FORM 10-QSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
[ ] 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 0-25238
NATURAL HEALTH TRENDS CORP.
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(Exact name of Small Business Issuer as specified in its charter)
Florida 59-2705336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2001 West Sample Road, Suite 318
Pompano Beach, FL 33064
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(Address of Principal Executive Offices)
(954) 969-9771
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(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
The number of shares outstanding of the issuer's Common Stock, $.001
par value, as of June 30, 1997 was 12,811,261 shares.
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NATURAL HEALTH TRENDS CORP.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1997 1
(unaudited)
Consolidated Statements of Operations (unaudited) for the
Six and Three months and ended June 30, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited) for the
Six months ended June 30, 1997 and 1996 3
Notes to the financial statements 4-6
Item 2. Management's discussion and analysis of financial
condition and results of operations 7-9
PART II - OTHER INFORMATION 10
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
ITEM 5. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature 11
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NATURAL HEALTH TRENDS CORP.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
June 30, 1997
(UNAUDITED)
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 172,393
Restricted cash 250,000
Accounts receivable 1,582,486
Inventories 335,003
Due from officers 141,379
Due from affiliate 23,724
Prepaid expenses and other current assets 318,443
--------------------
TOTAL CURRENT ASSETS 2,823,428
--------------------
NOTES RECEIVABLE 1,964,000
PROPERTY, PLANT AND EQUIPMENT 3,206,377
GOODWILL 1,504,798
DEPOSITS AND OTHER ASSETS 370,936
--------------------
$ 9,869,539
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 548,114
Accrued expenses 140,911
-
Current portion of long term debt 56,468
Deferred revenue 758,200
Current portion of accrued consulting contract 246,607
Other current liabilities 244,726
--------------------
TOTAL CURRENT LIABILITIES 1,995,026
--------------------
LONG-TERM DEBT 1,876,704
DEBENTURES PAYABLE 1,000,000
ACCRUED CONSULTING CONTRACT 149,294
COMMON STOCK SUBJECT TO PUT 380,000
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value, 1,500,000 shares authorized;
2,200 shares issued and outstanding 1,680,702
Common stock, $.001 par value; 40,000,000 shares authorized;
12,811,261 shares issued and outstanding at June 30, 1997 12,811
Additional paid-in capital 7,382,013
Retained earnings (accumulated deficit) (4,172,011)
Common stock subject to put (380,000)
Prepaid stock compensation (55,000)
--------------------
TOTAL STOCKHOLDERS' EQUITY 4,468,515
--------------------
$ 9,869,539
====================
See notes to consolidated financial statements.
1
</TABLE>
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<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
----------------------------------- --------------------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES $ 1,987,089 $ 1,889,193 $ 4,060,922 $ 3,670,430
COST OF SALES 1,143,988 1,079,190 2,186,476 2,090,870
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 843,101 810,003 1,874,446 1,579,560
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,051,181 1,009,164 2,064,154 1,819,120
COST OF SEVERING EMPLOYMENT AGREEMENT - - 497,246 -
LITIGATION SETTLEMENT 6,689 - 118,206 -
NON-CASH IMPUTED COMPENSATION EXPENSE - - 25,000 -
--------------- ---------------- ---------------- ----------------
OPERATING INCOME (LOSS) (214,769) (199,161) (830,160) (239,560)
OTHER INCOME (EXPENSE):
Interest (net) (464,778) (57,671) (526,728) (105,626)
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (679,547) (256,832) (1,356,888) (345,186)
PROVISION FOR INCOME TAXES - - -
--------------- ---------------- ---------------- ----------------
NET INCOME (LOSS) (679,547) (256,832) (1,356,888) (345,186)
PREFERED STOCK DIVIDENDS (220,000) - (220,000) -
--------------- ---------------- ---------------- ----------------
INCOME (LOSS) TO COMMON SHAREHOLDERS $ (899,547) $ (256,832) $ (1,576,888) $ (345,186)
=============== ================ ================ ================
EARNINGS (LOSS) PER COMMON SHARE $ (0.07) $ (0.02) $ (0.13) $ (0.03)
=============== ================ ================ ================
WEIGHTED AVERAGE COMMON SHARES USED 12,811,261 11,189,108 12,611,868 11,132,441
=============== ================ ================ ================
See notes to consolidated financial statements.
2
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NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30
-----------------------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,356,888) $ (345,186)
Adjustments to reconcile net loss to net ------------------ ----------------
Depreciation and amortization 162,038 112,842
Non-cash imputed compensation expense 25,000 -
Amortization of note payable discount 325,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (100,897) (270,429)
(Increase) decrease in inventories (79,821) (92,776)
(Increase) decrease in prepaid expenses (272,128) (5,027)
(Increase) decrease in deposits and other assets (288,683) (6,352)
Increase (decrease) in accounts payable 100,736 245,408
Increase (decrease) in accrued expenses 10,572 81,554
Increase (decrease) in deferred revenue (5,680) 76,967
Increase (decrease) in other current liabilities (9,955) 11,713
Increase (decrease) in accrued consulting contract 395,900 -
--------------- ---------------
TOTAL ADJUSTMENTS 262,082 153,900
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,094,806) (191,286)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (161,494) (399,406)
Acquisition expenses - (20,000)
Purchase of marketable securities - (252,584)
Loan to Global Health Alternatives, Inc. (1,964,000) -
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (2,125,494) (671,990)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due from officer (4,884) -
Increase in due to related parties - (13,958)
Increase in due to bank - 14,343
Decrease in restricted cash 8,932 -
Proceeds from sale of debenture 3,262,528 -
Proceeds from notes payable and long-term debt 577,342 551,732
Payments of debt (968,548) (197,092)
Payments of dividents - (184,173)
Issuance of common stock - -
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,875,370 170,852
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (344,930) (692,424)
517,323 994,816
--------------- ---------------
CASH, END OF PERIOD $ 172,393 $ 302,392
=============== ===============
See notes to consolidated financial statements.
</TABLE>
3
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NATURAL HEALTH TRENDS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of financial position and the results of operations
for the interim periods presented. All such adjustments are of a normal
and recurring nature. The results of operations for any interim period
are not necessarily indicative of the results attainable for a full
fiscal year.
2. EARNINGS (LOSS) PER SHARE
Per share information is computed based on the weighted
average number of shares outstanding during the period.
3. LITIGATION SETTLEMENT
Litigation settlement resulted from the settlement of the litigation
brought about by the landlord in connection with the property leased by
the Company in Lauderhill, Florida (the former location of the
Company's Pompano school), which lease was to expire in July 1997. The
settlement resulted in an additional charge of approximately $112,000
during the quarter ended March 31, 1997 in excess of amounts previously
accrued.
4. ACCRUED CONSULTING CONTRACT
During the quarter ended March 31, 1997, the Company renegotiated with
a former stockholder of Sam Lily, Inc. with whom it was obligated under
an employment agreement to cancel the employment agreement and replace
it with a consulting agreement. The consulting agreement requires the
individual to provide services to the Company for one day per week
through December 1998 at the rate of $5,862 per week. The Company has
determined that the future services, if any, that it will require will
be of little or no value and is accounting for this obligation as a
cost of severing the employment contract. Accordingly, the present
value (applying a discount rate of 10%) of all future
4
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payments is accrued in full at June 30, 1997.
5. CONVERTIBLE DEBENTURES
In April 1997, the Company issued $1,300,000 of 6% convertible
debentures (the "Debentures"). Principal on the Debentures is due in
March 2000. The principal and accrued interest on the Debentures are
convertible into shares of common stock of the Company . The Debentures
are convertible into shares of common stock at a conversion price equal
to the lesser of $1.4375 or 75% of the average closing bid price of the
Common Stock for the five trading days immediately preceding the notice
of conversion. In June 1997, the Company repaid $300,000 of the
Debentures.
In conjunction with the issuance of the Debentures, the Company issued
warrants to purchase an aggregate of 200,000 shares of Common Stock.
The warrants are exercisable until April 3, 2002. Warrants to purchase
100,000 shares of Common Stock are exercisable at $2.4375 per share,
and the balances are exercisable at $3.25 per share.
The Company loaned $600,000 of the net proceeds from the issuance of
the Debentures to Global Health Alternatives, Inc. ("Global") pending
the closing of the acquisition of Global under the Agreement and Plan
of Reorganization (the "Reorganization Agreement") dated July 23, 1997.
6. PREFERRED STOCK
In June 1997, the Company sold 2,200 shares of its convertible series A
preferred stock for $1,000 a share realizing net proceeds of
$1,900,702. The preferred stock pays dividends at the rate of 8% per
annum payable in shares of the Company's common stock valued at 80% of
the closing bid price. The preferred stock has a liquidation preference
of $1,000 per share. The preferred stock is convertible commencing 60
days after issuance, provided that a registration statement covering
the resale of the shares of common stock is effective, at the rate of
80% of the average closing bid price of the common stock over the five
days preceeding the notice of redemption. The Company has the right to
redeem the preferred stock for 240 days after the date of issuance at
the rate of 125% of the stated value.
7. ACQUISITION
On July 23, 1997, the Company closed on the acquisition of the capital
stock of Global Health Alternatives, Inc. ("Global"). The note
receivable in the amount of $1,964,000 at June 30, 1997 which
5
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is due from Global will be eliminated upon consolidation of the two
companies. The purchase price for the acquisition of Global was settled
with the issuance of 5,800,000 shares of the Company's common stock.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes contained in Item 1 hereof.
Forward-Looking Statements
When used in Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, the words "will likely result", and "the
Company expects", "will continue", is anticipated", "estimated", "project", or
"outlook" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Act of 1995.
The Company wishes to caution readers not to place undue reliance on such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company has no obligation to release the result of
any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Result of Operations
Revenues:
Total revenues were $4,060,922 for the six months ended June 30, 1997 compared
to $3,670,430 for the six months ended June 30, 1996. This represents an
increase of $390,492 or 10.6%. The Company believes that the increase is
primarily attributable to a $489,049 increase in tuition revenue by the
Company's schools. In addition, revenues from the Company's bookstores increased
by $48,109. Offsetting these increases was a decline in revenues from the
Companies natural health care centers of $178,731 due primarily to a decrease in
revenues from the sale of human growth hormone of approximately $71,000, as well
as decreased revenues as a result of the restructuring of the Boca Raton Clinic.
Cost of sales:
Cost of sales for the six months ended June 30, 1997 were $2,186,476 compared to
$2,090,870 for the comparable period last year. Gross profit as a percentage of
revenues was 46.2% for the six months ended June 30, 1997 as compared to 43% for
the six months ended June 30, 1996. Management believes that the primary reason
for the increase is the increased enrollments at the Company's Oviedo school.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $2,064,154 for the six months
ended June 30,
7
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1997. This represents an increase of $245,034 over the six months ended June 30,
1996. As a percentage of revenues, these costs were 50.8% for the six months
ended June 30, 1997 as compared to 49.6% in the 1996 period. The Company
believes that the increase is primarily due to increased expenses in the natural
health care center located in Pompano Beach, Florida as well as increased
expenses in the Oviedo School to support the increase in student enrollment. The
increase of expenses is also attributable to increased investor relations
expense as well as retaining an investment banking firm in connection with
possible future acquisitions.
Litigation settlement:
The litigation settlement resulted from the settlement of the litigation
commenced by the landlord in connection with property leased by the Company in
Lauderhill, Florida. The leased property was the previous site of the Company's
school now located in Pompano Beach, Florida.
Non-cash Imputed Compensation Expense:
In the first quarter of 1997, the Company -expensed $25,000 relating to the
issuance of 20,000 shares of the Company's common stock to an employee which
amount represents the fair market value of the shares issued.
Interest Expense
Interest expense for the six months ended June 30, 1997 was $526,728 as
compared to $105,626 for the comparable period of 1996. The increase is
primarily due to interest cost associated with the issuance of the convertible
debentures in December 1996 and April 1997 offset by less borrowing against
available lines of credit as well as the investment of excess funds in higher
yield accounts.
Net Loss
For the six months ended June 30, 1997, the net loss was $1,356,888 compared to
a net loss of $345,186 for the six months ended June 30, 1996. The increase in
the loss is primarily attributable to the impact of the individual elements
discussed above.
Liquidity and Capital Resources
The Company has funded its working capital and capital expenditure requirements
from cash provided through borrowing from institutions and from the sale of the
Company's securities in private placements and the initial public offering of
its securities. The Company's primary source of cash receipts is from the
payments for tuition, fees, and books. These payments were funded primarily from
students and parent educational loans and financial aid under various federal
and state assistance programs and, to a lesser extent, from student and parent
resources. The
8
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Company's secondary source of cash receipts is from services rendered at the
Company's natural health care centers.
In April 1997, the Company issued $1,300,000 of 6% convertible debentures.
Principal on the debentures is due in March 2000. The principal and accrued
interest on the debentures are convertible into shares of common stock of the
Company commencing July 1997 at a conversion price equal to the lesser of
$1.4375 or 75% of the average closing bid price for the five trading days
immediately preceding the notice of conversion. In conjunction with the
debenture issuance, the Company issued warrants to purchase 200,000 shares of
common stock. The warrants are exercisable until April 3, 2002. Half of the
warrants are exercisable at $2.4375 per share, while the remaining half are
exercisable at $3.25 per share.
On July 23, 1997 the Company aquired all of the capital stock of Global Health
Alternatives, Inc. ("Global"). The note receivable in the amount of $1,964,000
at June 30, 1997 which is due from Global will be eliminated upon consolidation
of the two companies. The purchase price for the acquisition of Global was
settled with the issuance of 5,800,000 shares of the Company's common stock.
In June 1997, the Company sold 2,200 shares of its convertible series A
preferred stock for $1,000 a share realizing net proceeds of $1,900,702. The
preferred stock pays dividends at the rate of 8% per annum payable in shares of
the Company's common stock valued at 80% of the market price. The preferred
stock is convertible commencing 60 days after issuance, provided that a
registration statement covering the resale of the shares of common stock is
effective, at the rate of 80% of the common stock's market price. The Company
has the right to redeem the preferred stock for 240 days after the issuance at
the rate of 125% of the stated value.
At June 30, 1997 the ratio of current assets to current liabilities was 1.42 to
1.0. Working capital was approximately $828,000.
Cash used in operations for the period ended June 30, 1997 was approximately
$1,094,806, attributable primarily to the net loss of $1,031,888, adjusted for
non cash expenses and changes in operating assets and liabilities aggregating
$62,918.
Capital expenditures, primarily related to the expansion of the alternative
health care clinic in Boca Raton, Florida to allow for introduction of new
modalities and the transition of the Company's schools to college status used
approximately $161,494 of cash.
The Company anticipates that its net cash flow together with available lines of
credit will be sufficient to finance the Company's operations during the next
twelve months. However, there can be no assurance that this will be the case.
The Company anticipates that additional financing will be required for the
Company's expansion, including the acquisition of Global.
9
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PART II- OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
On June 5, 1997 , the Company consummated a private
placement to four investors of an aggregate of 2,200
shares of Series A Preferred Stock (the "Preferred
Stock") at a purchase pricee of $100 per share. The
shares of Preferred Stock are convertible into shares
of Common Stock commencing August 5, 1997 provided
that a registration statement covering the resale of
such shares of Common Stock is effective. The
conversion price of the shares of Preferred Stock is
equal to 80% of the average closing bid price of the
Common Stock as reported by the NASDAQ SmallCap
Market for the five trading days immediately
preceding the date of the notice of conversion.
Domain Investments, Ltd. received consulting fees of
$264,000 in connection with the private placement.
The sale of the shares of Preferred Stock and the
shares of Common Stock issuable upon conversion thereof
are intended to be exempt from the registration
requirements of the Securities Act pursuant to
Section 4(2) thereof and Rule 506 promulgated
thereunder.
Item 3 Defaults Upon Senior Securities - None
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 5 Other Information - None
Item 6 Exhibits and Reports on Form 8-K
The Company filed a current report on Form 8-K on
August 7, 1997 with respect to the Company's
acquisition of all of the shares of capitacl stock of
Global Health Alternatives, Inc.
10
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SIGNATURES
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, thereunto duly authorized.
NATURAL HEALTH TRENDS CORP.
By: /s/ Neal Heller
President and Chief Executive Officer
Date: December 23, 1997
11
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<CAPTION>
Exhibit Index
Number Description of Exhibit
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of July 23, 1997 among the Company,
GHA Holdings, Inc. and Global Health Alternatives, Inc.****
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Amended and Restated By-Laws of the Company.*
4.1 Specimen Certificate of the Company's Common Stock.*
4.2 Form of Class A Warrant.*
4.3 Form of Class B Warrant.*
4.4 Form of Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company.*
4.5 Form of Underwriter's Warrants.*
4.6 1994 Stock Option Plan.*
4.7 Form of Debenture.***
4.8 Articles of Amendment of Articles of Incorporation of the Company
10.1 Form of Employment Agreement between the Company and Neal R. Heller.*
10.2 Form of Employment Agreement between the Company and Elizabeth S. Heller.*
10.3 Lease, dated April 29, 1993, between Florida Institute of Massage Therapy, Inc., as
tenant, and MICC Venture, as landlord, as amended.*
10.4 Lease, dated April 10, 1991, between Florida Institute of Massage
Therapy, Inc., as tenant, and Superior Investment & Development
Corporation, as agent, for SIDCOR 50/50 Associates.*
10.5 Department of Education, Office of Postsecondary Education, Office of Student
Financial Assistance Program Participation Agreement, dated March 28, 1994, between
the Company and the USDOE.*
10.6 Purchase and Sale Agreement between Merrick Venture Capital, Inc., as seller, and the
Company, as buyer.*
10.7 First Mortgage Loan Documents between the Company and TransFlorida Bank
in connection with the purchase of the Pompano Property.*
10.8 Second Mortgage Loan Documents between the Company and Merrick Venture Capital,
Inc.*
10.9 Agreement dated June 7, 1995 between Natural Health Trends Corp. and Justin Real
Estate Corp.*
<PAGE>
Number Description of Exhibit
10.10 Property Management Agreement dated June 7, 1995 between Natural Health Trends
Corp. and Justin Real Estate Corp.*
10.11 Agreement among Natural Health Trends Corp. Health Wellness Nationwide Corp.,
Samantha Haimes and Leonard Haimes.**
10.12 Employment Agreement between Health Wellness Nationwide Corp. and Kaye
Lenzi.**
10.13 Loan Agreements between the Company and Global Health Alternatives,
Inc.***
10.14 Employment Agreement dated July 23, 1997 between the Company and
Robert Bruce
27.1 Financial Data Schedule.
* Previously filed with Registration Statement No. 33-91184.
** Previously filed with the Company's Form 10-KSB for the year ended December 31,
1996.
*** Previously filed with the Company's Form 10-QSB for the quarter ended March 31, 1997.
**** Previously filed with the company's Form 8-K dated August 7,1997
</TABLE>
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
NATURAL HEALTH TRENDS CORP.
Pursuant to the provisions of section 607.1006, Florida Statutes,
Natural Health Trends Corp. (the "Corporation") adopts the following articles of
amendment to its articles of incorporation:
I. ARTICLE IV is hereby amended by adding the following as Part C.
PART C
Series A Preferred Stock
Two thousand two hundred (2,200) of the 1,500,000 authorized
shares of Preferred Stock of the Corporation shall be designated Series A
Preferred Stock (the "Series A Preferred Stock") and shall possess the rights
and privileges set forth below:
A. Par Value, Stated Value, Purchase Price and
Certificates.
1. Each share of Series A Preferred Stock shall
have a par value of $.001, and a stated value (face amount) of One Thousand
Dollars ($1,000) (the "Stated Value").
2. The Series A Preferred Stock shall be
offered at a purchase price of One Thousand Dollars ($1,000) per share.
3. Certificates representing the shares of
Series A Preferred Stock purchased shall be issued by the Corporation to the
purchasers immediately upon acceptance of the subscriptions to purchase such
shares.
B. Dividends.
Holders of the shares of Series A Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available therefor cash dividends at the rate of 8% of the Stated Value per
annum, payable upon the conversion of the shares of Common Stock. Such dividend
shall be payable in Common Stock of the Corporation, at the option of the
Corporation. If such dividends are paid in shares of Common Stock, then the
number of shares of Common Stock to be issued on account of the accrued
dividends shall be equal to the amount of the dividend divided by 80% of the
Closing Bid Price, as hereinafter defined, for the five (5) trading days
preceding the Notice Date, as hereinafter defined.
C. Liquidation Preference.
47336.3
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1. In the event of any liquidation, dissolution
or winding-up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the Holders of shares of the Series A Preferred Stock then
issued and outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its shareholders, whether from
capital, surplus or earnings, before any payment shall be made to the Holders of
shares of the Common Stock or upon any other series of Preferred Stock of the
Corporation, an amount per share equal to the sum of (i) the Stated Value and
(ii) an amount equal to eight percent (8%) of the Stated Value multiplied by the
fraction N/365, where N equals the number of days elapsed since full payment for
the shares of Series A Preferred Stock. If, upon any Liquidation of the
Corporation, the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the Holders of shares of the Series A
Preferred Stock and the Holders of any other series of Preferred Stock with a
liquidation preference equal to the liquidation preference of the Series A
Preferred Stock the full amounts to which they shall respectively be entitled,
the Holders of shares of the Series A Preferred Stock and the Holders of any
other series of Preferred Stock with a liquidation preference equal to the
liquidation preference of the Series A Preferred Stock shall receive all the
assets of the Corporation available for distribution and each such Holder of the
Series A Preferred Stock and the Holders of any other series of preferred stock
with a liquidation preference equal to the liquidation preference of the Series
A Preferred Stock shall share ratably in any distribution in accordance with the
amounts due such shareholders. After payment shall have been made to the Holders
of shares of the Series A Preferred Stock of the full amount to which they shall
be entitled, as aforesaid, the Holders of shares of the Series A Preferred Stock
shall be entitled to no further distributions thereon and the Holders of shares
of the Common Stock and of shares of any other series of stock of the
Corporation shall be entitled to share, according to their respective rights and
preferences, in all remaining assets of the Corporation available for
distribution to its shareholders.
2. A merger or consolidation of the Corporation
with or into any other corporation, or a sale, lease, exchange, or transfer of
all or any part of the assets of the Corporation which shall not in fact result
in the liquidation (in whole or in part) of the Corporation and the distribution
of its assets to its shareholders shall not be deemed to be a voluntary or
involuntary liquidation (in whole or in part), dissolution, or winding-up of the
Corporation.
D. Conversion of Series A Preferred Stock.
The Holders of Series A Preferred Stock shall have
the following conversion rights:
1. Right to Convert. Each share of Series A
Preferred Stock shall be convertible, on the Conversion Dates and at the
Conversion Prices set forth below, into fully paid and nonassessable shares of
Common Stock (sometimes referred to herein as "Conversion Shares").
2. Mechanics of Conversion. Commencing sixty
(60) days after the issuance of the shares of Series A Preferred Stock and
provided that the Conversion Shares have been registered under the Securities
Act of 1933, as amended (the "Act"), each Holder of Series
47336.3
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A Preferred Stock who desires to convert the same into shares of Common Stock
shall provide notice (the "Conversion Notice") via telecopy (or an original) to
the Corporation. The certificate or certificates representing the Series A
Preferred Stock for which conversion is elected, shall be delivered to the
Corporation within five (5) business days of the delivery of the Conversion
Notice. The date upon which a Conversion Notice is received by the Corporation
shall be a "Notice Date."
The Corporation shall use all reasonable efforts to
issue and deliver within five (5) business days after the Notice Date, to such
Holder of Series A Preferred Stock at the address of the Holder on the stock
books of the Corporation, a certificate or certificates for the number of shares
of Common Stock to which the Holder shall be entitled as aforesaid; provided
that the original shares of Series A Preferred Stock to be converted are
received by the transfer agent or the Corporation within five (5) business days
after the Notice Date and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record Holder or Holders of such shares of Common Stock on such date. If
the original certificate(s) representing the shares of Series A Preferred Stock
to be converted are not received by the transfer agent or the Corporation within
five (5) business days after the Notice Date, the Conversion Notice shall become
null and void at the option of the Corporation.
3. Lost or Stolen Certificates. Upon receipt
by the Corporation of evidence of the loss, destruction, theft or mutilation of
any Series A Preferred Stock certificates (the "Certificates") and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Corporation, and upon surrender and cancellation of the Certificates, if
mutilated, the Corporation shall execute and deliver new Series A Preferred
Stock Certificates of like tenor and date. However, the Corporation shall not be
obligated to re-issue such lost or stolen Series A Preferred Stock Certificates
if the Holder thereof contemporaneously requests the Corporation to convert such
Series A Preferred Stock into Common Stock, in which event the Corporation shall
be entitle to rely on an affidavit of loss, destruction or theft of the Series A
Preferred Stock Certificate or, in the case of mutilation, tender of the
mutilated certificate, and shall issue the Conversion Shares.
4. Conversion Period. The Series A Preferred
Stock shall become convertible into shares of Common Stock at any time
commencing on the later of (i) the effective date of a registration statement
filed under the Act covering the Conversion Shares; or (ii) sixty (60) days
following the date of issuance of the shares of Series A Preferred Stock to be
converted.
5. Conversion Formula/Conversion Price. Each
share of Series A Preferred Stock shall be convertible into the number of
Conversion Shares based upon a conversion price (the "Conversion Price") equal
to 80% of the average Closing Bid Price of the Common Stock for the five (5)
trading days immediately preceding the Notice Date. For purposes hereof, the
term "Closing Bid Price" shall mean the closing bid price on the NASDAQ SmallCap
Stock Market ("NASDAQ"), or if no longer traded thereon, the closing bid price
on the principal national securities exchange on which the Common Stock is so
traded. In the event that the registration statement for the Conversion Shares
has not been declared effective within
47336.3
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sixty (60) days of the date of issuance of the Series A Preferred Stock then (i)
the Conversion Price shall be reduced to 75% of the average Closing Bid Price
for the five (5) trading days immediately preceding the Notice Date and (ii) the
Holder shall be entitled to the amounts due pursuant to the Registration Rights
Agreement entered into between the Holder and the Corporation.
6. Automatic Conversion. Each share of Series
A Preferred Stock outstanding thirty six (36) months from the date of issuance
automatically shall be converted into Common Stock on such date in accordance
with the Conversion Formula and the Conversion Price then in effect, and such
date shall be deemed to be the Notice Date with respect to such conversion.
7. No Fractional Shares. If any conversion of
the Series A Preferred Stock would create a fractional share of Common Stock or
a right to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
conversion, if the aggregate, shall be the next higher number of shares.
8. Redemption Terms. The Corporation shall have
the right, at its sole option, to redeem all or part of the Series A Preferred
Stock within 240 days of the date of issuance. In the event the Corporation
exercises such right of redemption it shall pay to the Holder (i) if within
sixty (60) days of the date of issuance, One Hundred Twenty Five Percent (125%)
of the Stated Value of the redeemed shares of Series A Preferred Stock, or (ii)
if within sixty one (61) days and two hundred forty (240) days of the date of
issuance, One Hundred Thirty (130%) percent of the Stated Value of the redeemed
shares of Series A Preferred Stock and the Holder shall be entitled to the
amounts due pursuant to the Registration Rights Agreement entered into between
the Holder and the Corporation. Redemption by the Corporation shall be effected
by the Corporation notifying the Holder by facsimile of the Corporation's
intention to exercise its right of redemption. The Corporation shall state in
such notice the number of shares of Series A Preferred Stock it intends to
redeem, the amount that it will pay to effectuate such redemption and the date
by which the Holder must deliver the shares of Series A Preferred Stock
redeemed. The Corporation shall give the Holder at least two (2) business days'
notice of the above information with respect to the shares of Series A Preferred
Stock for which a Conversion Notice has not been received by the Corporation.
The Holder shall not be entitled to send a Conversion Notice to the Corporation
with respect to the shares of Series A Preferred Stock being redeemed during
such period.
9. (a) If the Conversion Shares have been
registered and have not been delivered within ten (10) business days after the
Notice Date, then and in such event the Corporation shall pay to Holder one
percent (1%) in cash, of the Stated Value of the Series A Preferred Stock being
converted per each day after the tenth business day following the Notice Date
that the Conversion Shares are not delivered.
(b) To the extent that the failure of the
Corporation to issue the Conversion Shares is due to the unavailability of
authorized but unissued shares of Common
47336.3
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<PAGE>
Stock, the provisions of this Section 9 shall not apply but instead the
provisions of Section 10 shall apply.
(c) The Corporation shall make any payments incurred under
this Section 9 in immediately available funds within three (3) business days
from the date of issuance of the applicable shares of Common Stock. Nothing
herein shall limit a Holder's right to pursue actual damages for the
Corporation's failure to issue and deliver Common Stock to the Holder within
five (5) business days after the Notice Date.
(d) If the original certificate(s)
representing the Conversion Shares have not been delivered to the Holder within
ten (10) business days after the Notice Date, the Conversion Notice shall become
null and void at the option of the Holder. In the event that the Holder does not
declare the Conversion Notice null and void, then paragraph 9(a) shall apply.
10. If, at any time a Holder submits a Notice of
Conversion and the Corporation does not have sufficient authorized but unissued
shares of Common Stock available to effect, in full, a conversion of the shares
of Series A Preferred Stock (a "Conversion Default"), the date of such default
being referred to herein as the "Conversion Default Date"), the Corporation
shall issue to the Holder all of the shares of Common Stock which are available,
and the Notice of Conversion as to any shares of Series A Preferred Stock
requested to be converted but not converted (the "Unconverted Shares"), upon
Holder's sole option, may be deemed null and void. The Corporation shall provide
notice of such Conversion Default ("Notice of Conversion Default") to all
existing Holders of outstanding shares of Series A Preferred Stock, by
facsimile, within one (1) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Corporation by facsimile within five (5) business days of receipt of the
original Notice of Conversion Default (with the original delivered by overnight
or two day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Corporation agrees to pay all Holders of outstanding
shares of Series A Preferred Stock payments for a Conversion Default
("Conversion Default Payments") in the amount of (N/365) x (.24) x the initial
Stated Value of the outstanding and/or tendered but not converted shares of
Series A Preferred Stock held by each Holder where N = the number of days from
the Conversion Default Date to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of all remaining shares of Series A Preferred Stock by the fifth day
of the following calendar month. The Corporation shall send notice
("Authorization Notice") to each Holder of outstanding shares of Series A
Preferred Stock that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments shall be paid in cash or shall
be convertible into Common Stock at the Conversion Price, at the Holder's
option, payable as follows: (i) in the event Holder elects to take such payment
in cash, cash payments shall be made to such Holder or (ii) in the event that
the Holder elects to take such payment in Common Stock, the Holder may convert
such payment amount into Common Stock at the Conversion Price at anytime after
the fifth day
47336.3
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<PAGE>
of the calendar month following the month in which the Authorization Notice was
received, until the expiration of the thirty six month (36) conversion period.
Nothing herein shall limit the Holder's
right to pursue actual damages for the Corporation's failure to maintain a
sufficient number of authorized shares of Common Stock.
11. Except in the case of the provisions
contained in Section 6, in no event shall the Holder be entitled to convert any
shares of Series A Preferred Stock in excess of that number of shares of Series
A Preferred Stock upon conversion of which the sum of (1) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series A Preferred Stock),
and (2) the number of shares of Common Stock issuable upon the conversion of the
shares of Series A Preferred Stock with respect to which the determination of
this provision is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.9% of the outstanding shares of Common Stock
of the Corporation. For purposes of this provision, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided
in clause (1) above.
12. Reservation of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock; and if at any time the number of authorized but unissued share of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
E. Voting. Except as otherwise provided below or by the
Florida Statutes, the Holders of the Series A Preferred Stock shall have no
voting power whatsoever, and no Holder of Series A Preferred Stock shall vote or
otherwise participate in any proceeding in which action shall be taken by the
Corporation or the shareholders thereof or be entitled to notification as to any
meeting of the Board of Directors or the shareholders.
F. Protective Provisions. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series A Preferred Stock:
1. alter or change the rights, preferences or
privileges of the Series A Preferred Stock so as to affect adversely the Series
A Preferred Stock;
47336.3
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<PAGE>
2. do any act or thing not authorized or
contemplated by this Article IV which would result in taxation of the Holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended); or
3. enter into a merger in which the Corporation
is not the surviving corporation; provided, however, that the provisions of this
subparagraph (3) shall not be applicable to any such merger if the authorized
capital stock of the surviving corporation immediately after such merger shall
include only classes or series of stock for which no such consent or vote would
have been required pursuant to this section if such class or series had been
authorized by the Corporation immediately prior to such merger or which have the
same rights, preferences and limitations and authorized amount as a class or
series of stock of the Corporation authorized (with such consent or vote of the
Series A Preferred Stock) prior to such merger and continuing as an authorized
class or series at the time thereof.
G. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted as contemplated by this Article IV,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated class or series, and
shall not be issuable by the Corporation as Series A Preferred Stock.
H. Taxes. All shares of Common Stock issued upon conversion of
Series A Preferred Stock will be validly issued, fully paid and nonassessable.
The Corporation shall pay any and all documentary stamp or similar issue or
transfer taxes that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the Series A Preferred Stock so
converted were registered, and no such issue or delivery shall be made unless
and until the person requesting such transfer has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the Corporation
that such tax has been paid or that no such tax is payable. The Corporation
shall adjust the amount of dividends paid or accrued so as to indemnify the
Holders of Series A Preferred Stock against any withholding or similar tax in
respect of such dividends.
II. These Articles of Amendment of Articles of Incorporation were
adopted by the Board of Directors without shareholder action and shareholder
action was not required on May 22, 1997.
Signed on May 22, 1997
NATURAL HEALTH TRENDS CORP.
By: _/S/__Neal R. Heller___________________
Name: Neal R. Heller
Title: President
47336.3
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THIS EMPLOYMENT AGREEMENT (as the same may be modified, amended,
supplemented and/or restated from time to time, this "Agreement"), dated as of
April 1, 1997 (the "As of Date"), is made and entered into by and between
Natural Health Trends Corp., a Florida corporation (the "Company"), and Robert
C. Bruce (the "Executive").
Background
The Company wishes to employ the Executive and the Executive wishes to
be employed by the Company, on the terms and conditions set forth below in this
Agreement.
Prior to the effective date of this Agreement (as specified in Section
2 below), the Executive had been employed by Global Health Alternatives, Inc., a
Delaware corporation ("GHA"). The terms and conditions such employment were
governed by that certain Employment Agreement, dated as of October 15, 1996 (the
"GHA Employment Agreement"), by and between GHA and the Executive.
The Company and GHA are entering into an Amended and Restated Agreement
and Plan of Reorganization, dated as of July 23, 1997 (the "Acquisition
Agreement"), among the Company, the stockholders of GHA and GHA, providing for
(among other things) the assignment and transfer by the stockholders of GHA of
all or substantially all of the common stock of GHA to the Company (the
"Acquisition Transaction"). This Agreement is being executed and delivered by
the Company in partial satisfaction of the condition set forth in Section
6.02(k) of the Acquisition Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
and the covenants and agreements herein contained, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
1. Employment and Duties. (A) Subject to the terms hereof, the Company
hereby employs the Executive with the titles Senior Vice President, Chief
Financial Officer and Treasurer of the Company (and/or such other title(s) as
the Company and Executive shall mutually agree) and in such other capacities
with or for the Company and/or subsidiaries or affiliates of the Company
("Affiliated Companies") as the Company or its Board of Directors, Chairman or
President shall designate. The Executive hereby: (i) accepts such employment,
(ii) undertakes the responsibilities of such office(s), (iii) as such, agrees to
perform such duties and responsibilities with respect to the Company and other
Affiliated Companies as are set forth in Annex 1 attached hereto and made part
hereof (and/or such other duties and responsibilities consistent with the duties
set forth on Annex 1 as the Company or its Board of Directors, Chairman and or
President shall reasonably require of the Executive) (the "Assigned Duties"),
and (iv) agrees to devote substantially his entire professional time, attention
and energies to the performance of the Assigned Duties to the best of his
ability.
(B) The Executive shall work at offices of the Company located
in or near (from and after no later than October 31, 1997) Pompano Beach,
Florida and (prior thereto) Portland, Maine (as the case may be, the "Home
Area"). However, (i) during the period that the Home Area is Portland, Maine,
the Executive shall travel to and work at the offices of the Company located in
or near Pompano Beach, Florida on and as needed basis (but no less frequently
than monthly), and (ii) throughout the term of this Agreement, the Executive
shall also render services at such other place or places within or without the
United States as the Board of Directors may direct from time to time, subject to
Section 7; provided that the Company shall employ its reasonable efforts to
restrict
<PAGE>
the time the Executive shall render such services away from the Home Area to not
more than 20 business days per calendar quarter.
2. Term. The effectiveness of this Agreement shall commence
automatically on July, 1997 (being the date of the consummation of the
Acquisition Transaction; hereinafter, the "Effective Date") and, unless earlier
terminated pursuant to Section 8, shall continue in effect until March 31, 2000
(being the date that is three years after the As of Date) (the "Term").
3. Compensation. During the Term of this Agreement, the Executive's
compensation under this Agreement shall be as follows:
(A) Base Salary. Executive shall be paid a base salary ("Base
Salary") at a rate of: (i) for the portion of the Term ending on March 31, 1998
(the "Initial Period"), $120,000 per annum; (ii) for the twelve-month period
ending on March 31, 1999 (the "Second Period"), $135,000 per annum; and (iii)
for the twelve-month period ending on March 31, 2000 (the "Third Period"),
$150,000 per annum. The Base Salary shall be paid by the Company in installments
in accordance with the Company's normal payment schedule for its senior
management, but no less frequently than monthly except that the Base Salary
payable for the period between the As Of Date and the Effective Date shall be
paid promptly by GHA after the Effective Date, in a single lump sum. All
payments hereunder shall be subject to the deduction of payroll taxes and
similar assessments as required by law.
(B) Bonus. With respect to the Initial Period, the Executive
shall be entitled to a cash bonus of $20,000, payable within fifteen days of the
Executive's having completed the move of his residence from in or near Portland,
Maine to a commutable distance from Pompano Beach, Florida (the "Executive's
Move"); provided that this Agreement shall not have been terminated for Cause
(as defined in Section 8 hereof) or by the resignation of the Executive prior to
such move-date (or the following two-week period). In addition, if during the
Second Period or Third Period the performance criteria set forth in Annex 2
attached hereto are achieved, then the Executive shall be entitled to receive a
cash bonus in an amount equal to $25,000 (in respect of the Second Period) or
$30,000 (in respect of the Third Period within 30 days of the end of the
respective period; provided that this Agreement shall not have been terminated
for Cause or by the resignation of the Executive prior to the end-date of such
Second Period or Third Period (respectively). If this Agreement shall be
terminated by the Company without Cause or if the Executive terminates this
Agreement for Good Reason (as defined in Section 8 hereof) prior to: (i) the
Executive's Move or the payable date of the Executive's bonus hereunder with
respect to the Initial Period, the Executive shall nevertheless be entitled to
the full amount of such bonus, or (ii) the end-date of Second Period or Third
Period, then, subject to the subsequent achievement of the performance criteria
set forth in Annex 2 attached hereto, the Executive shall be entitled to a
portion of the bonus payable hereunder for such period, pro rated for the number
of full months that this Agreement was in force during the period with respect
to which such bonus is calculated.
(C) Executive's Move. As compensation for the expense of
and personal dislocation arising out of the Executive's Move, the Executive
shall be entitled to receive a cash
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payment of the greater of: (i) $10,000, and (ii) the lesser of (x) $15,000 and
(y) the actual expenses incurred by the Executive in connection with the
Executive's Move. Such payment shall be made promptly after the submission by
the Executive to the Company of the appropriate documentation establishing such
expenses of the Executive.
(D) Options. Concurrent with the execution hereof, the
Executive is entering into a Stock Option Agreement with the Company, pursuant
to which the Executive is being granted the right to purchase 300,000 shares of
the Company's Common Stock over 3 years.
4. Company Car. The Executive shall have the use of a suitable
executive company car (i) which either (x) will be owned or leased and paid for
by the Company or an Affiliated Company, or (y) for which the Executive will be
paid a sufficient car allowance and (ii) as to which the Company will reimburse
the Executive for insurance, maintenance, registration, excise taxes and
business-related gas consumption. The Executive shall keep a detailed mileage
log for his company car. Company agrees that Executive's current GHA company car
is a "suitable executive company car".
5. Executive Plans. The Executive (together with his spouse and minor
children) shall be covered at the Company's expense by any and all of the
Company's United States group health, dental, life and disability insurance
plans made available to senior executives of the Company in the United States
generally. The Executive shall also be eligible to participate, to the same
extent as other senior executives, in any and all of the Company's other
executive profit sharing or bonus plans available to senior executives of the
Company in the United States generally.
6. Vacation. The Executive shall be entitled to take four weeks
of paid vacation during each year of this Agreement. Accrued but unused vacation
shall be carried over only in accordance with the Company's standard policies.
7. Expense Reimbursement. In addition to the compensation and benefits
provided in Sections 3, 4, 5 and 6 hereof, the Company or an Affiliated Company
shall, upon receipt of appropriate documentation, reimburse Executive for his
reasonable travel, lodging, entertainment, professional promotion and other
ordinary and necessary business expenses incurred in the course of his duties on
behalf of the Company or any Affiliated Company.
8. Termination of Employment. (A) The Company may terminate the
Executive's employment by the Company (and any Affiliated Company) and this
Agreement: (i) by giving the Executive written notice of such termination at
least 30 days in advance, and (ii) at any time for Cause.
(B) The Executive's employment hereunder and this Agreement
shall terminate immediately upon his death or disability. For purposes of this
Section 8(B), Executive shall be deemed to be "disabled" if, on account of
illness or other incapacity, he has been unable to perform his duties for 90
consecutive days and, in the good faith judgment of the Company's Board of
Directors or its Chairman or President, he shall be unable to perform his duties
hereunder for a period of six consecutive months. The Company shall continue to
pay the Executive his Base Salary and other employment benefits hereunder prior
to the termination by the Board of Directors pursuant to this Section 8(B), even
though Executive is disabled during that 90 day period of time.
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(C) The Executive may terminate the Executive's employment by
the Company (and any Affiliated Company) and this Agreement for Good Reason,
after giving the Company written notice of the basis for such termination and
the Company's failure to cure such condition after 30 days opportunity to do so.
(D) This Agreement may be terminated with the mutual consent
of the parties hereto, and shall terminate at the end of the Term.
(E) If the Executive's employment hereunder is terminated by
the Company without Cause pursuant to the foregoing Section 8(A)(i) or by the
Executive for Good Reason as provided in the foregoing Section 8(C), the Company
shall, within 30 days after the effective date of such termination make a cash
payment equal to the Executive's Base Salary for a period of time equal to the
lesser of (x) the remaining Term of this Agreement and (y) one year, but in no
event less than six (6) months.
(F) If the Executive's employment hereunder and/or this
Agreement is terminated for any reason, then all rights and obligations of the
parties hereunder shall terminate automatically thereupon, except (i) as to any
right which the Executive's estate or dependents may have under "COBRA" or any
other federal or state law, (ii) as to any Base Salary or other compensation
earned by him prior to such termination, or (iii) to the extent otherwise
specifically set forth herein (including under the foregoing Section 8(E)).
(G) For purposes of this Agreement, the terms:
"Cause" means, when used in connection with the
termination of the Executive's employment with the Company and/or this
Agreement (or the right to effect such termination): (i) the Executive's
continuing inattention to, or neglect of, his Assigned Duties, which
inattention or neglect is not the result of illness or accident, (ii) any other
material breach by the Executive of this Agreement uncured for five (5)
business days, (iii) any willful disloyalty to, misappropriation from or
embezzlement of, the Company or any Affiliated Company on the part of the
Executive, (iv) the commission by the Executive of any crime involving moral
turpitude or any felony (whether or not involving moral turpitude), (v) any
habitual drug, alcohol or other substance abuse on the part of the Executive,
and/or (vi) the participation by the Executive in any fraud (whether or not
directed at the Company or any Affiliated Company).
"Good Reason" means, when used in connection with the
termination of the Executive's employment with the Company and/or this
Agreement (or the right to effect such termination) any of the following events
occurring (x) within six months prior to such termination and (y) without the
prior written consent of Executive: (i) the assignment to the Executive
of any duties materially inconsistent with his position as an officer of the
Company or with the Assigned Duties, except in connection with the termination
of the Executive's employment by the Company for Cause; (ii) any reduction by
the Company of the Executive's Base Salary or a material reduction in other
benefits provided for hereunder taken as a whole (except to the extent such
benefits are no longer generally available to members of management of the
Company), except in connection with the termination of such Executive's
employment by the Company for Cause (it being understood that failure to
receive bonus or other incentive payments at the same level as in prior years
or periods due
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to the failure to achieve in such later year or period specified performance
criteria shall not be deemed to be a reduction in benefits hereunder), or (iii)
any other material breach by the Company of this Agreement. It is hereby
expressly acknowledged that the foregoing definition of "Good Reason" shall be
effective solely for purposes of this Agreement and shall not be applicable to
any other agreement or understanding between Executive and the Company. "Good
Reason" shall not include a change in the title of the office or offices held by
Executive as long as the Assigned Duties associated with such office(s) are not
materially altered.
9. Covenant Not to Compete. (A) The Executive agrees that for
a period commencing on the date hereof and ending two years after the
termination of this Agreement and/or his employment by the Company and any
Affiliated Company, he will not, directly or indirectly: (i) unless such
termination was without Cause or Good Reason, engage in, or be employed or
retained by, give advice to, be a proprietor, principal, agent, representative,
officer, director, partner or significant shareholder of, or otherwise be
associated with or render assistance to, any business or enterprise that engages
in any business at the time of such termination being engaged in by the Company
or any Affiliated Company (the "Restricted Business"); (ii) interfere with or
disrupt any actual or imminent business relationship between the Company or any
Affiliated Company, on the one hand, and any of their respective (including
prospective) customers or suppliers, on the other; or (iii) solicit for
employment, attempt to employ or assist any other person or entity in employing
or soliciting for employment, any employee or executive who is at the time
employed by the Company or any Affiliated Company.
(B) Although the Executive acknowledges that the restrictions
contained in Section 9(A) are fair and reasonable under the circumstances, it is
recognized that restrictions of the nature contained in such Section may fail
for technical reasons, and, accordingly, if any of such restrictions shall be
adjudged to be void or unenforceable for whatever reason, but would be valid if
part of the wording thereof were deleted, or the period thereof reduced or the
area dealt with thereby reduced in scope, the restrictions contained in Section
9(A) shall apply, at the election of the Company, with such modifications as may
be necessary to make them valid, effective and enforceable in the particular
jurisdiction in which such restrictions are adjudged to be void or
unenforceable.
10. Confidentiality. Without the specific prior written consent of the
Company, the Executive shall not, directly or indirectly, at any time after the
date hereof (including after the termination of this Agreement and/or his
employment by the Company and any Affiliated Company), divulge to any person or
entity, or use for his own direct or indirect benefit, any information
confidential and/or proprietary to the Company or any Affiliated Company
concerning their respective business, affairs, products, services, assets,
services, liabilities, revenues, condition (financial or otherwise), or
prospects, customers or suppliers, including, without limitation, any data or
statistical information of or with respect to the Company or any Affiliated
Company, whether created or developed by the Company or any Affiliated Company
or on its or his behalf, or with respect to which the Executive may have
knowledge or access, it being the intent of the parties hereto to restrict the
Executive from disseminating or using any such information of or with respect to
the Company or any Affiliated Company which is at the time of such use or
dissemination unpublished and not readily available or generally known to the
public or in the Company's or any Affiliated Company's trade; provided that
nothing in this Section 10 shall prohibit such disclosure within the scope of
the Executive's employment or in the best interest of the Company.
5
<PAGE>
11. Amendment and Waivers. This Agreement may be amended, and
compliance with any of the terms and provisions hereof may be waived, only by a
written document signed by both parties hereto. No waiver of any condition,
obligation or term hereof shall constitute a waiver of any other or a waiver of
a subsequent right to demand strict compliance with all conditions, obligations
and terms hereof.
12. Governing Law; Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (other than the
choice of law principles thereof). Any claim, action, suit or other proceeding
initiated by either party hereto under or in connection with this Agreement
shall (to the exclusion of other forums) be asserted, brought, prosecuted and
maintained in an arbitration proceeding held in the City of Pompano Beach,
Florida in accordance with the rules of the American Arbitration Association,
and both of the parties hereto hereby irrevocably (a) submit to the jurisdiction
of any arbitration tribunal established in accordance with the foregoing, (b)
waive any and all rights to object to the laying of venue before such tribunal
in such location, (c) waive any and all rights to claim that any such tribunal
in such location may be an inconvenient forum, and (d) agree that service of
process on them in any such arbitration proceeding may be effected by the means
by which notices may be given to it under this Agreement. The parties hereto
hereby further agree that an arbitration tribunal established in accordance with
the foregoing shall have the power to issue an injunction or mandatory relief
order, and the parties will be bound by any resulting arbitration ruling or
order.
13. Attorneys' Fees. In the event any party finds it necessary to bring
an action at law or other proceedings against the other party to enforce any of
the terms hereof, the party prevailing in any such action or other proceeding
shall be paid by the other party its reasonable attorneys' fees as well as court
costs.
14. Severability. Should any provision hereof be deemed, for any
reason whatsoever, to be invalid or inoperative, that provision shall be deemed
severable and shall not affect the force and validity of all other provisions of
this Agreement.
15. Survival. All provisions which may reasonably be interpreted or
construed to survive the expiration or termination of this Agreement shall
survive the expiration or termination of this Agreement. Without limiting the
generality of the foregoing, Sections 9 and 10 shall survive the termination of
the Executive's employment by the Company and any Affiliated Company and this
Agreement, in accordance with their terms.
16. Notices. All notices, offers, acceptances, requests and other
communications under or pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered, one
day after being sent by recognized overnight courier or three days after being
sent by United States mail, certified or registered mail, with postage prepaid,
to the other party at such party's address set forth below:
If to Executive: Robert C. Bruce
58 Kenwood Street
Portland, ME 04102
Office: (207) 774-0150
6
<PAGE>
If to the Company: Natural Health Trends Corp.
2001 West Sample Road
Pompano Beach, Florida 33064
Attention: Chairman
Fax: (954) 969-9747
Tel: (954) 969-9771
Any party may change his or its address set forth in this Section, by written
notification to the other party hereto. Promptly after the Executive's Move, the
Executive shall, by written notification to the Company, advise the Company of
his new address for notices, offers, acceptances, requests and other
communications under or pursuant to the terms of this Agreement.
17. Successors. This Agreement, including the documents and
instruments referred to herein, shall inure to the benefit of and be binding
upon and enforceable against the respective heirs, legal representatives,
successors, and permitted assigns of the parties hereto.
18. Delegation of Duties. The Executive may not delegate or assign any
of his duties or obligations hereunder. With the exception of an assignment to
any acquiror in connection with (i) a merger or consolidation of the Company, or
(ii) a sale or exchange of all or substantially all of the property or assets of
the Company, the Company shall have no right to assign this Agreement without
the Executive's prior written consent (which consent shall not be unreasonably
withheld or delayed).
19. Remedies. (A) The remedies of each of the parties hereunder shall
be cumulative and not exclusive. However, no party shall be obligated to the
other for punitive or other forms of speculative or expectancy damages. In
addition to any and all such other remedies, the provisions of this Agreement
requiring the performance of an affirmative act by a party or requiring a party
to refrain from the performance of specific act, shall be enforceable by
injunctive proceeding or by a suit for specific performance.
(B) Without limiting the generality of the foregoing Section
19(A), the Executive acknowledges that any violation or threatened violation of
Section 9 or 10 hereof will cause irreparable injury to the Company and that the
remedy at law for any such violation or threatened violation will be inadequate.
The Executive therefore agrees that the Company shall be entitled to temporary
and permanent injunctive relief for any such violation or threatened violation
without the necessity of proving (i) that the Company will be irreparably
injured thereby, (ii) that the remedy at law for such violation or threatened
violation is inadequate or (iii) actual damages.
20. Effectiveness. Notwithstanding anything to the contrary set forth
herein, this Agreement has force and effect only from and after the Effective
Date. The Company and Executive hereby acknowledge and agree that this Agreement
is intended to supersede and replace the GHA Employment Agreement, and therefore
from and after the Effective Date, the GHA Employment Agreement is and shall be
terminated and no longer of any force and effect. The foregoing provisions of
this Section 20 are for the benefit of, and may be enforced by GHA (in addition
to the Company and the Executive).
7
<PAGE>
21. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior arrangements or understandings with respect thereto between
the parties hereto, which arrangements or understandings are merged herein.
[(The remainder of this page is intentionally left blank)]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
The Company:
NATURAL HEALTH TRENDS CORP.
By:
Name:
Title:
The Executive:
By:
Name: Robert C. Bruce
Title:
Acknowledged and Agreed
as to Section 3A:
GLOBAL HEALTH ALTERNATIVES, INC.
By:
Sir Brian Wolfson
President
9
<PAGE>
Annex 1
(to Employment Agreement)
Assigned Duties
o Senior Vice President, Chief Financial Officer and Treasurer of the
Company reporting directly to the President, CEO and Chairman (whether
such offices are held by the same or different persons).
o Serve as member of the Company's senior management team, including
development of strategic plans and financing strategies (Company-wide,
and for the individual Global Health and non-Global Health business
segments).
o Responsible for all corporate fiscal planning (Company-wide, and for
the individual Global Health and non-Global Health business segments).
o Oversee all financial accounting and reporting functions for Company
financial statements. Assure financial control and accountability.
Monitor and maintain sound internal control structure.
o Lead financial performance and budget compliance processes. Assure
timely and accurate financial reporting and budgetary analysis to
management, the Directors and outside parties.
o Responsible for supervision of accounting personnel and the
development and monitoring of all required training.
o With assistance of Company's tax, legal and audit advisors, insure
compliance with IRS regulations and all domestic and international tax
filings.
o Oversee the financial position and performance of any subsidiaries or
other operations and provide oversight of the subsidiaries' and other
operations' or accounting functions.
o Evaluate potential acquisition targets, and participate as a key
member of the Company's acquisition team.
o Analyze existing business operations (for the Global Health and
non-Global Health business segments) and identify potential improvement
strategies.
o Undertake such special projects reasonably consistent with the duties
enumerated above for the Company or any of its Affiliated Companies.
<PAGE>
Annex 2
(to Employment Agreement)
Performance Criteria
Satisfactory accomplishment of the Executive's Assigned Duties during the
employment period in question, as determined in the sole discretion of the Board
of Directors of the Company or the Compensation Committee thereof (which
discretion may be delegated to the Chairman of the Company.
<PAGE>
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