SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(c)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule
14a-11c or Rule 14a-12 NATURAL HEALTH
TRENDS CORP.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14-a6(I)(1), or
14a-6(I)(2) or Item 22(a)(2) of Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(I)(3),
|x| Fee computed on table below per exchange Act Rules 14a-6(I)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction: $2,860,191
(5) Total fee paid: $572.03
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
of the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
NATURAL HEALTH TRENDS CORP.
2001 West Sample Road
Pompano Beach, FL 33064
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on __________________, 1998
To the Stockholders of NATURAL HEALTH TRENDS CORP.
The Annual Meeting of Stockholders of Natural Health Trends Corp., a
Florida corporation ("Company"), will be held at
___________________________________, on _____________, 1998, at ____________,
local time, for the following purposes:
1. To elect a board of five directors to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
qualified;
2. To ratify the selection by the Board of Directors of Feldman
Sherb Ehrlich & Co., P.C. to serve as independent auditors for the year ending
December 31, 1998;
3. To approve the Company's 1998 Stock Option Plan;
4. To approve the sale of the Company's three vocational schools and
certain related businesses to Florida College of Natural Health, Inc., a Florida
corporation controlled by Neal R. Heller, the Company's President, Chief
Executive Officer, a director and principal stockholder and his wife, Elizabeth
S. Heller, the Company's Secretary, Treasurer, a director and principal
stockholder for a purchase price of $1,800,000 in cash and certain additional
consideration as described herein;
5. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of the
Company's Common Stock, $0.001 par value per share, from 5,000,000 to
50,000,000;
6. To ratify the conversion of 4,000 shares of Series C Preferred Stock
issued in the Company's April 1998 private placement into shares of Common Stock
pursuant to the terms of such Preferred Stock to the extent that the number of
shares of Common Stock issuable upon such conversion exceeds 191,902 (the number
of shares equal to 20% of the Company's outstanding Common Stock outstanding on
April 8, 1998, the date of the closing of the private placement); and
7. To transact such other business as may properly come before
the meeting or any adjournments thereof.
<PAGE>
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Management is aware of no other business
which will come before the meeting.
The Board of Directors has fixed the close of business on
________________, 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at the meeting or any adjournments thereof.
Holders of a majority of the outstanding shares must be present in person or by
proxy in order for the meeting to be held.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. YOU ARE
URGED TO SIGN, DATE AND OTHERWISE COMPLETE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU WISH TO DO
SO, EVEN IF YOU HAVE SIGNED AND RETURNED YOUR PROXY CARD.
By Order of the Board of Directors,
Neal R. Heller, President and Chief Executive Officer
Pompano Beach, Florida
_________________, 1998
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY
<PAGE>
NATURAL HEALTH TRENDS CORP.
2001 West Sample Road
Pompano Beach, FL 33064
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
___________________, 1998
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Natural Health Trends Corp., a Florida corporation
(the "Company"), of proxies to be voted at the Annual Meeting of Stockholders of
the Company to be held on _____________________, 1998 (the "Meeting"), at 2:00
P.M., local time, at ____________________________, Florida, and at any
adjournments thereof.
A form of proxy is enclosed for use at the Meeting. The proxy may be
revoked by a stockholder at any time before it is voted by execution of a proxy
bearing a later date or by written notice to the Secretary before the Meeting,
and any stockholder present at the Meeting may revoke his or her proxy thereat
and vote in person if he or she desires. When such proxy is properly executed
and returned, the shares it represents will be voted at the Meeting in
accordance with any instructions noted thereon. If no direction is indicated,
all shares represented by valid proxies received pursuant to this solicitation
(and not revoked prior to exercise) will be voted (i) for the election of the
nominees for director named in this Proxy Statement, (ii) for ratification of
the selection by the Board of Directors of Feldman Sherb Ehrlich & Co., P.C. to
serve as independent auditors for the year ending December 31, 1998, (iii) for
the approval of the Company's 1998 Stock Option Plan; (iv) for the approval of
the sale of the Company's three vocational schools to Florida College of Natural
Health, Inc.; (v) for the approval of an amendment to the Company's Amended and
Restated Articles of Incorporation to increase the number of the Company's
authorized shares of Common Stock from 5,000,000 to 50,000,000; (vi) to ratify
the conversion of 4,000 shares of Series C Preferred Stock issued in the
Company's April 1998 private placement into shares of Common Stock pursuant to
the terms of such Preferred Stock to the extent that the number of shares of
Common Stock issuable upon such conversion exceeds 191,902 (the number of shares
equal to 20% of the Company's outstanding Common Stock on April 8, 1998, the
date of the closing of the private placement); and (vii) in accordance with the
judgment of the persons
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<PAGE>
named in the proxy as to such other matters as may properly come before the
Meeting and any adjournments thereof.
The cost for soliciting proxies on behalf of the Board of Directors
will be borne by the Company. In addition to solicitation by mail, proxies may
be solicited in person or by telephone, telefax or cable by personnel of the
Company who will not receive any additional compensation for such solicitation.
The Company may reimburse brokers or other persons holding stock in their names
or the names of their nominees for the expenses of forwarding soliciting
material to their principals and obtaining their proxies. This Proxy Statement
and the accompanying form of proxy will be first mailed to stockholders on or
about __________, 1998
The close of business on __________, 1998 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting. On that date there were ________ shares of common stock, par value
$.001 per share, of the Company ("Common Stock") outstanding. Each share
entitles the holder thereof to one vote and a vote of a majority of the shares
present, or represented, and entitled to vote at the Meeting is required to
approve each proposal to be acted upon at the Meeting, except that the vote of a
majority of the shares outstanding shall be required to approve Proposal No. 4.
The holders of a majority of the shares of Common Stock outstanding on the
record date and entitled to be voted at the Meeting, present in person or by
proxy, will constitute a quorum for the transaction of business at the Meeting
and any adjournments thereof.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The by-laws of the Company give the Board of Directors the authority to
determine the number of directors who shall constitute the full Board, which
currently consists of five directors. All directors will be elected to serve
until the next annual meeting of stockholders and until their successors are
elected and qualified. The five nominees for election to the Board of Directors
who receive the greatest number of votes cast at the Meeting will be elected to
the Board of Directors.
The nominees for election as directors are Sir Brian Wolfson, Neal R.
Heller, Elizabeth S. Heller, Martin C. Licht and Dirk D. Goldwasser. Of the
current directors, only Arthur Keiser is not standing for reelection. If any
nominee becomes unable or unwilling to serve, the persons named as proxies will
have discretionary authority to vote for a substitute. To the best of the
Company's knowledge, all the nominees will be available to serve. Unless
contrary instructions are given on the proxy, the shares represented by a
properly executed proxy will be voted FOR each of the nominees.
The following is a brief summary of the background of each nominee:
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<PAGE>
Sir Brian Wolfson has served as Chairman and a director of the Company
since July 1997 and Chief Executive Officer and Chairman of the Board of
Directors of Global Health Alternatives, Inc. ("GHA") since its inception in
October 1995. Prior to co-founding GHA in October 1995, Sir Brian served as
Chairman of Wembley, PLC from 1986 to 1995. Sir Brian is currently a director of
Fruit of the Loom, Inc., Kepner-Tregoe, Inc., Playboy Enterprises, Inc., and
Autotote Corporation, Inc.
Neal R. Heller has been the President, Chief Executive Officer and a
director of the Company since its inception in 1988. Mr. Heller is an attorney
and has been admitted to practice in the State of Florida since 1985. Mr. Heller
earned a Bachelor of Arts degree from the University of Miami in 1982 and a
Juris Doctor degree from Nova University in 1985. On December 18, 1990, Mr.
Heller filed a voluntary petition under Chapter 7, Title 11 of the United States
Code, in the United States Bankruptcy Court for the Southern District of
Florida. The Bankruptcy Court entered an Order of Discharge of Debtor on
April 5, 1991. Mr. Heller currently serves as President of the Broward
Association of Career Schools and is the treasurer and a member of the Board of
Directors of the Florida Association of Post-Secondary Schools and Colleges. Mr.
Heller is the husband of Elizabeth S. Heller.
Elizabeth S. Heller has been Secretary and a director of the Company
since its inception in 1988. Mrs. Heller earned a Bachelor of Arts degree from
the University of Miami in 1983. Mrs. Heller is the wife of Neal R. Heller.
Martin C. Licht has been a practicing attorney since 1967 and has been
a partner of the law firm of McLaughlin & Stern, LLP since January 1998. Mr.
Licht became a director of the Company in July 1995. Mr. Licht is also a
director of Cable & Co. Worldwide, Inc., a publicly traded company, which
imports and markets footwear on a wholesale basis.
Dirk D. Goldwasser, 38, has been a consultant/trader with Filin Corp.
from August 1996 to the present. From June 1994 to July 1996 he was a vice
president with Bankers Trust Securities Company. From December 1993 to June 1994
he was an associate with Oppenheimer and Co. From 1988 to 1994, he was director
of sales for Galbreath Asset Advisors/Loews Organization.
Board Meetings and Committees
Historically, the Company has had standing Compensation, Audit, and
Nominating Committees (all of which were comprised of Mr. Keiser and Mr. Licht)
which perform the functions described below. At present directors are not
compensated for committee meetings.
The function of the Compensation Committee is to make recommendations
to the Board of Directors with respect to compensation and benefit programs for
officers and directors of the Company.
The function of the Audit Committee is to review the financial affairs
and internal controls
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<PAGE>
of the Company, to recommend each year to the Board of Directors independent
auditors to audit the annual financial statements of the Company, to meet with
the Company's auditors, to review the scope of the audit plan, to discuss with
the auditors the results of the Company's annual audit and any related matters,
and to review transactions posing a potential conflict of interest among the
Company and its directors, officers and affiliates.
The function of the Nominating Committee is to make recommendations to
the Board of Directors with respect to the executive officers and directors of
the Company.
Assuming the foregoing nominees are elected to serve as Directors, the
Board intends to nominate Messrs. Licht and Goldwasser to serve on the foregoing
committees.
During the year ended December 31, 1997, the Board of Directors had
eight meetings. The Committees did not meet in 1997. Each director attended at
least 75% of the meetings of the Board of Directors and the committees of which
such director is a member.
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<PAGE>
Executive Compensation.
Summary Compensation Table
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended December 31, 1995,
1996, and 1997 with respect to the following officers of the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Awards Payouts
Securities
Other Restricted Underlying LTIP All Other
Name and Annual Stock Award(s) Options Payouts Compensa-
Principal Position Year Salary($) Bonus($) Compensation ($)(1) $ SARs(#) ($) tion($)
------------------ ---- --------- -------- ------------------- ------------------------- ----- --------
Sir Brian Wolfson, Chairman of
the Board (2) 1997 $240,000 ---- ---- ---- ---- ---- ----
Neal R. Heller, 1997 201,500 ---- ---- ---- ---- ---- ----
President and 1996 162,500 ---- ---- ---- ---- ---- ----
Chief Executive Officer 1995 150,000 ---- ---- ---- ---- ---- ----
Elizabeth S. Heller 1997 141,100 ---- ---- ---- ---- ---- ----
Secretary 1996 150,000 ---- ---- ---- ---- ---- ----
1995 150,000 ---- ---- ---- ---- ---- ----
</TABLE>
- --------------------------------
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and bonus.
(2) Sir Brian Wolfson waived his 1997 salary.
Options Grants in Last Fiscal Year. The following table sets forth
certain information with respect to option grants during the fiscal year ended
December 31, 1997 to the named executive officers.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise or Base Price
Name Granted Year ($.SH) Expiration Date
-----------------------
Sir Brian Wolfson 20,000 31.4% $ 22.40 July 2007
Neal R. Heller 10,000 14.7% .04 July 2007
Elizabeth S. Heller 10,000 15.7% .04 July 2007
</TABLE>
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<PAGE>
Year-end Option Table. During the fiscal year ended December 31, 1997, none of
the named executive officers exercised any options issued by the Company. The
following table sets forth information regarding the stock options held as of
December 31, 1997 by the named executive officers.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year End
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Sir Brian Wolfson 0 20,000 -- --
Neal R. Heller 10,000 0 18,750 --
Elizabeth S. Heller 10,000 0 18,750 --
</TABLE>
Employment Agreements
The Company has entered into employment agreements with Neal R. Heller
and Elizabeth S. Heller, which will expire in December 2001, under which they
will be full-time employees and shall receive salaries of $247,000 and $78,000,
respectively. Mr. and Mrs. Heller received salaries in 1997 of $201,500 and
$141,000, respectively. Each agreement provides that the executive will be
eligible to receive short-term incentive bonus compensation if the Company is
profitable, the amount of which, if any, will be determined by the Board of
Directors based on the executive's performance, contributions to the Company's
success and on the Company's ability to pay such incentive compensation. The
employment agreements also provide for termination based on death, disability,
voluntary resignation or material failure in performance and for severance
payments upon termination under certain circumstances. The agreements contain
non-competition provisions that will preclude each executive from competing with
the Company for a period of two years from the date of termination of
employment. Such agreements will be canceled upon the consummation of the sale
of the Schools, as set forth in Proposal No.4 of this Proxy Statement.
Sir Brian Wolfson has fixed-term employment agreement of one year,
commencing January 1, 1998, at an annual salary of $50,000.
Directors' Compensation
Directors of the Company do not receive any fixed compensation for
their services as directors. The Company intends to pay each outside director
$18,000 per annum and grant each outside director options to purchase 35,000
shares of Common Stock per annum. Directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with performance of their duties
to the Company. The Company did not pay its directors any cash or other form of
compensation for acting in such capacity, although directors who were also
executive officers of the Company received cash compensation for acting in the
capacity of executive officers. See "--
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<PAGE>
Executive Compensation." No director received any other form of compensation for
the fiscal year ended December 31, 1997.
-7-
<PAGE>
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as to the Common
Stock ownership of each of the Company's directors, executive officers, all
executive officers and directors as a group, and all persons known by the
Company to be the beneficial owners of more than five percent of the Company's
Common Stock.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Approximate
Name and Address of Beneficial Owner(1) Shares(2) Percentage of Common Stock
- --------------------------------------- --------- --------------------------
Neal R. Heller and Elizabeth S. Heller
2397 N.W. 64th Street
Boca Raton, FL 33496 145,850(3) 18.7%
Martin C. Licht
Selden Lane
Greenwich, CT 06831 1,300(4) *
Arthur Keiser
6324 NW 79th Way
Parkland, FL 33067 850(5) *
Sir Brian Wolfson
Global Health Alternatives, Inc.
44 Welbeck Street
London, England W1N7HF 0(6) *
Azure Limited Partnership I
13 Eagles Nest Drive
La Conner, Washington 98257 41,567 5.5%
Dirk D. Goldwasser
425 East 51st Street
New York, NY 10022 1,125 *
All Executive Officers and Directors as a
Group
(5 persons) 148,000 19.0%
</TABLE>
(1) Unless otherwise noted, all persons named in the table have sole
voting and dispositive power with respect to all shares of Common Stock
beneficially owned by them.
(2) The table does not include shares of Common Stock issuable upon the
conversion of the Company's Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock. Pursuant to the terms of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, the holders
thereof generally are not entitled to convert such instruments to the extent
that such conversion
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<PAGE>
would increase the holders' beneficial ownership of Common Stock to in excess of
4.9%, except in the event of a mandatory conversion. On the date of a mandatory
conversion of the Preferred Stock, June 4, 2000 with respect to the Series A
Preferred Stock, February 20, 2000 with respect to the Series B Preferred Stock
and April 8, 2000 with respect to the Series C Preferred Stock, a change in
control of the Company may occur, based upon the number of shares of Common
Stock issuable. Unless Proposal No. 6 to this Proxy Statement is approved by the
shareholders, the 4,000 outstanding shares of Series C Preferred Stock can only
be converted up to a maximum of 191,902 shares of Common Stock. (See Proposal
No. 6 hereof).
(3) Mr. Heller owns 59,350 shares of Common Stock, and Mrs. Heller
owns 66,500 shares of Common Stock and each has sole voting and dispositive
power with respect to such shares. As they are husband and wife, each may be
deemed the beneficial owner of the shares owned by the other. Includes up to
20,000 shares of Common Stock issuable upon the exercise of options held by Mr.
and Mrs. Heller.
(4) Includes presently exercisable options to purchase up to 50 shares
of Common Stock held by Mr. Licht.
(5) Includes presently exercisable options to purchase up to 350
shares of Common Stock held by Mr. Keiser.
(6) Does not include options to purchase up to 20,000 shares of Common
Stock which are not exercisable within 60 days.
* Represents less than 1% of applicable shares of Common Stock outstanding.
Certain Relationships and Related Transactions.
In connection with the refinancing of property located at 2001 West
Sample Rd., Pompano Beach, FL ("Pompano Property") in October, 1997, the Company
paid a mortgage loan in the amount of $443,727 ("Prior Mortgage Loan") which
encumbered both the Pompano Property and an adjacent parcel of land ("Adjacent
Parcel") which was owned by Justin Real Estate Corp. ("Justin"). The capital
stock of Justin is owned by Neal R. Heller and Elizabeth S. Heller. Mr. and
Mrs. Heller also had guaranteed the Prior Mortgage Loan.
As of October 1997, the Company had advanced to Mr. and Mrs. Heller
$142,442. In October 1997, Mr. and Mrs. Heller advanced the sum of $240,295 on
behalf of the Company and the Company advanced $24,412 to Justin. In November,
1997, the Company advanced $53,523 on behalf of Justin. In December 1997, Mr.
and Mrs. Heller waived the repayment of the sum of $19,918 from the Company.
As of December 31, 1997, there were no amounts due to the Company from Mr. and
Mrs. Heller or Justin and no amounts were due to the Company from Mr. and Mrs.
Heller or Justin.
In connection with the refinancing of the Pompano Property, Neal R.
Heller has guaranteed the obligations of the Company pursuant to leases between
the Company and its wholly owned subsidiary which owns the Pompano Property.
Mr. Heller has collateralized such guarantee with
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<PAGE>
a $100,000 letter of credit. In addition, Mr. Heller has agreed to indemnify
Banc One Mortgage Capital Markets, LLC, the mortgagee of the Pompano Property,
in certain limited instances. In July 1997, the Company issued an aggregate of
20,000 options exercisable for a period of 10 years at an exercise price of $.04
per share to Mr. and Mrs. Heller. Martin C. Licht, a director of the Company,
was a member of law firms which received $189,452 attributable to 1996 and
$153,351 attributable to 1997. In addition, as of December 31, 1997, the Company
owed law firms of which Mr. Licht was a member $150,112. In July 1996 the
Company borrowed $125,000 from Arthur Keiser, a director of the Company, and
repaid such amount plus interest at the rate of 12% per annum in December 1996.
In July 1996, in connection with such loan the Company granted Mr. Keiser an
option to purchase 250 shares of the Company's Common Stock at an exercise price
equal to the fair market value on the date of the grant for a period of five
years.
Finally, see Proposal No.4 hereof regarding the proposed sale of the
Schools (as defined herein) to a corporation controlled by Mr. and Mrs. Heller.
The Board of Directors recommends a vote FOR the foregoing nominees to
serve as Directors of the Company.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has selected the accounting firm of Feldman
Sherb Ehrlich & Co., P.C. to serve as independent auditors of the Company for
the year ending December 31, 1998 and proposes the ratification of such
decision.
The Company has been advised by Feldman Sherb Ehrlich & Co., P.C. that
neither the firm nor any of their associates has any relationship with the
Company or any affiliate of the Company. If the foregoing appointment is
rejected, or if Feldman Sherb Ehrlich & Co., P.C. shall decline to act or
otherwise become incapable of acting, or if their appointment is otherwise
discontinued, the Board of Directors will appoint other independent auditors
whose appointment for any period subsequent to the 1998 Annual Meeting of
Stockholders shall be subject to approval by the Stockholders at that meeting.
Feldman Sherb Ehrlich & Co., P.C. served as the principal independent auditors
of the Company for the year ended December 31, 1997. Representatives of Feldman
Sherb Ehrlich & Co., P.C. are expected to be present at the Meeting and will
have the opportunity to make a statement if they desire to do so. Such
representatives are also expected to be available to respond to appropriate
questions during the Meeting.
The Board of Directors recommends a vote FOR ratification of the
selection of Feldman Sherb Ehrlich & Co., P.C. as the independent auditors for
the Company for the year ending December 31, 1998.
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<PAGE>
PROPOSAL NO. 3
APPROVAL OF 1998 STOCK OPTION PLAN
The 1998 Stock Option Plan ("Plan") was adopted by the Board of
Directors on May 12, 1998. The Plan provides for the granting of options
("Options") to key employees, including officers, non-employee directors and
consultants of the Company and its subsidiaries to purchase up to 200,000 shares
of Common Stock which are intended to qualify either as incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, ("Code"), or as options which are not intended
to meet the requirements of such section ("Nonstatutory Stock Options").
The Plan provides for its administration by an appointed committee of
two disinterested directors which has discretionary authority, subject to
certain restrictions, to determine the number of shares of Common Stock issued
pursuant to Incentive Stock Options and Nonstatutory Stock Options and the
individuals to whom and the conditions at which the exercise price for such
options will be granted.
The exercise price of all options granted under the Plan must be at
least equal to the fair market value of such shares of Common Stock on the date
of the grant or in the case of Incentive Stock Options granted to the holders of
more than ten percent of (i) the Company's shares or (ii) the combined voting
power of all classes of stock of any of its subsidiaries, at least 110% of the
fair market value of the Common Stock on the date of the grant. The maximum
exercise period for which options may be granted is ten years from the date of
grant (five years in the case of an Incentive Stock Option granted to an
individual owning more than ten percent of (i) the Company's shares or (ii) the
combined voting power of all classes of stock of any of its subsidiaries).
Federal Income Tax Consequences
The following is a summary of the federal income tax consequences under
the Code with respect to Incentive Stock Options and Nonstatutory Stock Options.
If shares are issued to a holder of a Nonstatutory Stock Option under
the Plan, (1) no income will be recognized by the holder at the time of grant of
the Option; (2) except as stated below, upon exercise of the Option the holder
will recognize taxable ordinary income in an amount equal to the excess of the
fair market value of the shares over the Option price; (3) the Company will be
entitled to a deduction at the same time and in the same amount as the holder
has income under clause (2); and (4) upon a sale of shares so acquired, the
holder may have additional short-term or long-term capital gain or loss. If the
sale of such shares at a profit would subject a holder to suit under Section
16(b) of the Securities and Exchange Act of 1934, (1) no income will be
recognized by the holder at the time of exercise of the Option; (2) at the
earlier of (i) six months after such exercise or (ii) the first day on which the
sale of such shares at a profit will not subject the holder to Section 16(b)
liability, the holder will recognize taxable ordinary income in an amount equal
to the excess of the fair market value of the shares at such time over the
Option price; and (3) the Company will be entitled to a deduction at the same
time and in the same amount as the holder has income under clause (2). A holder
subject to Section 16(b) liability for such shares may elect, under Section
83(b) of the Code, to recognize taxable ordinary income at the time of exercise
of such shares in an amount equal to the excess of the fair market value of the
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<PAGE>
shares at the time of exercise over the Option price.
If shares are issued to the holder of an Incentive Stock Option under
the Plan, (1) no income will be recognized by such holder at the time of the
grant of the Option or the transfer of shares to the holder pursuant to his or
her exercise of the Option; (2) the difference between the Option price and the
fair market value of the shares at the time of exercise will be treated as an
item of tax preference to the holder; (3) no deduction will be allowed to the
Company for federal tax purposes in connection with the grant or exercise of the
Option; and (4) upon a sale or exchange of the shares after the later of (a) one
year from the date of transfer of the shares to the original holder, or (b) two
years from the date of grant of the Option, any amount realized by the holder in
excess of the Option price will be taxed to the holder as a long-term capital
gain, and any loss sustained by the holder will be a long-term capital loss. If
the shares are disposed of before the holding period requirements described in
the preceding sentence are satisfied, then (1) the holder will recognize taxable
ordinary income in the year of disposition in an amount determined under the
rules of the Code; (2) the Company will be entitled to a deduction for such year
in the amount of the ordinary income so recognized; (3) the holder may have
additional long-term or short-term capital gain or loss; and (4) the tax
preference provision might not be applicable.
The Board of Directors recommends a vote FOR approval of the 1998 Stock
Option Plan.
PROPOSAL NO. 4
SALE OF THE COMPANY'S VOCATIONAL SCHOOLS TO
FLORIDA COLLEGE OF NATURAL HEALTH, INC.
The Company's Board of Directors has determined that it is in the
Company's best interests to concentrate on developing business of Global Health
Alternatives, Inc., its wholly owned subsidiary ("GHA"). GHA's strategy involves
identifying natural products that have demonstrable health benefits and can be
marketed without prior approval of the United States Food and Drug
Administration ("FDA") and to promote and market those products. In addition,
the Company intends to acquire existing products and companies which are
complementary to the Company's existing products. No assurance can be given that
such strategy will render the Company profitable.
In July 1997 the Company acquired all of the capital stock of GHA in
exchange for 145,000 shares of Common Stock, plus a number of additional shares
of Common Stock to be determined based upon the operating performance of GHA. In
June 1997, GHA commenced marketing Natural Relief 1222(R), a line of topical
homeopathic medicines in a patented base of natural ingredients, acquired in May
1997 from Troy Laboratories, Inc. From GHA's inception on August 3, 1993 through
June 1997, GHA was primarily engaged in organizational and financing activities,
including business and product line acquisitions, and preliminary marketing and
distribution activities. GHA's primary focus has been to develop a distribution
network for its line of Natural Relief 1222 products. GHA has obtained initial
distribution of Natural Relief
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1222 in mass channels primarily chain drug stores and health food stores. Other
GHA products include the Ellon flower remedies which utilize homeopathic active
ingredients in a tincture appropriate for oral consumption or in a topical form
without a patented inactive base.
As part of the Company's shift in emphasis to the sale and marketing of
natural health products, the Company closed its natural health care center in
Boca Raton, Florida in October, 1997 and the natural health care center in
Pompano Beach, Florida in January 1998. The natural health care centers provided
multi-disciplinary complementary health care in the areas of alternative and
nutritional medicine. In March 1998, the Company sold the assets of The
Corporate Body, Inc., which offered on-site massages to businesses.
Subject to shareholder approval of this Proposal, the Company intends
to consummate the sale of the Company's three vocational schools that it
operates as a junior college in Orlando, Pompano Beach and Miami, Florida
(individually, the "Orlando School," the "Pompano School" and the "Miami School"
and collectively, the "Schools") that offer training and preparation for
licensing in therapeutic massage and skin care to Florida College of Natural
Health, Inc. ("FCNH"). Neal R. Heller, the Company's President, Chief Executive
Officer, a principal stockholder and a director, Elizabeth S. Heller, his wife,
the Company's secretary, a principal stockholder and a director, are principal
shareholders of FCNH. It is currently anticipated that Mr. Arthur Keiser will be
a principal shareholder in FCNH.
The purchase price for the Schools is $1,800,000 in cash. In addition,
FCNH has agreed to assume all of the liabilities in connection with the
operations of the Schools together with additional liabilities in the aggregate
amount of approximately $1,130,000. The Company does not believe that its
creditors will release it from such liabilities despite such assumption by FCNH.
Under current United States Department of Education ("USDOE")
regulations, a change in control of the Schools could result in a temporary or a
permanent loss of Federal financial aid funds to the Schools' students. In
addition, under the regulations of the Florida Department of Education a change
of ownership resulting in a change of control may result in the termination of
the Schools' licenses. The Schools will also require the approval of the
Schools' accrediting commission upon a change of control. Upon the sale of the
Schools, there will be a change of control. FCNH intends to apply to the USDOE,
the Florida Department of Education and the Schools accrediting commission to
continue operating the Schools. Should there be a disruption or termination of
the availability of Federal financial aid to the Schools' students or a
termination or interruption of the licenses or accreditation of the Schools,
there would be a material adverse effect on FCNH, its business and its
prospects.
FCNH is not required to obtain the approval of either the USDOE or the
Florida Department of Education as a condition precedent to closing the proposed
transaction. No assurances can be given that FCNH will be able to obtain such
approvals, if necessary, and that FCNH will have sufficient revenues and cash
flow to pay the assumed liabilities. The Company may therefore still be liable
for such amounts. The failure of FCNH to pay the assumed liabilities would have
a material adverse effect on the Company.
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In connection with the sale of the Schools, Mr. and Mrs. Heller's
employment agreements will be canceled, and they will each resign as directors
and officers of the Company. Mrs. Heller will also transfer to the Company
78,850 shares of Common Stock and options to purchase 20,000 shares of Common
Stock.
For the year ended December 31, 1997, the Schools generated revenues of
approximately $5,900,000, while the sale of health and natural products
generated revenues of approximately $1,100,000. Such amounts represent
approximately 84% and 16%, respectively, of the Company's consolidated revenues.
Pro Forma Financial Statements
The Pro Forma Financial Statements of FCNH and the Company commence on page
29.
Product Lines
GHA has obtained its current product portfolio by acquiring product
lines and companies and entering into licensing agreements relating to the
marketing and manufacture of its products. GHA has not developed any of its
products, and does not maintain a research and development staff or research
facilities.
In October 1996, GHA acquired two natural product lines: Ellon flower
essence products and Fruitseng(R) new age beverages. The Ellon products comprise
38 traditional English homeopathic flower remedies and one combination flower
remedy. These products are sold principally through natural and health food
stores. The Fruitseng line of ginseng-supplemented fruit juice drinks and iced
tea drinks was distributed prior to the acquisition through specialty food
distributors and mass market beverage distributors. Following the acquisition of
the Fruitseng line, GHA elected to develop less capital-intensive products, and
Fruitseng is not currently in distribution nor does the Company have any
intention of allocating resources to reintroduce the brand.
In November 1996 GHA entered into an option agreement to acquire all of
the capital stock of Natural Health Laboratories, Inc., which held marketing and
distribution rights to a line of natural, homeopathic topical medical products
utilizing a patented base and marketed under the Natural Relief 1222 trademark.
In connection with the acquisition, Natural Health Laboratories, Inc. acquired
the rights to the patent from Troy Laboratories, Inc. and H. Edward Troy. Prior
to the acquisition, GHA funded the operations of Natural Health Laboratories,
Inc. pursuant to the option agreement.
In April 1998, the Company restructured its agreement with the previous
holder of the patented base for Natural Relief 1222. The Company agreed to make
certain payments to and on behalf of the previous holders of the patent in
settlement of accrued royalties and for the
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modification of the scheduled royalties. Under the agreement, the Company will
pay royalties in connection with the patent equal to 3% of net sales up to
$2,000,000, 2% of net sales from $2,000,000 to $4,000,0000 and 1% of net sales
thereafter. In the event of a default in the payment of royalties or other
payments in connection with the agreement, the patent will revert back to the
original holders.
Overview of the Natural Health Product Market
The Company believes that the market for natural products and
supplements is being driven by information in the mass media which continues to
highlight problems with the American diet; the fact that American consumers are
becoming increasingly disenchanted with and skeptical about many conventional
medical approaches to disease treatment; growing consumer interest in and
acceptance of natural and alternative therapies and products; and, finally,
recent clarifications and changes of food and drug laws that have eased
significantly the regulatory burdens associated with the introduction and sale
of dietary supplements.
The Company believes that public awareness of the positive effects of
nutritional supplements and natural remedies on health has been heightened by
widely publicized reports and medical research findings indicating a correlation
between the consumption and use of a wide variety of nutrients and natural
remedies and the reduced incidence of certain diseases.
The Company believes, although there can be no assurance, that the
aging of the United States population, together with an increased focus on
preventative and alternative health care measures, will continue to fuel
increased demand for certain nutritional supplement products and natural
remedies. Management also believes that the continuing shift to managed health
care delivery systems will place greater emphasis on disease prevention and
health maintenance, areas with which natural health products are most
identified.
With respect to the distribution of natural health products, while
distribution through small to large sized natural and health food stores remains
significant, the bulk of the growth is found in the mass merchandisers and
health food chains such as General Nutrition Centers which now represent the
majority of sales, and represent the fastest growing channels of distribution.
Products
The Company's initial mass market-oriented product, Natural Relief 1222
Arthritis Relief ("Arthritis Relief") is a topical, natural, homeopathic
medicine. The active ingredients are Bryonia 6X and Rhus Toxicodendron 6X, in a
patented base of natural ingredients. This product is intended to be utilized
for the temporary relief of minor pains and stiffness of muscles and joints
associated with arthritis. Arthritis Relief was introduced in July 1997 through
a nationwide television direct response advertising campaign. The Company also
introduced Arthritis Relief to the mass consumer distribution channels through a
broker network. The Company has obtained distribution of Arthritis Relief in
eight of the top ten drug chains, including Rite Aid, Walgreens and Eckerd Drug.
The Company also markets Arthritis Relief through catalogue and electronic
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media marketing companies.
The total market for topical analgesics in mass market channels in 1997
exceeded $230 million. The category consists of two general types of products -
counter-irritants, such as BenGay, which mask pain by irritating the skin in the
area of application, and capsaicin products, such as Zostrix, which utilize the
pain-reducing properties of a component of hot chili peppers. It is estimated
that approximately 50 million Americans have some form of arthritis.
In December 1997 GHA introduced three extensions to the Natural Relief
1222 product line - Sports Rub, Wart Remover and Dermatitis & Eczema Relief.
These products have been introduced to existing mass market and natural/health
food distribution channels through the Company's broker networks and direct
selling efforts.
Natural Relief 1222 Sports Rub, like Arthritis Relief, is a topical
analgesic comprised of a homeopathic active ingredient, Thuja occidentalis 2C,
in a patented base of natural ingredients. This product is intended to be
utilized for prompt, temporary relief of minor pain, strains, sprains,
stiffness, bruising, inflammation and weakness in muscles and joints due to
overexertion and athletic activity. The Company intends Sports Rub to be a
companion product to Arthritis Relief within the topical analgesics category.
Natural Relief 1222 Wart Remover is a natural alternative to
traditional salicylic acid-based products, and is comprised of a homeopathic
active ingredient, Thuja occidentalis 2C, in a patented based of natural
ingredients. This product is intended to be utilized for the removal of common
warts.
Natural Relief 1222 Dermatitis & Eczema Relief is a natural alternative
to traditional hydrocortisone-based products, and is comprised of a homeopathic
active ingredient, Lycopodium 2C, in a patented base of natural ingredients.
This product is intended to be utilized for temporary relief of scalp or skin
itching, irritation, redness, flaking and scaling associated with seborrheic
dermatitis or eczema.
The Company markets a line of homeopathic flower remedies under the
Ellon trade name, which consists of 38 individual flower remedies and one
combination flower remedy, sold as Calming Essence(R). These products are
regulated OTC pharmaceuticals which are intended to be utilized for the relief
of a range of emotional and psychological stresses. Calming Essence is sold
principally to natural and health food retailers and distributors, and to
alternative health care practitioners. The Company utilizes a combination of
brokers and in-house telemarketers to sell the Ellon products. The Company
competes in this category with several other established lines of homeopathic
flower remedies, including the Bach and Flower Essence Services product lines.
Management anticipates introducing additional products under the
Natural Relief 1222 product line. The Company currently has developed
formulations for acne relief and for first aid use for minor abrasions and
contusions. Other Natural Relief 1222 products in development include a natural
anti-fungal topical pharmaceutical and a natural burn and wound topical
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pharmaceutical.
Manufacturing
The Company does not intend to develop its own manufacturing
capabilities since management believes that the availability of manufacturing
services from third parties on a contract basis is adequate to meet the
Company's needs. The Company has utilized a number of manufacturers who have
sufficient manufacturing capacity to meet the Company's anticipated production
needs.
The Company has used the services of a number of companies to
manufacture its Natural Relief 1222 and the Ellon product lines. Natural Relief
1222 products generally require the mixing and processing of the active and
inactive ingredients, which are then filled in tubes and packaged for retail
sale. Ellon products involve the preparation of homeopathic medicines according
to the Homeopathic Pharmacopoeia of the United States, and are generally sold in
the form of tinctures packaged in small dropper bottles labeled for retail sale.
The products are shipped from the Company's Portland, Maine facility or
independent distribution centers located in Maine and New Jersey. The Company's
products are manufactured to the Company's specifications in facilities in
compliance with Federal Good Manufacturing Practice regulations.
The Company has no existing contractual commitments or other
arrangements for the future manufacture of its products. Rather, it places
orders for component or finished goods manufacturing services as required based
upon price quotations and other terms obtained from selected manufacturers.
Natural Relief 1222 Arthritis Relief, Sports Rub and Wart Remover are
manufactured in the United States. Natural Relief 1222 Dermatitis & Eczema
Relief utilizes certain components manufactured in the Peoples' Republic of
China, and packaged in the United States. Ellon products utilize certain
components manufactured in the United Kingdom. and are further manufactured and
packaged in the United States. The Company anticipates that it will, for the
foreseeable future, continue to rely on foreign sources for certain key
components for certain of its products.
Marketing and Distribution
Natural Relief 1222 Arthritis Relief was introduced in July 1997.
Commercial shipments of the product were initiated in the same month. Extensions
on the Natural Relief 1222 product line (Sports Rub, Wart Remover and Dermatitis
& Eczema Relief) were introduced in December 1997.
The Company has pursued a "multi-channel" distribution strategy in
marketing its line of Natural Relief 1222 products, and intends to follow a
similar strategy with future products. The Natural Relief 1222 line of products
is sold in eight of the top 10 drug chains, including Rite Aid, Walgreens and
Eckerd Drug, as well as in certain supermarket chains, including Smith's. The
Company also distributes its products to the health and natural food market
through distributors
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and independent health and natural food retailers. In addition, the Company
sells through other specialty channels, including catalogues such as the Carol
Wright catalogue, television marketing channels such as Home Shopping Network
and electronic media such as CUC International's world-wide web
catalogue/website. The nature of the product and its target market dictate the
channels of distribution in which a particular product is launched, and the
level of effort directed to each channel of distribution.
The Company utilizes a number of independent brokers to assist in the
sale of its products in the mass market and natural and health food distribution
channels. Brokers receive a commission on sales, and in certain cases a fixed
monthly payment, under agreements that are terminable at will by either party on
short notice. In most cases, the Company sells and ships its products directly
to the warehouses and distribution centers of major retail chains. To reach
smaller chains and independent retailers, the Company distributes products
through drug wholesalers such as McKesson and Bergen Brunswig, and natural foods
distributors such as Cornucopia (United Natural Foods).
To support its marketing efforts, the Company advertises in trade and
consumer health magazines, on television, and on radio, attends trade shows and
exhibitions, sponsors promotional programs and events and in-store promotions,
and engages in a public relations effort that has resulted in articles in
health, mature audience, trade and natural products publications, which the
Company uses to promote its products. In May 1997, GHA entered into a five year
endorsement contract with actor and dancer Donald O'Connor. Mr. O'Connor
receives royalties on sales of Natural Relief 1222 Arthritis Relief products at
the rate of 1.5% for domestic retail sales up to $10,000,000; 1.0% for sales
between $10,000,000 and $20,000,000; .5% for sales between $20,000,000 and
$30,000,000 and .25% for sales over $30,000,001. In addition, Mr. O'Connor
receives royalties for direct response sales at the rate of between 2% and 4%
and between 2.5% and 1.5% for electronic home shopping sales. Mr. O'Connor will
receive 1% of all retail and direct response international sales. All royalties
to be paid to Mr. O'Connor will be applied against a minimum guaranteed royalty
payment. The Company has made extensive use of television and other media
advertising featuring Mr. O'Connor, and it is anticipated that Mr. O'Connor will
be featured in future promotional and public relations activities. The Company
may utilize additional paid endorsers for its products in the future.
In the twelve-month periods ended December 31, 1996 and December 31,
1997, GHA's expenditures for product advertising and promotion were
approximately $89,100 and $2,317,800, respectively.
Competition - Products
Over the counter medicine products are distributed primarily through
the mass market channels of distribution, including chain drug stores,
independent drug stores, supermarkets and mass merchandisers. The Company's
competitors include such companies as Genderm, Thompson Medical, Schering
Plough, Pfizer, Chattem and Warner Lambert.
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The Company's products include FDA recognized homeopathic active
ingredients in a patented base of natural ingredients. The Company's competitors
have access to these same homeopathic ingredients and would be able to develop
and market similar products. However, competitors would be unable to completely
duplicate the products' formulae due to the patent protection that extends to
the use of certain inactive ingredients. Nonetheless, marketplace success will
probably be determined more by marketing and distribution strategies and
resources than by product uniqueness.
Government Regulation
The Company believes that all of its existing products are homeopathic
medicines which do not require governmental approvals prior to marketing in the
United States. The processing, formulation, packaging, labeling and advertising
of such products, however, are subject to regulation by one or more federal
agencies including the FDA, the Federal Trade Commission, the Consumer Products
Safety Commission, the Department of Agriculture, the Department of Alcohol,
Tobacco and Firearms and the Environmental Protection Agency. The Company's
activities are also subject to regulation by various agencies of the states and
localities in which its products are sold. In addition, the sale of the
Company's products by distributors in foreign markets are subject to regulation
and oversight by various federal, state and local agencies in those markets.
The FDA traditionally has been the main agency regulating the types of
products sold by homeopathic and natural OTC pharmaceutical firms. Official
legal recognition of homeopathic drugs in the United States dates to the federal
Food, Drug and Cosmetic Act of 1938 ("FDCA"). The FDCA provides that the term
"drug" includes articles recognized in the official Homeopathic Pharmacopoeia of
the United States ("HPUS"). The FDCA further recognizes the separate nature of
homeopathic drugs from traditional, allopathic drugs by providing that whenever
a drug is recognized in both the United States Pharmacopoeia ("U.S.P.") and the
HPUS it shall be subject to the requirements of the U.S.P. unless it is labeled
and offered for sale as a homeopathic drug, in which case it shall be subject to
the provisions of the HPUS and not to those of the U.S.P.
In 1988, the FDA issued a Compliance Policy Guide ("CPG") that formally
established the manner in which homeopathic drugs are regulated. The CPG
provides that homeopathic drugs may only contain ingredients that are generally
recognized as homeopathic. Such recognition is most often obtained via the
publication of a monograph in the HPUS. The FDA has also noted that a product's
compliance with a HPUS monograph system does not necessarily mean that it has
been shown to be safe and effective. According to the CPG, and consistent with
established FDA principals regarding allopathic drugs, a homeopathic drug may
only be marketed without a prescription if it is intended solely for
self-limiting disease conditions amenable to self-diagnosis and treatment. Other
homeopathic drugs must be marketed as prescription products. In addition, if an
HPUS monograph states that a drug should only be available on a prescription
basis, this criteria will apply even if the drug is intended for a self limiting
condition. The CPG provides that the FDA's general allopathic drug labeling
requirements are also applicable to homeopathic drugs. All firms that
manufacture, prepare, compound, or otherwise process homeopathic drugs must
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register their drug establishments with the FDA and must also "list" their drugs
with the agency. Homeopathic drugs must also be manufactured in conformance with
"current good manufacturing practices" ("GMP"). In addition, homeopathic drugs
are exempt from FDA's requirements for expiration date labeling.
The HPUS is updated regularly. The HPUS was initially published by the
Committee on Pharmacy of the American Institute of Homeopathy and is currently
published by the Homeopathic Pharmacopoeia Convention of the United States
("HPCUS"), a private, non-profit entity organized exclusively for charitable,
educational, and scientific activities. The HPUS is an official publication that
is cited in the Federal Food and Drug Laws and CPG. The HPUS contains hundreds
of monographs for homeopathic ingredients that have been found by the HPCUS to
be both safe and effective. The HPUS also contains general standards for the
preparation of homeopathic drugs.
Patents and Trademarks
GHA, through Natural Health Laboratories, Inc., has a United States
Patent covering the use of certain inactive botanical ingredients as a base for
several of its Natural Relief 1222 products. The Company also has obtained
marketing and manufacturing rights to a family of Chinese-origin, patented,
natural topical medical products.
GHA has federal trademark registrations for Natural Relief 1222, Ellon,
Calming Essence and Mesozoic Minerals. The Company also has trademark
registrations for Nature's Relief and Nature's Relief 1222 in Canada. The
Company's general policy is to pursue registrations of trademarks associated
with its key products and to protect its legal and commercial rights with
respect to the use of those trademarks. The Company relies on common law
trademark rights to protect its unregistered trademarks.
In an action captioned Erie Laboratories, Inc. ("Erie") and H. Edward
Troy ("Troy") v. Patricia J. Fisher, Richard Aji and Edward G. Coyne brought in
the Supreme Court of the State of New York, Onondaga County, the plaintiffs are
seeking to have a purported assignment of patent utilized for Natural Relief
1222 to the defendants declared null and void and to have Erie declared the
lawful owner of such patent. The plaintiffs have prevailed at the trial level,
however, the defendants have filed a notice of appeal. In the event that the
defendants prevail, then the defendants would have equal rights to the patent.
Additional trademark registration applications which may be filed by
the Company with the United States Patent and Trademark Office and in other
countries may or may not be granted and the breadth or degree of protection of
the Company's existing or future trademarks may not be adequate. Moreover, the
Company may not be able to defend successfully any of its legal rights with
respect to its present or future trademarks. The failure of the Company to
protect its legal rights to its trademarks from improper appropriation or
otherwise may have a material adverse affect on the Company.
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Seasonality
Sales of topical analgesic products are strongest during the colder
winter months when arthritis sufferers tend to feel pain and stiffness more
acutely. Conversely, sales of skin treatment products (e.g., hydrocortisone
creams, etc.) are slightly stronger during the non-winter months. The Company
does not believe that the sales of wart removal products are seasonal.
Employees
GHA has 13 full time employees and one part time employee, of which
five are executive and administrative, six are in accounting and operations and
three are in marketing and sales. GHA also employs three full time consultants.
None of the Company's employees are represented by a union, and the Company
believes that its employee relations are good.
Insurance
GHA carries general liability insurance in the amount of $5,000,000 per
occurrence and $6,000,000 in the aggregate including products liability
insurance. There can be no assurance, however, that the Company's insurance will
be sufficient to cover potential claims or that an adequate level of coverage
will be available in the future at a reasonable cost, if at all. A successful
claim could have a material adverse effect on the Company.
Property
GHA leases approximately 2,200 square feet of office and warehouse
space in Portland, Maine at a monthly rental of $2,150 plus utilities. This
lease expires on November 30, 2001, although the Company may elect to terminate
the lease commencing December 1, 1998 with six months notice. It is anticipated
that the Company's corporate offices will be relocated to Portland, Maine from
Pompano Beach, Florida upon the consummation of the sale of the Schools. The
Company intends, although there can be no assurance, to sell the Pompano
Property.
Pressing Need for Additional Financing
In order to reach a level of product sales to become profitable,
management estimates that the Company will require approximately $6,000,000 in
new capital for marketing and expansion of the Company's business. No
arrangements are currently in place for such financing and no assurances can be
given that such financing will be available to the Company on acceptable terms,
if at all.
Rights of Appraisal
A stockholder of a Florida corporation, with certain exceptions, has
the right to dissent from, and obtain payment of the fair value of his shares in
the event of (1) a merger or consolidation to which the corporation is a party,
(2) a sale or exchange of all or substantially all
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of the corporation's property other than in the usual and ordinary course of
business, (3) an approval of a control share acquisition, (4) a statutory share
exchange to which the corporation is a party as the corporation whose shares
will be acquired, (5) an amendment to the articles of incorporation if the
stockholder is entitled to vote on the amendment and the amendment would
adversely affect the stockholder and (6) any corporate action taken to the
extent that the articles of incorporation provide for dissenters' rights with
respect to such action. Florida Statutes provide that, unless a corporation's
articles of incorporation otherwise provide, which the Company's articles of
incorporation do not, a stockholder does not have dissenters' rights with
respect to a plan of merger, share exchange or proposed sale or exchange of
property if the shares held by the stockholder are either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD or held of record by 2,000 or
more stockholders.
Procedure for Exercise of Appraisal Rights.
A shareholder who wishes to assert dissenters' rights shall deliver to
the Company before the vote is taken written notice of the shareholder's intent
to demand payment for his or her shares if the proposed action is effectuated
and not vote his or her shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment. Within 10 days after the shareholders authorize the proposed
action, the Company shall give written notice of such authorization to each
shareholder who filed a notice of intent to demand payment for his or her
shares.
Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the Company a notice of such
election, stating the shareholder's name and address, the number, classes, and
series of shares as to which he or she dissents, and a demand for payment of the
fair value of his or her shares. Any shareholder failing to file such election
to dissent within the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election to dissent shall
deposit his or her certificates for certificated shares with the Company
simultaneously with the filing of the election to dissent. The Company may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the Company.
Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided for herein and shall not be
entitled to vote or to exercise any other rights of a shareholder. A notice of
election may be withdrawn in writing by the shareholder at any time before an
offer is made by the Company to pay for his or her shares. After such offer, no
such notice of election may be withdrawn unless the Company consents thereto.
However, the right of such shareholder to be paid the fair value of his
or her shares shall cease, and the shareholder shall be reinstated to have all
his or her rights as a shareholder as of the filing of his or her notice of
election, if (a) such demand is withdrawn as provided herein; (b) the proposed
corporate action is abandoned or rescinded or the shareholders revoke the
authority to effect such action; (c) no demand or petition for the determination
of fair value by a court has
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been made or filed within the time provided herein; or (d) a court of competent
jurisdiction determines that such shareholder is not entitled to the relief
provided herein.
Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the Company shall make a
written offer to each dissenting shareholder who has made demand as provided
herein to pay an amount the Company estimates to be the fair value for such
shares. If the corporate action has not been consummated before the expiration
of the 90-day period after the shareholders' authorization date, the offer may
be made conditional upon the consummation of such action. Such notice and offer
shall be accompanied by (a) a balance sheet of the Company as of the latest
available date; and (b) a profit and loss statement of such Company for the
12-month period ended on the date of such balance sheet.
If within 30 days after the making of such offer any shareholder
accepts the same, payment for his or her shares shall be made within 90 days
after the making of such offer or the consummation of the proposed action,
whichever is later. Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.
If the Company fails to make such offer within such specified period or
if it makes the offer and any dissenting shareholder or shareholders fail to
accept the same within the period of 30 days thereafter, then the Company,
within 30 days after receipt of written demand from any dissenting shareholder
given within 60 days after the date on which such corporate action was effected,
shall, or at its election at any time within such period of 60 days may, file an
action in any court of competent jurisdiction in the county in Florida where the
registered office of the Company is located requesting that the fair value of
such shares be determined. The court shall also determine whether each
dissenting shareholder, as to whom the Company requests the court to make such
determination, is entitled to receive payment for his or her shares. If the
Company fails to institute the proceeding as herein provided, any dissenting
shareholder may do so in the name of the Company.
All dissenting shareholders, other than shareholders who have agreed
with the Company as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The Company shall serve a copy of
the initial pleading in such proceeding upon each dissenting shareholder who is
a Florida resident in the manner provided by law for the service of a summons
and complaint and upon each non Florida resident dissenting shareholder either
by registered or certified mail and publication or in such other manner as is
permitted by law. All shareholders who are proper parties to the proceeding are
entitled to judgment against the Company for the amount of the fair value of
their shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as is specified in the
order of their appointment or an amendment thereof. The Company shall pay each
dissenting shareholder the amount found to be due him or her within 10 days
after final determination of the proceedings. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such
-23-
<PAGE>
shares.
The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court. The costs and expenses of any such
proceeding shall also be determined by the court and shall be assessed against
the Company, but all or any part of such costs and expenses may be apportioned
and assessed as the court deems equitable against any or all of the dissenting
shareholders who are parties to the proceeding, to whom the Company has made an
offer to pay for the shares, if the court finds that the action of such
shareholders in failing to accept such offer was arbitrary, vexatious, or not in
good faith. Such expenses shall include reasonable compensation for, and
reasonable expenses of, the appraisers, but shall exclude the fees and expenses
of counsel for, and experts employed by, any party. If the fair value of the
shares, as determined, materially exceeds the amount which the Company offered
to pay therefor or if no offer was made, the court in its discretion may award
to any shareholder who is a party to the proceeding such sum as the court
determines to be reasonable compensation to any attorney or expert employed by
the shareholder in the proceeding.
The foregoing explanation does not purport to be complete and reference
is made to Section 607.1320 of the Florida statutes which is annexed as
Exhibit 4.1 hereto.
Florida Statutes also contain an affiliated transactions provision
which provides that certain transactions involving a corporation and a
stockholder owning 10% or more of the corporation's outstanding voting shares
(an "affiliated stockholder") must generally be approved by the affirmative vote
of the holders of two-thirds of the voting shares other than those owned by the
affiliated stockholder. The transactions covered by the statute include, with
certain exceptions, (1) mergers and consolidations to which the corporation and
the affiliated stockholder are parties, (2) sales or other dispositions of
substantial amounts of the corporation's assets to the affiliated stockholder,
(3) issuances by the corporation of substantial amounts of its securities to the
affiliated stockholder, (4) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the affiliated stockholder, (5) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated stockholder and (6) the receipt by the affiliated stockholder of
certain loans or other financial assistance from the corporation. These special
voting requirements do not apply in any of the following circumstances: (a) if
the transaction was approved by a majority of the corporation's disinterested
directors, (b) if the corporation did not have more than 300 stockholders of
record at any time during the preceding three years, (c) if the affiliated
stockholder has been the beneficial owner of at least 80% of the corporation's
outstanding voting shares for the past five years, (d) if the affiliated
stockholder is the beneficial owner of at least 90% of the corporation's
outstanding voting shares, exclusive of those acquired in a transaction not
approved by a majority of disinterested directors or (e) if the consideration
received by each stockholder in connection with the transaction satisfies the
"fair price" provisions of the statute. This statute applies to any Florida
corporation unless the original articles of incorporation or an amendment to the
articles of incorporation or bylaws contain a provision expressly electing not
to be governed by this statute. Such an amendment to the articles of
incorporation or bylaws must be approved by the
-24-
<PAGE>
affirmative vote of a majority of disinterested stockholders and is not
effective until 18 months after approval. The Company's articles of
incorporation provide that the Company shall not be governed by the affiliated
transactions statute.
The Board of Directors Recommends voting FOR the Sale of the Schools to FCNH.
PROPOSAL NO. 5
AMENDMENT OF ARTICLES OF INCORPORATION
The Board of Directors has approved the amendment of the Company's
Amended and Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from 5,000,000 to 50,000,000.
The Board of Directors has approved such amendment in order for the
Company to have a sufficient number of shares of Common Stock authorized
primarily for the conversion of the Company's outstanding Series A Preferred
Stock, Series B Preferred Stock , Series C Preferred Stock as well as for
issuance upon the exercise of other outstanding options warrants and conversion
rights. The Company also anticipates issuing additional shares of Common Stock
in connection with obtaining additional financing. It is not anticipated that
shareholder approval will be solicited in connection with such additional
financing, unless otherwise required by statute or regulatory authorities. As
of May 11, 1998, the Company had 5,000,000 shares of Common Stock authorized and
1,036,886 shares of Common Stock outstanding. As of May 11, 1998, the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
were convertible into 1,541,779, 623,377 and 7,553,055 shares of Common
Stock, respectively.
In June 1997, pursuant to Regulation D promulgated under the Securities
Act of 1933, as amended ("Act"), the Company sold 2,200 shares of its Series A
Preferred Stock for $1,000 a share, and realized net proceeds of $1,900,702. The
Series A Preferred Stock pays a dividend at the rate of 8% per annum payable in
shares of Common Stock and 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 75% of the market price of the Common
Stock. In addition, a penalty of 2.5% per month for a period of six months
accrued on the Series A Preferred Stock which is payable in cash or shares of
Common Stock at the conversion price. The registration statement covering such
conversion shares was declared effective on January 12, 1998.
Pursuant to the exemption from the registration requirements under
Regulation S promulgated under the Act, on February 20, 1998, the Company issued
300 shares of Series B Preferred Stock with a stated value of $1,000 per share
to an "accredited investor" as that term is defined under Regulation D
promulgated under the Act. The stated value and the accrued dividends thereon on
the Series B Preferred Stock is convertible into shares of Common Stock
commencing on April 4, 1998, at a conversion price equal to the lower of (i) 70%
percent of the average closing bid price of the Common Stock as reported by
Bloomberg, L.P. for the three
-25-
<PAGE>
trading days immediately preceding the notice of conversion or (ii) $.0625.
In April 1998, in a private placement exempt from the registration
requirements under the Act pursuant to Regulation S promulgated under the Act,
the Company issued 4,000 shares of Series C Preferred Stock. Each share of
Series C Preferred Stock is convertible into shares of Common Stock commencing
41 days after the date of issuance at a conversion price equal to the lower of
the closing bid price of the Common Stock on the date of issuance or 75% of the
average closing bid price of the Common Stock for the five trading days
immediately preceding the date of the notice of conversion. Each share of Series
C Preferred Stock shall automatically be converted into Common Stock on the date
which is 24 months from the date of issuance.
The net proceeds from the sale of the Series C Preferred Stock were
approximately $3,400,000. Of such amount, $2,500,000 was utilized to redeem
1,568 shares of Series A Preferred Stock.
In accordance with Nasdaq rules, the Company may not issue more than
191,902 shares of Common Stock (an amount equal to 20% of the Company's
outstanding Common Stock on April 8, 1998) unless the stockholders of the
Company approve the issuance of additional shares of Common Stock via Proposal
No. 6 in this Proxy Statement or Nasdaq waives the requirement of stockholder
approval. In the event that the Company has issued 191,902 shares of Common
Stock pursuant to the conversion of the Series C Preferred Stock and the Company
has not obtained such waiver from Nasdaq or stockholder approval hereby, then
the Company has agreed to redeem any shares of Series C Preferred Stock
outstanding at a redemption price equal to 133% of the face amount of the shares
of Series C Preferred Stock and any accrued and unpaid dividends.
The Board of Directors recommends a vote FOR the ratification of the
amendment of the Company's Amended and Restated Articles of Incorporation.
PROPOSAL NO. 6
APPROVAL OF ISSUANCE OF ADDITIONAL SHARES TO PERMIT CONVERSION
IN FULL OF THE SERIES C PREFERRED STOCK
As discussed in Proposal No.5 above, ss.4310(c)(25)(H) of the Nasdaq
Marketplace Rules prevents the Company from issuing a number of shares of Common
Stock equal to or greater than 20% of the number of the Company's outstanding
shares of Common Stock unless such issuance is either approved by the Company's
shareholders or Nasdaq waives such requirement. The Company may therefore only
convert the Series C Preferred Stock until 191,902 shares of Common Stock are
issued unless this Proposal is approved or a waiver is obtained. Each share of
Series C Preferred Stock is convertible into shares of Common Stock commencing
41 days after the date of issuance at a conversion price equal to the lower of
the closing bid price of the Common Stock on the date of issuance or 75% of the
average closing bid price of the Common Stock for the five trading days
immediately preceding the date of the notice of conversion. Each
-26-
<PAGE>
share of Series C Preferred Stock shall automatically be converted into Common
Stock on the date which is 24 months from the date of issuance.
The Board of Directors believes that it is in the Company's best
interests to convert the Series C Preferred Stock in accordance with its terms
rather than redeem such securities at 133% of their face value as provided for
in the event any shares of Series C Preferred Stock cannot be converted.
The Board of Directors recommends a vote FOR the approval of the
issuance of additional shares to permit the conversion in full of the Series C
Preferred Stock.
PROPOSALS BY STOCKHOLDERS
Any stockholder who intends to present a proposal for action at the
Company's 1999 Annual Meeting of Stockholders in next year's proxy statement and
proxy card must forward a copy of such proposal to the Secretary of the Company.
Any such proposal must be received by the Company for inclusion in its proxy
statement and form of proxy card relating to that meeting by December 23, 1998.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters to be presented for action at the Meeting. If, however, any other
matters are properly brought before the Meeting, the persons named in the
accompanying proxy will vote such proxy in accordance with their own judgment on
such matters.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1997 Annual Report to Stockholders has been mailed to
Stockholders concurrently with this Proxy Statement, but except as herein
stated, such report is not incorporated herein and is not deemed to be a part of
this proxy solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED WITHOUT
CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED UPON WRITTEN
REQUEST TO THE COMPANY'S PRESIDENT, NEAL R. HELLER, NATURAL HEALTH TRENDS CORP.,
2001 WEST SAMPLE ROAD, POMPANO BEACH, FL 33064.
By Order of the Board of Directors
-27-
<PAGE>
Neal R. Heller, President
Pompano Beach, Florida
_____________, 1998
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. A
PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE
APPRECIATED.
-28-
<PAGE>
FLORIDA COLLEGE OF NATURAL HEALTH, INC.
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma consolidated financial statements have been
prepared to show the pro forma financial position and results of operations of
FCNH subsequent to its purchase of Schools from the Company.
The following unaudited pro forma consolidated balance sheet presents
the pro forma financial position of FCNH at December 31, 1997 as if the proposed
purchase had occurred on such date. Included are adjustments to record the value
of the consideration paid for the Schools, including the debt financing, the
acquisition of the assets, the assumption of certain liabilities and the
recording of resulting goodwill.
The unaudited pro forma consolidated statement of operations for the
year ended December 31, 1997 is designed to reflect FCNH's operation of the
schools.
The unaudited pro forma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the sale
occurred on January 1, 1997, nor may it be indicative of future operations.
These unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and notes thereto of the
Company.
<PAGE>
<TABLE>
<CAPTION>
FLORIDA COLLEGE OF NATURAL HEALTH
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
Florida College of
Natural Health
Balance at Pro Forma Adjustments
-----------------------------------------
December 31,
------------------------- ---------------- ----------------
1997 DEBIT CREDIT Total
------------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 1 (1) $ 600,000 (2) $ 600,000 $ 37,762
(2) 37,761
Restricted cash (2) 250,000 250,000
Accounts receivable (2) 1,815,923 1,815,923
Inventories (2) 307,273 307,273
Prepaid expenses and
other current assets (2) 65,161 65,161
------------------------- --------------
TOTAL CURRENT ASSETS 1 2,476,119
--------------
PROPERTY AND EQUIPMENT (2) 139,667 139,667
GOODWILL (2) 1,392,751 1,392,751
DEPOSITS AND OTHER ASSETS (2) 230,033 280,033
(2) 50,000
------------------------- ---------------- ---------------- --------------
$ 1 $ 4,888,569 $ 600,000 $ 4,288,570
========================= ================ ================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ $ (2) $ 953,969 $ 953,969
Revolving credit line (2) 217,422 217,422
Current portion of long
term debt (2) 298,354 298,354
Deferred revenue (2) 1,089,647 1,089,647
------------------------- --------------
TOTAL CURRENT LIABILITIES 0 2,559,392
LONG-TERM DEBT (2) 1,129,177 1,129,177
COMMON STOCK 1 (1) 600,000 600,001
------------------------- ---------------- ---------------- --------------
$ 1 $ 0 $ 4,288,569 $ 4,288,570
========================= ================ ================ ==============
See notes to pro forma financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA COLLEGE OF NATURAL HEALTH
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
School Division
Florida College of of Natural Health
Natural Health Trends Corp.
Year ended Year ended Pro Forma Adjustments
-------------------------------------
December 31, December31,
-------------------- ------------------ ---------------- ----------------
1,997 1,997 DEBIT CREDIT Total
-------------------- ------------------ ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 0 $ 5,453,909 $ $ $ 5,453,909
COST OF GOODS SOLD 2,582,997 2,582,997
-------------------- ------------------ --------------
GROSS PROFIT 2,870,912 2,870,912
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,378,682 (3) 36,000 2,414,682
-------------------- ------------------ --------------
OPERATING INCOME (LOSS) 492,230 456,230
INTEREST EXPENSE 9,547 (1) 131,000 150,547
(2) 10,000
-------------------- ------------------ --------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 482,683 305,683
PROVISION FOR INCOME TAXES 193,000 (4) 71,000 122,000
-------------------- ------------------ ---------------- --------------- --------------
NET INCOME (LOSS) $ 0 $ 289,683 $ 177,000 $ 71,000 $ 183,683
==================== ================== ================ =============== ==============
See notes to pro forma financial statements
</TABLE>
<PAGE>
FLORIDA COLLEGE OF NATURAL HEALTH, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro forma adjustments are included in the
accompanying unaudited pro forma balance sheet at December 31, 1997:
(1) To record the initial capitalization of FCNH.
(2) To record the purchase of the Schools for $1,800,000, $550,000
of which is provided from current funds and $1,250,000 of
which is provided by debt financing (the "Acquisition
Financing"). Financing costs in connection with the
Acquisition Financing are estimated at $50,000. Goodwill
totals $1,060,191. It is anticipated that (i) the Acquisition
Financing will bear interest at the prime rate plus two
percent per annum, (ii) principal on the Acquisition Financing
will be payable at the rate of $13,020 per month and (iii) the
Acquisition Financing will mature five years from the date of
closing.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997, which has been prepared to reflect the
purchase of the Schools as if it had occurred on January 1, 1997:
(1) To record interest expense on the Acquisition Financing.
(2) To amortize finance costs on the Acquisition Financing over
the five year term of the debt.
(3) To amortize goodwill.
(4) To adjust the provision for income taxes.
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma consolidated financial statements have been
prepared to show the proposed disposition of Florida College of Natural Health,
a division of the Company to FCNH.
The following unaudited pro forma consolidated balance sheet presents
the pro forma financial position of the Company at December 31, 1997 as if the
proposed sale of the Schools had occurred on such date. Included are adjustments
to record the value of the consideration paid to the Company, the disposition of
assets sold, the assumption by the purchaser of certain liabilities and the
write-off of intangible assets in connection with the sale of the Schools. The
historical December 31, 1997 balance sheet is also adjusted to reflect several
significant transactions that have occurred subsequent to such date, including:
(1) the conversion of the convertible debentures in the amount of $179,767; (2)
the issuance of convertible Preferred Stock in February 1998 and April 1998; (3)
the redemption of Preferred Stock; and, (4) the work-out and settlement of a
significant portion of trade payables.
The unaudited pro forma consolidated statement of operations for the
year ended December 31, 1997 reflects the elimination of the operations of the
Company's schools division as if the proposed disposition had occurred on
January 1, 1997.
The unaudited pro forma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the sale
occurred on January 1, 1997, nor may it be indicative of future operations.
These unaudited pro forma consolidated financial statements should be read in
conjunction with the Company's historical financial statements and notes
thereto.
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
<S> <C> <C> <C> <C> <C>
Balance at Sale of
December 31, Adjustments As Schools (7)
1997 DR (CR) Adjusted DR (CR) Pro forma
------------------- --------------- ---------------- ---------------- ---------------
CURRENT ASSETS:
Cash $ 104,784 (2) $ 261,500 $ 1,265,616 $ (37,761) $ 3,027,855
(3) 3,418,965 1,800,000
(5) (2,500,000)
(5) (19,633)
Restricted cash 250,000 250,000 (250,000) -
Accounts receivable 1,979,948 (5) (47,748) 1,932,200 (1,815,923) 116,277
Inventories 1,026,999 (5) (138,410) 888,589 (307,273) 581,316
Prepaid expenses and other
current assets 184,576 184,576 (65,161) 119,415
------------------- ---------------- ---------------
TOTAL CURRENT ASSETS 3,546,307 4,520,981 3,844,863
PROPERTY AND EQUIPMENT 3,518,117 (5) (14,997) 3,503,120 (139,667) 3,363,453
DEPOSITS AND OTHER ASSETS 6,740,497 6,740,497 (562,593) 6,177,904
------------------- --------------- ---------------- ---------------
$ 13,804,921 $ 959,677 $ 14,764,598 $ (1,378,378) $ 13,386,220
=================== =============== ================ ================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,026,436 (6) $ 1,581,939 $ 1,444,497 $ 680,450 $ 764,047
Accrued expenses 1,199,887 1,199,887 273,519 926,368
Revolving credit line 217,422 217,422 217,422 -
Accrued expenses for
discontinued operations 338,446 338,446 338,446
Current portion of long
term debt 2,020,349 2,020,349 142,114 1,878,235
Deferred revenue 1,089,647 1,089,647 1,089,647 -
Current portion of accrued
consulting contract 246,607 246,607 246,607
Other current liabilities 325,115 325,115 325,115
------------------- ---------------- ---------------
TOTAL CURRENT LIABILITIES 8,463,909 6,881,970 4,478,818
LONG-TERM DEBT 2,254,591 2,254,591 35,417 2,219,174
DEBENTURES PAYABLE 179,767 (1) 179,767 - -
ACCRUED CONSULTING CONTRACT 113,524 113,524 113,524
ACCRUED EXPENSES DISCONTINUED
OPERATIONS 17,616 17,616 17,616
COMMON STOCK SUBJECT TO PUT 380,000 380,000 380,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001
par value, 2,200
shares outstanding
actual, 632 pro forma 1,900,702 (2) (261,500) 2,747,834 2,747,834
(3) (3,418,965)
(4) 1,333,333
(5) 1,500,000
Common stock, $.001 par
value, 758,136 shares
outstanding actual,
934,511 pro forma 758 (1) (176) 934 934
Additional paid-in capital 11,941,381 (1) (179,591) 12,454,305 12,454,305
(4) (1,333,333)
(5) 1,000,000
Retained earnings (deficit) (11,053,577)(6) (1,361,151) (9,692,426) (1,060,191) (8,632,235)
Common stock subject
to put (380,000) (380,000) (380,000)
Prepaid stock
compensation (13,750) (13,750) (13,750)
------------------- ---------------- --------------
TOTAL
STOCKHOLDERS' EQUITY 2,395,514 5,116,897 6,177,088
------------------- ---------------- --------------
$ 13,804,921 $ (959,677) $ 14,764,598 $ 1,378,378 $ 13,386,220
=================== =============== ================ ================ ==============
See notes to pro forma financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSETS
Total Total Assets
NHT div. liabilities Schools and
December 31, related to December 31, Liabilities
--------------------- -------------------
1997 schools 1997 Disposed
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 37,761 37,761 37,761
Restricted cash 250,000 250,000
Accounts receivable 1,921,457 1,815,923 1,815,923
Inventories 307,273 309,185 307,273
Prepaid expenses and other current assets 173,236 65,161 65,161
---------------------
TOTAL CURRENT ASSETS 2,689,727
---------------------
Notes receivable 1,994,000
PROPERTY AND EQUIPMENT 3,435,411 139,667 139,667
due from parent 34,593
goodwill 332,560 332,560
DEPOSITS AND OTHER ASSETS 261,266 230,033 230,033
--------------------- -------------------------------------
$ 8,712,964 2,632,323 3,178,378
===================== =====================================
CURRENT LIABILITIES:
Accounts payable $ 680,450 680,450 340,223 680,450
Accrued expenses 361,516 273,519 273,519
Revolving credit line 217,422 217,422 217,422
Accrued expenses for
discontinued operations 338,446
Current portion of long term debt 1,737,590 177,531 32,479 142,114
Deferred revenue 1,089,647 1,099,790 1,089,647
Current portion of accrued
consulting contract 246,607
Other current liabilities 165,295
---------------------
TOTAL CURRENT LIABILITIES 4,836,973
LONG-TERM DEBT 687,666 35,417 35,417
DEBENTURES PAYABLE 179,767
ACCRUED CONSULTING CONTRACT 113,524
ACCRUED EXPENSES DISCONTINUED OPERATIONS 17,616
COMMON STOCK SUBJECT TO PUT 380,000
STOCKHOLDERS' EQUITY:
Preferred stock 1,900,702
Common stock 24,526
Additional paid-in capital 9,017,613
Retained earnings (deficit) (8,051,672)
Common stock subject to put (380,000)
Prepaid stock compensation (13,750)
---------------------
TOTAL STOCKHOLDERS' EQUITY 2,497,419 1,124,413
--------------------- -------------------------------------
$ 8,712,965 2,632,322 2,438,569
===================== =====================================
Net assets sold 739,809
Sales price 1,800,000
------------------
Gain (1,060,191)
==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year ended Pro Forma Adjustments
--------------------------------------------
December 31,
------------------- ------------------- ------------------
1997 DEBIT CREDIT Total
------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
REVENUES $ 6,992,516 (1) $ 5,453,909 $ $ 1,538,607
COST OF GOODS SOLD 2,868,094 (1) 2,582,997 285,097
------------------- ---------------
GROSS PROFIT 4,124,422 1,253,510
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,636,911 (1) 2,378,682 5,258,229
NON-CASH IMPUTED COMPENSATION
EXPENSE 425,000 425,000
LITIGATION SETTLEMENT 118,206 118,206
------------------- ---------------
OPERATING INCOME (LOSS) (4,055,695) (4,547,925)
------------------- ---------------
OTHER INCOME (EXPENSES)
Interest (expense), net (1,064,301) (1) 9,547 (1,054,754)
Rent income (2) 240,000 240,000
Other (103,000) (103,000)
Miscellaneaous Revenue 22,317 22,317
------------------- ---------------
TOTAL OTHER INCOME (EXPENSES) (1,144,984) (895,437)
------------------- ---------------
LOSS FROM CONTINUED OPERATIONS $ (5,200,679) $ 5,453,909 $ 5,211,226 $ (5,443,362)
=================== =================== ================== ===============
BASIC INCOME (LOSS) PER COMMON SHARE:
Continued Operations $ (11.98) $ (12.53)
=================== ===============
WEIGHTED AVERAGE COMMON SHARES USED 434,265 434,265
=================== ===============
See notes to pro forma financial statements
</TABLE>
<PAGE>
NATURAL HEALTH TRENDS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro-forma adjustments, numbered 1- 6, are
included in the accompanying unaudited adjusted consolidated balance
sheet at December 31, 1997. The unaudited adjusted December 31, 1997
balance sheet is further adjusted by entry number 7 to reflect the
Company's unaudited pro forma financial position subsequent to the
proposed sale of the schools division:
(1) To record the January 1998 conversion of the remaining
$179,767 of convertible debentures into a total of $176,375 of
Common Stock.
(2) To record the February 1998 sale of $300,000 of face amount of
Series B Preferred Stock, net of expenses of approximately
$38,000.
(3) To record the April 1998 sale of $4,000,000 face amount of
Series C Preferred Stock, net of expenses of $581,035.
(4) To record a conversion discount on the Series C Preferred
Stock, which will be amortized as dividends over a period of
41 days. The Series C Preferred Stock is initially convertible
41 days from the date of issuance.
(5) To record the redemption of $1,500,000 of face amount of
Series A Preferred Stock for $2,500,000, with the $1,000,000
excess of previously recorded paid in capital from the sale of
Preferred Stock sales.
(6) To record the settlement of various past due payables as a
result of various agreements negotiated through March 1998,
resulting in a gain on debt forgiveness in the amount of
$1,361,151.
(7) To record the sale of the Schools to FCNH for cash of
$1,800,000, with a resulting gain of $1,060,191. The Company
will remain contingently liable for liabilities assumed by
FCNH in the aggregate of $1,131,500.
B. The following pro-forma adjustments are included in the accompanying
unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997, which has been prepared to reflect the sale as
if it had occurred on January 1, 1997:
(1) To eliminate revenue and expenses related to disposed
operations.
(2) To record estimated rental income at $240,000 per annum for
the premises occupied by the Pompano School.
<PAGE>
Exhibit Index
2.1 Assets Purchase Agreement dated April 29, 1998 by and among
Natural Health Trends Corp., Neal R. Heller & Elizabeth S. Heller
and Florida College of Natural Health, Inc.
4.1 Florida Statues Sections 607.1301, 607.1302, 607.1320 Regarding
Appraisal Rights.
-30-
<PAGE>
ASSETS PURCHASE AGREEMENT
dated
April 29, 1998
by and among
NATURAL HEALTH TRENDS CORP.,
NEAL R. HELLER & ELIZABETH S. HELLER
and
FLORIDA COLLEGE OF NATURAL HEALTH, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
ARTICLE I: PURCHASE AND SALE.....................................................................................2
SECTION 1.01. Sale and Purchase of Assets............................................................2
SECTION 1.02. Assumption of Liabilities..............................................................3
SECTION 1.03. Consideration..........................................................................4
SECTION 1.04. Non-Assigned Assumed Contracts.........................................................5
SECTION 1.05. Tax Values.............................................................................5
SECTION 1.06. "Purchase and Sale" Defined............................................................6
ARTICLE II: REPRESENTATIONS AND WARRANTIES.......................................................................6
SECTION 2.01. In General: Disclaimer.................................................................6
SECTION 2.02. Representations and Warranties of FCNH.................................................7
(a) Organization and Good Standing........................................7
(b) Consents, Authorizations and Conflicts................................7
(c) SEC Filings...........................................................9
(d) Financial Statements and Liabilities..................................9
(e) Information or Proxy Statement.......................................10
(f) Litigation and Compliance............................................10
(g) Taxes................................................................11
(h) Employee Plans.......................................................12
(i) Contracts............................................................13
(j) Subsidiaries.........................................................13
SECTION 2.03. Representations and Warranties of NHTC................................................13
(a) Organization and Good Standing.......................................13
(b) Consents, Authorizations and Conflicts...............................13
(c) Information or Proxy Statement.......................................14
ARTICLE III: CERTAIN COVENANTS..................................................................................15
SECTION 3.01. Information or Proxy Statement........................................................15
SECTION 3.02. Consents and Notices..................................................................15
SECTION 3.03. Best Efforts to Satisfy Conditions....................................................16
SECTION 3.04. Representations and Warranties........................................................16
SECTION 3.05. NHTC Employees........................................................................16
SECTION 3.06. Confidential Information..............................................................16
SECTION 3.07. Public Announcements..................................................................17
SECTION 3.08. Transfer Restrictions.................................................................17
ARTICLE IV: CONDITIONS TO CLOSING...............................................................................17
SECTION 4.01. Conditions to Obligations of NHTC.....................................................17
(a) Representations and Warranties;
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Performance of Obligations..........................................17
(b) Charter, By-laws, et.................................................17
(c) Consents and Notices.................................................18
(d) Legal Restraints.....................................................18
(e) No Material Adverse Change...........................................18
(f) Valuation Reports and Fairness Opinion...............................18
(g) Purchase Price.......................................................18
(h) Heller Shares and Heller Options.....................................18
(i) Instruments of Transfer..............................................18
(j) Resignations.........................................................19
(k) Termination of Related Party Contracts...............................19
(l) General Releases.....................................................19
(m) Dissenters Rights....................................................19
(n) Other Matters........................................................20
SECTION 4.02. Conditions to Obligations of the Heller Parties.......................................20
(a) Representations and Warranties:
Performance of Obligations...........................................20
(b) Charter, By-laws, et.................................................20
(c) Consents and Notices.................................................20
(d) Legal Restraints.....................................................20
(e) Receipt..............................................................21
(f) Instruments of Transfer..............................................21
(g) Purchase Financing...................................................21
(h) Other Matters........................................................21
ARTICLE V: CLOSING AND TERMINATION..............................................................................21
SECTION 5.01. Closing...............................................................................21
SECTION 5.02. Termination of Agreement..............................................................21
ARTICLE VI: INDEMNIFICATION.....................................................................................22
SECTION 6.01. By FCNH...............................................................................22
SECTION 6.02. By NHTC...............................................................................23
SECTION 6.03. "Losses" Defined......................................................................24
SECTION 6.04. Notice of Claims......................................................................24
SECTION 6.05. Survival of Provisions................................................................25
SECTION 6.06. No Punitive Damages...................................................................25
SECTION 6.07. Exclusive Remedy......................................................................25
SECTION 6.08. Miscellaneous.........................................................................25
ARTICLE VII: MISCELLANEOUS......................................................................................26
SECTION 7.01. Further Actions.......................................................................26
SECTION 7.02. Expenses..............................................................................26
SECTION 7.03. Entire Agreement......................................................................26
SECTION 7.04. Descriptive Headings: References......................................................26
SECTION 7.05. Notices...............................................................................26
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<PAGE>
SECTION 7.06. Governing Law and Forum...............................................................27
SECTION 7.07. Assignment............................................................................27
SECTION 7.08. Remedies..............................................................................28
SECTION 7.09. Waivers and Amendments................................................................28
SECTION 7.10. Third Party Rights....................................................................29
SECTION 7.11. Illegalities..........................................................................29
SECTION 7.12. Gender and Plural Terms...............................................................29
SECTION 7.13. Release of Registration Rights........................................................29
SECTION 7.14. Counterparts..........................................................................29
</TABLE>
iii
<PAGE>
THIS ASSETS PURCHASE AGREEMENT, dated as of April 29, 1998 (this
"Agreement" or the "Asset Agreement"), is by and among (1) NATURAL HEALTH TRENDS
CORP., a Florida corporation ("NHTC"), (2) NEAL R. HELLER ("NHeller") and
ELIZABETH S. HELLER ("EHeller"; and collectively with NHeller, the "Hellers"),
and (3) FLORIDA COLLEGE OF NATURAL HEALTH, INC., a Florida corporation ("FCNH";
and collectively with the Hellers, the "Heller Parties") wholly owned by the
Hellers.
BACKGROUND
NHTC is engaged in the business (among other businesses) of owning and
operating, under the name "Florida Institute", three vocational schools operated
as a junior college located in Orlando, Florida, Pompano Beach, Florida, and
Miami, Florida (collectively, the "Schools"; and such business and the related
operations of NHTC, the "Schools Business"). NHTC also (among other things),
through its Global Health Alternatives, Inc. ("GHA") subsidiary and subsidiaries
of GHA, produces, markets and distributes natural health care and other
products.
NHeller is on the date hereof the President and Chief Executive
Officer, a member of the Board of Directors and the Chairman of the Executive
Committee of the Board of Directors of NHTC. EHeller is on the date hereof the
Secretary, Treasurer and a member of the Board of Directors of NHTC. On the date
hereof, the Hellers own (i) 5,167,000 (pre-split) shares (the "Heller Shares")
of Common Stock, par value $.001 per share, of NHTC ("NHTC Common Stock"), and
(ii) options (the "Heller Options") granted by NHTC to purchase (at the date
hereof) 800,000 (pre-split) shares of NHTC Common Stock.
NHTC desires to sell to FCNH, and FCNH desires to purchase from NHTC,
the Schools Business, upon the terms and subject to the conditions set forth in
this Agreement. Such Purchase and Sale (as defined in Section 1.06 hereof) may
constitute a sale of all, or substantially all, of NHTC's property otherwise
than in the usual and regular course of business within the meaning of
ss.607.1202 (Sale of Assets Other than in Regular Course of Business) of the
Florida Business Corporation Act (the "Florida Code"). Accordingly, this
Agreement, the Purchase and Sale and the other transactions contemplated thereby
(collectively with the Purchase and Sale, the "Transactions") have been approved
and recommended to the shareholders of NHTC by the Board of Directors thereof,
by unanimous action on its part. NHTC shall use its best efforts to obtain, as
promptly as possible, the approval of the Transactions by NHTC's shareholders,
either pursuant to a special meeting called for such purpose or by written
consents in lieu of a meeting, pursuant to ss.607.0704 (Action by Shareholders
without a Meeting) of the Florida Code.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
and the representations and warranties, conditions, covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
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ARTICLE I: PURCHASE AND SALE
SECTION 1.01. Sale and Purchase of Assets.
(a) On the Closing Date (as defined in Section 5.01) NHTC
shall sell, transfer, grant, convey, assign and set over to FCNH, and its
successors and assigns forever, and FCNH shall purchase and receive from NHTC,
all of the right, title and interest of NHTC in, to and under the businesses,
franchises, rights, claims, privileges, properties and assets owned, used or
held for use by NHTC exclusively or primarily with respect to or in connection
with the Schools Business, of every nature and description, tangible and
intangible, wherever located and whether or not carried on the books or records
of NHTC (the "Purchased Assets"), including, without limitation, the following:
(1) All leasehold interests in real property on or at which
any of the Schools Business and/or NHTC's corporate headquarters
facilities and operations (the "Corporate Operations") are conducted or
operated ("Subject Real Estate Interests");
(2) All fixed and tangible personal property used or held for
use exclusively or primarily with respect to or in connection with the
Schools Business, including, without limitation, all physical assets
and equipment, leasehold improvements, machinery, vehicles, furniture,
fixtures, office materials and supplies and spare parts, together with
all replacements thereof, additions and alterations thereto, and
substitutions therefor;
(3) All of the Schools Business' (and not any Excluded
Business' (as hereinafter defined) or Corporate Operations') cash on
hand, cash equivalents, and bank, brokerage and other deposit accounts;
(4) All trade and other accounts and notes receivable of
the Schools Business (and not of any Excluded Business or of Corporate
Operations);
(5) All prepaid expenses, advances and deposits that relate
exclusively or primarily to the Schools Business or Subject Real Estate
Interests (but not those that relate specifically or primarily to other
Corporate Operations or to any Excluded Business);
(6) All registered and unregistered patents, patent
applications, trade names, service marks, trademarks, trademark
applications, trade dress rights, copyrights, copyright applications,
inventions, trade secrets, computer software, logos, slogans,
proprietary processes and formulae and all other proprietary technical
and other information, know-how and intellectual property rights,
whether patentable or unpatentable, owned, licensed or used by NHTC
exclusively or primarily with respect to or in connection with the
Schools Business (but not those that relate exclusively or primarily to
any Excluded Business or Corporate Operations), and all goodwill of the
Schools Business;
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<PAGE>
(7) All books, records and files exclusively or primarily
related to the Schools Business or any Purchased Assets or Assumed
Liabilities (as defined in Section 1.02(a) below) (or the appropriate
extracts therefrom, to the extent that such books, records and files
have other information commingled unrelated to the foregoing) (and it
being understood, however, that copies of the same may be retained
NHTC);
(8) All stationery, purchase orders, forms, labels, shipping
material, catalogs, brochures, art work, photographs and advertising
and promotional copy, materials and literature relating exclusively or
primarily to the Schools Business;
(9) All rights of NHTC under transferable Permits (as
defined in Section 2.02(b)(2) below) required for the operation of the
Schools Business; and
(10) All rights of NHTC under assignable Assumed Contracts
(as defined in Section 1.02(a)(3) below);
(11) All of the outstanding Capital Stock of the Natural
Health Shoppe, Inc., a Florida corporation, which is a wholly-owned
subsidiary of NHTC; and
(12) All rights against third parties relating to any of
the Purchased Assets or Assumed Liabilities;
all as the same shall exist as of February 27, 1998, but subject to such
additions and dispositions as shall have occurred in the ordinary course of
business after the date hereof or shall otherwise occur with the written consent
of any Heller Party. For purposes of this Agreement, the term "Excluded
Business" means and includes the businesses, franchises, rights, claims,
privileges, properties and assets owned, used or held for use by NHTC with
respect to or in connection with any of its direct or indirect businesses or
operations other than (i) Schools Business and (ii) Corporate Operations.
(b) Notwithstanding the foregoing, the "Purchased Assets" do
not include, and NHTC shall retain all of its right, title and interest in, to
and under the following (collectively, the "Excluded Assets"): (i) the
businesses, franchises, rights, claims, privileges, properties and assets owned,
used or held for use by NHTC exclusively or primarily with respect to or in
connection with any Excluded Business, (ii) all outstanding capital stock of
subsidiaries held by NHTC, other than The Natural Health Shoppe, Inc., and all
receivables, other rights to payment and other obligations of subsidiaries held
by NHTC, other than the Natural Health Shoppe, Inc., and (iii) NHTC's corporate
seal, minute books, articles of incorporation and by-law documents, stock record
books and other books and records that pertain to the organization of NHTC.
SECTION 1.02. Assumption of Liabilities.
(a) On the Closing Date NHTC shall transfer, assign and
delegate to FCNH, and, FCNH shall assume and agree to pay, satisfy and discharge
in accordance with their respective terms (subject to any defenses or claimed
offsets asserted in good faith against the obligee to whom the
3
<PAGE>
same are owed), all indebtedness, liabilities, payments, obligations and
commitments (collectively, the "Assumed Liabilities"):
(1) resulting from, relating to or arising out of the
ownership and/or operation of the Schools Business, any of the Schools,
any of the Subject Real Estate Interests or any of the other Purchased
Assets (including, without limitation, trade and other accounts payable
and other accrued expenses),
(2) owed to or held by any Heller Party or any other
Related Party (except as otherwise provided in Section 4.01(1)),
(3) owed to or held by any Covered Employee (as defined
in Section 3.05) on account of or with respect to the period after
February 27, 1998,
(4) arising under any of the following (collectively, "Assumed
Contracts"): (i) Contracts (as defined in Section 2.02(i)(1) below) to
which the Schools Business, or NHTC or any subsidiary of NHTC in
relation to the Schools Business, is a party or is subject or bound,
(ii) Contracts by which any of the Purchased Assets is subject or
bound, (iii) Contracts under which any of the other Assumed Liabilities
has been created or established, and/or (iv) Contracts to which: (x) on
the one hand, NHTC or any subsidiary of NHTC is a party or is subject
or bound, and (y) on the other hand, FCNH, either of the Hellers, any
of their respective affiliated-companies or family members, and the
successors and assigns of any of the foregoing (collectively, "Related
Parties") is a party or is subject or bound, and
(5) listed on Schedule 1.02(a)(5), and
(6) any litigation arising out of the Schools Business.
(b) Notwithstanding the foregoing, the "Assumed Liabilities"
do not include, and NHTC shall retain responsibility for and be liable to
discharge, pay and perform, all indebtedness, liabilities, payments, obligations
and commitments (collectively, the "Retained Liabilities"):
(1) for Taxes (as defined in Section 2.02(g) (1 )
below) , and
(2) resulting from, relating to or arising out of the
ownership of any Excluded Assets.
SECTION 1.03. Consideration.
(a) The purchase price for the Purchased Assets is ONE MILLION
EIGHT HUNDRED THOUSAND DOLLARS ($1,800,000) (the "Purchase Price"), which is the
value of the Schools Business as determined in good faith by the parties hereto
based upon the valuation set
4
<PAGE>
forth in the written Appraisal Report, dated June 30, 1997 (the "Valuation
Report"), of Freidheim Advisory Services, Inc., Houston, Texas ("FAS"), as
revised and confirmed by letter dated February 10, 1998, from Friedman, Leavitt
& Associates, Inc. ("FLA"), each addressed to NHTC. In consideration of NHTC's
sale of the Purchased Assets to FCNH as aforesaid (in addition to FCNH's
assumption of the Assumed Liabilities), on the Closing Date FCNH shall pay to
NHTC ONE MILLION EIGHT HUNDRED THOUSAND United States Dollars ($1,800,000) in
cash (the "Purchase Price"), by a wire transfer of immediately available funds
to an account in the United States designated in writing by NHTC.
(b) In addition to payment of the Purchase Price, as set forth above,
on the Closing Date, the Hellers shall transfer, grant, convey, assign and set
over to NHTC, and its successors and assigns forever, and NHTC shall receive
from the Hellers, free and clear of any and all liens, security interests,
mortgages, pledges, covenants, easements, encumbrances, defects in title,
agreements and claims and rights of third parties ("Liens"), all of the Heller
Shares, except for 2,000,000 Heller Shares and all of the Heller Options.
(c) Prior to the date hereof, and as part of the basis for the
determination of the Board of Directors of NHTC to approve and recommend to the
shareholders this Agreement, the Purchase and Sale and the other Transactions,
the Board of Directors of NHTC received a written fair market valuation of the
remaining intangible assets of NHTC held or owned by NHTC's wholly-owned
subsidiary, GHA (the "Fair Market Valuation"), of Seidman & Co., Inc.
("Seidman").
SECTION 1.04. Non-Assigned Assumed Contracts.
(a) From and after the Closing (as defined in Section 5.01),
NHTC shall: (i) hold in trust for the benefit of FCNH all Non-Assigned Assumed
Contracts (as defined below) that have been disclosed to (or the existence of
which are otherwise known by NHTC and its management (excluding the Hellers))
prior to the date hereof, (ii) remit (promptly upon receipt thereof) to FCNH all
amounts paid to NHTC thereunder in respect of the performance thereof by NHTC or
FCNH thereunder, (iii) cooperate with FCNH in any reasonable arrangement
designed to provide for FCNH the benefits thereunder, and (iv) insofar as and
when permissible, assign to FCNH, at FCNH's written request from time to time,
any or all of such Non-Assigned Assumed Contracts. FCNH agrees to perform, in
the name and on behalf of NHTC, all Non-Assigned Assumed Contracts as to which
the foregoing provisions have been complied with. For purposes of this
Agreement, the term "Non-Assigned Assumed Contracts" means and includes those
Assumed Contracts as to which (x) the consent of a party thereto (other than a
Related Party) is required for an assignment thereof, and (y) such consents are
not obtained on or before the Closing Date.
SECTION 1.05. Tax Values. The: (i) respective fair market values
of the discrete items (or categories of items) of Purchased Assets (for tax
purposes) as of the Closing Date, on the one hand, (ii) respective (x) fair
market values of 3,167,000 of the Heller Shares and Heller Options and (y)
values of the discrete items (or categories of items) of Assumed Liabilities as
of the Closing Date, on the other hand, and (iii) allocation of such values of
3,167,000 of the Heller Shares and Heller Options, Assumed Liabilities and the
Purchase Price among the Purchased Assets, shall be determined as soon as
practicable after the Closing Date (but in no event later than 90 days
5
<PAGE>
thereafter) through such methodologies (including mutual agreement, and taking
into account the Valuation Reports and Fairness Opinion) as FCNH and NHTC shall
mutually agree. The parties hereto shall prepare their respective federal,
state, local and foreign income tax returns employing such valuations and
allocations and shall not take a position in any tax proceeding or tax audit, or
otherwise, inconsistent with such valuations and allocations; provided, however,
that nothing contained in this Section 1.05 shall require any party to contest
beyond (or otherwise than by) the exhaustion of administrative remedies before
any taxing authority or agency, and no party shall be required to litigate
before any court, including, without limitation, United States Tax Court, any
proposed deficiency or adjustment by any taxing authority or agency which
challenges any such valuation. Each party hereto shall give each other party
hereto: (i) prompt notice of the commencement of any tax audit or the assertion
of any proposed deficiency or adjustment by any taxing authority or agency which
challenges any such valuation and/or allocation and (ii) the opportunity to
participate in any tax audit or tax proceeding which challenges any such
valuation and/or allocation.
SECTION 1.06. "Purchase and Sale" Defined. The purchase and sale
transactions provided for above in this Article I are sometimes referred to
herein as the "Purchase and Sale."
ARTICLE II: REPRESENTATIONS AND WARRANTIES
SECTION 2.01. In General: Disclaimer.
(a) The Heller Parties hereby acknowledge and agree that, as
between themselves, on the one hand, and NHTC and its management and advisors
(excluding the Hellers), on the other, it is the Heller Parties who have the
greater knowledge of and experience with NHTC (excluding GHA and its
subsidiaries), the School Business, Purchased Assets, Assumed Contracts and
other Assumed Liabilities, inasmuch as it is the Hellers who have been actually
been managing and operating NHTC and the Schools Business since their inception.
Accordingly:
(1) THE SCHOOLS BUSINESS, PURCHASED ASSETS, ASSUMED
CONTRACTS AND OTHER ASSUMED LIABILITIES ARE BEING SOLD,
TRANSFERRED, GRANTED, CONVEYED, ASSIGNED AND SET OVER TO
FCNH PURSUANT TO THIS AGREEMENT ON AN "AS IS, WHERE IS" BASIS;
(2) NHTC MAKES NO GUARANTEES, REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SCHOOLS
BUSINESS, PURCHASED ASSETS, ASSUMED CONTRACTS OR OTHER
ASSUMED LIABILITIES OTHER THAN THOSE EXPRESSLY SET FORTH IN
THIS AGREEMENT; AND
(3) NHTC DISCLAIMS AND EXCLUDES (TO THE EXTENT
PERMITTED BY APPLICABLE LAW) ALL OTHER WARRANTIES,
OBLIGATIONS, LIABILITIES, RIGHTS AND REMEDIES, EXPRESS, IMPLIED
OR ARISING UNDER LAW, INCLUDING, BUT NOT LIMITED TO, ANY
6
<PAGE>
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE AND ANY WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE
OF DEALING, OR USAGE OF TRADE.
(b) In addition, the Heller Parties hereby further acknowledge
and agree that: (i) for the reasons stated in Section 2.01(a) above and in order
to help establish to the satisfaction of NHTC and its management and advisors
(excluding the Hellers) that the Purchase and Sale will be effected in a manner
that is legal, valid and binding and that does not result in liabilities,
obligations or commitments on the part of NHTC for or in respect of the Schools
Business, Purchased Assets, Assumed Contracts, other Assumed Liabilities or to
any Related Party, it is FCNH (as opposed to NHTC, as the "seller" party to the
Purchase and Sale) that is making certain representations and warranties
hereinbelow with respect thereto; (ii) that its making of such representations
and warranties is fair and equitable under the circumstances; (iii) the Hellers
are aware of the representations and warranties made by FCNH pursuant to Section
2.02 below and acknowledge and agree that, to the best of their knowledge, such
representations and warranties are true and correct in all material respects;
and (iv) NHTC (and its management and advisors (excluding the Hellers)) is
relying upon such representations and warranties in connection with its
execution, delivery and performance of this Agreement, notwithstanding any
investigation made by NHTC or its management and advisors (excluding the
Hellers) or on their behalf.
SECTION 2.02. Representations and Warranties of FCNH. FCNH hereby
represents and warrants to NHTC that:
(a) Organization and Good Standing. FCNH is a corporation
organized, validly existing and in good standing under the laws of the State of
Florida, and has the full corporate power and authority to own, lease and
operate its properties and assets and to carry on its businesses as presently or
contemplated to be conducted.
(b) Consents, Authorizations and Conflicts.
(1) Neither the execution and delivery by NHTC or FCNH of this
Agreement or the Bill of Sale (as defined in Section 4.01(m) below), by
the Hellers of this Agreement, by the Hellers or Justin Real Estate
Corp. of the Heller Party General Releases (as defined in Section 4.01
(m) below), or by any of NHTC or the Heller Parties of any of the other
agreements, instruments, certificates or other documents executed and
delivered (or to be executed and delivered) by NHTC or any of the
Heller Parties in connection with this Agreement and/or the
consummation of the Transactions (collectively with this Agreement, the
Bill of Sale and the General Releases, the "Subject Documents"), nor
the consummation of the Transactions, nor the performance by NHTC or
any of the Heller Parties of their other respective obligations under
the Subject Documents, require any governmental authority or private
party consent, waiver, approval, authorization or exemption
(collectively, "Consents") or the giving of any notice ("Notice")
(including, without limitation, such Consents and Notices as may be
necessary or appropriate in order to: (x) vest in FCNH all of NHTC's
right, title and interest in, to and under the Purchased Assets,
7
<PAGE>
and (y) release NHTC from any liabilities, obligations or commitments
under any Assumed Contract or other Assumed Liabilities) applicable to
NHTC or any subsidiary thereof (excluding GHA and its subsidiaries, as
to which the Heller Parties are making no representation or warranty)
or any of the Heller Parties except for: (i) such Consents and Notices
that have been duly obtained (in the case of Consents) or given (in the
case of Notices) and are unconditional and in full force and effect,
(ii) such Consents and Notices that will be duly obtained (in the case
of Consents) or given (in the case of Notices) and will be
unconditional and in full force and effect on and as of the Closing
Date, (iii) the Consent or approval of the shareholders of NHTC
contemplated by ss.607.1202 (Sale of Assets Other than in Regular
Course of Business) of the Florida Code, (iv) the requirements under
the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act") that an
information statement or proxy statement in respect of the Transactions
be filed with the U.S. Securities and Exchange Commission ("SEC") and
sent or given to shareholders of NHTC, and (v) such Consents as are
required from the USDOE, the Florida Department of Education and its
State Board of Independent Postsecondary, Vocational, Technical, Trade
and Business Schools (the "Florida State Board"), accreditation bodies
who have presently accredited any of the Schools.
(2) This Agreement has been duly authorized (in the case of
FCNH), executed and delivered by the Heller Parties and constitutes the
legal, valid and binding obligation of the Heller Parties enforceable
against the Heller Parties in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy,
reorganization, insolvency, fraudulent conveyance or similar laws of
general application relating to or affecting the enforcement of
creditors' rights. From and after the Closing, each other Subject
Document to which any Heller Party is to be a party will be duly
authorized (in the case of FCNH), executed and delivered by the Heller
Party(ies) party thereto and will constitute the legal, valid and
binding obligation of the Heller Party(ies) party thereto enforceable
against such Heller Party(ies) in accordance with its terms, except as
such enforceability may be limited by bankruptcy, reorganization,
insolvency, fraudulent conveyance or similar laws of general
application relating to or affecting the enforcement of creditors'
rights. The execution and delivery by NHTC and the Heller Parties of
the Subject Documents to which they are (or are to be) respectively a
party, the consummation of the Transactions and the performance by NHTC
and the Heller Parties of their other respective obligations under the
Subject Documents to which they are (or are to be) respectively a
party, does not (except as described in Section 2.02(b)(1) above) and
will not contravene, conflict or be inconsistent with, result in a
breach of, constitute a violation of or default under, or require or
result in any right of acceleration or create or impose any Lien under:
(w) FCNH's articles of incorporation or by-laws, (x) any federal,
state, local or foreign law, statute, ordinance, code, judgment, order,
decree, directive, rule or regulations of any governmental authority,
court or arbitrator (the foregoing collectively, "Laws") applicable or
relating to NHTC or any subsidiary thereof (excepting GHA and its
subsidiaries, as to which the Heller Parties are making no
representation or warranty) or any Heller Party, or any of their
respective businesses, operations, properties or assets, (y) any
Contract to which
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NHTC or any subsidiary thereof (excepting GHA and its subsidiaries, as
to which the Heller Parties are making no representation or warranty)
is a party or is subject or bound, or (z) any governmental or judicial
license, permit, right, privilege, registration, report, franchise,
authorization or other consent which are required under any Law (the
foregoing collectively, "Permits") applicable or relating to NHTC or
any subsidiary thereof (excepting GHA and its subsidiaries, as to which
the Heller Parties are making no representation or warranty) or any
Heller Party, or any of their respective businesses, operations,
properties or assets.
(c) SEC Filings. For purposes of this Agreement, the term "SEC
Filings" means and includes the following documents filed by or on behalf of
NHTC with the SEC under the Exchange Act or the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"): (i) NHTC's Annual Reports on Form 10-KSB for its fiscal year ended
December 31, 1996 (the "Form 10-K"), (ii) NHTC's Quarterly Reports on Form
10-QSB for its fiscal quarters ended March 31,1997, June 30, 1997, and September
30, 1997, (iii) NHTC's Proxy Statements in relation to its annual meeting of
shareholders held on August 4, 1997, and (iv) NHTC's registration statement on
Form S-3 dated June 11,1997. Each SEC Filing contains the disclosures required
to be made therein (other than matters relating to the business of GHA and its
subsidiaries, as to which the Heller Parties make no representation or warranty)
under the Exchange Act or the Securities Act, as applicable, and, as of the date
thereof, did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) Financial Statements and Liabilities.
For purposes of this Agreement, the term "NHTC Financial Statements" means and
includes the audited and unaudited financial statements (including notes
thereto) of NHTC appearing in the SEC Filings. The books of account and other
financial and accounting records of NHTC and its subsidiaries (excepting GHA and
its subsidiaries, as to which the Heller Parties are making no representation or
warranty) are, and during the respective periods covered by the NHTC Financial
Statements were, correct and complete in all material respects, fairly and
accurately reflect or reflected their respective income, expenses, assets and
liabilities, including the nature thereof and the transactions giving rise
thereto, and provide or provided a fair and accurate basis for the preparation
of the NHTC Financial Statements. Such books of account and records have been
maintained in accordance with the Exchange Act and all applicable rules and
regulations of the SEC, USDOE, Florida State Board, and all applicable
accreditation bodies who have presently accredited any of the Schools. The NHTC
Financial Statements have been prepared in conformity with generally accepted
accounting principals ("GAAP"), consistently applied, are correct and complete
in all material respects, and fairly present the consolidated financial position
of NHTC as of the respective dates thereof and the consolidated results of its
operations and cash flows for the periods covered thereby. As of the date
hereof, neither NHTC nor its subsidiaries has any indebtedness, liabilities,
payments, obligations or commitments (absolute, contingent or otherwise) other
than those: (i) set forth or reserved against in the most recent of the NHTC
Financial Statements, (ii) incurred since the date of the most recent of the
NHTC Financial Statements in the ordinary course of its business or otherwise
consistent with recent past practice that are, individually and in the
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aggregate, of an immaterial nature and amount, (iii) arising under Laws or under
Permits and Contracts that have previously been disclosed in the SEC Filings or
otherwise disclosed in writing to, or actually known by, the present Chairman of
NHTC ("Previously Disclosed"), and (iv) incurred by GHA or any of its
subsidiaries.
(e) Information or Proxy Statement. None of the information
with respect to any of the Heller Parties or any other Related Party included in
the Information Statement or Proxy Statement (as defined in Section 3.01), and
none of the other information supplied by or on behalf of any of the Heller
Parties or any other Related Party for inclusion in the Information Statement or
Proxy Statement or any other document filed with the SEC or The Nasdaq Stock
Market, Inc. ("NASDAQ") or any regulatory body in connection with the
Transactions, will, at the respective times that they (including any amendments,
supplements or revisions thereto and any preliminary version thereof) are so
filed and, with respect to the Information Statement or Proxy Statement, when
mailed to the shareholders of NHTC and at the time of the Closing, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading or, in the case of the Information
Statement or Proxy Statement, will be false or misleading with respect to any
material fact, or will omit to state any material fact to correct any statement
in any earlier communication with respect to the Transactions which has become
false or misleading.
(f) Litigation and Compliance. Except as Previously Disclosed
or (in the case of the following clauses (iii), (v) and (vi) only) where such
events or circumstances could not reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), business, operations,
properties, assets, liabilities, capitalization, financial position, operations,
results of operations or prospects of NHTC and its subsidiaries, taken as a
whole, both prior to and after the Closing (a "Material Adverse Effect"): (i)
there are no governmental authority or private party actions, suits, claims,
proceedings or investigations pending or threatened against NHTC, any subsidiary
thereof or any Heller Party or any other Related Party: (x) relating to either
NHTC, any subsidiary thereof (excepting GHA and its subsidiaries, as to which
the Heller Parties are making no representation or warranty) or any properties
or assets now or previously owned, leased or operated by NHTC or any subsidiary
thereof (excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty), (y) which questions or challenges the
validity of this Agreement or any other Subject Document or any action taken or
to be taken by NHTC or any Heller Party pursuant thereto, or (z) which questions
or challenges NHTC's or any of its subsidiary's (excepting than GHA's and its
subsidiaries', as to which the Heller Parties are making no representation or
warranty) right, title or interest in or to any of its properties or assets;
(ii) neither NHTC nor any subsidiary thereof (excepting GHA and its
subsidiaries, as to which the Heller Parties are making no representation or
warranty) is the subject of any judgment, order or decree of any governmental
authority, court or arbitrator; (iii) NHTC and each of its subsidiaries
(excepting GHA and its subsidiaries, as to which the Heller Parties are making
no representation or warranty) is in compliance with all Laws applicable or
relating to their respective businesses, operations, properties or assets; (iv)
neither NHTC nor any of its subsidiaries (excepting GHA and its subsidiaries, as
to which the Heller Parties are making no representation or warranty) has
engaged in any unfair trade practice, committed any commercial or other fraud,
paid or provided any kickbacks, bribes or other gratuitous goods or services in
order to solicit, secure or maintain any
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business or commercial relationship, or committed any act or omission actionable
under the federal Racketeer Influenced and Corrupt Organizations Act, as amended
("RICO"), or any similar state Laws, or under the federal Foreign Corrupt
Practices Act or any similar state Laws, nor has any Heller Party or other
Related Party engaged in or committed any such acts or omissions or made any
such payments in order to benefit, directly or indirectly, NHTC, any subsidiary
thereof (excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty) or the prospects thereof; (v) NHTC and
each subsidiary thereof (excepting GHA and its subsidiaries, as to which the
Heller Parties are making no representation or warranty) has obtained all
Permits which are required under any applicable Laws to own and/or operate the
respective businesses, operations, properties and assets; and (vi) all such
Permits are valid and in full force and effect, and there exists no default or
violation by NHTC or any subsidiary thereof (excepting GHA and its subsidiaries,
as to which the Heller Parties are making no representation or warranty) with
respect to any such Permit.
(g) Taxes.
(1) For purposes of this Agreement, the terms "Tax" or "Taxes"
mean and include all taxes, charges, levies or other like assessments,
including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits,
capital, payroll, employment, excise, stamp, property or other taxes,
together with any interest and any penalties, additions to tax or
additional amounts imposed by any federal, state, local or foreign
governmental authority.
(2) NHTC and each subsidiary thereof (excepting GHA and its
subsidiaries, as to which the Heller Parties are making no
representation or warranty) have filed all Tax returns required to be
filed by them, which returns are complete and correct in all material
respects, and neither NHTC nor any subsidiary thereof (excepting GHA
and its subsidiaries, as to which the Heller Parties are making no
representation or warranty) is in default in the payment of any Taxes
which were payable pursuant to said returns, except where the failure
to so file or such default could not reasonably be expected to have a
Material Adverse Effect. Neither NHTC nor any subsidiary thereof
(excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty) has, for the five-year period
preceding the Closing Date, been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Tax Code"). As of December 31,
1996, NHTC and each of its subsidiaries (excepting GHA and its
subsidiaries, as to which the Heller Parties are making no
representation or warranty) has paid or accrued on its books and
records all liability for Taxes with respect to all periods or portions
thereof ending on or before such date. For the period January 1, 1997
through the Closing Date, neither NHTC nor any subsidiary thereof
(excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty) has incurred any liability for
Taxes other than Taxes arising in the ordinary course of business with
respect to such period. Neither NHTC nor any subsidiary thereof
(excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or
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warranty): (i) is under audit, examination or review by any taxing
authority nor has any such audit, examination or review been
threatened; (ii) has received notice of any proposed or actual
assessment or deficiency with respect to Taxes; (iii) has extended the
statute of limitation with respect to the assessment or collection of
any Taxes.
(h) Employee Plans.
(1) Except as Previously Disclosed, there is no, and has not
been for the five-year period preceding the Closing Date any, "employee
benefit plan" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) which (x) is or was
subject to any provision of ERISA, and (y) is or was maintained,
administered or contributed to by NHTC or any ERISA Affiliate thereof
(excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty) that covers any employee or
former employee of NHTC or any ERISA Affiliate thereof (excepting GHA
and its subsidiaries, as to which the Heller Parties are making no
representation or warranty) or under which NHTC or any such ERISA
Affiliate (excepting GHA and its subsidiaries, as to which the Heller
Parties are making no representation or warranty) has any material
liability, which has not, as of the date hereof, been Previously
Disclosed. Such plans are hereinafter referred to collectively as the
"Employee Plans"; and for purposes of this Agreement, the term "ERISA
Affiliate", of any person or entity, means and includes any other
person or entity which is a member of a controlled group of
corporations with such person (within the meaning of Section 414(b),
414(c) or 414(m) of the Tax Code).
(2) Except as Previously Disclosed, there are no material
liabilities relating to any Employee Plan. Prior to the date hereof
there has been no amendment to, written interpretation or announcement
(whether or not written) by NHTC or any of its ERISA Affiliates
(excepting GHA and its subsidiaries, as to which the Heller Parties are
making no representation or warranty) relating to, or change in
employee participation or coverage under, any Employee Plan which would
increase the expense of maintaining such Employee Plan above the level
of the expense incurred in respect thereof for the fiscal quarter and
fiscal year ended on December 31, 1996. Each Employee Plan is and has
been since inception in compliance in all material respects with the
applicable provisions of ERISA and the applicable provisions of the Tax
Code. All contributions required to be made to each Employee Plan have
been timely made. Each Employee Plan intended to be qualified under
Section 401 of the Tax Code (if any) is so qualified and has received a
favorable determination letter from the U.S. Internal Revenue Service
("IRS"). No Employee Plan is or was a "defined benefit plan", as
defined in Section 3(35) of ERISA, or a "multiemployer plan", as
defined in Section 3(37)(A) of ERISA. There are no pending or
threatened investigations, audits, examinations or inquiries by any
governmental authority involving any Employee Plan, no threatened or
pending claims (except for claims for benefits payable in the ordinary
course), suits or proceedings against any Employee Plan or asserting
any rights or claims to benefits under any Employee Plan which
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could reasonably be expected to give rise to any liability, nor are
there any facts which could give rise to any liability in the event of
any such investigation, audit, examination, inquiry, claim, suit or
proceeding.
(i) Contracts.
(1) For purposes of this Agreement, the term "Contract" means
and includes any contract, agreement, instrument, undertaking, bid,
commitment or arrangement, written or oral, of any kind or description
whatsoever, including, without limitation, all: leases (of real or
personal property), licenses, indentures, credit agreements, debt
instruments, guarantees, mortgages, security agreements, joint venture
agreements, company or business acquisition or disposition agreements,
concession agreements, management agreements, consulting agreements,
employment agreements, powers of attorney, agency agreements, equipment
purchase orders, customer purchase orders, supply orders, indemnity
agreements, and agreements or covenants not to compete.
(2) There are no Contracts to which NHTC or any subsidiary
thereof (excepting GHA and its subsidiaries, as to which the Heller
Parties are making no representation or warranty) is a party or is
subject or bound, including Related Party Contracts, which have not
been Previously Disclosed. All such Contracts are in full force and
effect in accordance with the written terms thereof, and there are no
outstanding defaults by NHTC or any subsidiary thereof (excepting GHA
and its subsidiaries, as to which the Heller Parties are making no
representation or warranty) or, to the Heller Parties' knowledge, by
any other party under any such Contract; and no event, act or omission
has occurred which has resulted, or (with or without notice, the
passage of time or the occurrence of any other event) could result, in
a default under any such Contract.
(j) Subsidiaries. NHTC does not own, directly or indirectly,
any equity or proprietary interests or securities of any entity or enterprise
organized under the laws of the United States, any state thereof, the District
of Columbia or any other domestic or foreign jurisdiction, or otherwise created
or established by agreement, that has not been Previously Disclosed.
SECTION 2.03. Representations and Warranties of NHTC. NHTC hereby
represents and warrants to the Heller Parties that:
(a) Organization and Good Standing. NHTC is a corporation
organized, validly existing and in good standing under the laws of the State of
Florida, and has the full corporate power and authority to own, lease and
operate its properties and assets and to carry on its businesses as presently or
contemplated to be conducted.
(b) Consents, Authorizations and Conflicts.
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(1) Neither the execution and delivery by NHTC of this
Agreement, the Bill of Sale or any of the other Subject Documents, nor
the consummation of the Transactions, nor the performance by the NHTC
of its other obligations under the Subject Documents, require any
Consent or Notices applicable to GHA and its subsidiaries except for:
(i) such Consents and Notices that have been duly obtained (in the case
of Consents) or given (in the case of Notices) and are unconditional
and in full force and effect, and (ii) such Consents and Notices that
(NHTC hereby covenants and agrees) will be duly obtained (in the case
of Consents) or given (in the case of Notices) and will be
unconditional and in full force and effect on and as of the Closing
Date.
(2) This Agreement has been duly authorized, executed and
delivered by NHTC and constitutes the legal, valid and binding
obligation of NHTC enforceable against NHTC in accordance with its
respective terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, fraudulent conveyance or
similar laws of general application relating to or affecting the
enforcement of creditors' rights. From and after the Closing, each
other Subject Document to which NHTC is to be a party will be duly
authorized, executed and delivered by NHTC and will constitute the
legal, valid and binding obligation of NHTC enforceable against NHTC in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, reorganization, insolvency, fraudulent conveyance or
similar laws of general application relating to or affecting the
enforcement of creditors' rights. The execution and delivery by NHTC of
the Subject Documents to which it is (or is to be) a party, the
consummation of the Transactions and the performance by NHTC of its
other obligations under the Subject Documents to which it is (or is to
be) a party, does not (except as described in Section 2.03(b)(1) above)
and will not contravene, conflict or be inconsistent with, result in a
breach of, constitute a violation of or default under, or require or
result in any right of acceleration or to create or impose any Lien
under: (w) NHTC's articles of incorporation or by-laws, (x) any Laws
applicable or relating to GHA and its subsidiaries, or any of their
respective businesses, operations, properties or assets, (y) any
Contract to which GHA or any subsidiary thereof is a party or is
subject or bound, or (z) any Permits applicable or relating to GHA or
any subsidiary thereof, or any of their respective businesses,
operations, properties or assets.
(c) Information or Proxy Statement. None of the information
with respect to NHTC included in the Information Statement or Proxy Statement,
and none of the other information supplied by or on behalf of NHTC for inclusion
in the Information Statement or Proxy Statement or any other document filed with
the SEC or NASDAQ or any regulatory body in connection with the Transactions,
will, at the respective times that they (including any amendments, supplements
or revisions thereto and any preliminary version thereof are so filed and, with
respect to the Information Statement, when mailed to the shareholders of NHTC
and at the time of the Closing, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading or, in the case of the Information Statement, will be false or
misleading with respect to any material
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fact, or will omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the Transactions which has become
false or misleading.
ARTICLE III: CERTAIN COVENANTS
SECTION 3.01. Information or Proxy Statement. (a) As soon as
practicable after the date hereof, NHTC, with the cooperation of the Heller
Parties, shall prepare and file with the SEC either: (i) (if shareholder
approval is to be obtained by written consent) preliminary and final versions of
a combined (x) information statement under the Exchange Act in respect of this
Agreement, the Purchase and Sale and the other Transactions and (y) notice
pursuant to ss.607.0704 (`Action by Shareholders without a Meeting) and
ss.607.1320 (Procedures for Exercise of Dissenters' Rights) of the Florida Code
in respect of the Purchase and Sale (such combined information statement and
notice, the "Information Statement"), or (ii) (if a special meeting of
shareholders is to be called to obtain shareholder approval) preliminary and
final versions of a notice of meeting and proxy statement in respect of this
Agreement, and the Purchase and Sale and other Transactions (the "Proxy
Statement"); and (iii) such other filings and materials relating to the
Transactions as are required by the Exchange Act, the Florida Code and any
applicable rules and regulations of NASDAQ. The Information Statement or Proxy
Statement shall comply as to form and content in all material respects with the
requirements of the Exchange Act and all other applicable Laws. Each of the
parties hereto shall use its best efforts to obtain and furnish the information
required to be included in the Information Statement or Proxy Statement and to
respond promptly to any comments made by the SEC with respect thereto. NHTC
shall cause the definitive Information Statement or Proxy Statement to be sent
or given to its shareholders at the earliest practicable time after any waiting
or review period required by the SEC.
SECTION 3.02. Consents and Notices.
(a) Promptly after the date hereof, the parties hereto shall
use their respective reasonable best efforts to obtain all Consents and give all
Notices which may be necessary or appropriate in order to consummate the
Purchase and Sale (including, without limitation, such Consents and Notices as
may be necessary or appropriate in order to: (x) vest in FCNH all of NHTC's
right, title and interest in, to and under the Purchased Assets, and (y) release
NHTC from any and all indebtedness, liabilities, payments, obligations and
commitments under, for or in respect of all Assumed Contracts and all other
Assumed Liabilities). The parties hereto shall not (i) submit or file any
documents, materials or information to or with, or take any other action before
or at the request of, any governmental authority in respect of any Laws or
Permits, or (ii) take any other action with respect to, or which may affect
NHTC's, FCNH's or any of their respective subsidiaries' rights under, any
Contract or Permit without (in each case) first consulting with (in the case of
the Heller Parties) counsel to NHTC or (in the case of NHTC) counsel to FCNH.
The parties hereto shall otherwise cooperate with each other in discharging
their respective obligations under this Section 3.02, and shall promptly advise
counsel to the other parties hereto of any difficulties encountered in obtaining
any such Consents or giving any such Notices.
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(b) The Heller Parties hereby acknowledge and agree that: (i)
in order to preserve (from and after the Closing) for the Schools Business (x)
the accredited status of the Schools and (y) the Schools' students' access to
the financial aid programs to which they currently have access, at substantially
current levels), Consents of and/or Notices to the USDOE, Florida State Board
and certain accrediting agencies are required; (ii) under the applicable rules
and regulations of such authorities and agencies such Consents cannot be
obtained prior to the Closing; and (iii) accordingly, the obtaining of such
Consents are not and shall not be conditions to the Closing.
SECTION 3.03. Best Efforts to Satisfy Conditions. Each of the parties
hereto shall use its reasonable best efforts to cause the conditions to the
Closing set forth in Article VI hereof to be satisfied, to the extent that the
satisfaction of such conditions is in the control of such party, as soon as
practicable after the date hereof; provided, however, the foregoing shall not
constitute a limitation upon the covenants and obligations of any party
otherwise expressly set forth in this Agreement.
SECTION 3.04. Representations and Warranties. From the date hereof to
the Closing Date, the parties hereto shall refrain from taking any action, or
fail to act in such a way, that would render any of its representations and
warranties contained in Article 11 inaccurate at and as of the Closing Date, and
shall promptly advise the other such parties hereto of any such event or
circumstance and of any other breach of any representation, warranty, covenant,
condition or obligation of such party hereunder.
SECTION 3.05. NHTC Employees. Promptly after the date hereof, FCNH
shall offer to each employee of NHTC, any subsidiary thereof and/or the Schools
Business that is not also an employee of GHA or any subsidiary thereof (each, a
"Covered Employee") employment with FCNH (effective from and after the Closing)
at substantially the same salary, other compensation and benefits, and otherwise
on substantially the same other terms, as those which applied to such Covered
Employee on the date hereof as an employee of NHTC or its subsidiary. FCNH
hereby acknowledges and agrees that all liabilities, claims and obligations of
NHTC or any subsidiary thereof owed or owing to any Covered Employee (whether or
not such Covered Employee accepts employment with FCNH) arising at any time
prior to the Closing (including, without limitation, for salary, severance,
vacation or sick pay or for health care and other benefits) are and shall be
Assumed Liabilities of FCNH.
SECTION 3.06. Confidential Information. Unless and until the Closing
shall not occur and this Agreement shall have been terminated, without the
specific prior written consent of NHTC, the Heller Parties shall not, and shall
cause their respective officers, directors, employees, counsel, accountants and
lenders (and the respective employees, agents and representatives thereof
(collectively, "Heller Party Restricted Persons") to not, directly or
indirectly, at any time after the date hereof (including after the Closing),
divulge to any person or entity, or use for their own direct or indirect
benefit, any information confidential and/or proprietary to NHTC or any
subsidiary thereof concerning the business, affairs, assets, liabilities,
revenues, condition (financial or otherwise), or prospects, customers or
suppliers of NHTC or any subsidiary thereof, whether created or developed by any
Heller Party Restricted Person or on the behalf of any Heller Party Restricted
Person, or with respect to which any Heller Party Restricted Person may have
knowledge or access, it being the intent of the parties hereto to restrict the
Heller Party Restricted Persons from
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disseminating or using any such information which is at the time of such use or
dissemination unpublished and not readily available or generally known to the
public; provided, however, that from and after the Closing, the foregoing
restrictions shall not apply to any such information concerning the business,
affairs, assets, liabilities, revenues, condition financial or otherwise), or
prospects, customers or suppliers of the Schools Business.
SECTION 3.07. Public Announcements. No party hereto shall make any
announcement to the public, to NHTC's or FCNH's respective "trades" or to the
respective employees, customers or suppliers of such parties, or to any federal,
state, local or foreign government, agency or authority, with respect to this
Agreement and/or the Transactions (an "Announcement") to which FCNH or NHTC
shall reasonably object; provided, however, that (x) NHTC will be required under
the Exchange Act and/or the Florida Code to file with the SEC and disseminate to
its shareholders the Information Statement, and (y) NHTC and the Heller Parties
will be required under the Exchange Act to file with the SEC a report or
schedule with respect to this Agreement and the Transactions, and such filing
and dissemination shall be permitted in all events. Each party shall afford the
other parties hereto the opportunity to review and comment upon each
Announcement proposed to be made by it prior to the release thereof.
SECTION 3.08. Transfer Restrictions. From and after the date hereof and
until the Closing, no Heller Party shall sell, assign, pledge, donate, transfer
or otherwise dispose of any of the their respective Heller Shares, except to
another Heller Party or except for 2,000,000 Heller Shares, without the prior
written consent of NHTC.
ARTICLE IV: CONDITIONS TO CLOSING
SECTION 4.01. Conditions to Obligations of NHTC. The obligation of NHTC
to consummate the Purchase and Sale and the other Transactions is subject to the
satisfaction of the following conditions, each of which may be waived by NHTC.
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of FCNH set forth in Article II
shall be true and correct on the Closing Date as if made on and as of the
Closing Date. The Heller Parties shall have performed the agreements and
obligations required to be respectively performed by them under this Agreement
prior to the Closing Date. FCNH and the Hellers shall have executed and
delivered to NHTC a certificate or certificates certifying to their compliance
with the foregoing, in form and substance reasonably satisfactory to NHTC.
(b) Charter, By-laws, etc. FCNH shall have delivered to NHTC a
certificate signed by two or of more its officers certifying to: (i) a true,
correct and complete copy of FCNH's articles of incorporation, (ii) a true,
correct and complete copy of FCNH's by-laws, (iii) a true, correct and complete
copy of all FCNH Board of Directors and shareholder resolutions adopted in
connection with this Agreement and/or the Transactions, and (iv) the identity
and signature of its officer or officers who shall have executed this Agreement
or any other Subject Document in the name or on behalf of FCNH on or before the
Closing Date.
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(c) Consents and Notices. All Consents and Notices which may
be necessary or appropriate in order for NHTC to consummate the Purchase and
Sale or any of the other Transactions (including, without limitation, such
Consents and Notices as may be necessary or appropriate in order to release NHTC
from any and all indebtedness, liabilities, payments, obligations and
commitments under, for or in respect of all Assumed Contracts and all other
Assumed Liabilities) shall have been duly obtained (in the case of Consents) or
given (in the case of Notices) and shall be unconditional and in full force and
effect.
(d) Legal Restraints. There shall not have been proposed or
enacted any Laws, or any change in any existing Laws, which prohibits or delays,
or threatens to prohibit or delay, the consummation of the Purchase and Sale or
any of the other Transactions or which could reasonably be expected to have a
Material Adverse Effect. No action, suit, claim or proceeding shall have been
commenced or threatened by any governmental authority or private party (i)
seeking to restrain, enjoin or hinder, or to seek damages from NHTC or any
subsidiary thereof on account of, the consummation of the Purchase and Sale or
any of the other Transactions, or (ii) which could reasonably be expected to
have a Material Adverse Effect.
(e) No Material Adverse Change. There shall have been no
material adverse change in the condition (financial or otherwise), business,
properties, assets, liabilities, capitalization, financial position, operations,
results of operations or prospects of NHTC and its subsidiaries, taken as a
whole, since the date of this Agreement. NHTC Common Stock shall continue to be
quoted in the NASDAQ Small Cap market; and there shall not have been proposed or
enacted any Laws, or any change in any existing Laws, and no action, suit, claim
or proceeding shall have been commenced or threatened by any governmental
authority, NASDAQ or any private party seeking that would result in the
discontinuance of such listing.
(f) Valuation Reports and Fairness Opinion. FAS shall have
delivered to NHTC a letter or other writing dated the Closing Date wherein FAS
confirms or reaffirms as of the Closing Date the valuation of the Schools
Business as set forth in theValuation Report. Seidman shall have delivered to
NHTC a letter dated the Closing Date and addressed to the Board of Directors of
NHTC wherein it confirms or reaffirms as of the Closing Date the opinion as to
the fair market valuation of NHTC's remaining intangible assets set forth in the
original Fair MarketValuation.
(g) Purchase Price. FCNH shall have paid to NHTC the
Purchase Price, in the manner provided in Section 1.03.
(h) Heller Shares and Heller Options. The Heller Parties shall
have delivered to NHTC the certificate or certificates and/or agreements
representing 3,167,000 of the Heller Shares and the Heller Options, endorsed by
the Heller Parties in blank or accompanied by a stock power executed by the
Heller Parties in blank.
(i) Instruments of Transfer. FCNH shall have executed and
delivered to NHTC: (i) a Bill of Sale and Assumption effecting the transfer of
the Purchased Assets, Assumed Contracts and other Assumed Liabilities provided
for in Sections 1.01 and 1.02 hereof and otherwise in form and substance
reasonably substance reasonably satisfactory to NHTC and FCNH (the "Bill of
Sale"),
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and (i) such other instruments of assumption as NHTC shall reasonably request in
order to further evidence and/or effect, of record or otherwise, the assumption
by FCNH of the Assumed Contracts and other Assumed Liabilities.
(j) Resignations. NHeller and EHeller shall have resigned all
of their respective positions as an officer, director, member of a committee of
the Board of Directors and/or employee of NHTC and any and all subsidiaries
thereof.
(k) Termination of Related Party Contracts. All Related Party
Contracts shall have been terminated by mutual consent and NHTC and its
subsidiaries shall have been released from all indebtedness, liabilities,
payments, obligations and commitments thereunder, in both cases, without any
requirement for further payments or other consideration. Without limiting the
generality of the foregoing: (i) any and all indebtedness or other amounts
payable by either of the Hellers to NHTC or any subsidiary thereof (under any
Related Party Contract, or otherwise) shall have been paid in full on or before
the Closing Date, (ii) the two Employment Agreements, dated as of November 24,
1997, between NHTC, on the one hand, and NHeller and EHeller (respectively), on
the other, shall be terminated by mutual consent and with the effect of a
termination under Sections 13(b) thereof (and not Sections 13(c) thereof, and
(iii) the Agreement dated June 7, 1995 and the Property Management Agreement
dated June 7, 1995 (in both cases) between NHTC and Justin Real Estate Corp.
("Justin") shall be terminated by mutual consent without any requirements for
further payments or other consideration. Nothwithstanding the foregoing, the
Hellers shall receive, on or before the Closing Date, all compensation payments
which they are entitled to receive through and including the Closing Date, and
compensation at their usual and customary rate in lieu of accrued but unused
vacation time accrued through the Closing Date.
(l) General Releases. Each of the Hellers, Justin Corp. and
any other Related Party reasonably requested by NHTC, shall have executed and
delivered a general release instrument, dated as of the Closing Date (each, a
"Heller Party General Release"): (i) whereby such Related Party (in such
capacity, a "Releasor") releases and forever discharges NHTC and its successors,
assigns, subsidiaries, parent corporations, affiliates and shareholders, and the
officers, directors, employees and agents of any of the foregoing (each, a
"Releasee"), from all claims, duties, obligations, liabilities, damages, debts,
causes of action, proceedings, suits, judgments, liens and executions, whether
known or unknown, absolute or contingent, matured or unmatured, and foreseen or
unforeseen, and whether belonging to any Releasor individually or derivatively
through another Releasor, that any Releasor may have had, may then have or may
thereafter have against any Releasee (except those: (x) arising under any of the
Subject Documents and (y) in respect of indemnification rights granted under the
certificate or articles of incorporation or by-laws of NHTC or any subsidiary
thereof arising out of the Hellers having served as officers and directors of
any such entities prior to the Closing (and, in the case of NHeller, continuing
to serve as a director of NHTC after the Closing), and (ii) otherwise in form
and substance reasonably satisfactory to NHTC.
(m) Dissenters Rights. NHTC shall not have received
demands for payment of the fair value of shares of NHTC Common Stock pursuant to
ss.607.1301 (Dissenter's Rights; Definitions), ss.607.1302 (Right of
Shareholders to Dissent) and ss.607.1320 (Procedure for Exercise
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of Dissenter's Rights) of the Florida Code with respect to more than 5% of the
outstanding shares of NHTC Common Stock.
(n) Other Matters. The Heller Parties shall have furnished or
caused to be furnished to NHTC, in form and substance reasonably satisfactory to
NHTC or its counsel, such certificates and other evidences as NHTC may
reasonably request as to the satisfaction of the conditions contained in this
Section 4.01.
SECTION 4.02. Conditions to Obligations of the Heller Parties. The
obligations of the Heller Parties to consummate the Purchase and Sale and the
other Transactions is subject to the satisfaction of the following conditions,
each of which may be waived by any of the Heller Parties.
(a) Representations and Warranties: Performance of
Obligations. The representations and warranties of NHTC set forth in Article 11
shall be true and correct on the Closing Date as if made on and as of the
Closing Date. NHTC shall have performed the agreements and obligations required
to be respectively performed by them under this Agreement prior to the Closing
Date. NHTC shall have executed and delivered to the Heller Parties a certificate
or certificates certifying to their compliance with the foregoing, in form and
substance reasonably satisfactory to FCNH.
(b) Charter, By-laws, etc. NHTC shall have delivered to NHTC a
certificate signed by two or of more its officers certifying to: (i) a true,
correct and complete copy of NHTC's articles of incorporation, (ii) a true,
correct and complete copy of NHTC's by-laws, (iii) a true, correct and complete
copy of all NHTC Board of Directors and shareholder resolutions adopted in
connection with this Agreement and/or the Transactions, and (iv) the identity
and signature of its officer or officers who shall have executed this Agreement
or any other Subject Document in the name or on behalf of NHTC on or before the
Closing Date.
(c) Consents and Notices. All Consents and Notices which may
be necessary or appropriate in order to vest in FCNH all of NHTC's right, title
and interest in, to and under the Purchased Assets for shall have been duly
obtained (in the case of Consents) or given (in the case of Notices) and shall
be unconditional and in full force and effect. In order to avoid any doubt, the
Heller Parties hereby acknowledge and agree that the Consents of and/or Notices
to the USDOE, Florida State Board and any Schools' accrediting agencies are not
conditions to the obligations of the Heller Parties to consummate the Purchase
and Sale and the other Transactions.
(d) Legal Restraints. There shall not have been proposed or
enacted any Laws, or any change in any existing Laws, which prohibits or delays,
or threatens to prohibit or delay, the consummation of the Purchase and Sale or
any of the other Transactions. No action, suit, claim or proceeding shall have
been commenced or threatened by any governmental authority or private party
seeking to restrain, enjoin or hinder, or to seek damages from any Heller Party
on account, of the consummation of the Purchase and Sale or any of the other
Transactions.
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(e) Receipt. NHTC shall have executed and delivered to FCNH a
written instrument, in form and substance reasonably satisfactory FCNH,
acknowledging receipt of the Purchase Price and 3,167,000 (pre-split) of the
Heller Shares..
(f) Instruments of Transfer. NHTC shall have executed and
delivered to FCNH: (i) the Bill of Sale, and (ii) such other instruments of
transfer as FCNH shall reasonably request in order to further evidence and/or
effect, of record or otherwise, the Purchase and Sale of the Purchased Assets.
(g) Purchase Financing. The Heller Parties shall have
obtained the moneys necessary to pay the entire Purchase Price at the Closing.
(h) Other Matters. NHTC shall have furnished or caused to be
furnished to the Heller Parties, in form and substance reasonably satisfactory
to the Heller Parties or their counsel, such certificates and other evidences as
any of the Heller Parties may reasonably request as to the satisfaction of the
conditions contained in this Section 4.02.
ARTICLE V: CLOSING AND TERMINATION
SECTION 5.01. Closing. The closing of the Purchase and Sale and other
transactions contemplated hereby (the "Closing") shall, unless another place is
agreed to by Purchaser and Seller, take place at the offices of McLaughlin &
Stern, LLP, 260 Madison Avenue, New York, N.Y., at 10:00 A.M., local time, on
such date mutually agreed upon by Purchaser and Seller that is within five
business days after (i) the twentieth (20th) calendar day after the Information
Statement shall have been sent or given to the shareholders of NHTC within the
meaning of Rule 14c-2(b) of the Exchange Act, or (ii) the Transactions are
approved by the shareholders of NHTC at a special meeting called for such
purpose (as the case may be, the "Closing Date").
SECTION 5.02. Termination of Agreement.
(a) This Agreement may be terminated, and the Purchase and
Sale and other Transactions may be abandoned (without the requirement for any
action on the part of the shareholders of NHTC or FCNH), by either NHTC or FCNH,
upon notice to the other such party hereto, if the Closing shall not have
occurred on or before September 1, 1998, unless extended by mutual agreement of
the parties (the "Deadline Date"); provided, however, that: (i) NHTC shall not
be permitted to terminate this Agreement under this Section 5.02 if the Closing
shall not have occurred by the Deadline Date by reason of any breach by NHTC of
Section 3.03; and (ii) the FCNH shall not be permitted to terminate this
Agreement under this Section 5.02 if the Closing shall not have occurred by the
Deadline Date by reason of any breach by any of the Heller Parties of Section
3.03.
(b) Termination of this Agreement under this Section 5.02
shall automatically and irrevocably terminate all liabilities and obligations of
the terminating party (and, in the event that the terminating party is the FCNH,
the other Heller Parties) arising under this Agreement; all rights
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of the terminating party (and such other parties) arising under this Agreement,
and all liabilities and obligations of the other party or parties hereto, shall
survive any such termination.
ARTICLE VI: INDEMNIFICATION
SECTION 6.01. By FCNH and the Hellers.
(a) Subject to the limitations set forth below in this Section
6.01(a), from and after the Closing Date, FCNH shall indemnify NHTC its
subsidiaries and their respective directors, officers, employees and agents
(collectively, the "NHTC Indemnified Persons"), against, and hold the NHTC
Indemnified Persons harmless from, any and all Losses (as defined in Section
6.03) directly or indirectly incurred, suffered, sustained or required to be
paid by, or sought to be imposed upon, any of the NHTC Indemnified Persons
resulting from, relating to arising out of:
(1) any breach of any of the representations or
warranties of the Heller Parties set forth in Article II hereof or in
any other Subject Document,
(2) any breach of any covenant or agreement made by any
Heller Party under this Agreement or any other Subject Document,
(3) (i) any Assumed Contract or any other Assumed Liability,
(ii) any other indebtedness, liability, payment, obligation or
commitment of NHTC or any subsidiary thereof which FCNH has assumed or
for which FCNH has expressly agreed to assume or be responsible for as
part of or in connection with the Transactions contemplated hereby, and
(iii) any indebtedness, liability, payment or obligation of NHTC
neither described nor referred to in any of clauses (i) through (iv) of
Section 2.02(d), or ,
(4) any liability, payment or obligation in respect of any
litigation, claim, action or similar matter: (i) relating to any of the
Schools, the Schools Business, any of the Purchased Assets or any of
the Assumed Contracts or other Assumed Liabilities (including, without
limitation, the action described in Item 3 of the Form 10-K for the
year ended December 31, 1996), (ii) asserted by any Related Party,
(iii) Previously Disclosed pursuant to Section 2.02(f) (or that should
have been so Previously Disclosed), or (iv) that would or should have
been Previously Disclosed pursuant to Section 2.02(f) but for the fact
that the matter (x) could not reasonably be expected to have a Material
Adverse Effect or (y) arose after the date of this Agreement.
(b) The right to indemnification under this Section 6.01
is subject to the following limitations:
(1) The indemnification rights under this Section 6.01 shall
expire at the respective times set forth in Section 6.05, and FCNH
shall have no liability under this Section 6.01 or otherwise in
connection with the Transactions unless an NHTC
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Indemnified Person gives written notice to FCNH asserting a claim for
Losses, including reasonably detailed specific facts and circumstances
pertaining thereto, before the expiration of the periods of time that
the underlying representations, warranties, covenants and agreements
survive under Section 6.05 hereof.
(2) Indemnification for claims under this Section 6.01 shall
be payable hereunder only if and to the extent that the aggregate
amount of all Losses of the NHTC Indemnified Persons to which this
Section 6.01 hereof applies shall exceed $20,000, and shall not be
payable in any event with respect to the first $20,000 of such Losses,
provided, however, that the foregoing limitations shall not apply with
respect to claims under either of clauses (3) or (4) under Section
6.01(a).
(3) The liability for all claims under this Section 6.01 of
FCNH shall in no event exceed the amount of the Purchase Price,
provided, however, that the foregoing limitations shall not apply with
respect to claims under either of clauses (3) or (4) under Section
6.01(a).
(c) From and after the Closing Date, the Hellers shall
indemnify and hold the NHTC Indemnified Persons harmless from, any and all
Losses directly or indirectly incurred, suffered, sustained or required to be
paid by, or sought to be imposed upon, any of the NHTC Indemnified Persons
resulting from, relating to arising out of any malfeaseance, intentional or
reckless engagement in any fraud, gross negligence, misrepresentation or
deception of NHTC by the Hellers in connection with the operations of NHTC
through the Closing Date.
SECTION 6.02. By NHTC.
(a) Subject to the limitations set forth below in this Section
6.02, from and after the Closing Date, NHTC shall indemnify the Heller Parties
and their respective directors, officers, employees and agents (collectively,
the "Heller Indemnified Persons"), against, and hold the Heller Indemnified
Persons harmless from, any and all Losses directly or indirectly incurred,
suffered, sustained or required to be paid by, or sought to be imposed upon, any
of the Heller Indemnified Persons resulting from, relating to arising out of:
(1) any breach of any of the representations or
warranties of NHTC Parties set forth in Article II hereof or in any
other Subject Document,
(2) any breach of any covenant or agreement made by NHTC
Party under this Agreement or any other Subject Document, or
(3) any Retained Liability.
(b) The right to indemnification under this Section 6.02
is subject to the following limitations:
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(1) The indemnification rights under this Section 6.02 shall
expire at the respective times set forth in Section 6.05, and NHTC
shall not have any liability under this Section 6.02 or otherwise in
connection with the transactions contemplated by this Agreement unless
a Heller Indemnified Person gives written notice to NHTC asserting a
claim for Losses, including reasonably detailed specific facts and
circumstances pertaining thereto, before the expiration of the periods
of time that the underlying representations, warranties, covenants and
agreements survive under Section 6.05 hereof.
(2) Indemnification for claims under this Section 6.02 shall
be payable hereunder only if and to the extent that the aggregate
amount of all Losses of the Heller Indemnified Persons to which this
Section 6.02 hereof applies shall exceed $20,000, and shall not be
payable in any event with respect to the first $20,000 of such Losses.
(3) NHTC's liability for all claims under this Section 6.02
shall in no event exceed the amount of the Purchase Price.
SECTION 6.03. "Losses" Defined. In this Agreement, the term "Losses"
means and includes all losses, claims, liabilities, damages (including, without
limitation, punitive, consequential and special damages awarded to any
third-party claimant), judgments, liabilities, payments, obligations, costs and
expenses (including, without limitation, any costs of investigation, remediation
or cleanup, and any reasonable legal fees and costs and expenses incurred after
the Closing Date in defense of or in connection with any alleged or asserted
liability, payment or obligation as to which indemnification may apply
hereunder), regardless of whether or not any liability, payment, obligation or
judgment is ultimately imposed against the NHTC Indemnified Persons or Heller
Indemnified Persons and whether or not the NHTC Indemnified Persons or Heller
Indemnified Persons are made or become parties to an action, suit or proceeding
in respect thereof, voluntarily or involuntarily.
SECTION 6.04. Notice of Claims. With respect to any matter as to which
any person or entity (the "Indemnified Person") is entitled to indemnification
from any other person or entity (the "Indemnifying Person") under this Article
VI, the Indemnified Person shall have the right, but not the obligation, to
contest, defend or litigate, and to retain counsel of its choice in connection
with, any claim, action, suit or proceeding by any third party alleged or
asserted against the Indemnified Person in respect of, resulting from, relating
to or arising out of such matter, and the costs and expenses thereof shall be
subject to the indemnification obligations of the Indemnifying Person hereunder;
provided, however, that if the Indemnifying Person acknowledges in writing its
obligation to indemnify the Indemnified Person in respect of such matter to the
fullest extent provided by this Article VI, the Indemnifying Person shall be
entitled, at its option, to assume and control the defense of such claim,
action, suit or proceeding at its expense through counsel of its choice if it
gives prompt notice of its intention to do so to the Indemnified Person. Neither
an Indemnified Person nor an Indemnifying Person shall be entitled to settle or
compromise any such claim, action, suit or proceeding without the prior written
consent of the other party hereto (and for purposes of this provision the "other
party hereto" shall be: (i) FCNH, for any Indemnified Person
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or Indemnifying Person who is a Heller Indemnified Person, and (ii) NHTC, for
any Indemnified Person or Indemnifying Person who is an NHTC Indemnified
Person), which consent shall not be unreasonably withheld.
SECTION 6.05. Survival of Provisions. All representations and
warranties contained herein or made pursuant to this Agreement shall survive the
Closing for a period of one (1) year after the Closing Date except that the
representations and warranties contained in or made pursuant to Sections
2.02(f), (g) and (h) shall survive the Closing for so long as any claim may be
made in respect of the matters described therein under any applicable statute of
limitations. All covenants and agreements of the parties contained in or made
pursuant to this Agreement and required to be performed prior to the Closing
Date shall survive the Closing for a period of one (1) year. All other covenants
and agreements contained in or made pursuant to this Agreement (including
Section 6.01 and 6.02) shall survive the Closing for so long as any claim may be
made in respect of such matters under any applicable statute of limitations.
SECTION 6.06. No Punitive Damages. Notwithstanding anything to the
contrary set forth in this Agreement, no party hereto shall have any liability
to any other party hereto, any NHTC Indemnified Person or any Heller Indemnified
Persons for any punitive, consequential or special damages by virtue of any
breach of any representation, warranty, covenant or agreement in or pursuant to
this Agreement, any Subject Document or any other agreement, document or
instrument executed and delivered pursuant hereto or in connection herewith or
the Closing; provided that the foregoing shall not be deemed to limit the
obligation of any party hereunder to indemnify for Losses constituting punitive,
consequential or special damages awarded to any third-party claimant.
SECTION 6.07. Exclusive Remedy. Each party hereto agrees that the sole
liability of any other party hereto for any claim with respect to the
transactions contemplated under this Agreement shall be limited to
indemnification under this Article VI; provided, however, that the foregoing
shall not be deemed to prohibit or restrict the availability of any equitable
remedies (including specific performance) in the event of any breach (or
threatened breach) circumstances described in Section 7.08 (or in any provision
of any other Subject NHTC Document which specifically contemplates the
availability, or permits the exercise, of equitable remedies (including specific
performance)).
SECTION 6.08. Miscellaneous.
(a) Notwithstanding anything to the contrary set forth in this
Article VI, no Heller Indemnified Person who was a director, officer, employee,
agent or representative of NHTC or any subsidiary thereof prior to the Closing
Date shall be entitled to indemnification hereunder for his or her own acts or
omissions.
(b) If any Loss is recoverable under more than one clause of
Section 6.01 or 6.02, the NHTC Indemnified Persons or the Heller Indemnified
Persons, as the case may be, shall be entitled to assert a claim for
indemnification under either or both of such clauses, as such Person shall
elect.
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ARTICLE VII: MISCELLANEOUS
SECTION 7.01. Further Actions. From time to time after the Closing
Date, the parties hereto shall execute and deliver (or cause to be executed and
delivered) such other and further agreements, instruments, certificates or other
documents and shall take (or cause to be taken) such other and further actions,
as any other party hereto may reasonably request in order to further effect
and/or evidence the Purchase and Sale and other Transactions or to otherwise
consummate and give effect to the covenants and agreements set forth herein.
SECTION 7.02. Expenses. Each party hereto shall bear its own legal
fees, accountants' fees, brokers, finder's and investment banking fees and other
costs and expenses with respect to the negotiation, execution and the delivery
of this Agreement and the consummation of the Transactions; provided that the
fees and expenses of FAS and FLA and Seidman shall be borne by NHTC.
SECTION 7.03. Entire Agreement. This Agreement and the other Subject
Documents contain the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof, and supersede all prior agreements,
arrangements and understandings with respect thereto.
SECTION 7.04. Descriptive Headings: References. The descriptive
headings of this Agreement and other Subject Documents are for convenience of
reference only and shall not control or affect the meaning or construction of
any provision hereof or thereof. Article, Section and Exhibit references in this
Agreement are to the referenced Articles and Sections of, and Exhibits to, this
Agreement, unless the context otherwise requires.
SECTION 7.05. Notices. Any notice or other communication which is
required or permitted hereunder or under any other Subject Document shall be in
writing and shall be deemed to have been delivered and received (x) on the day
of (or, if not a business day, the first business day after) its having been
personally delivered or telecopied to the following address or telecopy number,
(y) on the first business day after its having been sent by overnight delivery
service to the following address, or (z) if sent by regular, registered or
certified mail, when actually received at the following address:
If to NHTC (at any time):
c/o Global Health Alternatives, Inc.
193 Middle Street, Suite 201
Portland, Maine 04101
Attention: Robert C. Bruce
Telecopier No. (207) 772-8493
Telephone No. (207) 772-7234
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with a copy to: McLaughlin & Stern, LLP
260 Madison Avenue
New York, N.Y. 10016
Attention: Martin Licht
Telecopier No. (212) 448-0066
Telephone No. (212) 448-1100
If to any Heller Party or (before the Closing) NHTC:
[c/o] Natural Health Trends Corp.
2001 West Sample Road
Pompano Beach, Florida 33064
Attention: Neal R. Heller, Esq.
Telecopier No. (954) 969-9747
Telephone No. (954) 969-9771
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center, 28th Floor
One S.E. 3rd Avenue
Miami, Florida 33131-1704
Attention: Marshall R. Burack, Esq.
Telecopier No. (305) 374-5095
Telephone No. (305) 374-5600
Any party may by notice change the address or telecopier number to which notices
or other communications to it are to be delivered, telecopied or sent.
SECTION 7.06. Governing Law and Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of Florida (other than
the choice of law principles thereof). Any claim, action, suit or other
proceeding initiated by any party hereto against any other party hereto under or
in connection with this Agreement or any other Subject Document and/or the
Transactions shall exclusively be asserted, brought, prosecuted and maintained
in any federal or state court located in Dade or Broward County, Florida, as the
party bringing such action, suit or proceeding shall elect, having jurisdiction
over the subject matter thereof, and each party hereto hereby irrevocably: (i)
submits to the jurisdiction of such courts, (ii) waives any and all rights to
object to the laying of venue in any such court, (iii) waives any and all rights
to claim that any such court may be an inconvenient forum, and (iv) agrees that
service of process on it in any such action, suit or proceeding may be effected
by the means by which notices may be given to it under this Agreement.
SECTION 7.07. Assignment. This Agreement, and the respective rights
and obligations of the parties hereunder, may not be assigned or delegated
otherwise than by operation of law by (x)
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NHTC without the prior written consent of one or more of the Heller Parties, or
(y) any Heller Party without the prior written consent of NHTC; provided,
however, FCNH may assign its rights and obligations hereunder, or issue
additional shares of its common stock, to any third party, provided NHeller is
retained by such party to manage the Schools Business which is being sold
pursuant to this Agreement. Any purported assignment or delegation by any party
hereto in violation of the foregoing shall be void ab initio; provided, however,
that any or all rights of any party to receive the performance of the
obligations of the other parties hereunder (but not any obligations of any party
hereunder) and rights to assert claims against the other parties in respect of
breaches of representations, warranties or covenants may be assigned to any
entity extending credit to such party or any of its affiliates, but any assignee
of such rights shall take such rights subject to any defenses, counterclaims and
rights of set-off to which the non-assigning parties might be entitled under
this Agreement. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
SECTION 7.08. Remedies.
(a) The parties hereto acknowledge that the remedy at law for
any breach of their respective obligations to effect the Purchase and Sale is
and will be insufficient and inadequate and that the parties hereto shall be
entitled to equitable relief, in addition to remedies at law. Each party hereto
hereby waives the defense that there is an adequate remedy at law in the event
of any action to enforce the provisions of this Agreement to effect the Purchase
and Sale. NHTC hereby acknowledges that the Purchased Assets are unique and
cannot be obtained on the open market; and the Heller Parties hereby acknowledge
that 3,167,000 of the Heller Shares and other benefits to be provided to NHTC
hereunder are unique and cannot be obtained on the open market. Without limiting
any remedies that any party hereto may otherwise have hereunder or under
applicable law in the event that any other party hereto refuses to perform its
obligations under this Agreement to consummate the Purchase and Sale, such
parties shall have, in addition to any other remedy at law or in equity, the
right to specific performance.
(b) The Heller Parties hereby acknowledge that any violation
or threatened violation of Section 3.06 will cause irreparable harm to NHTC and
that the remedy at law for any such violation or threatened violation will be
inadequate. The Heller Parties therefore agree that NHTC shall be entitled to
temporary and permanent injunctive relief for any such violation or threatened
violation without the necessity of proving (i) that NHTC will be irreparably
injured thereby, (ii) that the remedy at law for such violation or threatened
violation is inadequate or (iii) actual damages.
SECTION 7.09. Waivers and Amendments. Any waiver of any term or
condition of this Agreement, and any amendment or supplementation of this
Agreement, shall be effective only: (i) if expressed in a writing executed by
NHTC and the Heller Parties, (ii) in the case of an amendment, if authorized and
approved by the respective Boards of Directors of NHTC and FCNH, and (iii) in
the case of an amendment that would (x) change the amount or kind of shares,
securities, cash, property, or rights to be received by NHTC hereunder in
exchange for the Purchased Assets and/or (y) change any other terms and
conditions of the Transactions so as to materially and adversely affect the
shareholders of NHTC (in either case, within the meaning of subsection (6) of
ss.607.1202 (Sale
28
<PAGE>
of Assets Other than in Regular Course of Business) of the Florida Code) if
approved by the shareholders of NHTC (in any manner permitted under the Florida
Code). A waiver of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way affect, limit or waive a
party's rights hereunder at any time to enforce strict compliance thereafter
with every term or condition of this Agreement. No failure or delay by any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
SECTION 7.10. Third Party Rights. Notwithstanding any other provision
of this Agreement, and except as permitted pursuant to Section 7.07 or otherwise
expressly set forth herein or therein, this Agreement and the other Subject
Documents shall not create benefits on behalf of any employee, agent or
representative of any person or entity not party hereto (including, without
limitation, any counsel, accountant, broker, finder, appraiser or investment
banker), and this Agreement and the other Subject Documents shall be effective
only as between the parties hereto, their successors and permitted assigns.
SECTION 7.11. Illegalities. In the event that any provision contained
in this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect, and the remaining provisions of this
Agreement, shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.
SECTION 7.12. Gender and Plural Terms. Words of gender or neuter may be
read as masculine, feminine or neuter, as required by the context. Singular and
plural forms of defined and other terms herein may be read as singular or
plural, as required or permitted by the context.
SECTION 7.13. Release of Registration Rights. The Heller Parties
hereby, effective automatically and forthwith upon the Closing, and release and
discharge all registration rights and preferential registration rights and
granted by NHTC in respect of their shares of NHTC Common Stock, including,
without limitation, those granted under that certain Registration Rights
Agreement, dated as of July 23, 1997, by and among NHTC, GHA and the former
stockholders of GHA listed on Schedule "A" thereto.
SECTION 7.14. Counterparts. This Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective authorized officers as of the
day and year first above written.
29
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NHTC: FCNH:
NATURAL HEALTH TRENDS CORP. FLORIDA COLLEGE OF NATURAL
HEALTH, INC.
By: By:
Name: Name:
Title: Title:
NHeller: EHeller:
NEAL R. HELLER ELIZABETH S. HELLER
30
607.1301 Dissenters' rights; definitions.
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
HISTORY: s. 118, ch. 89-154.
<PAGE>
607.1302 Right of shareholders to dissent.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent under
s. 607.1104, and the shareholders would have been entitled to vote on action
taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his or
her shares;
2. Altering or abolishing the voting rights pertaining to any of his or her
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his or
her shares, when such exchange, cancellation, or reclassification would alter or
abolish the shareholder's voting rights or alter his or her percentage of equity
in the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his or her shares, or making any
of his or her shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of the
shareholder's preferred shares which had theretofore been cumulative;
<PAGE>
6. Reducing the stated dividend preference of any of the shareholder's
preferred shares; or
7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph (1)(e)
has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section does
not apply with respect to a plan of merger or share exchange or a proposed sale
or exchange of property, to the holders of shares of any class or series which,
on the record date fixed to determine the shareholders entitled to vote at the
meeting of shareholders at which such action is to be acted upon or to consent
to any such action without a meeting, were either registered on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
HISTORY: s. 119, ch. 89-154; s. 5, ch. 94-327; s. 31, ch. 97-102.
<PAGE>
607.1320 Procedure for exercise of dissenters' rights.
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.607.1302
is effectuated by written consent without a meeting, the corporation shall
deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for the shareholder's written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his or her shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating the shareholder's name and address, the number, classes, and series of
shares as to which he or she dissents, and a demand for payment of the fair
value of his or her shares. Any shareholder failing to file such election to
dissent within the period set forth shall be bound by the terms of the proposed
corporate action. Any shareholder filing an election to dissent shall deposit
his or her certificates for certificated shares with the corporation
simultaneously with the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election
<PAGE>
of the corporation, the fair value thereof in cash as determined by the board as
of the time of such expiration or completion, but without prejudice otherwise to
any corporate proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court has
been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is not
entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the dissenting
shareholder holds, as of the latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month period
ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his or her shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his or her shares. If the
<PAGE>
corporation fails to institute the proceeding as herein provided, any dissenting
shareholder may do so in the name of the corporation. All dissenting
shareholders (whether or not residents of this state), other than shareholders
who have agreed with the corporation as to the value of their shares, shall be
made parties to the proceeding as an action against their shares. The
corporation shall serve a copy of the initial pleading in such proceeding upon
each dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint and upon each
nonresident dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The jurisdiction of
the court is plenary and exclusive. All shareholders who are proper parties to
the proceeding are entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as is specified in the order of their appointment or an amendment thereof. The
corporation shall pay each dissenting shareholder the amount found to be due him
or her within 10 days after final determination of the proceedings. Upon payment
of the judgment, the dissenting shareholder shall cease to have any interest in
such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding, to whom the corporation has made an offer to pay for the shares, if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed value
thereof or pursuant to payment of the judgment entered therefor, as provided in
this section, may be held and disposed of by such corporation as authorized but
unissued shares of the corporation, except that, in the case of a merger, they
may be held and disposed of as the plan of merger otherwise provides. The shares
of the surviving corporation into which the shares of such dissenting
shareholders would have been converted had they assented to the merger shall
have the status of authorized but unissued shares of the surviving corporation.
HISTORY: s. 120, ch. 89-154; s. 35, ch. 93-281; s. 32, ch. 97-102.
