SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 3, 2000 (March 17, 2000)
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NATURAL HEALTH TRENDS CORP.
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(Exact name of Registrant as specified in its charter)
Florida 0-25238 59-2705336
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(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
380 Lashley Street, P. O.Box 6128, Longmont, Colorado 80502
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 682-4637
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n/a
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(Former name or former address, if changed since last report)
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Item 9. Sales of Equity Securities Pursuant to Regulation S.
Pursuant to the exemption from the registration requirements under
Regulation S promulgated under the Securities Act, the Company issued 1,000
shares of Series J Preferred Stock with a stated value of $1,000 per share to
one "accredited investor." Each share of Series J Preferred Stock is convertible
into shares of Common Stock commencing on the earlier of 180 days from March 3,
2000 or the effective date of the registration statement covering the shares of
Common Stock at a conversion price equal to the lower of the closing bid price
of the Common Stock on the date of issuance or 70% of the average closing bid
price of the Common Stock for the lowest three trading days in the 20 trading
days immediately preceding the date of the notice of conversion. Each share of
Series J Preferred Stock shall automatically be converted into Common Stock on
February 28, 2005. In connection with the issuance of the shares of Series J
Preferred Stock, the Company issued to the investor a warrant to purchase
141,907 shares of Common Stock at an exercise price of $1.41 per share
exerciseable until March 31, 2005.
Financial Statements, Pro Forma Financial Information and Exhibits.
C. Exhibits
Exhibit No. Description
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3.1 Articles of Incorporation
4.1 Securities Purchase Agreement
4.2 Registration Rights Agreement
4.3 Form of Warrant
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 17, 2000
NATURAL HEALTH TRENDS CORP.
(Registrant)
By: /s/ Mark Woodburn
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Mark Woodburn
Chief Financial Officer
EXHIBIT 3.1
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
NATURAL HEALTH TRENDS CORP.
Pursuant to the authority expressly granted and vested in the Board of
Directors (the "Board of Directors" or the "Board") of Natural Health Trends
Corp. (the "Company") by Section 607.1006 of the Florida Business Corporation
Act (the "BCA") and the provisions of the Company's Articles of Incorporation,
as amended, the Board of Directors adopted the following resolution setting
forth the designations, powers, preferences and rights of its Series J
Convertible Preferred Stock (the "Certificate of Designations") on February 29,
2000:
RESOLVED: That the designations, powers, preferences and rights of the
Series J Convertible Preferred Stock be, and they hereby are, as set forth
below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,000 shares of
Preferred Stock, no par value per share, is the Series J Convertible Preferred
Stock (the "Series J Preferred Stock").
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
A. "Buy-In Adjustment Amount" means the amount equal to the excess, if
any, of (i) the Converting Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (ii) the net proceeds (after
brokerage commissions, if any) received by the Converting Holder from the sale
of the Sold Shares. By way of illustration and not in limitation of the
foregoing, if the Converting Holder (as defined in Article IV Paragraph B(6))
purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In (as defined in Article IV
Paragraph B(6)) with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay
to the Converting Holder will be $1,000.
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B. "Closing Bid Price" means the closing bid price of the Common Stock (in
U.S. Dollars) on the Principal Trading Market as reported by the Reporting
Service. If the Closing Bid Price cannot be calculated for such security on the
relevant date on the foregoing basis, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to
holders of a majority of the then outstanding shares of Series J Preferred
Stock, with the costs of such appraisal to be borne by the Company. The manner
of determining the Closing Bid Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to closing bid price must be made hereunder.
C. "Common Stock" means the Company's common stock, par value $.001 per
share.
D. "Conversion Price" means, with respect to any date, the lower of the
Fixed Conversion Price and the Variable Conversion Price, each as in effect as
of such date.
E. "Effective Date" shall mean the date the Registration Statement is
declared effective by the Securities and Exchange Commission.
F. "Fixed Conversion Price" means seventy percent (70%) of the average
Closing Bid Price of the Common Stock on the trading day immediately preceding
the Closing Date, which amount shall be subject to adjustment as provided
herein.
G. "Closing Date" shall mean March 2, 2000.
H. "Junior Securities" means any class or series of capital stock of the
Company hereafter created that, by its terms, ranks junior to the Series J
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
I. "Liquidation Preference" means, with respect to a share of Series J
Preferred Stock, an amount equal to the Stated Value thereof, plus the accrued
and unpaid dividends thereon through the date of final distribution.
J. "Market Price," as of any date, means the average of the Closing Bid
Price (in U.S. Dollars) for the three (3) trading days (which need not be
consecutive) selected by the Holder from the twenty (20) trading days ending on
the trading day immediately preceding the relevant date (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such 5 trading day period). If the Market Price cannot be
calculated as of such date on the foregoing basis, the Market Price shall be the
fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the holder, with the costs
of the appraisal to be borne by the Company. The manner of determining the
Market Price of the Common Stock set forth in the foregoing definition shall
apply with respect to any other security in respect of which a determination as
to market value must be made hereunder.
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K. "Maturity Date" means February 28, 2005.
L. "Pari Passu Securities" means any class or series of capital stock of
the Company hereafter created specifically ranking, by its terms, on parity with
the Series J Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
M. "Principal Trading Market" means The NASDAQ SmallCap Market, or if the
Common Stock is no longer listed on that market, the principal securities
exchange or trading market on which the Common Stock is listed or traded.
N. "Registration Rights Agreement" means that certain Registration Rights
Agreement dated the Closing Date by and among the Company and the other
signatories thereto entered into in connection with the Securities Purchase
Agreement.
O. "Registration Statement" means the Registration Statement(s)
contemplated to be filed by the Company pursuant to the Registration Rights
Agreement for the resale of, among other shares, the Common Stock issuable upon
conversion of the Series J Preferred Stock and any amendments thereto.
P. "Reporting Service" means Bloomberg LP or if that service is not then
reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by the holders of the Series J
Preferred Stock and reasonably acceptable to the Company.
Q. "Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated the Closing Date, by and among the Company and the other
signatories thereto.
R. "Senior Securities" shall mean the Series A through Series I Preferred
Stock, to the extent outstanding on the Closing Date that, by its terms, is
Senior to the Series J Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.
S. "Stated Value" for the Series J Preferred Stock shall be $1,000.00 per
share.
T. "Transaction Agreements" means the Securities Purchase Agreement,
Registration Rights Agreement, and all ancillary documents entered into between
the parties to those agreements.
U. "Variable Conversion Price" means, as of any date of determination, the
amount equal to seventy percent (70%) of the Market Price on the Conversion
Date.
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III. DIVIDENDS
A. Generally. The holders of the Series J Preferred Stock shall be
entitled to receive a 10% cumulative dividend payable on the date of each
conversion (the "Dividend Payment Date"). The dividend shall be payable in
Common Stock as provided in Section III(B). Such dividends shall be payable in
preference to dividends on any Common Stock or stock of any class ranking, as to
dividend rights, junior to the Series J Preferred Stock, and shall be junior as
to payment of dividends to the Senior Securities. Dividends shall be fully
cumulative and shall accrue (whether or not declared and whether or not there
shall be funds legally available for the payment of dividends), without
interest, and shall be payable on the Dividend Payment Date unless such payment
would be in violation of the BCA. No interest shall accrue on any unpaid
dividends on the Series J Preferred Stock.
B. Dividends Paid In Common Stock. The number of shares of Common Stock to
be received shall be determined by dividing the dollar amount of the dividend by
the Conversion Price on the Dividend Payment Date. Said Common Stock shall be
delivered to the holder, or per holder's instructions, at the same time as the
Conversion Certificates pursuant to Paragraph B(1) of Article IV.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each holder of shares
of Series J Preferred Stock may, at any time and from time to time after the
earlier of (i) one hundred eighty (180) days after the Closing Date or (ii) the
Effective Date, convert (an "Optional Conversion") each of its shares of Series
J Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock determined in accordance with the following formula:
Stated Value of Shares to Be Converted
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Conversion Price
B. Mechanics of Conversion. Conversion shall be effectuated by faxing a
Notice of Conversion in the form attached hereto as Exhibit A ("Notice of
Conversion") to the Company as provided in this Paragraph. The Notice of
Conversion shall be executed by the holder of one or more shares of Series J
Preferred Stock and shall evidence such holder's intention to convert all or a
portion of such shares. The date of conversion (the "Conversion Date") shall be
deemed to be the date (based on Eastern time) on which the holder faxes or
otherwise delivers a conversion notice to the Company so that it is received by
the Company on or before such specified date, provided that, the holder shall
deliver to the Company the certificate or certificates representing the shares
being converted (the "Conversion Certificates") no later than 5 business days
thereafter.
1. Delivery of Common Stock Upon Conversion. Conversion Certificates
will be delivered to the holder at the address specified in the Notice of
Conversion (which may be the holder's address for notices as contemplated
by the Securities Purchase Agreement
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or a different address), via express courier, by electronic transfer or
otherwise, within 4 business days if the address for delivery is in the
United States and within 6 business days if the address for delivery is
outside the United States (such fourth business day or sixth business day,
as the case may be, a "Delivery Date") after the later of (i) the date on
which the Notice of Conversion is delivered to the Company as contemplated
in this Paragraph or the Maturity Date, or (ii) the date on which the
Conversion Certificates are delivered to the Company.
2. Taxes. The Company shall pay any and all taxes which may be
imposed upon the Company with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series J Preferred Stock
other than transfer taxes due upon conversion, if such holder has
transferred to another party the Series J Preferred Stock or the right to
receive Common Stock upon the holder's conversion thereof or any or income
taxes due on the part of the holder. The Company shall have the right to
withhold any taxes as required by the United States federal or state tax
laws.
3. No Fractional Shares. If any conversion of Series J Preferred
Stock would result in the issuance of a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series J Preferred Stock
shall be rounded up or down to the nearest whole share, it being
understood that .5 of one share shall be rounded up to the next highest
share.
4. Conversion Disputes. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with Paragraph A of Article
IV above. If such dispute involves the calculation of the Conversion
Price, the Company shall first discuss such discrepancy with the
Converting Holder. If the Company and the Converting Holder are unable to
agree upon the Conversion Price calculation, the Company shall promptly
submit the disputed calculations to the Company's outside auditors. The
auditors, at the expense of the party in error, shall audit the
calculations and notify the Company and the holder of the results as soon
as practicable following the date it receives the disputed calculations.
The auditor's calculation shall be deemed conclusive, absent manifest
error. The Company shall then issue the appropriate number of shares of
Common Stock in accordance with Paragraph A of Article IV above.
5. Delay in Delivering Conversion Certificates. The Company
understands that a delay in the delivery of the Conversion Certificates
beyond the Delivery Date could result in economic loss to a holder. As
compensation to a holder for such loss, the Company agrees to pay late
payments to such holder for late delivery of Conversion Certificates in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond three (3) business days
after the Delivery Date):
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6.
Late Payment For Each $10,000 of Liquidation
No. Business Days Late Preference or Dividend Amount Being Converted
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1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Paragraph in
immediately available funds upon demand. For purposes of this Paragraph
B(5) of Article IV, in connection with a Automatic Conversion (as defined
below), the term "Delivery Date" shall refer to the earlier of (i) the
Delivery Date determined in relation to a Notice of Conversion actually
submitted by the holder to the Company or (ii) the fourth or sixth
business date, as the case may be, after written notice from the holder
that the delivery of shares to the holder in connection with a Automatic
Conversion has not been accomplished. The Company shall pay any payments
incurred under this Paragraph in immediately available funds upon demand.
Nothing herein shall limit the holder's right to pursue actual damages for
the Company's failure to issue and deliver the Conversion Certificates to
the holder. Furthermore, in addition to any other remedies which may be
available to a holder, in the event that the Company fails for any reason
to effect delivery of such Conversion Certificates within three (3)
business days after the Delivery Date, the Holder will be entitled to
revoke the relevant Notice of Conversion by delivering a notice to such
effect to the Company whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to delivery of
such Notice of Conversion.
7. Alternative Remedy For Buy-In. If, by the relevant Delivery Date,
the Company fails for any reason to deliver the Conversion Certificates
and after such Delivery Date, the holder of the Preferred Stock being
converted (a "Converting Holder") purchases, in an arm's-length open
market transaction or otherwise, shares of Common Stock (the "Covering
Shares") in order to make delivery in satisfaction of a sale of Common
Stock by the Converting Holder (the "Sold Shares"), which delivery such
Converting Holder anticipated to make using the shares to be issued upon
such conversion (a "Buy-In"), the Converting Holder shall have the right,
to require the Company to pay to the Converting Holder, in lieu and
instead of the amounts due under Paragraph B(5) of Article IV hereof (but
in addition to all other amounts contemplated in other provisions of the
Transaction
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Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount. The Company shall pay the Buy-In Adjustment Amount to
the Company in immediately available funds immediately upon demand by the
Converting Holder.
8. DWAC Certificate Delivery. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion,
provided the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, upon
request of a Converting Holder and his/her compliance with the provisions
contained in this paragraph, so long as the certificates therefor do not
bear a legend and the Converting Holder thereof is not obligated to return
such certificate for the placement of a legend thereon, the Company shall
use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Converting
Holder by crediting the account of Converting Holder's prime broker with
DTC through its Deposit Withdrawal Agent Commission system.
9. Conversion Default. If, at any time:
a. the Company challenges, disputes or denies the right of a
holder of Series J Preferred Stock to effect a conversion of the
Series J Preferred Stock into Common Stock or otherwise dishonors or
rejects any Notice of Conversion delivered in accordance with the
terms of this Agreement or this Certificate of Designations or any
exercise of any Warrant in accordance with its terms ("Warrant
Exercise"), or
b. any third party who is not and has never been an affiliate
of such holder commences any lawsuit or proceeding or otherwise
asserts any claim before any court or public or governmental
authority, which lawsuit, proceeding or claim seeks to challenge,
deny, enjoin, limit, modify, delay or dispute the right of such
holder to effect the conversion of the Series J Preferred Stock into
Common Stock, and the Company refuses to honor any such Notice of
Conversion or Warrant Exercise,
then such holder shall have the right, by written notice to the Company,
to require the Company to redeem each share of Series J Preferred Stock
for which a Notice of Conversion has been refused pursuant to Paragraphs
B(8)(a) or (b) above for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VI Paragraph B), pursuant to the
provisions of Article VI hereof, subject to the Company's right to cure in
Paragraph G of Article VI hereof.
10. Conversion in Bankruptcy. The holder of any Series J Preferred
Stock shall be entitled to exercise its conversion privilege with respect
to the Series J Preferred Stock notwithstanding the commencement of any
case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code"). In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby
waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege.
The Company hereby
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waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of the conversion of the Series J
Preferred Stock. The Company agrees, without cost or expense to such
holder, to take or to consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss.362.
C. Automatic Conversion Upon Maturity. Any shares of Series J Preferred
Stock not previously converted or redeemed as of the Maturity Date, shall be
deemed to be automatically converted (an "Automatic Conversion"), without
further action of any kind (including, but not necessarily limited to, the
giving of a Notice of Conversion) by the holder, as of the Maturity Date at the
Conversion Price applicable on the Maturity Date.
D. Limitations on Conversions. The conversion of shares of Series J
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
1. Cap Regulations. If the Company is limited in the number of
shares of Common Stock it may issue by virtue of (i) the number of
authorized shares or (ii) the applicable rules and regulations of its
Principal Trading Market, including, but not necessarily limited to,
NASDAQ Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable
(collectively, the "Cap Regulations"), (i) the Company will take all steps
reasonably necessary to be in a position to issue shares of Common Stock
on conversion of the Series J Preferred Stock without violating the Cap
Regulations. If at any time after the Company's 2000 Annual Meeting, the
then issuable number of shares of Common Stock upon conversion of all of
the then outstanding Series J Preferred Stock pursuant to the Cap
Regulations (the "Cap Amount") is less than the number of shares of Common
Stock which would then be otherwise issuable upon conversion of all of the
then outstanding shares of Series J Preferred Stock without regard to such
Cap Regulations (a "Trading Market Trigger Event"), the Company shall
immediately notify the holders of Series J Preferred Stock of such
occurrence and shall take immediate action (including, if necessary,
seeking the approval of its shareholders to authorize the listing or
issuance of the full number of shares of Common Stock which would be
issuable upon the conversion of the then outstanding shares of Series J
Preferred Stock but for the Cap Amount) to eliminate any prohibitions
under applicable law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Company or any of its securities on the Company's
ability to list or issue shares of Common Stock in excess of the Cap
Amount ("Trading Market Prohibitions"). In this event, the holder of a
share of Series J Preferred Stock which can not be converted as result of
the Cap Regulations after all such Series J Preferred Stock which can be
converted under the Cap Amount have been converted (each such share, an
"Unconverted Share") shall have the option, exercisable in such holder's
sole and absolute discretion, to elect either of the following remedies:
a. (x) if permitted by the Cap Regulations, require the
Company to issue shares of Common Stock in accordance with such
holder's notice of conversion at a
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conversion purchase price equal to the average of the closing price
per share of Common Stock for any five (5) consecutive trading days
(subject to certain equitable adjustments for certain events
occurring during such period) during the sixty (60) trading days
immediately preceding the date of notice of conversion; or
b. require the Company to redeem such Unconverted Share for an
amount (the "Cap Limitation Redemption Amount"), payable in cash,
equal to:
V x M
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CP
where:
"V" means the liquidation preference of the Unconverted Share plus
any accrued but unpaid dividends thereon;
"CP" means the conversion price in effect on the date of redemption
(the "Redemption Date") specified in the notice from the holder of
the Unconverted Share electing this remedy; and
"M" means the highest closing price per share of the Common Stock
during the period beginning on the Redemption Date and ending on the
date of payment of the Cap Limitation Redemption Amount.
A holder of more than one Unconverted Share may elect one of the above
remedies with respect to some of such Unconverted Shares and the other
remedy with respect to other Unconverted Shares. The Cap Limitation
Redemption Amount payable under the provisions of this Article IV
Paragraph D shall be payable within thirty (30) days of the Redemption
Date.
2. Percentage Limitation. Notwithstanding any other provision
hereof, or any of the Transaction Agreements, in no event (except (i) with
respect to an Automatic Conversion, if any, of the shares of Series J
Preferred Stock as described in Article IV Paragraph C hereof, (ii) as
specifically provided in this Certificate of Designations as an exception
to this provision, or (iii) while there is outstanding a tender offer for
any or all of the shares of the Company's Common Stock) shall the holder
be entitled to convert any share of this Series J Preferred Stock, or
shall the Company have the obligation to convert such share (and the
Company shall not have the right to pay dividends on shares of Series J
Preferred Stock in shares of Common Stock or require a Automatic
Conversion), to the extent that, after such conversion or issuance of
stock in payment of dividends, the sum of (a) the number of shares of
Common Stock beneficially owned by the holder and its affiliates, and (b)
the number of shares of Common Stock issuable upon the conversion of the
shares of Series J Preferred Stock with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
holder and its affiliates of more
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than 4.99% of the outstanding shares of Common Stock (after taking into
account the shares to be issued to the holder upon such conversion). For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). If the
holder transfers or assigns any shares of the Series J Preferred Stock to
a party who or which would not be considered such an affiliate, such
assignment shall be made subject to the transferee's or assignee's
specific agreement to be bound by the provisions of this Paragraph D(2) of
Article IV as if such transferee or assignee were the original holder
hereof. Nothing herein shall preclude the holder from disposing of a
sufficient number of other shares of Common Stock beneficially owned by
the holder so as to thereafter permit the continued conversion of the
shares of Series J Preferred Stock.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series J
Preferred Stock, the Company shall reserve out of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series J Preferred
Stock such number of shares equal to 150% of the number of shares which would be
issuable if all of the authorized shares of Series J Preferred Stock were
converted in their entirety on the Closing Date based on the Conversion Price in
effect on that date and thereafter the number of authorized but unissued shares
of Common Stock so reserved (the "Reserved Amount") shall not be decreased, but
may be increased pursuant to Paragraph B of this Article V, and shall at all
times be sufficient to provide for the conversion of the Series J Preferred
Stock outstanding at the then current Conversion Price thereof. The Reserved
Amount shall be allocated to the holders of Series J Preferred Stock as provided
in Article X Paragraph E.
B. Increases to Reserved Amount. If the Reserved Amount for any 10
consecutive trading days (the last of such 10 trading days being the
"Authorization Trigger Date") shall be less than 110% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series J
Preferred Stock, the Company shall immediately notify the holders of Series J
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 150% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series J Preferred Stock. In the event the Company fails to so
increase the Reserved Amount within 90 days after an Authorization Trigger Date
(such event being the "Reserved Amount Trigger Event"), each holder of Series J
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Article VI Paragraph C) to the Company, to require the Company to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VI Paragraph B), a portion of the holder's Series J Preferred
Stock such that, after giving effect to such purchase, the holder's allocated
portion of the Reserved Amount exceeds 110% of the total number of shares of
Common Stock issuable to such holder upon conversion of its Series J Preferred
Stock. If the Company fails to redeem any of such shares within 5 business days
after
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its receipt of such Redemption Notice, then such holder shall be entitled to the
remedies provided in Article VI Paragraph C.
VI. REDEMPTION
A. Redemption by Holder. In the event that any of the following occur
(individually, a "Redemption Event"):
1. Cap Regulations. The Company's inability to issue sufficient
shares of Common Stock upon conversion of Unconverted Shares in accordance
with Paragraph D(1) of Article IV hereof.
2. Conversion Default. The Company's inability or refusal to
delivery Conversion Certificates under Paragraph B(8) of Article IV
hereof.
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series J Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a notice requesting
the redemption all or part of such holders shares of Series J Preferred Stock (a
"Redemption Notice") to the Company while such Redemption Event continues, to
require the Company to purchase for cash any or all of the then outstanding
shares of Series J Preferred Stock held by such holder for an amount per share
equal to the Redemption Amount (as defined in Paragraph B below) in effect at
the time of the redemption hereunder. Upon the Company's receipt of any
Redemption Notice hereunder, the Company shall immediately (and in any event
within 5 business days following such receipt) deliver a written notice (a
"Redemption Announcement") to all holders of Series J Preferred Stock stating
the date upon which the Company received such Redemption Notice and the amount
of Series J Preferred Stock covered thereby.
B. Definition of Redemption Amount. The "Redemption Amount" with respect
to a share of Series J Preferred Stock means an amount equal to (x) 145% of the
Liquidation Preference on the date of the Redemption Notice, plus (y) all
accrued but unpaid dividends through and including the date on which the
Redemption Amount is paid.
C. Redemption Defaults. If the Company fails to pay any holder the
Redemption Amount with respect to any share of Series J Preferred Stock within
60 days after the latter of (i) its receipt of Redemption Notice, and (ii) the
date of its Redemption Announcement, then the holder of Series J Preferred Stock
delivering such Redemption Notice shall be entitled to interest on the
Redemption Amount at a per annum rate equal to the lower of eighteen percent
(18%) and the highest interest rate permitted by applicable law from the date on
which the Company receives the Redemption Notice until the date of payment of
the Redemption Amount hereunder. In the event the Company is not able to redeem
all of the shares of Series J Preferred Stock subject to Redemption Notices
delivered prior to the date upon which such redemption is to be effected, the
Company shall redeem shares of Series J Preferred Stock from each holder pro
rata, based on the total number of shares of Series J Preferred Stock
outstanding at the time of redemption included by
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<PAGE>
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series J Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.
D. Company Redemption Right. The Company shall have the right tor redeem
all or any part of the then outstanding Series J Preferred Stock as to which the
holder has not previously submitted a Conversion Notice, for the Company
Redemption Amount (as defined below) by giving written notice (a "Company
Redemption Notice") of such redemption (a "Company Redemption") to the holders
of such shares (and if there be more than one, pro rata among them). The date on
which the Company pays the Company Redemption Amount to the holder, which shall
be not earlier than five (5) days and not later than ten (10) days after the
Company Redemption Notice is given to the holder, is the "Company Redemption
Date." The "Company Redemption Amount" shall be equal to (i) if the Company
Redemption Date is ninety (90) days or less after the Closing Date, 110% of (a)
the Liquidation Preference on the date of the Company Redemption Notice plus (b)
accrued dividends thereon through and including the Company Redemption Date and
(ii) if the Company Redemption Date is more than ninety (90) days after the
Closing Date, 125% of (a) the Liquidation Preference on the date of the Company
Redemption Notice plus (b) accrued dividends thereon through and including the
Company Redemption Date. After the Company gives a Company Redemption Notice,
the holder will have the right to convert, in the manner herein provided (except
that such conversion shall be an exception to the provision of Article IV
Paragraph D(2) hereof), any or all of the shares subject to redemption pursuant
to such Company Redemption Notice at any time until the Company actually pays
the Company Redemption Amount, and such conversion shall take precedence over
the Company Redemption Notice. If the Company does not timely pay the Company
Redemption Amount, the holder will have the right, exercisable by written notice
to the Company at any time prior to the holder's receipt of the Company
Redemption Amount, to (x) nullify the Company Redemption Notice (in which event
the Company Redemption Notice shall be of no further force and effect) or take
action to enforce the Company's performance of the Company Redemption, and (y)
cancel the Company's right to effect any future Company Redemption under this
paragraph.
VII. LIQUIDATION PREFERENCE
A. Liquidation Event. If the Company shall commence a voluntary case under
the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company or
of any substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the Company
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order
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<PAGE>
shall be unstayed and in effect for a period of 60 consecutive days and, on
account of any such event, the Company shall liquidate, dissolve or wind up, or
if the Company shall otherwise liquidate, dissolve or wind up, including, but
not limited to, the sale or transfer of all or substantially all of the
Company's assets in one transaction or in a series of related transactions (a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Company (other than Senior Securities and Pari Passu
Securities) upon liquidation, dissolution or winding up unless prior thereto the
holders of shares of Series J Preferred Stock shall have received the
Liquidation Preference with respect to each share. If, upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series J Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Series J Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
B. Exclusions. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other entity nor the
sale or transfer by the Company of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
VIII. ADJUSTMENTS TO THE CONVERSION PRICE
A. Sale. The Conversion Price shall be subject to adjustment from time to
time as follows: If, for as long as any shares of Series J Preferred Stock
remain outstanding, the Company enters into a merger (other than where the
Company is the surviving entity) or consolidation with another corporation or
other entity or a sale or transfer of all or substantially all of the assets of
the Company to another person (collectively, a "Sale"), the Company will
require, in the agreements reflecting such transaction, that the surviving
entity expressly assume the obligations of the Company hereunder.
Notwithstanding the foregoing, if the Company enters into a Sale and the holders
of the Common Stock are entitled to receive stock, securities or property in
respect of or in exchange for Common Stock, then as a condition of such Sale,
the Company and any such successor, purchaser or transferee will agree that the
Series J Preferred Stock may thereafter be converted on the terms and subject to
the conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which then outstanding
shares of Series J Preferred Stock might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any such proposed
Sale, the holder hereof shall have the right to convert by delivering a Notice
of Conversion to the Company within 15 days of receipt of notice of such Sale
from the Company.
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<PAGE>
B. Spin Off. The Company agrees that for as long as shares of Series J
Preferred Stock remain outstanding, the Company will not, without the consent of
the holder, spin off or otherwise divest itself of a part of its business or
operations or dispose all or of a part of its assets in a transaction (the "Spin
Off") in which the Company does not receive just compensation for such business,
operations or assets, but causes securities of another entity (the "Spin Off
Securities") to be issued to security holders of the Company. If, for any
reason, prior to the Conversion Date or the Redemption Payment Date, the
Company, with the consent of the holder, consummates a Spin Off, then the
Company shall cause (i) to be reserved Spin Off Securities equal to the number
thereof which would have been issued to the holder had all of the holder's
shares of Series J Preferred Stock outstanding on the record date (the "Record
Date") for determining the amount and number of Spin Off Securities to be issued
to security holders of the Company (the "Outstanding Series J Preferred Stock")
been converted as of the close of business on the trading day immediately before
the Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the
holder on the conversion of all or any of the Outstanding Series J Stock, such
amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (a) the numerator is the principal amount
of the Outstanding Series J Preferred Stock then being converted, and (b) the
denominator is the principal amount of the Outstanding Series J Preferred Stock.
C. Stock Splits, etc. If, at any time while any shares of Series J
Preferred Stock remain outstanding, the Company effectuates a stock split or
reverse stock split of its Common Stock or issues a dividend on its Common Stock
consisting of shares of Common Stock, the Fixed Conversion Price shall be
equitably adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such split, the Fixed Conversion
Price shall be deemed to be one-half of what it had been calculated to be
immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse
split of its Common Stock, thereafter, with respect to any conversion for which
the Company issues the shares after the record date of such reverse split, the
Fixed Conversion Price shall be deemed to be ten times what it had been
calculated to be immediately prior to such split; and (iii) if the Company
declares a stock dividend of one share of Common Stock for every 10 shares
outstanding, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such dividend, the Fixed Conversion
Price shall be deemed to be the amount of such Fixed Conversion Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares (10 in the example) for which a dividend share
will be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11 in the example).
D. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Fixed Conversion Price pursuant to this Article VIII, the
Company, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to each holder of Series J Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of any holder of Series J Preferred Stock, furnish
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Fixed Conversion Price at the
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<PAGE>
time in effect and (iii) the number of shares of Common Stock and the amount, if
any, of other securities or property which at the time would be received upon
conversion of a share of Series X Preferred Stock.
IX. VOTING RIGHTS
A. Generally. The holders of the Series J Preferred Stock have no voting
power whatsoever, except as otherwise provided by the BCA.
B. Class Voting. To the extent that under the BCA the vote of the holders
of the Series J Preferred Stock, voting separately as a class or series, as
applicable, is required to authorize a given action of the Company, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series J Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series J Preferred Stock
(except as otherwise may be required under the BCA, a "Required Interest") shall
constitute the approval of such action by the class. To the extent that under
the BCA holders of the Series J Preferred Stock are entitled to vote on a matter
with holders of Common Stock, voting together as one class, each share of Series
J Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible (subject to the
limitations contained in Article IV Paragraph D) using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated.
X. MISCELLANEOUS
A. Right of First Refusal, Special Dilution Protection.
1. The Company covenants and agrees that, if during the period from
the date hereof through and including the date which is 240 days after the
Effective Date, the Company offers to enter into any transaction other
than an underwritten public offering (a "New Transaction") for the sale
of New Common Stock for cash or cash equivalents, the Company shall notify
the Holder in writing of all of the terms of such offer (a "New
Transaction Offer"). The Holder shall have the right (the "Right of First
Refusal"), exercisable by written notice given to the Company by the close
of business on the third business day after the Holder's receipt of the
New Transaction Offer (the "Right of First Refusal Expiration Date"), to
participate in all or any part of the New Transaction Offer on the terms
so specified.
2. If, and only if, the Holder does not exercise the Right of First
Refusal in full, the Company may consummate the remaining portion of the
New Transaction with any New Investor on the terms specified in the New
Transaction Offer within 20 days of the Right of First Refusal Expiration
Date.
3. If the terms of the New Transaction to be consummated with such
other party differ in a material respect from the terms specified in the
New Transaction Offer so that the
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<PAGE>
terms are more beneficial in any respect to the New Investor, the Company
shall give the Holder a New Transaction Offer relating to the terms of the
New Transaction, as so changed, and the Holder's Right of First Refusal
and the preceding terms of this Paragraph B of Article X shall apply with
respect to such changed terms.
4. If there is more than one Buyer signatory to this Agreement, the
preceding provisions of this Paragraph B of Article X shall apply pro rata
among them (based on their relative Holder's Allocable Shares), except
that, to the extent any such Holder does not exercise its Right of First
Refusal in full (a "Declining Holder"), the remaining Holder or Holders
who or which have exercised their own Right of First Refusal in full,
shall have the right (pro rata among them based on their relative Holder's
Allocable Shares, if more than one) to exercise all or a portion of such
Declining Holder's unexercised Right of Refusal. Nothing in this Paragraph
B of Article X shall be deemed to permit a transaction not otherwise
permitted by Paragraph A of Article X, as modified by the provisions of
Subparagraphs (i) and (ii).
5. In the event the New Transaction is consummated for the sale of
New Common Stock or the issuance of warrants or other rights to purchase
New Common Stock with such third party at any time prior to the expiration
of 240 days after the Effective Date on terms providing for either a sale
price equal to or computed based on, or a determination of a conversion
price based on, a lower percentage of the then current Market Price and/or
for a greater number of shares per dollar paid or invested by such third
party to or in the Company, shall be modified to (i) reduce the relevant
Conversion Price or Fixed Price, in each instance to be equal to that
provided in the New Transaction as so consummated .
B. Rank. The Series J Preferred Stock shall rank (i) prior to the
Company's Common Stock; (ii) prior to any Junior Securities; (iii) junior to any
Senior Securities; and (iv) pari passu with any Pari Passu Securities; provided,
however, that no additional Senior or Pari Passu Securities shall be created
without the written consent of a Required Interest.
C. Cancellation of Series J Preferred Stock. If any shares of Series J
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Company as Series J Preferred Stock.
D. Lost or Stolen Certificates. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Series J Preferred
Stock certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Company, or (z) in the case of mutilation, upon surrender and cancellation of
the Series J Preferred Stock certificate(s), the Company shall execute and
deliver new Series J Preferred Stock certificate(s) of like tenor and date.
However, the Company shall not be obligated to reissue such lost or stolen
Series J Preferred Stock certificate(s) if the holder contemporaneously requests
the Company to convert such Series J Preferred Stock.
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<PAGE>
E. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount
and Reserved Amount shall be allocated pro rata among the holders of Series J
Preferred Stock based on the number of shares of Series J Preferred Stock issued
to each holder. Each increase to the Cap Amount and the Reserved Amount shall be
allocated pro rata among the holders of Series J Preferred Stock based on the
number of shares of Series J Preferred Stock held by each holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series J Preferred
Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series J Preferred Stock shall be allocated to the remaining holders of
shares of Series J Preferred Stock, pro rata based on the number of shares of
Series J Preferred Stock then held by such holders.
F. Payment of Cash; Defaults. Whenever the Company is required to make any
cash payment to a holder under this Certificate of Designations (upon redemption
or otherwise), such cash payment shall be made to the holder within 5 business
days after delivery by such holder of a notice specifying that the holder elects
to receive such payment in cash and the method (e.g., by check, wire transfer)
in which such payment should be made. If such payment is not delivered within
such 5 business day period, such holder shall thereafter be entitled to interest
on the unpaid amount at a per annum rate equal to the lower of 15% and the
highest interest rate permitted by applicable law until such amount is paid in
full to the holder.
G. Status as Stockholder. Upon submission of a Notice of Conversion by a
holder of Series J Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series J Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the Company
to comply with the terms of this Certificate of Designations.
These Articles of Amendment of Articles of Incorporation were adopted by
the Board of Directors without shareholder action and shareholder action was not
required.
Balance of this page left blank intentionally.
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<PAGE>
NATURAL HEALTH TRENDS CORP.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
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<PAGE>
NATURAL HEALTH TRENDS CORP. EXHIBIT A
Notice of Conversion
(To be Executed by the Registered Holder
in order to Convert the Series J Preferred Stock)
TO: NATURAL HEALTH TRENDS CORP. VIA TELECOPIER TO:
380 Lashley Street
Longmont, CO 80501
Attn: Mark Woodburn
FROM: ("Holder")
----------------------------------------------------------------
DATE:
-----------------------------------------------------------------
RE: Conversion of shares (the "Converted Shares") of the
Series J Convertible Preferred Stock ("Series J Stock") of NATURAL HEALTH
TRENDS CORP. (the "Company") into shares (the
"Conversion Shares") of Common Stock (defined below)
CONVERSION DATE:
---------------------------------------------
The captioned Holder hereby gives notice to the Company, pursuant to the
Certificate of Designations of Series J Convertible Preferred Stock, as amended,
of NATURAL HEALTH TRENDS CORP. (the "Certificate of Designations"), that the
Holder elects to convert the Converted Shares into fully paid and non-assessable
shares of Common Stock, $.001 par value (the "Common Stock"), of the Company as
of the Conversion Date specified above. Said conversion shall be based on the
following Conversion Price (the lower of the two alternatives is checked):
|_| $ , representing the Fixed Conversion Price (as
defined in the Certificate of Designations)
|_| $ , representing the Variable Conversion Price (as
defined in the Certificate of Designations)
A schedule of the closing bid prices of the Common Stock for the twenty trading
days prior to the Conversion Date, as reported by Principal Trading Market (as
defined in the Certificate of Designations), is attached for your reference in
determining the Variable Conversion Price.
<PAGE>
Based on this Conversion Price, the number of Conversion Shares indicated above
should be issued in the following name(s):
Name and Record Address Conversion Shares
------------------------------------------- -----------------
------------------------------------------- -----------------
------------------------------------------- -----------------
As contemplated by the Certificate of Designations and the Securities
Purchase Agreement, dated March , 2000 (the "Securities Purchase Agreement"),
to which the Company and the Holder are parties, this Notice of Conversion is
being sent by facsimile to the telecopier number and officer indicated above,
with a copy to the Company's counsel.
The Holder has previously surrendered or will surrender (or cause to be
surrendered) the certificate(s) for the Converted Shares, duly endorsed, to the
Company at the address indicated above by express courier within 5 business days
after delivery or facsimile transmission of this Notice of Conversion.
The certificates representing the Conversion Shares (together with
certificate(s) representing the shares of Series J Preferred Stock not converted
hereby) should be transmitted by the Company to the Holder via express courier
or by electronic transfer within the time contemplated by the Certificate of
Designations after receipt of this Notice of Conversion (by facsimile
transmission or otherwise) and the certificate(s) representing the Converted
Shares to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
As contemplated by Section Article III of the Certificate of
Designations, the Company should also pay all unpaid dividends on the Converted
Shares by check payable to the Holder (unless such dividends are being paid in
Common Stock as contemplated by said section, in which event such shares should
be issued in the name of the Holder) delivered in the same manner as, and
together with, the Conversion Shares.
---------------------------------------
(Print name of Holder)
By:
------------------------------------
(Signature of Authorized Person)
---------------------------------------
(Printed Name and Title)
-2-
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below (this "Agreement"), is entered into by and between NATURAL HEALTH
TRENDS CORP., a Florida corporation, with headquarters located at 380 Lashley
Street, Longmont, CO 80501 (the "Company"), and each entity named on a signature
page hereto (each, a "Buyer") (each agreement with a Buyer being deemed a
separate and independent agreement between the Company and such Buyer, except
that each Buyer acknowledges and consents to the rights granted to each other
Buyer under such agreement and the Transaction Agreements, as defined below,
referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Regulation S ("Regulation S") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section
4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of Series J Convertible Preferred Stock,
$.001par value, and having a liquidation preference of $1,000 per share, of the
Company (the "Convertible Preferred Stock") which will be convertible into
shares of Common Stock, $.001 par value per share of the Company (the "Common
Stock"), upon the terms and subject to the conditions of such Convertible
Preferred Stock, together with the Warrants (as defined below) exercisable for
the purchase of shares of Common Stock (the "Warrant Shares"), and subject to
acceptance of this Agreement by the Company; and
WHEREAS, the Convertible Preferred Stock and the Shares (as those terms
are defined below) have not been registered under the 1933 Act and may not be
offered or sold in the United States or to U.S. Persons, other than distributors
(as such terms are defined in Regulation S), unless the Convertible Preferred
Stock or the Shares, as the case may be, are registered under the 1933 Act, or
an exemption or safe harbor from the registration provisions of the 1933 Act is
available;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions.
(i) The undersigned hereby agrees to purchase from the Company Convertible
Preferred Stock having a liquidation preference in the amount set forth on the
Buyer's signature page
1
<PAGE>
of this Agreement (the "Preferred Stock"), out of a total offering of $1,000,000
of such Convertible Preferred Stock, and having the terms and conditions set
forth in the Statement of Designations of the Series J Convertible Preferred
Stock of the Company attached hereto as Annex I (the "Certificate of
Designations").
(ii) The purchase price to be paid by the Buyer shall be equal to the
amount set forth on the Buyer's signature page of this Agreement, and shall be
payable in United States Dollars.
b. Certain Definitions. As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
(i) "Securities" means the Preferred Stock, the Warrants and the Common
Stock issuable upon conversion of the Preferred Stock or the exercise of the
Warrants.
(ii) "Purchase Price" means the purchase price for the Preferred Stock.
(iii) "Closing Date" means the date of the closing of the purchase and
sale of the Preferred Stock, as provided herein.
(iv) "Buyer's Allocable Share" means the fraction of which the numerator
is the liquidation preference of the Buyer's Preferred Stock specified on the
Buyer's signature page of this Agreement and the denominator is $1,000,000.
(v) "Effective Date" means the effective date of the Registration
Statement covering the Registrable Securities (as those terms are defined in the
Registration Rights Agreement defined below).
(vi) "Converted Shares" means the shares of Common Stock issuable upon
conversion of the Preferred Stock.
(vii) "Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
(viii) "Shares" means the shares of Common Stock representing any or all
of the Converted Shares and the Warrant Shares.
(ix) As used herein, the term "Market Price of the Common Stock" means the
average closing bid price of the Common Stock for the three (3) trading days
(which need not be consecutive) during the period of the twenty (20) trading
days ending on the trading day immediately before the date indicated in the
relevant provision hereof (unless a different relevant period is specified in
the relevant provision) for which the closing bid price of the Common Stock (as
reported by Bloomberg, LP or, if not so reported, as reported by the securities
exchange or automated quotation system on which the Common Stock is listed or on
the over-the-counter market) were the lowest.
2
<PAGE>
(x) "Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
(xi) "Affiliate" means, with respect to a specific Person referred to in
the relevant provision, another Person who or which controls or is controlled by
or is under common control with such specified Person.
(xii) "Transaction Agreements" means the Securities Purchase Agreement,
the Registration Rights Agreement (as defined below), the Certificate of
Designations, the Warrants, and the Joint Escrow Instructions (as defined
below).
c. Form of Payment; Delivery of Certificates.
(i) The Buyer shall pay the Purchase Price for the Preferred Stock by
delivering immediately available good funds in United States Dollars to the
escrow agent (the "Escrow Agent") identified in the Joint Escrow Instructions
attached hereto as Annex II (the "Joint Escrow Instructions") on the date prior
to the Closing Date.
(ii) No later than the Closing Date, but in any event promptly following
payment by the Buyer to the Escrow Agent of the Purchase Price, the Company
shall deliver one or more certificates representing the Preferred Stock and, if
relevant to the transactions to be consummated on that Closing Date, the
Warrants to be issued hereunder, each duly executed on behalf of the Company and
issued in the name of the Buyer (collectively, the "Certificates") to the Escrow
Agent. Time is of the essence with respect to such delivery, and failure by the
Company to make such delivery shall allow the Buyer to cancel this Agreement.
(iii) By signing this Agreement, each of the Buyer and the Company,
subject to acceptance by the Escrow Agent, agrees to all of the terms and
conditions of, and becomes a party to, the Joint Escrow Instructions, all of the
provisions of which are incorporated herein by this reference as if set forth in
full.
d. Method of Payment. Payment into escrow of the Purchase Price shall be
made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager LLP, Esqs.
Account No.: [To be provided to the Buyer by Krieger & Prager LLP]
Re: Natural Health Trends Transaction
3
<PAGE>
Not later than 5:00 p.m., New York time, on the date which is three (3) New York
Stock Exchange ("NYSE") trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the Purchase
Price for the Preferred Stock in immediately available funds. Time is of the
essence with respect to such payment, and failure by the Buyer to make such
payment, shall allow the Company to cancel this Agreement.
e. Escrow Property. The Purchase Price and the Certificates delivered to
the Escrow Agent as contemplated by Sections 1(c) and (d) hereof are referred to
as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to the
Registration Statement, the Buyer is purchasing the Preferred Stock and the
Warrants and will be acquiring the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. (i) The Buyer is not a U.S. Person as that term is defined under
Regulation S, and is not controlled, directly or indirectly, by a U.S. Person.
(ii) The Buyer is outside the United States as of the date of the
execution and delivery of this Agreement.
(iii) The Buyer is purchasing the Preferred Stock for its own
account and not on behalf of any U.S. Person, and the Buyer is the sole
beneficial owner of the Preferred Stock, and has not pre-arranged any sale of
the Securities with any purchaser or purchasers in the United States.
(iv) The Buyer understands that the Preferred Stock and the Shares
may not be transferred, offered or sold in the United States or to a U.S. Person
or citizen of the United States prior to the end of the one (1) year
Distribution Compliance Period (the "Restricted Period") commencing on the later
of (A) the date the Preferred Stock are first offered to persons other than
Distributors (as defined in Regulation S) or (B) the date of the final closing
of the Offering of the Preferred Stock by the Company. The Buyer acknowledges
that the Company may not allow a transfer of the Preferred Stock in the United
States or to a U.S. Person or citizen of the United States if, in the Company's
opinion, Regulation S or any other applicable state, federal or foreign
securities laws have not been complied with.
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(v) The Buyer understands that in the view of the SEC the statutory
basis for the exemption claimed for this transaction would not be present if the
offering of Preferred Stock, and the Shares issuable upon conversion thereof,
although in technical compliance with Regulation S, is part of a plan or scheme
to evade the registration provisions of the 1933 Act. The Buyer is acquiring the
Preferred Stock for investment purposes and has no present intention to sell the
Preferred Stock, or the Shares issuable upon conversion thereof, in the United
States or to a U.S. Person or for the account or benefit of a U.S. Person either
now or after the expiration of the Restricted Period, except pursuant to
registration thereof or an exemption or safe harbor from registration.
(vi) The Buyer is not an underwriter of, or dealer in, the
Securities, and the Buyer is not participating, pursuant to a contractual
agreement, in the distribution of the Securities.
(vii) No offer to sell the Preferred Stock has been made to the
Buyer within the United States, and the Buyer is not and will not be in the
United States as of the date of execution and delivery of this Agreement.
(viii) If the Buyer is a corporation or a partnership, the Buyer was
not (A) formed principally for the purpose of acquiring the Preferred Stock or
the Shares, or any other securities not registered under the Act, or (B)
organized or incorporated under the laws of any state or jurisdiction of the
United States.
(ix) The Buyer is not subscribing for the Preferred Stock as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by person previously not known to the Buyer in
connection with investment securities generally.
(x) The Buyer is purchasing the Preferred Stock for its own account
and/or for accounts over which the Buyer has discretionary authority, and not on
behalf of or for the account of any person or entity who or which is a U.S.
Person or citizen of the United States and not with a view to resale or
distribution or any present intention to resell or distribute the Preferred
Stock or the Shares in violation of any applicable securities laws. Anything
herein contained to the contrary notwithstanding, for the purposes of this
Agreement, the term "Buyer" shall mean the undersigned, and, if applicable, any
person or entity for whom or which the undersigned is subscribing for Preferred
Stock pursuant to discretionary authority granted to the undersigned.
(xi) The Buyer is not purchasing the Preferred Stock with the
present intention of "distributing" the Preferred Stock on behalf of the Company
or on behalf of a "distributor" as defined in Regulation S, or any of their
affiliates, in the United States or to a U.S. Person.
(xii) The Buyer is not a "distributor" as defined in Regulation S.
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(xiii) To the knowledge of the Buyer, no activity has been
undertaken by the Company or any person acting on its behalf for the purpose of,
or that could reasonably be expected to have the effect of, conditioning the
market for the Preferred Stock or the Shares in the United States.
(xiv) The Buyer understands that, except as set forth in the
Registration Rights Agreement, the Company is under no obligation to register
the Preferred Stock or the Shares under the Act, or to assist the Buyer in
complying with the Act or the securities laws of any state of the United States
or of any foreign jurisdiction.
(xv) The Buyer does not have a short position in the Shares or
otherwise have a hedge against the risk of purchasing the Preferred Stock and
will not have a short position in the Shares or otherwise hedge the risk of
holding the Preferred Stock at any time prior to the expiration of the
Restricted Period.
(xvi) If at any time after the expiration of the Restricted Period
the Buyer wishes to transfer or attempts to transfer the Preferred Stock or the
Shares to a U.S. Person, the Buyer agrees to notify the Company if at such time
it is either an "underwriter," "dealer," distributor," or an "affiliate" of the
Company (as such terms are defined in the federal securities laws of the United
States or the regulations promulgated hereunder, including, but not limited to,
Regulation S), or if such transfer is being made as part of a plan or scheme to
evade the registration provisions of the Act.
(xvii) In the event that the Buyer desires to offer or sell the
Preferred Stock or the Shares, such offer or sale shall at all times comply with
the Act and rules and regulations promulgated thereunder, including Regulation
S, and all other applicable state, federal and foreign securities laws. Subject
to effective registration of the Shares, the Buyer agrees not, prior to the
expiration of the Restricted Period, to sell the Preferred Stock or Shares to or
for the account or benefit of a U.S. Person, to a citizen of the United States
or in the United States, except in compliance with the Act and the applicable
rules and regulations promulgated thereunder and thereafter the Buyer agrees not
to sell the Preferred Stock or Shares in the United States except in compliance
with the Act and the applicable rules and regulations promulgated thereunder,
including Regulation S, and all applicable state, federal and foreign securities
laws.
c. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
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d. All subsequent offers and sales of the Preferred Stock and the Shares
by the Buyer shall be made pursuant to registration of the Shares under the 1933
Act or pursuant to an exemption from registration.
e. The Buyer understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Preferred Stock. In
particular, the Buyer understands that the Company is relying on the rules
governing offers and sales made outside the United States pursuant to Regulation
S. Rules 901 through 904 of Regulation S govern this transaction. The Buyer will
notify the Company immediately upon the occurrence of any material change in the
information regarding the Buyer contained herein occurring prior to the issuance
of Converted Shares.
f. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Preferred Stock and the offer of
the Shares which have been requested by the Buyer, including those set forth on
Annex V hereto. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has also had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, (2) Quarterly Reports on Form 10-QSB for the fiscal quarters
ended March 31, June 30, 1999, and September 30, 1999, respectively, (3) Current
Reports on Form 8-K filed on January 25, 1999 and February 19, 1999, as amended
as filed on May 5, 1999, (4) Definitive Proxy Statement filed on January 25,
1999, and (5) Registration Statement on Form S-1/A filed on November 12, 1999
(collectively, the "Company's SEC Documents").
g. The Buyer understands that its investment in the Securities involves a
high degree of risk.
h. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
i, The Buyer hereby covenants that it will comply with all laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers the Securities, or has in its possession or distributes any offering
material.
j. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
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3. COMPANY REPRESENTATIONS, ETC. The Company represents and warrants to
the Buyer as of the date hereof and as of each Closing Date that, except as
otherwise provided in the Company Disclosure Materials attached hereto as Annex
V hereto:
a. Concerning the Preferred Stock and the Shares. The Preferred Stock has
been duly authorized, and when issued and paid for in accordance with the terms
of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability
solely by reason of acquiring the Preferred Stock hereunder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida and
has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or financial condition or results of operation of the Company and its
subsidiaries taken as a whole. The Company is a "Reporting Issuer" as defined by
Rule 902 of Regulation S. The Company has registered its stock and is obligated
to file reports pursuant to Section 12 of the 1934 Act. The Common Stock is
listed and traded on The NASDAQ/SmallCap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Common Stock for such listing, and the Company has maintained all requirements
for the continuation of such listing.
c. Authorized Shares. The authorized capital stock of the Company consists
of (i) 50,000,000 shares of Common Stock, $.001 par value per share, of which
approximately 7,860,000 shares had been issued as of the date hereof and (ii)
1,500,000 shares of Preferred Stock, par value $.001 per share, of which shares
have been issued as of the date hereof as provided in Annex V annexed hereto.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares. The Shares have been duly authorized and, when issued
upon conversion of, or as dividends on, the Preferred Stock or upon exercise of
the Warrants, each in accordance with its respective terms, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company. This Agreement has been duly executed and delivered by the Company and
this Agreement is, and each of the other Transaction Agreements,
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<PAGE>
when executed and delivered by the Company, will be, a valid and binding
agreement of the Company enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the certificate of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which the Company is a party or by which it or any of its properties or assets
are bound, including any listing agreement for the Common Stock except as herein
set forth, (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, or (iv) the Company's listing agreement for its Common Stock, except
such conflict, breach or default which would not have a material adverse effect
on the business, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole, or on the
transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading. The Company has since January 1, 1999 timely filed all requisite
forms, reports and exhibits thereto with the SEC.
h. Absence of Certain Changes. Since December 31, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), or results of
operations of the Company, except as disclosed in the Company's SEC Documents.
Since December 31, 1998, except as provided in the Company's SEC Documents, the
Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed,
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<PAGE>
or made any agreements to purchase or redeem, any shares of its capital stock;
(iv) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, except in the ordinary course of business consistent with past
practices; (v) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of existing business; (vi) made any changes in employee
compensation, except in the ordinary course of business consistent with past
practices; or (vii) experienced any material problems with labor or management
in connection with the terms and conditions of their employment.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
j. Absence of Litigation. Except as set forth in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, operations, condition (financial or otherwise), or results
of operation of the Company and its subsidiaries taken as a whole or the
transactions contemplated by any of the Transaction Agreements or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, any of the Transaction
Agreements.
k. Absence of Events of Default. Except as set forth in Section 3(e)
hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole.
l. Prior Issues. Except as disclosed in the Company's SEC Documents,
during the twelve (12) months preceding the date hereof, the Company has not
issued any convertible securities. The presently outstanding unconverted
principal amount of each such issuance as at the date hereof are set forth in
Annex V.
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m. No Undisclosed Liabilities or Events. The Company has no liabilities or
obligations other than those disclosed in the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since December 31,
1998, and which individually or in the aggregate, do not or would not have a
material adverse effect on the properties, business, operations, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under applicable law,
rule or regulation, requires public disclosure or announcement prior to the date
hereof by the Company but which has not been so publicly announced or disclosed.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company (other than the transactions contemplated by the Transaction
Agreements) which proposal would (x) change the certificate of incorporation or
other charter document or by-laws of the Company, each as currently in effect,
with or without shareholder approval, which change would reduce or otherwise
adversely affect the rights and powers of the shareholders of the Common Stock
or (y) materially or substantially change the business, assets or capital of the
Company, including its interests in subsidiaries.
n. Dilution. The number of Shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company and its shareholders.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Preferred Stock and upon exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company, and the Company will honor every Notice of Conversion (as defined in
the Certificate of Designations) relating to the conversion of the Preferred
Stock and every Notice of Exercise Form (as contemplated by the Warrants)
relating to the exercise of the Warrants unless the Company is subject to an
injunction (which injunction was not sought by the Company) prohibiting the
Company from doing so.
o. Offshore Transaction. The Company has not offered or sold the Preferred
Stock to any person in the United States, or, to the best knowledge of the
Company any identifiable groups of U.S. citizens abroad, or any U.S. Person as
that term is defined in Regulation S. At the time the buy order for the
Preferred Stock was originated, the Company and/or its agents reasonably
believed the Buyer was outside the United States and was not a U.S. Person.
p. No Directed Selling Efforts. In regard to this transaction, the Company
has not conducted any "direct selling efforts" as that term is defined in Rule
902 of Regulation S nor has the Company conducted any general solicitation
relating to the offer and sale of the within securities to persons resident
within the United States or elsewhere.
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q. Brokers, Finders. The Company has taken no action which would give rise
to any claim by any person for brokerage commission, finder's fees or similar
payments by Buyer relating to this Agreement or the transactions contemplated
hereby. Buyer shall have no obligation with respect to such fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section 3(q) that may be due in connection with the
transactions contemplated hereby. The Company shall indemnify and hold harmless
each of Buyer, its employees, officers, directors, agents, and partners, and
their respective affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as and when incurred.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock have not been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than to the extent contemplated by
the Registration Rights Agreement) under the 1933 Act or to comply with the
terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement or an
applicable exemption from registration, certificates and other instruments
representing any of the Securities shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
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The legend set forth above shall be promptly removed, and the Company shall
issue a certificate without such legend to the holder of any such Securities
upon which such legend is stamped, if, unless otherwise required by federal or
state securities laws, (i) such Securities are registered for resale under the
Securities Act and are sold in accordance with an effective Registration
Statement, or (ii) such holder provides the Company with reasonable assurances
that such Securities can be sold pursuant to Rule 144(k) promulgated under the
Securities Act. The Company shall bear the cost of the removal of any legend as
anticipated by this Section 4.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement on or before the Closing Date.
d. Filings. (i) The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Securities to the Buyer under any
United States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyer promptly after such filing.
(ii) Subject to the conditions of the immediately following sentence, the
Company undertakes and agrees to take all steps necessary to have a meeting and
vote of the stockholders of the Company no later than the Meeting Date (as
defined below) regarding authorization of the Company's issuance to the holders
of the Preferred Stock and Warrants of shares of Common Stock in excess of
twenty percent (20%) of the outstanding shares of Common Stock on the date of
this Agreement in accordance with NASDAQ Rule 4310(c)(25)(H)(i) or Rule
4460(i)(1), as may be applicable. The term "Meeting Date" means the date which
is the earlier of (x) seventy-five (75) days after the date on which the Company
has issued, after the date of this Agreement, shares of Common Stock which, in
the aggregate equal or exceed ten percent (10%) of the outstanding shares of
Common Stock on the date hereof or (y) the date on which the Company holds its
next regular or special stockholders meeting. The Company will recommend to the
stockholders that such authorization be granted and will seek proxies from
stockholders not attending the meeting naming a director or officer of the
Company as such stockholder's proxy and directing the proxy to vote, or giving
the proxy the authority to vote, in favor of such authorization.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Securities, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company will take all reasonable action under its control to
obtain and to continue the listing and trading of its Common Stock (including,
without limitation, all Registrable Securities) on The NASDAQ/SmallCap Market
and will comply in all material respects with the Company's reporting, filing
and other obligations under the by-laws or rules of the National Association of
Securities Dealers, Inc. ("NASD") or The NASDAQ/SmallCap Market.
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock (excluding amounts paid by the Company for legal fees, finder's
fees and escrow fees in connection with the sale of the Preferred Stock) for
internal working capital purposes, and, unless
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specifically consented to in advance in each instance by the Buyer, the Company
shall not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership enterprise or other person or
for the repayment of any outstanding loan by the Company to any other party.
g. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the aggregate of (i) one hundred fifty percent (150%) of the
number of shares of Common Stock issuable at conversion as may be required to
satisfy the conversion rights of the Buyer pursuant to the terms and conditions
of the Certificate of Designations or to represent payment of dividends on the
Preferred Stock and (ii) the number of shares issuable upon exercise as may be
required to satisfy the exercise rights of the Buyer pursuant to the terms and
conditions of the Warrants.
h. Warrants. The Company agrees to issue to the Buyer on the Closing Date
transferable warrants (the "Warrants") for the purchase of a number of shares of
Common Stock equal to(x) twenty percent (20%) of the Purchase Price, as
indicated on the Buyer's signature page to this Agreement, divided by (y) 110%
of the closing bid price of the Common Stock (as reported by Bloomberg, LP) on
the trading day immediately before the Closing Date. The Warrants shall bear an
exercise price per share equal to 110% of the closing bid price of the Common
Stock (as reported by Bloomberg, LP) on the trading day immediately before the
Closing Date (subject to adjustment as provided in the Warrant). The Warrants
will expire on the last day of the calendar month in which the fifth anniversary
of the Closing Date occurs. The Warrants shall be in the form annexed hereto as
Annex VI, together with (x) registration rights as provided in the Registration
Rights Agreement and (y) piggy-back registration rights after the effectiveness
of the Registration Statement expires, as contemplated by the Registration
Rights Agreement.
i. Limitation on Issuance of Shares. If applicable to the Company, the
Company may be limited in the number of shares of Common Stock it may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, including, but not necessarily limited to, NASDAQ Rule
4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the
"Cap Regulations"). Without limiting the other provisions thereof, the Preferred
Stock shall provide that (i) the Company will take all steps reasonably
necessary to be in a position to issue shares of Common Stock on conversion of
the Preferred Stock without violating the Cap Regulations and (ii) if, despite
taking such steps, the Company still can not issue such shares of Common Stock
without violating the Cap Regulations, the holder of a share of Preferred Stock
which can not be converted as result of the Cap Regulations after all such
shares of Preferred Stock which can be converted under the Cap Regulations have
been converted (each such share, an "Unconverted Share") shall have the option,
exercisable in such holder's sole and absolute discretion, to elect either of
the following remedies:
(x) if permitted by the Cap Regulations, require the Company to
issue shares of Common Stock in accordance with such holder's notice of
conversion at a conversion purchase price equal to the average of the
closing price per share of Common Stock for any five (5) consecutive
trading days (subject to certain equitable
14
<PAGE>
adjustments for certain events occurring during such period) during the
sixty (60) trading days immediately preceding the date of notice of
conversion; or
(y) require the Company to redeem such Unconverted Share for an
amount (the "Cap Limitation Redemption Amount"), payable in cash, equal
to:
V x M
------
CP
where:
"V" means the liquidation preference of the Unconverted Share plus
any accrued but unpaid dividends thereon;
"CP" means the conversion price in effect on the date of redemption
(the "Redemption Date") specified in the notice from the holder of the
Unconverted Share electing this remedy; and
"M" means the highest closing price per share of the Common Stock
during the period beginning on the Redemption Date and ending on the date
of payment of the Cap Limitation Redemption Amount.
A holder of more than one Unconverted Share may elect one of the above remedies
with respect to some of such Unconverted Shares and the other remedy with
respect to other Unconverted Shares. The Cap Limitation Redemption Amount
payable under the provisions of this Section 4(i) shall be payable within thirty
(30) days of the Redemption Date. The Certificate of Designations shall contain
provisions substantially consistent with the above terms, with such additional
provisions as may be consented to by the Buyer. The provisions of this paragraph
are not intended to limit the scope of the provisions otherwise included in the
Certificate of Designations.
j. Right of First Refusal, Special Dilution Protection. (i) The Company
covenants and agrees that, if during the period from the date hereof through and
including the date which is two hundred forty (240) days after the Effective
Date, the Company offers to enter into any transaction other than an
underwritten public offering (a "New Transaction") for the sale of New Common
Stock, the Company shall notify the Buyer in writing of all of the terms of such
offer (a "New Transaction Offer"). The Buyer shall have the right (the "Right of
First Refusal"), exercisable by written notice given to the Company by the close
of business on the third business day after the Buyer's receipt of the New
Transaction Offer (the "Right of First Refusal Expiration Date"), to participate
in all or any part of the New Transaction Offer on the terms so specified.
(ii) If, and only if, the Buyer does not exercise the Right of First
Refusal in full, the Company may consummate the remaining portion of the New
Transaction with any New Investor
15
<PAGE>
on the terms specified in the New Transaction Offer within twenty (20) days of
the Right of First Refusal Expiration Date.
(iii) If the terms of the New Transaction to be consummated with such
other party differ from the terms specified in the New Transaction Offer so that
the terms are more beneficial in any respect to the New Investor, the Company
shall give the Buyer a New Transaction Offer relating to the terms of the New
Transaction, as so changed, and the Buyer's Right of First Refusal and the
preceding terms of this Section 4(j) shall apply with respect to such changed
terms.
(iv) If there is more than one Buyer signatory to this Agreement, the
preceding provisions of this Section 4(j) shall apply pro rata among them (based
on their relative Buyer's Allocable Shares), except that, to the extent any such
Buyer does not exercise its Right of First Refusal in full (a "Declining
Buyer"), the remaining Buyer or Buyers who or which have exercised their own
Right of First Refusal in full, shall have the right (pro rata among them based
on their relative Buyer's Allocable Shares, if more than one) to exercise all or
a portion of such Declining Buyer's unexercised Right of Refusal.
(v) In the event the New Transaction is consummated for the sale of New
Common Stock or the issuance of warrants or other rights to purchase New Common
Stock with such third party at any time prior to the expiration of two hundred
forty (240) days after the Effective Date on terms providing for (x) either a
sale price equal to or computed based on, or a determination of a conversion
price based on, a lower percentage of the then current market price (howsoever
defined or computed) than provided in the Certificate of Designations for
determining the Conversion Rate or a lower Fixed Price (as defined in the
Certificate of Designations, but howsoever defined or computed in the New
Transaction documents) and/or (y) the issuance of warrants at an exercise price
lower than that provided in the Warrants and/or for a greater number of shares
per dollar paid or invested by such third party to or in the Company, the terms
of the Certificate of Designations (or other documentation affecting the terms
of the Preferred Stock) and the Warrants (whether previously issued and/or
converted or not) shall be modified to (i) reduce the relevant Conversion Rate,
Fixed Price or Warrant exercise price and/or (ii) increase the number of shares
covered by the Warrants, in each instance to be equal to that provided in the
New Transaction as so consummated (provided, however, that such increased
Warrants shall have the same exercise price formula as the New Transaction
warrants).
k. Reimbursement. If (i) any Buyer, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, or (ii) any Buyer, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the
16
<PAGE>
Transaction Agreements, or if such Buyer is impleaded in any such action,
proceeding or investigation by any Person, then in any such case, the Company
will reimburse such Buyer for its reasonable legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith,
as such expenses are incurred. The reimbursement obligations of the Company
under this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any
Affiliates of the Buyers who are actually named in such action, proceeding or
investigation, and partners, directors, agents, employees and controlling
persons (if any), as the case may be, of the Buyers and any such Affiliate, and
shall be binding upon and inure to the benefit of any successors, assigns, heirs
and personal representatives of the Company, the Buyers and any such Affiliate
and any such Person. The Company also agrees that neither any Buyer nor any such
Affiliate, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Agreements except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the gross
negligence or willful misconduct of such Buyer.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities, other than
the stop transfer instructions to give effect to Section 4(a) hereof, it will
give its transfer agent no instructions inconsistent with instructions to issue
Common Stock from time to time upon conversion of the Preferred Stock in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. Except as so provided,
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory to the Company that
registration of a resale by the Buyer of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not required under the
1933 Act, the Company shall (except as provided in clause (2) of Section 4(a) of
this Agreement) permit the transfer of the Securities and, in the case of the
Converted Shares or the Warrant Shares, as the case may be, promptly instruct
the Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
b. Subject to the provisions of this Agreement, the Company will permit
the Buyer to exercise its right to convert the Preferred Stock in the manner
contemplated by the Certificate of Designations.
c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date (as defined in the Certificate of
Designations) could result
17
<PAGE>
in economic loss to the Buyer. As compensation to the Buyer for such loss, the
Company agrees to pay late payments to the Buyer for late issuance of Shares
upon Conversion in accordance with the following schedule (where "No. Business
Days Late" is defined as the number of business days beyond three (3) business
days from the Delivery Date):
Late Payment For Each $10,000
of Liquidation Preference or Dividend
No. Business Days Late Amount Being Converted
---------------------- -------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. For purposes of this Section 5(c), in connection
with a Mandatory Conversion (as defined in the Certificate of Designations), the
term "Delivery Date" shall refer to the earlier of (i) the Delivery Date
determined in relation to a Notice of Conversion actually submitted by the Buyer
to the Company or (ii) the fourth or sixth business date, as the case may be,
after written notice from the Buyer that the delivery of shares to the Buyer in
connection with the Mandatory Conversion has not been accomplished. The Company
shall pay any payments incurred under this Section in immediately available
funds upon demand. Nothing herein shall limit the Buyer's right to pursue actual
damages for the Company's failure to issue and deliver the Common Stock to the
Buyer. Furthermore, in addition to any other remedies which may be available to
the Buyer, in the event that the Company fails for any reason to effect delivery
of such shares of Common Stock within three (3) business days after the Delivery
Date, the Buyer will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and the
Buyer shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
d. If, by the relevant Delivery Date, the Company fails for any reason to
deliver the Shares to be issued upon conversion of Preferred Stock and after
such Delivery Date, the holder of the Preferred Stock being converted (a
"Converting Holder") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"Sold Shares"), which delivery such Converting Holder anticipated to make using
the Shares to be issued upon such conversion (a "Buy-In"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
addition to the amounts contemplated in other provisions of the
18
<PAGE>
Transaction Agreements, and not in lieu of any such other amounts, the Buy-In
Adjustment Amount (as defined below). The "Buy-In Adjustment Amount" is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Converting Holder from the sale of the Sold Shares. The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder. By way of illustration and not
in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.
e. In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
f. If, at any time the Company challenges, disputes or denies the right of
a holder of Preferred Stock to effect a conversion of the Preferred Stock into
Common Stock or otherwise dishonors or rejects any Conversion Notice delivered
in accordance with the terms of this Agreement or the Certificate of
Designations or any exercise of any Warrant in accordance with its terms
("Warrant Exercise"), then such holder shall have the right, by written notice
to the Company, to require the Company to promptly redeem the Preferred Stock
for cash at a redemption price (the "Mandatory Purchase Amount") equal to (x)
one hundred forty-five percent (145%) of the liquidation preference of the
unconverted Preferred Stock held by such holder plus (y) all accrued but unpaid
dividends on the Preferred Stock through the date of payment of the Mandatory
Purchase Amount. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of such holder,
including, but not necessarily limited to, reasonable legal fees and expenses,
as and when incurred in connection with such holder's disputing any such action
or pursuing such holder's rights hereunder (in addition to any other rights such
holder may have hereunder or otherwise). The Mandatory Purchase Amount will be
payable to such holder in cash within five (5) business days from the date such
holder gives the Company written notice that it is exercising its rights under
this paragraph.
g. The holder of any Preferred Stock shall be entitled to exercise its
conversion privilege with respect to the Preferred Stock notwithstanding the
commencement of any case under 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code").
In the event the Company is a debtor under the Bankruptcy Code, the Company
hereby waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such holder's conversion privilege. The
Company hereby waives, to the fullest extent permitted, any rights to relief it
may have under 11 U.S.C. ss.362
19
<PAGE>
in respect of the conversion of the Preferred Stock. The Company agrees, without
cost or expense to such holder, to take or to consent to any and all action
necessary to effectuate relief under 11 U.S.C. ss.362.
h. The Company will authorize its transfer agent to give information
relating to the Company directly to the Buyer or the Buyer's representatives
upon the request of the Buyer or any such representative , to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to the Buyer in connection with a Notice of Conversion, or
(ii) the number of outstanding shares of Common Stock of all stockholders as of
a current or other specified date. The Company will provide the Buyer with a
copy of the authorization so given to the transfer agent.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first NYSE
trading day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
b. The closing of the purchase and issuance of Preferred Stock shall occur
on the Closing Date at the offices of the Escrow Agent and shall take place no
later than 3:00 P.M., New York time, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the Escrow Funds to the Company and to
others and to release the other Escrow Property on the Closing Date upon
satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Preferred
Stock to the Buyer pursuant to this Agreement on the Closing Date is conditioned
upon:
a. The Buyer's execution and delivery of this Agreement and the other
Transaction Agreements contemplated to be signed by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Purchase Price for the Preferred Stock in
accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement, each as if made on such date, and the
performance by the Buyer on or before such date of all covenants and agreements
of the Buyer required to be performed on or before such date;
20
<PAGE>
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby or requiring any consent or
approval which shall not have been obtained; and
e. From and after the date hereof to and including the Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the NASD
and trading in securities generally on The NASDAQ/SmallCap Market shall not have
been suspended or limited, nor shall minimum prices been established for
securities traded on The NASDAQ/SmallCap Market, nor shall there be any outbreak
or escalation of hostilities involving the United States or any material adverse
change in any financial market that in either case in the reasonable judgment of
the Company makes it impracticable or inadvisable to sell the Preferred Stock.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. The adoption of the Certificate of Designations by all necessary
corporate action of the Company and the filing of all filings necessary to
effectuate the Certificate of Designations as a part of the charter documents of
the Company;
b. The execution and delivery of this Agreement and the Registration
Rights Agreement by the Company;
c. Delivery by the Company to the Escrow Agent of the Certificates in
accordance with this Agreement;
d. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement, each
as if made on such date, and the performance by the Company on or before such
date of all covenants and agreements of the Company required to be performed on
or before such date;
e. On the Closing Date, the Registration Rights Agreement shall be in full
force and effect and the Company shall not be in default thereunder;
f. On the Closing Date, the Buyer shall have received an opinion of
counsel for the Company, dated such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, substantially to the effect set forth in
Annex III attached hereto;
g. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby or requiring any consent or
approval which shall not have been obtained;
h. From and after the date hereof to and including the Closing Date, the
trading of the Common Stock shall not have been suspended by the SEC or the NASD
and trading in securities generally on The NASDAQ/SmallCap Market shall not have
been suspended or limited,
21
<PAGE>
nor shall minimum prices been established for securities traded on The
NASDAQ/SmallCap Market, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Buyer
makes it impracticable or inadvisable to purchase the Preferred Stock.
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, the Company shall reimburse the Buyer for any
reasonable legal fees and disbursements incurred by the Buyer in enforcement of
or protection of any of its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.
g. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
h. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing signed
by the party to be charged with enforcement thereof.
22
<PAGE>
j. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
(b) the seventh business day after deposit, postage prepaid, in the United
States Postal Service by registered or certified mail, or
(c) the third business day after mailing by domestic or international
express courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: Natural Health Trends Corp.
380 Lashley Street
Longmont, CO 80501
Attn: Mark Woodburn
Telephone No.: (303) 682-4637
Telecopier No.: (303) 682-4236
with a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, NY 10016
Attn: Martin C. Licht, Esq.
Telephone No.: (212) 779-8600
Telecopier No.: (212) 779-8858
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to:
Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
23
<PAGE>
ESCROW AGENT: Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
New York, New York 10016
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Buyer's representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Certificates and the Warrants
and the payment of the Purchase Price, and shall inure to the benefit of the
Buyer and the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
24
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer by
one of its officers thereunto duly authorized as of the date set forth below.
LIQUIDATION PREFERENCE OF PREFERRED STOCK: $
--------------------
PURCHASE PRICE OF PREFERRED STOCK: $
--------------------
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this __________ day _________, 2000.
- -------------------------------- ------------------------------------
Address Printed Name of Subscriber
- -------------------------------- By:
---------------------------------
Telecopier No. (Signature of Authorized Person)
------------------
------------------------------------
- -------------------------------- ------------------------------------
Jurisdiction of Incorporation Printed Name and Title
or Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
NATURAL HEALTH TRENDS CORP.
By:
-------------------------------
Title:
----------------------------
Date: ,2000
-----------------------------
EXHIBIT 4.2
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March , 2000 (this
"Agreement"), is made by and between NATURAL HEALTH TRENDS CORP., a Florida
corporation, with headquarters located at 380 Lashley Street, Longmont, CO 80501
(the "Company"), and each entity named on a signature page hereto (each, an
"Initial Investor") (each agreement with an Initial Investor being deemed a
separate and independent agreement between the Company and such Initial
Investor, except that each Initial Investor acknowledges and consents to the
rights granted to each other Initial Investor under such agreement).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of March , 2000, between the Initial Investor and
the Company (the "Securities Purchase Agreement"; terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to the Initial Investor
shares of Series J Convertible Preferred Stock of the Company having an
aggregate liquidation preference of $1,000,000 (the "Preferred Stock"); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement, shall
include shares of Common Stock of the Company issuable in lieu of accrued
dividends on conversion as contemplated by the Preferred Stock) upon the terms
and subject to the conditions contained in the Certificate of Designations and
the Warrants may be exercised for the purchase of shares of Common Stock (the
"Warrant Shares") upon the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
piggy-back registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the "Securities Act"), with respect to the Conversion Shares and
the Warrant Shares;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Preferred Stock, Warrants or
Registrable Securities.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(d) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(e) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(f) "Required Effective Date" means the relevant Anticipated Initial
Effective Date or Anticipated Subsequent Effective Date (as those terms are
defined below).
2. Registration.
(a) Piggy Back Registration.
(i) If at any time after the date hereof, except in connection with the
registration statement currently filed for the secondary offering with May Davis
Group, Inc. (SEC File No. 33389419), the Company shall prepare and file with the
SEC, either a Registration Statement on Form S-1 or an amendment to an existing
Registration Statement for the sale of shares of Common
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Stock of the Company, the Company shall, as part of such Registration Statement,
register for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities (or such
lesser number as may be required by the SEC, but in no event less than the
number of shares equal to the sum of (A) two hundred percent (200%) of the
number of shares into which the Preferred Stock and all dividends thereon
through the fifth anniversary of the Closing Date would be convertible at the
time of filing of such Registration Statement (assuming for such purposes that
all shares of Preferred Stock, had been eligible to be converted, and had been
converted, into Conversion Shares in accordance with their terms, whether or not
such accrual of dividends, eligibility or conversion had in fact occurred as of
such date) and (B) the number of shares which would be issued upon exercise of
all of the Warrants at the time of filing of the Registration Statement
(assuming for such purposes that all Warrants, including all Warrants had been
eligible to be exercised and had been exercised in accordance with their terms,
whether or not such eligibility or exercise had in fact occurred as of such
date). The Registration Statement shall state that, in accordance with Rule 416
and 457 under the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Preferred Stock and the exercise of the Warrants to prevent dilution resulting
from stock splits, or stock dividends.
(ii) If at any time (an "Increased Registered Shares Date"), the number of
shares of Common Stock represented by the Registrable Shares, issued or to be
issued as contemplated by the Transaction Agreements, exceeds the aggregate
number of shares of Common Stock then registered, then,
(A) if permitted by SEC regulations or practice, the Company shall, within
ten (10) business days after the Increased Registered Shares Date, amend
the Registration Statement filed by the Company pursuant to the preceding
provisions of this Section 2, if such Registration Statement has not been
declared effective by the SEC at that time, to register, in the aggregate,
at least the number of shares (the "Increased Shares Amount") equal to (x)
(I) the number of shares theretofore issued on conversion of the Preferred
Stock (including any dividends paid on conversion by the issuance of
Conversion Shares) plus (II) two hundred percent (200%) of the number of
shares into which the unconverted Preferred Stock and all dividends
thereon through the second anniversary of the Closing Date would be
convertible at the Increased Registered Shares Date (assuming for such
purposes that all such shares of Preferred Stock had been eligible to be
converted, and had been converted, into Conversion Shares in accordance
with their terms, whether or not such accrual of dividends, eligibility or
conversion had in fact occurred as of such date) and (y) the number of
shares which would be issued upon exercise of all of the Warrants
(assuming for such purposes that all Warrants had been eligible to be
exercised and had been exercised in accordance with their terms, whether
or not such eligibility or exercise had in fact occurred as of such date);
and
(B) If such Registration Statement has been declared effective by the SEC
at that time and such Registration Statement can not be so amended, the
Company will
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include such shares in any subsequent or additional Registration Statement
on Form S-1 or other appropriate registration statement form (an
"Additional Registration Statement") filed with the SEC so as to register
the number of shares equal to the excess of the Increased Shares Amount
over the aggregate number of shares of Common Stock already registered.
(b) Payments by the Company.
(i) Anything herein to the contrary notwithstanding, the
Company agrees that if (A) a Registration Statement covering the number of the
shares contemplated by the provisions of Section 2(a)(i) is not declared
effective within ninety (90) days after the Initial Closing Date, (the
"Anticipated Initial Effective Date"), (B) a Registration Statement covering the
number of shares contemplated by the provisions of Section 2(a)(ii)(A) is not
declared effective by the earlier of the Anticipated Initial Effective Date or
sixty (60) days after the Increased Registered Shares Date (an "Anticipated
Subsequent Effective Date"), or (C) a Registration Statement covering the number
of shares contemplated by the provisions of Section 2(a)(ii)(B) is not declared
effective by sixty (60) days after the Increased Registered Shares Date (an
"Anticipated Subsequent Effective Date"), the Company will make payment to the
Initial Investor in such amounts and at such times as shall be determined
pursuant to this Section 2(b).
(ii) If the Investor is restricted from making sales of
Registrable Securities covered by a previously effective Registration Statement
at any time (the date such restriction commences, a "Restricted Sale Date")
after the Effective Date other than during a Permitted Suspension Period (as
defined below), then the Company will make payments to the Initial Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Preferred Stock for
the period from the date following the relevant Required Effective Date or
Restricted Sale Date, as the case may be, to the first relevant Computation
Date, and thereafter to each subsequent Computation Date. The "Periodic Amount
Percentage" means two percent (2.0%) of the Purchase Price of all Preferred
Stock (prorated on a daily basis if the period from the relevant Required
Effective Date, Restricted Sale Date or immediately preceding Computation Date,
as the case may be, until the next Computation Date is less than thirty (30)
days). Anything in the preceding provisions of this paragraph (iii) to the
contrary notwithstanding, after the Effective Date the Purchase Price for such
Preferred Stock shall be deemed to refer to the sum of (X) the principal amount
of all Preferred Stock not yet converted and (Y) the Held Shares Value (as
defined below). The "Held Shares Value" means, for shares acquired by the
Investor upon a conversion within the thirty (30) days preceding the Restricted
Sale Date, but not yet sold by the Investor, the principal amount of the
Preferred Stock converted into such Conversion Shares; provided, however, that
if the Investor effected more than one conversion during such thirty (30) day
period and sold less than all of such shares, the sold shares shall be deemed to
be derived first from the conversions in the
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sequence of such conversions (that is, for example, until the number of shares
from the first of such conversions have been sold, all shares shall be deemed to
be from the first conversion; thereafter, from the second conversion until all
such shares are sold). By way of illustration and not in limitation of the
foregoing, if the Registration Statement is not declared effective until one
hundred sixty-five (165) days after the Initial Closing Date, the Periodic
Amount will aggregate five percent (5%) of the Purchase Price of the Preferred
Stock theretofore issued (2% for days 91-120, plus 2% for days 121-150, plus 1%
for days 151-165).
(iv) Each Periodic Amount will be payable by the Company in cash or other
immediately available funds to the Investor monthly, without requiring demand
therefor by the Investor.
(v) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement has not been declared effective by a
Required Effective Date, including if the right to sell Registrable Securities
under a previously effective Registration Statement is suspended, may be
difficult to ascertain. The parties agree that the Periodic Amounts represent a
reasonable estimate on the part of the parties, as of the date of this
Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable (i) to the extent any delay in
the effectiveness of the Registration Statement occurs because of an act of, or
a failure to act or to act timely by the Initial Investor or its counsel, (ii)
in the event all of the Registrable Securities may be sold pursuant to Rule 144
or another available exemption under the Act without volume or other
restrictions or limits or (iii) with respect to a Permitted Suspension Period.
(vii) "Computation Date" means (A) the date which is the earlier of (1)
thirty (30) days after any relevant Required Effective Date or a Restricted Sale
Date, as the case may be, or (2) the date after such Required Effective Date or
Restricted Sale Date on which the Registration Statement is declared effective
or has its restrictions removed, as the case may be, and (B) each date which is
the earlier of (1) thirty (30) days after the previous Computation Date or (2)
the date after the previous Computation Date on which the Registration Statement
is declared effective or has its restrictions removed, as the case may be.
3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
(a) After filing with the SEC a Registration Statement with respect to not
less than the number of Registrable Securities provided in Section 2(a) above,
use its reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the last day of the calendar month following the month in which
the Effective Date occurs, (ii)
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the date when the Investors may sell all Registrable Securities under Rule 144
without volume or other restrictions or limits or (iii) the date the Investors
no longer own any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Permit a single firm of counsel designated by the Initial Investors to
review the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects;
(d) Notify each Investor's legal counsel identified to the Company and
which has requested by written notice to the Company that it receive such
notification (which, until further notice, shall be deemed to be Krieger &
Prager LLP, Attn: Samuel Krieger, Esq., which firm has requested to receive such
notification; each, an "Investor's Counsel"), and any managing underwriters
immediately (and, in the case of (i)(A) below, not less than three (3) business
days prior to such filing) and (if requested by any such Person) confirm such
notice in writing no later than one (1) business day following the day (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed; (B) whenever the SEC
notifies the Company whether there will be a "review" of such Registration
Statement; (C) whenever the Company receives (or a representative of the Company
receives on its behalf) any oral or written comments from the SEC in respect of
a Registration Statement (copies or, in the case of oral comments, summaries of
such comments shall be promptly furnished by the Company to the Investors); and
(D) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the SEC or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any proceedings for that purpose; (iv) if at any time any of the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose; and (vi) of the occurrence of any event that to the
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best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor's
Counsel with copies of all intended written responses to the comments
contemplated in clause (C) of this Section 3(d) not later than one (1) business
day in advance of the filing of such responses with the SEC so that the
Investors shall have the opportunity to comment thereon;
(e) Furnish to the Investor's Counsel (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company, one (1) copy of the Registration Statement, each preliminary prospectus
and prospectus, and each amendment or supplement thereto, and (ii) such number
of copies of a prospectus, and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(f) As promptly as practicable after becoming aware thereof, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has been disclosed to the public or no
longer constitutes a Potential Material Event; provided, however, that the
Company may not so suspend the right to such holders of Registrable Securities
during the periods the Registration Statement is required to be in effect other
than during a Permitted Suspension Period. The term "Permitted Suspension
Period" means up to two suspension periods during any consecutive 12-
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month period, each of which suspension period shall not either (i) be for more
than twenty (20) days or (ii) begin less than ten (10) business days after the
last day of the preceding suspension (whether or not such last day was during or
after a Permitted Suspension Period); provided further that the Company shall,
if lawful to do so, provide the Investor with at least two (2) business days'
notice of the existence (but not the substance of) a Potential Material Event;
(i) Use its reasonable efforts to secure and maintain the designation of
all the Registrable Securities covered by the Registration Statement on the
"NASDAQ/SmallCap Market" of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of the
SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the quotation of the Registrable Securities on The NASDAQ/SmallCap Market;
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities;
(j) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(k) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within five (5) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) The Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it, and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request. At least ten (10) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor (the "Requested
Information") if such Investor has any Registrable Securities included in the
Registration Statement.
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(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company. In addition, a fee for a single
counsel to review the Registration Statement on behalf of the Investors equal
to, in the aggregate for all Investors, $3,500, shall be borne by the Company.
6. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation
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or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) being, collectively, "Violations"). Subject to clause (b) of
this Section 6, the Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(I) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, after such prospectus was made
available by the Company pursuant to Section 3(c) hereof; (II) be available to
the extent such Claim is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company or the amendment or
supplement thereto made available by the Company; (III) be available to the
extent such Claim is based on the delivery of a prospectus by the Investor after
receiving notice from the Company under Section 3(e), (f) or (g) hereof (other
than a notice regarding the effectiveness of the Registration Statement or any
amendment or supplement thereto), or (IV) apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld or delayed. Each
Investor will indemnify the Company and its officers, directors and agents
(each, an "Indemnified Person" or "Indemnified Party") against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement or the amendment or supplement thereto, subject to such
limitations and conditions as are applicable to the Indemnification provided by
the Company to this Section 6. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently
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incurred by such Indemnified Person or Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action of its final conclusion. The
Indemnified Person or Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the Indemnified
Person or Indemnified Party provided such counsel is of the opinion that all
defenses available to the Indemnified Party can be maintained without
prejudicing the rights of the indemnifying party. In no event shall the
Indemnifying Party be responsible for the legal fees and expenses of more than
one separate counsel for the Indemnified Person or the Indemnified Party.The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof) or
intentional misconduct, contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
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(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Preferred Stock or
unexercised Warrant) only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained herein,
and (e) such transfer of Registrable Securities is completed and disclosed to
the Company prior to the initial Effective Date or involves the transfer of
Registrable Securities resulting from the conversion of Preferred Stock having a
liquidation preference of at least $100,000. In the event of any delay in filing
or effectiveness of the Registration Statement as a result of such assignment,
the Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof arising from such delay.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a sixty-seven (67%)
percent interest of the Registrable Securities (as calculated by the liquidation
preference of the Preferred Stock without any reference to the Warrant Shares).
Any amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
12
<PAGE>
(b) Notices required or permitted to be given hereunder shall be given in
the manner contemplated by the Securities Purchase Agreement, (i) if to the
Company or to the Initial Investor, to their respective address contemplated by
the Securities Purchase Agreement, and (iii) if to any other Investor, at such
address as such Investor shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given in accordance
with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions. To the
extent determined by such court, either party hereto shall reimburse the other
party for any reasonable legal fees and disbursements incurred by such party in
enforcement of or protection of any of its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform
its obligations under Section 3(a) hereof, or any delay in such performance
could result in loss to the
13
<PAGE>
Investors, and the Company agrees that, in addition to any other liability the
Company may have by reason of such failure or delay, the Company shall be liable
for all direct damages caused by any such failure or delay, unless the same is
the result of force majeure. Neither party shall be liable for consequential
damages.
(k) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
COMPANY:
NATURAL HEALTH TRENDS CORP.
By:
-----------------------------
Name:
Title:
INITIAL INVESTOR:
--------------------------------
[Print Name of Initial Investor]
By:
-----------------------------
Name:
Title:
EXHIBIT 4.3
ANNEX VI
TO
SECURITIES PURCHASE AGREEMENT
FORM OF WARRANT
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
NATURAL HEALTH TRENDS CORP.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by NATURAL HEALTH
TRENDS CORP., a Florida corporation (the "Company"), _____________ or registered
assigns (the "Holder") is hereby granted the right to purchase at any time until
5:00 P.M., New York City time, on ______________ ,200(1) (the "Expiration
Date"),_________ Thousand (___________)(2) fully paid and nonassessable shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock") at
an initial exercise price per share (the "Exercise Price") of $_____(3) per
share, subject to further adjustment as set forth herein. This Warrant is being
issued pursuant to the terms of that certain Securities Purchase Agreement,
dated as of March , 2000 (the "Securities Purchase Agreement"), to which the
Company and Holder (or Holder's predecessor in interest) are parties.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Securities Purchase Agreement.
- --------
(1)Insert date which is last day of month in which fifth anniversary of
the relevant Closing Date occurs.
(2)Insert an amount equal to 20% of the Purchase Price of Preferred Stock
purchased by the Holder on the Closing Date divided by 110% of the closing bid
price of the Common Stock on the trading day immediately before the Closing
Date.
(3)Insert 110% of closing bid price on trading day immediately before the
Closing Date.
<PAGE>
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or in part at any
time and from time to time. Such exercise shall be effectuated by submitting to
the Company (either by delivery to the Company or by facsimile transmission as
provided in Section 8 hereof) a completed and duly executed Notice of Exercise
(substantially in the form attached to this Warrant Certificate) as provided in
this paragraph. The date such Notice of Exercise is faxed to the Company shall
be the "Exercise Date," provided that the Holder of this Warrant tenders this
Warrant Certificate to the Company within five (5) business days thereafter. The
Notice of Exercise shall be executed by the Holder of this Warrant and shall
indicate the number of shares then being purchased pursuant to such exercise.
Upon surrender of this Warrant Certificate with, together with appropriate
payment of the Exercise Price for the shares of Common Stock purchased, the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased. If the Notice of Exercise Form elects a "cash"
exercise, the Exercise Price per share of Common Stock for the shares then being
exercised shall be payable in cash or by certified or official bank check. If
the Notice of Exercise Form elects a "cashless" exercise, the Holder shall
thereby be entitled to receive a number of shares of Common Stock equal to (x)
the excess of the Current Market Value (as defined below) over the total cash
exercise price of the portion of the Warrant then being exercised, divided by
(y) the Current Price of the Common Stock as of the trading day immediately
prior to the Exercise Date. For the purposes of this Section 2,(q) "Current
Market Value" shall be an amount equal to the Current Price of the Common Stock
as of the trading day immediately prior to the Exercise Date, multiplied by the
number of shares of Common Stock specified in such Notice of Exercise Form, and
(r) "Current Price of the Common Stock" shall be the closing price of the Common
Stock as reported by Bloomberg, LP or, if not so reported, as reported by the
securities exchange or automated quotation system on which the Common Stock is
listed or on the over-the-counter market for the relevant date. The Holder shall
be deemed to be the holder of the shares issuable to it in accordance with the
provisions of this Section 2.1 on the Exercise Date.
2.2 Limitation on Exercise. Notwithstanding the provisions of this
Warrant, the Securities Purchase Agreement or of the other Transaction
Agreements, in no event (except (i) with respect to an automatic conversion, if
any, of the Preferred Stock as provided in the Certificate of Designations, (ii)
as specifically provided in this Warrant as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to exercise this
Warrant, or shall the Company have the obligation to issue shares upon such
exercise of all or any portion of this Warrant, to the extent that, after such
exercise the sum of (1) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the Preferred Stock or unexercised portion of the Warrants), and (2) the number
of shares of Common Stock issuable upon the exercise of the Warrants with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 9.99% of
the outstanding shares of Common Stock (after taking into account the shares to
be issued to the Holder upon such exercise). For purposes of the proviso to the
immediately preceding
2
<PAGE>
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
except as otherwise provided in clause (1) of such sentence. The Holder, by its
acceptance of this Warrant, further agrees that if the Holder transfers or
assigns any of the Warrants to a party who or which would not be considered such
an affiliate, such assignment shall be made subject to the transferee's or
assignee's specific agreement to be bound by the provisions of this Section 2.2
as if such transferee or assignee were the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock Holder is entitled to purchase pursuant to this
Warrant, multiplied by (ii) the adjusted Exercise Price per share, to equal
(iii) the dollar amount of the total number of shares of Common Stock Holder is
entitled to purchase before adjustment multiplied by the total Exercise Price
before adjustment.
6.2 Capital Adjustments. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original Exercise Price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
3
<PAGE>
6.3 Adjustment for Spin Off. If, for any reason, prior to the
exercise of this Warrant in full, the Company spins off or otherwise divests
itself of a part of its business or operations or disposes all or of a part of
its assets in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had
all of the Holder's unexercised Warrants outstanding on the record date
(the "Record Date") for determining the amount and number of Spin Off
Securities to be issued to security holders of the Company (the
"Outstanding Warrants") been exercised as of the close of business on the
trading day immediately before the Record Date (the "Reserved Spin Off
Shares"), and (ii) to be issued to the Holder on the exercise of all or
any of the Outstanding Warrants, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a
fraction, of which (I) the numerator is the amount of the Outstanding
Warrants then being exercised, and (II) the denominator is the amount of
the Outstanding Warrants; and
(b) the Exercise Price on the Outstanding Warrants shall be adjusted
immediately after consummation of the Spin Off by multiplying the Exercise
Price by a fraction (if, but only if, such fraction is less than 1.0), the
numerator of which is the Average Market Price of the Common Stock (as
defined below) for the five (5) trading days immediately following the
fifth trading day after the Record Date, and the denominator of which is
the Average Market Price of the Common Stock on the five (5) trading days
immediately preceding the Record Date; and such adjusted Exercise Price
shall be deemed to be the Exercise Price with respect to the Outstanding
Warrants after the Record Date. As used herein, the term "Average Market
Price of the Common Stock" means the average closing bid price of a share
of Common Stock, as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market for the relevant period.
7. Transfer to Comply with the Securities Act; Registration Rights.
7.1 Transfer. This Warrant has not been registered under the
Securities Act of 1933, as amended, (the "Act") and has been issued to the
Holder for investment and not with a view to the distribution of either the
Warrant or the Warrant Shares. Neither this Warrant nor any of the Warrant
Shares or any other security issued or issuable upon exercise of this Warrant
may be sold, transferred, pledged or hypothecated in the absence of an effective
registration statement under the Act relating to such security or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act. Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
4
<PAGE>
7.2 Registration Rights. (a) Reference is made to the Registration
Rights Agreement. The Company's obligations under the Registration Rights
Agreement and the other terms and conditions thereof with respect to the Warrant
Shares, including, but not necessarily limited to, the Company's commitment to
file a registration statement including the Warrant Shares, to have the
registration of the Warrant Shares completed and effective, and to maintain such
registration, are incorporated herein by reference.
(b) In addition to the registration rights referred to in the
preceding provisions of Section 7.2(a), effective after the expiration of the
effectiveness of the Registration Statement as contemplated by the Registration
Rights Agreement, the Holder shall have piggy-back registration rights with
respect to the Warrant Shares then held by the Holder or then subject to
issuance upon exercise of this Warrant (collectively, the "Remaining Warrant
Shares"), subject to the conditions set forth below. If, at any time after the
Registration Statement has ceased to be effective, the Company participates
(whether voluntarily or by reason of an obligation to a third party) in the
registration of any shares of the Company's stock (other than a registration on
Form S-8), the Company shall give written notice thereof to the Holder and the
Holder shall have the right, exercisable within ten (10) business days after
receipt of such notice, to demand inclusion of all or a portion of the Holder's
Remaining Warrant Shares in such registration statement. If the Holder exercises
such election, the Remaining Warrant Shares so designated shall be included in
the registration statement at no cost or expense to the Holder (other than any
costs or commissions which would be borne by the Holder under the terms of the
Registration Rights Agreement). The Holder's rights under this Section 7 shall
expire at such time as the Holder can sell all of the Remaining Warrant Shares
under Rule 144 without volume or other restrictions or limit.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
Natural Health Trends Corp.
380 Lashley Street
Longmont, CO 80501
Attn: Mark Woodburn
Telephone No.: (303) 682-4637
Telecopier No.: (303) 682-4236
with a copy to:
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, NY 10016
Attn: Martin C. Licht, Esq.
Telephone No.: (212) 779-8600
Telecopier No.: (212) 779-8858
5
<PAGE>
(ii) if to the Holder, to:
ATTN:
Telephone No.: ( ) -
Telecopier No.: ( ) -
with a copy to:
Krieger & Prager LLP, Esqs.
39 Broadway
Suite 1440
New York, NY 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Holder in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
6
<PAGE>
12. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the __th day of _________ , 2000.
NATURAL HEALTH TRENDS CORP.
By:
------------------------
Name:-------------------
Its:--------------------
Attest:
- ---------------------------
Name:
----------------------
Title:
---------------------
7
<PAGE>
NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of _____________ , ________ , to
purchase __________ shares of the Common Stock, par value $.001 per share, of
NATURAL HEALTH TRENDS CORP. and tenders herewith payment in accordance with
Section 1 of said Common Stock Purchase Warrant.
Please deliver the stock certificate to:
Dated:
----------------------------------
- ---------------------------------------
[Name of Holder]
By:
------------------------------------
|_| CASH: $
---------------------------
|_| CASHLESS EXERCISE
