<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------------
Commission File Number 33-7106-A
NATURADE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2442709
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
7110 East Jackson Street, Paramount, California 90723
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(Address of principal executive offices)
(562) 531-8120
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 5,300,306 shares as of March
31, 1998.
1
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FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position at March 31, 1998 3
(unaudited) and September 30, 1997 (audited)
Statements of Operations for the three and six month 5
periods ended March 31, 1998 (unaudited) and March 31,
1997 (unaudited)
Statements of Cash Flows for the six month periods ended 6
March 31, 1998 (unaudited) and March 31, 1997 (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Statements of Financial Position
Assets
--------
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,616,419 $ 157,585
Notes receivable 18,074 --
Accounts receivable 1,231,469 1,404,660
Income Tax Refund 100,000 --
Inventories 1,991,260 2,413,621
Prepaid expenses 127,050 42,149
Deferred income taxes 210,852 158,514
----------- -----------
Total current assets 8,295,124 4,176,529
Available for sale security -- 217,000
Property and equipment, net 2,073,298 2,111,806
Intangible assets, net 1,149,047 1,177,507
Notes receivable 88,339 --
Investment in joint venture 67,128 62,128
Other assets 9,649 8,604
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Total assets $11,682,585 $ 7,753,574
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----------- -----------
</TABLE>
See accompanying notes to financial statements.
3
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ITEM 1. FINANCIAL STATEMENTS
Liabilities and Stockholders' Equity
------------------------------------
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Notes payable $ 1,473,254 $ 1,150,000
Current installments of
long-term debt 213,115 194,857
Accounts payable 942,823 1,027,288
Accrued expenses 321,741 341,251
Income tax payable -- 106,998
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Total current liabilities 2,950,933 2,820,394
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Long-term debt, excluding current installments 2,109,173 2,235,908
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Deferred income taxes 11,986 11,986
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Stockholders' equity:
Preferred stock, .0001 par value; 1,500,000 shares
authorized, issued and outstanding Series A
convertible 1,250,024 shares at
March 31, 1998(-0- at September 30, 1997) 125 --
Common stock; .0001 par value; 50,000,000 shares
authorized, 5,300,306 issued and
outstanding (3,297,223 at September 30, 1997) 530 330
Additional paid-in capital 7,156,787 1,539,902
Retained earnings (deficit) (546,949) 1,061,654
Unrealized gain on security available
for sale, net -- 83,400
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Total stockholders' equity 6,610,493 2,685,286
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Total liabilities and
stockholders' equity $11,682,585 $ 7,753,574
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----------- -----------
</TABLE>
See accompanying notes to financial statements.
4
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NATURADE, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,139,098 $ 3,035,180 $ 5,868,156 $ 6,230,123
Cost of sales 1,532,951 1,502,635 2,887,655 3,099,321
----------- ----------- ----------- -----------
Gross profit 1,606,147 1,532,545 2,980,501 3,130,802
Selling, general and
administrative expenses 2,337,046 1,242,574 3,904,977 2,312,767
----------- ----------- ----------- -----------
Operating income (loss) (730,899) 289,971 (924,476) 818,035
Other income (expenses):
Miscellaneous, net 61,478 7,116 249,838 22,911
Interest expense (109,329) (90,462) (210,476) (171,445)
Non-recurring charges (823,490) -- (823,490) --
----------- ----------- ----------- -----------
Earnings before income tax
expense (benefit) (1,602,240) 206,625 (1,708,604) 669,501
Income tax expense (benefit) (57,454) 82,000 (100,000) 267,000
----------- ----------- ----------- -----------
Net Income (Loss) ($1,544,786) $ 124,625 ($1,608,604) $ 402,501
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income (loss) per common share
Basic earnings per share ($ 0.29) $ 0.04 ($ 0.36) $ 0.15
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares used in computing
basic earnings per share 5,297,378 2,797,223 4,472,897 2,693,992
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share ($ 0.29) $ 0.04 ($ 0.36) $ 0.14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares used in computation of
diluted earnings per share: 5,297,378 3,096,414 4,472,897 2,959,839
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
5
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NATURADE, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1998 March 31, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash used in operating activities ($1,345,374) ($323,011)
----------- ---------
Cash flows used in investing activities:
Capital expenditures-Property and
equipment (27,779) (16,903)
----------- ---------
Cash flows provided by financing activities:
Net borrowings under line of
credit agreements 323,254 210,507
Principal payments under long-term debt (108,477) (75,421)
Net proceeds from exercise of warrants 26,582 204,218
Proceeds from issuance of common and
preferred stock 5,590,628 --
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Net cash provided by financing activities 5,831,987 339,304
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Net increase (decrease) in cash 4,458,834 (610)
Cash at beginning of period 157,585 120,143
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Cash at end of period $4,616,419 $119,533
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----------- ---------
</TABLE>
See accompanying notes to financial statements
6
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NATURADE, INC.
Notes to Financial Statements
1. The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein includes all
adjustments necessary for fair presentation of the financial statements.
All such adjustments are of a normal recurring nature. These financial
statements do not include all disclosures associated with the Company's
annual financial statements and accordingly, should be read in conjunction
with such statements.
2. Inventories are stated at the lower of cost (weighted average) or market
(net realizable value); and consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Finished Goods $ 779,509 $ 796,500
Raw Materials 1,211,751 1,617,121
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Total $1,991,260 $ 2,413,621
</TABLE>
3. Depreciation of property and equipment is provided over the estimated
useful lives of the respective assets on the straight-line basis.
4. Research and development costs are included in expenses when incurred.
5. Trademarks and copyrights are being amortized using the straight-line
method over a 17 year and 25 year period, respectively.
6. The FASB has issued statement No. 128 "Earnings Per Share (EPS)" which
became effective for periods ending after December 15, 1997. This statement
requires restatement of all prior period EPS data presented. This statement
simplifies the standards for computing earnings per share previously found
in APB Opinion No. 15 and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with the
presentation of basic EPS and requires dual presentation of diluted EPS on
the face of the income statement for all entities with complex capital
structures.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15.
7
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although Naturade, Inc. (the
"Company" or the "Registrant") believes that the expectations reflected in such
forward looking statements are reasonable, such statements are inherently
subject to risk and the Company can give no assurance that such expectations
will prove to be correct. Such forward looking statements involve risks and
uncertainties and actual results could differ from those described herein and
future results may be subject to numerous factors, many of which are beyond the
control of the Company. Such risk factors include, without limitation, the risk
of changes or developments in the regulatory framework or product liability
principles applicable to the Company and its products, and the risk of
consolidation in the distribution channels expected to be used by the Company to
distribute its products. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unexpected events.
Liquidity and Capital Resources
The Company used cash of $1,345,374 in operating activities in the six
months ended March 31, 1998.
The Company's working capital increased from $1,356,135 at September 30,
1997 to $5,927,737 at March 31, 1998. Such increase was largely due to the
closing of a transaction with, among others, Doyle & Boissiere LLC on December
15, 1997, (which transaction was reported by the Company on two Current Reports
on Form 8-K filed on October 17, 1997, and December 23, 1997, respectively), in
which the Company issued shares of its common and preferred stock in return for
$6,000,000 cash.
Cash used for capital expenditures during the six month period totaled
$27,779. Management anticipates capital expenditures for the remainder of its
September 30, 1998 fiscal year of less than $100,000.
The Company's cash provided by financing activities of $5,831,987 for the
six month period was the result of proceeds received from the above-referenced
transaction with Doyle & Boissiere LLC.
Management is of the opinion that the Company has sufficient business,
liquidity and capital resources to finance its operations.
Results of Operations
Total net sales for the second quarter ended March 31, 1998 increased
$103,918 or 3.4% but decreased $361,967 or 5.8% for the six month period ended
March 31, 1998 compared to the same periods last year. Of this amount, domestic
sales increased $66,574 or 1.2% but decreased $299,167 or 5.2% for the second
quarter and first six months respectively while international sales also
increased $37,344 or 17.6% but decreased $62,800 or 11.9% for these same
periods.
8
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Although the Company is still undergoing a reorganization, sales in the
second quarter showed an increase over the comparable period a year ago.
However, sales for the first six months of the current fiscal year are still
below the first six months of the prior year due primarily to conditions that
prevailed in the first quarter of the current year, namely a decrease in
promotional activity and the loss of sales related to the United States Drug
Enforcement Agency's ban on pseudophedrine, an ingredient present in four of the
Company's "Cold and Flu" category products.
Gross profit as a percentage of sales increased 0.7% to 51.2% of sales for
the quarter ended March 31, 1998 from 50.5% for the same period last year and
increased 0.5% to 50.8% of sales for the six months ended March 31, 1998 from
50.3% of sales for the same period last year.
Selling, General and Administrative expenses increased $1,094,472 or 33.5%
to $2,337,046 or 74.4% of sales for the quarter ended March 31, 1998 from
$1,242,574 or 40.9% for the same period last year, and also increased $1,592,210
or 29.5% to $3,904,977 or 66.6% of sales for the six months ended March 31, 1998
from $2,312,767 or 37.1% of sales for the same period last year. These increases
were primarily the result of selling and marketing expenses for the Company's
Performance Nutrition Division in the amount of $517,968 and $778,892 for the
second quarter ended March 31, 1998 and the six months ended March 31, 1998,
respectively. There were no expenses in the same periods last year as operations
in this division began in May 1997. Additionally, general and administrative
expenses increased $275,429 and $388,314 for the same periods. Increases in
consulting and legal fees accounted for the majority of these differences.
Other expenses includes $823,490 of non-recurring charges recorded in the
three month period ended March 31, 1998. Following the Doyle & Boissiere
transaction on December 15, 1997, a comprehensive assessment of the business and
corporate assets was presented to the Board of Directors on February 18, 1998,
resulting in the establishment of a new strategic direction. Specifically,
corporate resources and management attention are to be focused on achieving
corporate growth in sales and earnings commensurate with growth in the dietary
supplement industry. Analysis of the company's product line, including sales
history, margin contribution, inventory turns and competitive position resulted
in the decision to write-off and physically dispose of inventory totaling
$466,000 (which is included in the non-recurring charges mentioned above). An
additional $200,000 reserve (also included in such non-recurring charges) was
recorded to reduce the value of discontinued inventory in process of being sold.
Interest expense for the quarter ended March 31, 1998 increased $18,868 and
$39,031 for the six months ended March 31, 1998 compared to the same periods
last year.
Income tax expense decreased by $139,154 and $367,000 for the three month
and six month periods ended March 31, 1998, respectively, compared to the same
periods last year, due to losses for the periods and the carryback benefits of
such losses.
9
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PART II: OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
Exhibits
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C>
10.17 Naturade, Inc. 13
1998 Incentive Stock Option Plan
10.18 Incentive Stock Option Plan 14
with Bill D. Stewart dated March 2, 1998.
10.19 Incentive Stock Option Plan 15
with Ronald Ahrens dated April 20, 1998.
10.20 Employment Contract 16
with Bill D. Stewart, CEO dated March 2, 1998.
</TABLE>
Reports on Form 8-K
None.
10
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURADE, INC.
(Registrant)
DATE: May 12, 1998 By /s/ Bill D. Stewart
------------------------
Bill D. Stewart
Chief Executive Officer
DATE: May 12, 1998 By /s/ Paul D.Shapnick
------------------------
Paul D. Shapnick
Chief Financial Officer
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10.17 Naturade,Inc. 13
1998 Incentive Stock Option Plan
10.18 Incentive Stock Option Plan 14
with Bill D. Stewart dated March 2, 1998
10.19 Incentive Stock Option Plan 15
with Ronald Ahrens dated April 20,1998
10.20 Employment Contract 16
with Bill D. Stewart, CEO dated March 2, 1998
27 Financial Data Schedule 17
</TABLE>
12
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The Naturade, Inc. 1998 Incentive Stock Option Plan
1. Purpose. The purpose of the Naturade, Inc. 1998 Incentive Stock
Option Plan is to provide a means whereby Naturade, Inc. (the "Company") may
attract and retain persons of ability and motivate such persons to exert their
best efforts on behalf of the Company and any Subsidiaries (defined below) of
the Company which may be formed from time to time.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. Reference to any section of the Code shall include
any provision successor thereto.
(c) "Committee" shall mean the administrative committee appointed
pursuant to Section 3.
(d) "Company" shall mean Naturade, Inc., a Delaware corporation.
(e) "Employee" shall mean an employee as defined in accordance
with Treasury Regulation Section1.421-7(h)(1).
(f) "Incentive Option" shall mean an option to purchase shares of
Stock, subject to the terms and conditions described in the Incentive Plan,
which is an incentive stock option within the meaning of Code Section 422.
(g) "Incentive Plan" shall mean the Naturade, Inc. 1998 Incentive
Stock Option Plan.
(h) "Participant" shall mean an employee of the Company or any
Subsidiary who is designated to receive Incentive Options pursuant to Section 3.
(i) "Stock" shall mean the Company's $0.0001 par value common
stock.
(j) "Subsidiary" shall mean a subsidiary corporation as defined
in Code Section 424(f).
3. Administration. The Incentive Plan shall be administered by the
Committee, consisting of at least two members, who shall be members of the
Board, appointed by and holding office as Committee members at the pleasure of
the Board. Subject to the provisions of the Incentive Plan, the Committee shall
have the power to (a) determine and designate from time to time those Employees
who perform services for the Company or for any Subsidiary who shall be
Participants in the Incentive Plan and the number of shares of Stock to be
subject to the Incentive Options to be granted to each
13
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Participant; provided, however, that no Incentive Option shall be granted after
the expiration of the period of ten years from the effective date of the
Incentive Plan specified in Section 9; (b) authorize the granting of Incentive
Options to Participants; and (c) determine the time or times and the manner when
each Incentive Option shall be exercisable and the duration of the exercise
period.
For all purposes of the Incentive Plan, the fair market value of the
Stock shall be determined in good faith by the Committee by applying the rules
and principles of valuation set forth in Treasury Regulations Section20.2031-2,
relating to the valuation of stocks and bonds for purposes of Code Section2031.
The Committee may interpret the Incentive Plan, prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the
administration of the Incentive Plan, and make such other determinations and
take such other action as it deems necessary or advisable. Without limiting the
generality of the foregoing sentence, the Committee may, in its discretion,
treat all or any portion of any period during which a Participant is on military
or on an approved leave of absence from the Company or a Subsidiary as a period
of service of such Participant with the Company or a Subsidiary, as the case may
be, for purposes of accrual of such Participant's rights under the Incentive
Options. Any interpretation, determination, or other action made or taken by the
Committee shall be final, binding, and conclusive. Any action reduced to writing
and signed by all members of the Committee shall be as fully effective as if it
had been taken by vote at a meeting duly called and held. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Incentive Plan or the
Incentive Options.
4. Benefits Available Under the Incentive Plan. The benefits provided
by the Incentive Plan to Participants are Incentive Options. Incentive Options
may be granted by the Company from time to time for all Participants to acquire
up to an aggregate of 575,000 shares of Stock, subject to adjustment as provided
in Section 5(i), and reduced by the number of shares subject to options
("Nonqualified Options") which are granted under any nonqualified stock option
plan of the Company in the year 1998. The shares to be delivered upon exercise
of Incentive Options shall be made available, at the discretion of the Board,
either from authorized but unissued shares of Stock or from Stock reacquired by
the Company, including shares purchased in the open market. If any Incentive
Option terminates, expires or is canceled with respect to any shares of Stock,
new Incentive Options may thereafter be granted covering such shares.
5. Terms and Conditions. Each Incentive Option shall be evidenced by an
agreement (the "Agreement"), in a form approved by the Committee, which shall be
signed by an officer of the Company and the Participant receiving the Incentive
Option, and which shall be subject to the following express terms and conditions
and to such other terms and conditions as the Committee may deem appropriate:
(a) Period. Each Agreement shall specify that the Incentive
Option thereunder is granted for a period not to exceed ten years (the "Option
Period") and shall provide that the Incentive Option shall expire at the end of
such period.
(b) Option Price. The price per share at which an Incentive
Option may be exercised (the "Option Price") shall be determined by the
Committee at or prior to the time the Incentive Option is granted, but shall be
at least equal to the fair market value per share at the time the
13-2
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Incentive Option is granted.
(c) Exercise of Option. In order to exercise Incentive Options,
the person or persons entitled to exercise them shall give written notice to the
Company specifying the number of shares to be purchased pursuant to the exercise
of Incentive Options. This notice shall be accompanied by payment for the shares
as provided in Section 5(e). Options may be exercised at such time or times as
may be determined by the Committee at the time of grant, subject to the
provisions of this Section 5, including the following limitations: no part of
any Incentive Option may be exercised until the Participant holding the
Incentive Option shall have performed services for the Company or for a
Subsidiary for such period after the date on which the Incentive Option is
granted as the Committee may specify in the Agreement; provided, however, that,
although an Incentive Option may provide for earlier exercise with respect to at
least 20 percent of the shares subject thereto no later than the first
anniversary of the grant of the Incentive Option, 40 percent of such shares no
later than the second such anniversary, 60 percent of such shares no later than
the third such anniversary, 80 percent of such shares no later than the fourth
such anniversary, and 100 percent of such shares no later than the fifth such
anniversary; and provided, further, that no Incentive Option may at any time be
exercised in part with respect to fewer than the lesser of (i) fifty shares, or
(ii) the number of shares which remain to be purchased pursuant to the Incentive
Option.
(d) Ten-percent Owners. Notwithstanding the provisions of
Sections 5(b) and 5(c), the following terms and conditions shall apply to
Incentive Options granted to a "ten-percent owner." For this purpose, a
"ten-percent owner" shall mean a Participant who, at the time the Incentive
Option is granted, owns stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any
Subsidiary. With respect to a ten-percent owner: (1) the price at which shares
of stock may be purchased under the Incentive Option shall not be less than 110
percent of the fair market value thereof, said fair market value determined in
the manner described in Section 5(b); and (2) the period during which the
Incentive Option may be exercised shall expire not later than five years from
the date the Incentive Option is granted.
(e) Payment of Option Price. The Option Price of the Stock
transferred to a Participant pursuant to the exercise of an Incentive Option
shall be paid to the Company at the time of delivery of notice of exercise: (1)
in cash; (2) with previously acquired Stock having a fair market value equal to
the Option Price; or (3) with cash and previously acquired Stock having a fair
market value which together with the cash is equal to the Option Price.
(f) Limitation on the Value of Incentive Options. The aggregate
fair market value (determined at the time an option is granted) of the Stock
with respect to which Incentive Options described in Code Section 422(b) are
exercisable for the first time by any Participant during any calendar year
(under all plans of the Company and any Subsidiary) shall not exceed $100,000.
(g) Exercise in the Event of Death or Termination of Employment.
If a Participant holding Incentive Options shall terminate employment by the
Company and its Subsidiaries because of death, or shall die within three months
of termination of employment by the Company and its Subsidiaries, the Incentive
Options held by the Participant may be exercised, to the extent that the
Participant was entitled to do so at the date of termination of employment, by
the person
13-3
<PAGE>
or persons to whom the Participant's rights under the Incentive Options pass by
will or applicable law, or if no such person has such rights, by the
Participant's executors or administrators, at any time, or from time to time,
within one year after the date of such termination of employment, but in no
event later than the expiration date determined pursuant to Section 5(a). If a
Participant's employment by the Company and its Subsidiaries shall terminate for
any reason other than death, Incentive Options held by such Participant may be
exercised, to the extent the Participant was entitled to do so at the date of
termination of employment, at any time, or from time to time, within three
months after the date of termination of employment, but in no event later than
the expiration date determined pursuant to Section 5(a).
(h) Nontransferability. No Incentive Option granted under the
Incentive Plan shall be transferable other than by will or by the laws of
descent and distribution. No interest of any Participant under the Incentive
Plan shall be subject to attachment, execution, garnishment, sequestration, the
laws of bankruptcy or any other legal or equitable process. During the lifetime
of the Participant, Incentive Options shall be exercisable only by the
Participant who received them.
(i) Investment Representation. Each Agreement shall contain a
provision that, upon demand by the Company for such a representation, the
Participant holding the Incentive Options (or any person acting under Section
5(g)) shall deliver to the Company at the time of any exercise of any Incentive
Options a written representation that the shares to be acquired upon such
exercise are to be acquired for investment and not for resale or with a view to
the distribution thereof. Upon such demand, delivery of such representation
prior to the delivery of any shares issued upon exercise of Incentive Options
and prior to the expiration of the Option Period shall be a condition precedent
to the right of the Participant or such other person to acquire any shares. Any
Agreement which states that it is subject to the terms of the Incentive Plan
shall be dispositively and irrevocably deemed to incorporate such a provision as
if set out such Agreement in full.
(j) Adjustments in Event of Change in Stock. In the event of any
change in the stock by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, or exchange of
shares, or of any similar change affecting the stock, the number and class of
shares which thereafter may be acquired under the Incentive Plan, the number and
class of shares subject to outstanding Agreements, the Option Price per share
thereof, and any other terms of the Incentive Plan or the Agreements which in
the Committee's sole discretion require adjustment (including, without
limitation, relating to the Stock, other securities, cash or other consideration
which may be acquired upon exercise of the Incentive Options) shall be
appropriately adjusted consistent with such change in such manner as the
Committee may deem appropriate.
(k) No Rights as Stockholder. No Participant shall have any
rights as a stockholder with respect to any shares subject to Incentive Options
prior to the date of issuance to the Participant of a certificate or
certificates for such shares.
(l) No Rights to Continued Employment. Neither the Incentive Plan
nor any Incentive Options granted under the Incentive Plan shall not confer upon
any employee any right with respect to continuance of employment by the Company
or any Subsidiary, nor shall they interfere in any way with the right of the
Company or any Subsidiary for which a Participant performs services to
13-4
<PAGE>
terminate such employment at any time.
(m) Arrangement for Tax Payment. Each Agreement shall contain a
provision that the Participant shall agree to make any arrangements required by
the Committee to insure that the amount of tax required to be withheld by the
Company or a Subsidiary as a result of the exercise of Nonqualified Options is
available for payment. Any Agreement which states that it is subject to the
terms of the Incentive Plan shall be dispositively and irrevocably deemed to
incorporate such a provision as if set out such Agreement in full.
(n) Certain Corporate Transactions. Each Agreement shall provide
that nothing in the Incentive Plan or the Agreement shall in any way prohibit
the Company from merging with or consolidating into another corporation, or from
selling or transferring all or substantially all of its assets, or from
distributing all or substantially all of its assets to its stockholders in
liquidation, or from dissolving and terminating its corporate existence, and in
any such event (other than a merger in which the Company is the surviving
corporation and under the terms of which the shares of Stock outstanding
immediately prior to the merger remain outstanding and unchanged), the
Participant shall be entitled to receive, at the time the Incentive Option or
portion thereof would otherwise become exercisable and upon payment of the
Option Price, the same shares of stock, cash or other consideration received by
stockholders of the Company in accordance with such merger, consolidation, sale
or transfer of assets, liquidation or dissolution. Any Agreement which states
that it is subject to the terms of the Incentive Plan shall be dispositively and
irrevocably deemed to incorporate such a provision as if set out such Agreement
in full.
6. Compliance With Other Laws and Regulations. The Incentive Plan, the
grant and exercise of Incentive Options under the Incentive Plan, and the
obligation of the Company to transfer shares under these Incentive Options shall
be subject to all applicable federal and state laws, rules and regulations,
including those related to disclosure of financial and other information to
Participants, and to any approvals by any government or regulatory agency as may
be required. The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to (a) the listing of such shares on any
stock exchange on which the Stock may then be listed, where such listing is
required under the rules or regulations of such exchange, and (b) the compliance
with applicable federal and state securities laws and regulations relating to
the issuance and delivery of such certificates; provided, however, that the
Company shall make all reasonable efforts to so list such shares and to comply
with such laws and regulations.
7. Certain Dispositions. All Incentive Options shall provide that if
the Participant makes a disposition, within the meaning of Code Section 424(c),
of any shares of Stock transferred upon exercise of an Incentive Option within
two years from the date of the granting of the Incentive Option or within one
year after the transfer of the shares of Stock to the Participant pursuant to
the exercise of the Incentive Option, the Participant shall notify the Company
within ten days of the disposition. The Company may cause an appropriate legend
to be affixed to any stock certificates representing the shares of Stock issued
under the Plan to enable it to receive notice of the disposition.
8. Amendment and Discontinuance. The Board may from time to time amend,
suspend or discontinue the Incentive Plan; provided, however, that, subject to
the provisions of Section
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<PAGE>
5(i), no action of the Board, or any committee thereof, may (a) increase the
number of shares reserved for options pursuant to Section 4 without approval of
the stockholders of the Company, (b) permit the granting of any Incentive Option
at an Option Price less than that determined in accordance with Section 5(b),
(c) permit the granting of Incentive Options which expire beyond the period
provided for in Section 5(a), or (d) make any material change in the class of
eligible Employees as defined in the Incentive Plan.
9. Compliance with Rule 16(b)(3) of the Securities Exchange Act of
1934. (a) The Incentive Plan is intended to comply with all applicable
conditions of Rule 16(b)(3) under the Securities Exchange Act of 1934, as
amended, or any successor rule; (b) all transactions involving insider
Participants are subject to such conditions, regardless of whether the
conditions are expressly set forth in the Incentive Plan; and (c) any provision
of the Incentive Plan or action by the Committee that is contrary to a condition
of Rule 16(b)(3) shall not apply to insider-participants.
10. Effective Date. The effective date of the Incentive Plan shall be
the date the Incentive Plan is adopted by the Board.
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<PAGE>
Naturade, Inc.
7110 East Jackson Street
Paramount, California 90723
March 2, 1998
Bill D. Stewart
Chief Executive Officer
Naturade, Inc.
7110 East Jackson Street
Paramount, California 90723
Re: Naturade, Inc. (the "Company")
Dear Mr. Stewart:
Pursuant to your prior agreement (the "CEO Agreement") with the
Company, you have, among other things, agreed to serve on its board of directors
(the "Board") and as its Chief Executive Officer, and the Company has, among
other things agreed to issue to you options to acquire up to 255,000 shares of
common stock of the Company ("Common Stock") under the Naturade, Inc. 1998
Incentive Stock Option Plan (the "Plan"). This Letter Agreement documents the
grant of such Options.
In consideration for services you will provide to the Company, the
Company hereby grants to you, pursuant to the Plan, options to acquire
("Options") up to 255,000 shares of Common Stock, such grant to be effective
as of March 2, 1998 (the "Effective Date"). The purchase price of one share
of Common Stock under each Option (the "Exercise Price") shall be equal to
the average closing bid prices of the shares of Common Stock on the NASDAQ
OTC Bulletin Board as quoted by Bloomberg, LP for the five (5) day trading
period ending on the Effective Date. The Options will vest in four equal
portions on each of the first four anniversaries of the Effective Date,
subject to any limitations on exercise contained in the Plan provided that
the Term (as defined in the CEO Agreement) shall not have ended prior to such
anniversary. Notwithstanding the foregoing, in the event of any sale
(including, without limitation, pursuant to either a tender offer or a merger
of Company which results in the shareholders of the Company holding less than
fifty per cent (50%) of the stock of the surviving corporation) of Company
during the Term, subject to any limitations on exercise contained in the
Plan, all of the Options not then vested shall immediately vest. The Options
shall otherwise be subject to the provisions of the Plan.
14
<PAGE>
Any and all notices or other communications required or permitted to be
given by either party hereto to the other shall be in writing and may be
transmitted either by personal delivery or by mail, registered or certified
postage prepaid, with return receipt requested. Notices shall be deemed duly
served and given when personally delivered to the Party to whom directed or any
of its officers or, in lieu of such personal service, when deposited in the
United States mail, first class postage prepaid, addressed as follows:
To Company: 7110 East Jackson Street
Paramount, California 90723
Attention: Chairman of the Board of Directors
To you: Bill Stewart
Naturade, Inc.
7110 East Jackson Street
Paramount, California 90723
This Letter Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the grant of the
Options, and contains all of the covenants and agreements between the parties
with respect to that grant in any manner whatsoever. Each party acknowledges
that no representations, inducements, promises, or agreements, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement, or
promise not contained in this Letter Agreement shall be valid or binding.
Any modification of this Agreement will be effective only if it is in
writing signed by the party to be charged. The failure of either party to insist
on strict compliance with any of the terms, covenants, or conditions of this
Letter Agreement by the other party shall not be deemed a waiver of that term,
covenants or condition, nor shall any waiver or relinquishment of any right or
power at any one time or times be deemed a waiver or relinquishment of that
right or power for all or any other times.
If any provision in this Letter Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalidated in any way. This Letter Agreement shall be governed by and construed
in accordance with the laws of the State of California.
14-2
<PAGE>
If the above terms and conditions are acceptable to you, please
indicate your agreement by executing the signature line provided below and
returning a countersigned copy of this letter to the Company by no later than
April 30, 1998.
Naturade, Inc.
/s/ PAUL D. SHAPNICK
----------------------------
Paul D. Shapnick
Chief Financial Officer
Assistant Secretary-Treasurer
Accepted and agreed:
/s/ BILL D. STEWART
- ------------------------
Bill D. Stewart
14-3
<PAGE>
Naturade, Inc.
7110 East Jackson Street
Paramount, California 90723
April 20, 1998
Ronald Ahrens
Chairman of the Board of Directors
Naturade, Inc.
7110 East Jackson Street
Paramount, California 90723
Re: Naturade, Inc. (the "Company")
Dear Mr. Ahrens:
The Company has requested that you serve on its board of directors (the
"Board") as Chairman of the Board, and you have agreed to serve in such
capacities. As a Director and Chairman of the Board of the Company, you will
provide, among other things, strategic, financial, operational, and managerial
advice to the Company and its affiliates.
In consideration for services you will provide to the Company, the Company
hereby grants to you, pursuant to the Naturade, Inc. 1998 Incentive Stock Option
Plan (the "Plan"), options to acquire ("Options") up to fifty-one thousand
shares of common stock of the Company ("Common Stock"), such grant to be
effective as of the date you execute and return a counterpart of this letter to
the Company (the "Effective Date"). The purchase price of one share of Common
Stock under each Option shall be equal to the average closing bid prices of the
shares of Common Stock on the NASDAQ OTC Bulletin Board as quoted by Bloomberg,
LP for the five (5) day trading period ending on the Effective Date. The Options
shall otherwise be subject to the provisions of the Plan. The Options will vest
on the Effective Date.
15
<PAGE>
Ronald Ahrens
Chairman of the Board of Directors
April 20, 1998
Any and all notices or other communications required or permitted to be
given by either party hereto to the other shall be in writing and may be
transmitted either by personal delivery or by mail, registered or certified
postage prepaid, with return receipt requested. Notices shall be deemed duly
served and given when personally delivered to the Party to whom directed or any
of its officers or, in lieu of such personal service, when deposited in the
United States mail, first class postage prepaid, addressed as follows:
To Company: 7110 East Jackson Street
Paramount, California 90723
Attention: Chief Executive Officer
To you: Ronald Ahrens
Chairman of the Board of Directors
7110 East Jackson Street
Paramount, California 90723
This Letter Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the grant to you of
the Options by the Company, and contains all of the covenants and agreements
between the parties with respect to that grant in any manner whatsoever. Each
party acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or promise not contained in this Letter Agreement shall be
valid or binding.
Any modification of this Letter Agreement will be effective only if it is
in writing signed by the party to be charged. The failure of either party to
insist on strict compliance with any of the terms, covenants, or conditions of
this Letter Agreement by the other party shall not be deemed a waiver of that
term, covenants or condition, nor shall any waiver or relinquishment of any
right or power at any one time or times be deemed a waiver or relinquishment of
that right or power for all or any other times.
If any provision in this Letter Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue in full force without being impaired or invalidated
in any way. This Letter Agreement shall be governed by and construed in
accordance with the laws of the State of California.
15-2
<PAGE>
Ronald Ahrens
Chairman of the Board of Directors
April 20, 1998
If the above terms and conditions are acceptable to you, please
indicate your agreement by executing the signature line provided below and
returning a countersigned copy of this letter to the Company by no later than
May 31, 1998. This Letter Agreement will become effective upon the Effective
Date.
Naturade, Inc.
/s/ PAUL D. SHAPNICK
----------------------
Paul D. Shapnick
Chief Financial Officer
Assistant Secretary-Treasurer
Accepted and agreed:
/s/ RONALD AHRENS
- ------------------------
Ronald Ahrens
15-3
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") between NATURADE, INC., a
Delaware corporation ("Company"), and BILL D. STEWART, an individual
("Stewart").
PRELIMINARY STATEMENT
Company wishes to engage Stewart as its Chief Executive Officer and as
a member of its Board, and Stewart wishes to accept such engagement, in each
case on the terms and conditions set forth below. Company and Stewart have
discussed Company's need for new management and a reorganization of its
operations. Company endorses Stewart's plans and proposals outlined by him to
Company in such regards. Such plans may include, without limitation, hiring a
new vice president of sales, outsourcing most or all manufacturing operations,
hiring both a new internal marketer and a marketing consultant to focus on mass
market projects, and relocating the Company's business within Southern
California in order to focus on marketing natural dietary supplements and herbal
health-related products.
In consideration of the mutual promises made herein, Company and
Stewart (collectively, the "Parties") hereby agree as follows:
1. Specified Term. Beginning March 2, 1998 (the "Effective Date") for a
period of 48 months or the earlier date of the termination of this Agreement
(the "Term"), in each case on the terms and subject to the conditions set forth
herein, Company hereby retains Stewart, and Stewart hereby accepts retention
with Company. Stewart shall commence performance of his offices hereunder at
Company's headquarters on the Effective Date.
2. Title and Description of Duties. Stewart shall serve as Chief
Executive Officer and member of Company's board of directors (the "Board") and
shall have such duties, rights, responsibilities, and privileges normally
associated with the positions he shall occupy. During the Term Stewart shall
report to the Chairman of the Board, comply with the directions and resolutions
of the Board, and diligently devote his full time, attention, and energies to
the business of Company.
3. Competitive Activities. During the Term Stewart shall not, directly
or indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is in
competition in any manner whatsoever with any business of Company or the dietary
supplements and natural health and beauty care business. The parties hereto
intend the terms of this Section 3 to be reasonable and in compliance with
applicable law and, in that regard, anything to the contrary appearing in this
Agreement notwithstanding, if a court shall determine that this Section 3 shall
be unenforceable, such court is hereby authorized and
16
<PAGE>
empowered to restrict the geographic area and the scope of activities to which
this Section 3 pertains to the minimum extent necessary so that this Section 3
as so restricted shall be rendered enforceable.
4. Confidential Information. Stewart agrees that he shall not disclose
any confidential information concerning the Company or its operations (including
any information constituting a trade secret under applicable law), or use any
such confidential information in any way, either during the Term or at any other
time thereafter, except as is required in the course of the discharge of his
duties hereunder. Upon termination of this Agreement, or when requested by the
Board, Stewart shall return or cause to be returned to Company all such
confidential information in his possession or disposal, without retaining any
copies thereof.
5. Indemnification of Losses of Stewart. Company shall indemnify
Stewart for all losses sustained by Stewart in direct consequence of the
discharge of his duties hereunder, except that Company shall not be liable
hereunder as to losses resulting from Stewart's wilful misconduct, or matters in
respect of which Stewart acted with gross negligence or in bad faith.
6. Salary. (a) As compensation for the services to be rendered by
Stewart hereunder, during the Term Company shall pay Stewart an annual salary
(the "Salary") of $200,000. Salary shall be payable to Stewart at such times and
in a manner consistent with Company's then current payment practices.
(b) In addition to any amount of Salary payable under Section 6(a)
above and any other amount payable to Stewart hereunder, as additional
compensation to Stewart Company shall pay to Stewart the gross amount of $16,700
promptly upon Stewart's purchase of a home in Southern California.
7. Tax Withholding. Company shall have the right to deduct or withhold
from the compensation due to Stewart hereunder any and all sums required for
federal income and Social Security taxes and all state or local taxes now
applicable or that may be enacted and become applicable in the future.
8. Bonus; Options.
(a) Bonus. Company shall pay to Stewart a bonus of $58,000 with respect
to the fiscal year ending September 30, 1998. In addition, Company and Stewart
shall use their respective good faith efforts to negotiate and agree to criteria
respecting a bonus for Stewart with respect to each fiscal year ending after
September 30, 1998 (collectively with the above bonus for 1998, the "Bonus") by
the end of the prior fiscal year. It is the expectation of each of the Parties
hereto that such criteria to be negotiated will provide that the target amount
of each annual Bonus will be one-half of Stewart's aggregate Salary for such
fiscal year based on the Company achieving earnings and revenues objectives,
excluding the effects of acquisitions. Such target Bonus will
16-2
<PAGE>
not be limited, but shall contain provisions for higher bonus payments to reward
Stewart for exceeding such objectives. In addition, provision shall be made on a
case-by-case basis to address specifically earnings and revenues contributed by
acquisitions.
(b) Options. (i) As soon as practicable after the Effective Date,
Company shall grant to Stewart, pursuant to a qualified stock option plan (the
"Plan") to be instituted by Company, options ("Options") to acquire 255,000
shares of common stock of Company ("Common Stock"), at a price per share
("Exercise Price") equal to the fair market price (as reasonably determined by
Company) of Company's publicly trading shares on the Effective Date (such price
being the "Fair Market Price" of the Common Stock as of any date of
determination). The Options will vest in four equal portions on each of the
first four anniversaries of the Effective Date, subject to any limitations on
exercise contained in the Plan; provided, the Term shall not have ended prior to
such anniversary. Notwithstanding the foregoing, in the event of any sale
(including, without limitation, pursuant to either a tender offer or a merger of
Company which results in the shareholders of the Company holding less than fifty
per cent (50%) of the stock of the surviving corporation) of Company during the
Term, subject to any limitations on exercise contained in the Plan, all of the
Options not then vested shall immediately vest.
(ii) Additional options to acquire shares of Common Stock will become
available to Stewart on an annual basis determined by the Board. Additional
options to acquire shares of Common Stock will be made available to selected key
employees nominated and awarded by Stewart (such shares to be used as leverage
for initial hire and annual award against performance), in each case on a basis
determined by the Board.
(c) Dilution.
(1) Reorganizations. In the event the Common Stock is subject to
a stock split, stock dividend, or the like, or any consolidation of the
outstanding shares of Common Stock into a smaller number of shares is effected
(any such event being herein called a "Common Stock Reorganization"), then (i)
the Exercise Price shall be adjusted, effective immediately after the effective
date of such Common Stock Reorganization, to a price determined by multiplying
the Exercise Price in effect immediately prior to such effective date by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such effective date before giving effect to such Common Stock
Reorganization and the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such Common Stock
Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of the Options shall be adjusted, effective at such time,
to a number determined by multiplying the number of shares of Common Stock
subject to purchase immediately before such Common Stock Reorganization by a
fraction, the numerator of which shall be the number of shares outstanding after
giving effect to such Common Stock Reorganization and the denominator of which
shall be the number of shares of
16-3
<PAGE>
Common Stock outstanding immediately before giving effect to such Common Stock
Reorganization. In the event of any merger in which Company is not the surviving
corporation, the Options shall immediately vest (as provided above) and shall
become options to purchase the kind and amount of shares of stock and other
securities and property which Stewart would have been entitled to receive
pursuant to such merger if the Options had been exercised immediately prior to
the effective date thereof, and the Exercise Price shall be adjusted
accordingly. Any adjustment of Exercise Price under this Section 8, and the
number of shares of Common Stock purchasable upon exercise of the Options, shall
not be applicable to any portion of the Options exercised prior to such
adjustment.
(2) Dilutive Issuances.
(i) Upon each issuance (or deemed issuance as provided below)
by the Company of any shares of Common Stock (the "Additional Stock")
after the date hereof, other than "Excluded Stock" (as defined below),
for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance, the Exercise Price in effect
immediately prior to each issuance shall forthwith be adjusted to a
price determined by multiplying the Exercise Price by a fraction, (x)
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Stock
plus the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of shares of
Additional Stock so issued would purchase at the Exercise Price in
effect immediately prior to such issuance, and (y) the denominator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance of Additional Stock plus the number
of shares of such Additional Stock so issued. For the purpose of the
above calculation, the number of shares of Common Stock outstanding
immediately prior to such issuance of Additional Stock shall be
calculated on a fully diluted basis, as if all convertible securities
had been fully converted into shares of Common Stock immediately prior
to such issuance, and any outstanding options, warrants or other rights
for the purchase of shares of stock or convertible securities had been
fully exercised immediately prior to such issuance, and any outstanding
options, warrants or other rights for the purchase of shares of stock
or convertible securities had been fully exercised immediately prior to
such issuance (and the resulting securities fully converted into shares
of Common Stock if so convertible) as of such date, but not including
in such calculation any additional shares of Common Stock issuable with
respect to convertible securities, or outstanding options, warrants or
other rights for the purchase of shares of stock or convertible
securities, solely as a result of the adjustment of the respective
conversion or exercise prices (or other conversion ratios) resulting
from the issuance of the Additional Stock causing the adjustment in
questions.
(ii) The term "Excluded Stock" shall mean:
16-4
<PAGE>
(A) shares of Common Stock issued or issuable in a
public offering registered under the Securities Act of 1933,
as amended;
(B) shares of Common Stock or related options
exercisable for such Common Stock issued to employees,
officers, and directors of, and consultants, customers, and
vendors to, the Company, pursuant to an arrangement approved
by the Board of the Company; and
(C) shares of Common Stock issued or issuable in
connection with the acquisition by the Company of all of the
outstanding voting stock or substantially all of the assets of
another entity.
9. Life Insurance. During the Term, Company agrees to provide and pay
for a twenty-year term life insurance policy for Stewart in the amount of
$250,000; provided, that Company shall be obligated to provide such insurance
only if it may be obtained by Company for Stewart on commercially reasonable
terms and for reasonable premiums not substantially greater than would be
payable for such coverage with respect to an average man of Stewart's age (as
reasonably determined by Company), and subject to Stewart submitting to and
satisfying the health and physical examination criteria of the insurer. Stewart
agrees to cooperate in all reasonable respects with Company and the insurer to
provide the coverage described in this Section 9, including without limitation
by submitting to such physical examinations as shall be required by such
insurer. Company shall continue payment of premium thru life of policy
regardless of employment status.
10. Group Medical Insurance. Company agrees to include Stewart and
Stewart's spouse under Company's group medical insurance coverage, if any, which
Company provides to all employees.
11. Vacation. Stewart shall be allowed four weeks of paid vacation per
year.
12. Expenses.
(a) During the Term the Company shall reimburse Stewart for lease of an
automobile at the rate of $1,250 per month. Stewart's gasoline charges shall be
payable under and pursuant to the Company's then-current travel and
entertainment policy. Stewart will pay for repairs and maintenance costs
relating to such automobile.
(b) Company shall reimburse Stewart for all out-of-pocket travel
expenses incurred by him in connection with Company's business and in compliance
with Company's reimbursement policies.
(c) Company shall reimburse Stewart for all of his reasonable
out-of-pocket moving expenses, not to exceed $33,000, incurred in connection
with his moving his household to Southern California from Memphis, Tennessee. In
addition, Company shall reimburse Stewart for normal and customary selling
expenses, not to exceed $40,000, incurred by him in connection
16-5
<PAGE>
with the sale of his home in Memphis, Tennessee, including (but not limited to):
licensed real estate broker's commission, normal closing costs which are the
responsibility of the seller and attorneys fees, not to exceed realtor's
commissions. In the event Stewart is unable to sell his Memphis home within 180
days of the Effective Date, Company shall purchase from Stewart such home at a
price equal to the average of two appraisals by appraisers reasonably acceptable
to Stewart and Company. Company further agrees to provide grossed up tax
allowance resulting from applicable Company-paid taxable moving expenses shown
as income on Stewart's W-2 form.
(d) Company shall reimburse Stewart for fees and expenses (including
"points") paid by him to obtain a purchase money loan for his acquisition of a
primary residence in Southern California, which fees and expenses are paid by
Stewart on or before the date such loan is made; provided, that Company's total
obligations under this Section 12(d) shall not exceed $15,000.
(e) Company shall lend up to $600,000 to Stewart for the purpose of
purchasing a residence in Southern California if such purchase occurs prior to
the sale of his Memphis residence. The loan shall be at zero interest, and shall
be secured by a deed of trust on the residence purchased. The loan shall be due
and payable upon the earlier of (i) sale of Stewart's Memphis residence or (ii)
180 days following the Effective Date.
(f) Company shall reimburse Stewart for all of his reasonable
out-of-pocket expenses, incurred by him to obtain temporary housing for himself
and his household in Los Angeles, California prior to his purchase of a primary
residence.
(g) Company shall reimburse Stewart for expenses for up to three (3)
house hunting trips for spouse, to include round trip airfare, lodging, meals
and rental car.
13. Termination for Cause. Company reserves the right to terminate this
Agreement if Stewart (1) wilfully or habitually breaches or neglects the duties
which he is required to perform under the terms of this Agreement; (2) commits a
felony or act of dishonesty, fraud, misrepresentation, or other acts of moral
turpitude or (3) refuses to comply materially with reasonable directives of the
Board (each of the foregoing circumstances being "Cause").
14. Termination Without Cause.
a. This Agreement shall be terminated upon the death or
disability of Stewart such that he cannot fulfill his responsibilities
under this Agreement.
16-6
<PAGE>
b. Termination under this Section 14 shall not be considered
"for Cause" for the purpose of this Agreement.
15. Effect of Termination Upon Compensation.
(a) Termination for Cause or Upon Resignation. In the event that this
Agreement is terminated prior to the completion of the entire forty-eight month
Term contemplated hereby "for Cause" by Company, or by resignation by Stewart,
Stewart shall be entitled to the compensation earned by and vested in him prior
to the date of termination as provided for in this Agreement or Company's stock
option plan, computed pro rata up to and including that date, excluding any
Bonus, and the vesting of Options shall cease. In such events, except as
expressly provided in this Section 15(a) above and by the terms of any agreement
between the Parties pertaining to the grant of additional compensation to
Stewart, Company shall have no obligations under this Agreement, including,
without limitation, any obligation thereunder to pay Salary or additional
compensation or to provide other benefits, in each case except to the extent
otherwise provided by law.
(b) Termination Other than for Cause or Upon Resignation, Death or
Disability. In the event that this Agreement is terminated prior to the
completion of the entire forty-eight month Term contemplated hereby other than
"for Cause" by Company or by resignation, death or disability by or of Stewart,
Stewart shall be entitled to (i) the compensation earned by and vested in him
prior to the date of termination as provided for in this Agreement (including
Bonus) and Company's stock option plan, in each case computed pro rata up to and
including that date, and (ii) payment of his Salary, average Bonus, and
continuation of medical benefits and payment of automobile lease under Section
12(a) above, in each case through the later of (a) 24 months following the
Effective Date or (b) 12 months following termination, at such times and in such
manner as such Salary or other amount was paid or provided prior to such
termination. In such events, except as expressly provided in this Section 15(b)
above and by the terms of any agreement between the Parties pertaining to the
grant of additional compensation to Stewart, Company shall have no obligations
under this Agreement, including, without limitation, any obligation thereunder
to pay Salary or additional compensation or to provide other benefits, in each
case except to the extent otherwise provided by law.
16. Notices. Any and all notices or other communications required or
permitted to be given by either Party to the other shall be in writing and may
be transmitted either by personal delivery or by mail, registered or certified
postage prepaid, with return receipt requested. Notices shall be deemed duly
served and given when personally delivered to the Party to whom directed or any
of its officers or, in lieu of such personal service, when deposited in the
United States mail, first class postage prepaid, addressed as follows:
To Company: Naturade, Inc.
16-7
<PAGE>
7110 East Jackson Street
Paramount, California 90723
Attention: Chairman of the Board
Telephone: (562) 531-8120
To Stewart: Bill D. Stewart
2938 Mallard Lane
Germantown, Tennessee 38138
Telephone: (901) 755-3292
17. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the Parties hereto with respect
to the retention of Stewart by Company, and contains all of the covenants and
agreements between the Parties with respect to that retention in any manner
whatsoever. Each Party acknowledges that no representations, inducements,
promises, or agreements, orally or otherwise, have been made by any Party, or
anyone acting on behalf of any Party, which are not embodied herein, and that no
other agreement, statement, or promise not contained in this Agreement shall be
valid or binding. Without limitation to the foregoing, this Agreement shall
supersede and replace all provisions of any prior agreement pertaining to
retention by Company of Stewart.
18. Modifications. Any modification of this Agreement will be effective
only if it is in writing signed by the Party to be charged.
19. Effect or Waiver. The failure of either Party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other Party shall not be deemed a waiver of that term, covenants or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
20. Partial Invalidity. If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
21. Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
22. Sums Due Deceased Stewart. If Stewart dies during the Term, any
sums that may be due him from Company under this Agreement as of the date of
death shall be paid to Stewart's executors, administrators, heirs, personal
representatives, successors and assigns.
16-8
<PAGE>
Executed effective February 18, 1998, at Los Angeles, California.
COMPANY
NATURADE, INC.,
a Delaware corporation
By /s/ WILLIAM B. DOYLE
-------------------------
Title: Director
Stewart
/s/ BILL D. STEWART
- ---------------------------
BILL D. STEWART
16-9
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