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.
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
---------------------------------------------
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
- ---------------------------- ---------------------------------------------
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
--------
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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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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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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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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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
-15-
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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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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NATURAL HEALTH TRENDS CORP.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
-18-
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:
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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.
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)
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