SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X| Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
RELIV' INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
|X| No Fee Required
RELIV' INTERNATIONAL, INC.
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri 63005
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON MAY 25, 2004
To: Shareholders of Reliv' International, Inc.
The Annual Meeting of the shareholders of Reliv' International, Inc. will
be held at Reliv' International, Inc., Corporate Headquarters, 136 Chesterfield
Industrial Boulevard, Chesterfield, Missouri 63005, on Tuesday, May 25, 2004, at
9:30 a.m., Central Daylight Savings Time, for the following purposes:
1. To elect 7 directors to hold office during the year following the
Annual Meeting or until their successors are elected (Item No. 1 on
proxy card);
2. To ratify the appointment of Ernst & Young LLP as auditors of the
Company for 2004 (Item No. 2 on proxy card); and
3. To transact such other business as may properly come before the
meeting.
The close of business on March 29, 2004, has been fixed as the record date
for determining the shareholders entitled to receive notice of and to vote at
the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
April 24, 2004 /s/ Stephen M. Merrick
------------------------------
Stephen M. Merrick, Secretary
YOUR VOTE IS IMPORTANT
It is important that as many shares as possible be represented at
the Annual Meeting. Please date, sign, and promptly return the proxy
in the enclosed envelope. Your proxy may be revoked by you at any
time before it has been voted.
RELIV' INTERNATIONAL, INC.
136 Chesterfield Industrial Boulevard
Chesterfield, Missouri 63005
PROXY STATEMENT
Information Concerning the Solicitation
This statement is furnished in connection with the solicitation of proxies
to be used at the annual shareholders meeting (the "Annual Meeting") of Reliv'
International, Inc. (the "Company"), a Delaware corporation, to be held on
Tuesday, May 25, 2004. The proxy materials are being mailed to shareholders of
record on April 23, 2004.
The solicitation of proxies in the enclosed form is made on behalf of the
Board of Directors of the Company.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expenses of transmitting copies of the proxy material to the beneficial owners
of shares held of record by such persons will be borne by the Company. The
Company does not intend to solicit proxies otherwise than by use of the mail,
but certain officers and regular employees of the Company or its subsidiaries,
without additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies.
Quorum and Voting
Only shareholders of record at the close of business on March 29, 2004,
are entitled to vote at the Annual Meeting. On that day, there were 15,141,224
shares of Common Stock outstanding. Each share has one vote. A simple majority
of the outstanding shares is required to be present in person or by proxy at the
meeting for there to be a quorum for purposes of proceeding with the Annual
Meeting. A simple majority of the shares present in person or by proxy at the
Annual Meeting, at which a quorum is present, is required to elect directors and
approve the appointment of the Company's auditors. Abstentions and withheld
votes have the effect of votes against these matters. Broker non-votes (shares
held of record by a broker for which a proxy is not given) will be counted for
purposes of determining shares outstanding for purposes of a quorum, but will
not be counted as present for purposes of determining the vote on any matter
considered at the meeting.
A shareholder signing and returning a proxy on the enclosed form has the
power to revoke it at any time before the shares subject to it are voted by
notifying the Secretary of the Company in writing. If a shareholder specifies
how the proxy is to be voted with respect to any of the proposals for which a
choice is provided, the proxy will be voted in accordance with such
specifications. If a shareholder fails to so specify with respect to such
proposals, the proxy will
1
be voted "FOR" the nominees for directors contained in these proxy materials and
"FOR" the appointment of the Company's auditors.
Stock Ownership by Management and Others
The following table provides information concerning the beneficial
ownership of Common Stock of the Company by each director and nominee for
director, certain executive officers, and by all directors and officers of the
Company as a group as of March 29, 2004. In addition, the table provides
information concerning the beneficial owners known to the Company to hold more
than 5 percent of the outstanding Common Stock of the Company as of March 29,
2004.
Amount and nature of
Name of beneficial owner beneficial ownership(1) Percent of class(1)(2)
------------------------ ----------------------- ----------------------
Robert L. and Sandra S. Montgomery(3) 4,090,223 25.9%
Carl W. Hastings(4) 1,287,976 8.38%
David G. Kreher(5) 567,765 3.72%
Stephen M. Merrick(6) 1,004,411 6.56%
Donald L. McCain 595,464 3.86%
Marvin W. Solomonson 510,506 3.37%
Thomas T. Moody 173,008 1.14%
Thomas W. Pinnock III 115,503 *%
John B. Akin 33,868 *%
Donald E. Gibbons, Jr. 131,000 *%
Steven D. Albright 69,909 *%
All Directors and Executive Officers as a Group 8,579,633 51.09%
(12 persons)
*less than one percent
(footnotes continued on next page)
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(1) In each case the beneficial owner has sole voting and investment power.
The figures include the following number of shares of Common Stock for
which an individual has the right to acquire beneficial ownership, within
sixty (60) days from March 29, 2004, through the exercise of stock options
or warrants: Mr. Montgomery - 653,950, Dr. Hastings - 237,730, Mr. Kreher
- 124,403, Mr. Merrick -180,058, Mr. McCain - 273,806, Mr. Solomonson - 0,
Mr. Moody - 52,767, Mr. Pinnock - 53,678, Mr. Akin - 22,321, Mr. Gibbons -
0, and Mr. Albright - 52,820.
(2) The calculation of percent of class is based upon the number of shares of
Common Stock outstanding as of March 29, 2004.
(3) Mr. Robert L. Montgomery is Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. Mrs. Montgomery is a
director of the Company. The Montgomery's mailing address is 136
Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005.
(4) Dr. Carl W. Hastings is Vice President and a director of the Company. Dr.
Hastings' mailing address is 136 Chesterfield Industrial Boulevard,
Chesterfield, Missouri 63005.
(5) Mr. David G. Kreher is Senior Vice President, Chief Operating Officer and
Chief Financial Officer of the Company. Mr. Kreher's mailing address is
136 Chesterfield Industrial Boulevard, Chesterfield, Missouri 63005.
(6) Mr. Stephen M. Merrick is Senior Vice President, Secretary and a director
of the Company. Mr. Merrick's mailing address is 136 Chesterfield
Industrial Boulevard, Chesterfield, Missouri 63005.
PROPOSAL ONE - ELECTION OF DIRECTORS
Seven directors will be elected at the Annual Meeting to serve for terms
of one year expiring on the date of the Annual Meeting in 2005. Each director
elected will continue in office until a successor has been elected. If a nominee
is unable to serve, which the Board of Directors has no reason to expect, the
persons named in the accompanying proxy intend to vote for the balance of those
named and, if they deem it advisable, for a substitute nominee.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF ALL OF THE NOMINEES.
Information Concerning Nominees
The following is information concerning nominees for election as directors
of the Company. Messrs. Montgomery, Kreher, Merrick, McCain and Akin are
presently directors of the Company.
ROBERT L. MONTGOMERY, age 62, Chairman of the Board, Chief Executive
Officer and President of the Company. Mr. Montgomery became Chairman of the
Board of Directors and Chief Executive Officer of the Company on February 15,
1985, and President on July 1,
3
1985. Mr. Montgomery has been a director of the Company since 1985. Mr.
Montgomery is also the President and a director of Reliv', Inc. and President
and a director of Reliv' World Corporation, both wholly-owned subsidiaries of
the Company. Mr. Montgomery received a B.A. degree in economics from the
University of Missouri in Kansas City, Missouri in 1965.
DAVID G. KREHER, age 51, Senior Vice President, Chief Operating Officer
and Assistant Secretary of the Company. He is also Secretary and a director of
Reliv', Inc. and Reliv' World Corporation. Mr. Kreher was employed by the
Company in September, 1991, and became Senior Vice President on July 1, 1992.
Mr. Kreher was named Chief Operating Officer in January, 2001. Mr. Kreher holds
a B.S. degree in accounting from Southwest Missouri State University. Mr. Kreher
has been a director of the Company since June 1, 1994 and is the brother-in-law
of Robert L. Montgomery.
STEPHEN M. MERRICK, age 62, Senior Vice President/Corporate and
International Development, Secretary, General Counsel and director of the
Company since July 20, 1989; and Senior Vice President, Secretary and director
of Reliv', Inc. and Reliv' World Corporation. Mr. Merrick is also a principal of
the law firm of Merrick & Klimek, P.C. of Chicago, Illinois, and has been
engaged in the practice of law for over 30 years. Mr. Merrick has represented
the Company and its subsidiaries since the founding of the Company. Mr. Merrick
received a Juris Doctor degree from Northwestern University School of Law in
1966. Mr. Merrick is also Executive Vice-President and a director of CTI
Industries Corporation (NASDAQ SmallCap Market-CTIB).
DONALD L. MCCAIN, age 60, has been a director of the Company since July
20, 1989, and is also a director of Reliv', Inc. and Reliv' World Corporation.
Mr. McCain is the Corporate Secretary and co-owner of The Baughan Group Inc.,
formerly Robertson International Inc., a worldwide supplier and manufacturer of
mining equipment and supplies with plants and facilities throughout the United
States and South Africa. Mr. McCain acquired his interest in The Baughan Group
in September, 1995. He is also co-owner of Coal Age Incorporated, a mining
equipment manufacturer and rebuilding company. He acquired his interest in Coal
Age, Inc. in September, 1994. Mr. McCain co-founded G&T Resources, Inc., an
owner and operator of nursing homes, in 1980 and was engaged in the management
of that company until he sold his interest in September, 1994. Prior to that
time, Mr. McCain privately invested in real estate and owned and operated
Expertune, Inc., a company with two locations that specialized in fast oil
changes. Mr. McCain was employed in the food processing industry for fifteen
years. Most of that time was with Archer Daniels Midland Company as a manager of
plant operations.
JOHN B. AKIN, age 75, has been a director of the Company since June, 1986.
Mr. Akin retired as Vice President, A.G. Edwards & Sons and resident manager of
the Decatur, Illinois branch office in 1995. Mr. Akin had been associated with
A.G. Edwards & Sons as a stock broker, manager and officer since April, 1973.
Mr. Akin holds a B.A. degree from the University of Northern Iowa, Cedar Falls,
Iowa.
ROBERT M. HENRY, age 57, has over 30 years of experience in general and
financial management. From 2000 to 2003, Mr. Henry served as Chief Executive
Officer and Board member for Mannatech, Incorporated, a public multi-level
marketing company that sells dietary supplements, wellness and weight-management
products to independent distributors. From 1998
4
to 2000, Mr. Henry acted as an Operating Consultant for Gryphon Investors where
he gave advice on the investment opportunities in the direct selling industry.
From 1986 to 1998, Mr. Henry served in various executive positions in the
advertising, communications, investment and women's apparel industries. From
1982 to 1986, Mr. Henry served as Corporate Controller Worldwide for Amway
Corporation, a multi-level marketer of various products. From 1971 to 1982, Mr.
Henry served various management roles for Avon Products, Inc., including
Regional Controller, Manufacturing/Sales/Distribution, Chief Financial Officer
for Avon Fashions, and Manager A/P & Intercompany Accounting. He received a B.S.
degree in Accounting from Hunter College in New York and a J.D. from Brooklyn
Law School. Mr. Henry has been a member of the New York State Bar since 1975 and
also served on the DSA Board of Directors during 2002.
DENIS ST. JOHN, age 60, is a CPA and principal with the Larson Allen
Health Care Group, focusing on physicians and institutions involved in clinics,
nursing homes, medical office buildings, and other real estate intensive
projects. Mr. St. John's current practice concentration areas involve estate
planning, financial planning, and business and real estate financing. Mr. St.
John has over 38 years of experience in his field. For fifteen years, Mr. St.
John was associated with a large regional firm and a St. Louis firm where he was
a partner working primarily in the tax area, serving mid-size, closely held
companies. Mr. St. John founded his own firm in 1980, which was ranked in the
top 25 accounting firms in St. Louis prior to its acquisition by Larson Allen in
1997. Mr. St. John graduated from the University of Missouri with a Bachelor of
Science in Business Administration with a major in Accounting and a minor in
Economics. He is a former NASD registered representative, holding Series 6 and
63 securities licenses. Mr. St. John is a member of the Missouri Society of CPAs
and the American Institute of CPAs and has been qualified as an expert witness
in tax and accounting areas in state and Federal courts and the Supreme Court of
Canada.
Executive Officers Other Than Nominees
DONALD E. GIBBONS, JR., age 48, is Senior Vice President of Worldwide
Sales of the Company. Mr. Gibbons was employed by the Company in June, 1991, and
became Vice President of Finance. He became Vice President of Distributor
Relations in 1992, and accepted the position of Vice President of U.S. Sales in
June, 1994. Currently, Mr. Gibbons manages all sales efforts throughout the
world. In 1981, Mr. Gibbons, with his wife Elizabeth, became an independent
distributor in a network marketing company and operated that home business for 5
years. Mr. Gibbons received a B.A. degree in accountancy from the University of
Illinois, Springfield, graduating with highest honors.
STEVEN D. ALBRIGHT, age 42, is Vice-President of Finance/Controller of the
Company. Mr. Albright has been employed by the Company since February 1992 as
Controller. From 1987 to 1992, Mr. Albright was employed as Assistant Controller
for Kangaroos USA, Inc., an athletic shoe importer and distributor. From 1983 to
1987, Mr. Albright was employed by the public accounting firm of Ernst & Young.
Mr. Albright has a B.S. degree in Accountancy from the University of Illinois at
Urbana-Champaign and is a CPA.
5
Committees of the Board of Directors
The Company's Board of Directors has standing Management, Compensation and
Audit Committees. The Board of Directors met 4 times during 2003. No director
attended less than 75% of the combined Board of Directors and Committee
meetings.
The Compensation Committee is composed of Messrs. McCain, Merrick and
Akin. The Compensation Committee reviews and makes recommendations to the Board
of Directors concerning the compensation of officers and key employees of the
Company. The Compensation Committee met 1 time during 2003.
The Management Committee reviews operations and policies of the Company on
a regular basis. The Management Committee is composed of four members of the
Board of Directors, including Messrs. Montgomery, Kreher and Merrick, Mrs.
Sandra Montgomery, as well as several other members of top management. The
Management Committee met 10 times during 2003.
The Company has a Sales and Marketing Committee that meets on a regular
basis to discuss sales and marketing ideas and strategies as well as plan
upcoming distributor events. The Sales and marketing Committee met 5 times
during 2003 and is made up of 6 members of the Board of Directors, including
Messrs.Montgomery, Kreher, Merrick, Pinnock and Moody, Mrs. Sandra Montgomery,
as well as several other members of management that are involved with Company
sales and marketing.
The Company does not have a standing nominating committee or committee
performing similar functions. All of the independent directors of the Board of
Directors of the Company participated in the nominating process and voted in
favor of the nomination of the directors nominated for election at the annual
meeting of shareholders to be held on May 25, 2004. The Company's Board of
Directors intends to establish a nominating committee during 2004 in accordance
with rules of the Securities and Exchange Commission and of the NASDAQ Stock
Market.
Audit Committee
Since 2000, the Company has had a standing Audit Committee, which is
presently composed of Mr. McCain, Mr. Akin and Mr. Solomonson. Mr. McCain has
been designated and is the Company's "Audit Committee Financial Expert" pursuant
to Item 401 of Regulation S-K of the Exchange Act. The Audit Committee held 4
meetings during fiscal year 2003, including quarterly meetings with management
and the independent auditors to discuss the Company's financial statements. Mr.
McCain and each appointed member of the Committee satisfies the definition of
"independent" as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Exchange Act. The Company's Board of Directors has adopted a written charter for
the Audit Committee, a copy of which has been attached to this Proxy Statement
as Exhibit A. The Audit Committee reviews and makes recommendations to the
Company about its financial reporting requirements. Information regarding the
functions performed by the Committee is set forth in the "Report of the Audit
Committee," as follows:
6
Report of the Audit Committee
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards, including but not limited to those
matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards, AU ss.380). In addition, the Committee has discussed with
the independent auditors the auditor's independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board.
The Committee discussed with the Company's independent auditors the
overall scope and plans for their respective audits. The Committee meets with
the independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2003 for filing with the Securities and
Exchange Commission. The Committee and the Board have also recommended, subject
to shareholder approval, the selection of Ernst & Young LLP as the Company's
independent auditors.
Donald L. McCain, Audit Committee Chair
John B. Akin, Audit Committee Member
Marvin Solomonson, Audit Committee Member
Executive Compensation
The following table sets forth a summary of the compensation paid during
the last three fiscal years to the Chief Executive Officer of the Company and to
each of the four most highly compensated officers of the Company who were
officers of the Company at December 31, 2003, and any executive officer who left
during the last fiscal year who would have been included in this group (the
"Named Executives").
7
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Salary Bonus Options/ All other
Name and Principal Position Year ($) ($) SARs(#) compensation
($)
------------------------------------------------------------------------------------------------------------------------
Robert L. Montgomery 2003 $642,625 $366,660(1) -- $286,600(7)
Chief Executive Officer 2002 $642,625 $207,545(1) -- $ 15,227(8)
and President 2001 $578,364 $ 32,480(1) 297,618(4) $ 13,727(9)
David G. Kreher 2003 $300,000 $235,710(1) -- $ 11,044(7)
Senior Vice President and Chief 2002 $300,000 $124,328(1) -- $ 9,517(8)
Operating Officer 2001 $238,500 $ 20,880(1) 142,857(5) $ 7,996(9)
Carl W. Hastings 2003 $270,000 -- -- $ 12,792(7)
Vice President 2002 $270,000 -- -- $ 11,160(8)
2001 $298,868 -- 17,857(6) $ 9,561(9)
Donald E. Gibbons, Jr. 2003 $225,000 $175,880(2) -- $ 9,457(7)
Senior Vice President of 2002 $225,000 $119,932(3) -- $ 8,690(8)
Worldwide Sales 2001 $212,500 $ 5,924(1) 71,428(5) $ 7,918(9)
Steven D. Albright 2003 $130,000 $ 65,475(1) -- $ 9,240(7)
Vice President of 2002 $122,500 $ 37,063(1) -- $ 8,483(8)
Finance/Controller 2001 $112,500 $ 5,800(1) 27,976(5) $ 5,179(9)
----------
(1) Reflects bonus payments under the Company's 2001 Incentive Compensation
Plan.
(2) Reflects bonus payments of $39,285 under the Company's 2001 Incentive
Compensation Plan and bonus payments totaling $136,595 pursuant to a
U.S./Canadian sales incentive program based on sales volume in these two
countries.
(3) Reflects bonus payments of $22,223 under the Company's 2001 Incentive
Compensation Plan and bonus payments totaling $97,709 pursuant to a
U.S./Canadian sales incentive program based on sales volume in these two
countries.
(4) Non-qualified and incentive stock options issued on July 17, 2001,
pursuant to the Company's 2001 Stock Option Plan.
(5) Incentive stock options issued on July 17, 2001, pursuant to the Company's
2001 Stock Option Plan.
(footnotes continued on next page)
8
(6) Non-Qualified stock options issued on July 17, 2001, pursuant to the
Company's 2001 Stock Option Plan.
(7) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan, of $10,500
for each of Messrs. Montgomery, Hastings, and Kreher, and $9,000 for each
of Messrs. Gibbons and Albright. Also includes the portion of premiums
paid by the Company on life insurance policies on each executive's life
attributable to the death benefit, to which each executive's estate is
entitled. The allocated portion of premium paid was $6,964 for Mr.
Montgomery, $2,292 for Dr. Hastings, $544 for Mr. Kreher, $447 for Mr.
Gibbons and $240 for Mr. Albright. Also includes $269,136 in realized
value from the exercise of non-qualified stock options in 2003 by Mr.
Montgomery.
(8) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan, of $9,000
for each of Messrs. Montgomery, Hastings and Kreher, and $8,250 for each
of Messrs. Gibbons and Albright. Also includes the portion of premiums
paid by the Company on life insurance policies on each executive's life
attributable to the death benefit, to which each executive's estate is
entitled. The allocated portion of premium paid was $6,227 for Mr.
Montgomery, $2,160 for Dr. Hastings, $517 for Mr. Kreher, $440 for Mr.
Gibbons and $233 for Mr. Albright. (See "Employment Agreements.")
(9) Includes the value of cash contributions by the Company to the Reliv'
International, Inc. 401(k) Plan, a defined contribution plan, of $7,500
for each of Messrs. Montgomery, Hastings, Kreher and Gibbons, and $4,955
for Mr. Albright. Also includes the portion of premiums paid by the
Company on life insurance policies on each executive's life attributable
to the death benefit, which each executive's estate is entitled to. The
allocated portion of premium paid was $6,227 for Mr. Montgomery, $2,061
for Mr. Hastings, $496 for Mr. Kreher, $418 for Mr. Gibbons and $224 for
Mr. Albright. (See "Employment Agreements.")
The Company has never granted any stock appreciation rights. During the
period from January 1, 1998 to December 31, 2003, there have been no awards or
payments made for long term incentive compensation (other than stock option
grants ) and there have been no restricted stock awards to any of the Named
Executives.
During fiscal year ended December 31, 2003, the Company did not make any
stock option grants to purchase the Company's Common Stock.
The following table provides information related to options to purchase
the Company's Common Stock exercised by the Named Executives during the fiscal
year ended December 31, 2003, and the number and value of such options held as
of the end of such fiscal year:
9
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of securities Value of unexercised in-
Shares Value underlying unexercised the-money options/SARs
acquired on realized options/SARs at year end at fiscal year end
Name exercise (#) ($) (#) exercisable/unexercisable ($) exercisable/unexercisable(1)
---- ------------ --- ----------------------------- --------------------------------
Robert L. Montgomery 77,767 $306,573 510,682/378,764 2,031,070/1,639,502
Carl W. Hastings 0 $0 237,730/0 941,402/0
David G. Kreher 75,496 $365,331 124,403/0 465,964/0
Donald E. Gibbons, Jr. 0 $0 114,876/0 505,819/0
Steven D. Albright 0 $0 52,820/0 232,269/0
Stephen M. Merrick 0 $0 180,058/0 794,848/0
----------
(1) The value of unexercised in-the-money options is based on the difference
between the exercise price and the fair market value of the Company's
Common Stock on December 31, 2003.
Figures contained in the above table and elsewhere in this Proxy Statement
regarding the number and exercise price of options have been adjusted to reflect
a 5 for 4 stock split granted to holders of record on November 14, 2003.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of the Company is
composed of three members of the Board of Directors. The Compensation Committee
is responsible for establishing the standards and philosophy of the Board of
Directors regarding executive compensation, for reviewing and evaluating
executive compensation and compensation programs, and for recommending levels of
salary and other forms of compensation for executives of the Company to the
Board of Directors. The full Board of Directors of the Company is responsible
for setting and administering salaries, bonus payments and other compensation
awards to executives of the Company.
Compensation Philosophy
The philosophy of the Compensation Committee, and of the Board of
Directors of the Company, regarding executive compensation includes the
following principal components:
To attract and retain quality executive talent, which is regarded as
critical to the long and short-term success of the Company, in
substantial part by offering compensation programs which provide
attractive rewards for successful effort.
To provide a reasonable level of base compensation to senior
executives and to provide annual incentive compensation based on the
success and profitability of the Company.
10
To create a mutuality of interest between executive officers of the
Company and shareholders through long-term compensation structures,
particularly stock option programs, so that executive officers share
the risks and rewards of strategic decision making and its effect on
shareholder value.
The Compensation Committee has recommended, and the Board of Directors has
determined, to take appropriate action to comply with the provisions of Section
162(m) of the Internal Revenue Code so that executive compensation will be
deductible as an expense to the fullest extent allowable.
The Company's executive compensation program consists of two key elements:
(i) an annual component consisting of base salary and incentive compensation and
(ii) a long-term component, principally stock options.
Annual Base Compensation
The Compensation Committee recommends annual salary levels for each of the
Named Executives, and for other senior executives of the Company, to the Board
of Directors. The recommendations of the Compensation Committee for base salary
levels for senior executives of the Company are determined annually, in part, by
evaluating the responsibilities of the position and examining market
compensation levels and trends for similar positions in the marketplace.
Additional factors which the Compensation Committee considers in
recommending annual adjustments to base salaries include: results of operation
of the Company, sales, shareholder returns, and the experience,
work-performance, leadership and team building skills of each executive. The
Company receives information from the Chief Executive Officer with regard to
these matters. While each of these factors is considered in relatively equal
weight, the Compensation Committee does not utilize performance matrices or
measured weightings in its review. Each year, the Compensation Committee
conducts a structured review of base compensation of senior executives with
input from the Chief Executive Officer.
Annual Incentive Compensation.
During 2001, the Compensation Committee recommended and the Board of
Directors approved an annual incentive compensation plan for members of
management. Under the terms of the plan, a percentage of net income above the
annual rate of income of $250,000 is allocated to be paid to senior executives
and managers of the Corporation. The amount of profit and incentive compensation
for each participant is determined on a quarterly basis. During 2003, incentive
compensation under the plan was paid to Robert L. Montgomery, David G. Kreher,
Donald E. Gibbons, Jr, Steven D. Albright, Stephen M. Merrick, Scott Montgomery,
David Barnes, Steve Hastings, Ron McCain and Ryan Montgomery and 13 other
managers of the Company.
11
Long-Term Component - Stock Options
The long-term component of compensation provided to executives of the
Company has been in the form of stock options. The Compensation Committee has
recommended to the Board of Directors that a significant portion of the total
compensation to executives be in the form of incentive stock options. Stock
options are granted with an exercise price equal to or greater than the fair
market value of the Company's Common Stock on the date of the grant. Stock
options are exercisable between one and ten years from the date granted. Such
stock options provide incentive for the creation of shareholder value over the
long-term since the full benefit of the compensation package for an executive
cannot be realized unless an appreciation in the price of the Company's Common
Stock occurs over a specified number of years.
The magnitude of the stock option awards are determined annually by the
Compensation Committee and the Board of Directors. Generally, the number of
options granted to an executive has been based on the relative salary level of
the executive.
On July 17, 2001, incentive stock options to purchase up to 291,666,
178,571, 89,285, and 34,970 shares of the Company's Common Stock were granted to
Messrs. Montgomery, Kreher, Gibbons, and Albright, respectively, under the 2001
Stock Option Plan (the "2001 Plan"). In addition, on July 17, 2001,
non-qualified stock options to purchase up to 80,356 and 22,321 shares of the
Company's Common Stock were granted to Messrs. Montgomery and Hastings
respectively, under the 2001 Plan.
There were no stock options granted to any of the Named Executives in
2000, 2002 and 2003.
CEO Compensation
The Compensation Committee utilizes the same standards and methods for
recommending annual base compensation for the Chief Executive Officer of the
Company as it does for other senior executive officers of the Company.
In 1997, the Company entered into an Employment Agreement with Robert L.
Montgomery, Chief Executive Officer of the Company, providing that Mr.
Montgomery's base annual compensation would not be less than $485,000. During
2001, 2002 and 2003, upon the recommendation of the Compensation Committee, the
base salary of Mr. Montgomery was $578,364, $642,625 and $642,625 respectively.
In 2001, 2002 and 2003, annual incentive compensation was paid to Mr. Montgomery
in the amounts of $32,480, $207,545 and $366,660, respectively, under the
Company's annual incentive compensation plan based on profits of the Company.
The Compensation Committee recommended that Mr. Montgomery (and other
senior executives of the Company), receive incentive and non-qualified stock
options, consistent with observed market practices, so that a significant
portion of his total compensation will be based upon, and consistent with,
returns to shareholders. In 2001, Mr. Montgomery was granted incentive stock
options to purchase up to 291,666 shares of the Company's Common Stock, and
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non-qualified stock options to purchase up to 80,356 shares of the Company's
Common Stock. In 2002 and 2003, no stock options were granted to Mr. Montgomery.
Compensation Committee:
Donald L. McCain, John B. Akin, Stephen M. Merrick
Compensation Committee Interlocks and Insider Participation
Stephen M. Merrick, a member of the Compensation Committee, is a Senior
Vice President of the Company. Mr. Merrick is a principal of the law firm of
Merrick & Klimek, P.C. and has served as General Counsel to the Company and its
subsidiaries since the founding of the Company. During the year ended December
31, 2003, the aggregate amounts paid or incurred by the Company to Merrick &
Klimek, P.C. and Stephen M. Merrick for services to the Company and its
subsidiaries was $372,000.
Comparative Stock Price Performance Graph
The following graph compares, for the period January 1, 1999 to December
31, 2003, the cumulative total return (assuming reinvestment of dividends) on
the Company's Common Stock with (i) NASDAQ Stock Market Index (U.S.) and (ii) a
peer group including the following companies: Mannatech, Inc., Nature's Sunshine
Products, Inc., Advanced Nutraceuticals, Inc. Rexall Sundown, Inc. and USANA
Health Sciences, Inc. The peer group consists of other companies marketing
nutritional products through direct sales. The graph assumes an investment of
$100 on January 1, 1999, in the Company's Common Stock and each of the other
investment categories.
The historical stock prices of the Company's Common Stock shown on the
graph below are not necessarily indicative of future price performance. Per
share value as of December 31, 1999, 2000, 2001, 2002 and 2003 is based on the
Common Stock's closing price as of such date. All prices reflect a 5 for 4 stock
split issued to holders of record on November 14, 2003.
The information under this heading and under the headings "Report of the
Audit Committee" and "Compensation Committee Report on Executive Compensation"
shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934 and shall
not otherwise be deemed filed under such Acts.
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Total Return To Shareholders
(Includes reinvestment of dividends)
ANNUAL RETURN PERCENTAGE
Years Ending
Company Name / Index Dec99 Dec00 Dec01 Dec02 Dec03
---------------------------------------------------------------------------------------------------------
RELIV INTERNATIONAL INC -49.75 21.21 0.00 343.81 37.34
NASDAQ STOCK MARKET (U.S) 85.43 -39.69 -20.63 -30.86 49.51
PEER GROUP -32.54 -49.64 72.30 15.74 219.29
INDEXED RETURNS
Base Years Ending
Period
Company Name / Index Dec98 Dec99 Dec00 Dec01 Dec02 Dec03
---------------------------------------------------------------------------------------------------------
RELIV INTERNATIONAL INC 100 50.25 60.91 60.91 270.32 371.26
NASDAQ STOCK MARKET (U.S) 100 185.43 111.83 88.76 61.37 91.75
PEER GROUP 100 67.46 33.97 58.53 67.75 216.32
Employment Agreements
In June, 1997, the Company entered into an Employment Agreement with
Robert L. Montgomery replacing a prior agreement. The Agreement was originally
for a term of six years commencing on January 1, 1997 with a provision for
automatic one year renewal terms, and provides for Mr. Montgomery to receive
base annual compensation during the term of not less than $485,000. Mr.
Montgomery is also to participate in the annual incentive compensation and the
long-term incentive compensation plans of the Company adopted in April, 1994,
the Company's stock option plan and such other compensation plans as the Company
may from time to time have for executives of the Company. In the event of Mr.
Montgomery's death during the term of the Agreement, payments equal to his total
compensation under the Agreement will be made to his heirs for a period of six
months. The Agreement also allows Mr. Montgomery the option, upon reaching age
60, to reduce his level of service to the Company by approximately one-half with
a corresponding decrease in position and compensation. Mr. Montgomery also has
the option upon reaching age 60 to terminate his active service, and continue in
a consulting capacity. The term of the consulting period shall be 10 years and
Mr. Montgomery will receive approximately 20% of his prior annual compensation
as a consulting fee. The Agreement includes the obligation of Mr. Montgomery to
maintain the confidentiality of confidential information of the Company and
contains a covenant of Mr. Montgomery not to compete with the Company.
In January, 2002, the Company entered into a Services Agreement with Dr.
Hastings replacing a prior Employment Agreement. The Services Agreement is for a
period of twenty years. The employment of Dr. Hastings shall be for a term
commencing on July 1, 2001 and expiring on June 30, 2006. During the initial
term of employment, the Company shall pay Dr. Hastings a basic salary at the
rate of $22,500 per month. Upon expiration of the term of
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employment, Dr. Hastings shall be retained to provide consulting services to the
Company for the remainder of the term of the Services Agreement. During the
consulting term, the Company shall pay Dr. Hastings the sum of $10,000 per
month. During the term of the Services Agreement, the Company shall be entitled
to use the name and likeness of Dr. Hastings in connection with promotional
materials and activities of the Company. The Services Agreement also includes
the obligation of Dr. Hastings to maintain the confidentiality of confidential
information of the Company and to assign to the Company any and all inventions
made or conceived by him during the term of the agreement and a covenant of Dr.
Hastings not to compete with the Company.
In April, 2002, the Company entered into Employment Agreements with David
G. Kreher, Senior Vice President and Chief Operating Officer and Donald E.
Gibbons, Jr., Senior Vice President of Worldwide Sales. The initial terms of the
agreements expire in April, 2003, thereafter automatically renewing for one year
terms unless written notice is given more than 30 days prior to expiration of
the term. The Agreements provide for Mr. Kreher and Mr. Gibbons to receive base
annual compensation of not less than $300,000 and $225,000, respectively. Both
are also to participate in the annual incentive compensation and long-term
incentive compensation plans of the Company adopted in April, 1994, the
Company's stock option plan and such other compensation plans as the Company may
from time to time have for executives of the Company. The Agreements include the
obligation of Mr. Kreher and Mr. Gibbons to maintain the confidentiality of
confidential information of the Company.
In March, 1997, the Company entered into Split Dollar Agreements with
Robert L. Montgomery, Carl W. Hastings, David G. Kreher, Donald E. Gibbons, Jr.
and Steven D. Albright, whereby the Company pays the premiums on life insurance
policies covering these executive's lives. Upon the death of an executive, the
Company shall be entitled to receive the greater of (i) one-third of the
insurance proceeds, (ii) the cash surrender value of the policy and (iii) the
total premiums paid under the policy, with the executive receiving the balance
of the insurance proceeds. On termination of the Agreement prior to an
executive's death, the executive shall have the right to purchase the policy for
the greater of (i) the cash surrender value of the policy and (ii) the total
premiums paid under the policy. The policy amounts are $3,124,000 for Mr.
Montgomery, $1,770,000 for Dr. Hastings, $750,000 for each of Messrs. Kreher and
Gibbons, and $500,000 for Mr. Albright.
In March, 1997, the Company entered into Salary Continuation Plan
Agreements with David G. Kreher, Donald E. Gibbons, Jr. and Steven D. Albright.
The Agreements provide for continuation of these executive's salaries upon
termination of employment or retirement, after these executives have reached the
age of 55 and have been employed by the Company for 15 years. Salary
continuation payments are also made in the event the executive is terminated
prior to reaching these thresholds for other than cause as defined in the
Agreements. Payments are to be made for a period of 10 years and the amount of
the payments are based on the executive's age at the time of retirement or
termination of employment.
Compensation of Directors
Members of the Board of Directors who were not employees of the Company
received $1,000 per attendance at meetings of the Board of Directors and
Committees thereof. One
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member of the Board who is not an employee of the Company received compensation
of $1,000 per month for his services and $2,000 per attendance at meetings of
the Board of Directors or any Committees of the Board. If a Board member attends
more than one meeting of the Board or Committee of the Board during the same
month, the attendance fee is 150% of the basic attendance fee. In 2003, no stock
options were issued to any member of the Board of Directors. (See "Stock
Ownership by Management and Others").
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ Stock Market. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no Form 5's were required, the Company
believes that during calendar year 2003, all Section 16(a) filing requirements
applicable to the officers, directors and ten percent beneficial owners were
complied with except that (1) Donald McCain filed 2 late reports covering 5
transactions; (2) Donald Gibbons filed 6 late reports covering 7 transactions;
(3) John Akin filed 1 late report covering 3 transactions; and (4) Robert L.
Montgomery, David G. Kreher and Thomas Pinnock filed 1 late report each, each
report covering 1 transaction.
Code of Ethics
The Company has adopted a code of ethics that applies to its senior
executive and financial officers. The Company's Code of Ethics seeks to promote
(1) honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships,
(2) full, fair, accurate, timely and understandable disclosure of information to
the Commission, (3) compliance with applicable governmental laws, rules and
regulations, (4) prompt internal reporting of violations of the Code to
predesignated persons, and (5) accountability for adherence to the Code. A copy
of the Company's Code of Ethics has been attached to and can be viewed on the
Company's internet website at http://www.reliv.com under the section entitled
"Investor Relations."
PROPOSAL TWO - SELECTION OF AUDITORS
Ratification of Appointment of Independent Auditors
The Board of Directors has selected and approved Ernst & Young LLP as the
principal independent auditors to audit the financial statements of the Company
for 2004, subject to ratification by the shareholders. It is expected that a
representative of the firm of Ernst & Young LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they so desire and
will be available to respond to appropriate questions.
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Fees Billed By Independent Public Accountants
The following table sets forth the amount of audit fees and all other fees
billed or expected to be billed by Ernst & Young LLP, the Company's principal
auditor, for the years ended December 31, 2003 and 2002:
2003 2002
---- ----
Audit Services (1) $212,500 $182,500
Audit Related Services (2) 14,280 13,000
Tax Services (3) 64,200 63,500
-------- --------
Total Fees $290,980 $259,000
======== ========
(1) Includes the annual financial statement audit, limited quarterly reviews
and statutory audits required internationally.
(2) Represents fees paid for the annual audit of the Company's 401(k) Plan.
(3) Primarily represents tax services, which include preparation of tax
returns and other tax consulting services.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" SUCH
RATIFICATION.
Stockholder Proposals for 2005 Proxy Statement
Proposals by shareholders for inclusion in the Company's Proxy Statement
and form of Proxy relating to the 2005 Annual Meeting of stockholders, which is
scheduled to be held on May 26, 2005, should be addressed to the Secretary,
Reliv' International, Inc., 136 Chesterfield Industrial Boulevard, Chesterfield,
Missouri 63005, and must be received at such address no later than December 31,
2004. Upon receipt of any such proposal, the Company will determine whether or
not to include such proposal in the Proxy Statement and Proxy in accordance with
applicable law. It is suggested that such proposal be forwarded by certified
mail, return receipt requested.
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Other Matters to Be Acted Upon at the Meeting
The management of the Company knows of no other matters to be presented at
the meeting. Should any other matter requiring a vote of the shareholders arise
at the meeting, the persons named in the proxy will vote the proxies in
accordance with their best judgment.
BY ORDER OF THE
BOARD OF DIRECTORS
Dated: April 24, 2004
/s/ Stephen M. Merrick
-----------------------------
Stephen M. Merrick, Secretary
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EXHIBIT A
AUDIT COMMITTEE CHARTER
OF RELIV' INTERNATIONAL, INC.
1. Organization
There shall be a committee of the Board of Directors of Reliv'
International, Inc. (the "Corporation") to be known as the Audit Committee. This
charter (the "Charter") shall govern the operations of the Audit Committee. The
Committee shall review and reassess the adequacy of this Charter at least
annually, and shall submit any revisions to this Charter to the Board of
Directors for their approval. The Audit Committee shall be composed of at least
three (3) directors who are independent of the management of the Corporation. A
director shall be deemed independent if he is free of any relationship that, in
the opinion of the Board of Directors, would interfere with exercise of
independent judgment as a Committee member. To ensure that an audit committee
member satisfies the definition of "independent" according to both Item 7(d) (3)
(iv) of Schedule 14A under the Securities Exchange Act and Nasdaq's Marketplace
Rules, an Audit Committee member may not:
o have been employed by the Corporation or its affiliates in the
current or past three years;
o have accepted any compensation from the Corporation or its
affiliates in excess of $60,000 during the previous fiscal year
(except for board service, retirement plan benefits, or
non-discretionary compensation);
o have an immediate family member who is, or has been in the past
three years, employed by the Corporation or its affiliates as an
executive officer;
o have been a partner, controlling shareholder or an executive officer
of any for-profit business to which the Corporation made, or from
which it received, payments (other than those which arise solely
from investments in the Corporation's securities) that exceed five
percent of the organization's consolidated gross revenues for that
year, or $200,000, whichever is more, in any of the past three
years; or
o have been employed as an executive of another entity where any of
the Corporation's executives serve on that entity's compensation
committee.
In addition, the Corporation shall have one member who is designated and meets
the requirements of an "audit committee financial expert" as that term is
defined in Item 401(h) of Regulation S-K of the Exchange Act. An "audit
committee financial expert" shall possess all of the following five attributes:
o An understanding of generally accepted accounting principles
("GAAP") and financial statements;
o The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves;
o Experience preparing, auditing, analyzing or evaluating financial
statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Corporation's financial statements, or experience actively
supervising one or more persons engaged in such activities;
o An understanding of internal controls and procedures for financial
reporting; and
o An understanding of audit committee functions.
The foregoing attributes must have been acquired by the audit committee
financial expert through one or more of the following means:
(1) Education and experience as a public accountant or a principal
financial officer, controller or principal accounting office of a
company, or experience in one or more positions involving the
performance of similar functions;
(2) Experience actively supervising any of the persons referred to in
(1) above;
(3) Experience in overseeing or assessing the performance of companies
or public accountants with respect to the preparation, auditing or
evaluation of financial statements; or
(4) other relevant experience.
All Audit Committee members shall be able to read and understand fundamental
financial statements, including but not limited to balance sheets, income
statements and cash flow statements.
2. Statement of Policy
The Audit Committee shall provide assistance to the Corporation's
directors in fulfilling their responsibility to the shareholders, potential
shareholders, and investment community relating to corporate accounting and
financial reporting practices of the Corporation, and the quality and integrity
of the financial reports of the Corporation. In so doing, it is the
responsibility of the Audit Committee to maintain free and open means of
communication between the directors, the independent auditors, the internal
auditors, and the financial management of the Corporation. In discharging its
oversight role, the Committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and counsel or
other experts for this purpose.
3. Responsibilities and Processes
The primary responsibility of the Audit Committee is to oversee the
Corporation's financial reporting process on behalf of the Board and report the
results of their activities to the Board. Management is responsible for
preparing the Corporation's financial statements, and the independent auditors
are responsible for auditing those financial statements. In carrying out its
responsibilities, the Audit Committee believes its policies and procedures
should remain flexible,
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in order to best react to changing conditions and to ensure to the directors and
shareholders that the corporate accounting and reporting practices of the
Corporation are in accordance with all applicable requirements and are of the
highest quality.
In carrying out these responsibilities, the Audit Committee will:
3.1 Provide an open avenue of communication between the independent
auditor, the internal auditor, management and the Board of Directors. The
Committee shall have a clear understanding with management and the independent
auditors that the independent auditors are ultimately accountable to the Board
and the Audit Committee.
3.2 Meet at least one time per year or more frequently as circumstances
require. The Audit Committee may ask members of management or others to attend
meetings and provide pertinent information as necessary.
3.3 Review and recommend to the Directors the independent auditors to be
selected to audit the financial statements of the corporation, and approve the
compensation of the independent auditors. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace the
independent auditors (or to nominate the independent auditor to be proposed for
shareholder approval in any proxy statement).
3.4 Review and concur in the appointment, replacement, reassignment or
dismissal of the internal auditor.
3.5 Confirm and assure the independence of the independent auditors. The
Audit Committee has the responsibility for ensuring its receipt from the
independent auditors of a formal written statement delineating all relationships
between the auditors and the Corporation. The Audit Committee also has the
responsibility for actively engaging in a dialogue with the independent auditors
with respect to any disclosed relationships or services that may impact the
objectivity and independence of the independent auditor and for taking, or
recommending that the full Board take appropriate action to oversee the
independence of the independent auditors.
3.6 Meet with the independent auditors and internal auditors to review the
scope of the proposed audit for the current year and the audit procedures to be
utilized, and at the conclusion thereof review such audit, including any
comments or recommendations of the independent or internal auditors.
3.7 Review with the independent auditors and the internal auditor(s) the
adequacy and effectiveness of the accounting and financial controls of the
Corporation, and elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed controls or
procedures are desirable. The Audit Committee should also review with the
independent and internal auditors the coordination of audit efforts to assure
completeness of coverage, reduction of redundant efforts, and the effective use
of audit resources.
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3.8 Inquire of management, the internal auditor(s), and the independent
auditors about significant business risks or exposures and assess the steps
management has taken to minimize such risk to the Corporation.
3.9 Review with management, the independent auditors and the internal
auditor(s) the interim financial report prior to the filing of the quarterly
report on Form 10-Q. The Audit Committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the Audit
Committee by the independent auditors under generally accepted auditing
standards. The Chairman of the Audit Committee may represent the entire Audit
Committee for purposes of this review.
3.10 The Audit Committee shall review with management, the independent
auditors and the internal auditor(s) the financial statements to be included in
the Annual Report on Form 10-K, including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements. Also,
the Audit Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Audit Committee by the independent
auditors under generally accepted auditing standards.
3.11 Review with the Board of Directors and the independent auditors at
the completion of the annual examination:
(a) The Corporation's annual financial statements and related footnotes;
(b) The independent auditor's audit of the financial statements and his
report thereon;
(c) Any significant changes required in the independent auditor's audit
plan;
(d) Any serious difficulties or disputes with management encountered
during the course of the audit; and
(e) Other matters relating to the conduct of the audit which are to be
communicated to the Audit Committee under generally accepted auditor
standards.
3.12 Consider and review with management and the internal auditor(s):
(a) Significant findings during the year and management's responses
thereto;
(b) Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information;
(c) Any changes required in the planned scope of their audit plan;
(d) The internal auditing department budget and staffing; and
4
(e) Internal auditing's compliance with appropriate accounting standards.
3.13 Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the Audit Committee with and without
members of management present to discuss results of examinations. Among the
items to be discussed in these meetings are the independent auditors' evaluation
of the corporation's financial, accounting, and auditor personnel, and the
cooperation that the independent auditors received during the course of the
audit.
3.14 Review legal and regulatory matters that may have a material impact
on the financial statements, related company compliance policies, and programs
and reports received from regulators.
3.15 Submit the minutes of all meetings of the Audit Committee to, or
discuss the matters discussed at each committee meeting with, the Board of
Directors.
3.16 Investigate any matter brought to its attention within the scope of
its duties.
3.17 Report Committee actions to the Board of Directors with such
recommendations as the Audit Committee may deem appropriate.
3.18 The duties and responsibilities of a member of the Audit Committee
are in addition to those duties set out for a member of the Board of Directors.
Effective this 15th day of April, 2004, by order of this Corporation's Board of
Directors.
/s/ Stephen M. Merrick
--------------------------------
Stephen M. Merrick, Secretary
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