**Exhibit 10.5**

 

**EMPLOYMENT AGREEMENT**

 

This Agreement, is effective as of the 20thday of June, 2003 (the “Effective Date”), and is by and between NATURE’SSUNSHINE PRODUCTS, INC., a Utah Corporation, having its principal place ofbusiness in Provo, Utah (“NSP”), and  theundersigned individual (“Employee”).

 

**RECITALS**

 

WHEREAS, NSP is in the business of (i) manufacturingand selling numerous consumer products and services, including but not limitedto herbs, vitamins, minerals, health foods, food supplements, skin careproducts and other health-related products, and (ii) distribution ofproducts and services by the method of multilevel marketing/direct salesdistribution; and

 

WHEREAS, Employee has been employed by NSPsince December 18, 1989; and

 

WHEREAS, both NSP and Employee desire toembody the terms and conditions of Employee’s employment in a written agreementwhich shall supersede and revoke any and all prior agreements of employment,whether written or oral.

 

NOW, THEREFORE, in consideration of the mutualagreements herein contained, the parties hereby agree as follows:

 

**GENERALPROVISIONS**

 

**1.****             Employment: **NSP hereby employs Employee and Employeehereby agrees to serve NSP as its Vice President, International Europe.  Employee shall devote Employee’s full timeand efforts to NSP during the term of Employee’s employment and shall act withcomplete loyalty to NSP.

 

NSP may assign Employee such additional orsubstitute titles and duties as NSP shall determine in its solediscretion.  Employee shall at all timesact in a professional manner.  Employeeshall perform the duties set forth in Exhibit “A”, attached hereto, andsuch other duties as NSP may specify, in a competent and responsible manner andto NSP’s reasonable satisfaction. Employee agrees to abide by the policies and procedures as may be setforth in handbooks, manuals and other materials provided by NSP.

 

**2.****             Term: **The term of Employee’s employment shallbe twelve months, and shall hereinafter be referred to as the “Initial Term.”  The Initial Term shall begin as of theEffective Date.  Unless and untilEmployee’s employment with NSP is terminated by NSP or Employee for any reasonor no reason, at the end of the Initial Term this Agreement shall automaticallybe renewed and extended for additional periods of twelve months each andEmployee’s employment with NSP shall continue during the extended period.

 

**3.****             Compensation:**

 

**(a)           BaseSalary: **Ascompensation, NSP shall pay Employee a base salary of $117,772 per year (“BaseSalary”).  Base Salary shall be paidaccording to NSP’s payroll schedule.

 

**(b)           DiscretionaryBonus: **Employeeshall also be eligible to participate in the executive bonus program or anysuccessor program (the “EBP”).  Paymentof any bonus under the EBP is in NSP’s sole discretion according to the thencurrent practice and criteria established by NSP.

 

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**(c)           Employee’sBenefits: **UntilEmployee’s employment is terminated, Employee shall be entitled to all standardemployee benefits then in effect for employees of NSP holding comparable titlesor positions (the “Benefits”).

 

**(d)           StockOption:  **Inaddition to the base salary and bonus provided for in Sections 3(a) and 3(b) aboveNSP may from time to time grant to Employee options (the “Options”) to purchaseshares of NSP’s common stock (the “Option Stock”), pursuant to the price, termsand conditions set forth in NSP’s 1995 Stock Option Plan, as amended from timeto time.

 

**4.****             Termination:**

 

**(a)           DiscretionaryTermination by NSP:** Notwithstanding anything in thisAgreement, during the Initial Term and thereafter NSP may terminate Employee’semployment immediately for Cause.  NSPmay terminate Employee’s employment at will, subject to this Agreement and NSP’sobligation to pay Severance Pay to Employee as provided in Section 5.

 

**(b)           DiscretionaryTermination by Employee:**  Employee may terminate Employee’s employmentby giving NSP at least two weeks’ notice of said resignation.

 

**(c)           Terminationfor Cause by NSP:** Notwithstanding anything in this Agreement, during the Initial Term andthereafter NSP may terminate Employee’s employment immediately for Cause.  For purposes of this Agreement, “Cause” shallinclude (i) material breach by Employee of this Agreement, (ii) performanceby Employee deemed unsatisfactory to NSP acting reasonably, provided NSP’sexpectations for specific improvement are communicated to Employee in writingwith a ninety (90) day probation period allowed for the requisite improvement, (iii) Employee’sdishonesty or violation of company rules by Employee including thatcertain Confidentiality Agreement by and between NSP and Employee, or (iv) Employee’sconviction of or entrance of a plea of *nolo contendere*to a felony or to any other crime punishable by incarceration.

 

**(d)           Terminationupon Death or Incapacity of Employee: ** Employee’s employment with NSP shall, at theexclusive election of NSP, terminate upon the death or Incapacity ofEmployee.  For purposes of Sections 4 and5, termination of Employee’s employment by reason of Employee’s death orIncapacity shall be considered termination of Employee’s employment by NSP *without* Cause and Employee shall receive the Severance Pay,if any, pursuant to Section 5.

 

**(e)           Definitionof Incapacity:** In this Agreement, “Incapacity” shall mean that Employee is for a periodof ninety-five (95) consecutive days or more, unable to perform Employee’sduties effectively, for reasons such as emotional, mental or physical illness,deficiency or disability.  In thisAgreement, if any question arises as to the “Incapacity” of Employee, NSP shallpromptly engage three physicians who are members of the American MedicalAssociation to examine Employee and determine if Employee is able to performthe duties of Employee’s employment with NSP. In the event Employee appears to have mental capacity to act, one ofsaid three physicians shall be selected by Employee, one shall be selected byNSP, and one shall be selected by the other two physicians.  The decision of the three physicians shall beconclusive for all purposes of this Agreement.

 

**5.****             Effectof Termination on Compensation:**

 

**(a)           DiscretionaryTermination by NSP:** If Employee’s employment is terminated by NSP *withoutCause*, Employee shall be entitled to receive as severance pay (“Severance

 

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Pay”) the following:  (i) an amount equal to Base Salary forthe twelve (12) months from the date of termination (the “Severance Pay Period”)and (ii) continuation of any coverage in effect at the date of terminationfor Employee and his or her family at NSP’s expense under NSP’s major medicaland life insurance plans during the Severance Pay Period.

 

**(b)           Non-Renewalby NSP Without Cause; Death; Incapacity: **If NSP *without Cause*does *not* renew Employee’s employment at theend of the Initial Term, or the end of any employment period thereafter, or ifEmployee’s employment is terminated by reason of Employee’s death orIncapacity, then Employee (or Employee’s estate or designated beneficiary, asthe case may be) shall receive Severance Pay during the Severance Pay Period.

 

**(c)           Terminationby Employee; Termination or Non-Renewal by NSP For Cause: **If Employee’semployment is (i) terminated by Employee, or (ii) terminated forCause or for Cause not renewed by NSP, Employee shall receive only Employee’sBase Salary and the Benefits earned through the date of such termination.

 

**(d)           Payment: **At the option ofNSP, Severance Pay may be distributed in a lump sum or in regular biweeklychecks over the Severance Pay Period. Any Severance Pay is subject to required payroll deductions andwithholdings.

 

**(e)           Limitation: **Except as providedin this Section 5, Employee shall not be entitled to any further or otherSeverance Pay, Base Salary, Benefits, compensation, damages or otheramounts.  Employee understands and agreesthat notwithstanding anything in this Agreement, NSP’s obligation to pay anyBase Salary, benefits or Severance Pay after termination of employment dependsupon Employee’s compliance with the agreements and covenants of Sections 6through 9.  *Except asotherwise expressly provided in this Agreement, Employee shall not receive anyhealth or life insurance coverage after the date of termination, except COBRAbenefits, if any, as and to the extent prescribed by law.*

 

**PROTECTIONOF NSP**

 

**6.****             Noncompetitionand Nonsolicitation:**

 

**(a)           Definitions: **In this Section 6,the “Restricted Territory” shall mean the United States and any country where(on the date the notice terminating Employee’s employment is received) NSP isdoing business or planning to do business within the next year through asubsidiary or joint venture.  In this Section 6,the “Restrictive Period” shall mean the period **(i) ***commencing* with the Effective Date, and **(ii) ***ending* one year after the later of (x) the date oftermination of Employee’s employment (whether or not employment is terminatedby NSP or Employee, or for Cause or otherwise), or (y) the date of finalpayment of Severance Pay was paid to Employee (or would have been paid but fora breach of this Agreement by Employee or for Cause termination of Employee’semployment).

 

**(b)           EmployeeNoncompetition and Nonsolicitation Covenants: **Employee hereby covenants and agrees thatEmployee shall not, directly or indirectly, in the Restricted Territory duringthe Restricted Period, do any of the following:

 

**(i)           **ownan interest in (other than less than one percent of a publicly traded company),operate, join, control, participate in or be a distributor, agent, consultant,independent contractor, employee, officer, director, partner, principal orshareholder of *any individual, person or entity having tenpercent (10%) or more of its gross sales from distribution of herbs and/orvitamins*;

 

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**(ii)**           plan for or organize any businesswhich competes or would compete with *any herb or vitaminproduct of NSP,* or combine with any other employee or representativeof NSP to organize any such competitive business;

 

**(iii)        **solicit,induce or influence (or seek to induce or influence) any person under contractwith NSP (including any associate or distributor of NSP) to terminate or alterhis or her relationship with NSP; or

 

**(iv)         **solicitany customer of NSP where the identity or any significant information aboutsuch customer was or is Confidential Information of NSP (as such term is definedin that certain Confidentiality Agreement by and between Employee and NSP).

 

**(c)           Extensionof Restrictive Period: **Employeeagrees that NSP, in its sole discretion, may extend the Restrictive Period andthe foregoing restrictive covenants in Section 6(b) for up to anadditional year.  To do so, NSP must (i) giveEmployee at least ninety days prior notice of its intention to extend therestrictive covenant, and (ii) pay Employee an amount equal to the BaseSalary for and during the period of such extension.  Any such payments shall be paid according toNSP’s regular payroll schedule.

 

**(d)           Intentions:**  It is the intention of the parties that theforegoing restrictive covenant be enforced as written, and, in any other event,enforced to the greatest extent (but to no greater extent) in time, territoryand degree of participation as permitted by applicable law.

 

**7.****             Non-Disparagement:**  Employee hereby also covenants not todisparage, orally or in writing, NSP or its management (including NSP’sproducts, practices and policies) to any NSP employee, associate, distributoror member of the public or press. Employee understands and agrees that Employee may lose any right toSeverance Pay if Employee breaches this covenant not to disparage.

 

**8.****             Acknowledgement:**  Employee acknowledges that Employee’scovenants and agreements in Sections 6 and 7 are reasonable and necessary toprotect the legitimate interests and Confidential Information of NSP.  Employee acknowledges that Section 6 isnot so broad as to prevent Employee from earning a livelihood or practicingEmployee’s chosen profession after termination of Employee’s employment.  The parties acknowledge and agree that thecompensation and benefits provided for under this Agreement are in substantialpart consideration for Employee’s covenants in Sections 6 and 7.

 

**9.             Enforcement: **For any breach of Section 6,7, 8 or 9, Employee agrees that NSP is entitled to equitable and otherinjunctive relief which may include, but shall not be limited to restrainingEmployee from rendering any service or performing or participating in anyactivity in breach of this Agreement. However, no remedy available under this Agreement (including this Section 9)is intended to be exclusive of any other remedy, and each and every remedy shallbe cumulative and shall be in addition to every other available remedy or nowhereafter existing at law or in equity, by statute or otherwise.

 

**MISCELLANEOUS**

 

**10.****          EntireAgreement: **This Agreement (includingthe recitals and Exhibit “A”, attached hereto) sets forth the entireagreement and understanding between Employee and NSP and cannot be modified oraltered, nor can any provision hereof be waived, except in writing signed byEmployee and a duly authorized officer of NSP.

 

**11.****          Interpretation: **The Section and other headings inthis Agreement are for reference only and shall not affect the construction ofthis Agreement.  Whenever the contextrequires, the singular shall include the plural, the plural shall include thesingular, and the whole shall include any part thereof.

 

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**12.****          Invalidityof Provision: **If any provisions inthis Agreement are held invalid, illegal or unenforceable in any respect forany reason, such invalid, illegal or unenforceable provision(s) shall belimited, construed or eliminated to the extent necessary to remove suchinvalidity, illegality or unenforceability and the other provisions of thisAgreement shall not be affected thereby.

 

**13.****          BindingEffect: **This Agreement shall inureto the benefit of and be binding upon Employee and Employee’s heirs andpersonal representatives, and upon NSP and its successors and assigns.  Employee’s covenants and agreements ofSections 6 through 9 shall survive the termination of Employee’s employment byany means, reason or party.

 

**14.****          Waiver: **No waiver of any provision of thisAgreement shall constitute a waiver of any other provision, whether or notsimilar, nor shall any waiver constitute a continuing waiver.

 

**15.****          Notice: **Any notice given under this Agreementshall be in writing and shall be sufficient if personally delivered or sent byregistered or certified mail and addressed, if to Employee, to Employee’saddress set forth in NSP’s records, or if to NSP, to its principal office.  Such notice shall be deemed given whendelivered if delivered personally, or, if sent by registered or certified mail,at the earlier of actual receipt or three days after mailing in United Statesmail, addressed as aforesaid with postage prepaid.

 

**16.****          GoverningLaw: **This Agreement shall begoverned by the laws of the State of Utah and any litigation arising out of itshall be conducted in applicable state courts located in Utah County or federalcourts located in Salt Lake County, Utah. The parties expressly consent to such jurisdiction and venue.

 

AGREED TO AND ACCEPTED AS OF THE DATE FIRSTABOVE WRITTEN:

 
| Employee:                         |   | Employer:                                 |
|-----------------------------------|--------|-------------------------------------------|
|                              |   |                                      |
| **ROBERT W. SHAFFER**             |   | **NATURE’S SUNSHINE PRODUCTS, INC.** |
|                              |   |                                      |
|   \s\ Robert W. Shaffer |   | By                                        |   \s\Douglas Faggioli |
| Signature                         |   |                                      |
|                              |   | Name                                      | Douglas Faggioli |
|                              |   |                                      |
|                              |   | Title                                     | C.O.O. |
|                                   |        |                                           |  |  |  |

 

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**EXHIBIT “A”**

**TO**

**EMPLOYMENTAGREEMENT**

**BETWEEN**

**NATURE’SSUNSHINE PRODUCTS, INC.**

**AND**

**ROBERT W.SHAFFER**

 

**03062**

**NATURE’S SUNSHINE PRODUCTS, INC.**

**JOB DESCRIPTION**

** **
| Job Title: Vice President-International-Europe |                    | Effective: March, 2002 |
|------------------------------------------------|-------------------------|------------------------|
| Department:                                    | International           |                   | Status: Exempt |
| Reports to:                                    | President-International |                   |   |

 

**GENERAL SUMMARY**

 

Performs the following types of duties: directs, coordinates and administers certain international operationsunder assigned area of responsibility; responsible for the attainment ofprofitability, sales growth and other strategic goals for internationalbusiness units; manages efforts of general managers; works to develop currentand long-range objectives, policies and procedures; supports conceptual,strategic and policy formulation functions related to assigned areas orresponsibility; is a member of the International Executive Committee; performsother related duties as assigned.

 

**ESSENTIAL DUTIES & RESPONSIBILITIES**

 
| 40% |   | Directs the development of international strategies, budgets and  personnel plans to achieve corporate objectives. Directly supervises the  activities of international general managers and department staff members as  assigned.                               |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 20% |   | Participates with the Vice President of International in business  decision making, strategic planning and operating plans for international  units of the company to ensure achievement of objectives.                                                           |
| 20% |   | Develops and interprets company policies. Plans, organizes, staffs  and directs efforts associated with the management of existing international  businesses.                                                                                                     |
| 20% |   | Provides strategic  information to the Vice President of International concerning the operation  of international business units. Further analyzes international business  performances and situations by frequent international travel to local  business units. |

 

**KNOWLEDGE, SKILLS, AND ABILITIES REQUIRED**

 

Knowledge:  Broad and extensive international businessknowledge specific to direct sales and MLM business.

 

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Skill:  Highly developed analytical, marketing,communication and leadership skills involving worldwide operations.

Ability to dealeffectively at the highest corporate level and with members of NSP’sinternational businesses.  To provideeffective support and counsel to the Vice President of International.

 

**EXPERIENCE/EDUCATION**

 

The equivalent of a Masters degree ininternational business plus more than five years international, general, andmarketing/sales management experience in the direct sales or MLM industry, withtwo of the five years acting as a General Manager in a foreign country.

 

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