FORM OF DEBENTURE
THESE SECURITIES (THE "SECURITIES"), AND THE SHARES ISSUABLE
UPON CONVERSION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), 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 CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.
No.____ US $___
NATURAL HEALTH TRENDS CORP.
6% CONVERTIBLE DEBENTURE DUE March 31, 2000
THIS DEBENTURE is one of a duly authorized issue of $1,300,000
in Debentures of NATURAL HEALTH TRENDS CORP., a corporation duly organized and
existing under the laws of the State of Florida (the "Company") designated as
its 6% Convertible Debenture Due March 31, 2000.
FOR VALUE RECEIVED, the Company promises to pay to the
______________________, the registered holder hereof (the "Holder"), the
principal sum of ____________________________ (US $_______) Dollars on March 31,
2000 (the "Maturity Date") and to pay interest on the principal sum outstanding
from time to time in arrears upon the earlier of the Conversion Date or March
31, 2000 at the rate of 6% per annum accruing from the date of initial issuance.
Accrual of interest shall commence on the first such business day to occur after
the date hereof until payment in full of the principal sum has been made or duly
provided for. Subject to the provisions of P. 4 below, the principal of, and
interest on, this Debenture are payable at the option of the Holder, in shares
of Common Stock of the Company, $.001 par value ("Common Stock"), or in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of the Company as designated in writing by
the Holder from time to time. The Company will pay the principal of and interest
upon this Debenture on the Maturity Date, less any amounts required by law to be
deducted, to the registered holder of this Debenture as of the tenth day prior
to the Maturity Date and addressed to such holder as the last address appearing
on the Debenture Register. The forwarding of such check shall constitute a
payment of principal and interest hereunder and shall satisfy and discharge the
liability for principal and interest on this Debenture to the extent of the sum
represented by such check plus any amounts so deducted.
46442.1
This Debenture is subject to the following additional
provisions:
1. The Debentures are issuable in denominations of One Hundred
Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments
of principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. In the event of
any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including opinions that the issuance of the
Debenture in such other name does not and will not cause a violation of the Act
or any applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. (A) The Holder of this Debenture is entitled, at its
option, to convert at any time commencing the earlier of (a) (i) ninety (90)
days after the closing of sale of the Debenture with respect to one-half of the
principal amount of this Debenture, and (ii) one hundred twenty (120) days after
the closing of sale of the Debentures with respect to the balance of the
principal amount of this Debenture (the "Closing"), or (b) the effective date of
the Registration Statement filed pursuant to the Registration Rights Agreement
between the Company and the Holder, the principal amount of this Debenture, into
shares of Common Stock of the Company at a conversion price for each share of
Common Stock equal to the lesser of (a) $1.4375, or (b) 80% of the Market Price
on the Conversion Date as defined below (the "Conversion Rate"). For purposes of
this Section 4, the Market Price shall be the average closing bid price of the
Common Stock on the five (5) trading days immediately preceding the Conversion
Date, as may be applicable, as reported by the National Association of
Securities Dealers, or the closing bid price on the over-the-counter market on
such date or, in the event the Common Stock is listed on a stock exchange, the
Market Price shall be the closing price on the exchange on such date, as
reported in the Wall Street Journal. Conversion shall be effectuated by
surrendering the Debentures to be converted to the Company with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of the
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Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof, and accompanied, if required by
the Company, by proper assignment hereof in blank. Interest accrued or accruing
from the date of issuance to the date of conversion shall, at the option of the
Purchaser, be paid in cash or Common Stock upon conversion at the Conversion
Rate. No fraction of Shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. The date on which notice of conversion is
given (the "Conversion Date") shall be deemed to be the date on which the
Holder has delivered this Debenture, with the conversion notice duly executed,
to the Company or, the date set forth in such facsimile delivery of the
notice of conversion if the Debenture is received by the Company within
three (3) business days therefrom. Facsimile delivery of the conversion notice
shall be accepted by the Company at telephone number (954-969-9747;
ATT: ___________). Certificates representing Common Stock upon conversion
will be delivered within three (3) business days from the date the notice of
conversion is delivered to the Company.
(B) (i) The Company shall have the right
at any time to redeem any Debentures
for which a Notice of Conversion has
not theretofore been submitted by
delivering a Notice of Redemption to
the Holder of the Debenture.
(ii) The redemption price shall be
calculated at 120% of the principal
amount of the Debenture, plus
accrued and unpaid interest, and
shall be paid to the holder within
ten (10) business days from the date
of the Notice of Redemption, except
with respect to any Debentures for
which a Notice of Conversion is
submitted to the Company, within
five (5) business days of the
Holder's receipt of the Company's
Notice of Redemption. Furthermore,
in the event such payment is not
timely made, any rights of the
Company to redeem the Debenture
shall terminate, and the Notice of
Redemption shall be null and void.
5. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein proscribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company.
6. No recourse shall be had for the payment of the principal
of, or the interest on, this Debenture, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
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7. If the Company merges or consolidates with another
corporation or sells or transfers all or substantially all of its assets to
another person 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 merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee agree that the Debenture 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 this Debenture 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
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen
(15) days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture, less all amounts required by
law to be deducted, upon which tender of payment following such notice, the
right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees
that this Debenture is being acquired for investment and that such Holder will
not offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. 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.
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of
principal or interest on this Debenture; or
b. Any of the representations or warranties
made by the Company herein, in the
Securities Purchase Agreement, or in any
certificate or financial or other written
statements heretofore or hereafter furnished
by the Company in connection with the
execution and delivery of this Debenture or
the Securities Purchase Agreement
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shall be false or misleading in any material
respect at the time made; or
c. The Company fails to issue shares of Common
Stock to the Holder or to cause its Transfer
Agent to issue shares of Common Stock upon
exercise by the Holder of the conversion
rights of the Holder in accordance with the
terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer
any certificate for shares of Common Stock
issued to the Holder upon conversion of this
Debenture and when required by this
Debenture or the Registration Rights
Agreement, or fails to remove any
restrictive legend or to cause its Transfer
Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder
upon conversion of this Debenture as and
when required by this Debenture, the
Agreement or the Registration Rights
Agreement and any such failure shall
continue uncured for five (5) business days.
d. The Company fails to issue shares of Common
Stock to the Holder or to cause its Transfer
Agent to issue shares of Common Stock upon
exercise by the Holder of the conversion
rights of the Holder in accordance with the
terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer
any certificate for shares of Common Stock
issued to the Holder upon conversion of this
Debenture and when required by this
Debenture or the Registration Rights
Agreement, or fails to remove any
restrictive legend or to cause its Transfer
Agent to transfer on any certificate or any
shares of Common Stock issued to the Holder
upon conversion of this Debenture as and
when required by this Debenture, the
Agreement or the Registration Rights
Agreement and any such failure shall
continue uncured for five (5) business days.
e. The Company shall fail to perform or
observe, in any material respect, any other
covenant, term, provision, condition,
agreement or obligation of the Company under
this Debenture and such failure shall
continue uncured for a period of thirty (30)
days after written notice from the Holder of
such failure; or
f. The Company shall (1) admit in writing its
inability to pay its debts generally as they
mature; (2) make an assignment for the
benefit of creditors or commence proceedings
for its dissolution; or (3) apply for or
consent to the appointment of a trustee,
liquidator or receiver for its or for a
substantial part of its property or
business; or
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g. A trustee, liquidator or receiver shall be
appointed for the Company or for a
substantial part of its property or business
without its consent and shall not be
discharged within sixty (60)
days after such appointment; or
h. Any governmental agency or any court of
competent jurisdiction at the instance of
any governmental agency shall assume custody
or control of the whole or any substantial
portion of the properties or assets of the
Company and shall not be dismissed within
sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of
attachment, or similar process in excess of
Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed
against the Company or any of its properties
or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period
of sixty (60) days or in any event later
than five (5) days prior to the date of any
proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings
for relief under any bankruptcy law or any
law for the relief of debtors shall be
instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any
action or answer approve of, consent to, or
acquiesce in any such proceedings or admit
the material allegations of, or default in
answering a petition filed in any such
proceeding; or
k. The Company shall have its Common Stock
suspended or delisted from an exchange or
over-the-counter market from trading for in
excess of one (1) business day.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed
as conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
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IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized.
Dated: __________________, 1997
NATURAL HEALTH TRENDS CORP.
By: ____________________________________
Name:
Title:
6442.1
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EXHIBIT A
NOTICE OF CONVERSION
(To he Executed by the Registered Holder in order to Convert
the Debenture)
The undersigned hereby irrevocably elects to convert
$_________ of the principal amount of the above Debenture No. into Shares of
Common Stock of NATURAL HEALTH TRENDS CORP. (the "Company") according to the
conditions hereof, as of the date written below.
The undersigned hereby reaffirms the undersigned's
representations made in the Securities Purchase Agreement between the
undersigned and the Company as of the date hereof.
Date of Conversion* ________________________________________________________
Applicable Conversion Price __________________________________________________
Signature ________________________________________________________________
[Name]
Address: ________________________________________________________________
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* This original Debenture and Notice of Conversion must be received by the
Company by the fifth business date following the Date of Conversion.
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