EXHIBIT 10.1
July 31, 2006
Ms. Stephanie Hayano
301 East 64th Street
Apt. 3H
New York, NY
Re: Employment Terms
Dear Stephanie:
     I am pleased to set forth the terms and conditions of your employment with
Natural Health Trends Corp. (the “Company”). We look forward to your significant
contributions toward the achievement of our goals.
     The Position
     Commencing on July 31, 2006 (the “Commencement Date”), you will be
appointed as the Company’s President and Chief Executive Officer. You will be
responsible for setting, managing and achieving the Company’s objectives. You
will report to the Company’s Board of Directors and you agree to be a member
thereon, including the committees thereof, without payment of additional
compensation. It is anticipated that you will be appointed to the Board of
Directors effective as of the Commencement Date. However, in the event that you
are no longer employed by the Company, you agree to resign from the Board as of
your last day of employment. Accordingly, you agree to sign a resignation
letter, a form of which is attached hereto as Exhibit A.
     Compensation Package
     Your base salary is $300,000 per year and you will also be eligible to
receive annual incentive compensation equal to 50% of your base salary if
certain annual performance goals for the Company’s operations are achieved.
These goals will be established by you and the Compensation Committee at the
beginning of each fiscal year. The incentive bonus will be paid in cash
immediately following the completion of the Company’s year end audit of its
financial statements. For fiscal 2006, you will receive an annual bonus equal to
$62,500. In addition, on the Commencement Date, you will receive a signing bonus
equal to $30,000.
     Benefits Package
     Your compensation will also include participation in our standard benefits
program available to our U.S. based employees. Until the earlier of January 31,
2007 or

 

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the date on which you relocate to the Dallas metroplex area, you will also be
provided with a temporary living allowance equal to $5,000 per month and
reimbursement of automobile rental expenses and costs incurred by you in
connection with your travel to and from the Dallas area.
Equity Participation
     I am also happy to inform you that the Company’s Compensation Committee has
authorized the grant on the Commencement Date to you of options to purchase
150,000 shares of the Company’s common stock, pursuant to and in accordance with
the Company’s 2002 Stock Option Plan, as amended. The exercise price of the
options will be equal to the closing price of Company’s common stock on the
Commencement Date as reported on The Nasdaq National Market. The options will
vest over a three year period and will expire 5 years following the Commencement
Date (unless your employment with the Company is sooner terminated).
     Vacation
     You will be entitled to four (4) weeks vacation per annum, in accordance
with the Company’s vacation policy.
     Severance
     Following the relocation of your permanent residence to the Dallas
metroplex area, you will be entitled to Severance Payments (as defined below) if
any of the following events occur:
     (i) the Company terminates you without Cause (as defined below) during the
period commencing on the date that is thirty (30) days prior to a Change of
Control (as defined below) through and including the date that is 18 months
following such Change of Control (a “Change of Control Termination”);
     (ii) you provide the Company with written notice of your resignation for
Good Reason (as defined below) and the Company has not cured such event within
30 days following its receipt of such written notice; or
     (iii) the Company terminates you without Cause (other than in connection
with a Change of Control as contemplated in (i) above).
     However, in order to receive any Severance Payments you must execute and
deliver to the Company a full general release of all claims against the Company
and its affiliates in form and substance satisfactory to the Company.
     As used herein, the term:

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     (a) “Severance Payments” shall mean the continuation of the payment of your
base salary then in effect (plus health and medical insurance coverage as
previously provided to you) for a period of up to two (2) years following the
termination date, or until such earlier date on which you become engaged in any
Competitive Activity (as defined in the Non-Competition Agreement) or otherwise
breach the terms and conditions of the Non-Competition Agreement (each, a
“Severance Payment Termination Event); provided however, that with respect to a
Change of Control Termination, the Employee shall be entitled to receive
Severance Payments for a period of up to three (3) years only, subject to
earlier discontinuation following a Severance Payment Termination Event;
     (b) “Cause” shall include, without limitation, the following: (i) failure
or neglect, by you to perform the duties of your position; (ii) your failure to
obey orders given by the Company or your supervisors; (iii) your misconduct in
connection with the performance of any of your duties, including, without
limitation, misappropriation of funds or property of the Company, securing or
attempting to secure personally any profit in connection with any transaction
entered into on behalf of the Company, misrepresentation to the Company, or any
violation of law or regulations on Company premises or to which the Company is
subject; (iv) your commission of an act involving moral turpitude, dishonesty,
theft or unethical business conduct, or conduct which impairs or injures the
reputation of, or harms, the Company; (v) your disloyalty, including without
limitation, aiding a competitor; (vi) your failure to devote your full time and
best efforts to the Company‘s business and affairs; (vii) your failure to work
exclusively for the Company; (viii) your failure to fully cooperate in any
investigation by the Company; (ix) your breach of this Agreement or Company
rules; (x) any other act of misconduct by you that could reasonably be expected
to have a material adverse effect on the Company, its business, prospects or
reputation; (xi) your abuse of alcohol or other drugs or controlled substances;
or (xii) your resignation (other than for Good Reason).
     (c) “Change of Control” shall mean: (i) when any “person” as defined in
Section 3(a)(9) of the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), and as used in Section 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) of the Exchange Act, but excluding the
Company or any subsidiary or any affiliate of the Company or any employee
benefit plan sponsored or maintained by the Company or any subsidiary of the
Company (including any trustee of such plan acting as trustee), becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of
securities of the Company representing more than 50% of the combined voting
power of the Company’s then outstanding securities; or (ii) when, during any
period of twenty-four (24) consecutive months, the individuals who, at the
beginning of such period, constitute the Board of Directors (the “Incumbent
Directors”) cease for any reason other than death to constitute at least a
majority thereof, provided, however, that a director who was not a director at
the beginning of such 24-month period shall be deemed to have satisfied such
24-month requirement (and be an Incumbent Director) if such director was elected
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually (because
they were directors at the beginning of such 24-month period) or through the
operation of this

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provision; or (iii) the occurrence of a transaction requiring stockholder
approval under applicable state law for the acquisition of the Company by an
entity other than the Company or a subsidiary or an affiliated company of the
Company through the purchase of assets, or by merger, or otherwise; provided
however, that none of the foregoing shall constitute a Change of Control if such
transaction, event or occurrence shall be approved by, or consented to, by the
Employee;
     (d) “Good Reason” shall mean the occurrence of any of the following without
your written consent or approval: (A) the assignment to you of duties
inconsistent with this Agreement or a material diminution in your title or
authority; (B) any change in reporting responsibility so that you report to any
person other than the Board of Directors of the Chairman thereof; or (C) any
material breach of the Agreement by this Company.
     Non-Competition and Confidentiality Agreement
     You agree to enter into a Non-Competition and Proprietary Rights Assignment
Agreement, a form of which is attached hereto as Exhibit B (the “Non-Competition
Agreement”), pursuant to which you will agree that you will keep in confidence
the Company’s confidential information, you will not compete with the Company,
and you will not solicit employees or independent distributors of the Company.
     Arbitration
     All disputes between Parties in connection with arising out of the
existence, validity, construction, performance and termination of this Agreement
shall be finally settled by arbitration. The arbitration shall be held in
Dallas, Texas in accordance with the Rules of the American Arbitration
Association by one or more arbitrators appointed in accordance with the said
Rules and the award of such arbitrators shall be final and binding upon the
Parties. The non-prevailing party shall pay for all reasonable costs and
expenses incurred in connection with such dispute, including filing and
arbitrator fees as well as the reasonable costs and expenses of opposing legal
counsel.
     Employment At Will
     You understand that your employment will be at will, and either you or the
Company may terminate the relationship at any time upon four (4) weeks notice;
provided however, that the at will relationship will not in any way affect the
Company’s obligation to pay severance to you as set forth above under
“Severance”.

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     We all look forward to working with you and know that you will do an
outstanding job in this critical role. All of the benefits described in this
letter are conditioned upon your acceptance of this offer. Please indicate your
acceptance and agreement with the terms of this letter by signing below in the
space provided and by signing the Non-Competition Agreement.

            Sincerely,

NATURAL HEALTH TRENDS CORP.
      By:   /s/ Randall A. Mason         Name:   Randall A. Mason       
Title:   Chairman of the Board     

Agreed to and Accepted:
  /s/ Stephanie Hayano                                                          
   
Stephanie Hayano
Date:

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Exhibit A
Stephanie Hayano
July 31, 2006
To the Board of Directors
Natural Health Trends Corp:
Ladies and Gentlemen:
     I understand that my appointment to the Board of Directors (the “Board”) of
Natural Health Trends Corp. (the “Company”) is in connection with my appointment
as the Company’s President and Chief Executive Officer. Accordingly, in the
event that I no longer serve in that capacity, I respectfully request that you
accept my resignation as a member of the Board effective as of my last date of
employment as the Company’s President and Chief Executive Officer.

     
 
  Very truly yours,
 
   
 
  Stephanie Hayano

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Exhibit B
NATURAL HEALTH TRENDS CORP.
NON-COMPETITION AND PROPRIETARY RIGHTS
ASSIGNMENT AGREEMENT
Employee’s Name: Stephanie Hayano (“Employee”)
Date: July 31, 2006
In consideration of Employee’s employment by or other similar relationship with
Natural Health Trends Corp. (including their subsidiaries, successors and
assigns, the “Company”) and in consideration for and as a condition to the
transactions contemplated by that certain Letter Agreement dated as of the date
hereof by and between the Company and the Employee, the Employee hereby agrees
with the Company as follows:
     1. Confidential Information. During the term of this Agreement and in the
course of Employee’s performance of services for the Company, Employee may
receive and otherwise be exposed to confidential or competitively sensitive
information of the Company, or of a third party with which the Company has a
business relationship, relating to the Company’s or such third party’s current
or prospective business, research and development activities, products,
technology, strategy, organization and/or finances (collectively, “Confidential
Information”). Such Confidential Information, which may be disclosed orally or
in writing, shall include, without limitation, Technology (as defined in
Section 2(a)), Work Product (as defined in Section 2(a)), plans, strategies,
negotiations, customer or prospect identities, market analyses, projections,
forecasts, cost and performance data, sales data, financial statements, price
lists, pre-release information regarding the Company’s products, personnel lists
and data, and all documents and other materials (including any notes, drawings,
reports, manuals, notebooks, summaries, extracts or analyses), whether in
written or electronic form, that disclose or embody such Confidential
Information.
     Confidential Information shall not include information that is now, or
hereafter becomes, through no act or failure to act on Employee’s part,
generally known to the public; information that was rightfully in Employee’s
possession without confidentiality restriction prior to the Company’s disclosure
to Employee; information that was rightfully obtained by Employee from a third
party who has the right, without obligation to the Company, to transfer or
disclose such information; or information which Employee is required to disclose
pursuant to judicial order, provided that in the latter case Employee shall
promptly notify the Company and take reasonable steps to assist the Company in
protecting the Company’s rights prior to disclosure. At all times, both during
Employee’s relationship with the Company and after the termination thereof,
Employee will keep all Confidential Information in strict confidence; will not
use Confidential Information except for the purpose of providing services to the
Company; and will not divulge, publish, disclose or communicate Confidential
Information, in whole or in part, to any third party. Employee further agrees
that Employee will not allow any unauthorized person access to Confidential
Information, either before or after the termination of this Agreement, and will
take all action reasonably necessary and satisfactory to the Company to protect
the confidentiality of Confidential Information. Employee agrees not to
reproduce or copy by any means Confidential Information, except as reasonably
required to accomplish the purposes of this Agreement, and further agrees not to
remove any proprietary rights legend from such Confidential Information or
copies thereof made in accordance with this Agreement. Upon termination of
Employee’s services for any reason, or upon demand by the Company at any

 

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time, Employee’s right to use Confidential Information shall immediately
terminate, and Employee shall return promptly to the Company, or destroy, at the
Company’s option, all tangible and electronic materials that disclose or embody
Confidential Information.
     2. Assignment of Work Product.

  (a)   For purposes of this Agreement: “Technology” shall mean all ideas,
concepts, inventions, discoveries, developments, creations, methods, techniques,
processes, machines, products, devices, compositions of matter, improvements,
modifications, designs, systems, specifications, schematics, formulas, mask
works, works of authorship, software, algorithms, data and know-how, whether or
not patentable or copyrightable, and all related notes, drawings, reports,
manuals, notebooks, summaries, memoranda and other documentation; “Intellectual
Property Rights” shall mean all worldwide intellectual property rights
including, without limitation, all rights relating to the protection of
inventions, including patents, patent applications and certificates of
invention; all rights associated with works of authorship, including copyrights
and moral rights; all rights relating to the protection of trade secrets and
confidential information; all rights related to the protection of trademarks,
logos and service marks; any rights analogous to those set forth herein, and all
other proprietary rights related to intangible property; and “Work Product”
shall mean any and all Technology made, conceived, designed, created,
discovered, invented or reduced to practice by Employee during the term of this
Agreement that (i) results from Employee’s performance of services for the
Company, (ii) is related to the business of the Company or (iii) is based upon
the use of Confidential Information.     (b)   Employee agrees to promptly
disclose to the Company in writing all Work Product upon the development,
conception or creation thereof by Employee, as well as, at any time, upon the
request of the Company.     (c)   Employee agrees that all Work Product shall be
the sole and exclusive property of the Company, and does hereby irrevocably and
unconditionally transfer and assign to the Company, its successors and assigns,
all right, title and interest it may have or acquire in or to any Work Product,
including all Intellectual Property Rights therein. Employee further agrees that
any and all works of authorship created, authored or developed by Employee
hereunder shall be deemed to be “works made for hire” within the meaning of the
United States copyright law and, as such, all rights therein including copyright
shall belong solely and exclusively to the Company from the time of their
creation. To the extent any such work of authorship may not be deemed to be a
work made for hire, Employee agrees to, and does hereby, irrevocably and
unconditionally transfer and assign to the Company all right, title, and
interest including copyright in and to such work.     (d)   Upon request by the
Company, Employee agrees to execute and deliver all such documents,
certificates, assignments and other writings, and take such other actions, as
may be necessary or desirable to vest in the Company ownership in

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      all Work Product as provided in this Section 2, including, but not limited
to, the execution and delivery of all applications for securing all United
States and foreign patents, copyrights and other intellectual property rights
relating to Work Product. The Company shall reimburse Employee for any
reasonable expenses incurred by Employee at the Company’s request to secure
title or legal protection on the Company’s behalf for any such Work Product. In
the event that the Company is unable to secure Employee’s signature to any
document, or if Employee otherwise fails to take any action deemed necessary by
the Company to protect or maintain the Company’s ownership of Work Product and
Intellectual Property Rights therein, then the Company may, and Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as Employee’s agent and attorney-in-fact to act on and in Employee’s
behalf and stead to, execute and file any such applications and perform all
other lawfully permitted acts to perfect Employee’s assignment and transfer of
ownership rights to the Company with the same legal force and effect as if
executed, filed and performed by Employee.           (e)   For purposes of this
Section 2(e), “Background Technology” shall mean Technology owned by or licensed
to Employee as of the Effective Date of this Agreement or developed or otherwise
obtained by Employee following the Effective Date hereof independently of the
performance of services hereunder by Employee. The Company acquires no rights in
the Background Technology, except as specifically provided in this Agreement
and, as between the parties, Employee retains all rights therein. Employee
hereby grants to Company a royalty-free, worldwide, non-exclusive, perpetual,
sublicensable and irrevocable right and license to use, for all purposes in
Company’s business, Background Technology that has been disclosed by Employee to
Company or that is embodied within or related to the use, operation or
improvement of Work Product created by Employee in connection with Employee’s
performance of services for the Company.

     3. Representation. Employee hereby represents to the Company that the Work
Product Employee creates under this Agreement will be original, and that
Employee’s performance of services under this agreement and the Company’s use of
Employee’s Work Product will not breach any agreement Employee has with any
third party or the intellectual property rights or other rights of any third
party.
     4. Return of Materials. All documents, records, apparatus, equipment and
other physical property, whether or not pertaining to Confidential Information,
which are furnished to Employee by the Company or are produced by Employee in
connection with Employee’s services will be and remain the sole property of the
Company. Employee will return to the Company all such materials and property as
and when requested by the Company. In any event, Employee will return all such
materials and property immediately upon termination of Employee’s services for
any reason. Employee will not retain any such material or property or any copies
thereof upon such termination.
     5. Competitive Activities. From the date hereof until the six (6) month
anniversary of the later of the date on which Employee no longer is employed by
the Company, serves as a consultant to the Company or serves as a member of the
Board of Directors of the Company (the “Non-Compete

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Restricted Period”), Employee will not, directly or indirectly, whether as
owner, partner, shareholder, director, agent, employee, co-venturer or
otherwise, without the written consent of the Company, engage, participate or
invest in any business activity with respect to any multi-level marketing or
direct sales organization that indirectly or directly competes with the Company
in recruiting for independent distributors (collectively, the “Competitive
Activities”). The prohibition set forth in this Section 5 shall not restrict
Employee from owning or holding up to two percent (2%) of the shares of stock of
any company registered or sold on any recognized stock exchange or sold in the
over-the-counter market. Employee understands and agrees that the restrictions
set forth in this Section 5 are intended to protect the Company’s reasonable
competitive business interests, its interest in its Confidential Information and
established and prospective customer relationships and goodwill, and agree that
such restrictions are reasonable and appropriate for this purpose.
     6. Nonsolicitation of Customers and Distributors. During the Non-Compete
Restricted Period plus six (6) months (the “Nonsolicitation Period”), Employee
will not, in any capacity, directly or indirectly:

  (a)   solicit business or patronage of any customer or prospective customer
(collectively, “Customer”), or distributor or prospective distributor
(collectively, “Distributor”) of the Company in connection with any Competitive
Activity;     (b)   divert, entice, or otherwise take away from the Company the
business or patronage of any Customer or Distributor, or attempt to do so;    
(c)   solicit, induce or assist any Customer, Distributor or supplier to
terminate or reduce its relationship with the Company;     (d)   assist with the
provision of any services to a Customer or Distributor (except in Employee’s
capacity as an employee of the Company); or     (e)   refer a Customer,
Distributor or supplier to another person engaged (or to be engaged) in
Competitive Activities.

     7. Nonsolicitation of Employees. During the Nonsolicitation Period,
Employee will not:

  (a)   hire or employ, directly or indirectly through any enterprise with which
Employee is associated, any current employee of the Company or any individual
who had been employed by the Company within one (1) year preceding Employee’s
termination (other than persons whose employment by the Company was terminated
by or at the request of the Company); or     (b)   recruit, solicit or induce
(or in any way assist another person or enterprise in recruiting, soliciting or
inducing) any employee or director of the Company to terminate his or her
employment or other relationship with the Company.

     8. Acknowledgments. Employee acknowledges and agrees that the restrictions
set forth in this Agreement are intended to protect the Company’s interest in
Confidential Information and its commercial relationships and goodwill (with its
Customers, Distributors, vendors, directors and employees), and are reasonable
and appropriate for these purposes.

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     9. Disclosure of Agreement. Employee will disclose the existence and terms
of this Agreement to any prospective employer, partner, co-venturer, investor or
lender prior to entering into an employment, partnership or other business
relationship with such person or entity.
     10. Third-Party Agreements and Rights. Employee hereby confirms that
Employee is not bound by the terms of any agreement with any previous employer
or other party which restricts in any way Employee’s use or disclosure of
information or Employee’s engagement in any business, except as may be disclosed
in Schedule A attached to this Agreement prior to its acceptance by the Company.
Employee has delivered to the Company true and complete copies of any agreements
listed on Schedule A. Employee represents to the Company that Employee’s
execution of this Agreement, Employee’s employment with the Company and the
performance of Employee’s proposed duties for the Company will not violate any
obligations Employee may have to any such previous employer or other party. In
Employee’s work for the Company, Employee will not disclose or make use of any
information in violation of any agreements with or rights of any such previous
employer or other party, and Employee will not bring to the premises of the
Company any copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or other party.
     11. Injunction. Employee agrees that it would be difficult to measure any
damages caused to the Company which might result from any breach by Employee of
the promises set forth in this Agreement, and that in any event money damages
would be an inadequate remedy for any such breach. Accordingly, Employee agrees
that if Employee breaches, or proposes to breach, any portion of this Agreement,
the Company shall be entitled, in addition to all other remedies that it may
have, to an injunction or other appropriate equitable relief to restrain any
such breach without showing or proving any actual damage to the Company.
     12. Binding Effect. This Agreement will be binding upon Employee and
Employee’s heirs, executors, administrators and legal representatives and will
inure to the benefit of the Company, any subsidiary of the Company, and its and
their respective successors and assigns.
     13. Enforceability. If any portion or provision of this Agreement is to any
extent declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, will not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. In the event that any provision of this Agreement is
determined by any court of competent jurisdiction to be unenforceable by reason
of excessive scope as to geographic, temporal or functional coverage, such
provision will be deemed to extend only over the maximum geographic, temporal
and functional scope as to which it may be enforceable.
     14. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and Employee with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.

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     15. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to Employee at
the last address which Employee has filed in writing with the Company or, in the
case of any notice to the Company, at its main offices, to the attention of the
undersigned officer.
     16. Governing Law. The validity, interpretation, performance and
enforcement of this agreement shall be governed by the laws of the State of
Delaware, without applying the conflict of laws provisions thereof.
     17. Arbitration. All disputes between Parties in connection with arising
out of the existence, validity, construction, performance and termination of
this Agreement shall be finally settled by arbitration. The arbitration shall be
held in the Dallas, Texas in accordance with the Rules of the American
Arbitration Association by one or more arbitrators appointed in accordance with
the said Rules and the award of such arbitrators shall be final and binding upon
the Parties. The non-prevailing party shall pay for all reasonable costs and
expenses incurred in connection with such dispute, including filing and
arbitrator fees as well as the reasonable costs and expenses of opposing legal
counsel.
EMPLOYEE UNDERSTANDS THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. EMPLOYEE HAS
READ IT CAREFULLY AND IS SATISFIED THAT EMPLOYEE UNDERSTANDS IT COMPLETELY.

            NATURAL HEALTH TRENDS CORP.
      By:           Name:   Randall A. Mason        Title:   Chairman of the
Board     

Dated:                       

            EMPLOYEE
      By:           Name:   Stephanie Hayano             

Dated:                       

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