan up to a dollar limit set by law. The Company may contribute in discretionary matching contributions equal to the Company's determined percentage of the employee's contributions. Benefits under the 401(K) Plan are distributable upon retirement, disability, termination of employment or certain financial hardship, subject to regulatory requirements. Each participant's share of the Company's contributions vests at the rate of 20% per year until after 5 years of service, at which time the participant becomes fully vested. 50 For its fiscal year ended December 31, 1996, the Company made a contribution to the 401(K) Plan of approximately $67,000, of which $5,317, $0, $3,774, $900, $2,335, $540 and $12,866, were for the benefit of Robert L. Richards, Loren E. Bagley, J.T. Whitworth, William F. Woodburn, L. Charles Laursen, Mark D. Woodburn and all of the Company's executive officers as a group, respectively. Amounts to be contributed in the future are at the discretion of the Company's Board of Directors. Accordingly, it is not possible to estimate the amount of benefits that will be payable to participants in the 401(K) Plan upon their retirement. The trustees under the 401(K) Plan are J.T. Whitworth and L. Charles Laursen. PRINCIPAL STOCKHOLDERS The following table sets forth, as of the date of this Prospectus, certain information concerning beneficial ownership of shares of Common Stock with respect to (i) each person known to the Company to own 5% or more of the outstanding shares of Common Stock, (ii) each executive officer and director of the Company, and (iii) all executive officers and directors of the Company as a group:
AMOUNT AND APPROXIMATE NATURE OF APPROXIMATE PERCENTAGE OF BENEFICIAL PERCENTAGE OF COMMON COMMON STOCK OWNED OWNERSHIP STOCK BEFORE OFFERING AFTER OFFERING ----------- ----------------------- ----------------------- Robert L. Richards(1)(2)................................ 0 0% 0% Michael A. Lightfoot(1)(2).............................. 0 0% 0% Loren E. Bagley(1)(2)................................... 0 0% 0% J.T. Whitworth(1)(2).................................... 0 0% 0% William F. Woodburn(1)(2)............................... 0 0% 0% L. Charles Laursen(1)(2)................................ 0 0% 0% Mark D. Woodburn(1)(2).................................. 0 0% 0% Steven Westlund(1)(2)................................... 0 0% 0% Peter Benz(1)(2)........................................ 0 0% 0% Interactive Medical Technologies, Ltd................... 3,573,351 81% 66% 2139 Pontius Avenue Los Angeles, CA 90025 Magic Consulting Group, Inc.(3)......................... 400,000 9% 7% c/o Eletto & Santello 75 N. Central Avenue Elmsford, NY 10523 All executive officers and directors as a group (9 persons)................................ 0 0% 0%
- ------------------------ (1) The address for each of the above referenced persons or entities is c/o Kaire International Inc., 380 Lashley Street, Longmont, Colorado 80501. (2) Does not include options that may be granted under the Company's 1997 Stock Option Plan. See "Management." (3) Includes 100,000 shares of the Company's Common Stock and gives effect to the exercise of warrants to purchase 300,000 shares of the Company's Common Stock owned by such entity. See "Certain Transactions." 51 CERTAIN TRANSACTIONS In January 1997, the Company borrowed $102,500 from each of its Chairman, Loren E. Bagley, and Treasurer and Director, William F. Woodburn, and delivered one 10% unsecured promissory note each to Mr. Bagley and Mr. Woodburn. In July 1997, the Company borrowed an additional $229,000 from each of Messrs. Bagley and Woodburn, executed and delivered 10% secured promissory notes to each officer, and pledged 1,400,000 shares of Aloe Commodities, Inc., valued at an aggregate of $250,000, as collateral for the notes. All of the foregoing notes were due on demand. In September 1997, each of Messrs. Bagley and Woodburn demanded payment on all of the foregoing notes. The Company sold its shares of Aloe Commodities, Inc. and repaid a portion of the principal amount and accrued interest to each of Messrs. Bagley and Woodburn, and negotiated the cancellation of each of the foregoing notes in exchange for its execution and delivery of new principal amount $120,412 10% unsecured promissory notes, one each in the favor of Mr. Bagley and Mr. Woodburn, also payable upon demand. In December 1997, both Mr. Bagley and Mr. Woodburn signed agreements with the Company not to demand repayment until and unless the Company had achieved certain financial benchmarks. On February 4, 1997, the Company entered into a Consulting Contract with Magic Consulting Group, Inc. ("Consultant"). Consultant received the following compensation for its services: (i) one warrant to purchase 100,000 shares of Common Stock of the Company for $.01 per share, (ii) 100,000 warrants to purchase an aggregate of 100,000 shares of Common Stock of the Company at $6.60 per share, such warrants to be identical to the warrants issued by the Company in this Offering, (iii) $2,500 per month for a period of 60 months from the date of the Consulting Contract. As of September 30, 1997, Consultant had not exercised its warrants to purchase shares of the Common Stock of the Company. In March 1997, the Consultant purchased 100,000 shares of the Company's Common Stock and 100,000 warrants for $50,000 as part of a private offering of the Company's securities. On August 25, 1997, the Company renegotiated the terms of a loan to a corporation in the principal amount of $200,000 and as part of such renegotiated terms issued to the corporation 50,000 warrants to purchase 50,000 shares of Common Stock of the Company at $6.60 per share, such warrants to be identical to the warrants issued by the Company in its public offering of securities. On August 29, 1997, the Company borrowed $100,000 from a corporation for a note bearing interest at 12%, due October 13, 1997. In connection with the borrowing, the corporation was issued one year options to purchase 15,000 shares of the Common Stock of the Company at $.01 per share. As of September 30, 1997, the options had vested but had not been exercised. On August 29, 1997, the Company borrowed $100,000 from a corporation for a note bearing interest at 12%, due September 27, 1997. In connection with this borrowing, the corporation was issued one year options to purchase 15,000 shares of the Common Stock of the Company at $.01 per share. As of September 30, 1997, the options had vested but had not been exercised. As of September 30, 1997, the Company had borrowed $103,237 from its Chief Operating Officer, Chief Financial Officer and Director, J.T. Whitworth. Subsequent to September 30, 1997, the Company borrowed from Mr. Whitworth an additional $36,834, and delivered a $140,071 principal amount 10% unsecured promissory note to Mr. Whitworth. The promissory note is due upon demand. During December 1997, Mr. Whitworth entered into an agreement with the Company that he would not seek repayment of the note until the Company had reached certain financial goals. As of September 30, 1997, the Company had borrowed $55,865 from its Chief Executive Officer and Director, Robert L. Richards. Subsequent to September 30, 1997, the Company borrowed from Mr. Richards an additional $62,401 and executed a $118,266 principal amount 10% unsecured promissory note in the favor of Mr. Richards at 10% interest. The promissory note is due upon demand. During December 1997, Mr. Richards entered into an agreement with the Company that he would not seek repayment of the note until the Company had reached certain financial goals. 52 On December 9, 1997, the Company and certain holders of common stock of the Company holding approximately 81% of the issued and outstanding stock of the Company entered into an "Agreement and Plan of Reorganization" with Interactive Medical Technologies, Inc. ("IMT"), a Delaware corporation. IMT, as part of the Plan of Reorganization, has committed to invest $3,000,000 in equity in the Company, of which $1,000,000 has been invested in the Company as of December 31, 1997. Certain holders of common stock of the Company exchanged their shares for approximately 45% of the common shares of IMT in a transaction which qualified as a tax free reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. As part of the transaction, the Company's Board of Directors was expanded by two new directors. As part of the Plan of Reorganization, the following identified current and former executive officers and directors (or entities in which they hold a beneficial interest) exchanged the stated number of shares of the Company's Common Stock for the indicated number of IMT's shares of Common Stock:
NUMBER OF THE COMPANY'S NUMBER OF IMT'S NAME AND TITLE SHARES EXCHANGED SHARES RECEIVED - ----------------------------------------------------------------------------- ----------------- ---------------- Robert L. Richards, Chief Executive Officer and Director..................... 627,200 20,748,079 William F. Woodburn, Treasurer and Director.................................. 308,823 10,215,639 Loren E. Bagley, Chairman of the Board....................................... 308,823 10,215,639 Mark D. Woodburn, Secretary and Director..................................... 308,823 10,215,639 J.T. Whitworth, Chief Operating Officer, Chief Financial Officer and Director................................................................... 294,000 9,726,253 Michael Lightfoot, President................................................. 61,600 2,036,745 Nick A. Mangeris, former President........................................... 767,200 25,379,516
PRIVATE PLACEMENTS OF THE COMPANY'S SECURITIES Pursuant to a Loan and Security Agreement (the "Loan Agreement"), by and among the Company and 3 private investors, in or about January 1997, the Company sold to such investors $300,000 of Agreement Notes. In consideration for the purchase of the Agreement Notes, the Company granted to the holders of the Agreement Notes, the Agreement Warrants to purchase an aggregate of approximately 41,000 shares of Common Stock of the Company at an exercise price of approximately $.01 per share of Common Stock (as adjusted to reflect the anti-dilution provisions in the Agreement Warrants). The Agreement Warrants expire in January 2000 and include "piggyback" registration rights relating to the shares of Common Stock issuable upon exercise of the Agreement Warrants subject to the rights of any Underwriter of such an offering to exclude a reasonable amount of such shares if market factors require a limitation on the number of shares to be underwritten. The Underwriter has advised the Company and the holders of the Agreement Warrants that market conditions prevent the inclusion of any of the shares of the Company's Common Stock underlying the Agreement Warrants from being included in the registration statement of which this Prospectus forms a part. On or about March 20, 1997, the Company completed a private placement of an aggregate of 500,000 shares and 500,000 warrants by which it received gross proceeds of $250,000 from five private investors (the "March 1997 Private Placement"). Following the payment of commission and non-accountable expenses, an initial payment towards its non-accountable expenses for this Offering and counsel fees and expenses for that private placement, the Company received net proceeds of approximately $171,500. The Underwriter for this Offering served as the Company's Placement Agent for the March 1997 Private Placement. As part of the March 1997 Private Placement, the Company entered into a Registration Rights Agreement with five private investors therein granting them certain piggyback registration rights with respect to the securities purchased by them. With respect to any underwritten public offering of the 53 Company's securities, the foregoing Registration Rights are subject to the Underwriter's Agreement to include said securities in the registration statement for such an offering. The Underwriter for this Offering has advised the Company that it will not agree to include the Company's securities, sold in the March 1997 Private Placement, in the registration statement of which this Prospectus forms a part. The holders of a majority of the Company's securities sold in the March 1997 Private Placement have a right to demand that their securities be included, one time, in a subsequent registration statement to be filed by the Company and become effective as soon as practicable after the date of this Prospectus but not later than 180 days thereafter (subject to a 90 day extension in certain limited circumstances). Between June 3, 1997 and December 8, 1997, the Company completed a private placement of an aggregate of 345,000 shares and $1,725,000 in principal amount of its ten percent promissory notes ("10% Notes") to nine private investors (the "Summer 1997 Private Placement"). Following the payment of commission and non-accountable expenses, additional payments towards its non-accountable expenses for this Offering and counsel fees and expenses, the Company received approximately $1,400,000 in net proceeds. The 10% Notes bear interest at a rate of ten percent per annum commencing upon issuance and mature and are payable in full (principal plus accrued but unpaid interest) upon the earlier of (a) eighteen months after issuance, (b) the completion date of an equity financing of the Company pursuant to which it receives gross proceeds of not less than $3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from the "Key Man" life insurance policies on any of its executive officers and directors. The 10% Notes are secured by the accounts and accounts receivable of the Company (as defined in the 10% Notes). The security interest for the 10% Notes, however, are subordinated to the Company's banking obligations. The Company has the right to prepay all or any of the 10% Notes at any time without penalty but with accrued interest. The Company intends to use a portion of the net proceeds of this Offering to repay the 10% Notes in full. See "Use of Proceeds." 54 DESCRIPTION OF SECURITIES COMMON STOCK The Company is authorized to issue up to 25,000,000 shares of Common Stock, $.01 par value per share, 4,418,351 of which are issued and outstanding as of the date of this Prospectus. The holders of Common Stock are entitled to receive dividends equally when, as and if declared by the Board of Directors, out of funds legally available therefor. Subject to the rights that may be designated by the Board of Directors to the holders of any shares of Preferred Stock, the holders of the Common Stock have voting rights, one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution. Shares of the Company's Common Stock do not have cumulative voting rights. Therefore, the holders of a majority of the shares of Common Stock may elect all of the directors of the Company and control its affairs and day to day operations. The shares of Common Stock are not redeemable and have no preemptive or similar rights. All 4,418,351 outstanding shares of the Company's Common Stock are fully paid and non-assessable. PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"). The Board of Directors of the Company, without further stockholder action, may issue shares of Preferred Stock in any number of series and may establish as to each such series the designation and number of shares to be issued and the relative rights and preferences of the shares of each series, including provisions regarding voting powers, redemption, dividend rights, rights upon liquidation and conversion rights. The issuance of shares of Preferred Stock by the Board of Directors could adversely affect the rights of holders of Common Stock by, among other matters, establishing preferential dividends, liquidation rights and voting power. The Company has not issued any shares of Preferred Stock and has no present intention to issue shares of Preferred Stock. The issuance thereof could discourage or defeat efforts to acquire control of the Company through acquisition of shares of Common Stock. WARRANTS The Company has authorized the issuance of up to 1,150,000 Redeemable Common Stock Purchase Warrants (the "Public Warrants") to be sold in this Offering. As of the date of this Prospectus, the Company had 1,601,000 warrants issued and outstanding, 500,000 having been sold as a part of a private placement of the Company's securities in March, 1997. The Company also has issued and outstanding warrants to purchase approximately 41,000 shares of its Common Stock issued in connection with a January, 1997 private placement of the Company's securities, which are exercisable at $.01 per share of Common Stock and expire in January 2000 (the "Agreement Warrants"). Furthermore, the Company has issued and outstanding warrants to purchase 30,000 shares of its Common Stock issued in connection with two private placements of promissory notes in August 1997 and warrants to purchase 50,000 shares of its Common Stock issued in connection with the renegotiation of an earlier loan to the Company, also in August, 1997. See "Certain Transactions." The warrants discussed in the immediately foregoing sentence contain the same terms and conditions as the Public Warrants. The following statements and summaries of the material provisions of the Public Warrants are subject to the more detailed provisions of the Public Warrants, a copy of which has been included as an Exhibit to the Registration Statement of which this Prospectus forms a part. RIGHTS TO PURCHASE SHARES OF COMMON STOCK Each Public Warrant entitles the holder to purchase for one share of Common Stock at a price of $6.60, for a period of four years commencing two years after the date of this Prospectus, provided, 55 however, that if the Underwriter has consented in writing to all of the Public Warrants being exercisable, they may be exercisable at any time after their issuance. Each holder of a Public Warrant may exercise such Public Warrant, in whole or in part, by surrendering the certificate evidencing such Public Warrant, with the form of election to purchase attached to such certificate properly completed and executed, together with payment of the exercise price and any required transfer taxes, to the Company. No Public Warrants may be exercised unless at the time of exercise there is a current prospectus covering the shares of Common Stock issuable upon the exercise of such Public Warrants under an effective registration statement. The Company will endeavor to obtain and maintain an effective registration statement, including such current prospectus, so long as any of the exercisable Public Warrants remain outstanding. While it is the Company's intention to comply with this intention, there can be no assurance that it will be able to do so. The exercise price and any required transfer taxes will be payable in cash or by certified or official bank check payable to the Company. If fewer than all of the Public Warrants evidenced by a warrant certificate are exercised, a new certificate will be issued for the remaining number of Public Warrants. Certificates evidencing the Public Warrants may be exchanged for new certificates of different denominations by presenting the warrant certificate at the offices of the Company. ADJUSTMENTS The exercise price and the number of shares of Common Stock purchasable upon exercise of the Public Warrants are subject to adjustment upon the occurrence of certain events including stock dividends, stock splits, reverse stock splits, reclassification, reorganizations, consolidations, mergers, and certain issuances and redemptions of Common Stock and securities convertible into or exchangeable for Common Stock (below the lesser of the then exercise price of the Public Warrants or the fair market value of the Company's Common Stock) excluding issuances of shares of the Company's Common Stock prior to the commencement of this Offering, any issuances of the Company's securities in connection with this Offering and Company stock option plans. No adjustments in the exercise price will be required to be made with respect to the Public Warrants until cumulative adjustments amount to $.05. In the event of any capital reorganization, certain reclassifications of the Common Stock, any consolidation or merger involving the Company (other than a consolidation or merger which does not result in any reclassification or change in the outstanding shares of Common Stock), or sale of the properties and assets of the Company, as, or substantially as, an entirety to any other corporation, Public Warrants will thereupon become exercisable only for the number of shares of stock or other securities, assets, or cash to which a holder of the number of shares of Common Stock of the Company purchasable (at the time of such reorganization, reclassification, consolidation, merger or sale) upon exercise of such Public Warrants would have been entitled upon such reorganization, reclassification, consolidation, merger or sale. OTHER RIGHTS In the event of an adjustment in the number of shares of Common Stock issuable upon exercise of the Public Warrants, the Company will not be required to issue fractional shares of Common Stock upon exercise of the Public Warrants. In lieu of fractional shares of Common Stock, there will be paid to the holders of the Public Warrants, at the time of such exercise, an amount in cash equal to the same fraction of the current market price of a share of Common Stock of the Company. Public Warrantholders do not have voting or any other rights of stockholders of the Company and are not entitled to dividends, if any. REDEMPTION OF PUBLIC WARRANTS During any time the Public Warrants are exercisable, if the closing bid price of the Common Stock for 20 consecutive trading days shall exceed $10.00 the Company may redeem the Public Warrants by paying 56 holders $.05 per Public Warrant, provided that notice of such redemption is mailed not later than 10 days after the end of such period and prescribes a redemption date at least 30 days thereafter. Public Warrantholders will be entitled to exercise Public Warrants at any time up to the business day next preceding the redemption date. Additionally, the Public Warrants may not be redeemed unless at the time of redemption there is a current prospectus covering the shares of Common Stock issuable upon exercise of such Public Warrants under an effective registration statement. During the two year period commencing on the effective date of the Company's proposed initial public offering, the Public Warrants shall only be redeemable with the Underwriter's express written consent. WARRANT AGREEMENT AND EXCHANGE OF WARRANTS Upon the closing of this Offering, the Company will enter into a warrant agreement ("Warrant Agreement") with American Securities Transfer & Trust, Inc. ("Warrant Agent"). It is anticipated that the Warrant Agreement will contain provisions permitting the Company and the Warrant Agent, without the consent of the Warrantholders, to supplement or amend the Warrant Agreement in order to cure any ambiguity or defect, or to make any other provisions in regard to matters or questions arising thereunder that the Company and the Warrant Agent may deem necessary or desirable and that does not adversely affect the interests of the Warrantholders. At that same time, the Company will exchange with the Warrantholders, who purchased their warrants in the March 1997 private placement of the Company's securities, printed warrant certificates for the typewritten format certificates delivered to said investors in this Offering, containing terms and conditions substantially similar to the Public Warrants. DIVIDEND POLICY The Company has not paid dividends to date. The payment of dividends, if any, in the future is within the discretion of the Board of Directors. The payment of dividends, if any, in the future will depend upon the Company's earnings, capital requirements and financial conditions and other relevant factors. The Company's Board of Directors does not presently intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. TRANSFER AND WARRANT AGENT The Transfer Agent for the Company's Common Stock and the Warrant Agent for the Company's warrants is American Securities Transfer & Trust, Inc. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 5,418,351 shares of Common Stock outstanding (5,568,351 shares if the Underwriter's Overallotment Option is exercised in full). All of the shares of Common Stock sold in this Offering will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by an "affiliate" of the Company which will be subject to certain limitations of Rule 144 adopted under the Securities Act. The 4,418,351 presently outstanding shares of Common Stock are restricted securities and are subject to the resale limitations provided for in Rule 144. Under Rule 144, as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company, which has owned restricted shares of Common Stock beneficially for at least one year, is entitled to sell, within any three month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class or, if the Common Stock is quoted on an exchange, the average weekly trading volume during the four calendar weeks preceding the sale. A non-affiliate which has not been an affiliate of the Company for at least the three months immediately preceding the sale and which has beneficially owned such shares for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. In meeting the one and two year holding periods 57 described above, a holder which has purchased shares can include the holding periods of a prior owner which was not an affiliate of the Company. None of the shares of the Company's Common stock have been owned by the holders thereof for greater than two years. IMT has agreed not to sell, for a period of two years from the date of this Prospectus, any shares of the Company's Common Stock owned by them on the date hereof without the prior written consent of the Underwriter. Furthermore, in connection with this Offering, the Underwriter has been granted warrants to purchase up to 100,000 shares of Common Stock and up to 100,000 warrants. The holders thereof have the right to require the Company to register said warrants, and/or the underlying securities under certain circumstances. In addition, the holders of said warrants have the right to "piggy-back" said warrants and/or underlying securities on registration statements of the Company. Any exercise of such registration rights may result in dilution in the interest of the Company's stockholders, may hinder efforts by the Company to arrange future financing and may have an adverse effect on the market price for the Company's securities. Prior to this Offering, there has been no market for any securities of the Company. The effect, if any, of public sales of any of the Company's securities by present securityholders or the availability of such securities for future sale at prevailing market prices cannot be predicted. Nevertheless, the possibility that substantial amounts of the Company's securities may be resold in the public market may adversely affect prevailing market prices for the Company's securities, if any such market should develop. 58 UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement between the Company and the Underwriter (a copy of which agreement is filed as an exhibit to the registration statement of which this Prospectus forms a part), the Company has agreed to sell to the Underwriter 1,000,000 shares of Common Stock and 1,000,000 Public Warrants. All 1,000,000 shares and 1,000,000 Public Warrants offered must be purchased by the Underwriter if any are purchased. The shares and Public Warrants are being offered by the Underwriter subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the shares of Common Stock and the Warrants to the public at the offering prices set forth on the cover page of this Prospectus and that the Underwriter may allow to certain dealers who are members in good standing with the NASD concessions, not in excess of $ per share of Common Stock and $ per Public Warrant. After the initial public offering, the public offering prices and concessions may be changed by the Underwriter. In connection with this Offering, the Underwriter and certain selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the shares of Common Stock and the Public Warrants. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase shares for the purpose of stabilizing their market price. The Underwriter also may create a short position for its own accounts by selling more shares or Public Warrants in connection with this Offering than it is committed to purchase from the Company, and in such case may purchase shares or Public Warrants in the open market following completion of this Offering to cover all or a portion of such short position. The Underwriter may also cover all or a portion of such short position by exercising the Overallotment Option referred to above. In addition, the Underwriter may impose "penalty bids" under contractual arrangements with dealers participating in this Offering whereby it may reclaim from such dealer for the account of the Underwriter, the selling concession with respect to shares and Public Warrants that are distributed in this Offering, but subsequently purchased for the account of the Underwriter in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the shares or Public Warrants at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph are required, and, if they are undertaken, they may be discontinued at any time. While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, the Underwriter has previously underwritten only three public offerings. No assurance can be given that the Underwriter's limited public offering experience will not affect the Company's Offering of the Common Stock and Public Warrants and subsequent development of a trading market, if any. The Company has granted the Underwriter the Overallotment Option, exercisable for 45 days from the date of this Prospectus, to purchase up to 150,000 shares of Common Stock and 150,000 Public Warrants from it, at the public offering price less the underwriting discounts set forth on the cover page of this Prospectus. The Underwriters may exercise this option solely to cover overallotments in the sale of the shares of Common Stock and Public Warrants offered hereby. The Company has agreed to pay the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of the shares of Common Stock and Public Warrants sold in this Offering of which $40,000 has been paid to date. The underwriting agreement provides for reciprocal indemnification between the Company and the Underwriter against certain civil liabilities, including liabilities under the Securities Act. The Company has agreed to sell to the Underwriter or its designees, at a price of $10, the Underwriter's warrants, which entitle the Underwriter to purchase up to 100,000 shares of Common Stock 59 of the Company and 100,000 warrants to purchase up to an additional 100,000 shares of Common Stock of the Company, respectively. The Underwriter's warrants will be exercisable at a price of $7.50 per share, $.125 per warrant and $6.60 per share for the shares of Common Stock underlying the foregoing warrants, respectively, for a period of four years commencing one year from the date of this Prospectus, and they will not be transferable except to the Underwriter and selected dealers and officers and partners thereof. Any profit realized upon any resale of the Underwriter's warrants or upon any sale of the shares of Common Stock or warrants underlying same may be deemed to be additional underwriter's compensation. The Company has registered (or file a post-effective amendment with respect to any registration statement registering), for a period of five years from the effective date of this Offering, the Underwriter's warrants and the underlying securities under the Securities Act at its expense on one occasion, and at the expense of the holders thereof on another occasion, upon the request of a majority of the holders thereof. The Company has also agreed to certain "piggy-back" registration rights for the holders of the Underwriter's warrants and the underlying securities. Such piggy-back registration rights will expire five years from the Effective Date. The Company has agreed that for a period of not less than three years, the Underwriter will have the right to designate a person to be a non-voting advisor to the Company's Board of Directors who will receive the same compensation as a member of the Board of Directors and who will be indemnified by the Company against any claims arising out of his participation at meetings of the Board of Directors. Alternatively, the Underwriter has the right, during such three year period, to designate one person to be elected to the Company's Board of Directors. The Company has agreed to use its best effort to obtain the election of the Underwriter's designee and, if so elected, such person shall be entitled to receive the same compensation, expense reimbursement and other benefits as any other non-employee Directors of the Company, if any. The identity of such person has not been determined as of the date hereof, and it is not expected that such right will be exercised in the immediate future. The Underwriter has informed the Company that it does not expect sales to be made to discretionary accounts to exceed 1% of the shares of Common Stock and Public Warrants offered hereby. The Offering is subject to the agreement by IMT that it will not sell any shares of Common Stock to the public for a period of two years from the date of this Prospectus. The Company has agreed to enter into an agreement with the Underwriter retaining it as a financial consultant for a period of three years from the date hereof, pursuant to which it will receive fees aggregating $108,000, which fees will be payable in full at closing. The Underwriting Agreement also provides that the Company, its current or future subsidiaries, if any, and its principal stockholders, or their respective affiliates, will for a period of three years from the Effective Date provide the Underwriter with a right of first refusal with respect to any public or private offering of securities to raise capital. The Underwriter must agree to undertake any such financing on the same or better terms as any other financing proposal. The Company will pay the Underwriter a commission equal to five percent of the exercise price of the Public Warrants exercised, of which a portion may be reallowed to any dealer who solicited the exercise, provided that (i) at the time of exercise the market price of the Common Stock is greater than the exercise price of the Public Warrants, (ii) the exercise of the Public Warrants was solicited by the Underwriter, (iii) the Public Warrants exercised are not held in discretionary accounts, (iv) disclosure of the compensation arrangements have been made both at the time of this Offering and at the time of exercise, and (v) the solicitation of the exercise of the Public Warrants is not in violation of Regulation M under the Securities Exchange Act of 1934. The Company has agreed not to solicit the exercise of the Public Warrants other than through the Underwriter. 60 LEGAL MATTERS The validity of the issuances of the securities offered in this Offering will be passed upon for the Company by Gusrae, Kaplan & Bruno, Esqs., New York, New York. Certain legal matters in connection with this Offering will be passed upon for the Underwriter by Gersten, Savage, Kaplowitz & Fredericks, LLP, New York, New York. EXPERTS The consolidated financial statements included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP and Jones, Jensen & Company, independent certified public accountants, to the extent and for the periods set forth in the respective reports of such firms appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firms as experts in auditing and accounting. The report of BDO Seidman, LLP for the year ended December 31, 1996 contains an explanatory paragraph regarding the Company's ability to continue as a going concern. ADDITIONAL INFORMATION The Company has filed with the Washington, D.C. office of the Commission a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Securities offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this Offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be inspected without charge or copies made at prescribed rates from the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web-site that contains reports, proxies and information statements and other information regarding issuers that file electronically with the Commission. The Commission's web-site is located at http://www.sec.gov. Statements contained in the Prospectus as to the contents of any contract or other document are not necessarily complete and reference is made to each such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Upon effectiveness of the Registration Statement, of which this Prospectus forms a part, the Company will be subject to the reporting requirements of the Exchange Act and in accordance therewith will file reports, proxies and other information with the Commission. 61 KAIRE INTERNATIONAL, INC. CONTENTS Reports of Independent Certified Public Accountants.............................. F-2 Independent Auditors' Report..................................................... F-3 Financial Statements: Consolidated Balance Sheets.................................................... F-4-F-5 Consolidated Statements of Operations.......................................... F-6 Consolidated Statements of Stockholders' Equity (Deficit)...................... F-7-F-8 Consolidated Statements of Cash Flows.......................................... F-9-F-10 Summary of Accounting Policies................................................. F-11-F-14 Notes to Consolidated Financial Statements..................................... F-15-F-23
F-1 REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Kaire International, Inc. Longmont, Colorado We have audited the accompanying consolidated balance sheets of Kaire International, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kaire International, Inc. and subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the two years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered losses from operations and has a working capital deficit of $1,382,000 at December 31, 1996 that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP April 4, 1997 Denver, Colorado F-2 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Kaire International, Inc. Longmont, Colorado We have audited the accompanying statements of operations, stockholders' equity and cash flows of Kaire International, Inc. for the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Kaire International, Inc. for the year ended December 31, 1994 in conformity with generally accepted accounting principles. Jones, Jensen & Company August 1, 1996 F-3 KAIRE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, 1997 -------------------------- (UNAUDITED) 1996 1995 ------------------ ------------ ------------ Assets (Notes 1 and 6) Current: Cash and cash equivalents....................................... $ 533,530 $ 739,267 $ 1,770,132 Accounts receivable, less allowance of $65,900, $30,000 and $56,000 for possible losses (Notes 5 and 6)................... 374,481 148,406 518,429 Accounts receivable--related parties (Note 3)................... 41,511 -- 238,638 Inventories (Note 5)............................................ 2,127,441 2,194,315 2,301,644 Note receivable--related party (Note 2)......................... -- 94,670 94,670 Advances to distributors........................................ 81,719 226,855 -- Prepaid expenses and other...................................... 575,920 101,225 86,584 Refundable income taxes (Note 9)................................ 250,895 1,025,000 300,000 ------------------ ------------ ------------ Total current assets.............................................. 3,985,497 4,529,738 5,310,097 ------------------ ------------ ------------ Property and equipment (Notes 3 and 4): Computer equipment.............................................. 1,010,875 895,577 764,742 Computer software............................................... 641,505 596,178 508,010 Office equipment................................................ 444,845 421,915 313,033 Furniture and fixtures.......................................... 269,173 153,678 168,103 Leasehold improvements and other................................ 156,014 90,762 68,804 ------------------ ------------ ------------ 2,522,412 2,158,110 1,822,692 Accumulated depreciation and amortization....................... (1,256,904) (901,212) (444,181) ------------------ ------------ ------------ Net property and equipment........................................ 1,265,508 1,256,898 1,378,511 ------------------ ------------ ------------ Other assets: Investments (Note 3)............................................ -- 250,000 -- Deposits and other.............................................. 720,632 313,483 98,536 ------------------ ------------ ------------ Total other assets................................................ 720,632 563,483 98,536 ------------------ ------------ ------------ $ 5,971,637 $ 6,350,119 $ 6,787,144 ------------------ ------------ ------------ ------------------ ------------ ------------
F-4 KAIRE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, SEPTEMBER 30, 1997 -------------------------- (UNAUDITED) 1996 1995 ------------------ ------------ ------------ Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable................................................ $ 3,205,261 $ 1,341,637 $ 1,198,468 Checks written in excess of deposits............................ 1,266,773 1,376,065 -- Accrued commissions payable..................................... 1,695,170 1,991,476 2,389,086 Sales and payroll taxes payable................................. 376,204 419,141 311,052 Notes payable--related parties (Note 3)......................... 399,926 75,000 220,449 Current portion of leases (Note 4).............................. 152,281 258,392 120,000 Note payable to bank (Note 5)................................... 240,000 250,000 -- Notes payable (Note 6).......................................... 1,367,463 200,000 -- Income taxes payable............................................ -- -- 65,755 ------------------ ------------ ------------ Total current liabilities......................................... 8,703,078 5,911,711 4,304,810 Capital leases payable, less current portion (Note 4)............. 22,574 114,010 396,930 Deferred income taxes (Note 9).................................... -- -- 84,000 Long-term debt (Note 7)........................................... 810,162 -- -- ------------------ ------------ ------------ Total liabilities................................................. 9,535,814 6,025,721 4,785,740 ------------------ ------------ ------------ Minority interest in consolidated subsidiaries.................... 155,586 199,907 85,264 Commitments and contingencies (Notes 6 and 10) Stockholders' equity (deficit) (Note 8): Preferred stock: $.01 par value; 5,000,000 shares authorized; -0- shares issued and outstanding............................. -- -- -- Common stock: $.01 par value; 25,000,000 shares authorized; 4,248,353, 2,940,000 and 2,940,000 shares issued and outstanding................................................... 42,484 29,400 29,400 Additional paid-in capital...................................... 273,643 (21,304) (21,304) Cumulative translation adjustment............................... 40,380 11,137 -- Retained earnings (deficit)..................................... (4,076,270) 105,258 1,908,044 ------------------ ------------ ------------ Total stockholders' equity (deficit).............................. (3,719,763) 124,491 1,916,140 ------------------ ------------ ------------ $ 5,971,637 $ 6,350,119 $ 6,787,144 ------------------ ------------ ------------ ------------------ ------------ ------------
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-5 KAIRE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- YEARS ENDED DECEMBER 31, 1997 1996 ------------------------------------------- (UNAUDITED) (UNAUDITED) 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- Net sales (Note 13).................. $ 27,887,227 $ 41,124,070 $ 51,498,562 $ 57,841,350 $ 36,894,705 Cost of sales (Note 12).............. 6,586,767 10,339,409 13,321,062 14,476,630 9,367,902 ------------- ------------- ------------- ------------- ------------- Gross profit......................... 21,300,460 30,784,661 38,177,500 43,364,720 27,526,803 ------------- ------------- ------------- ------------- ------------- Operating expenses: Distributor commissions............ 15,626,441 22,018,593 27,965,416 30,830,521 19,507,096 Selling general and administrative expenses......................... 9,738,877 10,098,037 12,975,915 10,370,482 6,558,258 ------------- ------------- ------------- ------------- ------------- 25,365,318 32,116,630 40,941,331 41,201,003 26,065,354 ------------- ------------- ------------- ------------- ------------- Income (loss) from operations........ (4,064,858) (1,331,969) (2,763,831) 2,163,717 1,461,449 ------------- ------------- ------------- ------------- ------------- Other income (expenses)--net......... (160,991) (60,818) (27,312) (30,102) 60,706 ------------- ------------- ------------- ------------- ------------- Income (loss) before income taxes and minority interest.................. (4,225,849) (1,392,787) (2,791,143) 2,133,615 1,522,155 Benefit from (provision for) income taxes (Note 9)..................... -- 353,653 1,103,000 (862,000) (431,232) Minority interest in (income) loss of subsidiaries....................... 44,321 (170,865) (114,643) (85,264) -- ------------- ------------- ------------- ------------- ------------- Net income (loss).................... $ (4,181,528) $ (1,209,999) $ (1,802,786) $ 1,186,351 $ 1,090,923 ------------- ------------- ------------- ------------- ------------- Net income (loss) per share.......... $ (.95) $ (.27) $ (.41) $ .27 $ .25 ------------- ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding................. 4,419,353 4,419,353 4,419,353 4,419,353 4,279,353 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-6 KAIRE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
TOTAL COMMON STOCK ADDITIONAL CUMULATIVE RETAINED STOCKHOLDERS' ----------------------- PAID-IN TRANSLATION EARNINGS EQUITY SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT) ------------ --------- ----------- ----------- ------------- ------------- Balance, January 1, 1994......... -- $ -- $ -- $ -- $ (369,230) $ (369,230) Issuance of common stock for cash........................... 2,800,000 28,000 (27,000) -- -- 1,000 Net income....................... -- -- -- -- 1,090,923 1,090,923 ------------ --------- ----------- ----------- ------------- ------------- Balance, December 31, 1994....... 2,800,000 28,000 (27,000) -- 721,693 722,693 Contribution to capital by subsidiaries................... -- -- 1,396 -- -- 1,396 Issuance of common stock for services....................... 140,000 1,400 4,300 -- -- 5,700 Net income....................... -- -- -- -- 1,186,351 1,186,351 ------------ --------- ----------- ----------- ------------- ------------- Balance, December 31, 1995....... 2,940,000 29,400 (21,304) -- 1,908,044 1,916,140 Cumulative translation adjustment..................... -- -- -- 11,137 -- 11,137 Net loss......................... -- -- -- -- (1,802,786) (1,802,786) ------------ --------- ----------- ----------- ------------- ------------- Balance, December 31, 1996....... 2,940,000 29,400 (21,304) 11,137 105,258 124,491 ------------ --------- ----------- ----------- ------------- -------------
F-7 KAIRE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
TOTAL COMMON STOCK ADDITIONAL CUMULATIVE RETAINED STOCKHOLDERS' ----------------------- PAID-IN TRANSLATION EARNINGS EQUITY SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) (DEFICIT) ------------ --------- ---------- ----------- ------------- ------------- Issuance of common stock for services (unaudited)........... 633,353 6,334 58,602 -- -- 64,936 Issuance of common stock for cash net of offering costs of $78,543 (unaudited)............ 500,000 5,000 166,457 -- -- 171,457 Issuance of common stock in connection with debt net of offering costs of $15,862 (unaudited).................... 175,000 1,750 69,888 -- -- 71,638 Cumulative translation adjustment (unaudited).................... -- -- -- 29,243 -- 29,243 Net loss (unaudited)............. -- -- -- -- (4,181,528) (4,181,528) ------------ --------- ---------- ----------- ------------- ------------- Balance September 30, 1997 (unaudited).................... 4,248,353 $ 42,484 $ 273,643 $ 40,380 $ (4,076,270) $ (3,719,763) ------------ --------- ---------- ----------- ------------- ------------- ------------ --------- ---------- ----------- ------------- -------------
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-8 KAIRE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- YEARS ENDED DECEMBER 31, 1997 1996 ------------------------------------------- (UNAUDITED) (UNAUDITED) 1996 1995 1994 ------------- ------------- ------------- ------------- ------------- Operating activities: Net income (loss)..................... $ (4,181,528) $ (1,209,999) $ (1,802,786) $ 1,186,351 $ 1,090,923 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization..... 387,644 326,372 440,873 340,254 103,056 Minority interest................. (44,321) 170,865 114,643 85,264 -- Loss on disposal of fixed assets.......................... -- -- -- 34,240 -- Common stock issued for services........................ 17,500 -- -- 5,700 -- Deferred income taxes............. -- -- (84,000) 26,366 57,284 Change in provision for doubtful accounts........................ 35,900 -- (26,000) -- -- Changes in operating assets and liabilities: Accounts receivable............... (261,975) 3,129 384,661 32,677 (524,922) Related party receivable.......... -- 101,596 238,638 (202,141) (23,997) Inventories....................... 66,874 (310,078) 123,341 (90,349) (1,940,640) Prepaid expenses and other........ (427,260) 4,177 (55,909) 102,781 (39,635) Refundable income taxes........... 774,105 (386,000) (725,000) (300,000) (181,546) Accounts payable.................. 1,788,624 991,453 157,490 (79,217) 1,052,590 Accrued liabilities and other..... (339,243) (61,234) (322,349) (96,959) 2,550,839 Income taxes payable.............. -- 18,689 (65,755) 14,761 50,994 ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) operating activities................ (2,183,680) (351,030) (1,622,153) 1,059,728 2,194,946 ------------- ------------- ------------- ------------- ------------- Investing activities: Deposits and other assets......... (342,193) (177,869) -- -- -- Purchases of intangibles.......... (63,417) -- (172,488) (21,223) -- Purchases of property and equipment....................... (364,302) (357,381) (243,415) (193,662) (719,970) Advances to distributors.......... 145,136 (249,482) (224,804) (2,051) -- Investment........................ 250,000 -- (250,000) -- (20,955) Note receivable related party..... -- -- -- -- (94,670) ------------- ------------- ------------- ------------- ------------- Net cash used in investing activities.......................... (374,776) (784,732) (890,707) (216,936) (835,595) ------------- ------------- ------------- ------------- -------------
F-9 KAIRE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- YEARS ENDED DECEMBER 31, 1997 1996 ----------------------------------------- (UNAUDITED) (UNAUDITED) 1996 1995 1994 ------------ ------------- ------------- ------------ ------------ Financing activities: Checks written in excess of deposits... (109,292) 61,980 1,376,065 Proceeds from note payable to bank..... -- 250,000 250,000 -- -- Payment on note payable to bank........ (10,000) -- -- -- -- Proceeds from notes payable............ 1,492,463 -- 200,000 -- -- Proceeds from issuance of long-term debt................................. 810,162 -- -- -- -- Payment on notes payable............... (325,000) -- -- -- (224,317) Proceeds from notes payable related party................................ 967,046 -- 75,000 -- -- Payment on notes payable related party................................ (547,451) (220,450) (228,738) -- -- Payments on capital lease.............. (197,547) (106,852) (223,902) (265,734) (62,055) Issuance of capital stock.............. 337,500 -- -- 1,396 1,000 Offering costs paid.................... (94,405) -- -- -- -- ------------ ------------- ------------- ------------ ------------ Net cash provided by (used in) financing activities............................. 2,323,476 (15,322) 1,448,425 (264,338) (285,372) ------------ ------------- ------------- ------------ ------------ Effect of foreign exchange rates changes on cash................................ 29,243 11,359 33,570 -- -- Net increase (decrease) in cash and cash equivalents............................ (205,737) (1,139,725) (1,030,865) 578,454 1,073,979 Cash and cash equivalents, beginning of period................................. 739,267 1,770,132 1,770,132 1,191,678 117,699 ------------ ------------- ------------- ------------ ------------ Cash and cash equivalents, end of period................................. $ 533,530 $ 630,407 $ 739,267 $ 1,770,132 $ 1,191,678 ------------ ------------- ------------- ------------ ------------ ------------ ------------- ------------- ------------ ------------
See accompanying report of independent certified public accountants, summary of accounting policies and notes to consolidated financial statements. F-10 KAIRE INTERNATIONAL, INC. SUMMARY OF ACCOUNTING POLICIES INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED ORGANIZATION AND BUSINESS Kaire International, Inc. ("the Company"), was incorporated in Nevada in October 1992. The Company is engaged in the distribution of health and personal care products through network marketers throughout the United States, Canada, New Zealand, Australia, South Korea, Trinidad and Tobago, and the United Kingdom. As of March 18, 1997, the Company was merged into a newly formed Delaware corporation of the same name with the Nevada corporation ceasing to exist. The transaction was accounted for on a basis similar to a pooling of interest with no change in the historical financial statements of the Company. The newly formed corporation had no operations prior to the merger. The Company expanded its markets in 1995 by entering New Zealand and Australia with its health and personal care products. Kaire New Zealand Ltd. ("Kaire New Zealand") and Kaire Australia Pty. Ltd. ("Kaire Australia") were incorporated in August 1995 and began operations on November 1, 1995. The Company acquired a 51% interest in these two subsidiaries on the date of incorporation. During the nine months ended September 30, 1997, the Company expanded its markets into South Korea, Trinidad and Tobago, and the United Kingdom. Kaire Korea, Ltd. ("Kaire Korea") was incorporated on March 19, 1997 in South Korea as a wholly owned subsidiary of the Company. Operations and sales began during July 1997. Kaire Europe Limited ("Kaire Europe") was incorporated as a wholly owned subsidiary of the Company on July 24, 1997 in the United Kingdom, commencing operations during that month. Kaire Trinidad Limited ("Kaire Trinidad"), a wholly owned subsidiary of the Company, was incorporated on May 21, 1997 in the Republic of Trinidad and Tabago and began operations during June 1997. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company, its 51% owned subsidiaries Kaire New Zealand and Kaire Australia, and its wholly owned subsidiaries Kaire Korea, Kaire Europe, and Kaire Trinidad. All significant intercompany accounts and transactions have been eliminated in consolidation. UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, the unaudited interim consolidated financial statements for the nine months ended September 30, 1997 and 1996 are presented on a basis consistent with the audited financial statements and reflect all adjustments, consisting only of normal recurring accruals, necessary for fair presentation of the results of such periods. The results of operations for the interim period ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997. CONCENTRATION OF RISK The Company maintains its cash accounts in several bank accounts. Accounts in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company's cash balance in some of its bank accounts generally exceeds the insured limits. The Company sells its products through network marketers throughout the United States, Canada, New Zealand, Australia, South Korea, Trinidad and Tobago, and the United Kingdom. Credit is extended for returned checks and or until credit card purchases have cleared the bank. F-11 KAIRE INTERNATIONAL, INC. SUMMARY OF ACCOUNTING POLICIES INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED Credit losses, if any, have been provided for in the financial statements and are based on management's expectations. The Company's accounts receivable are subject to potential concentrations of credit risk. The Company does not believe that it is subject to any unusual or significant risks, in the normal course of business. INVENTORIES Inventories consist mainly of health and personal care products and are stated at lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed, using primarily the straight-line method, over the estimated useful lives of the assets. Maintenance and repair costs are expensed as incurred. LONG-LIVED ASSETS Long-lived assets and identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected undiscounted future cash flow from the use of the assets and its eventual disposition is less than the carrying amount of the assets, an impairment loss is recognized and measured using the asset's fair value. DEFERRED OFFERING COSTS Deferred offering costs include professional fees directly related to the Company's proposed public offering. If the offering is successful, costs incurred will be offset against the proceeds of the offering. If the offering is unsuccessful, such costs will be expensed. DEBT ISSUE COSTS Debt issue costs are being amortized using the straight-line method over the term of the notes payable. REVENUE RECOGNITION The Company sells its products directly to independent distributors. Sales are recorded when products are shipped. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which requires the use of the "liability method". Accordingly, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. F-12 KAIRE INTERNATIONAL, INC. SUMMARY OF ACCOUNTING POLICIES INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: RECEIVABLES FROM RELATED PARTIES Due to their related party nature and terms of the receivables from related parties, the Company cannot estimate the fair market value of such financial instruments. NOTES PAYABLE AND LONG-TERM DEBT Substantially all of these notes bear interest at a floating rate of interest based upon the lending institutions prime lending rate. Accordingly, the fair value approximates their reported carrying amount at September 30, 1997 and December 31, 1996 and 1995. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. INVESTMENT IN COMMON STOCK The Company acquired 1,400,000 shares of common stock of Aloe Commodities International, Inc. ("Aloe") representing a 14% interest in Aloe for $250,000 in 1996. During 1997, the Company sold its investment in Aloe for $250,000 and used the proceeds as partial payment on certain notes payable. FOREIGN CURRENCY TRANSLATIONS Assets and liabilities of subsidiaries, are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as a cumulative translation adjustment in consolidated stockholders' equity. Foreign currency gains and losses resulting from transactions are included in results of operations in the period in which the transactions occurred. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. RECLASSIFICATIONS Certain items included in the 1995 financial statements have been reclassified to conform to the current year presentation. NET INCOME (LOSS) PER COMMON SHARE The net loss per share of common stock is determined using the weighted-average number of shares outstanding during the period. Pursuant to the requirements of the Securities and Exchange Commission F-13 KAIRE INTERNATIONAL, INC. SUMMARY OF ACCOUNTING POLICIES INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED ("SEC") Staff Accounting Bulletin No. 83 ("SAB 83"), common shares issued by the Company during the twelve months immediately preceding the initial public offering at a price below the initial public offering price plus the number of common share equivalents which result from the grant of common stock options and warrants having exercise prices below the initial public offering price during the same period have been included in the calculation of the shares used in computing income (loss) per share as if they were outstanding for all periods presented. RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") recently issued Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting Standards No. 129 "Disclosure of Information About an Entity's Capital Structure" ("SFAS 129"). SFAS 128 provides a different method of calculating earnings per share than is currently used in accordance with Accounting Board Opinion ("ABP") No. 15, "Earnings Per Share." SFAS 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. SFAS 129 establishes standards for disclosing information about an entity's capital structure. SFAS 128 and SFAS 129 are effective for financial statements issued for periods ending after December 15, 1997. Their implementation is not expected to have a material effect on the consolidated financial statements. In June 1997, FASB issued Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standard No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that displays with the same prominence as other financial statements. SFAS 131 supersedes Statement of Financial Accounting Standard No. 14 "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards of the way the public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 130 and SFAS 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. Because of the recent issuance of these standards, management has been unable to fully evaluate the impact, if any, the standards may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by the implementation of these standards. F-14 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 1. GOING CONCERN During 1996, the Company incurred a significant loss and deficit in working capital. These conditions raise substantial doubt about the Company's ability to continue as a going concern. However, the Company is not in default on any of its debt and has continued to pay its associates on a timely basis. There are a number of factors which contributed to the loss including several marketing promotions which did not generate the anticipated results, a decline in sales from the normal business cycle of a business in this industry, the creation of a number of videos, changes in the bonus plan effecting the total payout and the implementation of an aggressive recruitment plan. In response to those challenges, the Company has taken significant steps including the restructuring of the marketing department with significant emphasis on budgeting and performance, an overall reduction in the Company's operating expenses and the implementation of significant controls to maintain a very conservative expense approach. In addition, new products that management believes will provide anticipated high profile and user appeal will be introduced during 1997. Many of the products introduced over the past two years are excellent products but were either not fully promoted or lacked the spotlight appeal demanded by many of the consumers in the portion of the network marketing industry. Management's plan for years 1997 and beyond include selling products with more market appeal which are properly introduced and marketed. The Company is also actively pursuing its international growth strategy. In early April 1997, the Company obtained a multi level marketing license for its newly formed, wholly owned subsidiary, Kaire Korea Ltd. As of May 1, 1997, Kaire Korea LTD (KKL) has leased office space in downtown Seoul and has hired a Korean President to run the operations there. The Company is currently completing the product approval and company registration process and plans to be able to start selling products in Korea by the end of June 1997. The Company also began operations through a distribution center in Trinidad in January 1997. The Company is currently in the process of forming a branch office in Trinidad which will allow for the product to be brought in at a much reduced price saving both VAT and duties for the associates. The Company will also be leasing office space, hiring staff and taking over the operations of the Trinidad operation. Management's assessment is that this will open the door to both the Caribbean and the South American market, which, although not as lucrative as the Asian market, will be much less costly to develop. In summary, the Company has significantly cut its operating expenses. Marketing expenses have been reduced sharply with no real impact on the effectiveness of the Company's marketing strategy. Domestic sales have started to increase as have Canadian sales (which directly impact operations in the United States), Australian sales and New Zealand sales. The Company has obtained additional loans from the shareholders in 1997 as well as securing an initial private placement for $250,000. It is currently seeking additional financing to provide for these acquisitions and near term working capital. The financing alternatives include private placements of its common stock or other equity interest in the Company, third-party loans and equity participation, or a combination of these methods. There are no assurances that any of these events will occur or that the Company's plan will be successful. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. 2. NOTE RECEIVABLE-RELATED PARTY On October 18, 1994, the Company accepted a 10% promissory note receivable from a related party in the amount of $115,549. The note is uncollateralized and due on demand. During 1997, the Company offset the promissory note and accrued interest against certain loans made to the Company by the related party. F-15 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 3. RELATED PARTY TRANSACTIONS The amounts due from a stockholder of the subsidiaries and an officer of those companies was $238,638 at December 31, 1995. These receivables are non-interest bearing and are due upon demand. The amounts were received in full during the year ended December 31, 1996. Kaire Australia and Kaire New Zealand purchased assets from a related party during November 1995 for notes payable at 12%. The notes were uncollateralized and require nine principal and interest payments beginning December 1995. As of December 31, 1996 and 1995, total amounts due on the two notes were $0 and $111,949 and $0 and $108,500, respectively. The notes were repaid in full in 1996. During 1997, two officers of the Company advanced funds to the Company for working capital requirements. These advances are non-interest bearing and are due upon demand. Advances outstanding from these two officers at September 30, 1997 are $159,102. During 1997, the Company borrowed $205,000 from two individual shareholders and directors for notes payable at 10%. The notes are uncollateralized and are due upon demand. During July 1997, the Company borrowed an additional $369,000 from the same shareholders and directors for notes payable at 10%, due and payable upon demand. The Company pledged as security on the July 1997 notes payable its investment in the shares of Aloe Commodities, Inc. During September 1997, a payment demand was made for the unpaid amounts due on both notes. The Company sold its investment in the shares of Aloe Commodities, Inc., valued at $250,000, which was the Company's cost of those shares and offset the note receivable balance as stated in Note 2. The outstanding balance of the 10% notes payable including accrued interest at September 30, 1997 is $240,824. The note is due upon demand and is issued without collateral. On November 28, 1997, the Company issued promissory notes at 10% payable on demand in the amount of $262,037 to related parties for funds previously provided by those related parties. 4. CAPITAL LEASES PAYABLE The Company has various capital lease obligations which are collateralized by equipment. Interest rates under the agreements range from 7.1% to 31.9%, with monthly principal and interest payments ranging from $51 to $11,349. Future minimum lease payments as of September 30, 1997 and December 31, 1996 are as follows:
SEPTEMBER 30, YEAR ENDED 1997 DECEMBER 31, (UNAUDITED) 1996 ------------- ------------ 1997................................................................................ $ 66,623 $ 308,047 1998................................................................................ 114,694 114,694 1999................................................................................ 14,888 14,888 ------------- ------------ Total payments...................................................................... 196,205 437,629 Less amounts representing interest.................................................. 21,350 65,227 ------------- ------------ Payments, net of interest........................................................... 174,855 372,402 Less current maturities............................................................. 152,281 258,392 ------------- ------------ Total long-term obligations......................................................... $ 22,574 $ 114,010 ------------- ------------ ------------- ------------
F-16 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 4. CAPITAL LEASES PAYABLE (CONTINUED) At December 31, 1996 and 1995, property and equipment includes equipment under capital lease obligations with a total cost of $757,689 and $683,634 and accumulated amortization of $263,588 and $119,084. 5. NOTE PAYABLE TO BANK The Company had a $250,000 line of credit agreement with a bank. The line bears interest at 10% and matures on May 17, 1997. The line was collateralized by inventories, accounts receivable and certain other assets. $250,000 was outstanding under the line of credit at December 31, 1996. During May 1997, the line of credit agreement was extended. The extended line of credit of $240,000 bears interest at a variable rate, initially 10.5% and matured June 18, 1997. Collateral pledged under the original agreement was retained. At September 30, 1997, $240,000 was outstanding under the line of credit. On December 26, 1997, the line of credit was converted to a term loan at 10.5% due January 15, 1999. 6. NOTES PAYABLE Notes payable consists of the following:
SEPTEMBER 30, DECEMBER 31, 1997 ---------------------- (UNAUDITED) 1996 1995 ------------- ---------- ---------- Notes payable to individuals (1).......................................... $ -- $ 200,000 $ -- Note payable to a corporation (2)......................................... 200,000 -- -- Note payable guaranteed by Company (3).................................... 475,000 -- Note payable to a corporation (4)......................................... 100,000 -- -- Note payable to a corporation (5)......................................... 100,000 -- -- Notes payable to a corporation (6)........................................ 492,463 -- -- ------------- ---------- ---------- Total notes payable....................................................... $ 1,367,463 $ 200,000 $ -- ------------- ---------- ---------- ------------- ---------- ----------
- ------------------------ (1) At December 31, 1996, the Company had two $100,000 notes with two individuals. The notes bore interest at 14% and matured on June 30, 1997. The notes were collateralized by all accounts and notes receivable and certain other assets. In connection with this borrowing, the lenders were each issued warrants to purchase 13,667 shares of the Company's common stock at $.01 per share. As of September 30, 1997, total amounts due on these notes were $0 and the warrants had not been exercised. (2) During January 1997, the Company borrowed $200,000 from a corporation for notes payable at 10% per month, with interest payments due monthly. The notes are guaranteed by certain officers and directors and are due upon demand. The Company renegotiated the terms of the original Agreement on August 25, 1997, as the Company had not met the interest payment requirements of the Agreement. The August 25, 1997 Agreement modifies the repayment provisions of principal and interest, stipulating that the Company repay all interest and principal due under the original Agreement by December 31, 1997. Also, the interest rate was reduced from 10% per month to 2% per month payable monthly, retroactive to March 5, 1997. In the event that the Company is unable to repay the note in full by December 31, 1997, the Company is required to make twelve consecutive monthly payments beginning January 1, 1998 in the amount of $18,911 to repay interest and principal F-17 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 6. NOTES PAYABLE (CONTINUED) due on the note. In connection with this borrowing, the lender was issued warrants to purchase 50,000 shares of the Company's common stock at $6.60 per share. As of September 30, 1997, the warrants had not been exercised. (3) Kaire Korea Ltd., pursuant to a demand promissory note guaranteed by the Company, borrowed $500,000 from a corporation during May 1997 for notes payable at an annual interest rate of 9.5%. The notes are due in principal installments of: $25,000 due August 31, 1997, $125,000 due September 30, 1997, $175,000 due October 31, 1997 and $175,000 due November 30, 1997. An option to acquire 15% of the capital stock of Kaire Korea Ltd. at the par value of Kaire Korea Ltd.'s capital stock expiring May 2000 was granted to the lender. In the event payments on installments are delinquent by three days, the lender is granted an option to purchase an additional 2% of the capital stock of Kaire Korea Ltd. for each such delinquency. If the entire promissory note is not paid within (6) months of the date of the promissory note, the lender is granted an option to acquire an additional 5% of the capital stock of Kaire Korea Ltd. For each month beyond the six (6) months noted above that payment is not made in full, the lender is granted an additional option to acquire 5% of the capital stock of Kaire Korea Ltd. until such time the lender has a cumulative option to acquire a combined total of 75% of the capital stock of Kaire Korea Ltd. Each option may be exercised within thirty-six (36) months from the date of grant. At such time the lender has accumulated options to purchase 75% of Kaire Korea Ltd. and the promissory note remains outstanding, the Company is required to issue the lender an option to acquire 10% of the Company's capital stock at an option price equal to its par value. Such option would expire thirty-six (36) months from the date of grant. At September 30, 1997, the Company had not made the installment payment due September 30, 1997. No options to acquire capital stock of Kaire Korea Ltd. had been tendered as of September 30, 1997. (4) During August 1997, the Company borrowed $100,000 from a corporation for an unsecured note bearing interest at 12% and due September 27, 1997. Upon default, the Company's outstanding obligation of principal and interest will bear interest at the highest rate permitted by applicable law, which has been determined to be an annual rate of 18%, payable upon demand. As of September 30, 1997, the Company was in default on the note. In connection with this borrowing, the lender was issued warrants to purchase 15,000 shares of the Company's common stock at $.01 per share and 15,000 shares of the Company's common stock at $6.60 per share. As of September 30, 1997, the warrants had not been exercised. (5) During August 1997, the Company borrowed $100,000 from a corporation for a note bearing interest at 12%, due October 13, 1997 and secured by all of the assets of the Company. Upon default, the Company's outstanding obligation of principal and interest on the date of default will bear interest at an annual rate of 18%, payable upon demand. In connection with the borrowing, the lender was issued warrants to purchase 15,000 shares of the Company's common stock at $.01 per share and 15,000 shares of the Company's common stock at $6.60 per share. As of September 30, 1997, the warrants had not been exercised. (6) During August and September 1997, the Company borrowed $342,463 from a corporation for a note payable with interest at a rate of .33% per day. The note payable is guaranteed by certain officers and directors and due September 20, 1997. The Company is subject to liquidation damages of $10,000 for each day the notes payable are in default. At September 30, 1997, the Company was in default on its payment on the notes payable. Subsequent to September 30, 1997, the Company obtained a waiver of the default provisions on the notes payable. The Company borrowed an additional $150,000 during F-18 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 6. NOTES PAYABLE (CONTINUED) September 1997 from the same corporation for a note payable with interest at a rate of .33% per day, payable upon demand. The Company borrowed $100,000 from a corporation during January 1997 for a note bearing interest at 14% and maturing June 30, 1997. In connection with this borrowing, the lender was issued warrants to purchase 13,667 shares of the Company's common stock at $.01 per share. As of September 30, 1997, the total amount due on the note was $0 and the warrants had not been exercised. 7. LONG-TERM DEBT During the period ended September 30, 1997, the Company borrowed $875,000 pursuant to a private offering consisting of the issuance of promissory notes and common stock of the Company. Promissory notes are due eighteen months from the date of issue and carry an interest rate of 10%. In connection with the private offering, debtholders were issued 175,000 shares of the Company's common stock. Original issue discount of $87,500 was recorded as part of the private offering financing and is being amortized on a straight line basis over the life of the promissory notes. In connection with the Company's agreement with an underwriter for the private placement of the Company's securities, the Company borrowed an additional $850,000 during November and December 1997 in exchange for promissory notes at 10%, due eighteen months from the date of issue. Security holders were issued 170,000 shares of the Company's common stock. 8. STOCKHOLDERS' EQUITY On February 1, 1997, the Board of Directors authorized a stock split, effected in the form of a dividend of 2,800 shares of common stock for each common share held by shareholders of record on February 1, 1997. All references to common share and per share amounts in the accompanying financial statements have been restated to reflect the effect of this stock dividend. During March 1997, the Board of Directors adopted certain resolutions which were approved by the Company's stockholders to increase the number of authorized shares of common stock from 1,000,000 to 25,000,000 shares. The stockholders also approved the authorization of the issuance of a new class of 5,000,000 shares of preferred stock. The preferred stock of the Company can be issued in series. With respect to each series issued, the Board of Directors of the Company will determine, among other things, the number of shares in the series, voting rights and terms, dividend rates and terms, liquidation preferences and redemption and conversion privileges. On March 20, 1997, the Company sold 500,000 shares of common stock pursuant to a private placement offering for $250,000 and warrants to purchase an additional 500,000 shares of common stock at a purchase price of $6.60 per share. The warrants are exercisable for a period of four years commencing two years from the date the Securities and Exchange Commission declares the Company's registration statement effective. The effective date is the first date the Company may offer the sale of its common stock in an initial public offering. The Company may redeem the warrants commencing one year from the effective date at a redemption price of $.05 per warrant if: (1) the closing bid price of the common stock for twenty (20) consecutive trading days exceeds $10.00, (2) the redemption occurs during the first two years following the effective date and the Company receives the prior written consent of the underwriter for such redemption, and (3) the warrants are exercisable. F-19 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 9. INCOME TAXES Income taxes consist of the following:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- YEARS ENDED DECEMBER 31, 1997 1996 -------------------------------------- (UNAUDITED) (UNAUDITED) 1996 1995 1994 ------------- ----------- ------------ ----------- ----------- Current (expense) benefit: Federal.................................... $ -- $ 325,000 $ 1,017,000 $ (763,000) $ (322,954) State...................................... -- 1,000 2,000 (130,000) (50,994) ------------- ----------- ------------ ----------- ----------- -- 326,000 1,019,000 (893,000) (373,948) ------------- ----------- ------------ ----------- ----------- Deferred benefit: Federal.................................... 1,150,000 21,800 68,000 29,000 (57,284) State...................................... 111,000 32,000 100,000 2,000 -- ------------- ----------- ------------ ----------- ----------- 1,261,000 53,800 168,000 31,000 (57,284) ------------- ----------- ------------ ----------- ----------- 1,261,000 379,800 1,187,000 (862,000) (431,232) Change in valuation allowance................ (1,261,000) (26,147) (84,000) -- -- ------------- ----------- ------------ ----------- ----------- Income tax (expense) benefit................. $ -- $ 353,653 $ 1,103,000 $ (862,000) $ (431,232) ------------- ----------- ------------ ----------- ----------- ------------- ----------- ------------ ----------- -----------
The types of temporary differences between the tax basis of assets and liabilities that give rise to a significant portion of the net deferred tax liability and their approximate tax effects are as follows:
AS OF SEPTEMBER 30, AS OF DECEMBER 31, 1997 ----------------------- (UNAUDITED) 1996 1995 ------------------- ----------- ---------- Property and equipment............................................. $ 27,000 $ (125,000) $ (84,000) Inventory.......................................................... -- 47,000 -- Accounts receivable allowance...................................... -- 14,000 -- Tax credit and operating loss carry forwards....................... 1,234,000 148,000 -- ------------------- ----------- ---------- Less valuation allowance........................................... (1,261,000) (84,000) -- ------------------- ----------- ---------- Net deferred assets (liabilities).................................. $ -- $ -- $ (84,000) ------------------- ----------- ---------- ------------------- ----------- ----------
A valuation allowance equal to the net deferred tax asset has been recorded, as management of the Company has not been able to determine that is more likely than not that the deferred tax assets will be realized. F-20 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 9. INCOME TAXES (CONTINUED) A reconciliation of the income taxes at the federal statutory rate to the effective tax rate is as follows:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------- YEARS ENDED DECEMBER 31, 1997 1996 ------------------------------------- (UNAUDITED) (UNAUDITED) 1996 1995 1994 ------------- ----------- ------------- ---------- ---------- Federal income tax (benefit) computed at the federal statutory rate..................... $ (1,437,000) $(474,000) $ (949,000) $ 763,000 $ 322,954 State income tax (benefit), net of federal benefit.................................... (139,000) (46,000) (102,000) 130,000 50,994 Foreign tax credits.......................... (167,000) (23,000) (47,000) -- -- Increase in valuation allowance 1,261,000 26,147 84,000 -- -- Other........................................ 482,000 163,200 (89,000) (31,000) 57,284 ------------- ----------- ------------- ---------- ---------- Income tax expense (benefit)................. $ -- $(353,653) $ (1,103,000) $ 862,000 $ 431,232 ------------- ----------- ------------- ---------- ---------- ------------- ----------- ------------- ---------- ----------
10. COMMITMENTS AND CONTINGENCIES LEASES The Company is obligated under operating leases for office space. Two leases are on a month to month basis and three require future minimum lease payments as follows:
YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------ 1998.................................................................................................. $ 159,800 1999.................................................................................................. 86,400 2000.................................................................................................. 35,700 2001.................................................................................................. 25,400 2002.................................................................................................. 25,400 ---------- TOTAL................................................................................................. $ 332,700 ---------- ----------
Occupancy expense for all operating leases was $301,644, $220,681, $290,600, $175,800 and $99,915 for the nine months ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995, and 1994. SELF-INSURANCE The Company is partially self insured for employee medical liabilities which covers risk up to $10,000 per individual covered under the plan. The Company has purchased excess medical liability coverage for individual claims in excess of $10,000 and aggregate claims in excess of approximately $312,000 annually with a national medical insurance carrier. Premiums and claim expenses associated with the medical self insurance program are included in the accompanying statement of income. MANAGEMENT SERVICES CONTRACT During November 1995 the Company entered into a management services contract with a stockholder of one of its subsidiaries. The agreement requires a minimum monthly payment of $18,835 through October 31, 1997. F-21 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 10. COMMITMENTS AND CONTINGENCIES (CONTINUED) EMPLOYMENT AGREEMENTS During fiscal 1997 the Company entered into employment agreements with Robert L. Richards and J.T. Whitworth for a five year period, each at an annual salary of $180,000, subject to annual increases or bonuses as may be determined by the Board of Directors. The company also entered into an employment agreement with Robert J. Young for the period August 11, 1997 through August 31, 1998 at an annual salary of $125,000. The Company's employment agreement with Mr. Young contains a provision that he be reimbursed for up to $62,500 of documented educational expenses. CONSULTING AGREEMENT On February 4, 1997, the Company entered into a consulting contract with Magic Consulting Group, Inc. ("Consultant"). Consultant is to receive the following compensation for services: (i) one warrant to purchase 100,000 shares of common stock of the Company for $.01 per share (ii) 100,000 warrants to purchase an aggregate of 100,000 shares of common stock of the Company at $6.60 per share and (iii) $2,500 per month for a period of 60 months. As of September 30, 1997 no warrants were exercised. 401(K) PROFIT SHARING PLAN On January 1, 1996 the Company established a 401(k) profit sharing retirement plan. The plan requires one year of service and attainment of age 21 to become eligible. Employer contributions vest over a 5 year period. The Company's contributions to the plan for the nine months ended September 30, 1997 and 1996 were approximately $41,300 and $53,250 and for the year ended December 31, 1996 were approximately $67,000. 11. STOCK OPTION PLAN During 1997, the Company adopted a stock option plan. No options have been granted under this Plan through September 30, 1997. The Company has reserved 1,000,000 shares of its common stock for future grants under this Plan. 12. MAJOR SUPPLIERS During the nine months ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995, and 1994, the Company purchased amounts of its products from a limited number of vendors, including significant amounts from MW International of 67%, 58%, 57%, 40% and 40% and from Manhattan Drug of 8%, 24%, 22%, 40% and 40%. 13. FOREIGN SALES For the nine months ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994, the Company's net sales from foreign operations were approximately $4,570,000, $5,739,600, $7,380,000, $1,200,000, and $0. F-22 KAIRE INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INFORMATION AS TO THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED 14. SUBSEQUENT EVENTS (UNAUDITED) PROPOSED PUBLIC OFFERING The Company has entered into a letter of intent with an underwriter for a proposed public offering of 1,000,000 shares of common stock and warrants to purchase 1,000,000 shares of common stock at a price to be determined. AGREEMENT AND PLAN OF REORGANIZATION Subsequent to September 30, 1997, the Company borrowed $700,000 from Interactive Medical Technologies, Ltd., ("IMT"), a Delaware corporation. On December 9, 1997, the Company entered into an Agreement and Plan of Reorganization (the "Agreement") with IMT whereby IMT agreed to provide an additional $300,000 equity investment in the Company and convert the $700,000 previously borrowed by the Company to equity in the Company and for IMT to provide additional equity investments of $2,000,000 by February 15, 1998. The Agreement for reorganization of the Company contemplates an exchange of the Company's shares for IMT shares whereby IMT will issue, in total, shares equal to forty five percent (45%) of its common stock outstanding immediately prior to the closing date of the Agreement in exchange for not less than 80% of the issued and outstanding common shares of the Company. Therefore the Company will be a subsidiary of IMT. The transaction is contemplated to qualify as a tax free reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. 15. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ---------------------- ---------------------------------- 1997 1996 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Cash paid during the year for: Interest........................................... $ 141,147 $ 100,282 $ 120,839 $ 104,502 $ 27,649 Income taxes....................................... $ -- $ -- $ -- $ 853,582 $ 504,500 Non-cash transactions: Payment of notes payable--related party.............. $ 115,549 $ -- $ -- $ -- $ -- Equipment acquired under capital lease obligations... $ -- $ 73,370 $ 79,374 $ 174,931 $ 669,788 Equipment purchased from related party under notes payable............................................ $ -- $ -- $ -- $ 66,865 $ -- Inventory purchased from related party under notes payable............................................ $ -- $ -- $ -- $ 153,764 $ -- Common stock issued for services..................... $ 64,936 $ -- $ -- $ 57,002 $ --
16. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE AT BEGINNING CHARGED TO AT END OF YEAR EXPENSES DEDUCTIONS OF YEAR ----------- ---------- ----------- ----------- Allowance for doubtful accounts: Year ended December 31, 1996..................................... $ 56,000 $ 41,210 $ 67,210 $ 30,000 Year ended December 31, 1995..................................... $ 56,000 $ 118,855 $ 118,855 $ 56,000 Year ended December 31, 1994..................................... $ 56,000 $ -- $ -- $ 56,000
F-23 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person has been authorized in connection with this Offering to give any information or to make any representations other than those contained in this Prospectus. This Prospectus does not constitute an offer or a solicitation in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the circumstances of the Company or the facts herein set forth since the date hereof. ------------------------ TABLE OF CONTENTS
PAGE --------- Prospectus Summary.............................. 3 Risk Factors.................................... 9 Dilution........................................ 18 Use of Proceeds................................. 19 Capitalization.................................. 20 Selected Financial Information.................. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 23 Business........................................ 34 Legal Proceedings............................... 45 Management...................................... 46 Principal Stockholders.......................... 51 Certain Transactions............................ 52 Description of Securities....................... 55 Shares Eligible for Future Sale................. 57 Underwriting.................................... 59 Legal Matters................................... 61 Experts......................................... 61 Additional Information.......................... 61 Index to Financial Statements................... F-1
------------------------ Until , 1998 (25 days after the date of the Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. KAIRE INTERNATIONAL, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS --------------------- PROSPECTUS --------------------- MAY DAVIS GROUP, INC. , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses of this Offering, all of which are to be paid by the Registrant, in connection with the issuance and distribution of the Securities being registered, are as follows: SEC Registration Fee........................................... $ 4,728.12 NASD Filing Fee................................................ 1,602.75 NASDAQ Listing and Filing Fees................................. 15,000.00* Printing and Engraving Expenses................................ 100,000.00* Accounting Fees and Expenses................................... 100,000.00* Legal Fees and Expenses........................................ 125,000.00 Blue Sky Fees and Expenses..................................... 50,000.00* Transfer and Warrant Agent Fees and Expenses................... 10,000.00* Consulting Agreement with Underwriter.......................... 108,000.00* Miscellaneous Expenses......................................... 25,963.13* ---------- TOTAL.......................................................... $540,294.00* ---------- ----------
- ------------------------ * Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS In general, Section 145 of the Delaware General Corporation Law provides that persons who are officers or directors of a corporation may be indemnified by the corporation for acts performed in their capacities as such. The Registrant's By-Laws authorize indemnification in accordance with and to the extent permitted by said statute. The Registrant's Certificate of Incorporation and By-Laws provide for indemnification to the fullest extent permitted by law. Reference is also made to Section of the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has sold the following securities within the past three years: A
APPROXIMATE DATE PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION - --------------- ------------------------------------- ------------------------------------- ----------------- 01/05/97 Mystic Enterprises, Inc. 177,882 shares of Common Stock 01/15/97 Robert J. Young 50,000 shares of Common Stock 01/15/97 CCB Investments, L.L.C. 98,823 shares of Common Stock 01/15/97 Rain Bird Enterprises, L.L.C. 98,823 shares of Common Stock 01/15/97 Zero Investments, L.L.C. 98,823 shares of Common Stock 02/04/97 Magic Consulting Group, Inc. Options to purchase 100,000 shares of Partial Common Stock and Warrants to purchase Consideration for 100,000 shares of Common Stock Consulting Agreement 03/20/97 Gusrae, Kaplan & Bruno 25,000 shares of Legal Services Common Stock 08/25/97 Magco, Inc. $200,000 24% Note and Warrants to $200,000 purchase 50,000 shares of Common Stock 08/29/97 The Bridge Fund N.V. $100,000 18% Note and options to $100,000 purchase 15,000 shares of Common Stock and Warrants to purchase 15,000 shares of Common Stock 08/29/97 Corso, Ltd. $100,000 12% Note and options to $100,000 purchase 15,000 shares of Common Stock and Warrants to purchase 15,000 shares of Common Stock
II-2 B
DATE PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION - --------- ---------------------------------------- ---------------------------------------- ----------------- 12/30/96 Art Granito $100,000 14% Note (Agreement Note) and $ 100,000 Warrants to Purchase approximately 13,667 shares of Common Stock 12/30/96 Roland Day $100,000 Agreement Note and Warrants to $ 100,000 Purchase approximately 13,667 shares of Common Stock 01/03/97 Long Distance Direct $100,000 Agreement Note and Warrants to $ 100,000 Holdings, Inc. Purchase approximately 13,667 shares of Common Stock
C In March 1997, the Company sold, to the persons and entities identified below, the securities of the Company for the consideration indicated opposite their names:
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION - ---------------------------------------------- ---------------------------------------------- ----------------- Flatford Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00 Magic Consulting Group, Inc. One Unit of the Company's Securities* $ 50,000.00 Green Ocean Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00 Moonbridge Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00 Flint Rock Corporation, N.V. One Unit of the Company's Securities* $ 50,000.00 ----------------- TOTAL $ 250,000.00 ----------------- -----------------
- ------------------------ * Each Unit consisting of 100,000 shares of Common Stock and 100,000 Redeemable Common Stock Purchase Warrants. From June 1997 through December 1997, the Company sold, to the persons and entities identified below, the securities of the Company for the consideration indicated opposite their names: II-3 D
PERSON/ENTITY NUMBER OF SECURITIES CONSIDERATION - ------------------------------------- ------------------------------------------------------- ----------------- Farid K. Farida Two Units of the Company's Securities** $ 500,000.00 Sol Arker One Half of a Unit of the Company's Securities** $ 125,000.00 Charles A. Sutton One Half of a Unit of the Company's Securities** $ 125,000.00 Jay Levy One Half of a Unit of the Company's Securities** $ 125,000.00 John J. McCarthy Two Fifths of a Unit of the Company's Securities** $ 100,000.00 Abe Weinzimer One Half of a Unit of the Company's Securities** $ 125,000.00 DG Companies, Inc. One Unit of the Company's Securities** $ 250,000.00 Annette Reed One Half of a Unit of the Company's Securities** $ 125,000.00 Michael E. Jessen One Unit of the Company's Securities** $ 250,000.00 ----------------- TOTAL $ 1,725,000.00 ----------------- -----------------
- ------------------------ ** Each Unit consisting of 50,000 shares of Common Stock and a $250,000 10% Promissory Note. These transactions were exempt from registration under the Securities Act of 1933, as amended (the "Act"), under Section 4(2) of that Act as not involving a public offering, and as to those sales set forth under subsections C and D above, reliance is placed upon Rule 506 of Regulation D and Section 4(6) of the Act. No underwriter was engaged by the Company in connection with the issuances described above. The recipients of all of the foregoing securities represented that such securities were being acquired for investment and not with a view to the distribution thereof. In addition, the certificates evidencing such securities bear restrictive legends. II-4 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 Form of Underwriting Agreement (2) 3.1 Registrant's Articles of Incorporation (1) 3.2 Registrant's By-Laws (1) 3.3 Registrant's Articles of Merger dated March 11, 1997 (1) 4.1 Form of Underwriter's Warrant Certificate (2) 4.2 Form of Financial Consulting Agreement to be entered into by and between the Registrant and the Underwriter (2) 4.3 Form of Common Stock Certificate (2) 4.4 Form of Warrants delivered to Private Investors (1) 4.5 Form of Redeemable Common Stock Purchase (Public) Warrants (2) 4.7 Form of Warrant Agency Agreement (2) 5.1 Opinion of Gusrae, Kaplan & Bruno (2) 10.1 Agreement and Plan of Reorganization with Interactive Medical Technologies, Ltd. ("IMT") (1) 10.2 Registrant's Loan Agreement dated May 19, 1997 with Star Financial Bank (1) 10.3 Registrant's Employment Agreement with Robert J. Young (1) 10.4 Registrant's Employment Agreement with Robert L. Richards (1) 10.5 Registrant's Employment Agreement with J.T. Whitworth (1) 10.6 Registrant's Promissory Note with Loren E. Bagley (1) 10.7 Registrant's Promissory Note with William F. Woodburn (1) 10.8 Registrant's Promissory Note with Robert L. Richards (1) 10.9 Registrant's Promissory Note with Horphag Research Ltd. (1) 10.10 Registrant's Promissory Notes with Marden Rehabilitation Associates, Inc. (1) 10.11 Registrant's Promissory Note with Magco, Inc. (1) 10.12 Registrant's Promissory Note with IMT dated October 27, 1997 (1) 10.13 Registrant's Promissory Note with IMT dated October 30, 1997 (1) 10.14 Forms of Promissory Notes issued to Private Investors (1) 10.15 Leases (Two) for Registrant's Denver, Colorado facilities (1) 10.16 Registrant's Stock Option Plan (1) 10.17 Registrant's Promissory Note with J.T. Whitworth (1) 21.1 List of Registrant's Subsidiaries (1) 23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1) (2) 23.2 Consent of BDO Seidman (1) 23.3 Consent of Jones, Jensen & Company (1) 24.1 Powers of Attorney (included on Page II-8 of this filing)
- ------------------------ (1) Filed herewith. (2) To be Filed by Amendment. II-5 (b) Financial Statement Schedule All other schedules are omitted, as the required information is either inapplicable or presented in the financial statements or related notes. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (5) The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Longmont, State of Colorado, on the 10th day of February, 1998. KAIRE INTERNATIONAL, INC. BY: /S/ ROBERT L. RICHARDS ----------------------------------------- Robert L. Richards, Chief Executive Officer POWER OF ATTORNEY Know all men by these presents, that each individual whose signature appears below constitutes and appoints Robert L. Richards and J.T. Whitworth and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ ROBERT L. RICHARDS Chief Executive Officer and - ------------------------------ Director (Principal February 10, 1998 Robert L. Richards Executive Officer) Chief Operating Officer and Chief Financial Office /s/ J.T. WHITWORTH and a Director (Principal - ------------------------------ Financial Officer and February 10, 1998 J.T. Whitworth Principal Accounting Officer) /s/ LOREN E. BAGLEY Chairman of the Board of - ------------------------------ Directors and a Director February 10, 1998 Loren E. Bagley /s/ WILLIAM F. WOODBURN Treasurer and Director - ------------------------------ February 10, 1998 William F. Woodburn /s/ MARK D. WOODBURN Secretary and Director - ------------------------------ February 10, 1998 Mark D. Woodburn Director - ------------------------------ February , 1998 Steven Westlund Director - ------------------------------ February , 1998 Peter Benz II-7 EX-3.1 2 REGISTRANTS ARTICLES OF INCORPORATION Exhibit 3.1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 03:00 PM 09/12/1996 960265086 -- 2662005 CERTIFICATE OF INCORPORATION OF KAIRE INTERNATIONAL HOLDINGS, INC. The undersigned, for the purposes of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate, and do certify that: FIRST: The name of this corporation is KAIRE INTERNATIONAL HOLDINGS, INC. SECOND: Its Registered Office in the State of Delaware is to be located at 9 East Loockerman Street, in the City of Dover, County of Kent, 19901. The Registered Agent in charge thereof is National Registered Agents, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: The amount of the total authorized capital stock of the corporation is One Million (1,000,000), all of which are of a par value of One Cent ($.01) each and classified as Common stock. FIFTH: The name and mailing address of the incorporator are as follows: NAME MAILING ADDRESS ---- --------------- V.R. Stump 2030 Main Street Suite 1040 Irvine, California 92714 SIXTH: The duration of the corporation shall be perpetual. SEVENTH: When a compromise or arrangement is proposed between the corporation and its creditors or any class of them or between the corporation and its shareholders or any class of them, a court of equity jurisdiction within the state, on application of the corporation or of a creditor or shareholder thereof, or on application of a receiver appointed for the corporation pursuant to provisions of Section 291 of Title 8 of the Delaware Code or on application of trustees in dissolution or of any receiver or receivers appointed for the corporation pursuant to provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or reorganization, to be summoned in such manner as the court directs. If a majority in number representing 3/4 in value of the creditors or class of creditors, or of the shareholders or class of shareholders to be affected by the proposed compromise or arrangement or a reorganization, agree to a compromise or arrangement or a reorganization of the corporation as a consequence of the compromise or arrangement, the compromise or arrangement and the reorganization, if sanctioned by the court to which the application has been made, shall be binding on all the creditors or class of creditors, or on all the shareholders or class of shareholders and also on the corporation. EIGHTH: The personal liability of all of the directors of the corporation is hereby eliminated to the fullest extent allowed as provided by the Delaware General Corporation Law, as the same may be supplemented and amended. NINTH: The corporation shall, to the fullest extent legally permissible under the provisions of the Delaware General Corporation Law, as the same may be amended and supplemented, shall indemnify and hold harmless any and all persons whom it shall have power to indemnify under said provisions from and against any and all liabilities (including expenses) imposed upon or reasonably incurred by him in connection with any action, suit or other proceeding in which he may be involved or with which he may be threatened, or other matters referred to in or covered by said provisions both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of the corporation. Such indemnification provided shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, Agreement or Resolution adopted by the shareholders entitled to vote thereon after notice. Dated on September 12, 1996. /s/ V.R. Stump ------------------------------ V.R. Stump, Incorporator STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 07/14/1997 971233932 -- 2662005 STATE OF DELAWARE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Kaire International Holdings, Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware. DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of Kaire International Holdings, Inc. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "First" so that, as amended, said Article shall be and read as follows: The name of this corporation is: Kaire International Holdings, Inc. SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, said Kaire International Holdings, Inc. has caused this certificate to be signed by Robert L. Richards, an Authorized Officer, this 2 day of July, 1997. BY: /s/ [ILLEGIBLE] ------------------------------ TITLE OF OFFICER: Chief Executive Officer ------------------------------ EX-3.2 3 REGISTRANTS BY-LAWS Exhibit 3.2 BY-LAWS OF KAIRE INTERNATIONAL, INC. ARTICLE I - OFFICES The office of the Corporation shall be located in the City and State designated in the Articles of Incorporation. The Corporation may also maintain offices at such other places within or without the United States as the Board of Directors may, from time to time, determine. ARTICLE 11- MEETING OF SHAREHOLDERS Section I - Annual Meetings: The annual meeting of the shareholders of the Corporation shall be held within five months after the close of the fiscal year of the Corporation, for the purpose of electing directors, and transacting such other business as may properly come before the meeting. Section 2 - Special Meetings: Special meetings of the shareholders may be called at any time by the Board of Directors or by the President, and shall be called by the President or the Secretary at the written request of the holders of ten per cent (10%) of the shares then outstanding and entitled to vote thereat, or as otherwise required under the provisions of the Law of the State Delaware ("Corporation Law"). Section 3 - Place of Meetings: All meetings of shareholders shall be held at the principal office of the Corporation, or at such other places as shall be designated in the notices or waivers of notice of such meetings. Section 4 - Notice of Meetings: (a) Written notice of each meeting of shareholders, whether annual or special, stating the time when and place where it is to be held, shall be served either personally or by mail, not less than ten or more than fifty days before the meeting, upon each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. if, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to receive payment for their shares pursuant to the Business corporation Act, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be directed to each such shareholder at his address, as it appears on the records of the shareholders of the corporation, unless he shall have previously filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case, it shall be mailed to the address designated in such request. (b) Notice of any meeting need not be given to any person who may become a shareholder of record after the mailing of such notice and prior to the meeting, or to any shareholder who attends such meeting, in person or by proxy, or to any shareholder who, in person or By Laws - 1 by proxy, submits a signed waiver of notice either before or after such meeting. Notice of any adjourned meeting of shareholders need not be given, unless otherwise required by statute. Section 5 - Quorum: (a) Except as otherwise provided herein, or by statute, or in the Articles of Incorporation (such Articles and any amendments thereof being hereinafter collectively referred to as the "Articles of Incorporation"), at all meetings of shareholders of the Corporation, the presence at the commencement of such meetings in person or by proxy of shareholders holding of record a majority of the total number of shares of the corporation then issued and outstanding and entitled to vote, shall be necessary and sufficient to constitute a quorum for the transaction of any business. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. (b) Despite the absence of a quorum at any annual or special meeting of shareholders, the shareholders, by a majority of the votes cast by the holders of shares entitled to vote thereon, may adjourn the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present. Section 6 - Voting: (a) Except as otherwise provided by statute or by the Articles of incorporation, any corporate action, other than the election of directors to be taken by vote of the shareholders, shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) Except as otherwise provided by statute or by the Articles of Incorporation, at each meeting of shareholders, each holder of record of shares of the Corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation. (c) Each shareholder entitled to vote or to express consent or dissent without a meeting, may do so by proxy; provided, however, that the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. No proxy shall be valid after the expiration of eleven months from the date of its execution, unless the persons executing it shall have specified therein the length of time it is to continue in force. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation. (d) Any resolution in writing, signed by all of the shareholders entitled to vote thereon, shall be and constitute action by such shareholders to the effect therein expressed, with the same force and effect as if the same had been duly passed by unanimous vote at a duly called meeting of shareholders and such resolution so signed shall be inserted in the Minute Book of the Corporation under its proper date. ARTICLE III - BOARD OF DIRECTORS Section I Number Election and Term of Office: (a) The number of the directors of the corporation shall be ( ), unless and until otherwise determined by vote of a majority of the entire Board of Directors. The number of By Laws - 2 Directors shall not be less than three, unless all of the outstanding shares are owned beneficially and of record by less than three shareholders, in which event the number of directors shall not be less than the number of shareholders. (b) Except as may otherwise be provided herein or in the Articles of incorporation, the members of the Board of Directors of the corporation, who need not be shareholders, shall be elected by a majority of the votes cast at a meeting of shareholders, by the holders of shares entitled to vote in the election. (c) Each director shall hold office until the annual meeting of the shareholders next succeeding his election, and until his successor is elected and qualified, or until his prior death, resignation or removal. Section 2 - Duties and Powers: The Board of Directors shall be responsible for the control and management of the affairs, property and interests of the Corporation, and may exercise all powers of the corporation, except as are in the Articles of incorporation or by statute expressly conferred upon or reserved to the shareholders. Section 3 - Annual and Regular Meetings; Notice: (a) A regular annual meeting of the Board of Directors shall be held immediately following the annual meeting of the shareholders, at the place of such annual meeting of shareholders. (b) The Board of Directors, from time to time, may provide by resolution for the holding of other regular meetings of the Board of Directors, and may fix the time and place thereof. (c) Notice of any regular meeting of the Board of Directors shall not be required to be given and, if given, need not specify the purpose of the meeting; provided, however, that in case the Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be given to each director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in paragraph (b) of Section 4 of this Article III, with respect to special meetings, unless such notice shall be waived in the manner set forth in paragraph (c) of such Section 4. Section 4 - Special Meetings; Notice: (a) Special Meetings of the Board of Directors shall be held whenever called by the President or by one of the directors, at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Notice of special meetings shall be mailed directly to each director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. A notice, or waiver of notice, except as required by Section 8 of this Article III, need not specify the purpose of the meeting. (c) Notice of any special meeting shall not be required to be given to any director who shall attend such meeting without protesting prior thereto or at its commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meeting shall not be required to be given. By Laws - 3 Section 5 - Chairman: At all meetings of the Board of Directors, the Chairman of the Board, if any and if present, shall preside. if there shall be no Chairman, or he shall be absent, then the President shall preside, and in his absence, a Chairman chosen by the Directors shall preside. Section 6 - Quorum and Adjournments: (a) At all meetings of the Board of Directors, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. (b) A majority of the directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without notice, until a quorum shall be present. Section 7 - Manner of Acting: (a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold. (b) Except as otherwise provided by statute, by the Articles of Incorporation, or by these By-Laws, the action of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Any action authorized, in writing, by all of the directors entitled to vote thereon and filed with the minutes of the corporation shall be the act of the Board of Directors with the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of the Board. Section 8 - Vacancies: Any vacancy in the Board of Directors occurring by reason of an increase in the number of directors, or by reason of the death, resignation, disqualification, removal (unless a vacancy created by the removal of a director by the shareholders shall be filled by the shareholders at the meeting at which the removal was effected) or inability to act of any director, or otherwise, shall be filled for the unexpired portion of the term by a majority vote of the remaining directors, though less than a quorum, at any regular meeting or special meeting of the Board of Directors called for that purpose. Section 9 - Resignation: Any director may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 10 - Removal: Any director may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose, and may be removed for cause by action of the Board. By Laws - 4 Section 11 - Salary: No stated salary shall be paid to directors, as such, for their services, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12 - Contracts: (a) No contract or other transaction between this Corporation and any other corporation shall be impaired, affected or invalidated, nor shall any director be liable in any way by reason of the fact that any one or more of the directors of this Corporation is or are interested in, or is a director or officer, or are directors or officers of such other Corporation, provided that such facts are disclosed or made known to the Board of Directors. (b) Any director, personally and individually, may be a party to or may be interested in any contract or transaction of this Corporation, and no director shall be liable in any way by reason of such interest, provided that the fact of such interest be disclosed or made known to the Board of Directors, and provided that the Board of Directors shall authorize, approve or ratify such contract or transaction by the vote (not counting the vote of any such director) of a majority of a quorum, notwithstanding the presence of any such director at the meeting at which such action is taken. Such director or directors may be counted in determining the presence of a quorum at such meeting. This Section shall not be construed to impair or invalidate or in any way affect any contract or other transaction which would otherwise be valid under the law (common, statutory or otherwise) applicable thereto. Section 13 - Committees: The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members an executive committee and such other committees, and alternate members thereof, as they deem desirable, each consisting of three or more members, with such powers and authority (to the extent permitted by law) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board. ARTICLE IV - OFFICERS Section I - Number, Qualifications, Election and Term of office: (a) The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such other officers, including a Chairman of the Board of Directors, and one or more Vice Presidents, as the Board of Directors may from time to time deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a director of the Corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary. (b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders. (c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election, and until his successor shall have been elected and qualified, or until his death, resignation or removal. By Laws - 5 Section 2 - Resignation: Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, or to the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 3 - Removal: Any officer may be removed, either with or without cause, and a successor elected by the Board at any time. Section 4 - Vacancies: A vacancy in any office by reason of death, resignation, inability to act, disqualification, or any other cause, may at. any time be filled for the unexpired portion of the term by the Board of Directors. Section 5 - Duties of Officers: Officers of the Corporation shall, unless otherwise provided by the Board of Directors, each have such powers and duties as generally pertain to their respective offices as well as such powers and duties as may be set forth in these By-Laws, or may from time to time be specifically conferred or imposed by the Board of Directors. The President shall be the chief executive officer of the Corporation. Section 6 - Sureties and Bonds: In case the Board of Directors shall so require, any officer, employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. Section 7 - Shares of other Corporations: Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such shareholder (including the attendance, acting and voting at shareholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize. ARTICLE V - SHARES OF STOCK Section 1 - Certificate of Stock: (a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board of Directors, and shall be numbered and registered in the order issued. They shall bear the holder's name and the number of shares, and shall be signed by (i) the Chairman of the Board or the President or a Vice President, and (ii) the Secretary, or any Assistant Secretary, and may bear the corporate seal. By Laws - 6 (b) No certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law. (c) The Board of Directors may authorize the issuance of certificates for fractions of a share which shall entitle the holder to exercise voting rights, receive dividends-and participate in liquidating distributions, in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may authorize the issuance, subject to such conditions as-may be permitted by law, of scrip in registered or bearer form over the signature of an officer or agent of the Corporation, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder, except as therein provided. Section 2 - Lost or Destroyed Certificates: The holder of any certificate representing shares of the Corporation shall immediately notify the Corporation of any loss or destruction of the certificate representing the same. The Corporation may issue a new certificate in the place of any certificate theretofore issued by it, alleged to have been lost or. destroyed. On production of such evidence of loss or destruction as the Board of Directors in its discretion may require, the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, and with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claims, loss, liability or damage it may suffer on account of the issuance of the new certificate. A new certificate may be issued without requiring any such evidence or bond when, in the judgment of the Board of Directors, it is proper so to do. Section 3 - Transfers of Shares: (a) Transfers of shares of the Corporation shall be made on the share records of the Corporation only by the holder of record thereof, in person or by his duly authorized attorney, upon surrender for cancellation of the certificate or certificates representing such shares, with an assignment or power of transfer endorsed thereon or delivered therewith duly executed, with such proof of the authenticity of the signature and of authority to transfer and of payment of transfer taxes as the Corporation or its agents may require. (b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 4 - Record Date: In lieu of closing the share records of the corporation, the Board of Directors may fix, in advance, a date not exceeding fifty days, nor less than ten days, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held; the record date for determining shareholders for any other purpose shall be at the close of business on By Laws - 7 the day on which the resolution of the directors relating thereto is adopted. when a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided for herein, such determination shall apply to any adjournment thereof, unless the directors fix a new record date for the adjourned meeting. ARTICLE VI - DIVIDENDS Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time or times as the Board of Directors may determine. ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time, subject to applicable law. ARTICLE VIII - CORPORATE SEAL The corporate seal, if any, shall be in such form as shall be approved from time to time by the Board of Directors. ARTICLE IX - AMENDMENTS Section 1 - By Shareholders: All by-laws of the Corporation shall be subject to alteration or repeal, and new by-laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of directors. Section 2 - By Directors. The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, by-laws of the Corporation; provided, however, that the shareholders entitled to vote with respect thereto as in this Article DC above-provided may alter, amend or repeal by-laws made by the Board of Directors, except that the Board of Directors shall have no power to change the quorum for meetings of shareholders or of the Board of Directors, or to change say provisions of the by-laws with respect to the s or the filling of vacancies in the Board removal of director resulting from the removal by the shareholders. If any by-laws regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors, the by-law so adopted, amended or repealed together with a concise statement of the changes made. The undersigned certify the foregoing by-laws have been adopted as the first by-laws of the Corporation, in accordance with the requirements of the Corporation Law. Dated: March 11, 1997 ------------------ /s/ [ILLEGIBLE] --------------------- By Laws - 8 EX-3.3 4 ARTICLES OF MERGER (3/11/97) Exhibit 3.3 ARTICLES OF MERGER OF KAIRE INTERNATIONAL, INC. AND KAIRE INTERNATIONAL HOLDINGS, INC. To the Secretary of State State of Nevada Pursuant to the provisions of Chapter 78, Nevada Revised Statutes, the foreign corporation and the domestic corporation herein named do hereby adopt the following Articles of Merger. 1. Annexed hereto and made a part hereof is the Plan of Merger for merging Kaire International, Inc., a corporation for profit organized and existing under the laws of the State of Nevada, with and into Kaire International Holdings, Inc., a corporation for profit organized and existing under the laws of the State of Delaware. The said Plan of Merger has been adopted by the Board of Directors of Kaire International, Inc. and by the Board of Directors of Kaire International Holdings, Inc. 2. The said Plan of Merger was submitted to the stockholders of Kaire International, Inc. by its Board of Directors pursuant to the provisions of Section 78-320 of Chapter 78, Nevada Revised Statutes, and the manner of approval thereof by said stockholders was as follows: (i) The designation, the number of outstanding shares, and the number of votes entitled to be cast by each class entitled to vote on the said Plan of Merger are as follows: (a) Designation of class: Common Stock (b) Number of outstanding shares of class: 1,050 (c) Number of votes of class entitled to be cast: 1,050 (ii) Shareholder consents representing the total number of votes cast for the merger herein provided for by each class entitled to vote on the said Plan of Merger is as follows: (a) Designation of class: Common Stock (b) Number of votes of class cast for Plan of Merger: (iii) The said number of votes represented by consents approving the said Plan of Merger was sufficient for the approval thereof by the said class. 3. The merger of Kaire International, Inc. with and into Kaire International Holdings, Inc. is permitted by the laws of the jurisdiction of organization of Kaire International Holdings, Inc. and has been authorized in compliance with said laws. 4. The said Plan of Merger was not required to be submitted to the stockholders of Kaire International Holdings, Inc. pursuant to the provisions of the laws of its jurisdiction of organization. 5. When the merger herein provided for becomes effective, Article ONE of the Certificate of Incorporation of Kaire International Holdings, Inc. is amended pursuant to the annexed Plan of Merger to read as follows: "ONE: The name of the Corporation is KAIRE INTERNATIONAL, INC." 6. The specified address of Kaire International Holdings, Inc. where copies of process may be sent by the Secretary of State of the State of Nevada, served pursuant to the provisions of Section 78.461, Nevada Revised Statutes, in a proceeding to enforce any obligation or the rights of dissenting shareholders of Kaire International, Inc., unless Kaire International Holdings, Inc. has designated in writing to the Secretary of State of the State of Nevada a different address for that purpose, is: National Registered Agents, 9 East Loockerman Street, Dover, Delaware 19901. 7. The merger herein provided for shall become effective in the State of Nevada upon the date of filing hereof. Signed on March 11, 1997. KAIRE INTERNATIONAL, INC. /s/ Robert L. Richards ----------------------------------- Chief Executive Officer /s/ Tamyla J. McMahan ----------------------------------- Assistant Secretary KAIRE INTERNATIONAL, INC. /s/ Robert L. Richards ----------------------------------- Chief Executive Officer /s/ Tamyla J. McMahan ----------------------------------- Assistant Secretary STATE OF COLORADO ) ) SS.: COUNTY OF BOULDER ) On March 11, 1997, personally appeared before me, a Notary Public in and for the State and County aforesaid, Robert L. Richards and Tamyla J. McMahan, Chief Executive Office and Assistant Secretary of Kaire International, Inc., personally known to me to be the persons whose names are subscribed to the above instrument in the said capacities, who acknowledged that they executed the said instrument. /s/ [ILLEGIBLE] --------------------------- Notary Public My Commission Expires Apr. 5, 1999 STATE OF COLORADO ) ) SS.: COUNTY OF BOULDER ) On March 11, 1997, personally appeared before me, a Notary Public in and for the State and County aforesaid, Robert L. Richards and Tamyla J. McMahan, Chief Executive Office and Assistant Secretary of Kaire International Holdings, Inc., personally known to me to be the persons whose names are subscribed to the above instrument in the said capacities, who acknowledged that they executed the said instrument. /s/ [ILLEGIBLE] --------------------------- Notary Public My Commission Expires Apr. 5, 1999 3 PLAN OF MERGER adopted by Kaire International, Inc., a corporation for profit organized under the laws of the State of Nevada, by resolution of its Board of Directors on September , 1996, and adopted on September , 1996 by Kaire International Holdings, Inc., a corporation for profit organized under the laws of the State of Delaware, by resolution of its Board of Directors on September , 1996. The names of the corporations planning to merge are Kaire International, Inc., a corporation for profit organized under the laws of the State of Nevada, and Kaire International Holdings, Inc., a corporation for profit organized under the laws of the State of Delaware. The name of the surviving corporation into which Kaire International, Inc. plans to merge is Kaire International Holdings, Inc. 1. Kaire International, Inc. and Kaire International Holdings, Inc., shall, pursuant to the provisions of the General Corporation Law of the State of Nevada and the provisions of laws of the jurisdiction of organization of Kaire International Holdings, Inc., be merged with and into a single corporation, to wit, Kaire International Holdings, Inc., which shall be the surviving corporation when the merger becomes effective and which is sometimes hereinafter referred to as the "surviving corporation," and which shall continue to exist as said surviving corporation under the name Kaire International, Inc. pursuant to the provisions of the laws of its jurisdiction of organization. The separate existence of Kaire International, Inc., which is sometimes hereinafter referred to as the "non-surviving corporation," shall cease when the merger becomes effective in accordance with the laws of the jurisdiction of its organization. 2. The Certificate of Incorporation of the surviving corporation when the merger becomes effective shall be the Certificate of Incorporation of said surviving corporation except that Article ONE thereof, relating to the name of the corporation, the purposes of the corporation, and the authorized shares of the corporation, are hereby amended and changed so as to read as follows when the merger becomes effective: "ONE: The name of the corporation is KAIRE INTERNATIONAL, INC." and said Certificate of Incorporation as herein amended and changed shall continue in full force and effect until further amended and changed in the manner prescribed by the provisions of the laws of its jurisdiction of organization. 3. The present bylaws of the surviving corporation will be the bylaws of said surviving corporation and will continue in full force and effect until changed, altered, or amended as therein provided and in the manner prescribed by the provisions of the laws of its jurisdiction of organization. 4. The directors and officers in office of the surviving corporation when the merger becomes effective shall be the members of the first Board of Directors and the first officers of the surviving corporation, all of whom shall hold office until their respective successors are elected or appointed and qualified or until their tenure is otherwise terminated in accordance with the bylaws of the surviving corporation. 4 5. Each issued share of stock of the non-surviving corporation when the merger becomes effective shall be converted into one share of stock of the surviving corporation. The issued shares of stock of the surviving corporation shall not be converted or exchanged in any manner, but each said share which is issued immediately prior to the merger becoming effective shall be canceled upon the effectiveness of the merger. 6. The merger of the non-surviving corporation with and into the surviving corporation shall be authorized in the manner prescribed by the General Corporation Law of the State of Nevada and by the laws of the jurisdiction of organization of the surviving corporation, and the Plan of Merger herein made and approved shall be submitted to the stockholders of the non-surviving corporation for their approval or rejection in the manner prescribed by the provisions of the General Corporation Law of the State of Nevada. 7. In the event that the merger of the non-surviving corporation with and into the surviving corporation shall have been duly authorized in compliance with the General Corporation Law of the State of Nevada, and in the event that the Plan of Merger shall have been approved by the stockholders entitled to vote of the surviving corporation in the manner prescribed by the laws of the jurisdiction of its organization, the non-surviving corporation and the surviving corporation hereby stipulate that they will cause to be executed and filed and/or recorded any document or documents prescribed by the laws of the State of Nevada and of the State of Delaware, and that they will cause to be performed all necessary acts therein and elsewhere to effectuate the merger. 8. The Board of Directors and the proper officers of the non-surviving corporation and of the surviving corporation, respectively, are hereby authorized, empowered, and directed to do any and all acts and things, and to make, execute, deliver, file, and/or record any and all instruments, papers, and documents which shall be or become necessary, proper, or convenient to carry out or put into effect any of the provisions of this Plan of Merger or of the merger herein provided for. 5 EX-4.4 5 FORM OF WARRANTS DELIVERED TO PRIVATE INVESTORS EXHIBIT 4.4 THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT. As stated in Section 10 hereof, in the event the Company consummates an initial public offering of its securities and the securities sold in such offering include common stock purchase warrants, on the closing date of such offering, this warrant is to be surrendered at the office of the Company for printed warrant certificates having the same terms, conditions, rights and obligations as those sold in said initial public offering. Warrant No. REDEEMABLE COMMON STOCK PURCHASE WARRANT To Subscribe For The Purchase of up to_____________________________(__________) Shares of Common Stock of KAIRE INTERNATIONAL, INC. (a Nevada corporation) 1. Warrant. THIS CERTIFIES THAT______________(the "Holder"), as registered owner of this Redeemable Common Stock Purchase Warrant (the "Warrant"), of KAIRE INTERNATIONAL, INC. (the "Company") is entitled, at any time during the four year period (the "Exercise Period") commencing on the second anniversary date of the declaration of effectiveness ("Effective Date") by the Securities and Exchange Commission of an initial public offering of securities of the Company (an "IPO"); provided, however, that the Warrants may be exercisable prior to the second anniversary of the Effective Date with the express prior written consent of May Davis Group, Inc., but not after the Exercise Period has expired, to subscribe for, purchase and receive, in whole or in part, up to________________________(_________________) shares of Common Stock, $.01 par value (the "Common Stock"), of the Company. This Warrant shall be initially exercisable as to each share of Common Stock covered hereby at $6.60 per share (the "Exercise Price"). The term "Exercise Price" shall mean the initial exercise price or such exercise price, as adjusted in the manner provided herein, depending on the context. This Warrant is one of the Warrants being issued by the Company in connection with the Company's private placement to accredited investors (the "Private Placement") of units consisting of up to an aggregate of $1,000,000 in principal amount promissory notes bearing interest at the rate of ten percent (10%) per year, repayable as set forth therein (the "Notes"), 200,000 shares of Common Stock and 400,000 Warrants to purchase up to 400,000 shares of Common Stock. The Notes, shares of Common Stock and Warrants referenced in this paragraph may hereinafter be collectively referred to as the "Securities". 2. Exercise. In order to exercise this Warrant, the exercise form attached hereto must be duly executed, completed and delivered to the Company at its principal office as set forth in Section 8.4 hereof during the Exercise Period, together with this Warrant and payment of the Exercise Price for the shares of the Common Stock being purchased and any required transfer tax. The Company shall issue a certificate or certificates evidencing the shares of Common Stock which are the subject of any such exercise as soon as practicable after its receipt of an exercise form. The Holder shall not have any rights whatsoever as a stockholder of the Company until such time as the certificate or certificates evidencing shares of Common Stock issuable upon exercise of this Warrant have been issued by the Company upon due exercise of this Warrant by the Holder. If the rights represented hereby shall not have been exercised at or before 5:00 p.m., Eastern Time, on the last day during the Exercise Period, this Warrant shall become and be void and without further force or effect and all rights represented hereby shall cease and expire. 3. Restrictions on Transfer. Registration of Transfer. A. Restrictions on Transfer. The registered Holder of this Warrant, by its acceptance hereof, agrees that prior to any proposed transfer of all or any part of this Warrant or any securities purchased upon the exercise of this Warrant, if such transfer is not made pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Act"), such holder will, if requested by the Company, deliver to the Company: (i) an opinion of counsel reasonably satisfactory in form and substance to the Company that the Warrant or the securities purchased upon the exercise of the Warrant may be transferred without registration under the Act; (ii) an agreement by the proposed transferee to the impression of the restrictive investment legend set forth below on the Warrant or the securities to be received; (iii) an agreement by such transferee that the Company may place a notation in the stock books of the Company or a "stop transfer order" with any transfer agent or registrar with respect to the Warrant and the securities purchased upon exercise of the Warrant; and (iv) an agreement by such transferee to be bound by the provisions of this Section 3 relating to the transfer of such Warrant or the securities purchased upon exercise of such warrant. Each Warrant holder agrees that each Warrant and each certificate representing securities purchased upon exercise of this Warrant shall bear the following legend unless such securities have been registered under the Act: The Securities represented by this Certificate have not been registered under the Securities Act of 1933, as amended. These Securities have been acquired for investment purposes and not with a view to distribution or resale, and may not be sold, assigned, pledged, hypothecated or otherwise transferred without an effective 2 Registration Statement for such Securities under the Securities Act of 1933, as amended, and applicable state securities laws, or an opinion of counsel satisfactory to the issuer of these securities to the effect that registration is not required under such Act and such state securities laws. B. Registration of Transfers. In order to make any permitted transfer or assignment of this Warrant, the Holder must deliver to the Company the assignment form attached hereto duly executed and completed, together with this Warrant and payment of all transfer taxes, if any, payable in connection therewith. Upon receipt of such form and this Warrant, the Company shall immediately transfer this Warrant or any part thereof specified in the assignment form on the books of the Company and shall execute and deliver a new warrant or warrants of like tenor to the appropriate assignee(s) expressly evidencing the right to purchase the number of shares of Common Stock purchasable hereunder or such portion of such number as shall be contemplated by such assignment. 4. New Warrants to be Issued. A. Partial Exercise or Transfer. Subject to the restrictions in Section 3 hereof, this Warrant may be exercised or assigned in whole or in part. In the event of the exercise or assignment hereof in part only, upon delivery to the Company of this Warrant for cancellation, together with the duly executed exercise or assignment form and funds sufficient to pay the Exercise Price and any required transfer tax, the Company shall promptly cause to be delivered to the Holder without charge a new Warrant or new warrants of like tenor with this Warrant in the name of the Holder evidencing the right to purchase in the aggregate the remaining number of underlying shares of Common Stock purchasable hereunder after giving effect to any such partial exercise or assignment. B. Lost Certificate. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and of an indemnification by the Holder in favor of the Company, reasonably satisfactory to it, the Company shall execute and deliver to the Holder a new warrant of like tenor and date. 5. Adjustments. Subject and pursuant to the provisions of this Section 5, the Exercise Price and number of Common Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter. (A) Except as hereinafter provided in the event the Company shall, at any time or from time to time after the date hereof, sell any shares of Common Stock for a consideration per share less than the lower of (i) the closing bid price of the Common Stock as reported on NASDAQ on the trading date next preceding such sale (the "Market Price"), or (ii) the Exercise Price then in effect, or issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such sale, issuance, subdivision or combination being herein called a "Change of Shares"), then, and hereafter immediately before the date of such sale or the record date for each Change of Shares, the Exercise Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (1) the product of (a) the Exercise Price in effect immediately before such Change of Shares and (b) the sum (i) the total number of shares of Common Stock outstanding immediately prior to such Change of Shares, and (ii) the number of shares determined by dividing (A) the aggregate consideration, if any, received by the Company upon such consideration, issuance, subdivision or combination by (3) the lesser of (x) the Market Price, or (y) the Exercise Price, 3 in effect immediately prior to such Change of Shares; by (2) the total number of shares of Common Stock outstanding immediately after such Change of Shares. For the purposes of any adjustment to be made in accordance with this Section 5(A) the following provisions shall be applicable: In case of the issuance or sale of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a consideration part or all of which shall be cash, the amount of the cash portion of the consideration therefor deemed to have been received by the Company shall be (i) the subscription price (before deducting any commissions or any expenses incurred in connection therewith), if shares of Common Stock are offered by the Company for subscription, or (ii) the public offering price (before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services, or any expenses incurred in connection therewith), if such securities are sold to underwriters or dealers for public offering without a subscription offering, or (iii) the gross amount of cash actually received by the Company for such securities, in any other case. (B) In case of the issuance or sale (otherwise than as a dividend or other distribution on any stock of the Company, and otherwise than on the exercise of options, rights or warrants or the conversion or exchange of convertible or exchangeable securities) of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash deemed to have been received by the Company shall be the value of such consideration as determined in good faith by the Board of Directors of the Company. (C) Shares of Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. (D) The reclassification of securities of the Company other than shares of Common Stock into securities including shares of Common Stock shall be deemed to involve the issuance of such shares of Common Stock for a consideration other than cash immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such shares, and the value of the consideration allocable to such shares of Common Stock shall be determined as provided in subsection (B) of this Section 5. (E) The number of shares of Common Stock at any one time outstanding shall be deemed to include the aggregate maximum number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities. (F) Upon each adjustment of the Exercise Price pursuant to this Section 5, the number of shares of Common Stock purchasable upon the exercise of each Warrant shall be the number derived by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the applicable adjusted Exercise Price. (G) In case the Company shall at any time after the date hereof issue options, rights or warrants to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock, for a consideration per share (determined as provided in Section 5(A) and as provided below) less than the lower of (i) the Market Price, or (ii) the Exercise Price 4 in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities, or without consideration (including the issuance of any such securities by way of dividend or other distribution), the Exercise Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities, as the case may be, shall be reduced to a price determined by making the computation in accordance with the provisions of Section 5 (A) hereof, provided that: (i) The aggregate maximum number of shares of Common Stock, as the case may be, issuable or that may become issuable under such options, rights or warrants (assuming exercise in full even if not then currently exercisable or currently exercisable in full) shall be deemed to be issued and outstanding at the time such options, rights or warrants were issued, for a consideration equal to the minimum purchase price per share provided for in such options, rights or warrants at the time of issuance, plus the consideration, if any, received by the Company for such options, rights or warrants; provided, however, that upon the expiration or other termination of such options, rights or warrants, if any thereof shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection (A) (and for the purposes of subsection (E) of Section 5 hereof) shall be reduced by the number of shares as to which options, warrants and/or rights shall have expired, and such number of shares shall no longer be deemed to be issued and outstanding, and the Exercise Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon the exercise of those options, rights or warrants as to which the exercise rights shall not have expired or terminated unexercised. (ii) The aggregate maximum number of shares of Common Stock issuable or that may become issuable upon conversion or exchange of any convertible or exchangeable securities (assuming conversion or exchange in full even if not then currently convertible or exchangeable in full) shall be deemed to be issued and outstanding at the time of issuance of such securities, for a consideration equal to the consideration received by the Company for such securities, plus the minimum consideration, if any, receivable by the Company upon the conversion or exchange thereof; provided, however, that upon the expiration or other termination of the right to convert or exchange such convertible or exchangeable securities (whether by reason of redemption or otherwise), the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection 5 (G)(ii) (and for the purposes of subsection 5 (E) hereof) shall be reduced by the number of shares as to which the conversion or exchange rights shall have expired or terminated unexercised, and such number of shares shall no longer be deemed to be issued and outstanding, and the Exercise Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon conversion or exchange of those convertible or exchangeable securities as to which the conversion or exchange rights shall not have expired or terminated unexercised. (iii) If any change shall occur in the exercise price per share provided for in any of the options, rights or warrants referred to in subsection 5 (B), or in the price per share or ratio at which the 5 securities referred to in subsection 5 (G) are convertible or exchangeable, such options, rights or warrants or conversion or exchange rights, as the case may be, to the extent not theretofore exercised, shall be deemed to have expired or terminated on the date when such price change became effective in respect of shares not theretofore issued pursuant to the exercise or conversion or exchange thereof, and the Company shall be deemed to have issued upon such date new options, rights or warrants or convertible or exchangeable securities. (H) In case of any reclassification or change of outstanding shares of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the registered holder of each Warrant then outstanding shall have right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the Corporate Office of the Warrant Agent a statement signed by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in subsection 5(A). The above provisions of this subsection 5 (H) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (I) After each adjustment of the Exercise Price pursuant to this Section 5, the Company will promptly prepare a certificate signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Warrant, after such adjustment, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate with the Warrant Agent and cause a brief summary thereof to be sent by ordinary first class mail to each registered holder at his last address as it shall appear on the registry books of the Warrant Agent. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of any officer of the Warrant Agent or the Secretary or an Assistant Secretary of the Company that such notice has been mailed, shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (J) No adjustment shall be made: (i) upon the issuance of the Warrants (including shares of Common Stock issued upon exercise of those warrants); 6 (ii) upon the issuance of shares of Common Stock and warrants (including shares of Common Stock issued upon exercise of those warrants) issued prior to or in connection with the Public Offering; (iii) upon the issuance or sale of shares of Common Stock issuable upon the exercise of any stock options granted under any stock option plan of the Company; or (iv) if the amount of said adjustment shall be less than five cents ($.05) per share of Common Stock, provided, however, that in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least five cents ($.05) per share of Common Stock. (K) The foregoing provisions notwithstanding on the effective date of any new Exercise Price the number of shares as to which any Warrant may be exercised shall be increased or decreased so that the total sum payable to the Company on the exercise of such Warrant shall remain constant. (L) The form of Warrant need not be changed because of any change pursuant to this Section, and Warrants issued after such change may state the same Exercise Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Agreement. However, the Company may at any time in its sole discretion (which shall be conclusive) make any change in the form of Warrant that the Company may deem appropriate and that does not effect the substance thereof; and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed. 6. Redemption of Warrants. (A) At any time the Warrants are exercisable and on not less than thirty (30) days notice, the Warrants may be redeemed, at the option of the Company, at a redemption price of $.05 per Warrant, provided the closing bid price of the Common Stock receivable upon exercise of the Warrant for twenty consecutive trading days shall exceed $10.00 per share (the "Target Price"), subject to adjustment as set forth in Section 5 hereof. During the two (2) year period commencing on the effective date of the initial public offering of the Company's securities, the Warrants may only be redeemed with the express written consent of the Underwriter. (B) Providing the conditions set forth in Section 6(A) are met, and the Company shall desire to exercise its right to redeem the Warrants, it shall mail a notice of redemption to the Holders of the Warrants to be redeemed, first class, postage prepaid, not later than the thirtieth (30th) day before the date fixed for redemption, at his/her last address as shall appear on the records of the Company. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Holder receives such notice. (C) The notice of redemption shall specify the (i) redemption price, (ii) the date fixed for redemption, (iii) the place where the Warrant Certificates shall be delivered and the redemption price paid, and (iv) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the trading day immediately preceding the date fixed for redemption. The date fixed for redemption of the Warrants shall be the Redemption Date. No failure 7 to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a Holder (a) to whom notice was not mailed; or (b) whose notice was defective. An affidavit of the Secretary or an Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (D) Except as provided herein, any right to exercise a Warrant shall terminate at 5:00 p.m. (New York time) on the trading day immediately proceeding the Redemption Date. On and after the Redemption Date, the Holders shall have no further rights except to receive, upon surrender of the Warrant, the redemption price. (E) From and after the Redemption Date, the Company shall, at the place specified in the notice of redemption, upon presentation and surrender to the Company by or on behalf of the Holder thereof of one or more Warrants to be redeemed, deliver or cause to be delivered to or upon the written order of such Holder a sum in cash equal to the redemption price of each such Warrant. From and after the date fixed for redemption and upon the deposit or setting aside by the Company of a sum sufficient to redeem all the Warrants called for redemption, such Warrants shall expire and become void and all rights hereunder and under the Warrant Certificates, except the right to receive payment of the redemption price, shall cease. (F) If the shares of the Company's Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, the Target Price shall be proportionally adjusted by the ratio which the total number of shares of Common Stock outstanding immediately prior to such event bears to the total number of shares of Common Stock to be outstanding immediately after such event. 7. Repurchase Rights of the Company. The Company may repurchase this Warrant on or at any time after February 4, 1998, in the event the Company has not consummated the IPO of its securities by that date, at an aggregate repurchase price equal to the purchase price of the Securities; provided, however, that if by said date all relevant parties are proceeding in good faith, said re purchase/redemption date shall be postponed for a period of time not exceeding 90 days. 8. Dividends and Other Distributions. In the event that the Company shall at any time during the Exercise Period prior to the exercise in full of this Warrant declare a non-cash dividend (other than a dividend consisting solely of shares of Common Stock) or otherwise distribute to its stockholders any assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Company or by another, or any other thing of value other than cash, the Holder of this Warrant shall thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrant, the same property, assets,rights, evidences of indebtedness, securities or any other thing of value that it would have been entitled to receive at the time of such dividend or distribution as if the Warrant had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Section 8. 9. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrant. In lieu of fractional shares of Common Stock there will 8 be paid to the Holder, at the time of exercise, an amount of cash equal to the same fraction of the current market price of a share of Common Stock. 10. Exchange. In the event the Company consummates an IPO and the securities sold in the IPO include warrants which are exercisable to purchase shares of Common Stock ("IPO Warrants"), on the closing date of the IPO, this Warrant shall be surrendered by the Holder, at the aforesaid office of the Company for printed warrant certificates having the same terms, conditions, rights and obligations as those sold in the Company's IPO. 11. Reservation. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common stock and other securities, properties and rights issuable upon such exercise shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights of any stockholder. 12. Certain Notice Requirements. (A) Holder's Rights to Receive Notice. Nothing herein shall be construed as conferring upon the Holder the right to vote or consent or to receive notice as a stockholder for the election of directors or any other matter. The Holder shall not have any right whatsoever as a stockholder of the Company until such time as the certificate or certificates evidencing shares of Common Stock issuable upon exercise of this Warrant have been issued by the Company upon due exercise of this Warrant by the Holder. If, however, at any time prior to the expiration of the Warrant or its exercise, any of the events described in subsection 12(B) shall occur, then, in one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, conversion or exchange of securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date of the closing of the transfer books, as the case may be. (B) Events Requiring Notice. The Company shall be required to give the notice described in this Section 12 upon one or more of the following events: (i) if the Company shall declare a record date to calculate the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash as set forth in Section 8, or a cash dividend or distribution payable otherwise than out of retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company, or (ii) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business shall be proposed to the Company's stockholders, or (iv) a merger or consolidation pursuant to Section 5(H) hereof. (C) Notice of Change in Exercise Price. The Company shall, promptly after an event requiring a change in the Exercise Price pursuant to Section 5 hereof, 9 send notice to the Holder of such event and change (the "Price Notice"). The Price Notice shall describe the event causing the change and the method of calculating same and shall be certified as being true and accurate by the Company's Chief Executive Officer or Treasurer. (D) Transmittal of Notices. All notices, requests, consents and other communications under this Warrant shall be in writing and shall be deemed to have been duly given or made when hand delivered, or when delivered by responsible overnight courier or by registered or certified mail, return receipt requested, addressed as set forth below. (i) If to the registered Holder of this Warrant, to his or her address as stated on the books and records of the Company; and (ii) If to the Company, to: Kaire International, Inc. 380 Lashley Street Longmont, Colorado 80501 Either of the Holder or the Company may change the foregoing address by notice given pursuant to this Section 12(D). 13. Miscellaneous. (A) Amendments. All material modifications or amendments to this Warrant shall require the written consent of the party against whom enforcement of the modification or amendment is sought. (B) Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Warrant. (C) Entire Agreement. This Warrant constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. (D) Binding Effect. This Warrant shall inure solely to the benefit of and shall be binding upon the Holder and the Company and their permitted assignees, respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Warrant or any provisions herein contained. (E) Governing Law. Submission to Jurisdiction. This Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without giving effect to the conflict of laws provisions thereof or the actual domiciles of the Company and the Holder of this Warrant. Any action, proceeding or claim against the Company or the Holder arising out of or relating in any way to this Warrant shall be brought and enforced in the courts of the State and County of New York or of the United States of America for the Southern District of New York, and the Company and the Holder irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive. The Holder and the Company waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. The prevailing party in any such action shall be entitled to recover from the other party all of its reasonable attorney's fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Holder and the Company waive their right to trial by jury. 10 (F) Waiver, Etc. The failure of the Company or the Holder to at any time enforce any of the provisions of this Warrant shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validly of this Warrant or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Warrant. No waiver of any breach, noncompliance or nonfulfillment of any of the provisions of this Warrant shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no wavier of any such breach, noncompliance or nonfulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, noncompliance or nonfulfillment. (G) Severability. In the event that any provision of this Warrant shall be determined to be illegal or unenforceable, the remaining provisions of this Warrant shall remain binding and in full force and effect. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer on the __________________ day of March, 1997. KAIRE INTERNATIONAL, INC. By: _____________________________________ (An Authorized Officer) 11 Form to be used to assign Warrant: ASSIGNMENT (To be executed by the registered Holder to effect a transfer of all or part of the within Warrant): Kaire International, Inc. 380 Lashley Street Longmont, Colorado 80501 FOR VALUE RECEIVED, _____________________, does hereby sell, assign and transfer unto _____________________ the right to purchase _____________________ shares of Common Stock of Kaire International, Inc. (the "Company") evidenced by the within Warrant and does hereby authorize the Company to transfer such right on the books of the Company. Dated: __________________, 19____ _____________________________________ Signature _____________________________________ Signature Guaranteed Print Name, Address and Social Security or Taxpayer Identification Number: _____________________________________ _____________________________________ _____________________________________ _____________________________________ NOTICE: The signature to this form must correspond with the name as written upon the face of the within Warrant in every particular without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange. 12 Form to be used to exercise Warrant: Kaire International, Inc. 380 Lashley Street Longmont, Colorado 80501 Date: __________________, 19___ The Undersigned hereby elects irrevocably to exercise the within Warrant and to purchase _________________ shares of Common Stock of Kaire International, Inc. (a Nevada corporation) and hereby makes payment of $____________________ (at the rate of $____________ per share) in payment of the Exercise Price pursuant thereto and transfer taxes, if any such taxes are required to be paid. Please issue the shares as to which this Warrant is exercised in accordance with the instructions given below. _____________________________________ Signature _____________________________________ Signature Guaranteed Print Name, Address and Social Security or Taxpayer Identification Number: _____________________________________ _____________________________________ _____________________________________ _____________________________________ INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name:__________________________________________________________________________ (Print in Block Letters) Address:_______________________________________________________________________ NOTICE: The signature to this form must correspond with the name as written upon the face of the within Warrant in every particular without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank, other than a savings bank, or by a trust company or by a firm having membership on a registered national securities exchange. 13 EX-10.1 6 AGMT AND PLAN OF REORGANIZATION WITH IMT Exhibit 10.1 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") made and entered into as of December 9, 1997, is by and among Interactive Medical Technologies, Ltd., a Delaware corporation (hereinafter referred to as the "Company"), Kaire International, Inc., a Delaware corporation (hereinafter referred to as "Kaire"), each of the holders of shares of Common Stock of Kaire (hereinafter collectively referred to as the "Kaire Stockholders") listed on Schedule A attached hereto and each of the executive officers and/or directors of Kaire listed on Schedule B attached hereto (hereinafter individually referred to as a "Kaire Affiliate" and collectively referred to as the "Kaire Affiliates"). RECITALS WHEREAS, the Kaire Stockholders collectively own a number of shares of common stock of Kaire (the "Kaire Shares") which constitutes not less than 80% of the issued and outstanding common stock of Kaire as of the date of this Agreement; WHEREAS, the Kaire Affiliates are executive officers and/or directors of Kaire; WHEREAS, each of the Kaire Stockholders listed on Schedule B attached hereto (individually a "Major Stockholder" and collectively, the "Major Stockholders") is a corporation, limited liability company, partnership, trust or other entity which is owned or controlled, directly or indirectly, by the Kaire Affiliate whose name appears opposite such Major Stockholder, or in which such Kaire Affiliate holds, directly or indirectly, a material interest or with respect to which such Kaire Affiliate serves as an officer, director, partner, manager or trustee (or in a similar capacity); WHEREAS, Kaire may, if and to the extent permitted hereunder, issue additional shares of its Common Stock after the date hereof to persons or entities who agree to become parties to this Agreement by executing an appropriate amendment hereto pursuant to which they shall be listed as a Kaire Stockholder on Schedule A attached hereto or an amendment thereto and shall have all of the rights and obligations of a Kaire Stockholder under this Agreement; and WHEREAS, the Company desires to acquire all of the Kaire Shares and the Kaire Stockholders desire to exchange all of the Kaire Shares for shares of common stock of the Company in a transaction intended to qualify under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"). AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and in reliance upon the representations and warranties hereinafter set forth, the parties agree as follows: 1. EXCHANGE OF THE SHARES AND CONSIDERATION 1.1 Shares Being Exchanged. Subject to the terms and conditions of this Agreement, at the closing provided for in Section 2 hereof (the "Closing"), each of the Kaire Stockholders shall sell, assign, transfer and deliver to the Company all of the Kaire Shares which each of them respectively own. 1.2 Consideration. Subject to the terms and conditions of this Agreement and in consideration of the sale, assignment, transfer and delivery of the Kaire Shares to the Company, at the Closing, the Company shall issue and deliver to the Kaire Stockholders a number of shares of the Company's common stock (hereinafter referred to as the "Company Shares") equal to the sum of (a) forty seven percent (47%) of the Company's "Total Shares" (as defined below) less (b) the number of shares determined in accordance with Section 8.13 below. "Total Shares" shall mean the sum of (i) the total number of shares of the Company's common stock outstanding immediately prior to the Closing, except for shares that have been issued prior to the Closing or that are issuable upon exercise or conversion of options, warrants or convertible securities that have been issued prior to the Closing to investors who invest or commit to invest up to $3,000,000 in the Company pursuant to Section 8.11 below, (ii) the Company Shares, and (iii) any shares of the Company's common stock issuable upon exercise or conversion of any options, warrants, rights or convertible securities outstanding immediately prior to the Closing, except for shares issuable upon exercise or conversion of any options, warrants, rights or convertible securities which are exercisable or convertible at a price in excess of $.l0 per share, shares issuable pursuant to Section 8.19 below or shares which the Company has agreed or committed to issue after the Closing to investors who invest or commit to invest up to $3,000,000 in the Company pursuant to Section 8.11 below; provided that, for purposes of calculating Total Shares, if any of such options, warrants or convertible securities by their terms provide that the exercise or conversion price thereof and the number of shares to be issued upon exercise or conversion thereof is to be determined as of a certain date by reference to the market price of the Company's common stock as of such date or some other date, the number of shares issuable upon exercise or conversion thereof shall be deemed to be such number of shares as would have been issued had the full exercise or conversion occurred on the date immediately preceding the Closing Date. Each Kaire Stockholder shall receive a pro rata portion of the Company Shares based on the number of Kaire Shares held by each Kaire Stockholder on the date of the Closing. 2. THE CLOSING 2.1 Time and Place. The closing of the transactions contemplated by this Agreement shall be held on December 12, 1997, or on such other date as the parties may agree upon in writing. The date on which the Closing is to be held is referred to herein as the "Closing Date". The Closing shall be held at the offices of Day Campbell & McGill, 3070 Bristol Street, Suite 650, Costa Mesa, California 92626 at 10:00 a.m. on the Closing Date, or at such other time and place as the parties may agree upon in writing. 2.2 Deliveries by the Kaire Stockholders. At the Closing, each Kaire Stockholder shall deliver to the Company the following: (a) stock certificates representing the number of Kaire 2 Shares set forth opposite the name of such Kaire Stockholder on Schedule A hereto, duly endorsed or accompanied by stock powers duly executed in blank and otherwise in form acceptable for transfer on the books of Kaire, (b) an investment letter in the form attached hereto as Exhibit 3.3 executed by such Kaire Stockholder, and (c) a release in the form attached hereto as Exhibit 3.4 (the "Release") executed by such Kaire Stockholder. 2.3 Deliveries by Kaire. At the Closing, in addition to the documents referred to in Section 92 hereof, Kaire shall deliver to the Company the following: (a) certified resolutions of the Kaire Board of Directors authorizing the execution and delivery of this Agreement and the performance by Kaire of its obligations hereunder, and (b) a certificate of good standing of Kaire from the Secretary of State of Delaware dated as of the most recent practicable date. 2.4 Deliveries by the Kaire Affiliates. At the Closing, the Kaire Affiliates shall deliver to the Company (a) a certificate or certificates signed by the Kaire Affiliates that the representations and warranties of the Kaire Affiliates were true and correct as of the date of this Agreement and are true and correct as of the Closing Date as if made on the Closing Date, and (b) a release in the form attached hereto as Exhibit 2.4 (the "Kaire Affiliate Release") executed by each of the Kaire Affiliates. 2.5 Deliveries by the Company. At the Closing, in addition to the documents referred to in Section 9.3 hereof, the Company shall deliver to the Kaire Stockholders the following: (i) a stock certificate issued in the name of each Kaire Stockholder representing the number of Company Shares each such Kaire Stockholder is entitled to receive; (ii) certified resolutions of the Company's Board of Directors authorizing the execution and delivery of this Agreement and the performance by the Company of its obligations hereunder; and (iii) a certificate of good standing of the Company from the Secretary of State of Delaware dated as of the most recent practicable date. 3. INDIVIDUAL REPRESENTATIONS AND WARRANTIES BY THE KAIRE STOCKHOLDERS Each of the Kaire Stockholders, severally but not jointly, represents and warrants to the Company as follows: 3.1 Title. Such Kaire Stockholder owns the number of Kaire Shares set forth opposite such Kaire Stockholder's name on Schedule A hereto, or any amendment to Exhibit A hereto approved by the Company, and shall transfer to the Company at the Closing good and valid title to said number of Kaire Shares, free and clear of all liens, claims, options, charges, and encumbrances of every kind, character or description. 3.2 Valid and Binding Agreement. Such Kaire Stockholder has full power and authority to execute and deliver this Agreement and consummate the transactions contemplated hereby, and this Agreement is binding on him and enforceable in accordance with its terms. The execution and delivery of this Agreement and consummation of the transactions contemplated hereby do not violate or conflict with or constitute a default under any contract, commitment, 3 agreement, understanding, arrangement or restriction of any kind to which he is a party or by which he or his property is bound, or to his knowledge any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over him or any of his property. Such Kaire Stockholder is not and will not be required to give any notice to or obtain any consent from any person in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. 3.3 Investment Representations. Such Kaire Stockholder intends to acquire the Company Shares for investment and not with a view to the public distribution or resale thereof, and such Kaire Stockholder shall confirm such intention to the Company by delivering to the Company at the Closing an investment letter in the form attached as Exhibit 3.3 hereto executed by such Kaire Stockholder. Such Kaire Stockholder agrees that the Company may endorse on any stock certificate for the Company Shares to be delivered pursuant to this Agreement an appropriate legend referring to the provisions of the investment letter attached as Exhibit 3.3 hereto, and that the Company may instruct its transfer agent not to transfer any Company Shares unless advised by the Company that such provisions have been complied with. 3.4 Release. Such Kaire Stockholder has full power and authority to execute and deliver a release in the form attached hereto as Exhibit 3.4 (the "Release"), and upon execution and delivery thereof, the Release will be binding on him and enforceable in accordance with its terms. 4. REPRESENTATIONS AND WARRANTIES OF KAIRE AND THE KAIRE AFFILIATES Subject to and except as disclosed by Kaire in the Kaire Disclosure Schedule attached hereto, Kaire and each of the Kaire Affiliates, jointly and severally, represent and warrant to the Company as follows: 4.1 Authority. Kaire has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated herein. The execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary corporate action on the part of Kaire. This Agreement has been duly executed and delivered by Kaire and constitutes the valid and binding obligation of Kaire, enforceable in accordance with its terms. 4.2 Organization. (a) Kaire is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Kaire has the corporate power and authority to carry on its business as presently conducted and to own or lease its properties and assets, possesses all licenses, franchises, rights and privileges material to the conduct of its business, and is qualified to conduct business as a foreign corporation and is in good standing under the laws of all 4 jurisdictions where the failure to be so qualified would have a material adverse effect on its financial position, results of operation or business. (b) The copies of the Articles of Incorporation and all amendments thereto of Kaire, as certified by the Secretary of State of Delaware, and the Bylaws and all amendments thereto, as certified by the Secretary of Kaire, which have heretofore been delivered to the Company, are complete and correct copies of the Articles of Incorporation and Bylaws of Kaire as amended and in effect on the date hereof. All minutes of meetings and actions in writing without a meeting of the Board of Directors and stockholders of Kaire are contained in the minute book of Kaire heretofore delivered to the Company for examination, and no minutes or actions in writing without a meeting have been included in such minute book since such delivery to the Company that have not also been delivered to the Company. 4.3 Capitalization. (a) The authorized capital stock of Kaire consists of 25,000,000 shares of common stock, $.01 par value, of which 4,418,351 shares are issued and outstanding and 5,000,000 shares of preferred stock, $.01 par value, none of which are issued and outstanding. All of the issued and outstanding shares of common stock of Kaire were issued in compliance with applicable state and federal securities laws, are duly authorized, validly issued, fully paid and nonassessable, and are not subject to preemptive rights created by statute, Kaire's Articles of Incorporation or Bylaws or any agreement to which Kaire is a party or by which it is bound. (b) There are no options, warrants, calls, rights, commitments or agreements of any character to which Kaire is a party or by which it is bound obligating Kaire to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Kaire or obligating Kaire to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. 4.4 Equity Investments. Kaire does not own any equity interest, directly or indirectly, in any corporation, partnership or other form of business entity, except for the corporations listed on the Kaire Disclosure Schedule (individually, a "Kaire Subsidiary" and collectively, the "Kaire Subsidiaries"). Each Kaire Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to conduct its business as it is now being conducted and to own or lease its properties and assets, possesses all licenses, franchises, rights and privileges material to the conduct of its businesses, and is qualified to conduct business as a foreign corporation and is in good standing under the laws of all jurisdictions where the failure to be so qualified would have a material adverse affect on its financial position, results of operation or business. All of the issued and outstanding shares of capital stock of each Kaire Subsidiary are duly authorized, validly issued, fully paid and nonassessable, and, except as disclosed in the Kaire Disclosure Schedule, are owned by Kaire free and clear of all liens, claims, options, charges, and encumbrances of every kind, character or description. 5 4.5 Financial Statements. Kaire has delivered to the Company copies of its audited balance sheets for the fiscal years ended December 31, 1995 and 1996 and the related statements of operations, stockholders' equity and cash flows for the periods then ended together with appropriate notes to such financial statements and the report thereon of BDO Seidman, LLP, certified public accountants, and copies of its unaudited balance sheet as of September 30, 1997 and the related statement of operations, stockholders' equity and cash flows for the nine month period then ended (the "Kaire Financial Statements"), copies of which are attached hereto as Exhibit 4.5. The Kaire Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved, and present fairly the financial condition and the results of its operations, changes in stockholders' equity and cash flow of Kaire as of the dates and for the periods indicated thereon, subject in the case of the unaudited portion of the Kaire Financial Statements to normal year-end audit adjustments, which will not, individually or in the aggregate, be material, and the absence of certain footnote disclosures. 4.6 Absence of Undisclosed Liabilities. At the date of the most recent balance sheet of Kaire included in the Kaire Financial Statements and as of the Closing Date, Kaire had and will have no liability or obligation of any nature, whether accrued, absolute, contingent, or otherwise, and whether due, or to become due, other than liabilities or obligations individually or in the aggregate less than $5,000, that is not reflected or reserved against in the most recent balance sheet of Kaire or the accompanying notes thereto included in the Kaire Financial Statements, except for those that may have been incurred after the date of such balance sheet and those that are not required by generally accepted accounting principles to be included in such balance sheet or the accompanying notes thereto. All liabilities and obligations incurred after the date of such balance sheet were incurred in the ordinary course of business and are usual and normal in amount both individually and in the aggregate. 4.7 Business Changes. Since the date of the most recent balance sheet of Kaire included in the Kaire Financial Statements, Kaire and each Kaire Subsidiary has conducted its business only in the ordinary and usual course and, without limiting the generality of the foregoing: (a) There have been no changes in the condition (financial or otherwise), business, net worth, assets, prospects, properties, employees, operations, obligations or liabilities of Kaire or any Kaire Subsidiary which, in the aggregate, have had or may be reasonably expected to have a materially adverse effect on the condition, business, net worth, assets, prospects, properties or operations of Kaire and the Kaire Subsidiaries taken as a whole. (b) Neither Kaire nor any Kaire Subsidiary has issued, or authorized for issuance, or entered into any commitment to issue, any equity security, bond, note or other security of Kaire or any Kaire Subsidiary. (c) Neither Kaire nor any Kaire Subsidiary has incurred additional debt for borrowed money, nor incurred any obligation or liability except in the ordinary and usual course of business. 6 (d) Neither Kaire nor any Kaire Subsidiary has declared or made any dividend, payment or other distribution on or with respect to any share of capital stock of Kaire or any Kaire Subsidiary. (e) Neither Kaire nor any Kaire Subsidiary has purchased, redeemed or otherwise acquired or committed itself to acquire, directly or indirectly, any share or shares of capital stock of Kaire or any Kaire Subsidiary. (f) Neither Kaire nor any Kaire Subsidiary has mortgaged, pledged, or otherwise, voluntarily or involuntarily, encumbered any of its assets or properties, except for liens for current taxes which are not yet delinquent and purchase-money liens arising out of the purchase or sale of products made in the ordinary and usual course of business. (g) Neither Kaire nor any Kaire Subsidiary has disposed of, or agreed to dispose of, by sale, lease, license or otherwise, any asset or property, tangible or intangible, except in the ordinary and usual course of business. (h) Neither Kaire nor any Kaire Subsidiary has purchased or agreed to purchase or otherwise acquire any securities of any corporation, partnership, joint venture, firm or other entity. (i) Neither Kaire nor any Kaire Subsidiary has made any expenditure or commitment for the purchase, acquisition, construction or improvement of a capital asset, except in the ordinary and usual course of business. (j) Neither Kaire nor any Kaire Subsidiary has entered into any transaction or contract, or made any commitment to do the same, except in the ordinary and usual course of business. (k) Neither Kaire nor any Kaire Subsidiary has effected or committed itself to effect any amendment or modification to its Articles of Incorporation or Bylaws. 4.8 Properties. The most recent Kaire balance sheet included in the Kaire Financial Statements reflects all of the real and personal property used by Kaire in its business or otherwise held by Kaire except for (i) property acquired or disposed of in the ordinary and usual course of the business of Kaire since the date of the most recent Kaire balance sheet included in the Kaire Financial Statements, and (ii) property not required under generally accepted accounting principles to be reflected thereon. Kaire has good and marketable title to all assets and properties listed on the most recent Kaire balance sheet included in the Kaire Financial Statements and thereafter acquired, free and clear of any imperfections of title, lien, claim, encumbrance, restriction, charge or equity of any nature whatsoever, except for the lien of current taxes not yet delinquent. All of the fixed assets and properties listed on the most recent Kaire balance sheet included in the Kaire Financial Statements or thereafter acquired are in satisfactory condition and repair for the requirements of the business as presently conducted by Kaire. 7 4.9 Taxes. Within the times and in the manner prescribed by law, Kaire has filed all federal, state, and local tax returns and reports required by law and has paid in full all taxes, assessments, known penalties and interest (all such items are collectively referred to as "Taxes"), due to, or claimed to be due by, any governmental authority. The most recent balance sheet of Kaire included in the Kaire Financial Statements fully accrues all current and deferred Taxes. Kaire is not a party to any pending action or proceeding, nor, to the actual knowledge of Kaire or any of the Kaire Affiliates, is any such action or proceeding threatened by any governmental authority for the assessment or collection of Taxes. There are no liens for Taxes except for liens for property taxes not yet delinquent 4.10 Litigation. There is no claim, action, suit or proceeding, at law or in equity, pending against Kaire or any Kaire Subsidiary, or involving any of their respective assets or properties, before any court, agency, authority, arbitration panel or other tribunal (other than those, if any, with respect to which service of process or similar notice has not been made on Kaire or any Kaire Subsidiary), and, to the knowledge of Kaire or the Kaire Affiliates, none have been threatened. Neither Kaire nor any Kaire Subsidiary is subject to any order, writ, injunction or decree of any court, agency, authority, arbitration panel or other tribunal, nor is it in default with respect to any notice, order, writ, injunction or decree. 4.11 Compliance with Law. All licenses, permits, clearances, consents, certificates and other evidences of authority of Kaire and each Kaire Subsidiary which are material to the conduct of Kaire's and each Kaire Subsidiary's business ("Permits") are in full force and effect and neither Kaire nor any Kaire Subsidiary is in violation of any Permit in any material respect. Except for possible exceptions, the curing or non-curing of which would not have a material adverse effect on the condition (financial or otherwise), business, net worth, assets, prospects, properties or operations of Kaire, to Kaire's knowledge, the business of Kaire and each Kaire Subsidiary has been conducted in accordance with all applicable laws, regulations, orders and other requirements of governmental authorities, including, without limiting the generality of the foregoing, employment practices and procedures, the health and safety of employees, export controls, direct selling activities, product formulation, labeling, packaging and importation, product claims and advertising, fair trade and distributor practices, and the use, storage, treatment, disposal, transport, generation, release and exposure of others to Hazardous Materials. Neither Kaire nor any Kaire Affiliate has any knowledge of the presence of Hazardous Materials in, under or about the soil and/or groundwater of any properties at any time owned, leased or occupied by Kaire or any Kaire Subsidiary. "Hazardous Materials" shall mean any substance regulated or prohibited by any law or designated by any governmental agency to be toxic, radioactive or otherwise a danger to health or the environment. Neither Kaire nor any Kaire Subsidiary has received any notice of any investigation, claim or proceeding against Kaire or any Kaire Subsidiary relating to Hazardous Materials and Kaire is not aware of any fact or circumstance which could involve Kaire or any Kaire Subsidiary in any environmental litigation, proceeding, investigation or claim or impose any environmental liability upon Kaire or any Kaire Subsidiary. 4.12 Contracts and Undertakings. The Kaire Disclosure Schedule contains a complete list of all contracts, instruments, leases, licenses, agreements, commitments and other 8 undertakings to which Kaire and each Kaire Subsidiary is a party or by which it or its properties or assets are bound, copies of which have been furnished or made available to Company. Neither Kaire nor any Kaire Subsidiary is in default, or alleged to be in default, under any of the contracts, instruments, leases, licenses, agreements, commitments or undertakings listed on the Kaire Disclosure Schedule and, to the knowledge of Kaire or the Kaire Affiliates, no other party to any of said contracts, instruments, leases, licenses, agreements, commitments or undertakings is in default thereunder nor, to the knowledge of Kaire or the Kaire Affiliates, does there exist any condition or event which, after notice or lapse of time or both, would constitute a default by any party to any of said contracts, instruments, leases, licenses, agreements, commitments or undertakings. 4.13 Real Property. The Kaire Disclosure Schedule contains a full and complete list of all real property leased by Kaire and each Kaire Subsidiary. All such real property leased by Kaire and each Kaire Subsidiary is held under valid, subsisting and enforceable leases. To the actual knowledge of Kaire or the Kaire Affiliates, neither real property leased by Kaire nor the operations of Kaire or any Kaire Subsidiary thereon, violate any applicable building code, zoning requirement or classification, or pollution control ordinance or statute relating to the property or to such operations, and such non-violation is not dependent, in any instance, on so-called nonconforming use exemptions. 4.14 Proprietary Rights. (a) The Kaire Disclosure Schedule contains a complete list of all patents and applications for patents, trademarks, trade names, service marks, and copyrights, and applications therefor, owned or used by Kaire or any Kaire Subsidiary or in which it has any rights or licenses. The Kaire Disclosure Schedule contains a complete and accurate description of all agreements of Kaire and each Kaire Subsidiary with each officer, employee or consultant of Kaire and each Kaire Subsidiary providing Kaire or any Kaire Subsidiary with title and ownership to patents, patent applications, trade secrets and inventions developed or used by Kaire or any Kaire Subsidiary in its business. All of such agreements so described are valid, enforceable and legally binding. (b) Kaire owns or possesses licenses or other rights to use all patents, patent applications, trademarks, trademark applications, trade secrets, service marks, trade names, copyrights, inventions, drawings, designs, customer lists, proprietary know-how or information, or other rights with respect thereto (collectively referred to as "Proprietary Rights"), used in the business of Kaire and each Kaire Subsidiary, and the same are sufficient to conduct the business of Kaire and each Kaire Subsidiary as it has been and is now being conducted. (c) To the actual knowledge of Kaire or the Kaire Affiliates, the operations of Kaire and each Kaire Subsidiary do not conflict with or infringe, and no one has asserted to Kaire or any Kaire Subsidiary that such operations conflict with or infringe, any Proprietary Rights, owned, possessed or used by any third party. There are no claims, disputes, actions, proceedings, suits or appeals pending against Kaire or any Kaire Subsidiary with respect 9 to any Proprietary Rights (other than those, if any, with respect to which service of process or similar notice may not yet have been made on Kaire or any Kaire Subsidiary), and, to the actual knowledge of Kaire or the Kaire Affiliates, none has been threatened against Kaire or any Kaire Subsidiary. To the actual knowledge of Kaire or the Kaire Affiliates, there are no facts or alleged facts which would reasonably serve as a basis for any claim that Kaire or any Kaire Subsidiary does not have the right to use, free of any rights or claims of others, all Proprietary Rights in the development, manufacture, use, sale or other disposition of any or all products or services presently being used, furnished or sold in the conduct of the business of Kaire or any Kaire Subsidiary as it has been and is now being conducted. (d) To the actual knowledge of Kaire or the Kaire Affiliates, no employee of Kaire is in violation of any term of any employment contract, proprietary information and inventions agreement, non-competition agreement, or any other contract or agreement relating to the relationship of any such employee with Kaire or any previous employer. 4.15 Insurance. The Kaire Disclosure Schedule contains a complete list of all policies of insurance to which Kaire and each Kaire Subsidiary is a party or is a beneficiary or named insured. Kaire and each Kaire Subsidiary has in full force and effect, with all premiums due thereon paid, the policies of insurance set forth therein. All the insurable properties of Kaire and each Kaire Subsidiary are insured in amounts and coverages and against risks and losses which are adequate and usually insured against by persons holding or operating similar properties in similar businesses. 4.16 No Conflict. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with, or result in a breach of any term or provision of, or constitute a default under or result in a violation of (i) the Articles of Incorporation or Bylaws of Kaire, (ii) any agreement, contract, lease, license or instrument to which Kaire or any Kaire Subsidiary is a party or by which Kaire or any Kaire Subsidiary or any of their respective properties or assets are bound, (iii) any judgment, decree, order, or writ by which Kaire is bound or to which it or any of its properties or assets are subject or (iv) any of the terms or requirements of, or give any governmental body the right to revoke, withdraw, suspend, cancel, terminate or modify any governmental authorization that is held by Kaire or any Kaire Subsidiary or that otherwise relates to the business of, or any of the assets owned or used by, Kaire or any Kaire Subsidiary. 4.17 Consent. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality is required by or with respect to Kaire or any Kaire Subsidiary in connection with the execution and delivery of this Agreement or the consummation by Kaire of the transactions contemplated herein. No consent, waiver or approval of third parties material to the business or operations of Kaire or any Kaire Subsidiary is required to be obtained by Kaire in connection with the execution and delivery of this Agreement and the performance of Kaire's obligations hereunder. 10 4.18 Brokers or Finders. Neither Kaire nor any of the Kaire Affiliates has dealt with any broker or finder in connection with the transactions contemplated by this Agreement. Neither Kaire nor any Kaire Subsidiary has incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders' fees or agents commissions or any similar charges in connection with this Agreement or any transaction contemplated herein. 4.19 Related Parties. To the actual knowledge of Kaire or the Kaire Affiliates, no officer or director of Kaire or any Kaire Subsidiary, or any affiliate of any such person, has, either directly or indirectly, (i) an interest in any corporation, partnership, firm or other person or entity which furnishes or sells services or products which are similar to those furnished or sold by Kaire or any Kaire Subsidiary, or (ii) a beneficial interest in any contract, lease, license or agreement to which Kaire or any Kaire Subsidiary is a party or by which Kaire or any Kaire Subsidiary may be bound. 4.20 Underlying Documents. Copies of any underlying documents listed or described as having been disclosed to the Company pursuant to this Agreement, if requested by the Company, have been furnished to the Company. All such documents furnished to the Company are true and correct copies, and there are no amendments or modifications thereto that have not been disclosed to the Company. 4.21 Full Disclosure. Any information furnished to the Company by or on behalf of Kaire in writing pursuant to this Agreement and any information contained in the Kaire Disclosure Schedule, at any time prior to the Closing Date, does not and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement is made, not misleading. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Subject to and except as disclosed by the Company in the Company Disclosure Schedule attached hereto, the Company represents and warrants to Kaire and the Kaire Stockholders as follows: 5.1 Authority. The Company has all requisite corporate power and authority to enter into this Agreement and, subject to satisfaction of the conditions set forth herein, to consummate the transactions contemplated herein. The execution and delivery of this Agreement, the consummation of the transactions contemplated herein, and the issuance of the Company Shares in accordance with the terms hereof, have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company. 11 5.2 Organization. (a) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to carry on its business as presently conducted, and is qualified to do business in all jurisdictions where the failure to be so qualified would have a material adverse effect on its business or financial condition. (b) The copies of the Articles of Incorporation and all amendments thereto of the Company, as certified by the Secretary of State of Delaware, and the Bylaws of the Company and all amendments thereto, as certified by the Secretary of the Company, which have heretofore been delivered to Kaire and made available to the Kaire Stockholders for examination, are complete and correct copies of the Articles of Incorporation and Bylaws of the Company as amended and in effect on the date hereof. All minutes of meetings and actions in writing without a meeting of the Board of Directors and stockholders of the Company are contained in the minute book of the Company heretofore delivered to Kaire and made available to the Kaire Stockholders for examination, and no minutes or actions in writing without a meeting have been included in such minute book since such delivery to Kaire that have not also been delivered to Kaire. 5.3 Capitalization. (a) The authorized capital stock of the Company consists of 400,000,000 shares of Common Stock, $.001 par value, of which 93,997,418 shares were issued and outstanding on the date hereof. All of the issued and outstanding shares of Common Stock of the Company were issued in compliance with applicable state and federal securities laws, are duly authorized, validly issued, fully paid and non-assessable, and are not subject to preemptive rights created by statute, the Company's Articles of Incorporation or Bylaws or any agreement to which the Company is a party or is bound. (b) Except as contemplated, permitted or required by this Agreement or described in the Company Disclosure Schedule, there are no options, warrants, calls, rights, commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. 5.4 Equity Investments. Company does not own any equity interest in any corporation, partnership, or other form of business entity, except for the corporations listed on the Company Disclosure Schedule. 5.5 Financial Statements. Company has delivered to Kaire and made available to the Kaire Stockholders for examination copies of its audited balance sheets for the years ended December 31, 1995 and 1996 and the related statements of operations, stockholders' equity and cash 12 flows for the periods then ended together with appropriate notes to such financial statements, and copies of its unaudited balance sheet as of September 30, 1997 and the related statement of operations, stockholders' equity and cash flows for the nine month period then ended (the "Company Financial Statements"), a copy of which is attached hereto as Exhibit 5.5. The Company Financial Statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved, and present fairly the financial condition of the Company and the results of operations as of the dates and for the periods indicated therein, subject in the case of the unaudited portion of the Company Financial Statements to normal year-end audit adjustments, which will not be material, and the absence of certain footnote disclosures. 5.6 Absence of Undisclosed Liabilities. At the date of the most recent balance sheet of the Company included in the Company Financial Statements, the Company had no liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that is not reflected or reserved against in the most recent balance sheet of the Company included in the Company Financial Statements, except for those that are not required by generally accepted accounting principles to be included in such balance sheet or the accompanying notes thereto. 5.7 Business Changes. Since the date of the most recent balance sheet of the Company included in the Company Financial Statements and prior to the date of this Agreement, except as disclosed in the Company Disclosure Schedule, the Company has conducted its business only in the ordinary and usual course. 5.8 Properties. The most recent Company balance sheet included in the Company Financial Statements reflects all of the real and personal property used by the Company in its business or otherwise held by the Company except for (i) property acquired or disposed of in the ordinary and usual course of the business of the Company since the date of the most recent Company balance sheet included in the Company Financial Statements, and (ii) property not required under generally accepted accounting principles to be reflected thereon. The Company has good and marketable title to all assets and properties listed on the most recent Company balance sheet included in the Company Financial Statements and thereafter acquired. 5.9 Taxes. Within the times and in the manner prescribed by law, the Company has filed all federal, state, and local tax returns required by law and has paid all taxes, assessments, known penalties and interest (all such items are collectively referred to as "Taxes") due to, or claimed to be due by, any governmental authority. The most recent balance sheet of the Company included in the Company Financial Statements fully accrues all current and deferred Taxes. The Company is not a party to any pending action or proceeding, nor, to the actual knowledge of the Company, is any such action or proceeding threatened by any governmental authority for the assessment or collection of Taxes. There are no liens for Taxes except for liens for property taxes not yet delinquent. 5.10 Litigation. There is no claim, action, suit or proceeding, at law or in equity, pending against the Company or involving any of its assets or properties, before any court, agency, 13 authority, arbitration panel or other tribunal (other than those, if any, with respect to which service of process or similar notice has not been made on the Company), and, to the actual knowledge of the Company, none have been threatened. The Company is not subject to any order, writ, injunction or decree of any court, agency, authority, arbitration panel or other tribunal, nor is it in default with respect to any notice, order, writ, injunction or decree. 5.11 Compliance with Law. All licenses, permits, clearances, consents, certificates and other evidences of authority of the Company which are material to the conduct of its business ("Permits") are in full force and effect and the Company is not in violation of any Permit in any material respect. Except for (a) possible exceptions, the curing or non-curing of which would not have a material adverse effect on the condition (financial or otherwise), business, net worth, assets, prospects, properties or operations of the Company, and (b) the violation of provisions of the Federal Trade Commission Act described in the Complaint (Docket No. C-3751) against the Company by the Federal Trade Commission ("FTC"), a copy of which, together with the FTC order issued in connection therewith, has been delivered to Kaire and made available to the Kaire Stockholders, to the Company's knowledge, the business of the Company has been conducted in accordance with all applicable laws, regulations, orders and other requirements of governmental authorities, including, without limiting the generality of the foregoing, employment practices and procedures, the health and safety of employees, export controls, direct selling activities, product formulation, labeling, packaging and importation, product claims and advertising, fair trade and distributor practices and the use, storage, treatment, disposal, transport, generation, release and exposure of others to Hazardous Materials. The Company has no knowledge of the presence of Hazardous Materials in, under or about the soil and/or groundwater of any properties at any time owned, leased or occupied by the Company. "Hazardous Materials" shall mean any substance regulated or prohibited by any law or designated by any governmental agency to be toxic, radioactive or otherwise a danger to health or the environment. The Company has not received any notice of any investigation, claim or proceeding against the Company relating to Hazardous Materials and the Company is not aware of any fact or circumstance which could involve the Company or its Subsidiary in any environmental litigation, proceeding, investigation or claim or impose any environmental liability upon the Company. 5.12 Contracts and Undertakings. The Company Disclosure Schedule contains a complete list of all contracts, instruments, leases, licenses, agreements, commitments and other undertakings to which the Company is a party or by which it or its properties or assets are bound, copies of which have been furnished or made available to Kaire. The Company is not in default, or alleged to be in default, under any of the contracts, instruments, leases, licenses, agreements, commitments or undertakings listed on the Company Disclosure Schedule and, to the knowledge of the Company, there does not exist any condition or event which, after notice or lapse of time or both, would constitute a default by any party to any of said contracts, instruments, leases, licenses, agreements, commitments or undertakings. 5.13 Real Property. The Company Disclosure Schedule contains a full and complete list of all real property leased by the Company. All such real property leased by the Company is held under valid, subsisting and enforceable leases. To the actual knowledge of the 14 Company, neither real property leased by the Company nor the operations of the Company thereon, violate any applicable building code, zoning requirement or classification, or pollution control ordinance or statute relating to the property or to such operations, and such non-violation is not dependent, in any instance, on so-called nonconforming use exemptions. 5.14 Proprietary Rights. (a) The Company Disclosure Schedule contains a complete list of all patents and applications for patents, trademarks, trade names, service marks, and copyrights, and applications therefor, owned or used by the Company or in which it has any rights or licenses. The Company Disclosure Schedule contains a complete and accurate description of all agreements of the Company with each officer, employee or consultant of the Company providing the Company with title and ownership to patents, patent applications, trade secrets and inventions developed or used by the Company in its business. All of such agreements so described are valid, enforceable and legally binding. (b) The Company owns or possesses licenses or other rights to use all patents, patent applications, trademarks, trademark applications, trade secrets, service marks, trade names, copyrights, inventions, drawings, designs, customer lists, proprietary know-how or information, or other rights with respect thereto (collectively referred to as "Proprietary Rights"), used in the business of the Company, and the same are sufficient to conduct the business of the Company as it has been and is now being conducted. (c) To the actual knowledge of the Company, the operations of the Company do not conflict with or infringe, and no one has asserted to the Company that such operations conflict with or infringe, any Proprietary Rights, owned, possessed or used by any third party. There are no claims with or disputes, actions, proceedings, suits or appeals pending against the Company with respect to any Proprietary Rights (other than those, if any, with respect to which service of process or similar notice may not yet have been made on the Company), and, to the actual knowledge of the Company, none has been threatened against the Company. To the actual knowledge of the Company, there are no facts or alleged facts which would reasonably serve as a basis for any claim that the Company does not have the right to use, free of any rights or claims of others, all Proprietary Rights in the development, manufacture, use, sale or other disposition of any or all products or services presently being used, furnished or sold in the conduct of the business of the Company as it has been and is now being conducted. 5.15 Insurance. The Company Disclosure Schedule contains a complete list of all policies of insurance to which the Company is a party or is a beneficiary or name insured. The Company has in full force and effect, with all premiums due thereon paid, the policies of insurance set forth therein. All the insurable properties of the Company are insured in amounts and coverages and against risks and losses which are adequate and usually insured against by persons holding or operating similar properties in similar businesses. 15 5.16 No Conflict. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with, or result in a breach of any term or provision of, or constitute a default under or result in a violation of the Articles of Incorporation or Bylaws of the Company, any agreement, contract, lease, license, or instrument to which the Company is a party or by which it or any of its assets are bound, or any judgment, decree, order or writ by which the Company is bound or to which it or any of its assets are subject 5.17 Consent. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation by the Company of the transactions contemplated herein, except for (a) such filings as may be required under applicable state securities law and (b) such other consents, approvals, orders, authorizations, registrations, declarations and filings which if not obtained or made would not have a material adverse effect on the Company. No consent, waiver or approval of third parties material to the business or operations of the Company is required to be obtained by the Company in connection with the execution and delivery of this Agreement and the performance of the Company's obligations hereunder. 5.18 Brokers or Finders. The Company has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement except as disclosed in the Company Disclosure Schedule. The Company has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders' fees or agents commissions or any similar charges in connection with this Agreement or any transaction contemplated herein except as disclosed in the Company Disclosure Schedule. 5.19 Compliance with Securities Laws. The Company has delivered to Kaire and made available to the Kaire Stockholders for examination true and complete copies, including exhibits and, as applicable, amendments thereto, of the Company's Annual Report on Form l0-KSB for the fiscal year ended December 31, 1996 and all Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K filed since December 31, 1996. All reports required to be filed by the Company with the Securities and Exchange Commission (collectively, the "Reports") have been properly filed and comply in all material respects with the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder with respect to such Reports. 5.20 Underlying Documents. Copies of any underlying documents listed or described as having been disclosed to Kaire or the Kaire Stockholders pursuant to this Agreement, if requested by Kaire, have been furnished to Kaire and made available to the Kaire Stockholders. All such documents furnished to Kaire and made available to the Kaire Stockholders are true and correct copies, and there are no amendments or modifications thereto that have not been disclosed to Kaire or the Kaire Stockholders. 5.21 Full Disclosure. Any information furnished by or on behalf of the Company in writing pursuant to this Agreement and any information contained in the Company's Disclosure 16 Schedule, at any time prior to the Closing Date, does not and will not contain any untrue statement of a material fact and does not and will not omit to state any material fact necessary to make any statement, in light of the circumstances under which such statement is made, not misleading. 6. COVENANT'S RELATING TO CONDUCT OF BUSINESS OF KAIRE During the period from the date of this Agreement and continuing until the Closing Date, Kaire and the Majority Stockholders agree (except as expressly contemplated by this Agreement or to the extent that the Company shall otherwise consent in writing) that: 6.1 Ordinary Course. Kaire and each Kaire Subsidiary shall carry on its business in the usual and ordinary course, including the payment of all state and federal taxes, in substantially the same manner as heretofore conducted and, to the extent consistent with such business, use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationship with sales associates, customers, providers and others having business dealings with it to the end that its goodwill and ongoing business shall be unimpaired at the Closing Date. 6.2 Dividends; Purchase of Stock. Kaire shall not and shall not propose to (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock, or (ii) repurchase or otherwise acquire any shares of its capital stock or rights to acquire any shares of its capital stock. 6.3 Issuance of Securities. Kaire shall not issue or sell or authorize or propose the issuance or sale of, or purchase or propose the purchase of, any shares of its capital stock of any class or securities convertible into, or rights, warrants or options to acquire, any such shares or other convertible securities, except that Kaire may issue and sell shares of its common stock in connection with (i) the exercise of any option or warrant outstanding on the date of the Agreement and described on the Kaire Disclosure Schedule, (ii) the conversion of any convertible security outstanding on the date of this Agreement and described on the Kaire Disclosure Schedule or (iii) the cancellation of any debt outstanding on the date of this Agreement and described on the Kaire Disclosure Schedule, provided that in each such case, the person to whom any such shares are issued agrees to become a party to this Agreement by executing an appropriate amendment hereto. 6.4 Governing Documents. Kaire shall not amend its Articles of Incorporation or Bylaws. 6.5 No Acquisitions. Kaire shall not acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to Kaire except in the usual and ordinary course of business consistent with prior practice. 6.6 No Dispositions. Kaire shall not sell, assign, transfer, pledge, encumber or otherwise dispose of, by sale, lease, license or otherwise, any of its assets, tangible or intangible, 17 which are material, individually or in the aggregate, to Kaire except in the usual and ordinary course of business consistent with prior practice. 6.7 No Debt. Kaire shall not incur any amount of long or short-term debt for money borrowed, guarantee or agree to guarantee the obligations of others, indemnify or agree to indemnify others or incur any other liabilities other than those incurred in the usual and ordinary course of business consistent with past practices. 6.8 Maintain Insurance. Kaire shall keep in full force and effect insurance covering Kaire, its assets and business comparable in amount and scope of coverage to that now maintained. 6.9 No Liens. Kaire shall not mortgage, pledge or otherwise encumber any of its assets or properties, except for liens for current taxes which are not yet delinquent and purchase money liens arising out of the purchase or sale of products made on the ordinary and usual course of business. 6.10 No Capital Expenditures. Kaire shall not make any expenditure or commitment for the purchase, acquisition, construction or improvement of a capital asset, except in the ordinary and usual course of business. 6.11 Transaction or Contract. Kaire shall not enter into, or agree or otherwise commit to enter into, any transaction or contract except in the ordinary and usual course of business. 6.12 Notice. Kaire shall promptly notify the Company of any default, the threat or commencement of any litigation, or any development that occurs before the Closing that could in any way materially affect Kaire, its assets or business. 7. COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING During the period from the date of this Agreement and continuing until the Closing Date, the Company agrees (except as expressly contemplated, required or permitted by this Agreement or to the extent that Kaire and the Kaire Stockholders shall otherwise consent in writing) that: 7.1 Ordinary Course. The Company shall carry on its business in the usual and ordinary course in substantially the same manner as heretofore conducted. 18 8. ADDITIONAL AGREEMENTS 8.1 Access to Information. (a) Kaire shall afford to the Company and shall cause its independent accountants to afford to the Company, and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing Date to all of Kaire's properties, books, contracts, commitments and records and to the audit work papers and other records of Kaire's independent accountants. During such period, Kaire shall use reasonable efforts to furnish promptly to the Company all information concerning the business, properties and personnel of Kaire as the Company may reasonably request, provided that Kaire shall not be required to disclose any information which it is legally required to keep confidential. The Company will not use such information for purposes other than this Agreement and will otherwise hold such information in confidence (and the Company will cause its consultants and advisors also to hold such information in confidence) until such time as such information otherwise becomes publicly available, and in the event of termination of this Agreement for any reason the Company shall promptly return, or cause to be returned, to the disclosing party all documents obtained from Kaire, and any copies made of such documents, extracts and copies thereof. (b) The Company shall afford to Kaire and shall cause its independent accountants to afford to Kaire, and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Closing Date to all of the Company's properties, books, contracts, commitments and records and to the audit work papers and other records of the Company's independent accountants. During such period, the Company shall use reasonable efforts to furnish promptly to Kaire such information concerning the Company as Kaire may reasonably request, provided that the Company shall not be required to disclose any information which it is legally required to keep confidential. Kaire will not use such information for purposes other than this Agreement and will otherwise hold such information in confidence (and Kaire will cause Kaire's consultants and advisors also to hold such information in confidence) until such time as such information otherwise becomes publicly available, and in the event of termination of this Agreement for any reason Kaire shall promptly return, or cause to be returned, to the disclosing party all documents obtained from the Company, and any copies made of such documents, extracts and copies thereof. 8.2 Legal Conditions to the Transactions Contemplated by This Agreement. Each party will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to the other party in connection with any such requirements imposed upon such other party in connection with the transactions contemplated by this Agreement. Each party will take all reasonable actions to obtain (and to cooperate with the other party in obtaining) any consent, authorization, order or approval of; or any exemption by, any governmental authority, or other third party, required to be obtained or made by such party (or by the other party) in connection with the transactions contemplated by this Agreement. 19 8.3 Blue Sky Laws. The Company shall take such steps as may be necessary to comply with the securities and Blue Sky laws of all jurisdictions which are applicable in connection with the issuance of the Company Shares to the Kaire Stockholders pursuant to this Agreement. Kaire shall use its best efforts to assist the Company as may be necessary to comply with such laws. 8.4 Communications. Between the date hereof and the Closing Date, neither Kaire nor the Company will, without the prior written approval of the other party, furnish any communication to its shareholders or to the public generally if the subject matter thereof relates to the other party or to the transactions contemplated by this Agreement, except as may be necessary, in the opinion of their respective counsel, to comply with the requirements of any law, governmental order or regulation. 8.5 Update to Kaire Disclosures. Without limiting the Company's right to rely on the representations and warranties as of the date of this Agreement, Kaire and the Majority Stockholders shall provide the Company with updates to the disclosures provided or made available to the Company as to material facts which arise between the date of this Agreement and the Closing Date and which, if they had occurred and been known prior to the date of this Agreement, would have been required to have been disclosed in order to make the representations and warranties contained in Article 4 true and correct as of the date of this Agreement. 8.6 Update to Company Disclosures. Without limiting the right of Kaire and the Kaire Stockholders to rely on the representations and warranties as of the date of this Agreement, the Company shall provide Kaire and the Kaire Stockholders with updates to the disclosure provided or made available to Kaire and the Kaire Stockholders as to material facts which arise between the date of this Agreement and the Closing Date and which, if they had occurred and been known prior to the date of this Agreement, would have been disclosed in order to make the representations and warranties contained in Article 5 true and correct as of the date of this Agreement. 8.7 Good Faith. Each party shall act in good faith in an attempt to cause all the conditions precedent to its obligations under this Agreement to be satisfied. Each party will act in good faith and take all reasonable action within its capability necessary to render accurate as of the Closing Date its representations and warranties contained in this Agreement. 8.8 Securities Law Matters. The Company Shares issued to the Kaire Stockholders shall be issued without registration under the Securities Act of 1933, as amended, (the "Act"), in reliance upon certain exemptions from the registration requirements of the Act, including Regulation D adopted thereunder. Accordingly, the Company Shares may not be resold by the holders thereof without registration under the Act unless a further exemption from the registration requirements of the Act is available for such resale. All certificates representing the Company Shares shall bear the following legend or a legend of similar import: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER CERTAIN 20 STATE SECURITIES LAWS. NO SALE OR TRANSFER OF THESE SHARES MAY BE MADE IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) AN OPINION OF COUNSEL THAT REGISTRATION UNDER THE ACT OR UNDER APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED SALE OR TRANSFER." 8.9 Loan to Kaire Prior to Closing. Prior to the Closing, the Company agrees to loan Kaire the sum of Seven Hundred Thousand Dollars ($700,000) (the "Loan"). The Loan shall be made in accordance with the terms of the loan and security agreement dated October 27, 1997 between the Company and Kaire (the "Loan Agreement"). The Loan shall be evidenced by Kaire's secured promissory note, in the form of the promissory note attached to the Loan Agreement (the "Note"). The Note shall be secured by all of Kaire's assets in accordance with the terms of the security agreement attached to the Loan Agreement (the "Security Agreement"). Payment of the Note shall also be secured by a pledge of stock by the holders of at least 40% of Kaire's voting stock pursuant to a stock pledge agreement (the "Stock Pledge Agreement") and a subordination of indebtedness by each pledgor of any indebtedness owed by Kaire to each pledgor. Kaire acknowledges receipt of $700,000 of loan proceeds as of the date of this Agreement. 8.10 Increase in Authorized Capital Stock. Prior to the Closing Date, the Company shall amend its Articles of Incorporation to increase the authorized number of shares of Common Stock to Four Hundred million (400,000,000). 8.11 Additional Capital. (a) The Company agrees to use commercially reasonable efforts to (i) raise additional capital in the gross minimum amount of One Million Dollars ($1,000,000) prior to the Closing Date from the offer and sale of the Company's convertible promissory notes (the "Convertible Notes") or other form of investment, (ii) obtain a written commitment from one or more investors to invest an additional $500,000 of capital in the Company on or before December 25, 1997, by the purchase of the Company's Convertible Notes or other form of investment, (iii) obtain a written commitment from one or more investors to invest an additional $500,000 of capital in the Company on or before January 15, 1998 by the purchase of the Company's Convertible Notes or other form of investment, and (iv) obtain a written commitment from one or more investors to invest an additional $1,000,000 of capital in the Company on or before February 15, 1998 by the purchase of the Company's Convertible Notes or other form of investment. The terms and conditions of the Convertible Notes or other form of investment shall be determined by agreement of the holders thereof and the Company. The first $700,000 of the proceeds received by the Company from the sale of the Convertible Notes or other form of investment shall be loaned to Kaire in accordance with Section 8.9 above. The shares of Common Stock issuable by the Company upon conversion of the Convertible Notes or pursuant to an other form of investment are sometimes hereinafter collectively referred to as the "Additional Shares". The Company shall be entitled to grant registration rights to the holders of the Additional Shares, pursuant to and in accordance with the terms of a registration rights agreement in form and 21 substance satisfactory to the Company and the holders of the Convertible Notes or other form of investment with respect to such Additional Shares. 8.12 Use of Additional Capital. The first $700,000 of additional capital received by the Company shall be loaned to Kaire pursuant to Section 8.9 above. On or after the Closing Date, the balance of the additional capital received by the Company in accordance with Section 8.11 above shall be allocated to and utilized by Kaire in such amounts, for such purposes and at such times as the Executive Committee of Kaire's Board of Directors appointed pursuant to Section 8.16 below shall, in its discretion, determine. All of the additional capital received by the Company pursuant to Section 8.11 above after the Closing and allocated to Kaire pursuant to this Section 8.12 shall be provided to Kaire as equity capital and not as a loan. 8.13 Cancellation or Restructure of Affiliate Debt. As of the date of this Agreement, the unpaid balance of all loans to Kaire from certain of its officers, directors and shareholders (individually an "Affiliate" and collectively, the "Affiliates") is $502,860 (individually, an "Affiliate Loan" and collectively, the "Affiliate Loans"). Kaire agrees to use its best efforts to obtain the written agreement of each Affiliate to cancel the entire amount of his Affiliate Loan in exchange for shares of common stock of Kaire at or prior to the Closing. The Affiliates shall not have the right to cancel any part of their Affiliate Loans in exchange for shares of common stock of Kaire or the Company after the Closing. If any Affiliate does not agree to cancel all of his Affiliate Loan at or prior to the Closing, (i) the total number of Company Shares which the Kaire Stockholders shall be entitled to receive at the Closing shall be reduced by a number of shares determined by dividing the unconverted portion of all Affiliate Loans (the "Unconverted Affiliate Debt") by the market price of a share of the Company's common stock on the date immediately preceding the Closing Date, and (ii) such Affiliate shall enter into a written agreement with Kaire on or prior to the Closing which provides, on terms and conditions satisfactory to the Company, that Kaire shall not be obligated to make any payment on the Unconverted Affiliated Debt until after the end of the first calendar quarter following the Closing Date in which Kaire has achieved positive net cash flow (the "Initial Payment Quarter"), and that within thirty (30) days after the end of the Initial Payment Quarter and each succeeding calendar quarter in which Kaire has achieved positive net cash flow, Kaire shall only be obligated to make a payment to such Affiliates, on a prorata basis, on such Unconverted Affiliate Debt in an aggregate amount equal to 50% of the positive net cash flow for each such calendar quarter. 8.14 Cancellation or Restructure of Certain Nonaffiliated Debt. As of the date of this Agreement, Kaire is indebted to Randy Mason ("Mason") in the principal amount of $350,000 (the "Mason Debt") and to the holders of Kaire's 10% promissory notes (the "Bridge Loan Note Holders") in the aggregate principal amount of $1,725,000 (the "Bridge Loan Debt"). Kaire agrees to use its best efforts to obtain the written agreement of Mason and the Bridge Loan Note Holders to cancel the entire amount of the Mason Debt and the Bridge Loan Debt, respectively, in exchange for common stock of Kaire at or prior to the Closing, if Mason and/or the Bridge Loan Note Holders do not agree to cancel all of their Mason Debt and Bridge Loan Debt, respectively, Kaire shall use its best efforts to (a) enter into a written agreement with Mason at or prior to the Closing which provides, on terms and conditions satisfactory to the Company, that any default by Kaire with 22 respect to payment of the Mason Debt prior to the Closing shall be waived and that Kaire shall have a reasonable period of time after the Closing to repay the Mason Debt, and (b) enter into a written agreement with the Bridge Loan Note Holders at or prior to the Closing which provides, on terms and conditions satisfactory to the Company, that any default by Kaire under its agreement with the Bridge Loan Note Holders prior to the Closing, including without limitation, any default occurring by reason of this Agreement or the consummation of any of the transactions contemplated hereby, shall be waived. 8.15 Election of Additional Kaire Directors. At or prior to the Closing, (a) Kaire shall amend its Bylaws or take such other action as may be necessary to provide that the authorized number of directors on Kaire's Board of Directors shall be seven (7), and (b) at the Closing, Kaire shall elect two (2) persons designated by the Company to serve on Kaire's Board of Directors. 8.16 Appointment of Kaire Executive Committee. At the Closing, Kaire's Board of Directors shall adopt and approve resolutions, in form and substance satisfactory to the Company, which shall provide (a) for the appointment of an Executive Committee of the Board of Directors of Kaire consisting of five (5) members, three (3) of which shall be directors designated by Kaire and two (2) of which shall be the two (2) new members of Kaire's Board of Directors designated by the Company, (b) that the Kaire Executive Committee shall be authorized and empowered, to the same extent as Kaire's Board of Directors, to take action on (i) raising additional capital (ii) obtaining debt financing, (iii) issuing any equity or debt securities or (iv) anything materially affecting the operation of Kaire's business, and (c) that all action taken by Kaire's Executive Committee must be approved by at least four (4) of its five (5) members. 8.17 Election of Additional Company Directors. At or prior to the Closing, (a) the Company shall amend its Bylaws, or take such other action as may be necessary to provide that the authorized number of directors on the Company's Board of Directors shall be five (5), and, (b) at the Closing, the Company shall elect two (2) persons designated by Kaire to serve on the Company's Board of Directors. 8.18 Appointment of Company Executive Committee. At the Closing, the Company's Board of Directors shall adopt and approve resolutions, in form and substance satisfactory to Kaire, which shall provide (a) for the appointment of an Executive Committee of the Board of Directors of the Company consisting of five (5) members, three (3) of which shall be directors designated by the Company and two (2) of which shall be the two (2) new members of the Company's Board of Directors designated by Kaire, (b) that the Company's Executive Committee shall be authorized and empowered, to the same extent as the Company's Board of Directors, to take action on (i) raising additional capital (ii) obtaining debt financing, (iii) issuing any equity or debt securities or (iv) anything materially affecting the operation of the business of the Company and its Subsidiary, and (c) that all actions taken by the Company Executive Committee must be approved by at least four (4) of its five (5) members. 23 8.19 Consulting Fees. 8.19.1 The Company shall issue and deliver to Day Campbell & McGill ("DCM") shares of the Company's Common Stock in the amounts and at the times set forth below: (a) At or within 30 days after the Closing, the Company shall issue and deliver to DCM a number of shares of the Company's common stock equal to four percent (4%) of the Company's Total Adjusted Shares. "Total Adjusted Shares" shall mean the sum of (i) the total number of shares of the Company's common stock outstanding immediately prior to the Closing, including any shares issued pursuant to Section 8.11 above, (ii) the Company Shares, (iii) the shares issuable under this Section 8.19(a), and (iv) any shares of the Company's common stock issuable upon exercise or conversion of any options, warrants, rights or convertible securities outstanding immediately prior to the Closing, including any shares issuable upon exercise or conversion of any options, warrants or convertible securities issued pursuant to Section 8.11 above; provided that, for purposes of calculating Total Adjusted Shares, if any of such options, warrants, rights or convertible securities by their terms provide that the exercise or conversion price thereof and the number of shares to be issued upon exercise or conversion thereof is to be determined as of a certain date by reference to the market price of the Company's common stock as of such date or some other date, the number of shares issuable upon exercise or conversion thereof shall be deemed to be such number of shares as would have been issued had the full exercise or conversion occurred on the date immediately preceding the Closing Date. (b) After the Closing, the Company shall issue to DCM a number of shares of the Company's common stock equal to four percent (4%) of (i) the number of shares of the Company's common stock issued after the Closing pursuant to Section 8.11 above (other than pursuant to (ii) below), and (ii) the number of shares issuable upon exercise or conversion of warrants, options or convertible securities issued after the Closing pursuant to Section 8.11 above; provided that, for purposes of calculating the number of shares to be issued to DCM under this Section 8.19(b), if any options, warrants or convertible securities issued after the Closing pursuant to Section 8.11 above by their terms provide that the exercise or conversion price thereof and the number of shares to be issued upon exercise or conversion thereof is to be determined as of a certain date by reference to the market price of the Company's common stock as of such date or some other date, the number of shares issuable upon exercise or conversion thereof shall be deemed to be such number of shares as would have been issued had the full exercise or conversion occurred as of the date of issuance of such options, warrants, rights or convertible securities. (d) All of the shares of the Company's common stock which the Company is obligated to issue to DCM pursuant to this Section 8.19 shall be registered on a Form S-8 duly filed and accepted by the Securities and Exchange Commission. 8.19.2 The Company shall issue to EMCO/Hanover Group, Inc. or Bruce Barren the number of shares of the Company's common stock that the Company has agreed to issue pursuant to that certain Consulting Agreement dated June 1, 1997. 24 8.20 Assistance in Restructuring Kaire Debt. The Company shall use its best efforts to assist Kaire in negotiating with Kaire's creditors to reduce and/or restructure the amount and/or terms of payment of Kaire's accounts payable, debts and other liabilities. 8.21 Letter of Intent with May Davis Group. Inc. The Company acknowledges that Kaire and May, Davis Group, Inc. have signed a letter of intent dated February 4, 1997, a copy of which has been furnished to the Company, regarding a proposed public offering of securities of Kaire, and that after the Closing Date Kaire may elect to proceed with such proposed public offering on the terms and conditions set forth in such letter of intent. 9. CONDITIONS PRECEDENT 9.1 Conditions to Each Party's Obligations. The respective obligations of each party to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction on or prior to the Closing Date of the following conditions unless waived by such party: (a) Government Approvals. All authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental authority necessary for the consummation of the transactions contemplated by this Agreement shall have been filed, occurred or been obtained. (b) Third-Party Approvals. Any and all consents or approvals required from third parties relating to contracts, licenses, leases and other instruments, material to the respective businesses of the Company and Kaire, shall have been obtained. (c) Legal Action. No temporary restraining order, preliminary injunction or permanent injunction or other order preventing the consummation of the transactions contemplated by this Agreement shall have been issued by any federal or state court and remain in effect, and no litigation seeking the issuance of such an order or injunction, shall be pending which, in the good faith judgment of the Company's Board of Directors, has a reasonable probability of resulting in such order, injunction or damages. In the event any such order or injunction shall have been issued, each party agrees to use its reasonable efforts to have any such injunction lifted. (d) Additional Capital. At or prior to the Closing, the Company shall have (a) received and made available to Kaire capital in the amount of $1,000,000 (including the $700,000 loaned to Kaire in accordance with Section 8.9 above) from the sale of the Company's Convertible Notes or other form of investment, (b) received a written commitment to provide, on or before December 25, 1997, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, (c) received a written commitment to provide, on or before January 15, 1998, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, and (d) received a written commitment to provide, on or before February 15, 1998, additional capital to the Company in the amount of $1,000,000 by the purchase of the Company's Convertible Notes or other form of investment. 25 (e) Amendment to Company's Certificate of Incorporation. The Company shall have filed, at or prior to the Closing, with the office of the Secretary of State of Delaware a Certificate of Amendment to the Company's Certificate of Incorporation which increases the number of authorized shares of the Company's Common Stock to 400,000,000. 9.2 Conditions to Obligations of the Company. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or prior to the Closing Date of the following conditions, unless waived by the Company: (a) Representations and Warranties of Kaire Stockholders. The representations and warranties of the Kaire Stockholders set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Representations and Warranties of Kaire. The representations and warranties of Kaire set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, except as otherwise contemplated by this Agreement, and the Company shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of Kaire. (c) Representations and Warranties of Kaire Affiliates. The representations and warranties of the Kaire Affiliates set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, and the Company shall have received a certificate or certificates to such effect signed by the Kaire Affiliates. (d) Performance of Obligations of Kaire. Kaire shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and the Company shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of Kaire. (e) Opinion of Kaire's Counsel. The Company shall have received an opinion dated the Closing Date of counsel to Kaire, substantially in the form set forth in Exhibit 9.2(e) attached hereto, with such qualifications thereto as are customary and reasonable. (f) Additional Capital. At or prior to the Closing, the Company shall have (a) received and made available to Kaire capital in the amount of $1,000,000 (including the $700,000 loaned to Kaire in accordance with Section 8.9 above) from the sale of the Company's Convertible Notes or other form of investment, (b) received a written commitment to provide, on or before December 25, 1997, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, (c) received a written commitment to provide, on or before January 15, 1998, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, and (iv) received a written commitment to provide, on or before February 15, 1998, 26 additional capital to the Company in the amount of $1,000,000 by the purchase of the Company's Convertible Notes or other form of investment. (g) Election of Directors. Kaire shall have elected the following persons nominated by the management of the Company to serve on the Board of Directors of Kaire effective as of the Closing Date: Steve Westlund Peter Benz (h) Additional Closing Documents. The Company shall have received the following documents and instruments: (1) A duly executed copy of each agreement between Kaire and the Affiliates with respect to (a) the cancellation of the Affiliate Loans and (b) the payment by Kaire of any Unconverted Affiliate Debt, pursuant to and in accordance with the provisions of Section 8.13 above. (2) A duly executed copy of an agreement between Kaire and Mason dated on or prior to the Closing Date, pursuant to and in accordance with the provisions of Section 8.14 above. (3) A duly executed copy of an agreement between Kaire and the Bridge Loan Note Holders dated on or prior to the Closing Date, pursuant to and in accordance with the provisions of Section 8.14 above. (4) A duly executed certificate of the Secretary of Kaire certifying that (a) the persons named in Section 9.2(g) above have been duly elected to serve on the Kaire Board of Directors effective as of the Closing Date, and (b) the Board of Directors has duly adopted resolutions appointing the Kaire Executive Committee, pursuant to and in accordance with the provisions of Section 8.16 above, and that the resolutions set forth in the certificate are identical to those duly adopted by the Board of Directors of Kaire. (5) A duly executed Release from each of the Kaire Stockholders releasing Kaire, the Kaire Subsidiaries and the Company from all claims, debts, obligations and liabilities except for those described on Exhibit 9.2(h)(5) attached hereto. (6) A duly executed Release from each of Kaire Affiliates releasing Kaire, the Kaire Subsidiaries and the Company from all claims, debts, obligations and liabilities except for those described on Exhibit 9.2(h)(6) attached hereto. (7) Such other documents and instruments as are required to be delivered pursuant to the provisions of this Agreement or otherwise reasonably requested by the Company. 27 9.3 Conditions to Obligations of Kaire. The obligations of Kaire to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or prior to the Closing Date of the following conditions unless waived by Kaire: (a) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as if made at and as of the Closing Date, except as otherwise contemplated by this Agreement, and Kaire shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of the Company. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement prior to the Closing Date, and Kaire shall have received a certificate to such effect signed by the chief executive officer and chief financial officer of the Company. (c) Opinion of the Company's Counsel. The Company shall have received an opinion dated the Closing Date of counsel to the Company, substantially in the form set forth in Exhibit 9.3(c) attached hereto, with such qualifications thereto as are customary and reasonable. (d) Additional Capital. At or prior to the Closing, the Company shall have (a) received and made available to Kaire, at or prior to the Closing, capital in the amount of $1,000,000 (including the $700,000 loaned to Kaire in accordance with Section 8.9 above) from the sale of the Company's Convertible Notes or other form of investment, (b) received a written commitment to provide, on or before December 25, 1997, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, (c) received a written commitment to provide, on or before January 15, 1998, additional capital to the Company in the amount of $500,000 by the purchase of the Company's Convertible Notes or other form of investment, and (d) received a written commitment to provide, on or before February 15, 1998, additional capital to the Company in the amount of $1,000,000 by the purchase of the Company's Convertible Notes or other form of investment. (e) Election of Directors and Officers. The Board of Directors of the Company shall have elected the following persons nominated by the management of Kaire to serve on the Board of Directors of the Company effective as of the Closing Date: Robert Richards Loren E. Bagley (f) Additional Closing Documents. Kaire and the Kaire Stockholders shall have received the following documents and instruments: (1) A duly executed certificate of the secretary of the Company certifying that (a) the persons named in Section 9.3(e) above have been duly elected to serve on the Company's Board of Directors effective as of the Closing Date and (b) the Board of Directors has 28 duly adopted resolutions appointing the Company's Executive Committee pursuant to and in accordance with the provisions of Section 8.18 above and that the resolutions set forth in the certificate are identical to those duly adopted by the Company's Board of Directors; (2) Such other documents and instruments as are required to be delivered pursuant to the provisions of this Agreement or otherwise reasonably requested by Kaire. 10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY 10.1 Survival of Representations and Warranties. The respective representations and warranties of the parties other than Kaire contained herein shall survive the Closing, but shall expire on the second anniversary date following the date of Closing, unless a specific claim in writing with respect to these matters shall have been made, or any action at law or in equity shall have been commenced or filed before such anniversary date. The representations and warranties of Kaire contained herein shall terminate on the date of Closing. The limitation period for the survival of the representations and warranties of the parties contained herein shall not apply to any fraudulent breach, representation or warranty or to any breach or inaccuracy in any representation or warranty known to such party on or before the date of Closing. The right to indemnification, payment of damages or other remedy based on such representations and warranties will not be affected by any investigation conducted with respect to, or any knowledge acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of any such representation or warranty. 10.2 Indemnification. (a) The Kaire Affiliates and the Major Shareholders, jointly and severally, agree to indemnify and hold the Company and its officers, directors, stockholders, agents, affiliates and attorneys (collectively, the "Indemnified Persons") for, and will pay to the Indemnified Persons the amount of, any loss, liability, claim, damage (including incidental and consequential damages), expense (including costs of investigation and defense and reasonable attorneys' fees, or diminution of value, whether or not involving a third party claim (collectively "Damages"), arising, directly or indirectly, from or in connection with: (1) any breach or violation of this Agreement by Kaire or the Kaire Affiliates; or (2) any breach of any of the representations, warranties or covenants made in this Agreement by Kaire or the Kaire Affiliates; or (3) any inaccuracy or misrepresentation in the Kaire Disclosure Schedule or in any certificate, document or instrument delivered in accordance with the terms of this Agreement by Kaire or the Kaire Affiliates. (b) The Company agrees to indemnify and hold harmless the Kaire Stockholders from and against all damages, claims, losses, liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses) resulting from or arising out of (l) any breach or violation of this Agreement by the Company; or (2) any breach of any of the representations, warranties or covenants made in this Agreement by the Company; or (3) any inaccuracy or misrepresentation in the Company Disclosure Schedule or in any certificate, document or instrument delivered in accordance with the terms of this Agreement by the Company. 29 (c) The obligations to indemnify and hold harmless pursuant to this Section 10.2 shall survive the Closing for a period of two (2) years after the date of Closing. 11. OBLIGATIONS OF THE COMPANY AND THE KAIRE STOCKHOLDERS AFTER THE CLOSING 11.1 After the Closing the Company agrees that: (a) The Company shall file a Form 8-K which contains the audited financial statements of Kaire and proforma financial information required by Form 8-K with the Securities and Exchange Commission within 75 days after the Closing Date. (b) For a period of one (1) year after the Closing Date, the Company agrees that in any election of a director or directors of Kaire, the Company shall vote or cause to be voted all of the Kaire Shares beneficially owned by the Company in such a manner that immediately after such election, Kaire's Board of Directors shall include five (5) representatives nominated by the management of Kaire and two (2) representatives nominated by the management of the Company. (c) If, on or before each date set forth below, the Company has not provided Kaire with the amount of additional capital set forth opposite each such date, then the Company shall assign and transfer to the Kaire Stockholders, on a prorata basis, within thirty (30) days after each such date on which the Company failed to provide Kaire with the amount of additional capital required to be provided by such date, a number of the Kaire Shares received by the Company at the Closing equal to 3.3% of the total number of shares of common stock of Kaire outstanding on the Closing Date. December 25, 1997 $500,000 January 15, 1998 $500,000 February 15, 1998 $1,000,000 (d) If, on or before the later of (i) February 15, 1998 or (ii) the date on which Kaire receives the signed report of BDO Seidman, LLP on the Company's consolidated financial statements for fiscal year ended December 31, 1997, the total amount of additional capital provided by the Company to Kaire prior to and after the Closing is less than $3,000,000, the Company shall assign and transfer to the Kaire Stockholders, on a pro rata basis, a number of Kaire Shares received by the Company at the Closing determined by (i) subtracting the total amount of additional capital provided by the Company to Kaire prior to and after the Closing from $3,000,000, dividing the result obtained in (i) above by $3,000,000 and (iii) multiplying the fraction obtained in (ii) above times the number of Kaire Shares received by the Company at the Closing. By way of example, if the Company provided $1,000,000 of additional capital to Kaire prior to the Closing and $1,000,000 of additional capital after the Closing, and if the Company received 3,000,000 Kaire Shares at the Closing, the Company would be obligated to assign and transfer 1,000,000 of the Kaire Shares to the Kaire Stockholders determined as follows: 30 (i) $ 3,000,000 $(2,000,000) ----------- $ 1,000,000 (ii) $ l,000,000 = 1/3 ----------- $ 3,000,000 (iii) 1/3 x 3,000,000 shares = 1,000,000 shares 11.2 After the Closing, the Kaire Stockholders agree that: (a) For a period of one (1) year after the Closing Date, the Kaire Stockholders agree that in any election of a director or directors of the Company, the Kaire Stockholders shall vote or cause to be voted all of the Company Shares beneficially owned by them in such a manner that immediately after such election, the Company's Board of Directors shall include three (3) representatives nominated by the management of the Company and two (2) representatives nominated by the management of Kaire. 12. PAYMENT OF EXPENSES The Company and Kaire shall each pay their own fees and expenses incurred incident to the preparation and carrying out of the transactions herein contemplated (including legal and accounting fees). 13. TERMINATION 13.1 This Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written consent of the Company, Kaire and the Kaire Stockholders; (b) by the Company if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement by Kaire or the Kaire Stockholders; (c) by Kaire and the Kaire Stockholders if there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement by the Company; (d) by the Company if any condition to the Company's obligation to consummate the transactions contemplated by this Agreement has not been satisfied or waived by the Company; 31 (e) by Kaire and the Kaire Stockholders if any condition to the obligations of Kaire and the Kaire Stockholders to consummate the transactions contemplated by this Agreement has not been satisfied or waived by Kaire and the Kaire Stockholders. 13.2 Effect of Termination. Termination of this Agreement in accordance with Section 13.1 may be effected by written notice from either the Company or Kaire and the Kaire Stockholders, as appropriate, specifying the reasons for termination and shall not subject the terminating party to any liability for any valid termination. 14. MISCELLANEOUS 14.1 Tax Treatment. The transaction contemplated herein is intended to qualify as a so-called "tax-free" reorganization under the provisions of Section 368 of the Internal Revenue Code. Kaire, the Kaire Stockholders and the Company acknowledge, however, that they each have been represented by their own tax advisors in connection with this transaction; that no party hereto has made any representation or warranty to the other with respect to the treatment of such transaction or the effect thereof under applicable tax laws, regulations, or interpretations; and that no attorney's opinion or private revenue ruling has been obtained with respect to the effects thereof under the Internal Revenue Code of 1986. as amended. 14.2 Further Assurances. From time to time, at the other party's request and without further consideration, each of the parties will execute and deliver to the others such documents and take such action as the other party may reasonably request in order to consummate more effectively the transactions contemplated hereby. 14.3 Payment of Fees and Expenses. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 14.4 Parties in Interest. Except as otherwise expressly provided herein, all the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective heirs, beneficiaries, personal and legal representatives, successors and assigns of the parties hereto. 14.5 Entire Agreement; Amendments. This Agreement, including the Schedules, Exhibits and other documents and writings referred to herein or delivered pursuant hereto, which form a part hereof; contains the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be 32 amended only by a written instrument duly executed by the parties or their respective successors or assigns. 14.6 Headings, Etc.. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.7 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require. 14.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 14.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 14.10 Notices. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if given by personal delivery, telex, facsimile, telegram or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication is given by personal delivery, telex, facsimile or telegram, service shall be conclusively deemed made at the time of receipt. If such notice, demand or other communication is given by mail, such notice shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth: If to Kaire: 380 Lashley Street Longmont, Colorado 80501 If to the Kaire Stockholders or the Kaire Affiliates: At the addresses set forth below their names on the signature page of this Agreement or on Exhibit A or Exhibit B hereto If to Company: 2139 Pontius Avenue Los Angeles, CA 90021 14.11 Delivery by Facsimile Transmission. Delivery of an executed counterpart of this Agreement or any exhibit attached hereto by telefacsimile transmission shall be equally as effective as delivery of an executed hard copy of the same. Any party delivering an executed counterpart of this Agreement or any exhibit attached hereto by telefacsimile transmission shall also 33 deliver an executed hard copy of the same, but the failure by such party to deliver an executed hard copy shall not affect the validity, enforceability and binding effect of this Agreement or such exhibit. 15. APPOINTMENT OF AGENT The Kaire Stockholders hereby irrevocably constitute and appoint Robert Richards as their true and lawful attorney (the "Agent") with full right and power in their names and stead to take any and all action by and on behalf of them necessary or desirable to consummate the transactions contemplated by this Agreement, including without limitation, the right and power to receive certificates representing the Company Shares on behalf of each of the Kaire Stockholders, to deliver to the Company the certificates representing the Kaire Shares, to waive performance of any of the obligations of the Company or waive compliance by the Company with any of its covenants hereunder, to deliver the investment letters and Releases of the Kaire Stockholders referred to in Section 2.2 hereof, and to amend or terminate this Agreement as herein provided. Any such action taken by the Agent on behalf of a Kaire Stockholder shall be binding upon such Kaire Stockholder. The Company shall not have any responsibility to the Kaire Stockholders or any of them for the distribution by the Agent of the certificates representing the Company Shares to be delivered to the Kaire Stockholders, nor shall the Company be liable in any manner whatsoever to the Kaire Stockholders or any or them by or on account of any act or omission of the Agent. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto as of the date first above written. INTERACTIVE MEDICAL TECHNOLOGIES, LTD., a Delaware corporation By: ------------------------------------- Its: -------------------------------- KAIRE INTERNATIONAL, INC., a Delaware corporation By: /s/ Robert L. Richards ------------------------------------- Its: C.E.O. [Signatures of Kaire Stockholders continued on next page] 34 deliver an executed hard copy of the same, but the failure by such party to deliver an executed hard copy shall not affect the validity, enforceability and binding effect of this Agreement or such exhibit. 15. APPOINTMENT OF AGENT The Kaire Stockholders hereby irrevocably constitute and appoint Robert Richards as their true and lawful attorney (the "Agent") with full right and power in their names and stead to take any and all action by and on behalf of them necessary or desirable to consummate the transactions contemplated by this Agreement, including without limitation, the right and power to receive certificates representing the Company Shares on behalf of each of the Kaire Stockholders, to deliver to the Company the certificates representing the Kaire Shares, to waive performance of any of the obligations of the Company or waive compliance by the Company with any of its covenants hereunder, to deliver the investment letters and Releases of the Kaire Stockholders referred to in Section 2.2 hereof, and to amend or terminate this Agreement as herein provided. Any such action taken by the Agent on behalf of a Kaire Stockholder shall be binding upon such Kaire Stockholder. The Company shall not have any responsibility to the Kaire Stockholders or any of them for the distribution by the Agent of the certificates representing the Company Shares to be delivered to the Kaire Stockholders, nor shall the Company be liable in any manner whatsoever to the Kaire Stockholders or any or them by or on account of any act or omission of the Agent. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto as of the date first above written. INTERACTIVE MEDICAL TECHNOLOGIES, LTD., a Delaware corporation By: /s/ Steven Westlund ------------------------------------- Its: CHAIRMAN AND C.E.O. KAIRE INTERNATIONAL, INC., a Delaware corporation By: ------------------------------------- Its: -------------------------------- [Signatures of Kaire Stockholders continued on next page] 34 KAIRE STOCKHOLDERS SIGNATURE PAGE Tenet Investment Group _________________________________ By: Title: Aerostar Fiduciary Fund _________________________________ By: Title: CCB Investments, L.L.C. _________________________________ By: Title: Rain Bird Enterprises, L.L.C. _________________________________ By: Title: _________________________________ John C. Allen Jr. DRP Corporation _________________________________ By: Title: 35 _________________________________ David J. Crockett Mystic Enterprises, Inc. _________________________________ By: Title: _________________________________ Robert J. Young Gusrae, Kaplan & Bruno _________________________________ By: Title: 37 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE All references herein to the Agreement shall mean the Agreement and Plan of Reorganization among Interactive Medical Technologies, Ltd. (the "Company" or "IMT"), Kaire International, Inc. ("Kaire"), the stockholders of Kaire (the "Kaire Stockholders") and certain executive officers and directors of Kaire (the "Kaire Affiliates") dated December 9, 1997. Section 5.3: Capitalization - The following options, warrants, convertible securities, calls, rights, commitments or agreements obligating the Company to issue shares of its common stock or to grant, extend or enter into any option, warrant, Convertible security, call, right, commitment or agreement were outstanding on the date of the Agreement: A. Convertible notes in the aggregate principal amount of $1,012,655 convertible, at a conversion price of S0.125 per share, into an aggregate of 8,01,240 shares as set forth in the convertible note schedule attached hereto. B. Convertible notes convertible at a discount to the market value of the Company's common stock to be determined as of a certain date prior to conversions, as follows: 1. Convertible note in the principal amount of $125,000 and bearing interest at the rate of 10% per annum held by the Wolas Family Limited Partnership. The principal amount and accrued interest is convertible into shares of common stock at a conversion price equal to 65% of the market value of the Company's common stock as determined in accordance with the terms of such convertible note, a copy of which has been provided to Kaire, but in no event shall the conversion price be less than $0.04 or more than $0.08 per share. 2. Convertible note in the principal amount of $350,000 and bearing interest at the rate of 8% per annum held by the Optimum Fund. The principal amount and accrued interest is convertible into shares of common stock at a conversion price equal to 70% of the market value of the Company's common stock as determined in accordance with the terms of such convertible note, a copy of which has been provided to Kaire. This note was issued to an investor pursuant to Section 8.11 of the Agreement. 3. Convertible note in the principal amount of $250,000 and bearing interest at the rate of 8% per annum held by SAGE Capital. The principal amount and accrued interest is convertible INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE into shares of common stock at a conversion price equal to 70% of the market value of the Company's common stock as determined in accordance with the terms of such convertible note, a copy of which has been provided to Kaire. This note was issued to an investor pursuant to Section 8.11 of the Agreement. C. Warrants to purchase an aggregate of 43,263,900 shares as set forth in the Warrant Schedule attached hereto. D. Options held by Jerry Strauss to purchase 1,000,000 shares of common stock. E. A commitment to issue 1,000,000 shares of common stock to Dr. Vincent Sghlatti. F. A commitment to issue shares of common stock in the amounts and to the persons described in Section 8.19 of the Agreement. Section 5.4: Equity Investments - The Company owns an equity interest, in the amount indicated, in the following entities, all of which are corporations- Percent Name State of Incorporation Ownership E-Z Trac, Inc. California 100% Effective Health, Inc. California 100% See/Shell Biotechnology, Inc. California 100% Venus Management, Inc. New York 100% Nutra Quest, Inc. Nevada 100% IMT (Vanuatu) Limited Republic of Vanuatu a)Voting Percentage 51% b) Equity Percentage TBD Section 5.6: Absence of Undisclosed Liabilities- The following undisclosed liabilities are amounts owed to Steven Westlund and Peter Benz which have not been accrued to date and are not reflected in the IMT Financial Statements attached as Exhibit 5.5 to the Agreement: 2 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE A. Amounts in the aggregate of $175,000 are owed to Steven Westlund for past compensation, including but not limited to, salaries and benefits. B. Amounts in the aggregate of $175,000 are owed to Peter Benz for past compensation, including but not limited to, salaries and benefits. C. Steve Westlund will be entitled to compensation for his efforts in connection with the transactions contemplated by the Agreement pursuant to subsection 4.8 of his Employment Agreement with the Company. The amount of compensation to be received by Mr. Westlund will be an amount determined by (i) multiplying two and one half percent (2.5%) times (ii) the product obtained by multiplying the market price of a share of the Company's common stock on the date immediately preceding the Closing Date times the number of shares of the Company's common stock issued to the Kaire Stockholders pursuant to the Agreement. The compensation is payable in cash at such time or times as may be agreed to by the Company and Mr. Westlund. D. Peter Benz will be entitled to compensation for his efforts in connection with the transactions contemplated by the Agreement pursuant to subsection 4.8 of his Employment Agreement with the Company. The amount of compensation to be received by Mr. Benz will be an amount determined by (i) multiplying two and one half percent (2.5%) times (ii) the product obtained by multiplying the market price of a share of the Company's common stock on the date immediately preceding the Closing Date times the number of shares of the Company's common stock issued to the Kaire Stockholders pursuant to the Agreement. The compensation is payable in cash at such time or times as may be agreed to by the Company and Mr. Benz. Section 5.9: Taxes - A. Federal and state income tax returns for the year 1996 have not been filed to date. There are no Federal taxes due and the minimum state tax amount ($800) is due for each California corporation. Section 5.10: Litigation - A. The following three legal actions are pending against the Company: 1. Larry Sturchio vs IMT - Larry Sturchio, upon being terminated as CEO of the Company's subsidiary Nutra Quest, Inc. (NQI), took possession of certain NQI properties under the claim that he and not IMT was the rightful owner of NQI. IMT was granted a temporary restraining order: I)restraining Sturchio from representing himself as being affiliated 3 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE with NQI, 2) directing Sturchio to return all NQI properties to NT and 3) directing Sturchio to assign all of his NQI shares to IMT. Sturchio has appealed the ruling and the court date is scheduled later this month. 2. The second action involves a complaint filed by Siemens Credit against IMT, Venus Management, and several related parties seeking damages for default under a lease/purchase agreement for certain MRI equipment. Siemens is seeking an injunction against use of the MRI[ equipment plus payment of the entire principal and accrued interest in the amount of $1,082,796. This matter is currently the subject of settlement negotiations pursuant to which, if successfully concluded, the lease/purchase agreement will be assigned to a third party thus releasing IMT of all obligations. 3. In the third action, the Rudolf Steiner Research Foundation ("Foundation") filed a complaint in the United States District Court for the Central District of California in February 1996 against Clark H. Holcolm, Lawrence Gibson, Murry Bettingen, Bettingen, Inc. and the Company. This action alleges civil RICO, violation of the Securities Act of 1913, violation of California Corporation Code, fraud, deceit and intentional misrepresentation, negligent misrepresentation, conversion, constructive trust and breach of contract. The Company believes it has no obligation to the Foundation in connection with this matter and denies all the allegations. The Company has not been contacted by the Foundation or its attorney's since the filing of the complaint, but intends to contest the matter if so contacted. B. There were two actions filed against NT by Federal government agencies which were settled. 1. In 1995 the Securities Exchange Commission ("SEC') sought injunctive relief against IMT and Dr. William Shell and Clark Holcomb, former officers and/or directors of IMT, for alleged violations of the registration provisions of the Federal securities laws. IMT settled with the SEC and a consent decree was issued and signed by IMT in June, 1997. A copy of SEC Consent Decree has been provided to Kaire and made available to the Kaire Stockholders. 2. The Federal Trade Commission ("FTC") initiated an investigation (Docket No. C-3751) against IMT, Effective Health Inc., and William Pelzer and William Shell M.D., former officers of IMT, for violation of the Federal Trade Commission Act relating to certain acts and practices in connection with labeling, advertising and promotion of certain products known as "SeQuester" and "Lipitrol". IMT settled with the FTC and agreed to the entry of an order against IMT (Docket No. C-3751) on June 16, 1997 pursuant to which IMT consented to the entry of an order which, among other things, prohibits IMT directly or through any corporation, subsidiary, division or other device, from making misrepresentations relating to Lipitrol, SeQuester or any other weight loss, fat reduction or cholesterol reduction product or program, 4 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE or with respect to tests or studies relating to such products or programs. In addition, IMT agreed to pay $35,000 to the FTC over a twelve month period to provide redress to purchasers of Lipitrol. Payment of such amount is secured by certain assets of IMT. A copy of the FTC order has been provided to Kaire and made available to the Kaire Stockholders. C. Possible Claim for Rescission Rights Certain investors who purchased 2,506,982 shares of the Company's common stock in certain private placements during 1992 may have rescission rights with respect to such shares, subject to any applicable statutes of limitation that may bar such claims. None of such investors have made any claims for rescission to date. Section 5.12: Contracts and Undertakings - The Company is a party to the following agreements: 1. Agreement dated June 30, 1993 between Venus Management, Inc. and Medical Funding of America, Inc. 2. Agreements with respect to MRI equipment, dated as of February 10, 1994 among Siemens Credit Corporation, Venus Management, Inc. and Tri-County Mobil. 3. Resonex Equipment Lease dated as of June 30, 1993 between Venus Management Company and Medical Funding of America. 4. Revised Proposed Acquisition agreement with Nutra Quest, Incorporated dated June 27, 1997. 5. Real Property Lease extension document on the premises located at 2139 Pontius Avenue, Los Angeles, California. 6. Real Property Lease at the premises located at 1717 - 1719 Stewart Street, Santa Monica. 7. Assignment and Modification of Lease on the premises located at 1717 - 1719 Stewart Street, Santa Monica by and between Richlar Partnership (Landlord), IMT (Assignor) and Station X Studios LLC (Assignee). 5 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE 8. Transfer of Interest Agreement for NIRI equipment - by and between Venus Management, Inc., Medical Management Inc., and Siemens Credit Corporation. 9. Telephone System Lease - BALBOA CAPITAL CORPORATION Master Lease Agreement. 10. Consulting Agreement with Vincent R. Sghiatti, M.D. 11. Consulting Agreement with Bruce Barren and The EMCO\Hanover Group, Inc. dated June 1, 1997. 12. Employment Agreement with Owen Naccarato. 13. Retainer Agreement with Day Campbell and McGill. 14. Employment Agreement with Peter Benz dated May 15, 1997. 15. Employment Agreement with Steve Westlund dated May 15, 1997. 16. Employment Agreement with Larry Stanchio (terminated in October 1997) 17. Royalty Agreement with Francis Pizzulli with respect to sales of microsphere and sequesterant products. 18. Royalty Agreement with Dr. Shell, M.D. and Jackie See M.D., with respect to sales of microsphere and sequesterant products. Section 5.13: Real Property - The Company is a party to the following real property leases: A. Lease Agreement between the Company and Byron and Sarah Roberts with respect to the premises located at 2139 Pontius, Los Angeles, California. B. Lease Agreement between the Company and the Richlar Partnership (a California general partnership) with respect to the premises located at 1717-1719 Stewart, Santa Monica, California. 6 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE Section 5.14: Patents - The Company or its subsidiaries hold the following patents- A. Patent No. 4,616,658 For Non-Radioactivity Labeled Microspheres and Use of Same to Measure Blood Flow. Dated October 14, 1986. B. Patent No. 4,680,171 For Visualization of a Bloodstream Circulation with Biodegradable Microspheres. Dated July 14, 1987@ C. Patent No. 4,811,741 For Volumetric Determination of a Fluid. Dated March 14, 1989. D. Patent No. 4,865,850 For Dietary Fat Reduction. Dated September 12, 1989. E. Patent No. 5,186,922 For Use of Biodegradable Microspheies Labeled with Imaging Energy Contrast Materials. Dated February 16, 1993. F. Canadian Patent No. 1,255,219 For Non-Radioactivity Labeled Microspheres and Use of Same to Measure Blood Flow. Dated June 6, 1989. Section 5.17 Consent - A. Pursuant to the FTC Order described in Section 5.1OB(2) of this Disclosure Schedule, a copy of which has been provided to Kaire and made available to the Kaire Stockholders, the Company is required to give thirty days prior notice to the FTC with respect to the transactions contemplated by the Agreement. The notice was given on December 1, 1997. Section 5.18 Brokers or Finders - The Company is obligated to pay finders fees or consulting fees in connection with the transactions contemplated by the agreement as follows: A. Day Campbell & McGill - Cash in the amount of 3% of up to $3,000,000 of additional capital to be raised by the Company pursuant to the Agreement and the number of shares of the Company's common stock determined in accordance with Section 8.19 of the Agreement. 7 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. DISCLOSURE SCHEDULE B. Bruce Barren or The EMCO/Hanover Group, Inc. - Cash in the amount of 10% of capital raised by Bruce Barren for the Company, and cash in the amount of 3% of all other capital received by the Company. Shares of the Company's common stock in the amount determined in accordance with the Company's Consulting Agreement with Bruce Barren and the EMCO/Hanover Group Inc., dated June 1, 1997, a copy of which has been provided to Kaire and made available to the Kaire Stockholders. 8 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. Convertible Note Schedule Name $ Amount Herman 20,000 Berman 15,000 Bakalor 10,000 Milne 10,000 Casagrande 10,000 Rusch 10,000 Shum 10,000 Henderson 10,000 Franco 50,000 Kiernan 20,000 Lockwood 5,000 Berger 10,000 Heiligman 20,000 Concilio 5,000 Harris 10,000 Soutin 28,000 Violino 5,000 Kulleseid 20,000 Reisley 20,000 Armstrong 20,000 Finkelman 10,000 Kratzer 10,000 Covelli 10,000 Rosmarin 20,000 Wallenstein 10,000 Andolino 5,000 Starks 9,700 Pupke 10,000 Zipkin 10,000 Kesten 10,000 Casagrande 10,000 Komorsky 10,000 Dr. Taragin 5,000 Madison 10,000 Ardizzone 10,000 Weissman 5,000 Schwartz 19,955 Witdorchic 2,500 Miotto 2,500 Romano 10,000 Bailey 5,000 Quo Vadis PS 10,000 Paganelli 5,000 Herbst 10,000 Calhoun 10,000 9 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. Convertible Note Schedule Kahn $10,000 Bezold 10,000 Lindhjem 10,454 Lazar 10,000 Pugh 10,000 Anthony Thomas 10,000 Softgoods Software 5,000 Ferrari 100,000 Ferrari 20,000 Great Room Investors 5,000 Lindhjem 19,546 Adj (10,000) Troy and Gould 50,000 Pernet 200,000 Dr. Shell 25,000 ----------- Total Dollars $ 1,012,655 10 INTERACTIVE MEDICAL TECHNOLOGIES, LTD. Warrant Schedule Warrants Outstanding at December 1997 Exercise Issue Expiration Name Number Price Date Date - ---- ------ ----- ---- ---- Irwin Elson 287,000 $3.500 Apr-93 Five Years Ladenburg 200,000 $2.72 Oct-93 Five Years Ladenburg 100,000 $3.000 Oct-93 Five Years Schultz 87,500 $4.000 Mar-94 Five Years Marra 50,000 $0.750 Feb-95 Three Years Marra 50,000 $1.000 Feb-95 Three Years from 8/95 Marra 50,000 $1.500 Feb-95 Three Years from 2/96 RAT Finanz 25,000 $1.000 Dec-94 Three years RAI Finanz 25,000 $1.030 Jan-95 Three years RAI Finanz 25,000 $0.660 Feb-95 Three years RAI Finanz 25,000 $0.600 Mar-95 Three years RAI Finanz 25,000 $0.340 Apr-95 Three years Ewen 50,000 $0.300 Nov-95 Three years Duncan 200,000 $0.16 May-95 Three years Sam Shell 50,000 $0.150 Jul-95 Three years Steve Westlund 15,000,000 $0.05 Jan-96 Three years Peter Benz 15,000,000 $0.05 Jan-96 Three years John Osborne 1,250,000 $0.150 Jan-96 Three years Michael Grechko 1,000,000 $0.300 Jan-96 Three years Dr. Shell 750,000 $0.300 May-95 Five years Richard Shell 500,000 $0.300 May-95 Five years Celilia Lascu 500,000 $0.150 Jan-97 Five Years Adolph Komorsky 214,400 $0.125 Dec-96 Three years Credit Suisse 3,000,000 $0.090 Mar-97 Three years Sghiatti 500,000 $0.07 Sghiatti 250,000 $0.08 Sghiatti 250,000 $0.09 Merrick Okamoto 1,000,000 $0.10 July-96 Three years George Furla 2,500,000 $0.04 June-97 Three years Donovan Lazar 300,000 $O.07 Oct-97 Three years ---------- Total 43,263,900 11 KAIRE STOCKHOLDERS Name of Kaire Stockholder No. of Shares ------------------------- ------------- Tenant Investment Group 767,200 615 Main Street, Suite 706 Longmont, CO 80501 86-9200336 Aerostar Fiduciary Fund 627,200 615 Main Street, Suite 694 Longmont, CO 80501 CCB Investments, L.L.C. 308,823 210 Second Street P0 Box 179 St Marys, WV 26170 Rain Bird Enterprises, L.L.C. 308,823 210 Second Street P0 Box 393 St Marys, WV 26170 John C. Allen Jr. 84,000 P.O. Box 49 Clarksburg, WV 26302 DRP Corporation 70,000 887 E. Vine Street Murray, UT 84107 Netherton, LTD. 98,000 53 Victoria Street Douglas, Isle of Mann, British Isles 441624 620 631 L.N.W. International, L.P. 98,000 2901 South Ocean Blvd, Suite 302 Highland Beach, FL 33487 Schedule A Karla R Spencer 210,000 P0 Box 24 Alma, WV 26320 Zero Investments, L.L.C. 308,823 210 Second Street P0 Box 393 St. Marys, WV 26170 The Bismarek Investment Group 70,000 2250 N. University Parkway, Suite 4880 Provo, UT 84604 J.T. Whitworth 294,000 2130 North Shore Drive Longmont, CO 80503 Michael T. Lightfoot 61,600 20792 68th Ave British Columbia, Canada David J. Crockett 14,000 1679 Northwestern Road Longmont, Co 80503 Mystic Enterprises, Inc. 177,882 P0 Box 3004 Marietta, OH 45750 Robert J. Young 50,000 2129 24th Ave. Longmont, Co 80501 Gusrae, Kaplan & Bruno 25,000 120 Wall Street New York, NY 10005 2 Kaire International, Inc Disclosure Schedule All references herein to the "Agreement" shall mean the Agreement and Plan of Reorganization among Interactive Medical Technologies, Ltd. ("IMT'), Kaire International, Inc. ("Kaire"), the stockholders of Kaire (the "Kaire Stockholders") and certain executive officers and directors of Kaire (the "Kaire Affiliates") dated December 9,1997. Section 4.3(b) Capitalization The following warrants were outstanding on the date of this Agreement: A. Warrants in the amount of 1,200,000 exercisable at $6.60 per share: B. Warrants issued to Rowland Day II, Art Granito, and LDDI each in the amount of 14,700 warrants exercisable at $.01 per warrant. C. Warrants in the amount 100,000 issued to Magic Consulting Group, Inc., exercisable at $.O1. D. Warrants in the amount of 15,000 issued to Bridge Fund N.V. exercisable at $.0l. E. Warrants in the amount of 15,000 issued to Corso, Ltd. exercisable at $.01. Section 4.4 Equity Investments The Company owns an equity interest, in the amount indicated, in the following entities. Name Incorporated Ownership % ---- ------------ ----------- Kaire Australia Pty. Limited Australia 51% Kaire New Zealand Limited New Zealand 51% Kaire Korea Ltd. South Korea 70% Kaire Europe Limited United Kingdom 100% Section 4.9: Taxes A. Payroll Taxes - Federal and State withholding taxes are delinquent as follows: Date State Federal 10/17/97 $4,320.94 $32,325.76 10/3/97 $4,158.94 $31,119.78 9/19/97 $4,108.79 $30,749.40 9/5/97 $4,118.38 $30,487.01 8/22/97 $4,322.65 $31,833.21 8/8/97 $4,062.77 $29,198.90 7/25/97 $4,594.24 $34,130.08 B. Sales Taxes in the amount of $293,750.06, inclusive of penalties and interest as set forth in the schedule attached hereto. Section 4.10: Litigation A. The following is the only legal action pending against Kaire: 1). Dr. Mark Godec vs. Kaire International, Inc. in the Circuit Court of Fairfax County, Virginia. Dr. Godec entered into a $50,000 contract with Kaire on February 16, 1996 to provide a patented time release pharmaceutical/grade melatonin and upon duediligence by Kaire it was found that several misrepresentations by Godec were evident and Kaire canceled the contract. On December 5, 1997, the Circuit Court of Fairfax County, Virginia ruled in favor of Kaire. B. Two requests for information were received: 1. The Department of Justice in January 1997, requested documents regarding a pending investigation relative to certain specifically named individuals active in the dietary supplement industry. Kaire received written notification from the Department that it is not a "target" but is a "subject" thereof. 2. The Federal Trade Commission in June 1997, made a request of Kaire to voluntarily provide information relative to dietary supplement interaction with Attention Deficit Disorder and Attention Deficit Hyperactivity Disorder. The Commission as of the date hereof has requested additional documents from Kaire. Section 4.12: Contracts and Undertakings Kaire is a party to the following agreements: 1. Real property lease dated December 4, 1996 between Kaire and Country Hills Investment for 380 Lashley Street, 310 #107 Lashley Street, 310 #108 Lashley Street, Longmont, Colorado 80501 comprising 18,729 square feet. 2. Real property lease dated July 24, 1995 between George and Joe Walck for 400 Lashley Street, Longmont, CO. 80501 comprising 2,430 square feet. 3. Note payable in the Face of amount of $250,000 dated April 17, 1997 between Kaire and Star Bank of Columbia City, Indiana. 4. Notes payables in the face amount of $1,725,000 due 18 months after Issuance to certain investors who participated in Kaire Private Placement Memorandum. 5. Agreement and promissory note in the face amount of $500,000 dated May 30, 1997 to Horphag Research Limited. 6. Agreement and promissory note in the face amount of $200,000 to Magco, Inc. dated January 8,1997. 7. Agreement and promissory note in the face amount of S400,000 to Marden Rehabilitation Associates, Inc. dated August 29, 1997. S. Promissory note in the face amount of $120,411.85 to Loren B. Bagley dated September 30,1997. 9. Promissory note in the face amount of $12O,411.85 to William F. Woodburn dated September 30, 1997. 10. Promissory note in the face amount of $3,700.26 to Mark D. Woodburn dated November 28, 1997. 11. Promissory note in the face amount of $140,070.72 to J.T. Whitworth dated November 28, 1997. 12. Promissory note in the face amount of$118,265.84 to Robert L. Richards dated November 28, 1997. 13. Royalty agreement with Randall A. Mason 14. Promissory note in the face amount of $700,000 to interactive Medical Technologies, Ltd. dated October 27, 1997. 15. Employment agreement with Robert L. Richards. 16. Employment agreement with J.T. Whitworth. 17. Employment agreement with William F. Woodburn. 18. Employment agreement with Loren E. Bagely. 19. Employment agreement with Mark D. Woodburn. 20. Consulting contract with Stephen Cherniske dated January, 1997. 21. Master lease agreement with Winthrop leasing dated January 1, 1997. 22. Consulting agreement with Magic Consulting Group. Inc. dated February 4, 1997. Section 4.13 - Real Property Kaire is a party to the following real property leases. A. Real property lease dated December 4, 1996 between Kaire and Country Hills Investment for 380 Lashley Street, 310 #107 Lashley Street, 310 #108 Lashley Street, Longmont, Colorado 80501 comprising 18,729 square feet. B. Real property lease dated July 24, 1995 between George and Joe Walck for 400 Lashley Street, Longmont, CO. 80501 comprising 2,430 square feet. Section 4.14 . Proprietary Rights A. Kaire has registered the following trademarks in the United States. Name Goods Registration # ---- ----- -------------- Kaire Logo Class 3 1,940,105 Kaire International Class 3 1,940,106 Kaire International Class 5 1,948,832 Kaire Int & Design Class 5 1,954,710 Kaire Logo Class 32 1,940,108 Kaire International Class 32 1,940,107 Kaire Int & Design Class 32 1,960,219 Nature Shield Class 5 1,951,338 Provine Class 5 1,988,232 Design 2 cascaded face silhouette Class 5 1,952,958 Kaire Protectors Class 5 2,090,352 B. Several trademarks are registered or in the process of being registered throughout the world as set forth on the schedule attached hereto. Section 4.15 - Insurance A. Kaire has the following business insurance policies in effect. 1) One million dollar commercial and general liability insurance coverage with Chubb Group of Insurance Companies for general, product, and personal ADV through policy number 7947-97-30. 2) Commercial property business insurance coverage through Chubb Group of Insurance Companies through policy number 7947-8730. 3) Commercial umbrella of $1,000,000 through Chubb Group of Insurance Companies through policy number 977947-87-34CWD. B. Kaire has the following life insurance coverage. 1) J.T. Whitworth $500,000.00 2) Robert L. Richards $500,000.00 3) Michael Lightfoot $100,000.00 LIST OF TAX DUE P/I BILLED BY STATE IS INCLUDED IN THESE #'S - -------------------------------------------------------------------------------- STATE Jun-97 Jul-97 Aug-97 Sep-97 TOTAL ================================================================================ ================================================================================ AL-ST-LOC 95.55 102.77 182.02 360.34 AR 1,390.00 1,434.00 1,189.00 3,993.00 AS-STATE 605.14 796.59 682.18 2,083.91 AZ 0.00 0.00 2,440.52 1,628.22 4,066.74 CA 23,039.49 22,863.14 37,004.09 82,908.72 CO 5,502.35 4,953.14 4,409.48 14,864.88 CO-USE TAX STATE 174.17 94.89 192.95 462.01 CT 32.76 32.76 DC 0.00 0.00 0.00 0.00 0.00 FL 382.33 380.00 327.37 187.97 1,277.67 GA 1,291.14 2,286.88 1,300.79 1,189.72 6,068.53 GUAM 0.00 0.00 0.00 0.00 0.00 HI 386.92 1,012.58 471.38 30.53 1,901.39 IA 1,352.18 1,720.54 1,372.15 1,156.71 5,601.88 ID 0.00 1,741.59 1,267.75 639.81 3,649.15 IL* 0.00 1,260.81 1,260.81 IN 0.00 3,730.15 3,454.45 2,905.07 10,089.67 KS 1,230.11 1,577.29 1,182.95 1,000.78 4,991.13 KY* 840.21 675.02 382.14 1,897.37 LA 0.00 461.93 684.78 342.93 1,489.64 MA 2,005.19 2,251.27 1,740.27 5,996.73 MD 0.00 0.00 0.00 0.00 ME 415.12 383.13 210.21 1,008.46 MI 148.47 172.45 0.00 320.92 MN 6,134.73 5,235.31 5,556.63 16,926.87 MO 2,288.16 1,757.17 2,324.09 2,312.18 8,681.60 MS 847.44 1,309.02 944.86 918.99 4,020.31 NC 0.00 2,150.39 1,916.04 1,439.90 5,506.33 ND 0.00 0.00 765.67 753.37 1,519.04 NE 712.77 1,142.17 1,020.19 630.24 3,505.37 NJ 720.92 387.10 339.58 1,447.58 NM 110.95 1,472.40 1,485.35 0.00 3,068.70 NV 1,075.63 1,242.07 1,272.72 838.41 4,428.83 NY 0.00 0.00 0.00 0.00 0.00 OH 4,713.26 4,554.00 3,207.57 12,474.83 OK 4,356.80 4,039.90 3,192.08 11,588.78 PA 0.00 RI 291.01 329.36 242.52 862.89 SC 617.97 795.81 731.02 596.94 2,741.74 SD 853.06 1,079.41 968.51 657.80 3,558.78 TN* 3,465.37 3,070.12 2,334.42 8,869.91 TX 9,327.95 9,116.84 6,923.23 25,368.02 UT 348.99 3,145.23 2,446.41 0.00 5,940.63 VA 1,148.48 1,708.52 1,565.48 1,137.23 5,560.21 VT 0.00 0.00 0.00 0.00 0.00 WA 0.00 0.00 0.00 0.00 0.00 WI 2,091.03 4,517.24 2,297.73 2,400.43 11,306.43 WV 465.37 311.06 233.59 1,010.02 WY 265.41 300.33 295.38 178.76 1,039.88 ---------------------------------------------- 15,002.57 97,221.90 91,305.59 90,220.00 293,750.06 - -------------------------------------------------------------------------------- INTELLECTUAL PROPERTY RIGHTS - Australia/New Zealand REGION THREE: Asia & the Pacific Rim
- ------------------------------------------------------------------------------------------------------------------------------------ LAW OFC AMEND APP FILE JNL OF TM REQ TO REGIS RENEW TRADEMARK COUNTRY/LAW FIRM REF # DATE APP # CLS DATE FILE DATE AMALGM REGIS # DATE DATE - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AUSTRALIA (Davis Collision Cave) - ------------------------------------------------------------------------------------------------------------------------------------ Kaire & Kaire International 562744 9-Jun-95 669302 3 11-Aug-95 19-Sep-96 302/307 669302 14-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ 582757 9-Jun-95 669303 5 11-Aug-95 19-Sep-96 669303 7-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ 562767 9-Jun-95 669307 32 11-Aug-95 19-Sep-96 307/302 669302 14-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 561536 669308 3 9-Aug-95 19-Sep-96 308/309/310 669308 14-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 562729 669308 5 9-Aug-95 19-Sep-96 309/310/308 669308 14-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 562731 669310 32 9-Aug-95 19-Sep-96 310/306/309 669308 14-Jan-97 9-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Immunol 616973 719973 5 18-Oct-96 2-Oct-97 If unopposed, Cert of Registration will be issued in Jan 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Synerzyme 616986 719972 5 18-Oct-96 14-Aug-97 If unopposed, Cert of Registration will be issued in Nov 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Maritime Prime 616963 720997 5 1-Nov-96 27 Oct 97: Investigator cannot find identity of Dr. Karr, option: Use FOIA to request iolo [illegible] Trade Marks Office. To be discussed with Bob. - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NEW ZEALAND (Davis Collision Cave) - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 553419 10-Oct-95 252264 3 11-Aug-95 15 Sep 97 - DCC to file Statutory Consideration to prove ownership of [illegible] - ------------------------------------------------------------------------------------------------------------------------------------ 563421 10-Oct-95 252265 5 11-Aug-95 - ------------------------------------------------------------------------------------------------------------------------------------ 563434 10-Oct-95 252268 32 11-Aug-95 15 Jul 97 - Amended to delete "adapted for medical use" - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 563447 10-Oct-95 252267 3 11-Aug-95 27 Jun 97 DCC sent ltr of opposition to Unilever Plc proposed [illegible] - ------------------------------------------------------------------------------------------------------------------------------------ 563462 10-Oct-95 252268 5 11-Aug-95 - ------------------------------------------------------------------------------------------------------------------------------------ 563475 10-Oct-95 252269 32 11-Aug-95 N/A N/A 252269 11-Aug-97 11-Aug-02 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Immunol 617000 268650 5 24-Oct-96 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Synerzyme 617012 268651 5 24-Oct-96 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Maritime Prime 618950 269110 5 5-Nov-96 - ------------------------------------------------------------------------------------------------------------------------------------
INTELLECTUAL PROPERTY RIGHTS - Hong Kong/Japan/Malaysia REGION THREE: Asia & the Pacific Rim
- ------------------------------------------------------------------------------------------------------------------------------------ OFC APP RENEW TRADEMARK COUNTRY/LAW FIRM REF # APP # CLS FILE DATE ADV # DATE ADV REGIS # DATE DATE - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ HONG KONG (Baker & McKenzie - ------------------------------------------------------------------------------------------------------------------------------------ Kaire Logo (assoc w/4137) 22051 4136/95 3 11-Apr-95 3-May-97 B7768AB/97 11-Apr-95 11-Apr-02 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire Logo 22052 4137/95 5 24-Apr-95 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire Logo 22053 4138/95 32 24-Apr-95 39/1966 27-Sep-96 00594/97 11-Apr-95 11-Apr-02 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire Logo 22054 4139/95 35 11-Apr-95 9-May-97 07769A-B/97 14-Jan-97 11-Apr-02 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 22047 3240/95 3 23-Mar-95 39/1966 27-Sep-96 00417/97 20-Mar-95 20-Mar-02 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 22048 3241/95 5 23-Mar-95 6 Mar 97 [illegible] remove "for medical purposes" - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 22049 3242/95 32 23-Mar-95 15/1996 12-Apr-96 06379/96 20-Mar-95 20-Mar-02 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 22050 3243/95 35 20-Mar-95 9-May-97 7767/97 20-Mar-95 20-Mar-02 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ JAPAN (Roth & Goldman) - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 29321/95 3 28-Mar-95 Approved Unk 3304060 9-May-97 *11/10/2006 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 29322/95 5 28-Mar-95 25 Jul 97 - TIA rejected - R&G with the new appp for [illegible] & Logo together** - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 29737/95 3 28-Mar-95 Unk 20-Mar-97 - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 29738/95 5 28-Mar-95 Unk 20-Mar-97 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Maritime Prime 84510/96 5 30-Jul-96 - ------------------------------------------------------------------------------------------------------------------------------------ 84511/96 32 30-Jul-96 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MALAYSIA (Roth & Goldman) - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 96/09105 3 7-Aug-96 - ------------------------------------------------------------------------------------------------------------------------------------ Kaire 96/09107 5 7-Aug-96 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 96/09104 3 7-Aug-96 - ------------------------------------------------------------------------------------------------------------------------------------ Silhouette (Logo) 96/09106 5 7-Aug-96 - ------------------------------------------------------------------------------------------------------------------------------------
* Must "use" w/in 3 yrs ** 4 Sep 97: Repealed req that R&G file app for composite. We will decide on asking owner of KERES to remove "pharmaceutical" ASIA-2 INTELLECTUAL PROPERTY RIGHTS - South Korea REGION THREE: Asia & Pacific Rim
OFC APP TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS FILE DATE ADV # -------------------------- ---- ----- --- --------- ----- SOUTH KOREA (Kim & Chang)* Kaire (plant/fruit-based nutri prod) TK-973762 97-38887 2 14-Aug-97 (aloe vera-based drinks & several types of water) TK-973763 97-38879 5 14-Aug-97 (fish oil) TK-973764 97-38881 8 14-Aug-97 (vitamin prep, med, dietary suppl. Distl water, enzymes, other) TK-973765 97-38895 18 14-Aug-97 (cosmetics) TK-973766 97-38899 12 14-Aug-97 (shampoo & hair conditioner) TK-973767 97-38883 13 14-Aug-97 (books, non-music audio/video tapes, other printed materials) TK-973768 97-38885 52 14-Aug-97 Kaire Name, Int'l, and Logo TK-972705 96-40179 2 9-Sep-97 N/A TK-973776 97-38889 2 14-Aug-97 TK-973777 97-38891 5 14-Aug-97 Note: Apps for Classes 5, 7, 13, & 52 all have word TK-973778 97-38893 8 14-Aug-97 "International" added; others do not - see ltr TK-973708 96-40182 10 9-Sep-97 to K & C dated 16 Sep 97 TK-973779 97-38897 10 14-Aug-97 TK-973711 96-40185 12 9-Sep-97 TK-973780 97-38901 12 14-Aug-97 TK-973781 97-38903 13 14-Aug-97 TK-973714 96-40188 45 9-Sep-97 TK-973782 97-38905 52 14-Aug-97 Silhouette (Logo) TK-973704 96-40178 2 9-Sep-97 N/A TK-973769 97-38888 2 14-Aug-97 TK-973770 97-38880 5 14-Aug-97 TK-973771 97-38882 8 14-Aug-97 TK-973707 96-40181 10 9-Sep-97 TK-973772 97-38896 10 14-Aug-97 TK-973710 96-40184 12 9-Sep-97 TK-973773 97-38900 12 14-Aug-97 TK-973774 97-38984 13 14-Aug-97 TK-973713 97-40187 45 9-Sep-97 TK-973775 97-38886 52 14-Aug-97 DATE REGIS RENEW PURCH TRADEMARK COUNTRY/LAW FIRM ADV REGIS # DATE DATE FROM -------------------------- --- ------- ---- ---- ---- SOUTH KOREA (Kim & Chang)* Kaire (plant/fruit-based nutri prod) (aloe vera-based drinks & several types of water) (fish oil) (vitamin prep, med, dietary suppl. Distl water, enzymes, other) (cosmetics) (shampoo & hair conditioner) (books, non-music audio/video tapes, other printed materials) Kaire Name, Int'l, and Logo 1-Oct-97 If unopposed, Cost ot Regis YI will be issued in 4 months from 1 Oct. Note: Apps for Classes 5, 7, 13, & 52 all have word "International" added; others do not - see ltr YI to K & C dated 16 Sep 97 YI YI Silhouette (Logo) 1-Oct-97 If unopposed, Cost ot Regis YI will be issued in 4 months from 1 Oct. YI YI YI
3 Asia-2A INTELLECTUAL PROPERTY RIGHTS - South Korea (continued) REGION THREE: Asia & Pacific Rim
OFC TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS -------------------------- ---- ----- --- SOUTH KOREA (Kim & Chang)* Kaire (plant/fruit-based nutri prod) TK-973762 97-38887 2 (aloe vera-based drinks & several types of water) TK-973763 97-38878 5 (fish oil) TK-973764 97-38881 8 (vitamin prep, med, dietary suppl. Distl water, enzymes, other) TK-973765 97-38895 10 (cosmetics) TK-973766 97-38899 12 (shampoo & hair conditioner) TK-973767 97-38883 13 (books, non-music audio/video tapes, other printed materials) TK-973768 97-38885 52 Kaire Name, Int'l, and Logo TK-972705 96-40179 2 TK-973776 97-38889 2 TK-973777 97-38891 5 Note: Apps for Classes 5, 7, 13, & 52 all have word TK-973778 97-38893 8 "International" added; others do not - see ltr TK-973708 96-40182 10 to K & C dated 16 Sep 97 TK-973779 97-38897 10 TK-973711 96-40185 12 TK-973780 97-38901 12 TK-973781 97-38903 13 TK-973714 96-40188 45 TK-973782 97-38905 52 Silhouette (Logo) TK-973704 96-40178 2 TK-973770 97-38882 5 TK-973771 96-40161 8 TK-973707 97-38896 10 TK-973772 96-40184 10 TK-973710 97-38900 12 TK-973773 97-38884 12 TK-973774 97-40187 13 TK-973713 97-40187 45 TK-973775 97-38886 52 TRADEMARK COUNTRY/LAW FIRM ASSOCIATION W/OTHER TRADEMARK APPLICATIONS -------------------------- ------------------------------------------ SOUTH KOREA (Kim & Chang)* Kaire (plant/fruit-based nutri prod) 96-40178 96-40179 96-38887 96-38888 96-38888 (aloe vera-based drinks & several types of water) 97-38878 97-03850 97-38891 (fish oil) 97-38881 97-38882 97-38883 (vitamin prep, med, dietary suppl. Distl water, enzymes, other) 96-40181 95-140182 97-388995 97-38886 97-38887 (cosmetics) 97-38885 97-38986 97-038905 (shampoo & hair conditioner) (books, non-music audio/video tapes, other printed materials) Kaire Name, Int'l, and Logo 96-40178 96-40178 96-40179 97-38887 97-38888 97-38879 97-38880 Note: Apps for Classes 5, 7, 13, & 52 all have word 97-38881 97-38882 "International" added; others do not - see ltr 96-40181 9640178 to K & C dated 16 Sep 97 14-Aug-97 96-40181 96-40182 97-38895 97-38896 96-40184 14-Aug-97 96-40184 96-40185 97-38899 97-38900 97-38883 97-38884 96-40187 96-40178 97-38885 97-38886 Silhouette (Logo) 96-40178 96-40181 96-40182 96-40178 96-40184 96-40185 96-40178
4 ASIA-3 INTELLECTUAL PROPERTY RIGHTS - South Korea (continued) REGION THREE: Asia & Pacific Rim
OFC APP TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS FILE DATE -------------------------- ---- ----- --- --------- SOUTH KOREA (Kim & Chang)* Kaire Name Transliteration & Logo TK-973783 97-38890 2 14-Aug-97 (Kaire International in its Korean TK-973784 97-38892 5 14-Aug-97 characters with Device TK-973785 97-38894 8 14-Aug-97 TK-973786 97-38898 10 14-Aug-97 TK-973787 97-38902 12 14-Aug-97 TK-973788 97-38904 13 14-Aug-97 TK-973789 97-38908 52 14-Aug-97 Outline of Couple Embracing Device AK-942706 96-40180 2 9-Sep-97 AK-942709 96-40183 10 9-Sep-97 AK-942712 96-40186 12 9-Sep-97 AK-942715 96-40189 15 9-Sep-97 JOBELLE TK-973019 97-40217 12 25-Aug-97 TK-973790 97-40218 13 25-Aug-97 JOBELLE Transliteration (Conditioner/shampoo) TK-973019 97-40219 12 25-Aug-97 (Shampoo/hair rinse) TK-973782 97-40220 13 25-Aug-97 Immunol (Kim,Shin & Yu) T-5777 96-41530 8 12-Sep-96 DATE REGIS RENEW PURCH TRADEMARK COUNTRY/LAW FIRM ADV # ADV REGIS # DATE DATE FROM -------------------------- ----- --- ------- ---- ---- ---- SOUTH KOREA (Kim & Chang)* Kaire Name Transliteration & Logo (Kaire International in its Korean characters with Device Outline of Couple Embracing Device 96-40180 was first app to be rejected in this YI series. Reason: "likely to injur public and YI morals"...We will not appeal this nor the other YI 3 apps. YI JOBELLE JOBELLE Transliteration (Conditioner/shampoo) (Shampoo/hair rinse) Immunol (Kim,Shin & Yu) 10 years after regis
5 Asia 3A INTELLECTUAL PROPERTY RIGHTS - South Korea (continued) REGION THREE: Asia & the Pacific Rim
OFC TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS ASSOCIATION W/OTHER TRADEMARK APPLICATIONS -------------------------- ---- ----- --- ------------------------------------------ SOUTH KOREA (Kim & Chang)* Kaire Name Transliteration & Logo TK-973783 97-38890 2 96-40176 96-40179 96-38887 95-38888 96-38889 (Kaire in Korean with Logo) TK-973784 97-38892 5 97-38879 97-38880 97-38891 TK-973785 97-38894 7 97-38881 97-38882 97-38893 TK-973786 97-38898 10 98-40181 96-40182 97-38895 97-38896 97-38897 TK-973787 97-38902 12 96-40184 96-40135 96-38899 96-38900 96-38901 TK-973788 97-38904 13 97-38883 97-38884 97-38903 TK-973789 97-38906 52 97-38885 97-38886 97-38905 Outline of Couple Embracing Device AK-942706 96-40180 2 AK-942709 96-40183 10 AK-942712 96-40186 12 AK-942715 96-40189 45 JOBELLE TK-973019 97-40217 12 TK-973790 97-40218 13 JOBELLE Transliteration (Conditioner/shampoo) TK-973019 97-40219 12 (Shampoo/hair rinse) TK-973782 97-40220 13 Immunol (Kim,Shin & Yu) T-5777 96-41530 8
6 EUROPE INTELLECTUAL PROPERTY RIGHTS - EC/France/United Kingdom REGION TWO: Europe
APP TRADEMARK COUNTRY/LAW FIRM APP # CLS FILE DATE ADV # -------------------------- ----- --- --------- ----- EUROPEAN COMMUNITY (Roth & Goldman) Note: TM is protected in (15) member countries of the European Union: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK (Wales, Engl, Scotland, S. Ireland) Kaire 31153 3 1-Apr-96 31153 31153 5 1-Apr-96 31153 31153 32 1-Apr-96 31153 Logo 3 5 32 FRANCE (Roth & Goldman) Kaire 95/563813 3 NONE 95/563813 6 Sillouette (Logo) 95/588900 3 NONE 95/588900 5 UNITED KINGDOM (Roth & Goldman) ------------------------------ Kaire 2014882 3 21-Mar-96 App date & registration date 2014882 5 21-Mar-96 are the same ------------------------------ ------------------------------ Sillouette (Logo) 2037179 3 20-Sep-95 App date & registration date 2037179 5 20-Sep-95 are the same ------------------------------ ADV REGIS RENEW TRADEMARK COUNTRY/LAW FIRM DATE REGIS # DATE DATE -------------------------- ---- ------- ---- ---- EUROPEAN COMMUNITY (Roth & Goldman) Note: TM is protected in (15) member countries of the European Union: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, UK (Wales, Engl, Scotland, S. Ireland) ---------------------------------------- Kaire 14-Jul-97 All three applications: 14-Jul-97 Interested parties can oppose a grant of 14-Jul-97 registration up until Oct 14, 1997 ---------------------------------------- -------------------------------------------- Logo 3 Sep 97 - Requested Roth & Goldman to apply to register the Logo. -------------------------------------------- FRANCE (Roth & Goldman) Kaire 95/563813 25-Aug-95 21-Mar-05 95/563813 Sillouette (Logo) 95/588900 1-Mar-96 20-Sep-05 95/588900 UNITED KINGDOM (Roth & Goldman) Kaire 2014882 21-Mar-95 21-Mar-05 2014882 21-Mar-95 21-Mar-05 Sillouette (Logo) 2037179 20-Sep-95 20-Sep-05 2037179 20-Sep-95 20-Sep-05
7 CEN-AMER INTELLECTUAL PROPERTY RIGHTS - Mexico REGION ONE: North, Central & South America
APP REGIS RENEW TRADEMARK COUNTRY/LAW FIRM APP # CLS FILE DATE REGIS # DATE DATE -------------------------- ----- --- --------- ------- ---- ---- MEXICO (Roth & Goldman) 244,665 3 NONE 510,132 24-Nov-95 3-Oct-05 Sillouette (Logo) 244,666 5 NONE 511,968 30-Nov-95 3-Oct-05 241353 3 NONE 505296 28-Aug-95 28-Aug-05 Kaire 241352 5 NONE 505295 28-Aug-95 28-Aug-05
8 Trinidad-Tobago INTELLECTUAL PROPERTY RIGHTS - Trinidad-Tobago REGION ONE: North, Central and North America LAW APP OFC FILE TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS DATE - -------------------------- ---- ----- --- ---- TRINIDAD-TOBAGO (J.D. Seller & Co.) Kaire TM-108 614 26382 3 29-Jan-97 ---------------------------- Jan 97: We have to trademark 595/816 020 the Logo soon TM-108 614 26383 5 29-Jan-97 595/816 020 ----------------------------
UNL OF TM AMEND ADV REGIS RENEW TRADEMARK COUNTRY/LAW FIRM DATE ADV # DATE REGIS # DATE DATE - -------------------------- ---- ----- ---- ------- ---- ---- TRINIDAD-TOBAGO (J.D. Seller & Co.) Kaire Jan 97: We have to trademark ----------------------------------------------------------------- the Logo soon 11 Aug 97: Register accepted as statement of goods as proposed by 29-Jan-07 attorney ----------------------------------------------------------------- ------------------------------------------------------------------------------------------- 4 Sep 97: Examiner is adamant in asking "for medical use" as "dietary supplements" in class 6. We promised attorneys evidence (after class 5 statement of goods not requiring the above terms) of successful arguments against the terms. -------------------------------------------------------------------------------------------
9 ASIA-4 INTELLECTUAL PROPERTY RIGHTS - Taiwan REGION THREE: Asia & the Pacific Rim
LAW APP INT OF OFC FILE AMEND TM ADV REGIS RENEW TRADEMARK COUNTRY/LAW FIRM REF# APP # CLS DATE DATE ADV# DATE REGIS# DATE DATE - -------------------------- ---- ----- --- ---- ---- ---- ---- ------ ---- ---- TAIWAN (Roth & Goldman) Kaire 86003025 3 20-Jan-97 86003024 5 20-Jan-97 Kaire Silhouette (Logo) 86003022 3 20-Jan-97 86003021 5 20-Jan-97 Immunol 86003026 5 20-Jan-97 Synerzyme 86003020 5 20-Jan-97 Maritime Prime 86003023 5 20-Jan-97 ----------------------------------- Colloidal Silver Colloidal Silver is not registrable in Taiwan because "name identifies content" per Roth & Goldman ----------------------------------- **Will req Taiwan attorney apply for: ------------------------------------- DHEA Trademark of these nutritionals is on SABILA "Hold" until JT approves opening AquaKaire Morning Taiwan..... AquaKaire Evening ------------------------------------- Kava-Kava (will have a new name)
10 EX-10.2 7 REGISTRANTS LOAN AGMT (5/19/97) W/ STAR FIN. BK. Exhibit 10.2 [LOGO] STAR --------- FINANCIAL VARIABLE RATE --------- BANK (R) COMMERCIAL Member FDIC PROMISSORY 102 West Van Buren Street - P.O. Box 510 NOTE Columbia City, Indiana 46725-0510 (219) 244-6151 "LENDER" ------------------------------------- BORROWER ------------------------------------- KAIRE INTERNATIONAL, INC. 380 LASHLEY ST LONGMONT, CO 80502-1535 ------------------------------------- Telephone Number 800-524-7348 -------------------------------------
- ---------------- ------------- ---------------- ------------ ------------- --------------- ----------- OFFICER INITIALS INTEREST RATE PRINCIPAL AMOUNT FUNDING DATE MATURITY DATE CUSTOMER NUMBER LOAN NUMBER - ---------------- ------------- ---------------- ------------ ------------- --------------- ----------- 00002 VARIABLE $240,100.00 05/19/97 06/18/97 0050055720 06716702
PROMISE TO PAY For value received, Borrower promises to pay to the order of Lender indicated above the principal amount of TWO HUNDRED FORTY THOUSAND ONE HUNDRED AND NO/100 Dollars ($ 240,100.00) plus interest on the unpaid principal balance at the rate and in the manner described below and those other charges permitted by applicable law and authorized by the terms of this Note, all without relief from valuation and appraisement laws. All amounts received by Lender shall be applied first to late charges and expenses, then to accrued interest, and then to principal. INTEREST RATE: This Note has a variable interest rate feature. Interest on the Note may change from time to time if the Index Rate identified below changes. Interest shall be computed on the basis of 360 days and the actual number of days per year. Interest on this Note shall be calculated at the variable simple interest rate of TWO AND NO/l00 percent (2.00%) per annum over the Index Rate. The Initial Index Rate is EIGHT AND 50/100 percent (8.50%) per annum. Therefore, the initial interest rate on this Note shall be TEN AND 50/100 percent (10.50%) per annum. Any change in the interest rate resulting from a change in the Index Rate will be effective on: ON THE FIRST DAY OF THE MONTH 06-01-97 INDEX RATE: The Index Rate for this Note shall be: THE PRIME RATE SHALL BE THE LOWEST PRIME LENDING RATE AT LARGE MONEY CENTER BANKS AS PUBLISHED IN THE WALL ST JOURNAL OR OTHER FINANCIAL PUBLICATIONS MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a percent (n/a%) per annum. The maximum interest rate on this Note shall not exceed n/a percent (n/a%) per annum. DEFAULT RATE: In the event of a default under this Note, the Lender may, in its discretion, determine that all amounts owing to Lender shall bear interest as follows: 21.00% PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the following schedule: A SINGLE PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON JUNE 18, 1997. All payments will be made to Lender at its address described above and shall be in collected funds in lawful currency of the United States of America. RENEWAL: If checked |X| this Note is a renewal of Loan Number 06701269. SECURITY: To secure the payment and performance of obligations incurred under this Note, Borrower grants Lender a security interest in, and pledges and assigns to Lender all of Borrower's rights, title, and interest, in all monies, instruments, savings, checking and other deposit accounts of Borrower's, (excluding IRA, Keogh and trust accounts and deposits subject to tax penalties if so assigned) that are now or in the future in Lender's custody or control. Upon default, and to the extent permitted by applicable law, Lender may exercise its security interest in all such property which shall be in addition to Lender's common law right of setoff. |X| If checked, the obligations under this Note are also secured by a lien and/or security interest in the property described in the documents executed in connection with this Note as well as any other property designated as security now or in the future. PREPAYMENT/MINIMUM FINANCE CHARGE: This Note may be prepaid in part or in full on or before its maturity date. If this Note contains more than one installment, all prepayments will be credited as determined by Lender and as permitted by law, if this Note is prepaid in full, there will be: |_| No prepayment penalty/minimum finance charge. |X| A minimum finance charge of $30.00 plus closing costs, as permitted by law. LATE PAYMENT CHARGE: If a payment is more than 10 days late, Borrower will be charged a late payment charge of $100.00 or 5.00% of late installment whichever is |_| greater; |X| less; as permitted by law. ================================================================================ BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE. BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE. NOTE DATE: MAY 19, 1997 BORROWER: KAIRE INTERNATIONAL, INC. BORROWER: BY: /s/ ROBERT L RICHARDS BY: ---------------------------------- ---------------------------------- ROBERT L RICHARDS TITLE: SENIOR EXECUTIVE V. P. TITLE: -------------------------------- ------------------------------- CHIEF EXECUTIVE OFFICER BORROWER: BORROWER: BY: BY: ---------------------------------- ---------------------------------- TITLE: TITLE: -------------------------------- ------------------------------- TERMS AND CONDITIONS 1. DEFAULT: Borrower will be in default under this Note in the event that Borrower or any guarantor: (a) fails to make any payment on this Note or any other indebtedness to Lender when due; (b) fails to perform any obligation or breaches any warranty or covenant to Lender contained in this Note or any other present or future, written agreement regarding this or any indebtedness of Borrower to Lender; (c) provides or causes any false or misleading signature or representation to be provided to Lender; (d) allows the collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in any material respect, or subjected to seizure or confiscation; (e) permits the entry or service of any garnishment, judgment, tax levy, attachment or lien against Borrower, any guarantor, or any of their property; (f) dies, becomes legally incompetent, is dissolved or terminated, ceases to operate its business, becomes insolvent, makes an assignment for the benefit of creditors, or becomes the subject of any bankruptcy, insolvency or debtor rehabilitation proceeding; or (g) causes Lender to deem itself insecure in good faith for any reason or Lender, for any reason, in good faith deems itself insecure. 2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender will be entitled to exercise one or more of the following remedies without notice or demand (except as required by law): (a) to declare the principal amount plus accrued interest under this Note and all other present and future obligations of Borrower immediately due and payable in full; (b) to collect the outstanding obligations of Borrower with or without resorting to judicial process; (c) to take possession of any collateral in any manner permitted by law; (d) to require Borrower to deliver and make available to Lender any collateral at a place reasonably convenient to Borrower and Lender; (e) to sell, lease or otherwise dispose of any collateral and collect any deficiency balance with or without resorting to legal process (if notice to Borrower of the intended disposition of the collateral is required by law, five (5) days notice shall constitute reasonable notification); (f) to set-off Borrower's obligations against any amounts due to Borrower including, but not limited to monies, instruments, and deposit accounts maintained with Lender; and (g) to exercise ail other rights available to Lender under any other written agreement or applicable law. Lender's rights are cumulative and may be exercised together, separately, and in any order. 3. DEMAND FEATURE: If this Note contains a demand feature, then notwithstanding anything to the contrary contained in this Note, Lender's rights with respect to the events of default identified above shall not be limited, restricted, impaired or otherwise adversely affected by the demand feature of this Note. Lender's right to demand payment, at any time, and from time to time, shall be in Lender's sole and absolute discretion, whether or not any default has occurred. 4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial statements including but not limited to balance sheets and profit and loss statements and other Information upon request. 5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's obligations or Lender's rights under this Note must be contained in a writing signed by Lender. Lender may perform any of Borrower's obligations or delay or fail to exercise any of its rights without causing a waiver of those obligations or rights. A waiver on one occasion will not constitute a waiver on any other occasion. Borrower's obligations under this Note shall not be affected if Lender amends, compromises, exchanges, fails to exercise, impairs or releases any of the obligations belonging to any co-borrower or guarantor or any of its rights against any co-borrower guarantor or collateral. 6. SEVERABILITY: If any provision of this Note violates the law or is unenforceable, the rest of the Note will remain valid. 7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights, remedies or obligations described in this Note without the prior written consent of Lender which may be withheld by Lender in its sole discretion. Lender will be entitled to assign some or all of its rights and remedies described in this Note without notice to or the prior consent of Borrower in any manner. 8. NOTICE: Any notice or other communication to be provided to Borrower or Lender under this Note shall be in writing and sent to the parties at the addresses described in this Note or such other address as the parties may designate in writing from time to time. 9. APPLICABLE LAW: This Note shall be governed by the laws of the state indicated in Lender's address. Borrower consents to the jurisdiction and venue of any court located in the state indicated in Lender's address in the event of any legal proceeding under this Note. 10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any amount due or enforcing any right or remedy under this Note, Borrower agrees to pay Lender's attorney's fees and collection costs. 11. MISCELLANEOUS: This Note is being executed for commercial purposes. Borrower and Lender agree that time is of the essence. Borrower waives presentment, demand for payment, notice of dishonor and protest. If Lender obtains a judgment for any amount due under this Note, interest will accrue on the judgment at ten percent per annum. All references to Borrower in this Note shall include all of the parties signing this Note. If there is more than one Borrower, their obligations will be joint and several. This Note and any related documents represent the complete and integrated understanding between Borrower and Lender pertaining to the terms and conditions of those documents. 12. ADDITIONAL TERMS: EX-10.3 8 EMPLOYMENT AGMT W/ ROBERT J. YOUNG Exhibit 10.3 KAIRE INTERNATIONAL INC. EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered effective into August 11, 1997, between Kaire International, Inc., a Delaware corporation having its principal place of business at 380 Lashley Street, Longmont, Colorado 80501 ("KAIRE") and Robert J. Young (the "Employee") and is effective on the date it is signed by the last signatory. KAIRE and the Employee are referred to in this Agreement together as the "Parties", "we", "our", "us", or individually as "Party." In consideration of our rights and obligations set out below, KAIRE and the Employee agree as follows: A. EMPLOYMENT. KAIRE employs the Employee for the position and to provide the services described in paragraph C. below, subject to the terms, covenants and conditions of this Agreement. B. TERMS OF EMPLOYMENT. The Employee's employment under this agreement will begin on August 11, 1997 and if not otherwise terminated in this agreement, Employee shall be permitted to cease active employment effective August 31,1998 in order to permit Employee to enroll in graduate school for a period of 15 months. 1. Employment AT WILL. The Employee will at all times while this Agreement is in effect be an AT WILL employee, so, subject to the provisions of paragraph L., if applicable, either Party may terminate this Agreement at any time, with, or without cause, and with or without prior notice. Any provision for payment of salary or other compensation on an annual basis is for accounting purposes only and does not mean the Employee will be employed for any term. Upon any termination of Employee, KAIRE will remain liable to pay the compensation as described in Paragraph E below. The Employee further understands and agrees each of the following is an express condition of this Agreement and that KAIRE may terminate the Employee's employment immediately without prior notice if the Employee fails to satisfy any of these conditions: 2. Employee Provided True Information. Understanding KAIRE relied on the Employee to be truthful, each fact the Employee provided or authorized anyone else to provide as part of the Employee's application was true, and the Employee provided KAIRE, with complete information it needed to consider the Employee's application. 3. Drug Screening Medical Examination. To help ensure a safe, healthy workplace, KAIRE has or may implement policies for employee drug screening testing and medical examinations. Subject to such policies and applicable law, failing or refusing to take a drug screening test or medical examination may result in termination. C. EMPLOYEE'S DUTIES. The Employee will provide the following services under this Agreement, for the position of Marketing Director as per the attached job description, and the Employee will have such further or other duties as KAIRE assigns to the Employee from time to time. 1. Full Efforts for KAIRE. The Employee should devote the Employee's full work time to the Employee's employment with KAIRE and may not hold any jobs outside the Employee's employment with KAIRE or accept from any other company or individual any pay, salary, retainer, commission, consulting fee or any other fee arrangement or remuneration for services without full disclosure to and prior written approval from KAIRE's Chief Executive Officer. 2. Compliance with Policies and Standards. The Employee services performed for KAIRE and its Employees, Associates, customers and others will in all events be consistent with KAIRE's policies, standards, rules and procedures. D. OTHER, SEPARATE AGREEMENTS BETWEEN THE PARTIES. 1. No Competition with KAIRE and Preservation of KAIRE's Confidential Information. The Employee will not compete with KAIRE and will preserve KAIRE's confidential information including KAIRE Associate and customer records, as further specified in the Parties' Noncompetition, Confidentiality and Work Made for Hire Agreement, dated August 18, 1997. 2. Work Made for Hire. Any work, invention, process, product, idea or concept (whether or not patentable or protectable by copyright) the Employee conceives or develops, in whole or in part, during work hours for KAIRE or at any time using KAIRE's premises or any of its equipment or supplies will be work made for hire owned solely by KAIRE, as further specified in the Parties' Noncompetition, Confidentiality and Work Made for Hire Agreement, dated August 18, 1997. E. COMPENSATION. 1. Salary. For all services the Employee provides under this Agreement, KAIRE will pay the Employee salary as follows: 2. Payment of Salary. The Employee's annual salary of $125,000.00 will be paid in twenty-six (26) payments every two (2) weeks in the amount of $ 4,807.69 beginning August 22, 1997 and thereafter each on the Friday of each such week, with the initial payment period to be adjusted for KAIRE's regular pay periods for employees, or if the Friday is a holiday, on the last workday before that Friday. All compensation paid to the Employee is subject to employer withholdings, e.g., for FICA, Medicare/Medicaid, any applicable occupational privilege tax, and any court ordered deductions such as garnishments. There will be no salary advances, unless otherwise agreed in writing by KAIRE. 3. Expenses. KAIRE will reimburse the Employee for reasonable expenses incurred on KAIRE's behalf for which KAIRE has given prior written authority and for which the Employee provides appropriate receipts or other evidence of payment. 4. Educational Expense Reimbursement. KAIRE agrees to reimburse Employee for up to $62,500.00 of documented educational tuition and educational expenses incurred by Employee while Employee attends graduate school beginning September 1, 1998 through November 1,1999. KAIRE shall establish an escrow account in the amount of $62,500.00 which shall be disbursed as reimbursement to Employee at the following times: (a) $22,500.00 on or before September 1,1998, (b) $20,000.00 on or before January 1,1999, and (c) $20,000.00 on or before July 1, 1999. At least 15 days prior to KAIRE's monthly reimbursement, Employee shall submit written documentation of the educational expenses paid for by Employee. KAIRE shall create the escrow account, when KAIRE receives proceeds from a successful sale of its stock in an Initial Public Offering which is now anticipated to be in December 1997. KAIRE shall be obligated to pay such reimbursable educational funds as set forth regardless of whether KAIRE establishes an escrow account. The obligation of KAIRE under this paragraph shall survive any termination of Employee's services under this Agreement except for Employee's voluntary resignation from employment or Employee's death or disability or the matters set forth in Paragraph L.1.a.b. or c. 5. Shares of Stock of KAIRE. As consideration for Employee entering into this agreement, KAIRE shall issue to Employee, 50,000 shares of KAIRE common stock at any time prior to KAIRE's Initial Public Offering. The current value of such shares is $500.00 and shall be deemed to be compensation to Employee and Employee shall be responsible for any income tax and related employment expenses except for KAIRE's employer related F.I.C.A. and Medicare/Medicaid obligation. F. VOLUNTARY BENEFITS. 1. Employee's Eligibility. While Employee is providing full-time employment services to KAIRE, the Employee will be eligible to participate in any insurance, pension, profit sharing or other voluntary employee benefit KAIRE chooses, from time to time, to offer its other comparable employees, subject to the participation standards and other terms of any such voluntary benefit. KAIRE has no obligation to adopt or to continue any voluntary benefit. 2. Possible Life or Disability Insurance for KAIRE's Sole Benefit. The Employee understands that at anytime after this Agreement is executed, KAIRE may in its sole discretion and solely for its own benefit apply for life and/or disability insurance on the Employee in such amounts and in such form or forms as KAIRE may choose. Subject to any applicable law, the Employee agrees to submit to such medical examinations, to supply such information and to execute such releases and other documents as the insurance company or companies to which KAIRE has applied may reasonably and lawfully require as a condition of issuing, renewing or modifying any such policy. KAIRE will maintain in separate, confidential files any information about the Employee's health and abilities it receives as part of any such application or policy. 3. Vacations. Holidays and Leaves. Employee shall have the right to use 10 vacation days during the time period from inception of this agreement and ending August 31,1998. No vacation time shall accrue while Employee is attending graduate school. G. COLLECTION OF ACCOUNTS AND COMMISSIONS. KAIRE may in its sole discretion waive, release, compromise or decline to collect any charge, bill, account, commission or other payable owing from any of its customers, clients an other sources of revenue, including any charge, etc. arising from services the Employee performed or products the Employee produced or that would, if collected, be payable to the Employee as commission or other compensation. H. FEES, PAYMENTS AND COMMISSIONS FROM CLIENTS, CUSTOMERS AND THIRD PARTIES. All fees, payments, commissions, premiums, compensation or other things of value the Employee receives or may otherwise have a right to receive directly from KAIRE's Associates, customers and third parties as a result services the Employee provides or products the Employee produces under this Agreement belong to and will immediately be paid and delivered to KAIRE. The Employee will hold any such funds and Employee receives as KAIRE's fiduciary, and the Employee will take all steps KAIRE reasonably requests to cause any Associate, customer, or third party who is holding or who owes any such funds promptly to pay them to KAIRE. I. SUPPLIES, EQUIPMENT AND FACILITIES. 1. By KAIRE. KAIRE will provide the Employee within a reasonable time with such supplies, equipment, facilities and services as are reasonably necessary for the performance of the Employee's duties. 2. No Ownership of KAIRE'S, Equipment or Facilities. KAIRE's provision of any supplies, equipment or facilities to the Employee will not give the Employee any ownership interest in any such supplies, equipment or facilities and will not obligate KAIRE to continue providing supplies, equipment and facilities. The Employee's use of KAIRE's property and equipment will be consistent with the policy regarding Company Equipment in KAIRE's personnel policies not in effect or as KAIRE may modify later. J. NO AUTHORITY TO OBLIGATE KAIRE OR TO INCUR, CREDIT. The Employee is not an officer of KAIRE, may not incur any credit for KAIRE and has not authority to obligate KAIRE to anything to accept orders, payments and supporting information from existing and prospective Associates and customers on behalf of KAIRE and to transmit them to KAIRE or to its suppliers. K. DEATH OR DISABILITY DURING EMPLOYMENT. To the extent permitted by law, if the Employee dies or becomes disabled while an employee of KAIRE, this Agreement will automatically terminate and KAIRE will pay to the Employee's estate (in the event of death) or to the Employee (in the event of disability) the compensation that otherwise would be payable to the Employee for the Employee's services rendered before the Employee's death or disability, less any obligations the Employee then owes KAIRE. The Employee will be considered "Disabled" under this Agreement if the Employee is unable with reasonable accommodation to perform the essential requirements of the Employee's employment for KAIRE, for a period that exceeds ninety (90) consecutive calendar days. If the parties are unable to agree with respect to any question about a Disability including, but not limited to: (i) whether the Employee is Disabled, or (ii) the date which the Disability of the Employee began, then such dispute shall be determined by arbitration under our separate Arbitration Agreement. Until the date which a Disability occurs, the Employee's compensation and status as an employee under this Agreement will continue. L. TERMINATION. This Agreement may be terminated under paragraphs B, K, N or under this paragraph. 1. Termination With Prior Notice by Either Party. In addition to termination under paragraphs B, L.1, or N, KAIRE may terminate this Agreement immediately without prior notice on the occurrence of any one of the following: a. If the Employee neglects any of the Employee's duties, b. If the Employee breaches any provision of this Agreement or of the Parties' Noncompetition and Confidentiality and Work Made for Hire Agreement. c. If in representing KAIRE or in providing services to KAIRE, the Employee commits an act of fraud, dishonesty or any other act of negligent, reckless or willful misconduct in regard to Associates, customers, employees, shareholders or third parties; d. If KAIRE decides to sell or otherwise to dispose of substantially all of KAIRE's assets, or to distribute its assets to stockholders in liquidation, or otherwise to discontinue KAIRE's business; e. If any circumstance beyond KAIRE's control prevents it from operating its business or otherwise hinders, delays or prevents KAIRE from receiving income or increases its overhead to an extent that causes KAIRE reasonably to decide to reduce, modify, suspend or cease its business. 2. Survival of KAIRE's obligation under Paragraph E.4. The termination of Employee under the provisions of Paragraph L.1.d. or e. shall not affect Kaire's obligations under Paragraph E.4. above. M. FINAL SALARY. Subject to the provisions of paragraph E, the Employee's final paycheck will be reduced by the amount of any lawful charge or indebtedness the Employee owes KAIRE. N. CONFIDENTIALITY OF AGREEMENT. The Employee will not disclose any terms of this Agreement to any person with the exception of accountants or attorneys whom the Employee may consult during the negotiation or performance of this Agreement, or as may be required by law. The Employee acknowledges that this is a material covenant of this Agreement, a breach of which will be cause for immediate termination without prior notice. O. ASSIGNMENT OF RIGHTS AND OBLIGATIONS. KAIRE may assign its rights or obligations under this Agreement at anytime after the effective date without prior notice to the Employee; the Employee may assign the Employee's rights or obligations under this Agreement only with KAIRE's prior written agreement. P. INTERPRETATION AND ENFORCEMENT. This Agreement expresses our entire understanding regarding its subject matter. The only way this Agreement may be amended, changed or waived will be through a new written agreement KAIRE signs. This Agreement is enforceable by and against each Party and anyone else who has or who obtains rights under this Agreement from either Party. This Agreement will be interpreted and enforced under Colorado law. No part of this Agreement should be construed against either Party on the basis of authorship. Any unenforceable provision of this Agreement will be modified to the extent necessary to make it enforceable or, if that is not possible, will be severed from this Agreement, and the remainder of this Agreement will be enforced to the fullest extent possible. Any enforcement involving confidential information, proprietary information or trade secrets shall include injunctive remedies including those set forth in COLORADO REVISED STATUTES ss. 7-74-101, et seq. Q. KAIRE'S OPTION TO ARBITRATE DISPUTES. Under a separate arbitration agreement between us dated August 18,1997, the parties have agreed KAIRE has the option to arbitrate any dispute between us we cannot resolve ourselves, which includes any dispute about any aspect of this Agreement. R. ACKNOWLEDGMENTS. Each Party has read and considered this Agreement carefully, believe, that Party understands each provision, and has conferred or has had the opportunity to confer with the Party's own attorney before executing this Agreement. IN WITNESS OF OUR AGREEMENTS, KAIRE and the Employee have executed this Agreement on the date(s) indicated below. KAIRE INTERNATIONAL, INC. EMPLOYEE By: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] ----------------------------- ----------------------------- Title: CEO Date: 12/3/97 -------------------------- ------------------------ Date: 3 DEC 1997 --------------------------- EX-10.4 9 EMPLOYMENT AGMT W/ ROBERT L. RICHARDS Exhibit 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 1st day of December, 1997, by and between KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"), and ROBERT L. RICHARDS, of 1510 Diamond Wail Drive, Berthoud, CO 80513 ("Employee"). W I T N E S S E T H: WHEREAS, the Company develops and distributes, through a network of independent associates, products that are intended to appeal to health-conscious consumers throughout the United States and select foreign countries. WHEREAS, Employee possesses valuable knowledge and skills that will contribute to the successful operation of the Company's business; and WHEREAS, the Company desires to procure the services of Employee, and Employee hereby agrees to be employed by the Company, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, intending to be legally bound, the Company agrees to employ Employee, and Employee hereby agrees to be employed by the Company, upon the following terms and conditions: ARTICLES 1 EMPLOYMENT 1.01. Office. Employee is hereby employed as the Chief Executive Officer of the Company and in such capacity shall use his best energies and abilities in the performance of his duties hereunder and in the performance of such other duties as may be assigned to him from time to time by the Board of Directors of the Company (the "Board"). 1.02. Term. Subject to the terms and provisions of Article II hereof, Employee shall be employed by the Company for a period of five (5) years, commencing on the date hereof. 1.03. Base Salary. During the term of Employee's employment hereunder, compensation shall be paid to Employee by the Company at the rate of $180,000 per annum (the "Base Salary"), payable bi-weekly. The rate of compensation to be paid to Employee may be increased by the Board at any time based upon Employee's contribution to the success of the Company and on such other factors as the Board shall deem appropriate. 1.04. Employee Benefits. At all times during the term of Employee's employment hereunder, Employee shall; (a) be covered by a major medical or health benefit plan; (b) receive reimbursement for all properly substantiated business expenses; and (c) be entitled to four (4) weeks paid vacation each year and such holidays and sick days as are available to other executive employees of the Company. The compensation provided to Employee hereunder shall not affect his right to participate in the pension plan, the savings plans, stock option plans, and similar plans or any other employee benefit plans of Kaire International, Inc. if under the terms thereof Employee could be eligible without regard to this Agreement. 1.05. Change in Control. (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason other than death of Employee following a Change in Control of the Company, Employee shall be paid, within 30 days following of such termination, an amount in cash equal to the Net Present Value (NPV), discounted at 5%, of the remaining compensation due him under the remaining term of this contract. In addition, all benefits of Employee shall be paid for one (1) year by the Company. The Company's indebtedness to Employee, if any, shall become immediately due and payable in the event of termination or change in control, regardless of the original terms thereof. (b) For purposes of this Section 1.05, the following terms shall have the following meanings: (1) The term "person" shall be used as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "1934 Act"). (2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of this Agreement. (3) "Voting Shares" shall mean all securities of a company entitling the holders thereof to vote in an annual election of Directors (without consideration of the rights of any class of stock other than the Common Stock to elect Directors by a separate class vote); and a specified percentage of "Voting Power" of a company shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the Common Stock to elect Directors by a separate class vote). (4) "Tender Offer" shall mean a tender offer or exchange offer to acquire securities of the Company (other than such on offer made by the Company or any subsidiary), whether or not such offer is approved or opposed by the Board. (5) "Change in Control" shall mean the date upon which any of the following events occurs: (A) The Company acquires actual knowledge that any Person other than the Company, a subsidiary or any employee benefit plan(s) sponsored by the Company has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 25% or more of the Voting Power of the Company. (B) A Tender Offer is made to acquire securities of the Company entitling the holders thereof to 50% or more of the Voting Power of the Company; or (ii) Voting Shares are first purchased pursuant to any other Tender Offer; (C) At any time less than 60% of the members of the Board shall be individuals who were either Directors on the effective date of this Agreement or (ii) individuals whose election, or nomination for election, was approved by a vote (including a vote approving a merger or other agreement providing the membership of such individuals on the Board) of at least two-thirds of the Directors then still in office who where Directors on the effective date of this Agreement or who were so approved. (D) The stockholders of the Company shall approve an agreement or plan (a "reorganization Agreement") providing for the Company to be merged, consolidated or otherwise combined with, or for all or substantially all its assets or stock to be acquired by, another corporation, as a consequence of which the former stockholders of the Company will own, immediately after such merger, consolidation, combination or acquisition, less than a majority of the Voting Power of such surviving or acquiring corporation or the parent thereof; or (E) The stockholders of the Company shall approve any liquidation of all or substantially all of the assets of the Company or any distribution to security holders of assets of the Company having a value equal to 30% or more of the total value of all the assets of the Company. (c) The Company agrees to pay the fees and expenses of counsel for Employee incurred by Employee arising in connection with Employee's enforcement or preservation of his right to collect the Change in Control payment described in Section 1.05(a). ARTICLE 11 TERMINATION 2.01. Illness, Disability. If during the term of Employee's employment hereunder Employee shall be prevented, in the company's judgment, from effectively performing all his duties hereunder by reason of illness or disability, then the Company may, by written notice to Employee, terminate Employee's employment hereunder. Upon delivery to Employee of such notice, together with payment of any salary accrued under Section 1.03 hereof, Employee's shall receive $37,500 per annum during the remaining term of this contract and the Company shall continue to pay the health insurance premiums of Employee during the remaining term hereof. 2.02. Death. If Employee dies during the term of his employment hereunder, Employee's employment hereunder shall terminate and all obligations with respect to the payment of accrued and unpaid salary under Section 1.03 hereof; shall terminate. 2.03. Company Termination for Cause. If Kaire International, Inc. determines that Employee has repeatedly failed to perform his duties hereunder after written notice of such failure from Kaire International, Inc. to Employee, has committed a violation of any of the agreements, covenants, terms or conditions hereunder or has engaged in conduct which has injured or would injure the business or reputation of Kaire international, Inc. or otherwise adversely affect its interest, then, and in such event, Kaire International, Inc. may, upon 30 days prior written notice to Employee, terminate Employee's employment hereunder. Upon such termination, Employee shall be entitled to any Salary accrued under Section 1.03 hereof and any indebtedness owed Employee by Company. Any of Kaire International, Inc.'s obligations under Article 1 hereof shall forthwith terminate. 2.04. Employee Benefits. Termination of Employee as provided in this Article shall not affect Employee's rights and Employee benefit plans of Kaire International, Inc. if under the terms thereof Employee could be eligible without regard to this Agreement. ARTICLES III EMPLOYEE'S COVENANTS AND AGREEMENTS 3.01. Non-Disclosure of Confidential Information. Employee agrees to hold and safeguard Confidential Information in trust for the Company, its successors and assigns and agrees that he shall not, without the prior written consent of the company, misappropriate or disclose or make available to anyone for use outside the Company's organization at any time, either during his employment with the Company or subsequent to the termination of his employment with the Company for any reason, including, without limitation, termination by the Company for causes, any of the Confidential Information, whether or not developed by Employee, except as required in the performance of Employee's duties to the company or as otherwise required by order of Court. "Confidential Information" as used herein includes information concerning the Company's revenues, volume, business methods, proposals, identity of customers and prospective customers, identity of key purchasing personnel in the employ of customers and prospective customers, amount or kind of customer's purchases form the Company, the Company sources of supply, vendors of equipment and material, the Company's computer programs, system documentation, the Company's manuals, formulae, processes, methods, machines, compositions, ideas, improvements, inventions or other confidential or proprietary information belonging to the Company or relating to the Company affairs. 3.02. Duties. Employee agrees to be a loyal full time employee of the Company. Employee agrees to devote his best efforts to the performance of his duties for the Company, to give proper time and attention to furthering the Company's business, and to comply with all rules, regulations and instruments established or issued by the Company. 3.03. Return of Materials. Upon the termination of Employee's employment with the company for any reason, including without limitation termination by the Company for cause, Employee shall promptly deliver to the company all correspondence, drawing, blueprints, manuals, letters, memoranda, notes, notebooks, records, reports, flowcharts, programs, proposals and any documents concerning the Company and, without limiting the foregoing, will promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information. ARTICLE IV MISCELLANEOUS 4.01. Authorization to Modify Restrictions. It is the intention of the parities that the provisions of Article III hereof shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to confirm to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder thereof If any provision or provisions hereof shall be deemed invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it valid and enforceable. 4.02. Entire Agreement. This Agreement represents the entire agreement of the parities and may be amended only by a writing signed by each of them. 4.03. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 4.04. Agreement Binding. The obligations of Employee under this Agreement shall continue after the termination of his employment with the Company for any reason, and shall be binding on his heirs, executors, legal representatives and assigns and shall inure to the benefit of any successors and assignees of the Company 4.05. Counterparts. Section Headings. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The section headings of this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any of the provisions hereof. 4.06. Waiver. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce such provisions thereafter. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 4.07. Notices. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Company: Kaire International, Inc. 380 Lashley Street Longmont, CO 80501 (b) If to the Employee: Robert L. Richards 1510 Diamond Wall Drive Berthoud, CO 80513 Either party may specify a different address by notice in writing to the other as provided in this Section 4.07. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. ---------------------------------------- Robert L. Richards Kaire International, Inc. By: ---------------------------------------- Chairman of the Board EX-10.5 10 EMPLOYMENT AGMT W/ J.T. WHITWORTH Exhibit 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made as of the 1st day of December, 1997, by and between KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"), and J.T. WHITWORTH, of 2130 North Shore Drive, Longmont, Colorado 80503. W I T N E S S E T H: WHEREAS, the Company develops and distributes, through a network of independent associates, products that are intended to appeal to health-conscious consumers throughout the United States and select foreign countries. WHEREAS, Employee possesses valuable knowledge and skills that will contribute to the successful operation of the Company's business; and WHEREAS, the Company desires to procure the services of Employee, and Employee hereby agrees to be employed by the Company, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, intending to be legally bound, the Company agrees to employ Employee, and Employee hereby agrees to be employed by the Company, upon the following terms and conditions: ARTICLES 1 EMPLOYMENT 1.01. Office. Employee is hereby employed as the Chief Operating Officer and Chief Financial Officer of the Company and in such capacity shall use his best energies and abilities in the performance of his duties hereunder and in the performance of such other duties as may be assigned to him from time to time by the Board of Directors of the Company (the "Board"). 1.02. Term. Subject to the terms and provisions of Article II hereof, Employee shall be employed by the Company for a period of five (5) years, commencing on the date hereof. 1.03. Base Salary. During the term of Employee's employment hereunder, compensation shall be paid to Employee by the Company at the rate of $180,000 per annum (the "Base Salary"), payable bi-weekly. The rate of compensation to be paid to Employee may be increased by the Board at any time based upon Employee's contribution to the success of the Company and on such other factors as the Board shall deem appropriate. 1.04. Employee Benefits. At all times during the term of Employee's employment hereunder, Employee shall; (a) be covered by a major medical or health benefit plan; (b) receive reimbursement for all properly substantiated business expenses; and (c) be entitled to four (4) weeks paid vacation each year and such holidays and sick days as are available to other executive employees of the Company. The compensation provided to Employee hereunder shall not affect his right to participate in the pension plan, the savings plans, stock option plans, and similar plans or any other employee benefit plans of Kaire International, Inc. if under the terms thereof Employee could be eligible without regard to this Agreement. 1.05. Change in Control. (a) If Employee's employment with the Company is terminated by the Company or by Employee for any reason other than death of Employee following a Change in Control of the Company, Employee shall be paid, within 30 days following of such termination, an amount in cash equal to the Net Present Value (NPV), discounted at 5%, of the remaining compensation due him under the remaining term of this contract. In addition, all benefits of Employee shall be paid for one (1) year by the Company. The Company's indebtedness to Employee, if any, shall become immediately due and payable in the event of termination or change in control, regardless of the original terms thereof (b) For purposes of this Section 1.05, the following terms shall have the following meanings: (1) The term "person" shall be used as that term is used in Section l3(d) and l4(d) of the Securities Exchange Act of 1934 as amended (the "1934 Act"). (2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3 under the 1934 Act as in effect on the effective date of this Agreement. (3) "Voting Shares" shall mean all securities of a company entitling the holders thereof to vote in an annual election of Directors (without consideration of the rights of any class of stock other than the Common Stock to elect Directors by a separate class vote); and a specified percentage of "Voting Power" of a company shall mean such number of the Voting Shares as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors (without consideration of the rights of any class of stock other than the Common Stock to elect Directors by a separate class vote). (4) "Tender Offer" shall mean a tender offer or exchange offer to acquire securities of the Company (other than such on offer made by the Company or any subsidiary), whether or not such offer is approved or opposed by the Board. (5) "Change in Control" shall mean the date upon which any of the following events occurs: (A) The Company acquires actual knowledge that any Person other than the Company, a subsidiary or any employee benefit plan(s) sponsored by the Company has acquired the Beneficial Ownership, directly or indirectly, of securities of the Company entitling such Person to 25% or more of the Voting Power of the Company. (B) A Tender Offer is made to acquire securities of the Company entitling the holders thereof to 50% or more of the Voting Power of the Company; or (ii) Voting Shares are first purchased pursuant to any other Tender Offer; (C) At any time less than 60% of the members of the Board shall be individuals who were either Directors on the effective date of this Agreement or (ii) individuals whose election, or nomination for election, was approved by a vote (including a vote approving a merger or other agreement providing the membership of such individuals on the Board) of at least two-thirds of the Directors then still in office who where Directors on the effective date of this Agreement or who were so approved. (D) The stockholders of the Company shall approve an agreement or plan (a "reorganization Agreement") providing for the Company to be merged, consolidated or otherwise combined with, or for all or substantially all its assets or stock to be acquired by, another corporation, as a consequence of which the former stockholders of the Company will own, immediately after such merger, consolidation, combination or acquisition, less than a majority of the Voting Power of such surviving or acquiring corporation or the parent thereof; or (E) The stockholders of the Company shall approve any liquidation of all or substantially all of the assets of the Company or any distribution to security holders of assets of the Company having a value equal to 30% or more of the total value of all the assets of the Company. (c) The Company agrees to pay the fees and expenses of counsel for Employee incurred by Employee arising in connection with Employee's enforcement or preservation of his right to collect the Change in Control payment described in Section 1.05(a). ARTICLE II TERMINATION 2.01. Illness, Disability. If during the term of Employee's employment hereunder Employee shall be prevented, in the company's judgment, from effectively performing all his duties hereunder by reason of illness or disability, then the Company may, by written notice to Employee, terminate Employee's employment hereunder. Upon delivery to Employee of such notice, together with payment of any salary accrued under Section 1.03 hereof, Employee's shall receive $37,500 per annum during the remaining term of this contract and the Company shall continue to pay the health insurance premiums of Employee during the remaining term hereof. 2.02. Death. If Employee dies during the term of his employment hereunder, Employee's employment hereunder shall terminate and all obligations with respect to the payment of accrued and unpaid salary under Section 1.03 hereof, shall terminate. 2.03. Company Termination for Cause. If Kaire International, Inc. determines that Employee has repeatedly failed to perform his duties hereunder after written notice of such failure from Kaire International, Inc. to Employee, has committed a violation of any of the agreements, covenants, terms or conditions hereunder or has engaged in conduct which has injured or would injure the business or reputation of Kaire International, Inc. or otherwise adversely affect its interest, then, and in such event, Kaire International, Inc. may, upon 30 days prior written notice to Employee, terminate Employee's employment hereunder. Upon such termination, Employee shall be entitled to any Salary accrued under Section 1.03 hereof and any indebtedness owed Employee by Company. Any of Kaire International, Inc.'s obligations under Article 1 hereof shall forthwith terminate. 2.04. Employee Benefits. Termination of Employee as provided in this Article shall not affect Employee's rights and Employee benefit plans of Kaire International, Inc. if under the terms thereof Employee could be eligible without regard to this Agreement. ARTICLES III EMPLOYEE'S COVENANTS AND AGREEMENTS 3.01. Non-Disclosure of Confidential Information. Employee agrees to hold and safeguard Confidential Information in trust for the Company, its successors and assigns and agrees that he shall not, without the prior written consent of the company, misappropriate or disclose or make available to anyone for use outside the Company's organization at any time, either during his employment with the Company or subsequent to the termination of his employment with the Company for any reason, including, without limitation, termination by the Company for causes, any of the Confidential Information, whether or not developed by Employee, except as required in the performance of Employee's duties to the company or as otherwise required by order of Court. "Confidential Information" as used herein includes information concerning the Company's revenues, volume, business methods, proposals, identity of customers and prospective customers, identity of key purchasing personnel in the employ of customers and prospective customers, amount or kind of customer's purchases form the Company, the Company sources of supply, vendors of equipment and material, the Company's computer programs, system documentation, the Company's manuals, formulae, processes, methods, machines, compositions, ideas, improvements, inventions or other confidential or proprietary information belonging to the Company or relating to the Company affairs. 3.02. Duties. Employee agrees to be a loyal full time employee of the Company. Employee agrees to devote his best efforts to the performance of his duties for the Company, to give proper time and attention to furthering the Company's business, and to comply with all rules, regulations and instruments established or issued by the Company. 3.03. Return of Materials. Upon the termination of Employee's employment with the company for any reason, including without limitation termination by the Company for cause, Employee shall promptly deliver to the company all correspondence, drawing, blueprints, manuals, letters, memoranda, notes, notebooks, records, reports, flowcharts, programs, proposals and any documents concerning the Company and, without limiting the foregoing, will promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information. ARTICLE IV MISCELLANEOUS 4.01. Authorization to Modify Restrictions. It is the intention of the parities that the provisions of Article III hereof shall be enforceable to the fullest extent permissible under applicable law, but that the unenforceability (or modification to confirm to such law) of any provision or provisions hereof shall not render unenforceable, or impair, the remainder thereof. If any provision or provisions hereof shall be deemed invalid or unenforceable, either in whole or in part, this Agreement shall be deemed amended to delete or modify, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it valid and enforceable. 4.02. Entire Agreement. This Agreement represents the entire agreement of the parities and may be amended only by a writing signed by each of them. 4.03. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 4.04. Agreement Binding. The obligations of Employee under this Agreement shall continue after the termination of his employment with the Company for any reason, and shall be binding on his heirs, executors, legal representatives and assigns and shall inure to the benefit of any successors and assignees of the Company 4.05. Counterparts, Section Headings. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The section headings of this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any of the provisions hereof. 4.06. Waiver. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce such provisions thereafter. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 4.07. Notices. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid: (a) If to the Company: Kaire International, Inc. 380 Lashley Street Longmont, CO 80501 (b) If to the Employee: J.T. Whitworth 2130 North Shore Drive Longmont, CO 80503 Either party may specify a different address by notice in writing to the other as provided in this Section 4.07. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be executed as of the day and year first above written. --------------------------------------- J.T. Whitworth Kaire International, Inc. By: --------------------------------------- Chairman of the Board EX-10.6 11 PROMISSORY NOTE W/ LOREN BAGLEY Exhibit 10.6 PROMISSORY NOTE $120,411.85 Longmont, Colorado September 30, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Loren E. Bagley, the sum of One Hundred Twenty Thousand Four Hundred Eleven and 85/100 Dollars ($120,411.85), with interest at the rate of ten percent (10%) per annum on the unpaid balance. Said sum shall be payable in the manner following: (1) Due and payable on demand. The undersigned shall have the right to prepay without penalty. In the event any payment due hereunder is not made when due, the entire balance shall be immediately due at the option of holder. In the event of default, the undersigned agrees to pay all reasonable attorney fees and costs of collection. Attest: Kaire International, Inc. /s/ [illegible] By /s/ Robert L. Richards - -------------------------- ------------------------------- Secretary Robert L. Richards, C.E.O. STATE OF COLORADO: COUNTY OF BOULDER, TO-WIT: This instrument was acknowledged before me this 30th day of September, 1997, by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware corporation, on behalf of said corporation. My commission expires: 5-April-1999 /s/ [illegible] ---------------------------- Notary Public EX-10.7 12 PROMISSORY NOTE W/ WILLIAM F. WOODBURN Exhibit 10.7 PROMISSORY NOTE $120,411.85 Longmont, Colorado September 30, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of William F. Woodburn, the sum of One Hundred Twenty Thousand Four Hundred Eleven and 85/100 Dollars ($120,411.85), with interest at the rate of ten percent (10%) per annum on the unpaid balance. Said sum shall be payable in the manner following: (1) Due and payable on demand. The undersigned shall have the right to prepay without penalty. In the event any payment due hereunder is not made when due, the entire balance shall be immediately due at the option of holder. This Promissory Note replaces those two (2) promissory notes dated January 31, 1997 and July 1, 1997 in the amounts of $89,450.73 and $458,000.00, respectively. In the event of default, the undersigned agrees to pay all reasonable attorney fees and costs of collection. Attest: Kaire International, Inc. /s/ [illegible] By /s/ Robert L. Richards - -------------------------- ------------------------------- Secretary Robert L. Richards, C.E.O. STATE OF COLORADO: COUNTY OF BOULDER, TO-WIT: This instrument was acknowledged before me this 30th day of September 1997, by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware corporation, on behalf of said corporation. My commission expires: 5-April-1999 /s/ [illegible] ---------------------------- Notary Public EX-10.8 13 PROMISSORY NOTE W/ ROBERT L. RICHARDS Exhibit 10.8 PROMISSORY NOTE $118,265.84 Longmont, Colorado November 28, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Robert L. Richards, the sum of One Hundred Eighteen Thousand Two Hundred Sixty-Five and 84/100 Dollars ($118,265.84), with interest at the rate of ten percent (10%) per annum on the unpaid balance. Said sum shall be payable in the manner following: (1) Due and payable on demand. The undersigned shall have the right to prepay without penalty. In the event any payment due hereunder is not made when due, the entire balance shall be immediately due at the option of holder. In the event of default, the undersigned agrees to pay all reasonable attorney fees and costs of collection. Attest: Kaire International, Inc. /s/ [illegible] By /s/ J.T. Whitworth - -------------------------- ------------------------------- Secretary J.T. Whitworth, C.F.O. STATE OF COLORADO: COUNTY OF BOULDER, TO-WIT: This instrument was acknowledged before me this 28th day of November 1997, by J.T. Whitworth, C.F.O., of Kaire International, Inc., a Delaware corporation, on behalf of said corporation. My commission expires: 5-April-1999 /s/ [illegible] ---------------------------- Notary Public EX-10.9 14 PROMISSORY NOTE W/ HORPHAG-RESEARCH Exhibit 10.9 PROMISSORY NOTE US$500,000 New York, New York May 30, 1997 FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., ("Borrower") does hereby unconditionally promise to pay on demand to the order of HORPHAG RESEARCH COMPANY LIMITED, a corporation having its principal office at 1 Le Marchant Street, St. Peter Port, Guernsey, Channel Islands ("Lender"), the principal sum of FIVE HUNDRED THOUSAND DOLLARS (US$500,000.00) to be paid in installments plus interest at the rate of nine and one half percent (9.5%) per annum from the date hereof until all amounts due hereunder are paid, on the terms set forth below: 1. The principal amount of this Note, plus accrued interest thereon, shall be due and payable in New York, New York, United States of America, as follows: (1) $25,000 payable on August 31, 1997 (2) $125,000 payable on September 30, 1997 (3) $175,000 payable on October 31, 1997 (4) $175,000 payable on November 30, 1997 All payments of principal and interest shall be made solely and exclusively in United States Dollars, in same-day-funds, by deposit to such account as the Lender may have last designated by notice to Borrower. 2. This Note may be prepaid in part or in full at any time without penalty. 3. Borrower hereby waives presentment, protest, notice of protest, demand of payment and notice of non-payment hereof and agrees that any changes or modifications to this Note must be in writing and signed by the party to be charged with the change or modification. 4. Borrower agrees that if any installment is not paid when due and the Lender refers this Note to an attorney for collection, Borrower shall reimburse the Lender for its reasonable attorneys' fees plus court costs. 5. If any part of this Note is determined by a court to be invalid, the other provisions hereof will remain in effect. 6. This Note shall be construed and enforced in accordance with the substantive laws of the State of New York, United States of America. 7. BORROWER ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR THE RELATIONSHIP ESTABLISHED HEREBY WOULD BE EASED UPON DIFFICULT AND COMPLEX ISSUES. ACCORDINGLY, IN AN EFFORT TO EXPEDITE THE RESOLUTION OF ANY SUCH CONTROVERSY AND AVOID ADDITIONAL EXPENSE AND DELAY, BORROWER AGREES THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. IN WITNESS WHEREOF, this Note is duly executed and delivered as of the date first above written. KAIRE INTERNATIONAL, INC., as Borrower By: /s/ Robert L. Richards Name: Robert L. Richards Title: CEO EX-10.10 15 PROMISSORY NOTE W/ MARDEN REHAB. Exhibit 10.10 $400,000.00 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned promises to pay to the order of: Marden Rehabilitation Associates, Inc. 200 Putnam Street Suite 822 Post Office Box 941 Marietta, OH 45750 hereinafter "Maker", the principal sum of $400,000.00 or such lesser portion thereof as may have from time to time been disbursed to, or for the benefit of the undersigned, and remaining unpaid pursuant to the books or records of Maker, together with interest at the rate of 0.33 percent per day on the unpaid balance until paid. This note and the associated interest shall be payable at the above written address upon demand of Maker. All persons now or hereafter liable for the payment of the principal or interest due on this Note, or any part thereof, do hereby expressly waive diligence, demand, presentment for payment, notice of dishonor, protest and notice of protest, and agree that the time for the payment or payments of any part of this Note may be extended without releasing or otherwise affecting their liability on this Note. This Note was executed in Marietta, Washington County, Ohio, on this 27th day of August, 1997 and it is agreed that this Note shall be construed in accordance with and governed by the laws of the State of Ohio. This Note is issued in conjunction with a Business Loan Agreement dated the 27th day of August, 1997, to which reference is made and is supported by other security documents. The undersigned, and each of them, hereby authorizes any attorney at law to appear in any court or record in any county in the State of Ohio, or elsewhere, where any of the undersigned resides, signed this Note, or can be found, after the obligation evidenced hereby, or any part thereof, becomes due and is unpaid, and waive the issuance and service of process and confess judgment against any or all of the undersigned in favor of the holder of this Note for the amounts then appearing due, together with the costs of suit, and thereupon to release all errors and waive all right to appeal and stay of execution, but no judgment against less than all of the undersigned shall be a bar to any subsequent judgment against those of the undersigned against whom judgment has not been taken. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. WITNESS: Kaire International, Inc. By: /s/ Robert L. Richards - ---------------------- ----------------------- Robert L. Richards - ---------------------- Chief Executive Officer $200,000.00 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned promises to pay to the order of: Marden Rehabilitation Associates, Inc. 200 Putnam Street Suite 822 Post Office Box 941 Marietta, OH 45750 hereinafter "Maker", the principal sum of $200,000.00 or such lesser portion thereof as may have from time to time been disbursed to, or for the benefit of the undersigned, and remaining unpaid pursuant to the books or records of Maker, together with interest at the rate of 0.33 percent per day on the unpaid balance until paid. This note and the associated interest shall be payable at the above written address upon demand of Maker. All persons now or hereafter liable for the payment of the principal or interest due on this Note, or any part thereof, do hereby expressly waive diligence, demand, presentment for payment, notice of dishonor, protest and notice of protest, and agree that the time for the payment or payments of any part of this Note may be extended without releasing or otherwise affecting their liability on this Note. This Note was executed in Marietta, Washington County, Ohio, on this 29th day of September, 1997 and it is agreed that this Note shall be construed in accordance with and governed by the laws of the State of Ohio. This Note is supported by other security documents. The undersigned, and each of them, hereby authorizes any attorney at law to appear in any court or record in any county in the State of Ohio, or elsewhere, where any of the undersigned resides, signed this Note, or can be found, after the obligation evidenced hereby, or any part thereof, becomes due and is unpaid, and waive the issuance and service of process and confess judgment against any or all of the undersigned in favor of the holder of this Note for the amounts then appearing due, together with the costs of suit, and thereupon to release all errors and waive all right to appeal and stay of execution, but no judgment against less than all of the undersigned shall be a bar to any subsequent judgment against those of the undersigned against whom judgment has not been taken. WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. WITNESS: Kaire International, Inc. [Illegible] By: /s/ Robert L. Richards - ---------------------- ----------------------- [Illegible] Robert L. Richards - ---------------------- Chief Executive Officer EX-10.11 16 PROMISSORY NOTE W/ MAGCO Exhibit 10.11 $200,000.00 PROMISSORY NOTE FOR VALUE RECEiVED, the undersigned promises to pay to he order of MAGCO, INC. 200 Putnam Street, Suite 822 Post Office Box 4016 Marietta, OH 45750 hereinafter "Maker", the principal sum of $200,000.00, with interest from January 8, 1997, at the rate of 10.0% per month on the unpaid balance until paid. This note and the associated interest shall be payable at the above written address upon demand of Maker. All persons now or hereafter liable for the payment of the principal or interest due on this Note, or any part thereof, do hereby expressly waive diligence, demand, presentment for payment, notice of dishonor, protest and notice of protest, and agree that the time for the payment or payments of any part of this note may be extended without releasing or otherwise affecting their liability on this Note. The undersigned hereby agrees to pay all attorney's fees of Maker for any collection required under this Note. This Note was executed in Marietta, Washington County, Ohio, on this 8th day of January, 1997 and it is agreed that this Note shall be construed in accordance with and governed by the laws of the State of Ohio. WITNESS: By - ------------------------- --------------------------- Kaire International, Inc. Robert L. Richards, CEO EX-10.12 17 PROMISSORY NOTE W/ IMT. (10/27/97) EXHIBIT 10.12 EXHIBIT A-1 PROMISSORY NOTE $500,000.00 Longmont, Colorado October 27, 1997 FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of INTERNATIONAL MEDICAL SYSTEMS, INC., a Delaware corporation, its successors and assigns (the "Lender") at 1717 Stewart Street, Santa Monica, California 90404, or at such other place as might be designated in writing by the Lender, the principal sum of Five hundred Thousand Dollars ($500,000), together with interest thereon at a rate equal to 9 percent (9%) per annum, payable on or before the date less ninety (90) days after the effective date of the Definitive Agreement (as defined in the Loan Agreement, defined below), or if the Definitive Agreement is not signed prior to November 27, 1997, then on November 27, 1997. Interest will be calculated on the basis of the actual days elapsed based on a per diem charge computed over a year composed of three hundred sixty-five (365) days. This Note is issued by the Borrower and accepted by the Lender pursuant to a certain Loan and Security Agreement (the "Loan Agreement") between the Borrower and the Lender dated October 27, 1997, and evidences a loan made pursuant to the Loan Agreement. The Borrower will have the right at any time and from time to time to prepay the unpaid principal balance of this Note in whole or in part without penalty, but with interest on the unpaid principal balance accrued to the date of prepayment. The Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender's rights under this Note, the Loan Documents (as defined in the Loan Agreement) or otherwise relating to the indebtedness hereby evidenced, the Borrower will pay the Lender's reasonable attorneys' fees, all court costs and all other expenses incurred by the Lender in connection therewith. This Note is issued by the Borrower and accepted by the Lender pursuant to a lending transaction negotiated, consummated and to be performed in Longmont, Colorado. This Note is to be construed according to the internal laws of the State of Colorado. All actions with respect to this Note, the Loan Documents or any other instrument securing payment of this Note will be instituted in a state or federal court sitting in Boulder County, Colorado. By the execution of this Note, the Borrower irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waives: (a) any objection the Borrower might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum. Payment of the indebtedness hereby evidenced is secured by certain security interests described in the Loan Documents. On the breach by the Borrower of any provision of this Note, the option of the Lender, the entire indebtedness evidenced by this Note will become immediately due, 1 payable and collectible then or thereafter as the Lender might elect, regardless of the date of maturity of this Note in accordance with the terms of the Loan Agreement. Failure by the Lender to exercise such option will not constitute a waiver of the right to exercise the same on the occurrence of any subsequent Event of Default (as defined in the Loan Agreement). The makers, endorsers, sureties, guarantors and all other persons who might became liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Such parties consent to any extension of time (whether one or more) of payment hereof, release of all or any part of the collateral securing payment hereof or release of any party liable for the payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging such party's liability hereunder. If more than one maker executes this Note, the liability of each of the undersigned is and shall be joint and several. This Note is intended to strictly conform with all usury laws to the extent applicable to the transactions contemplated hereby. The provisions of this Note and of all agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, shall the amount contracted for, charged, paid or agreed to be paid to the Lender for the use, forbearance or retention of money or credit hereunder or otherwise exceed the maximum rate permitted by law therefor. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between the Borrower and the Lender shall at the time of the execution and delivery thereof, or at the time or performance of such provision shall be due, involve or purport to require any payment in excess of the limits prescribed by law, the obligation to be performed or fulfilled shall be reduced automatically to the limit prescribed by law without the necessity of the execution of any amendment or new document. IN WITNESS WHEREOF, the Borrower has executed this instrument effective the date first above written. KAIRE INTERNATIONAL, INC. By ----------------------------- Its 2 EX-10.13 18 PROMISSORY NOTE W/ IMT. (10/30/97) EXHIBIT 10.13 EXHIBIT A-2 PROMISSORY NOTE $200,000.00 Longmont, Colorado October 30, 1997 FOR VALUE RECEIVED, KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of INTERNATIONAL MEDICAL SYSTEMS, INC., a Delaware corporation, its successors and assigns (the "Lender") at 1717 Stewart Street, Santa Monica, California 90404, or at such other place as might be designated in writing by the Lender, the principal sum of Two hundred Thousand Dollars ($200,000), together with interest thereon at a rate equal to 9 percent (9%) per annum, payable on or before the date less ninety (90) days after the effective date of the Definitive Agreement (as defined in the Loan Agreement, defined below), or if the Definitive Agreement is not signed prior to November 27, 1997, then on November 27, 1997. Interest will be calculated on the basis of the actual days elapsed based on a per diem charge computed over a year composed of three hundred sixty-five (365) days. This Note is issued by the Borrower and accepted by the Lender pursuant to a certain Loan and Security Agreement (the "Loan Agreement") between the Borrower and the Lender dated October 27, 1997, and evidences a loan made pursuant to the Loan Agreement. The Borrower will have the right at any time and from time to time to prepay the unpaid principal balance of this Note in whole or in part without penalty, but with interest on the unpaid principal balance accrued to the date of prepayment. The Borrower agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Lender's rights under this Note, the Loan Documents (as defined in the Loan Agreement) or otherwise relating to the indebtedness hereby evidenced, the Borrower will pay the Lender's reasonable attorneys' fees, all court costs and all other expenses incurred by the Lender in connection therewith. This Note is issued by the Borrower and accepted by the Lender pursuant to a lending transaction negotiated, consummated and to be performed in Longmont, Colorado. This Note is to be construed according to the internal laws of the State of Colorado. All actions with respect to this Note, the Loan Documents or any other instrument securing payment of this Note will be instituted in a state or federal court sitting in Boulder County, Colorado. By the execution of this Note, the Borrower irrevocably and unconditionally submits to the jurisdiction (both subject matter and personal) of each such court and irrevocably and unconditionally waives: (a) any objection the Borrower might now or hereafter have to the venue in any such court; and (b) any claim that any action or proceeding brought in any such court has been brought in an inconvenient forum. Payment of the indebtedness hereby evidenced is secured by certain security interests described in the Loan Documents. On the breach by the Borrower of any provision of this Note, the option of the Lender, the entire indebtedness evidenced by this Note will become immediately due, 1 payable and collectible then or thereafter as the Lender might elect, regardless of the date of maturity of this Note in accordance with the terms of the Loan Agreement. Failure by the Lender to exercise such option will not constitute a waiver of the right to exercise the same on the occurrence of any subsequent Event of Default (as defined in the Loan Agreement). The makers, endorsers, sureties, guarantors and all other persons who might became liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Such parties consent to any extension of time (whether one or more) of payment hereof, release of all or any part of the collateral securing payment hereof or release of any party liable for the payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging such party's liability hereunder. If more than one maker executes this Note, the liability of each of the undersigned is and shall be joint and several. This Note is intended to strictly conform with all usury laws to the extent applicable to the transactions contemplated hereby. The provisions of this Note and of all agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, shall the amount contracted for, charged, paid or agreed to be paid to the Lender for the use, forbearance or retention of money or credit hereunder or otherwise exceed the maximum rate permitted by law therefor. If, from any circumstance whatsoever, performance or fulfillment of any provision hereof or of any agreement between the Borrower and the Lender shall at the time of the execution and delivery thereof, or at the time or performance of such provision shall be due, involve or purport to require any payment in excess of the limits prescribed by law, the obligation to be performed or fulfilled shall be reduced automatically to the limit prescribed by law without the necessity of the execution of any amendment or new document. IN WITNESS WHEREOF, the Borrower has executed this instrument effective the date first above written. KAIRE INTERNATIONAL, INC. By ----------------------------- Its 2 EX-10.14 19 10% PROMISSORY NOTE EXHIBIT 10.14 This Note has not been registered under the Securities Act of 1933, as amended (the "1933 Act") and the securities laws of any state. The Note has been acquired for investment purposes only and not with a view to distribution or resale, and may not be sold, assigned, made subject to a security interest, pledged, hypothecated, transferred or otherwise disposed of unless and until registered under the 1933 Act, or an opinion of counsel satisfactory to Kaire International, Inc. is received that registration is not required under such 1933 Act or such state securities laws. KAIRE INTERNATIONAL, INC. $___,000.00 10% PROMISSORY NOTE KAIRE INTERNATIONAL, INC., a Delaware corporation (the "Company"), for value received, hereby promises to pay to_______________________ or registered assigns (the "Holder") upon the earlier of (a) eighteen months after the date of issuance of this Note (b) the completion date of an equity financing of the Company pursuant to which it receives gross proceeds of not less than $3,000,000, or (c) the Company's receipt of at least $1,000,000 in proceeds from the "Key Man" life insurance policies on any of its executive officers and/or directors (the "Maturity Date"), at the principal offices of the Company, the principal sum of _____________________Thousand Dollars and no cents ($____,000.00) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal sum hereof at the rate of ten percent (10%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided (the "Note"). Interest shall be due and payable on the Maturity Date and shall accrue and be payable in like coin or currency to the Holder hereof at the office of the Company as hereinafter set forth. In the event that for any reason whatsoever any interest or other consideration payable with respect to this Note shall be deemed to be usurious by a court of competent jurisdiction under the laws of the State of New York or the laws of any other state governing the repayment hereof, then so much of such interest or other consideration as shall be deemed to be usurious shall be held by the Holder as security for the repayment of the principal amount hereof or shall otherwise be waived. This Note is issued pursuant to the terms of a Subscription Agreement by and between the Company and the Holder (the "Subscription Agreement"), a copy of which agreement is available for inspection at the Company's principal office. Notwithstanding any provision to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants, rights and 2 agreements contained in the Subscription Agreement. Any transferee or transferees of this Note, by their acceptance hereof, assume the obligations of the Holder in the Subscription Agreement with respect to the conditions and procedures for transfer of this Note. Reference to the Subscription Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal and interest hereon as provided herein. This Note is one of several notes of the Company issued in connection with a Private Placement offering of the Company of up to $1,250,000 in Notes ("Notes.") 1. Transfers of Note to Comply with the 1933 Act The Holder agrees that this Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without delivery of a current prospectus under the 1933 Act and any applicable state securities laws with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 1 with respect to any resale or other disposition of the Note; or (2) to any person who complies with the provisions of this Section 1 with respect to any resale or other disposition of the Note; or (3) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Prepayment The principal amount of this Note may be prepaid by the Company, in whole or in part without premium or penalty, at any time. Upon any prepayment of the entire principal amount of this Note, all accrued, but unpaid, interest shall be paid to the Holder on the date of prepayment. 3. Covenants of Company a. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise; (ii) At all times maintain, preserve, protect and keep its property used and useful in the conduct of its business so that the business carried on in connection therewith may be properly and advantageously conducted in 3 the ordinary course at all times; (iii)Keep adequately insured by financially sound insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 4. Events of Default a. This Note shall become due and payable immediately upon any of the following events, herein called "Events of Default": (i) Default in the payment of the principal or accrued interest on this Note, when and as the same shall become due and payable, whether by acceleration or otherwise; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for thirty (30) days after written notice, specifying such default, shall have been given to the Company by the Holder; (iii)The entry of a final judgment, arbitration award or order against the Company in an amount exceeding $100,000 which judgment remains unsatisfied for ninety (90) days after the date of such entry; (iv) Application for, or consent to, the appointment of a receiver, trustee or liquidator for the Company or of its property; (v) Admission in writing of the Company's inability to pay its debts as they mature; (vi) General assignment by the Company for the benefit of creditors; (vii)Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization, or an arrangement with creditors; or (viii)Entering against the Company of a court order approving a petition filed against it under the federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within ninety (90) days. 4 b. In case any one or more of the Events of Default specified above shall happen or be continuing, the Holder may proceed to protect and enforce his or her right by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder may have. c. In the event that the Company shall default in the payment of the principal and interest on the later of the Maturity Date or its presentment for payment, the total principal amount of and interest due upon all unpaid Notes shall be automatically be due and payable. 5. Miscellaneous a. This note has been issued by the Company pursuant to authorization of the Board of Directors of the Company. b. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. Subject to the limitations herein stated, the registered owner of this Note shall have the right to transfer this Note by assignment, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owners shall take place upon presentation of this Note to the Company at is principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the holder hereof, in person or by attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders of transferees of the Note not registered at the time of sending the communication. c. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note on or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. d. The Holder shall not, by virtue, hereof, be entitled to any rights of a stockholder in the Company, whether at law or in equity, and the rights of the Holder are limited to those expressed in this Note. 5 e. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. f. This Note shall be construed and enforced in accordance with the laws of the State of New York without regard to the conflicts of laws principles thereof or the actual domiciles of the Company and the Holder. The Company and the Holder hereby consent to the jurisdiction of the Courts of the State of New York and the United States District Courts situated therein in connection with any action concerning the provisions of this Note instituted by the Holder against the Company. IN WITNESS WHEREOF, KAIRE INTERNATIONAL, INC., has caused this Note to be signed in its name by its President. KAIRE INTERNATIONAL, INC. Date: ________________________, 1997 By: _______________________________ 6 EX-10.15 20 LEASES FOR REG. DENVER, CO FACILITY EXHIBIT 10.15 LEASE AGREEMENT 1. This agreement is made this 20th day of November, 1995 effective November 14, 1995. 2. PARTIES: The parties to this Lease are the owners of property, George J. Walck and Joseph C. Walck, individuals (herein "Landlord"), and the lessee of property, Kaire International, Inc. a Nevada corporation (herein "Tenant"). 3. PURPOSE: The purpose of this Lease Agreement (herein "Lease") is to provide for the lease of commercial office space and use of existing common areas. 4. AGREEMENT: In consideration of the promises and agreements contained herein, Landlord leases to Tenant and Tenant rents from Landlord certain office space as described herein, for the terms stated herein. 5. PREMISES: The property herein leased by Landlord to Tenant is the exclusive use of six thousand four hundred (6,400) square feet of unfinished commercial office space being the first floor of the structure located at and commonly known as 400 Lashley Street, Building D2, Longmont Boulder County, Colorado, plus exclusive use of the parking area north and west of such structure and non-exclusive use of two parking spaces behind the convenience store adjacent to the structure to be occupied by Tenant (herein "Premises"). Every reference herein to "Exclusive Premises" or "Premises" shall be a reference only to the 6,400 square feet of actual office space rented. Landlord may at its option construct a new parking area west of the structure in which the Premises are situated with such parking lot to be of an equivalent condition and of an equivalent size to that now existing on the north side of the Premises. 6. TERM: (A) The term of this lease shall be from the Effective Date of this agreement set forth above and terminating at 11:59 p.m. on the last day of February, 1996. (B) The parties have agreed that Tenant shall have two options to extend this Lease for a period of one additional one year from March 1, 1996 on the same terms contained herein, and for a second year, with rent to be adjusted for the second option year based on the increase or decrease in the Consumer Price Index from the base period until February 1, 1996. The CPI to be utilized will be the "All Urban Consumers, Western States Average" most recently published before the base period date and any adjustment date. The base period for the purpose of adjustment shall be November 1, 1995. Tenant shall give Landlord 45 days prior notice of Tenant's election to exercise an option granted herein. (C) If Landlord and Tenant agree to enter into a new lease of the Premises after the expiration of the term of this lease agreement as set forth in Paragraph 6(A) and (B) above, the parties recognize that the lease rental payments shall be adjusted to the then current market conditions and may also be adjusted to account for the then current real property tax liabilities of Landlord. 7. OCCUPANCY: (A) Tenant will receive possession of the Premises upon the first day of the term of his lease. 8. RENT: (A) Beginning on the Effective Date of this agreement as set forth above and continuing during the period of this lease while Tenant's employees are not occupying the Premises as office space but not to extend beyond August 1,1996, Tenant shall pay to Landlord a monthly rental amount of $2,560.00. Rental amounts due shall be prorated for any partial calendar month period. (B) Beginning on the earlier of (i) the date Tenant's employees occupy the Premises (ii) August 1,1996, Tenant shall pay to Landlord a monthly rental of $2,827.00. Rental amounts due shall be prorated for any partial calendar month. (C) The rental amounts due from Tenant shall be paid on the first day of each month with any adjustment to the monthly rental amount owing in the month Tenant occupies the Premises pursuant to (B) above being paid on the first day of month following Tenant's occupation of the Premises pursuant to (B). (D) The rental amounts payable by Tenant hereunder shall be paid directly to First National Bank of Longmont, to be credited to the account of Landlord according the terms of the certain deed of trust dated October 15, 1991 between Landlord and Bank. Tenant's checks to Landlord shall be joint checks made payable to Landlord and First National Bank of Longmont. 9. SECURITY DEPOSIT: Tenant shall deposit with Landlord prior to the beginning of the term of this Lease the amount of $2,500.00 to be held by Landlord for the faithful performance of all of the terms, conditions and covenants of this Lease. The Landlord may apply such deposit to cure any default under the term of this Lease and shall account to the Tenant for the balance. Landlord shall account to Tenant within sixty days after the end of this Lease or other termination of this Lease for the application of any amounts of the deposit to obligations of the Tenant, and shall return the balance. Tenant is given the right to use such security deposit as payment of the last month's rent for the last month Tenant occupies the Premises under the terms of this lease agreement. 10. USE: 10.1 USE: Tenant shall use the Premises as commercial office space and a parking area to conduct only such activities as are consistent with Tenant's normal course of business. 10.2 SUITABILITY. (A) Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or with respect to the suitability of the Premises for the conduct of Tenant's business. Any costs related to Tenant's modification of the Premises shall be paid by Tenant, except that Landlord may remove the following items in a timely manner deemed to be within 10 days of Tenant's written notice to Landlord of Tenant's request that they be removed: rollup doors and openers, infrared heaters and thermostats, plumbing items as o requested by Tenant, electrical items or fixtures as requested by Tenant. Landlord shall have the first right of refusal to salvage materials to be removed or salvaged by Tenant in the process of Tenant's renovation on alteration of the Premises. Tenant acknowledges the existence of a service pit in the Premises. Tenant accepts such automotive pit in "as is" condition except Tenant shall not be liable for any environmental contamination existing due to the prior use of the service pit and Landlord shall indemnify, defend and hold Tenant harmless from any liability for any environmental condition existing prior to the effective date of this agreement. (B) The taking of possession of the Premises by Tenant shall conclusively establish that the Premises were at such time in satisfactory and suitable condition for Tenant's intended uses. The parties will perform a walk-through of the Premises in advance of Tenant taking possession, and will note any deficiencies in writing, which shall be cured by Landlord within a reasonable time. It is understood by the parties that the Premises are presently unfinished and that Tenant intends at its option to renovate the Premises into a commercial office use. 10.3 USES PERMITTED: (A) Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. Landlord shall be responsible for compliance of the structure, as well as exterior walls, interior walls, and water, plumbing, gas, electricity, heating, air conditioning and other utility delivery systems, with any law, statute, ordinance or governmental rule or regulation of requirement which applies to or controls such structure or utility delivery system except for renovations performed by Tenant. In the event any changing, adjusting, or retrofitting of any portion of the Premises is required in order to comply with the Americans with Disabilities Act, or any legislation, rules or regulations with a similar purpose during the term of this lease agreement, the parties shall discuss the responsibility of the parties' responsibility of bearing the cost of such compliance. If the parties cannot agree on a sharing arrangement of such costs, Tenant shall have the following options: (i) Tenant may elect to terminate its tenancy with all sums due hereunder being prorated to the date of Tenant vacating the Premises, or (ii) Tenant bearing the expense of ADA compliance and thereafter Tenant may offset future rental payments due hereunder against the expense incurred by Tenant. (B) Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be enforced and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to the commercial office space use and occupancy of the Premises by Tenant, except Landlord shall have the responsibility of complying with any requirements regarding its liability under paragraph 10.3 (A) hereof upon the structure in which the Premises are located and the utility delivery systems of such structure except for the renovations performed by Tenant. 11. UTILITY SERVICES: Tenant agrees, at its own expense, to establish in its name, and to pay for, all water, gas, power and electric current and all other similar utilities used by Tenant on the Exclusive Premises from and after the delivery of possession to Tenant by Landlord. Landlord and Tenant acknowledge separate meters exist for all such utility services to the Exclusive Premises. If any such charges are not paid when due, Landlord may pay the same, and any amount so paid by Landlord shall thereupon become due to Landlord from Tenant as additional rent. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service being furnished to the Premises, and no such failure or interruption shall entitle Tenant to terminate this Lease. 12. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS: 12.1 MAINTENANCE AND REPAIRS: 12.11. Landlord shall keep in good order, condition and repair the foundations, exterior walls, and the roof of the Premises and the parking lot, and as necessary, or when required by governmental authority (except for ADA compliance as set forth in Paragraph 10.3 above) make modifications or replacements thereof, and further, Landlord shall keep in good order, condition and repair the interior surface of exterior walls and all doors, and as necessary, or when required by governmental authority, make modifications or replacements thereof. 12.12. Landlord shall maintain and keep in good order, conditions and repair the Premises, including all utility service delivery systems installed therein including HYAC units and shall replace all broken glass with glass of the same or similar quality. Tenant will give Landlord timely notice of any damage to the Premises or repair needed in the Premises. Except in an emergency situation, or in order to prevent significant loss to the Premises, Landlord shall give Tenant twenty-four hours advance notice of its intent to undertake any repair upon the Premises. If Landlord believes Tenant shall be responsible for the cost of any such repair under paragraph 12.13 hereof, Landlord shall give Tenant twenty-four hours notice of Landlord's position. Such twenty-four hour notice requirements are intended to allow Landlord and Tenant to coordinate repair activity and to resolve any repair cost liability issue between them in advance of undertaking repair work. Landlord shall make all repairs in a timely manner. 12.13. Notwithstanding the obligation of Landlord to maintain and repair the Premises as established in this section 12, Tenant shall be obligated to reimburse to Landlord the cost and expense of all repair or maintenance of the Premises caused or occasioned by the actions or inactions of its officers, agents, employees, licensees and invitees, whether or not a result of negligence. Upon the repair or maintenance of any portion of the Premises, Landlord shall notify Tenant in writing of its obligation for the cost of repair or maintenance, and Tenant will reimburse Landlord its full liability within ten days of such written notice. Tenant shall not be responsible for the cost of maintenance which is the result of normal wear and tear upon the Premises by Tenant. 12.14. Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant as a result of Landlord conducting any repair or maintenance upon the Premises, provided, however, Landlord will undertake such repairs or maintenance in a manner so as to cause minimal disruption of Tenant's business. 12.15. Tenant shall on the expiration or the sooner termination of its right to possession surrender to Landlord the Premises, including all modifications, changes, additions and improvements constructed or placed by Tenant herein, with all equipment in or appurtenant thereto, except all movable non-fixtures owned by Tenant and all non-permanently attached additions or improvements, broom-clean, free of sub-tenancies, and in good condition and repair, reasonable wear and tear excepted. Any non-fixtures or personal property belonging to Tenant or any subtenant, if not removed at such termination and if Landlord shall so elect, shall be deemed abandoned and become the property of Landlord without any payment or offset therefor. 12.2. ALTERATIONS AND ADDITIONS: (A) Tenant shall not make any alterations or additions to the Premises nor make any contract therefor without prior written consent of Landlord. Landlord shall have the right to approve all proposed alterations or additions which approval shall not be unreasonably withheld. Tenant shall submit any proposed modifications or changes to Landlord and in the event Landlord has failed to respond in writing within 15 days, such changes or modifications shall be deemed approved. Any permanently attached alterations, additions and improvements made by Tenant to or upon the premises shall at once when made and installed be deemed to have become the property of Landlord. (B) At the expiration of the lease term or extended term, Tenant shall promptly remove any non-permanent attached additions or improvements placed in the Premises by Tenant unless otherwise agreed, and shall repair any damage occasioned by such removal, and in default thereof, Landlord may effect such removal and repair at Tenant's expense. 13. ENTRY BY LANDLORD: (A) Landlord and the authorized representatives of Landlord may enter the Premises at any time, without notice, pursuant to a perceived emergency involving the Premises or to avoid damage or loss to the Premises. Landlord shall thereafter timely advise Tenant of any such entry. (B) Landlord and the authorized representatives of Landlord may enter the Premises at any time for any appropriate reason, including but not limited to, verifying the need for repair of the Premises, showing the Premises to any prospective purchaser from Landlord, or, during the final month of the term of this Lease, to show the Premises to any prospective tenant, only after twenty-four hours advance notice to Tenant. Landlord and Tenant agree Landlord or its representatives may be guided through the Premises by an agent of Tenant, and that Landlord shall have access to view all of the Premises. Any viewing of the Premises will be in such a manner as to not unreasonably interfere with Tenant's business. 14. LIENS: (A) Tenant will keep the Premises free and clear of all mechanic's liens on account of work done by Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify and save Landlord free and harmless against liability, loss, damage, cost, attorney's fees and all other expense on account of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished for Tenant or persons claiming under Tenant. (B) In the event any lien is filed upon the Premises as the result of any claim or demand against Tenant, Tenant agrees to immediately undertake removal of the lien filing upon the Premises, and shall, within ninety (90) days of the filing of such lien upon the Premises, either pay the claim and lien in full, or obtain judicial resolution of the claim and lien, or deposit the full amount necessary to resolve the claim and lien with the registry of the court having jurisdiction over the claim and lien, or obtain a bond to obtain release of the lien. If Tenant shall fail to remove such lien within such ninety (90) day period, Landlord may give Tenant notice of Landlord's intent to pay such claim and lien in an amount necessary to remove such lien. If Tenant shall thereafter fail to remove such lien within fifteen (15) days of Landlord's notice to Tenant of intent to pay the claim and lien, Landlord may then pay the claim and lien. Any amount so paid, together with reasonable attorney's fees incurred in connection therewith, and interest at the rate of eighteen (18) percent per annum. from the date of payment by Landlord, shall be immediately due and owing from Tenant to Landlord, and Tenant agrees to and shall pay the same. (C) Should any claim of lien be filed against the Premises or any action affecting the title to such property be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof. 15. INDEMNITY: (A) Tenant shall indemnify and hold harmless Landlord from and against any and all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises. (B) Tenant shall indemnify and hold harmless Landlord from and against any and all claims arising from any act or negligence of Tenant or any of its agents, contractors or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon. (C) Landlord shall indemnify and hold harmless Tenant from and against any and all claims arising from any act or negligence of Landlord or any of its agents, contractors or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon. 16. INSURANCE: (A) Landlord shall maintain standard general liability and property damage insurance insuring the Premises, in reasonable amounts to provide full replacement coverage and shall provide to Tenant a copy of a certificate indicating such coverages. (B) Tenant shall at all times during the term hereof, and at is own cost and expense, procure and continue in force general liability insurance coverage upon Tenant, its officers, agents, employees, licensees, and invitees, regarding Tenant's utilization of commercial office space upon the Premises, with a limit of liability of not less than $1,000,000.00 per occurrence. The policy or policies shall name Landlord as an additional insured, shall insure Landlord's contingent liability, if any, under this Lease, shall be issued by an insurance company which is acceptable to Landlord and licensed to do business in the Sate of Colorado, and shall provide that the insurance shall not be canceled unless thirty-days' prior written notice shall be given to Landlord. The policy or policies or certificate thereof shall be delivered to Landlord by Tenant upon commencement of the Lease term or within 10 days of execution of this Lease, whichever event last occurs. (C) Tenant may maintain such property damage insurance as it wishes upon the equipment, and non-fixtures it may maintain upon the Premises. Tenant acknowledges Landlord does not provide any property damage insurance upon the property of Tenant upon the Premises. 17. RECONSTRUCHON: (A) In the event the Premises are damaged by fire or other peril, Landlord shall (1) diligently commence repair, reconstruction and restoration of the Premises and pursue completion thereof, in which event this Lease shall continue in full force and effect; or (2) within 30 days of the damage occurring, give notice to Tenant of its election to terminate this Lease. Upon any termination of the Lease, the parties shall be released thereby without further obligations to the other coincident with the surrender of possession of the Premises to Landlord, except for items which have theretofore accrued and be then unpaid except that the rental amounts owing hereunder shall abate as of the date of the occurrence of the damage. (B) In the event such damage to the Premise results in more than twenty-five (25) percent of loss of use of the premises, and it is reasonably determined that repair, construction and restoration can not be completed within sixty (60) days of the damage occurring, Tenant may terminate this Lease by written notice to Landlord, effective not later than the sixtieth day after such damage occurred with the rental amounts owing hereunder being abated as of the date of occurrence of the damage. (C) In the event of repair, reconstruction and restoration as herein provided, the rent paid shall be abated proportionately with the degree in which Tenant's use of the Premises is impaired commencing from the date of destruction and continuing during the period of such repair, reconstruction or restoration. 18. CONDEMNATION: If the entire Premises or so much thereof as to make the balance not reasonably adequate for the conduct of Tenant's business shall be taken under a power of eminent domain, this Lease shall automatically terminate as of the date on which the condemning authority takes title or possession, whichever first occurs. Any award for any taking of all or any part of Premises under the power of eminent domain shall be the property of Landlord, and a sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes under this paragraph. 19. ASSIGNMENT AND SUBLEASE: Tenant shall not voluntarily or by operation of law assign, license, transfer, mortgage or otherwise encumber all or any part of Tenant's interest in this Lease or in the Premises, without the prior written consent of Landlord in each instance, which such consent Landlord shall not unreasonably withhold. Such reasonable determination of consent to assignment or other transfer listed shall include determinations upon the nature of the business of the assignee and its then existing financial circumstances. Tenant shall have the right to sublease the Premises. No subletting or assignment, even with the consent of Landlord, shall release Tenant of its obligations to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. 20. TAXES: All real property taxes and special improvement assessments shall be paid by Landlord. All property tax for personal property owned by Tenant on the Premises shall be paid by Tenant. 21. BANKRUPTCY-INSOLVENCY: (A) Tenant agrees that in the event all or substantially all of Tenant's assets be placed in the hands of a receiver or trustee other than in bankruptcy, and such receivership or trusteeship continues for a period of 30 days, or should Tenant make an assignment for the benefit of creditors, then this Lease may be terminated by Landlord upon written notice to Tenant, to be effective upon delivery of such notice. (B) In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the landlord under this Lease provided the mortgagee or purchaser recognizes the Tenant's right of quiet enjoyment hereunder. 22. QUIET POSSESSION: Landlord agrees that Tenant, upon paying the rent and performing the covenants and conditions of this Lease, may quietly have, hold and enjoy the Premises during the term hereof or any extension thereof. 23. DEFAULTS: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (a) any failure by Tenant to pay the rent or any other monetary sums required to be paid hereunder where such failure continues for five days after written notice by Landlord to Tenant; (b) the abandoment of the Premises by Tenant; (c) a failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for 20 days after written notice thereof by Landlord to Tenant; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said 20 day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently pursue the same to completion; or (d) the making by Tenant of any general assignment or general arrangement for the benefit of creditors, the appointment of a trustee or receiver, other than in bankruptcy, to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days, or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within 30 days. 24. REMEDIES: (A) (1) In the event of any such material default or breach by Tenant, Landlord shall have each and every right and remedy available to it under Colorado law, at the time of execution of this Lease or hereafter established, including but not limited to, the right to maintain this Lease in full force and effect and recover the rent and other monetary charges as they become due, without terminating Tenant's right to possession irrespective of whether Tenant shall have abandoned the Premises, or to terminate Tenant's right to possession to the Premises and to terminate this Lease. (2) In the event of any material default or breach by Landlord, Tenant shall have each and every right and remedy available to it under Colorado law including the right to offset future rental amounts due hereunder in amounts necessary to compensate Tenant for any monetary advances made by Tenant on Landlord's behalf for obligations of Landlord hereunder. (B) Landlord and Tenant understand and agree that after default by Tenant, as established in this Lease, Landlord has the opportunity to, and to the extent established by law, the obligation to, attempt to relet the Premises at such rent and upon such conditions and for such a term and to do all acts necessary to maintain or preserve the Premises as are reasonable and necessary. (C) in addition to all remedies stated hereinabove, each party shall have the remedy to seek damages from the other party for any and all losses resulting from the default of the other party under this Lease. (D) Upon Landlord advancing or otherwise directly paying for Tenant any sum of money as the result of the failure of Tenant to pay or to timely pay any obligation under this Lease, such advancement or payment by Landlord shall accrue interest at the rate of eighteen (18) percent per annum from the date of advancement or payment by Landlord until the date of repayment by Tenant to Landlord. 25. SIGNS: Tenant shall not erect or install any exterior signs or window or door signs, advertising media or window or door lettering or placards without Landlord's prior written consent. 26. MISCELLANEOUS: 26.1. NO RESTRICTIVE COVENANT: It is agreed that this Lease contains no restrictive covenants in favor of Tenant. 26.2. SUBORDINATION: Upon written request of Landlord, or any first mortgagee or beneficiary of a first deed of trust of Landlord, Tenant will in writing subordinate its rights hereunder to the interest of any ground lessor of the land upon which the premises are situated, as well as to the lien or any first mortgage or first deed of trust, now or hereafter in force against the land and buildings of which the Premises are in part, and upon any building hereafter placed upon the land of which the Premises are a part, and to all advances made or hereafter to be made upon the security thereof provided the mortgage agrees to recognize Tenant's right of quiet enjoyment. 26.3 NON-SMOKING: The parties agree that all smoking shall be prohibited in the building during the term of this lease and any extensions thereof. 26.4 USE OF MAIL DROP: Landlord may have mail delivered to the Premises utilizing the mailbox in the entry way. Landlord shall not access the Premises to obtain such mail except during normal business hours of Tenant. Tenant shall have no liability for protecting Landlord's mail delivered to the mailbox. 26.5 SECURITY SYSTEM: Tenant may at its option, install a security system in the Premises to protect its operations. In the event such a system is installed, Tenant shall provide Landlord with emergency number to reach the Tenant's employee authorized to disable the security system after business hours, to permit Landlord to enter the Premises in case of an emergency. Landlord shall provide Tenant with telephone numbers where Landlord may be reached after business hours in case of emergency. 26.6. ENTIRE AGREEMENT: This Lease, along with the Addendum hereto, constitutes the entire agreement between Landlord and Tenant relative to the Premises demised, and this Lease and the Addendum may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. 26.7. SEVERABILITY: If any term or provision of this Lease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law, and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 26.8. COSTS OF SUIT. (A) Should Landlord, without fault on Landlord's part, be a party to any litigation instituted by any third party against the Tenant, or by or against any person holding under or using the Premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to save and hold Landlord harmless from any judgment rendered against Landlord or the premises or any part thereof, and costs and expenses, including reasonable attorney's fees, incurred by Landlord in or in connection with such litigation. (B) Should Tenant, without fault on Tenant's part, be a party to any litigation instituted by any third party against the Landlord, or by or against any person claiming an interest in the Premises through Landlord, or for the foreclosure of any lien for labor or material furnished to or for Landlord or any such other person or otherwise arising out of or resulting from any act or transaction of Landlord or of any such other person, Landlord covenants to save and hold Tenant harmless from any judgment rendered against Tenant, and costs and expenses, including reasonable attorney's fees, incurred by Tenant in or in connection with such litigation. (C) In the event any suit or litigation occurs as a result of this Lease between Landlord and Tenant, the prevailing party in any such litigation shall be entitled to an award of reasonable attorney's fees and costs. Such award of fees and costs, and the amount thereof, shall be determined by and in the discretion of the court presiding in such litigation. 26.9. TIME: Time is of the essence of this Lease and each and every hereof, except as to the conditions relating to the delivery of possession of the Premises to Tenant. 26.10. WAIVER: No covenant, term or condition or other breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver or the breach of any covenant, term or condition shall not be deemed to be a waiver of any other covenant, term or condition. 26.11. LANDLORD ACCESS TO PERFORM SPECIFIC MAINTENANCE: Landlord shall have access to the electrical and telephone panels at mutually agreeable times for Landlord to perform its maintenance obligations as necessary. 26.12. INSTALLATION OF ADDITIONAL WIRES: Landlord and Tenant agree that Tenant may, upon approval of the City, erect additional outside wires extending from the premises to any other structure occupied by Tenant. Any such additional installation shall be at Tenant's own expense. Landlord agrees that Tenant may erect such additional wires or utility service as is reasonably necessary for the conduct of Tenant's business, provided that the premises shall be restored to their original condition, fair wear and tear excepted, upon termination of the tenancy. At the option of Landlord, any modifications for utility service installed by Tenant, which are fixtures to the building, may be left intact and turned over to Landlord in "as is" condition. Landlord shall notify Tenant of its intention with respect to such installations not later than 30 days prior to expiration of the term of this agreement. 26.13. MEMORANDUM OF LEASE: Tenant may at its option and expense, record a memorandum setting forth the existence of this Lease. 26.14. SIGNS: Tenant shall place no signs on the Leased Premises without prior written consent of Landlord, which consent shall not be unreasonably withheld. All signs shall comply with applicable sign codes and shall be a Tenant's expense. Landlord makes no representation as to the availability of singe rights under applicable codes and Tenant shall make its own determination of applicable codes. IN WITNESS WHEREOF the parties have signed this Lease on the respective dates below, and agreed as of the effective date above. "Landlord" "Tenant" KAIRE INTERNATIONAL, INC., A /s/ G Walck COLORADO CORPORATION - ---------------------------- George J. Walck By: /s/ Robert L. Richards --------------------------------- Robert L. Richards Executive Vice-President and CFO /s/ J Walck - ---------------------------- Joseph C. Walck Revision to lease. Paragraph 8.D. is deleted and replaced with the following: The parties recognize that landlord is a debtor in possession while under the protection of chapter 13 Bankruptcy. The provisions of the bankruptcy are such that with consent of the First National Bank, the monies paid under this lease for 6400 square feet of ground floor space will be paid to George or Joe Walck personally. In the event that the bank's consent is not forthcoming, checks will be issued jointly payable to the Landlord and the First National Bank of Longmont. Landlord at Landlords' sole expense shall receive First National Bank's consent or court order consenting to issuance of checks to George or Joe Walck personally. It is understood that the lease payments for the upstairs 6400 square foot space as covered under a separate lease shall continue to be joint checked to the Landlord and the First National Bank. Approved: Approved: Approved: /s/ Robert L. Richards /s/ J Walck /s/ G Walck Bob Richards Joe Walck George Walck Kaire International Landlord Landlord LEASE AGREEMENT 1. The EFFECTIVE DATE of this lease is [Illegible] 2. PARTIES: The parties to this lease are [Illegible] J. Walck, and Joseph C. Walck, individuals [Illegible] lessee of property, Kaire International, Inc, a [Illegible] "Tenant"). 3. PURPOSE: The purpose of this lease [Illegible] "Lease") is to provide for the lease of commercial office space and use of existing common areas. 4. AGREEMENT: In consideration of the promises and agreements contained herein, Landlord leases to Tenant and Tenant rents from Landlord certain office space as described herein, for the terms stated herein. 5. PREMISES: The property herein leased by Landlord to Tenant is the exclusive use of thirty-five hundred seventy-six (3,576) square feet of commercial office space in the northern one-half of the second floor of the structure located at and commonly known as 400 Lashley Street, Building D2, Longmont, Boulder County, Colorado, plus non-exclusive use of six hundred twelve (612) square feet of access halls, stairs, and restrooms in the structure, plus non-exclusive use of the parking area to he established north of such structure (herein "Premises"). Every reference herein to "Exclusive Premises" shall be a reference only to the 3,576 square feet of actual office space rented. 6. TERM: The term of this Lease shall be one (1) year commencing January 1, 1995 and terminating at 11:59 p.m. on the last day of December 1995. 7. OCCUPANCY: Tenant will receive possession of the Premises upon the first day of the term of this lease, or earlier upon the substantial completion (or availability for move-in) and acceptance by Tenant of the tenant finish of the Premises, as more fully stated in the Addendum to this Lease. 8. RENT: (A) Tenant shall pay as rent the sum of $5.00 per square foot for the 3,882 square feet rented (3,576 plus one-half of 612) for a total rental for the term of this Lease of nineteen thousand four hundred ten dollars ($19,410.00), which will be paid in full in advance contemporaneous with signing this Lease. (B) In consideration of the advance payment by Tenant of the full annual rent for the one year term of this Lease, Landlord and Tenant agree that as of December 31, 1995, if Tenant, or a sub-lessee of Tenant, is in legal possession of the Premises under this Lease, the total rental for the one year term of this Lease is agreed to be discounted by $920.00 to a total annual rental of $18,490.00. 9. SECURITY DEPOSIT: Tenant shall deposit with Landlord prior to the beginning of the term of this Lease the amount of $698.00 to be held by Landlord for the faithful performance of all of the terms, conditions and convenants of this Lease. In addition, as of December 31, 1995, upon the reduction of total annual rent as provided in paragraph 8(B) hereof, the $920.00 difference between $19,410.00 paid with the signing of this Lease and the total rental of $18,490.00, shall be combined with the $698.00 deposited by Tenant at the beginning of the term of this Lease to total a security deposit held by Landlord at the end of this Lease of $1,618.00. The Landlord may apply such deposit to cure any default under the term of this Lease and shall account to the Tenant for the balance. The Tenant may not apply the deposit hereunder to the payment of the rent or performance of other obligations under this Lease. Landlord shall account to Tenant within sixty days after the end of this Lease or other termination of this Lease for the application of any amounts of the deposit to obligations of the Tenant, and shall return the balance. 10. USE: 10.1 USE: Tenant shall use the Premises as commercial office space and a parking area to conduct only such activities as are consistent with Tenant's normal course of business. 10.2 SUITABILITY. (A) Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or with respect to the suitability of the Premises for the conduct of Tenant's business. Landlord and Tenant agree that tenant finish will be provided by Landlord as stated and agreed to in the Addendum to this Lease. (B) The taking of possession of the Premises by Tenant shall conclusively establish that the Premises were at such time in satisfactory art suitable condition for Tenant's intended uses. The parties will perform a walk-through of the Premises in advance of Tenant taking possession, art will note any deficiencies in writing, which shall be cured within a reasonable time. 10.3 PARKING AREA: The Premises includes the non-exclusive parking area located north of the structure in which the Exclusive Premises are located. Further understandings and agreements about the parking area, its use and control, are stated and agreed to in the Addendum which is attached hereto. 10.4 USES PROHIBITED: (A) Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. Landlord shall be responsible for compliance of the structure, as well as exterior walls, interior walls, and water, plumbing, gas, electricity, heating, air conditioning and other utility delivery systems, with any law, statute, ordinance or governmental rule or regulation of requirement which applies to or controls such structure or utility delivery systems. Landlord shall specifically be responsible for changing, adjusting, or retrofitting any portion of the Premises required in order to comply with the Americans with Disabilities Act, or any legislation, rules or regulations with a similar purpose. 2 (B) Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be enforced and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to the commercial office space use and occupancy of the Premises by Tenant, except Landlord shall have the responsibility of complying with any requirements regarding its liability under paragraph 10.4(A) hereof upon the structure in which the Premises are located and the utility delivery systems of such structure. 11. UTILITY SERVICES: Tenant agrees, at its own expense, to establish in its name, and to pay for, all water, gas, power and electric current and all other similar utilities used by Tenant on the Exclusive Premises from and after the delivery of possession to Tenant by Landlord. Landlord and Tenant acknowledge separate meters exist for all such utility services to the Exclusive Premises. If any such charges are not paid when due, Landlord may pay the same, and any amount so paid by Landlord shall thereupon become due to Landlord from Tenant as additional rent. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service being furnished to the Premises, and no such failure or interruption shall entitle Tenant to terminate this Lease. 12. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS; OWNERSHIP: 12.1. MAINTENANCE AND REPAIRS: 12.11. Landlord shall keep in good order, condition and repair the foundations, exterior walls, and the roof of the Premises, and as necessary, or when required by governmental authority, make modifications or replacements thereof, and further, Landlord shall keep in good order, condition and repair the interior surface of exterior walls and all doors, and as necessary, or when required by governmental authority, make modifications or replacements thereof. 12.12 Landlord shall maintain and keep in good order, condition and repair the Premises, including all utility service delivery systems installed Therein, and shall replace all broken glass with glass of the same or similar quality. Tenant will give Landlord timely notice of any damage to the Premises or repair needed in the Premises. Except in an emergency situation, or in order to prevent significant loss to the Premises, Landlord shall give Tenant twenty-four hours advance notice of its intent to undertake any repair upon the Premises. If Landlord believes Tenant shall be responsible for the cost of any such repair under paragraph 12.13 hereof, Landlord shall give Tenant twenty-four notice of Landlord's position. Such twenty-four notice requirements are intended to allow Landlord and Tenant to coordinate repair activity and to resolve any repair cost liability issue between them in advance of undertaking repair work. Landlord shall make all repairs in a timely manner. 3 12.13 Notwithstanding the obligation of Landlord to maintain and repair the Premises as established in this section 12, Tenant shall be obligated to reimburse to Landlord the cost and expense of all repair or maintenance of the Premises caused or occasioned by the actions or inactions of its officers, agents, employees, licensees and invitees, whether or not a result of negligence. Upon the repair or maintenance of any portion of the Premises, Landlord shall notify Tenant in writing of its obligation for the cost of repair or maintenance, and Tenant will reimbuse Landlord its full liability within ten days of such written notice. Tenant shall not be responsible for the cost of maintenance which is the result of normal wear and tear upon the Premises by Tenant. 12.14 Landlord shall have no liability to Tenant for any damage, inconvenience or interference with the use of the Premises by Tenant as a result of Landlord conducting any repair or maintenance upon the Premises. 12.15 Tenant shall on the expiration or the sooner termination of its right to possession surrender to Landlord the Premises, including all modifications, changes, additions and improvements constructed or placed by Tenant herein, with all equipment in or appurtenant thereto, except all movable non-fixtures owned by Tenant, broom-clean, free of sub-tenancies, and in good condition and repair, reasonable wear and tear excepted. Any non-fixtures or personal property belonging to Tenant or any subtenant, if not removed at such termination and if Landlord shall so elect, shall be deemed abandoned and become the property of Landlord without any payment or offset therefor. If Landlord shall not so elect, Landlord may remove such fixtures or property from the Premises and store them at Tenant's risk and expense. 12.2 ALTERATIONS AND ADDITIONS: (A) Tenant shall not make any alterations or additions to the Premises nor make any contract therefor. Any alterations, additions and improvements made by Tenant to or upon the premises shall at once when made and installed be deemed to have become the property of Landlord; provided, however, if prior to termination of this Lease, or within 15 days thereafter, Landlord so directs by written notice to Tenant. (B) Tenant shall promptly remove the additions or improvements placed in the Premises by Tenant and shall repair any damage occasioned by such removal, and in default thereof, Landlord may effect such removal and repairs at Tenant's expense. 12.3. OWNERSHIP: Tenant has no right to become the owner of the real property on which the Premises are located nor the owner of the Premises. 13. ENTRY BY LANDLORD: (A) Landlord and the authorized representatives of Landlord may enter the Premises at any time, without notice, pursuant to a perceived emergency involving the Premises or to avoid damage or loss to the Premises. Landlord shall thereafter timely advise Tenant of any such entry. 4 (B) Landlord and the authorized representatives of Landlord may enter the Premises at any time for any appropriate reason, including but not limited to, verifying the need for repair of the Premises, showing the Premises to any prospective purchaser from Landlord, or, during the final month of the term of this Lease, to show the Premises to any prospective tenant, only after twenty-four hours advance notice to Tenant. Landlord and Tenant agree Landlord or its representatives may be guided through the Premises by an agent of Tenant, and that Landlord shall have access to view all of the Premises. Any viewing of the Premises will be in such a manner as to not unreasonably interfere with Tenant's business. 14. LIENS: (A) Tenant will keep the Premises free and clear of all mechanic's liens on account of work done by Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify and save Landlord free and harmless against liability, loss, damage, cost, attorney's fees art all other expenses on account of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished for Tenant or persons claiming under Tenant. (B) In the event any lien is filed upon the Premises as the result of any claim or demand against Tenant, Tenant agrees to immediately undertake removal of the lien filing upon the Premises, and shall, within ninety (90) days of the filing of such lien upon the Premises, either pay the claim and lien in full, or obtain judicial resolution of the claim and lien, or deposit the full amount necessary to resolve the claim and lien with the registry of the court having jurisdiction over the claim and lien, or obtain a bond to obtain release of the lien. If Tenant shall fail to remove such lien within such ninety (90) day period, Landlord may give Tenant notice of Landlord's intent to pay such claim art lien in an amount necessary to remove such lien. If Tenant shall thereafter fail to remove such lien within fifteen (15) days of Landlord's notice to Tenant of intent to pay the claim and lien, Landlord may then pay the claim and lien. Any amount so paid, together with reasonable attorney's fees incurred in connection therewith, and interest at the rate of eighteen (18) per cent per annum, from the date of payment by Landlord, shall be immediately due and owing from Tenant to Landlord, and Tenant agrees to and shall pay the same. (C) Should any claims of lien be filed against the Premises or any action affecting the title to such property be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof. 15. INDEMNITY: (A) Tenant shall indemnify and hold harmless Landlord from and against any and all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises. (B) Tenant shall indemnify and hold harmless Landlord from and against any and all claims arising from any act or negligence of Tenant or any of its agents, contractors or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon. 5 (C) Landlord shall indemnify and hold harmless Tenant from and against any and all claims arising from any act or negligence of Landlord or any of its agents, contractors or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon. 16. INSURANCE: (A) Landlord shall maintain standard general liability and property damage insurance insuring the Premises, in reasonable amounts, and shall provide to Tenant a copy of a certificate indicating such coverages. (B) Tenant shall at all times during the term hereof, and at its own cost and expense, procure and continue in force general liability insurance coverage upon Tenant, its officers, agents, employees, licensees, and invitees, regarding Tenant's utilization of commercial office space upon the Premises, with a limit of liability of not less than $1,000,000.00 per occurrance. The policy or policies shall name Landlord as an additional insured, shall insure Landlord's contingent liability, if any, under this Lease, shall be issued by an insurance company which is acceptable to Landlord and licensed to do business in the state of Colorado, and shall provide that the insurance shall not be canceled unless thirty days' prior written notice shall be given to Landlord. The policy or policies or certificate thereof shall be delivered to Landlord by Tenant upon commencement of the Lease term or within 10 days of execution of this Lease, whichever event last occurs. (C) Tenant may maintain such property damage insurance as it wishes upon the furniture, equipment, and non-fixtures it may maintain upon the Premises. Tenant acknowledges Landlord does not provide any property damage insurance upon the property of Tenant upon the Premises. 17. RECONSTRUCTION: (A) In the event the Premises are damaged by fire or other peril, Landlord shall (1) diligently commence repair, reconstruction and restoration of the Premises and pursue completion thereof, in which event this Lease shall continue in full force and effect; or (2) within 30 days of the damage occurring, give notice to Tenant of its election to terminate this Lease. Upon any termination of the Lease, the parties shall be released thereby without further obligations to the other coincident with the surrender of possession of the Premises to Landlord, except for items which have theretofore accrued and be then unpaid. (B) In the event such damage to the Premises results in more than twenty-five (25) per cent of loss of use of the premises, and it is reasonably determined that repair, reconstruction and restoration can not be completed within sixty (60) days of the damage occurring, Tenant may terminate this Lease by written notice to Landlord, effective not later than the sixtieth day after such damage occurred. 6 (C) In the event of repair, reconstruction and restoration as herein provided, the rent paid under paragraph 8 hereof shall be abated proportionately with the degree in which Tenant's use of the Premises is impaired commencing from the date of destruction and continuing during the period of such repair, reconstruction or restoration. 18. CONDEMNATION: If the entire Premises or so much thereof as to make the balance not reasonably adequate for the conduct of Tenant's business shall be taken under a power of eminent domain, this Lease shall automatically terminate as of the date on which the condemning authority takes title or possession, whichever first occurs. Any award for any taking of all or any part of Premises under the power of eminent domain shall be the property of Landlord, and a sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes under this paragraph. 19. ASSIGNMENT AND SUBLEASE: Tenant shall not voluntarily or by operating of law assign, license, transfer, mortgage or otherwise encumber all or any part of Tenant's interest in this Lease or in the Premises, and shall not sublet or license all or any part of the Premises, without the prior written consent of Landlord in each instance, which such consent Landlord shall not unreasonably withhold. Such reasonable determination of consent to subletting shall include determinations upon the nature of the business of the sublessee and its then existing financial circumstances. No subletting or assignment, even with the consent of Landlord, shall release Tenant of its obligations to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. 20. BANKRUPTCY - INSOLVENCY: (A) Tenant agrees that in the event all or substantially all of Tenant's assets be placed in the hands of a receiver or trustee other than in bankruptcy, and such receivership or trusteeship continues for a period of 30 days, or should Tenant make an assignment for the benefit of creditors, then this Lease may be terminated by Landlord upon written notice to Tenant, to be effective upon delivery of such notice. (B) In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the landlord under this Lease. 21. QUIET POSSESSION: Landlord agrees that Tenant, upon paying the rent and performing the covenants and conditions of this Lease, may quietly have, hold and enjoy the Premises during the term hereof or any extension thereof. 7 22. DEFAULTS: The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant: (a) any failure by Tenant to pay the rent or any other monetary sums required to be paid hereunder where such failure continues for five days after written notice by Landlord to Tenant; (b) the abandonment of the premises by Tenant; (c) a failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant, where such failure continues for 20 days after written notice thereof by Landlord to Tenant; provided, however, that if the nature of the default is such that the same cannot reasonably be cured within said 20 day period, Tenant shall not be deemed to be in default if Tenant shall within such period commence such cure and thereafter diligently pursue the same to completion; or (d) the making by Tenant of any general assignment or general arrangement for the benefit of creditors, the appointment of a trustee or receiver, other than in bankruptcy, to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days, or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within 30 days. 23. REMEDIES: (A)(1) In the event of any such material default or breach by Tenant, Landlord shall have each and every right and remedy available to it under Colorado law, at the time of execution of this Lease or hereafter established, including but not limited to, the right to maintain this Lease in full force and effect and recover the rent and other monetary charges as they become due, without terminating Tenant's right to possession irrespective of whether Tenant shall have abandoned the Premises, or to terminate Tenant's right to possession to the Premises and to terminate this Lease. (2) In the event of any material default or breach by Landlord, Tenant shall have each and every right and remedy available to it under Colorado law. (B) Landlord and Tenant understand and agree that after default by Tenant, as established in this Lease, Landlord has the opportunity to, and to the extent established by law, the obligation to, attempt to relet the Premises at such rent and upon such conditions and for such a term and to do all acts necessary to maintain or preserve the Premises as are reasonable and necessary. 8 (C) In addition to all remedies stated hereinabove, each party shall have the remedy to seek damages from the other party for any and all losses resulting from the default of the other party under this Lease. (D) Upon Landlord advancing or otherwise directly paying for Tenant any sum of money as the result of the failure of Tenant to pay or to timely pay any obligation under this Lease, such advancement or payment by Landlord shall accrue interest at the rate of eighteen (18) per cent per annum from the date of advancement or payment by Landlord until the date of repayment by Tenant to Landlord. 24. SIGNS: Tenant shall not erect or install any exterior signs or window or door signs, advertising media or window or door lettering or placards without Landlord's prior written consent. 25. MISCELLANEOUS: 25.1 NO RESTRICTIVE COVENANT: It is agreed that this Lease contains no restrictive covenants in favor of Tenant. 25.2 SUBORDINATION: Upon written request of Landlord, or any first mortgagee or beneficiary of a first deed of trust of Landlord, Tenant will in writing subordinate its rights hereunder to the interest of any ground lessor of the land upon which the premises are situated, as well as to the lien or any first mortgage or first deed of trust, now or hereafter in force against the land and buildings of which the Premises are in part, and upon any building hereafter placed upon the land of which the Premises are a part, and to all advances made or hereafter to be made upon the security thereof. 25.3 ADDENDUM: An Addendum (herein "Addendum") is entitled as such, attached hereto, and incorporated herein by reference which states the agreements of the Landlord and Tenant regarding completion of the tenant finish of the Premises, and the parking area which is part of the Premises. 25.4 ENTIRE AGREEMENT: This Lease, along with the Addendum hereto, constitutes the entire agreement between Landlord and Tenant relative to the Premises demised, and this Lease and the Addendum may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant. 25.5 SEVERABILITY: If any term or provision of this Lease shall, to any extent, be determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforceable to the fullest extent permitted by law, and it is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 9 25.6 COSTS OF SUIT: (A) Should Landlord, without fault on Landlord's part, be a party to any litigation instituted by any third party against the Tenant, or by or against any person holding under or using the Premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to save and hold Landlord harmless from any judgment rendered against Landlord or the premises or any part thereof, and costs and expenses, including reasonable attorney's fees, incurred by Landlord in or in connection with such litigation. (B) Should Tenant, without fault on Tenant's part, be a party to any litigation instituted by any third party against the Landlord, or by or against any person claiming an interest in the Premises through Landlord, or for the foreclosure of any lien for labor or material furnished to or for Landlord or any such other person or otherwise arising out of or resulting from any act or transaction of Landlord or of any such other person, Landlord covenants to save and hold Tenant harmless from any judgment rendered against Tenant, and costs and expenses, including reasonable attorney's fees, incurred by Tenant in or in connection with such litigation. (C) In the event any suit or litigation occurs as a result of this Lease between Landlord and Tenant, the prevailing party in any such litigation shall be entitled to an award of reasonable attorney's fees and costs. Such award of fees and costs, and the amount thereof, shall be determined by and in the discretion of the court presiding in such litigation. 25.7 TIME: Time is of the essence of this Lease end each and every provision hereof, except as to the conditions relating to the delivery of possession of the Premises to Tenant. 25.8 WAIVER: No covenant, term or condition or other breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed, and any waiver or the breach of any covenant, term or condition shall not be deemed to be a waiver of any other covenant, term or condition. IN WITNESS WHEREOF the parties have signed this Lease on the respective dates below, and agreed as of the effective date above. Dated 12/12/94 Dated 12 DECEMBER 1994 /s/ George J. Walck - Landlord Kaire International, Inc., - -------------------------------- a Colorado corporation - Tenant George J. Walck - Landlord Dated 12/12/94 By /s/ Robert L Richard ------------------------------ /s/ Joseph C. Walck Title EXEC VP & CFO - -------------------------------- Joseph C. Walck 10 ADDENDUM to Lease Agreement (one page) George J. Walck and Joseph C. Walck as Landlords and Kaire International, Inc. as Tenant - Dated ______________________, 1994 A.1. TENANT FINISH: (a) Landlord and Tenant acknowledge they have agreed to the tenant finish of the premises to be leased, including floor plan, extent of tenant finish and quality of tenant finish. Such details are stated in the letter from Landlord to Tenant dated December 2, 1994, a copy of which is attached hereto and incorporated herein by reference, plus tenant finish shall include window coverings (venetial blinds or vertical blinds, at Landlord's choice). (b) Landlord shall complete the tenant finish by January 1, 1995. Landlord will diligently pursue completion of the tenant finish, but shall not be liable to Tenant for any delay in completing the tenant finish due to any cause beyond the control of Landlord. A.2. PARKING AREA: (a) Landlord and Tenant have agreed to the specifications of a gravel parking area on the north side of the structure in which the Exclusive Premises are located, to be used by employees of Tenant. Such parking area has been constructed at the direction and cost of Tenant. Tenant shall hold Landlord harmless upon such cost. (b) In order to obtain inmmediate use of the parking area, Landlord has represented to the City of Longmont Planning Department that it will complete, by June 30, 1995, the landscaping required by the site plan upon The property approved in 1990. Landlord agrees with the Tenant to timely complete such landscaping, at its cost. (c) Landlord and Tenant agree the parking lot is for the non-exclusive use of Tenant, and that Landlord and employees of Landlords' electrical construction corporation may park in the parking area. (d) Tenant shall supervise utilization of the parking area by its employees, and may mark the parking area, at its expense, if it wishes, with Landlord's prior consent to the configuration of any marking. (e) Landlord agrees to maintain public liability insurance in a reasonable amount covering the parking area. Landlord will be solely responsible for maintenance and upkeep of the parking area, except Tenant will be responsible for any damage to the parking area caused by the negligence of its officers, agents, employees, licensees or invitees. (f) Landlord and Tenant will jointly arrange, and equally pay one-half of the cost of, snow removal from the parking area needed during the term of this Lease. A-3. NON-SMOKING BUILDING: Smoking of cigarettes, cigars, and pipes is not permitted within the structure in which the Exclusive Premises are located. Tenant will inform its officer, agents, employees, licensees, and invitees of such policy, and take reasonable actions to enforce such policy among such persons. ADDENDUM TO LEASE AGREEMENT THIS AGREEMENT entered into between George J. Walck and Joseph C. Walck, individuals (herein "Landlord") and Kaire International, Inc., a Colorado corporation (herein "Tenant") with respect to real property located at 400 Lashley Street, City of Longmont, Boulder County, Colorado. The First National Bank of Longmont (herein "the Bank") is not a party to this Agreement, but has signed below, without liability, solely as evidence of having given its consent to the terms hereof, as required by terms of a Deed of Trust between Landlord and the Bank dated October 15, 1991. THIS ADDENDUM incorporates by reference a certain Lease Agreement between the same parties dated January 1, 1995, and includes herein as applicable all additional terms therein not expressly inconsistent with the terms of this Addendum. A copy of said Lease Agreement is attached hereto as Exhibit A. THE PURPOSE of this Addendum is to extend the description of premises described in the January 1, 1995 Lease Agreement to include additional space, described below, and to extend the term of the tenancy of both the January 1, 1995 Lease Agreement, and of the premises described in this Addendum, to Midnight on February 28, 1996. IN CONSIDERATION of the mutual covenants, conditions and promises contained herein, Landlord leases to Tenant and Tenant agrees to lease from Landlord that additional office space described herein in paragraph 3 below, for the period of time stated in paragraph 2 below. 1. Effective Date. The effective date of this Addendum is July 19, 1995. 2. Period of Lease. The period of the tenancy shall extend from July 19, 1995 through February 28, 1996 for all premises covered by this Addendum, which the parties agree shall also extend the period of occupancy of the premises described in the January 1, 1995 Lease Agreement to February 28, 1996. 3. Premises. The premises covered by the January 1, 1995 lease shall remain the same as stated in the original lease. The premises included in this Addendum include the entire southern half or remainder of the second floor of the premises located at 400 Lashley Street, consisting of 2,430 square feet of available office space. Kaire International shall have exclusive possession of the entire of the second floor of the building. 4. Rental Amount. Tenant shall pay as rent for the premises the sum of $5.50 per square foot for the 2,430 square feet of leasable space, for a total rent during the first term of this addendum of $8,191.15, payable in monthly installments of $1,113.75 each (the first payment for 11 days in July in the amount of $394.90 shall be paid on Friday, July 21, 1995), commencing with the August payment. 1 5. Payment of Rent. The parties agree that, pursuant to the notice by First National Bank of Longmont, dated April 25, 1995, receipt of which is acknowledged, Tenant shall make all payments of rent directly to the First National Bank of Longmont, to be credited to the account of Landlord according to terms of a certain Deed of Trust dated October 15, 1991 between Landlord and the Bank. Copies of the notice and Deed of Trust are attached hereto as Exhibits B and C respectively, and are incorporated herein by reference. Tenant's checks to Landlord shall be joint checks made payable to Landlord and the First National Bank. Landlord shall promptly endorse said rent checks upon receipt and shall transmit the same to the Bank. Payments due to Landlord hereunder for contribution to common utilities shall be made directly to Landlord, who covenants and agrees to keep all utilities payments current during the term of this Lease and to insure that no stoppage of utility service occurs as a result of nonpayment of utilities by Landlord. All monies and things of value received by Landlord from Tenant for payment of utilities are agreed to be received expressly in trust for payment of utilities and Landlord agrees to indemnify and hold Tenant harmless of all loss, if any, resulting from Landlord's failure to make any utilities payments when due. 6. Adjustment/Credit for Lease Payments Previously Paid. The parties agree that although the premises described in the January 1, 1995 Lease Agreement were due to be occupied on January 1, 1995, the actual date of occupancy was February 18, 1995. The parties have compromised the issue and agreed that Tenant shall receive one month's lease payment credit in the month of January, 1996, and Tenant shall commence making lease payments in February, 1996, at the rate of $5.50 per square foot for the month of February. Payment shall be made by joint check payable to Landlord and the First National Bank according to the provisions of paragraph 5 above. 7. Option to Extend Lease. The parties have agreed that Tenant shall have the option to extend this Lease for a period of one additional one year on the same terms contained herein, and for a second year, with rent to be adjusted based on the increase or decrease in the Consumer Price Index. The CPI to be utilized will be the "All Urban Consumers, Western States Average." The base period for the purpose of adjustment shall be January, 1995. Tenant shall be afforded a right of first refusal to lease any additional space in or about the premises located at 400 Lashley Street which Landlord may offer for Lease at any time within the term hereof, including the period of any renewal option. Landlord is under no obligation to conform the term, rental, or provisions of an offer to lease any such additional space to the terms and provisions of the January 1, 1995 Lease, as originally undertaken or as amended herein. Tenant shall notify Landlord of its election to renew the tenancy not later than 90 days before the expiration of the lease term, including any extension thereof. 8. Termination Contingency. Tenant's liability to occupy and pay rent for the premises leased pursuant to the January 1, 1995 Lease Agreement, and pursuant to this 2 Addendum, for the months of January and February, 1996, is expressly conditioned upon Tenant's ability to secure approval of the City of Longmont for an extension of the use of the public right of way permit allowing overhead telephone and computer wires to be erected and maintained across Fourth Avenue. The use of public right of way permit presently in effect expires on January 1, 1996. Tenant shall make reasonable efforts to secure approval of the City to extend the permit to include the termination date of this agreement (February 28, 1996). Tenant shall make timely application for extension of the permit, and notify Landlord of the status of the application not later than October 1, 1995. 9. Installation of Additional Wires. Although not expressly a termination contingency as described in paragraph 8 above, Landlord and Tenant agree that Tenant may, upon approval of the City, erect additional outside wires extending from the premises to any other structure occupied by Tenant. Any such additional installation shall be at Tenant's own expense. Landlord agrees that Tenant may erect such additional wires or utility service as is reasonably necessary for the conduct of Tenant's business, provided that the premises shall be restored to their original condition, fair wear and tear excepted, upon termination of the tenancy. At the option of Landlord, any modifications for utility service installed by Tenant, which are fixtures to the building, may be left intact and turned over to Landlord in "as is" condition. Landlord shall notify Tenant of his intention with respect to such installations not later than 30 days prior to expiration of the term of this agreement. 10. Bankruptcy Effects. Joseph C. Walck is presently a debtor in a Chapter 13 proceeding pending in the U.S. Bankruptcy Court. With respect to his ownership of an interest in the premises, he is a "debtor in possession" with full power and authority to enter into this agreement. In Tenant's sole discretion, to promote enforceability of the lease by Tenant, Tenant may request and secure the Court's approval of the Lease Agreement and this Addendum, to insure continuity of occupancy in the event of conversion of the case from Chapter 13 to a liquidation under Chapter 7. In the event Tenant wishes to secure approval of the Court, Landlord agrees to cooperate in good faith with Tenant, as necessary, to secure the Court's approval of the agreement, and Landlord shall take no action contrary to the Tenant's request for Court approval. 11. Understanding of Parties and First National Bank of Longmont. The parties are proceeding with this Lease Addendum pursuant to a letter from Thomas L. Stover, attorney for the First National Bank of Longmont, dated July 13, 1995, which states the Bank's consent to the parties entry into a commercially reasonable lease without prior Bank approval of specific terms. Nonetheless, the parties agree that the Bank shall be provided a copy of this Lease Addendum for its records. 12. Additional Provisions. (a) Trash Dumpster. Landlord and Tenant shall each maintain and pay for their own trash disposal facilities. 3 (b) Concerning Parking. For the time that Kaire has the entire second floor of the building leased, Kaire may use the six parking spaces immediately in front of the building to the north side of the glass entry doors. Walck shall have the sole use of the other parking spaces to the south of the glass doors. Kaire may use the two parallel parking spaces behind the convenience store, leaving one space for Walck at this location. All doors to the building, specifically the large delivery roll up doors, are to be kept clear at all times for deliveries. (c) Concerning Lockup of the Building. Kaire is to lock and unlock both the back doors at the rear stairwell during business hours each day. The main glass front door is to be locked each day at 6:00 p.m. and remain locked at night if anyone from Kaire or Walck is working in the building after 6:00 p.m. (d) Security System. For so long as Tenant occupies the entire second floor of the building, Tenant will install and maintain an electronic fire and security system to protect its operations. Tenant shall provide Landlord emergency numbers to reach the Kaire employee authorized to disable the security system after hours, to permit Landlord to enter the premises in case of emergency without setting off the security system. Routine entries by Landlord for inspection and repair shall be made during normal business hours when Kaire employees are present in the premises. Landlord shall provide Tenant emergency telephone numbers where Landlord may be reached after hours in case of emergency. (e) Restricted Access. Due to risk of personal injury, no Kaire employee or visitor or guest is to enter Walck's warehouse area unless in the company of a Walck employee. (f) Landlord Approval of Installations. Landlord shall be entitled to review and approve any revisions to the building contemplated by Tenant in connection with installation of communication, fire and security systems, general remodeling and any other modifications of the building or existing service systems. Landlord agrees to be reasonable and accommodating to Tenant in its review of revisions, and the parties contemplate that most requests for approval will be oral rather than in written form, due to the cost of preparing drawings for each change. (g) Non-Smoking. The parties agree that all smoking shall be prohibited in the building during the term of this lease and any extension thereof. (h) Cleaning of the Stairwells. Kaire shall be responsible for the cleaning and maintenance of all stairwells accessing the second floor of the building. (i) Parties to Seek City Approval. Landlord shall promptly seek approval of the City of Longmont for extension of the non-conforming use permit to maintain the gravel parking lot, and Tenant shall promptly seek approval of the City for approval of the non-conforming use of the public right of way for its maintenance of telephone and computer cable over Fourth Avenue. 4 Kaire/Walck Lease Addendum July 19, 1995 Page 5 of 5 pages DATED this 24th day of July, 1995 /s/ George J. Walck /s/ Joseph C. Walck - ------------------------- ------------------------- George J. Walck, Landlord Joseph C. Walck, Landlord KAIRE INTERNATIONAL, INC., a Colorado corporation -- Tenant By: /s/ J.T. Whitworth ----------------------------------- J.T. Whitworth, Vice-President of Operations 5 THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL COUNSEL BEFORE SIGNING ================================================================================ BUSINESS LEASE This lease, dated December 4, 1996, is between Country Hills Investments, as Landlord, and Kaire International, Inc., as Tenant. In consideration of the payment of the rent and the performance of the covenants and agreements by the Tenant set Forth herein, the Landlord does hereby lease to the Tenant the following described premises situate in Boulder County, in the State of Colorado; the address of which is 380 Lashley, 310 Lashley #l07 and 310 Lashley #108 Longmont, CO 80501 Said premises, with all the appurtenances, are leased to the Tenant from the date of March 1, 1997, until the date of March 1, 1999 at and for a rental for the full term of $223,433.44 payable in monthly installments of $9,309.73, in advance, on the 1st day of each calendar month during the term of this lease, payable at 2249 N. Country Club Loop, Westminster, CO 80234, without notice. THE TENANT, IN CONSIDERATION OF THE LEASING OF THE PREMISES AGREES AS FOLLOWS: 1. The Tenant shall pay the rent for the premises above-described. 2. The Tenant shall, at the expiration of this tease, surrender the premises in as good a condition as when the Tenant entered the premises, ordinary wear and tear excepted. The Tenant shall keep all sidewalks on and around the premises free and clear of ice and snow, keep the entire exterior premises free from all litter, dirt, debris and obstructions; and keep the premises in a clean and sanitary condition as required by the ordinances of the city and county in which the property is situate. 3. The Tenant shall not sublet any part of the premises, nor assign the lease, or any interest therein, without the written consent of the Landlord. 4. The Tenant shall use the premises only as offices and shall not use the premises for any purposes prohibited by the laws of the United States or the State of Colorado, or of the ordinances of the city or town in which said premises are located, and shall neither permit nor suffer any disorderly conduct, noise or nuisance having a tendency to annoy or disturb any persons occupying adjacent premises. 5. The Tenant shall neither hold, nor attempt to hold, the Landlord, its agents, contractors and employees, liable for any injury, damage, claims or loss to person or property occasioned by any accident, condition or casualty to, upon, or about the premises including, but not limited to, defective wiring, the breaking or stopping of the plumbing or sewage upon the premises, unless such accident, condition or casualty is directly caused by intentional or reckless acts or omission of the Landlord. Notwithstanding any duty the Landlord may have hereunder to repair or maintain the premises, in the event that the improvements upon the premises are damaged by the negligent, reckless or intentional act or omission of the Tenant or any employees, agents, invitees, licensees or contractors, the Tenant shall bear the full cost of such repair or replacement. The Tenant shall hold Landlord, Landlords agents and their respective successors and assigns, harmless and indemnified from all injury, loss, claims or damage to any person or property while on the demised premises or any other part of Landlords property, or arising in any way out of Tenant, business, which is occasioned by an act or omission of Tenant, its employees, agents, invitees, licensees or contractors. The Landlord is not responsible for any damage or destruction to the Tenant's personal property. 6. The Tenant shall neither permit nor suffer said premises, or the walls or floors thereof to be endangered by overloading, nor said premises to he used for any purpose which would render the insurance thereon void or the insurance risk more hazardous, nor make any alterations in or changes in, upon, or about said premises without first obtaining the written consent of the Landlord. 7. The Tenant shall obtain and keep in full force, at Tenant's expense, fire and liability insurance as may be reasonably required by the Landlord. Tenant shall provide copies of such insurance policies upon the Landlord's request. 8. The Tenant shall permit she Landlord to place a "For Rent" sign upon the leased premises at any time after sixty (60) days before the end of this lease. 9. The Tenant shall allow the Landlord to enter upon the premises at any reasonable hour. IT IS EXPRESSLY UNDERSTOOD AND AGREED BETWEEN LANDLORD AND TENANT AS FOLLOWS: 10. The Tenant shall be responsible for paying the following: |X| Electric |_| Gas |X| Water |X| Sewer |X| Phone |X| Refuse Disposal |X| Janitorial Services Other ____________________. The |X| Landlord |_| Tenant agrees to keep all the improvements upon the premises, including but not limited to, structural components, exterior walls, roofs, sewer connections, plumbing, wiring and glass in good maintenance and repair at their expense. In the event the Landlord is responsible for repair of the premises, the Tenant shall be obliged to notify the Landlord of any condition upon the premises requiring repair and the Landlord shall be provided a reasonable time to accomplish said repair. 11. No assent, express or implied, to any breach or default of any one or more of the agreements hereof shall be deemed or taken to be a waiver of any succeeding or other breach or default. 12. If after the expiration of this lease, the Tenant shall remain in possession of the premises and continue to pay rent without a written agreement as to such possession, then such tenancy shall be regarded as a month-to-month tenancy, at a monthly rental, payable in advance, equivalent to the last month's rent paid under this lease, and subject to all the terms and conditions of ibis lease. 13. If the premises are left vacant and any part of the rent reserved hereunder is not paid, then the Landlord may, without being obligated to do so, and without terminating this lease, retake possession of the said premises and rent the same for such rent, and upon such conditions as the Landlord may think best, making such changes and repairs as may be required, giving credit for the amount of rent so received less all expenses of such changes and repairs, and the Tenant shall be liable for the balance of the rent herein reserved until the expiration of the term of this lease. 14. The Landlord acknowledges receipt of a deposit in the amount of $8,380 to beheld by the Landlord for the faithful performance of all of the terms, conditions and convenants of this lease. The Landlord may apply the deposit to cure any default under the terms of this lease and shall account to the Tenant for the balance. The Tenant may not apply the deposit hereunder to the payment of the rent reserved hereunder or the performance of other obligations. ================================================================================ 15. If the Tenant shall be in arrears in payment of any installment of rent, or any portion thereof, or in default of any other covenants or agreements set forth in this lease, and the default remains uncorrected for a period of three (3) days after the Landlord has given written notice thereof pursuant to applicable law, then the Landlord may, at the Landlord's option, undertake any of the following remedies without limitation: (a) declare the term of the lease ended; (b) terminate the Tenant's right to possession of the premises and reenter and repossess the premises pursuant to applicable provisions of the Colorado Forcible Entry and Retainer Statute; (c) recover all present and future damages, costs and other relief to which the Landlord is entitled; (d) pursue breach of contract remedies; and/or (e) pursue any and all available remedies in law or equity. In the event possession is terminated by a reason of default prior to expiration of the term, the Tenant shall be responsible for the rent occurring for the remainder of the term, subject to the Landlord's duty to mitigate such damages. Pursuant to applicable law [13-40-104(d.5), (e.5) and 13-40-107.5, C.R.S.] which is incorporated by this reference, in the event repeated or substantial default(s) under the lease occur, the Landlord may terminate the Tenant's possession upon a written Notice to Quit, without a right to cure. Upon such termination, the Landlord shall have available any and all of the above-listed remedies. 16. If the property or the premises shall be destroyed in whole or in part by fire, the elements, or other casualty and if, in the sole opinion of the Landlord, they cannot be repaired within ninety (90) days from said injury and the Landlord informs the Tenant of said decision; or if the premises are damaged in any degree and the Landlord informs the Tenant it does not desire to repair same and desires to terminate this lease; then this lease shall terminate on the date of such injury. In the event of such termination, the Tenant shall immediately surrender the possession of the premises and all rights therein to the Landlord; shall be granted a license to enter the premises at reasonable times to remove the Tenant's property; and shall not be liable for rent accruing subsequent to said event. The Landlord shall have the right to immediately enter and take possession of the premises and shall not be liable for any loss, damage or injury to tile property or person of the Tenant or occupancy of, in or upon the premises. If the Landlord repairs the premises within ninety (90) days, this lease shall continue in full force and effect and the Tenant shall not be required to pay rent for any portion of said ninety (90) days during which the premises are wholly unfit for occupancy. 17. In the event any dispute arises concerning the terms of this lease or the non-payment of any sums under this lease, and the matter is turned over to an attorney, the party prevailing in such dispute shall be entitled, in addition to other damages or costs, to receive reasonable attorneys' fees from the other party. 18. In the event any payment required hereunder is not made within ten (10) days after the payment is due, a late charge in the amount of 5% of the payment will be paid by the Tenant. 19. In the event of a condemnation or other taking by any governmental agency, all proceeds shall he paid to the Landlord hereunder, the Tenant waiving all right to any such payments. 20. This lease is made with the express understanding and agreement that in the event the Tenant becomes insolvent, the Landlord may declare this lease ended, and all rights of the Tenant hereunder shall terminate and cease. 21. The Tenant and the Landlord further agree: See Additional Provisions attached This lease shall be subordinate to all existing and future security interests on the premises. All notices shall be in writing and be personally delivered or sent by first class mail, unless otherwise provided by law, to the respective parties. If any term or provision of this lease shall be invalid or unenforceable, the remainder of this lease shall not be affected thereby and shall be valid and enforceable to the full extent permitted by law. This lease shall only be modified by amendment signed by both parties. This lease shall be binding on the parties, their personal representatives, successors and assigns. When used herein, the singular shall include the plural. Attest: Country Hills Investments ---------------------------- ----------------------------------------- Date by: /s/ [Illegible] 12/4/96 ----------------------------------------- Date Attest: Kaire International, Incl ---------------------------- ----------------------------------------- Date by: /s/ Robert L Richard 16 JAN 97 ----------------------------------------- Date GUARANTEE For value received, I guarantee the payment of the rent and the performance of the convenants and agreements by the Tenant in the within lease. - ----------------------------------- ----------------------------------------- Signature Date ASSIGNMENT AND ACCEPTANCE For value received _____________________________________ assignor, assigns all right, title and interest in and to the within lease to ___________________, assignee, the heirs, successors and assigns of the assignee, with the express understanding and agreement that the assignor shall remain liable for the full payment of the rent reserved and the performance of all the covenants and agreements made in the lease by the Tenant. The assignor will pay the rent and fully perform the covenants and agreements in case the assignee fails to do so. In consideration of this assignment, the assignee assumes and agrees to make all the payments and perform all the covenants and agreements contained in the lease and agreed to by the Tenant. - ----------------------------------- ----------------------------------------- Assignor Date Assignee Date CONSENT OF ASSIGNMENT Consent to the assignment of the within lease to ________________________ is hereby given, on the express condition, however, that the assignor shall remain liable for the prompt payment of the rent and performance of the covenants on the part of the Tenant as herein mentioned, and that no further assignment of said lease or sub-letting of the premises, or any part thereof, shall be made without further written agreement. - ----------------------------------- ----------------------------------------- Signature Date Signature Date LANDLORD'S ASSIGNMENT In consideration of One Dollar, in hand paid, I hereby assign to ______________________ my interest in the within lease, and the rent therein reserved. ----------------------------------------- Landlord Date ADDITIONAL PROVISIONS A. The Tenant agrees, throughout the term of this lease, at Tenant's sole cost, to provide and keep in force the following insurance: Public Liability Insurance and Property Damage Insurance for the protection of the Lessee and Lessor against comprehensive claims for bodily injury or property damage occurring upon the premises with a combined single limit coverage of not less than $500,000, insuring against claims of any and all personal injury, death, or damage to person, or property occurring in or about the leased premises. The lessor to be named in said policies as an insured. The Lessee shall deliver to Lessor Certificates of Insurance certifying that such insurance is in full force and effect and such policies shall provide for ten (10) days prior written notice to the Lessor in the event of modification, cancellation, or termination. B. The Landlord shall maintain the Common Area, sidewalks, driveways, parking lot, lawns and shrubbery, including snow removal (over two(2) inches). C. Signs must conform to City of Longmont sign code and must be approved by Landlord prior to installation. D. Landlord shall pay for major repairs or replacement of HVAC, electrical and plumbing to the leased space provided that such repairs and replacement were not caused by the misuse or neglegence of Tenant. Tenant shall conduct semi-annual inspections and servicing (including filter changes) on the heating and air conditioning units for said space during the term of this lease. Landlord shall be responsible for freon maintenance. E. Tenant shall have the right to extend the term of this Lease for an additional one (1) year. This option shall be valid only if all of Tenant's obligations in this Lease have been fully performed and all defaults, if any, have been cured. This option may be exercised by giving the Landlord written notice of intent to extend at least sixty (60) days prior to the expiration of the initial term. All provisions of the initial lease shall remain the same except for the rent which shall be increased by the amount of the Denver/Boulder CPI for the prior two years, as compiled by the U.S. Bureau of Labor Statistics. Country Hills Investment Kaire International, Inc. By: /s/ [Illegible] By: /s/ Robert L Richard ------------------------ ----------------------------- EX-10.16 21 STOCK OPTION PLAN EXHIBIT 10.16 KAIRE INTERNATIONAL, INC. 1997 STOCK OPTION PLAN 1. Purpose of the Plan. The purpose of this 1997 Stock Option Plan ("Plan") of Kaire International, Inc., a Delaware corporation (the "Company"), is to provide the Company with a means of attracting and retaking the services of highly motivated and qualified key employees (including officers), directors and consultants. The Plan is intended to advance the interest of the Company by affording to key employees (including officers), directors and consultants, upon whose skill, judgment, initiative and efforts the Company is largely dependent for the successful conduct of its business, an opportunity for investment in the Company and the incentives inherent in stock ownership in the Company. In addition, the Plan contemplates the opportunity for investment in the Company by employees of companies that do business with the Company. For purposes of this Plan, the term Company shall include subsidiaries, if any, of the Company. 2. Legal Compliance. It is the intent of the Plan that all options granted under it ("Options") shall be either "Incentive Stock Options" ("ISOs"), as such term is defined in Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), or non-qualified stock options ("NQOs"); provided, however, ISOs shall be granted only to employees of the Company. An Option shall be identified as an ISO or an NQO in writing in the document or documents evidencing the grant of the Option. All Options that are not so identified as ISOs are intended to be NQOs. In addition, the Plan provides for the grant of NQOs to employees of companies that do business with the Company. It is the further intent of the Plan that it conform in all respects with the requirements of Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"). To the extent that any aspect of the Plan or its administration shall at any time be viewed as inconsistent with the requirements of Rule 16b-3 or, in connection with ISOs, the Code, such aspect shall be deemed to be modified, deleted or otherwise changed as necessary to ensure continued compliance with such provision. 3. Non-Exclusivity of the Plan. Nothing contained in the Plan is intended to amend, modify, or rescind any previously approved compensation plans, programs or options entered into by the Company. This Plan shall be construed to be in addition to and independent of any and all such other arrangements. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt, with or without stockholder approval, such additional or other compensation arrangements as the Board may from time to time deem desirable. 1 4. Administration of the Plan. 4.1 Plan Committee. The Plan shall be administered by a committee ("Committee"). The members of the Committee shall be appointed from time to time by the Board of Directors of the Company ("Board") and shall consist of not less than two (2) nor more than five (5) persons who are not eligible to receive Options under the Plan and who are not, and have not at any time within one year (except as provided in Section 4.6), been eligible to receive stock options pursuant to the Plan or the terms of any other plan of the Company or its affiliates. Such persons shall be directors of the Company. 4.2 Grants of Options by the Committee. In accordance with the provisions of the Plan, the Committee, by resolution, shall select those eligible persons to whom Options shall be granted ("Optionees"); shall determine the time or times at which each Option shall be granted, whether an Option is an ISO or an NQO and the number of shares to be subject to each Option; and shall fix the time and manner in which the Option may be exercised, the Option exercise price, and the Option period. The Committee shall determine the form of option agreement to evidence the foregoing terms and conditions of each Option, which need not be identical, in the form provided for in Section 8. Such option agreements may include such other provisions as the Committee may deem necessary or desirable consistent with the Plan, the Code and Rule 16b-3. 4.3 Committee Procedures. The Committee from time to time may adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee shall keep minutes of its meetings and records of its actions. A majority of the members of the Committee shall constitute a quorum for the transaction of any business by the Committee. The Committee may act at any time by an affirmative vote of a majority of those members voting. Such vote may be taken at a meeting (which may be conducted in person or by any telecommunication medium) or by written consent of Committee members without a meeting. 4.4 Finality of Committee Action. The Committee shall resolve all questions arising under the plan and option agreements entered into pursuant to the Plan. Each determination, interpretation, or other action made or taken by the Committee shall be final and conclusive and binding on all persons, including, without limitation, the Company, its stockholders, the Committee and each 2 of the members of the Committee, and the directors, officers, employees and consultants of the Company, including Optionees and their respective successors in interest 4.5 Non-Liability of Committee Members. No Committee member shall be liable for any action or determination made by him in good faith with respect to the Plan or any Option granted under it. 4.6 Director NQOs. (a) Each director of the Company shall be automatically granted an NQO to purchase five-thousand (5,000) shares of the Company's Common Stock (as defined in Section 6), and thereafter on each anniversary of their first election or appointment as director, each director of the Company shall be automatically granted an NQO to purchase five-thousand (5,000) shares of the Company's Common Stock (as defined in Section 6). (b) Except as expressly authorized by this Section 4.6, directors of the Company who are members of the Committee are not otherwise eligible to participate in the Plan. (c) Upon the grant of an NQO to a director, the director shall receive a written option agreement substantially in the form provided for in Section 8. Such director shall not be an "Optionee" as defined in Section 4.2 of the Plan. (d) The exercise price for each NQO granted under this Section shall be one hundred percent (100%) of the Fair Market Value (as defined in Section 9) of the Company's Common Stock (as defined in Section 6) on the date of grant as determined by the Committee pursuant to Section 9 of the Plan. Each NQO granted under this Section shall be for a term of five years and shall be subject to earlier termination as hereinafter provided. (e) An NQO granted under this Section may be exercised in whole or consecutive installments, cumulative or otherwise, during its term; provided, however, no NQO granted under this Section shall be exercisable before six (6) months after the date of grant of such NQO. In addition, NQOs granted under this Section are subject to the rights and obligations of Optionees, as provided in Section 12 of the Plan; provided, however, that the "stock swap feature" provided for in Section 12 of the Plan shall be available with respect to all NQOs granted under this Section. (f) NQOs granted under this Section shall be subject to the exercise and non-transferability terms of Section 15 of the Plan. In the event of the termination of service on the Board by the holder of any NQO granted under this Section, then the outstanding NQOs of such holder shall expire one year after such termination, or their stated expiration date, whichever occurs first. 3 (g) Notwithstanding Sections 4.1 and 7 of the Plan, the grant of an NQO under this Section shall not disqualify such director as a disinterested person for purposes of serving on the Committee. The Committee shall have no power under Sections 4.2 and 8 of the Plan to determine the grant or terms of NQOs under this Section, but shall retain its general authority under Section 4.4 of the Plan to interpret and administer the Plan; provided, however, that, to the extent practicable, an individual member of the Committee should disqualify himself or herself from participation on any questions which is unique to his or her NQOs. 5. Board Power to Amend, Suspend, or Terminate the Plan. The Board may, from time to time, make such changes in or additions to the Plan as it may deem proper and in the best interest of the Company and its stockholders. The Board may also suspend or terminate the Plan at any time, without notice, and in its sole discretion. Notwithstanding the foregoing, no such change, addition, suspension, or termination by the Board shall (i) materially impair any option previously granted under the Plan without the express written consent of the optionee; or (ii) materially increase the number of shares subject to the Plan, materially increase the benefits accruing to optionees under the Plan, materially modify the requirements as to eligibility to participate in the Plan or alter the method of determining the option exercise price described in Section 9, without stockholder approval. 6. Shares Subject to the Plan. For the purposes of the Plan, the Committee is authorized to grant Options for up to 1,000,000 shares of the Company's common stock ("Common Stock"), or the number and kind of shares of stock or other securities which, in accordance with Section 14, shall be substituted for such shares of Common Stock or to which such shares shall be adjusted. The Committee is authorized to grant options under the Plan with respect to such shares. Any or all unsold shares subject to an Option which for any reason expires or otherwise terminates (excluding shares returned to the Company in payment of the exercise price for additional shares) may again be made subject to grant under the Plan. 7. Optionees. Options shall be granted only to full-time elected or appointed officers or other full-time key employees of the Company, to employees of companies that do business with the Company or to consultants to the Company designated by the Committee from time to time as Optionees, including, without limitation, members of the Board who are also full-time officers or key employees at the time of grant. In no event, however, may a member of the Committee be granted an Option under the Plan. Any Optionee may hold more than one option to purchase Common Stock, whether such option is an Option held pursuant to the Plan or otherwise. An Optionee who is an employee of the Company ("Employee Optionee") and 4 who holds an Option must remain a continuous full or part-time employee of the Company from the time of grant of the Option to him until the time of its exercise, except as provided in Section 11.3. 8. Grants of Options. The Committee shall have the sole discretion to grant Options under the Plan and to determine whether any Option shall be an ISO or an NQO. The terms and conditions of the Options granted under the Plan may differ from one another as the Committee, in its absolute discretion, shall determine as long as all Options granted under the Plan satisfy the requirements of the Plan. Upon determination by the Committee that an Option is to be granted to an Optionee, a written option agreement evidencing such Option shall be given to the Optionee, specifying the number of shares subject to the Option, the Option exercise price, whether the Option is an ISO or an NQO, and the other individual terms and conditions of such Option. Such option agreement may incorporate generally applicable provisions from the Plan, a copy of which shall be provided to all Optionees at the time of their initial grants under the Plan. The Option shall be deemed granted as of the date specified in the grant resolution of the Committee, and the option agreement shall be dated as of the date of such resolution. 9. Option Exercise Price. The price per share to be paid by the Optionee at the time an ISO is exercised shall not be less than one hundred percent (100%) of the Fair Market Value (as hereinafter defined) of one share of the optioned Common Stock on the date on which the Option is granted. No ISO may be granted under the Plan to any person who, at the time of such grant, owns (within the meaning of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent thereof, unless the exercise price of such ISO is at least equal to one hundred and ten percent (110%) of Fair Market Value on the date of grant. The price per share to be paid by the Optionee at the time an NQO is exercised shall not be less than eighty-five (85%) of the Fair Market Value on the date on which the NQO is granted, at determined by the Committee. For purposes of the Plan, the "Fair Market Value" of a share of the Company's Common Stock as of a given date shall be: (i) the closing price of a share of the Company's Common Stock on the principal exchange on which shares of the Company's Common Stock are then trading, if any, on such date, or if shares were not traded on such date, then on the next preceding trading day during which a sale occurred; or (ii) if the Company's Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Common Stock on such date as reported by NASDAQ or such successor quotation system; or (iii) if the Company's Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Common Stock on such 5 date as determined in good faith by the Committee; or (iv) if the Company's Common Stock is not publicly traded, the fair market value established by the Committee acting in good faith. In addition, with respect to any ISO, the Fair Market Value on any given date shall be determined in a manner consistent with any regulations issued by the Secretary of the Treasury for the purpose of determining fair market value of securities subject to an ISO plan under the Code. 10. Ceiling of ISO Grants. The aggregate Fair Market Value (determined at the time any ISO is granted) of the Common Stock with respect to which an Optionee's ISOs, together with incentive stock options granted under any other plan of the Company and any parent, are exercisable for the first time by such Optionee during any calendar year shall not exceed $100,000. In the event that an Optionee holds such incentive stock options that become first exercisable (including as a result of acceleration of exercisability under the Plan) in any one year for shares having a Fair Market Value at the date of grant in excess of $100,000, then the most recently granted of such ISOs, to the extent that they are exercisable for shares having an aggregate Fair Market Value in excess of such limit, shall be deemed to be NQOs. 11. Duration, Exercisability, and Termination of Options. 11.1 Option Period. The option period shall be determined by the Committee with respect to each Option granted. In no event, however, may the option period exceed ten (10) years from the date on which the Option is granted, or five (5) years in the case of a grant of an ISO to an Optionee who is a ten percent (10%) shareholder at the date on which the Option is granted as described in Section 9. 11.2 Exercisability of Options and Acceleration of Excercisability. Each Option shall be exercisable in whole or in consecutive installments, cumulative or otherwise, during its term as determined in the discretion of the Committee; provided, however, no Option shall be exercisable before six (6) months after the date of grant of such Option. Notwithstanding the foregoing, the Committee at the time of grant may provide that the vesting of the right to exercise a given Option or portion thereof may be accelerated, during the term of the Option, under one or more of the following circumstances: (i) if the Common Stock of the Company shall be the subject of a tender offer by any person other than the Company which, by its terms, could result in the offerer acquiring more than twenty-five percent (25%) of the then outstanding shares of Common Stock of the Company, or (ii) if the shareholders shall consider, or be asked to consider, merging or consolidating the Company with any other person, or transferring all or substantially all of its assets to any other person, or (iii) if more than twenty-five percent (25%) of the Company's then outstanding 6 voting shares shall be purchased by any person other than the Company, such that granted but unexercisable Options may be exercised at any time following the first public announcement of such event; provided, however, that in no event shall an option be exercised prior to six months after the date of grant or beyond its stated term. 11.3 Termination of Options due to Termination of Employment, Disability, or Death of Optionee; Termination for "Cause", or Resignation in Violation of an Employment Agreement. All Options granted under the Plan to any Employee Optionee shall terminate and may no longer be exercised if the Employee Optionee ceases, at any time during the period between the grant of the Option and its exercise, to be an employee of the Company; provided, however, the Committee may alter the termination date of the Option if the Optionee transfers to an affiliate of the Company. Notwithstanding the foregoing, (i) if the Employee Optionee's employment with the Company shall have terminated for any reason (other than involuntary dismissal for "cause" or voluntary resignation in violation of any agreement to remain in the employ of the company, including, without limitation, any such agreement pursuant to Section 16), he may, at any time before the expiration of three (3) months after such termination or before expiration of the Option, whichever shall first occur, exercise the Option (to the extent that the Option was exercisable by him in the date of the termination of his employment); (ii) if the Employee Optionee's employment shall have terminated due to disability (as defined in Section 22(e)(3) of the Code and subject to such proof of disability as the Committee may require), such Option may be exercised by the Employee Optionee (or by his guardian(s), or conservator(s), or other legal representative(s)) before the expiration of twelve (12) months after such termination or before expiration of the Option, whichever shall first occur (to the extent that the Option was exercisable by him on the date of the termination of his employment); (iii) in the event of the death of the Employee Optionee, an Option exercisable by him at the date of his death shall be exercisable by his legal representative(s), legatee(s), or heir(s), or by his beneficiary or beneficiaries so designated by him as permitted by Section 15, as the case may be, within twelve (12) months after his death or before the expiration of the Option, whichever shall first occur (to the extent that the Option was exercisable by him on the date of his death); and (iv) if the Employee Optionee's employment is terminated for "cause" or in violation of any agreement to remain in the employ of the Company, including, without limitation, any such agreement pursuant to Section 16, he may, at any time before the expiration of thirty (30) days after such termination or before the expiration of the Option, whichever shall first occur, exercise the Option (to the extent that the Option was exercisable by him on the date of termination of his employment). For purposes of the Plan, "cause" may include, without limitation, any illegal or improper conduct (1) which injures or impairs the reputation, goodwill, or business of the Company; (2) which involves the misappropriation of funds of the Company, or the misuse of data, information, or documents acquired in connection with employment by the Company; or (3) which violates any other directive or policy promulgated by the Company. A termination for "cause" may also include any 7 resignation in anticipation of discharge for "cause" or resignation accepted by the Company in lieu of a formal discharge for "Cause." 12. Manner of Option Exercise; Rights and Obligations of Optionees. 12.1 Written Notice of Exercise. An Optionee may elect to exercise an Option in whole or in part, from time to time, subject to the terms and conditions contained in the Plan and in the agreement evidencing such Option, by giving written notice of exercise to the Company at its principal executive office. 12.2 Cash Payment for Optioned Shares. If an Option is exercised for cash, such notice shall be accompanied by a cashier's or personal check, or money order, made payable to the Company for the full exercise price of the shares purchased. 12.3 Stock Swap Feature. At the time of the Option exercise, and subject to the discretion of the Committee to accept payment in cash only, the Optionee may determine whether the total purchase price of the shares to be purchased shall be paid solely in cash or by transfer from the Optionee to the Company of previously acquired shares of Common Stock, or by a combination thereof. In the event that the Optionee elects to pay the total purchase price in whole or in part with previously acquired shares of Common Stock, and subject to the discretion of the Committee to accept payment in cash only, the value of such shares shall be equal to their Fair Market Value on the date of exercise, determined by the Committee in the same manner used for determining Fair Market Value at the time of grant for purposes of Section 9. 12.4 Investment Representation for Non-Registered Shares and Legality of Issuance. The receipt of shares of Common Stock upon the exercise of an Option shall be conditioned upon the Optionee (or any other person who exercises the Option on his or her behalf as permitted by Section 11.3) providing to the Committee a written representation that, at the time of such exercise, it is the intent of such person(s) to acquire the shares for investment only and not with a view toward distribution. The certificate for unregistered shares issued for investment shall be restricted by the Company as to transfer unless the Company receives an opinion of counsel satisfactory to the Company to the effect that such restriction is not necessary under then pertaining law. The providing of such representation and such restrictions on transfer shall not, however, be required upon any person's receipt of shares of Common Stock under the Plan in the event that, at the time of grant of the Option relating to such receipt or upon such receipt, whichever is the appropriate 8 measure under applicable federal or state securities laws, the shares subject to the Option shall be (i) covered by an effective and current registration statement under the Securities Act of 1933, as amended, and (ii) either qualified or exempt from qualification under applicable state securities laws. The Company shall, however, under no circumstances be required to sell or issue any shares under the Plan if, in the opinion of the Committee, (i) the issuance of such shares would constitute a violation by the Optionee or the Company of any applicable law or regulation of any governmental authority, or (n) the consent or approval of any governmental body is necessary or desirable as a condition of, or in connection with, the issuance of such shares. 12.5 Stockholder Rights of Optionee. Upon exercise, the Optionee (or any other person who exercises the Option on his behalf as permitted by Section 11.3) shall be recorded on the books of the Company as the owner of the shares, and the Company shall deliver to such record owner one or more duly issued stock certificates evidencing such ownership. No person shall have any rights as a stockholder with respect to any shares of Common Stock covered by an Option granted pursuant to the Plan until such person shall have become the holder of record of such shares. Except as provided in Section 14, no adjustments shall be made for cash dividends or other distributions or other rights as to which there is a record date preceding the date such person becomes the holder of record of such shares. 12.6 Holding Period for Tax Purposes. The Plan does not provide that an Optionee must hold shares of Common Stock acquired under the Plan or any minimum period of time. Optionees are urged to consult with their own tax advisors with respect to the tax consequences to them of their individual participation in the Plan. 13. Successive Grants. Successive grants of Options may be made to any Optionee under the Plan. 14. Adjustments. If the outstanding Common Stock shall be hereafter increased or decreased, or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, reorganization, merger, consolidation, share exchange, or other business combination in which the Company is the surviving parent corporation, stock split-up, combination of shares, or dividend or other distribution payable in capital stock or rights to acquire capital stock, appropriate adjustment shall be made by the Committee in the number and kind of shares for which options may be granted under the Plan. In addition, the Committee shall made appropriate adjustment in the number and kind of shares as to which outstanding and unexercised options shall be exercisable, to the end that the proportionate interest of the 9 holder of the option shall, to the extent practicable, be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price applicable to the unexercised portion of the option but with a corresponding adjustment in the exercise price per share. In the event of the dissolution or liquidation of the Company, any outstanding and unexercised options shall terminate as of a future date to be fixed by the Committee. In the event of a Reorganization (as hereinafter defined), then, a. If there is no plan or agreement with respect to the Reorganization ("Reorganization Agreement"), or if the Reorganization Agreement does not specifically provide for the adjustment, change, conversion, or exchange of the outstanding and unexercised options for cash or other property or securities of another corporation, then any outstanding and unexercised options shall terminate as of a future date to be fixed by the Committee; or b. If there is a Reorganization Agreement, and the Reorganization Agreement specifically provides for the adjustment, change, conversion, or exchange of the outstanding and unexercised options for cash or other property or securities of another corporation, then the Committee shall adjust the shares under such outstanding and unexercised options, and shall adjust the shares remaining under the Plan which are then available for the issuance of options under the Plan if the Reorganization Agreement makes specific provisions therefor, in a manner not inconsistent with the provisions of the Reorganization Agreement for the adjustment, change, conversion, or exchange of such options and shares. The term "Reorganization" as used in this Section 14 shall mean any reorganization, merger, consolidation, share exchange, or other business combination pursuant to which the Company is not the surviving parent corporation after the effective date of the Reorganization, or any sale or lease of all or substantially all of the assets of the Company. Nothing herein shall require the Company to adopt a Reorganization Agreement, or to make provision for the adjustment, change, conversion, or exchange of any options, or the shares subject thereto, in any Reorganization Agreement which its does adopt. The Committee shall provide to each optionee then holding an outstanding and unexercised option not less than thirty (30) calendar days' advanced written notice of any date fixed by the Committee pursuant to this Section 14 and of the terms of any Reorganization Agreement providing for the adjustment, change, conversion, or exchange of outstanding and unexercised options. Except as the Committee may otherwise provide, each optionee shall have the right during such period to exercise his option only to the extent that the option was exercisable on the date such notice was provided to the optionee. Any adjustment to any outstanding ISO pursuant to this Section 14, if made by reason of a transaction described in Section 424(a) of the Code, shall be made so as to conform to the requirements of that Section and the regulation thereunder. If any other 10 transaction described in Section 424(a) of the Code affects the Common Stock subject to any unexercised ISO theretofore granted under the Plan (hereinafter for purposes of this Section 14 referred to as the -old option"), the Board of Directors of the Company or of any surviving or acquiring corporation may take such action as it deems appropriate, in conformity with the requirements of that Code Section and the regulations thereunder, to substitute a new option for the old option, in order to make the new option, as nearly as may be practicable, equivalent to the old option, or to assume the old option. No modification, extension, renewal, or other change in any option granted under the Plan may be made, after the grant of such option, without the optionee's consent, unless the same is permitted by the provisions of the Plan and the option agreement. In the case of an ISO, optionees are hereby advised that certain changes may disqualify the ISO from being considered as such under Section 422 of the Code, or constitute a modification, extension, or renewal of the ISO under Section 424(h) of the Code. All adjustments and determinations under this Section 14 shall be made by the Committee in good faith in its sole discretion. 15. Non-Transferability of Options. An Option shall be exercisable only by the Optionee, or in the event of his disability, by his guardian(s), conservator(s), or other legal representative(s), during the Optionee's lifetime. In the event of the death of the Optionee, an Option shall be exercisable by his legal representative(s), legatee(s), or heir(s), as the case may be, or by such person(s) as he may designate as his beneficiary or beneficiaries in a signed statement included as a part of the option agreement. No Option shall be transferable by the Optionee, either voluntary or involuntarily, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder. Any attempt to exercise, transfer or otherwise dispose of an interest in an Option in contravention of the terms and conditions of the Plan, or of the option agreement for the Option, shall immediately void the Option. 16. Continued Employment. As determined in the sole discretion of the Committee at the time of grant and if so stated in a writing signed by the Company, each Option may have as a condition the requirement of an Employee Optionee to remain in the employ of the Company, or of its affiliates, and to render to it his or her exclusive service, at such compensation as may be determined from time to time by it, for a period not to exceed the term of the Option, except for earlier termination of employment by or with the express written consent of the Company or on account of disability or death. The failure of any Employee Optionee to abide by such 11 agreement as to any Option under the Plan may result in the termination of all of his or her then outstanding Options granted pursuant to the Plan. Neither the creation of the Plan nor the granting of Option(s) under it shall be deemed to create a right in an Employee Optionee to continued employment with the Company, and each such Employee Optionee shall be and shall remain subject to discharge by the Company as though the Plan had never come into existence. Except as specifically provided by the Committee in any particular case, the loss of existing or potential profit in options granted under this Plan shall not constitute an element of damages in the event of termination of the employment of an employee by contract or otherwise. 17. Tax Withholding. The exercise of any option granted under the Plan is subject to the condition that if at any time the Company shall determine, in its discretion, that the satisfaction of withholding tax or other withholding liabilities under any federal, state or local law is necessary or desirable as a condition of, or in connection with, such exercise or a later lapsing of time or restrictions on or disposition of the shares of Common Stock received upon such exercise, then in such event, the exercise of the option shall not be effective unless such withholding shall have been effected or obtained in a manner acceptable to the Company. When an optionee is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with the exercise of any option, the optionee may, subject to the approval of the Committee, which approval shall not have been disapproved at any time after the election is made, satisfy, the obligation, in whole or in part, by electing to have the Company withhold shares of Common Stock having a value equal to the amount required to be withhold. The value of the Common Stock withheld pursuant to the election shall be determined by the Committee, in accordance with the criteria set forth in Section 9, with reference to the date the amount of tax to be withheld is determined ("Tax Determination Date"). The optionee shall pay to the Company in cash any amount required to be withheld that would otherwise result in the withholding of a fractional share. The election by an optionee who is a director or officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended ("Section 16 of the 1934 Act"), to be effective, must meet all of the following requirements: (i) the election must be made on or prior to Tax Determination Date; (ii) the election must be irrevocable; (iii) the exercise of an option may only be made six months or more subsequent to the grant of that option (except that this limitation will not apply in the event death or disability of the optionee occurs prior to the expiration of the six-month period); and (iv) the election must be made either (a) six months or more prior to the Tax Determination Date, or (b) within a ten-day "window period" beginning on the third business day following the release of the Company's annual or quarterly summary statement of sales and earnings and ending on the twelfth business day following the date of such release. Where the Tax Determination Date of a director or officer of the Company within the meaning of Section 16 of the 1934 Act is deferred until six months after exercise and that director or officer elects to have the Company withhold shares pursuant to the terms of this Section 17, the full amount 12 of option shares shall be issued or transferred to him upon exercise but he will be unconditionally obligated to tender back to the Company on the Tax Determination Date the proper number of shares of Common Stock to satisfy withholding requirements, plus cash for any fractional amount. 18. Compliance with Rule 701. 18.1 Rule 701. Until the Company is eligible to register securities issuable under the Plan by means of Form 5-8 or a similar successor form, in addition to complying with the provisions of Section 2, the Company also shall comply with the requirements of Rule 701 under the Securities Act of 1933 ("1933 Act") relating to an exemption from registration for employee stock option plans. These requirements include, but are not limited to, the following: (a) Copy of the Plan. The Company shall provide each participant with a copy of the Plan. (b) Limitations on Amount. The amount of securities offered and sold in reliance on Rule 701 shall not exceed the greater of $500,000 or either of the following amounts: (i) The aggregate offering price of securities of the Company subject to outstanding offers in reliance on Rule 701 plus securities of the Company sold in the preceding 12 months in reliance on Rule 701 shall not exceed 15% of the Company's total assets (measured at the end of the last fiscal year). (ii) The number of the Company's securities subject to outstanding offers in reliance on Rule 701 plus the Company's securities sold in the preceding 12 months in reliance on Rule 701 shall not exceed 15% of the outstanding securities of that class. 18.2 General Limitation. In no event shall the aggregate offering price of the Company's securities subject to outstanding offers made in reliance on Rule 701 plus the Company's securities sold in the preceding 12 months in reliance on Rule 701 exceed $5,000,000. 18.3 Restrictive Legend. 13 All stock certificates issued by the Company shall contain appropriate legend setting forth restrictions on resale or transfer of the securities. 19. Term of Plan. 19.1 Effective Date. Subject to shareholder approval, the Plan shall become effective on July 15, 1997. 19.2 Termination Date. Except as to options previously granted and outstanding under the plan, the Plan shall terminate at midnight on July 15, 2007, and no Option shall be granted after that time. Options then outstanding may continue to be exercised in accordance with their terms. The Plan may be suspended or terminated at any earlier time by the Board within the limitations set forth in Section 5. 20. Governing Law. The Plan and all rights and obligations under it shall be construed and enforced in accordance with the laws of the State of Colorado. 14 EX-10.17 22 PROMISSORY NOTE WITH J.T. WHITWORTH Exhibit 10.17 PROMISSORY NOTE $140,070.72 Longmont, Colorado November 28, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of J.T. Whitworth, the sum of One Hundred Forty Thousand Seventy and 72/100 Dollars ($140,070.72), with interest at the rate of ten percent (10%) per annum on the unpaid balance. Said sum shall be payable in the manner following: (1) Due and payable on demand. The undersigned shall have the right to prepay without penalty. In the event any payment due hereunder is not made when due, the entire balance shall be immediately due at the option of holder. In the event of default, the undersigned agrees to pay all reasonable attorney fees and costs of collection. Attest: Kaire International, Inc. /s/ [illegible] By /s/ Robert L. Richards - -------------------------- ------------------------------- Secretary Robert L. Richards, C.E.O. STATE OF COLORADO: COUNTY OF BOULDER, TO-WIT: This instrument was acknowledged before me this 28th day of November 1997, by Robert L. Richards, C.E.O., of Kaire International, Inc., a Delaware corporation, on behalf of said corporation. My commission expires: 5-April-1999 /s/ [illegible] ---------------------------- Notary Public EX-21.1 23 LIST OF REGISTRANTS Exhibit 21.1 List of Subsidiaries Kaire Trinidad Limited Kaire Europe Limited Kaire Korea, Ltd. Kaire New Zealand Limited Kaire Australia Pty. Limited EX-23.2 24 CONSENT (BDO SEIDMAN) Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Kaire International, Inc. Longmont, Colorado We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated April 4, 1997, relating to the consolidated financial statements of Kaire International, Inc. which is contained in that Prospectus. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern. We also consent to the reference to us under the caption "Experts" in the Prospectus. BDO Seidman, LLP Denver, Colorado February 10, 1998 EX-23.3 25 CONSENT (JONES, JENSEN & COMPANY) EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS' Board of Directors Kaire International, Inc. Longmont, Colorado We consent to the use in this Registration Statement of Kaire International, Inc. on Form S1, of our report dated August 1, 1996 on Kaire International, Inc. for the year ended December 31, 1994 and to all references to our firm included in this Registration Statement. Jones, Jensen & Company /s/ Jones, Jensen & Company Salt Lake City, Utah February 6, 1998 EX-27 26 FINANCIAL DATA SCHEDULE
5 9-MOS YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 SEP-30-1997 DEC-31-1996 DEC-31-1995 533,530 739,267 1,770,132 0 0 0 440,381 178,406 574,429 (65,900) (30,000) (56,000) 2,127,441 2,194,315 2,301,644 3,985,497 4,529,738 5,310,097 2,522,412 2,158,110 1,822,692 (1,256,904) (901,212) (444,181) 5,971,637 6,350,119 6,787,144 (8,703,078) (5,911,711) (4,304,810) (810,162) 0 0 0 0 0 0 0 0 (42,484) (29,400) (29,400) 3,762,247 (95,091) (1,886,740) (5,971,637) (6,350,119) (6,787,144) (27,887,227) (51,498,562) (57,841,350) (27,887,227) (51,498,562) (57,841,350) 6,586,767 13,321,062 14,476,630 25,365,318 40,941,331 41,201,003 160,991 27,312 30,102 0 0 0 0 0 0 (4,225,849) (2,791,143) 2,133,615 0 (1,103,000) 862,000 (4,181,528) (1,802,786) 1,186,351 0 0 0 0 0 0 0 0 0 (4,181,528) (1,802,786) 1,186,351 (.95) (.41) .27 0 0 0
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