<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NATROL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
NATROL, INC.
21411 PRAIRIE STREET
CHATSWORTH, CA 91311
MAY 11, 1999
DEAR STOCKHOLDER:
You are cordially invited to attend the 1999 Annual Meeting (the "Annual
Meeting") of Stockholders of Natrol, Inc., a Delaware corporation (the
"Company"), to be held on Tuesday, June 15, 1999, at 9:00 am, local time, at THE
CHATSWORTH HOTEL, 9777 Topanga Canyon Boulevard, Chatsworth, California.
The Annual Meeting has been called for the purpose of (i) electing two Class
I Directors for three-year terms and (ii) considering and voting upon such other
business as may properly come before the Annual Meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on April 21, 1999 as
the record date for determining stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the nominees of the Board of Directors as Directors of the Company.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
Sincerely,
[SIGNATURE]
Elliott Balbert
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
<PAGE>
NATROL, INC.
21411 PRAIRIE STREET
CHATSWORTH, CA 91311
(818) 739-6000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1999
------------------------
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting (the "Annual Meeting")
of Stockholders of Natrol, Inc. (the "Company") will be held on Tuesday, June
15, 1999, at 9:00 a.m., local time, at THE CHATSWORTH HOTEL, 9777 Topanga Canyon
Boulevard, Chatsworth, California for the purpose of considering and voting
upon:
1. The election of two Class I Directors for three-year terms; and
2. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 21, 1999 as
the record date for determining the stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournments or postponements thereof. Only
holders of record of the Company's common stock at the close of business on that
date will be entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof.
In the event there are not sufficient shares to be voted in favor of any of
the foregoing proposals at the time of the Annual Meeting, the Annual Meeting
may be adjourned in order to permit further solicitation of proxies.
By Order of the Board of Directors
[SIGNATURE]
Eve Dery Mendoza
SECRETARY
Chatsworth, California
May 11, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
NATROL, INC.
21411 PRAIRIE STREET
CHATSWORTH, CA 91311
(818) 739-6000
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 1999
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Natrol, Inc. (the "Company") for use at the
Annual Meeting of Stockholders of the Company to be held on Tuesday, June 15,
1999, at 9:00 a.m., local time, at THE CHATSWORTH HOTEL, 9777 Topanga Canyon
Boulevard, Chatsworth, California, and any adjournments or postponements thereof
(the "Annual Meeting").
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of two Class I Directors for three-year terms, such terms
to continue until the annual meeting of stockholders in 2002, and until
their respective successors are duly elected and qualified; and
2. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first being
mailed to stockholders of the Company on or about May 11, 1999 in connection
with the solicitation of proxies for the Annual Meeting. The Board of Directors
has fixed the close of business on April 21, 1999 as the record date for the
determination of stockholders entitled to notice of, and to vote at, the Annual
Meeting (the "Record Date"). Only holders of record of the Company's common
stock (the "Common Stock") at the close of business on the Record Date will be
entitled to notice of, and to vote at, the Annual Meeting. As of the Record
Date, there were 13,301,990 shares of Common Stock outstanding and entitled to
vote at the Annual Meeting and 24 stockholders of record. Each holder of a share
of Common Stock outstanding as of the close of business on the Record Date will
be entitled to one vote for each share held of record with respect to each
matter submitted at the Annual Meeting.
The presence, in person or by proxy, of holders of at least a majority of
the total number of outstanding shares of Common Stock and entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. A quorum being present, the affirmative vote of a plurality of the
votes cast is necessary to elect the nominees as Directors of the Company.
Shares that reflect abstentions or "broker non-votes" (i.e., shares
represented at the meeting held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
such shares and with respect to which the broker or nominee does not have
discretionary voting power to vote such shares) will be counted for purposes of
determining whether a quorum is present for the transaction of business at the
meeting. With respect to the election of Directors, votes may be cast in favor
of or withheld from the nominee; votes that are withheld will be excluded
entirely from the vote and will have no effect. Broker non-votes will also have
no effect on the outcome of the election of the Director.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. SHARES OF COMMON STOCK
REPRESENTED BY PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY AND NOT REVOKED
WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS
<PAGE>
CONTAINED THEREIN. IF INSTRUCTIONS ARE NOT GIVEN THEREIN, PROPERLY EXECUTED
PROXIES WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN
THIS PROXY STATEMENT. IT IS NOT ANTICIPATED THAT ANY MATTERS OTHER THAN THE
ELECTION OF DIRECTORS, WILL BE PRESENTED AT THE ANNUAL MEETING. IF OTHER MATTERS
ARE PRESENTED, PROXIES WILL BE VOTED IN ACCORDANCE WITH THE DISCRETION OF THE
PROXY HOLDERS.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Secretary of the
Company, or by signing and duly delivering a proxy bearing a later date, or by
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
The Annual Report to Stockholders of the Company, including financial
statements for the year ended December 31, 1998, is being mailed to stockholders
of the Company concurrently with this Proxy Statement. The Annual Report,
however, is not a part of the proxy solicitation material.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of five members and is
divided into three classes, with two Directors in Class I, two Directors in
Class II and one Director in Class III. Directors serve for three-year terms
with one class of Directors being elected by the Company's stockholders at each
annual meeting.
At the Annual Meeting, two Class I Directors will be elected to serve until
the annual meeting of stockholders in 2002 and until such Director's successors
are duly elected and qualified. The Board of Directors has nominated Dennis R.
Jolicoeur and Norman Kahn for re-election as Class I Directors. Unless otherwise
specified in the proxy, it is the intention of the persons named in the proxy to
vote the shares represented by each properly executed proxy for the re-election
of Dennis R. Jolicoeur and Norman Kahn as Directors. The nominees have agreed to
stand for re-election and to serve, if re-elected, as Directors. However, if
person nominated by the Board of Directors fails to stand for election or is
unable to accept election, the proxies will be voted for the election of such
other person or persons as the Board of Directors may recommend.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ELECTION OF EACH
OF THE NOMINEES OF THE BOARD OF DIRECTORS AS A DIRECTOR OF THE COMPANY.
2
<PAGE>
INFORMATION REGARDING DIRECTORS
Set forth below is certain information regarding the Directors of the
Company, including the Class I Directors who have been nominated for re-election
at the Annual Meeting, based on information furnished by him to the Company.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- -------------------------------------------------------------------------------------------------- --- -----------
<S> <C> <C>
CLASS I-TERM EXPIRES 1999
Dennis R. Jolicoeur*.............................................................................. 50 1995
Norman Kahn(1)(2)*................................................................................ 67 1995
CLASS II-TERM EXPIRES 2000
David Laufer(1)(2)................................................................................ 57 1996
P. Andrews McLane(1)(2)........................................................................... 51 1996
CLASS III-TERM EXPIRES 2001
Elliott Balbert................................................................................... 53 1980
</TABLE>
- ------------------------
* Nominee for re-election.
(1) Member of Audit Committee.
(2) Member of the Compensation Committee.
The principal occupation and business experience for at least the last five
years for each Director of the Company is set forth below.
Mr. Jolicoeur joined the Company as Chief Financial Officer, Treasurer and
Executive Vice President in July 1996 and has served as a director of the
Company since that date. From October 1993 to June 1996, Mr. Jolicoeur was a
principal of Gardiner & Rauen, Inc., an investment banking firm. In 1980 Mr.
Jolicoeur founded Lighthouse Press, Inc. ("Lighthouse"), and actively managed
Lighthouse until 1989. In 1993, Mr. Jolicoeur and other investors acquired
Naiman Printing, Inc. ("Naiman"). Mr. Jolicoeur became President of each of
Lighthouse and Naiman in August 1994 following the dismissal of the then-acting
President of each company. Naiman and Lighthouse filed voluntary petitions under
Chapters 7 and 11, respectively, of the federal bankruptcy code in September
1996. Lighthouse emerged from bankruptcy in March 1998 whereupon Mr. Jolicoeur
resigned all positions with the company. Mr. Jolicoeur has served as a director
of the Company since April 1995.
Mr. Kahn has served as a director of the Company since April 1995. Mr. Kahn,
a private investor, was the Managing Director of the San Marino Financial Group,
an investment banking firm, from 1993 to 1996.
Mr. Laufer has served as a director of the Company since 1996. Since 1996,
Mr. Laufer has been a partner of Arter & Hadden LLP, a law firm. Prior to
joining Arter & Hadden LLP, Mr. Laufer was a partner or co-managing partner of
Kindel & Anderson LLP, a law firm, from 1986 to 1996.
Mr. McLane has served as a director of the Company since September 1996. He
has been at TA Associates, Inc. or its predecessor since 1979, where he is
Senior Managing Director and a member of the firm's Executive Committee. Mr.
McLane leads TA Associates' investment activities in the asset management
industry. Mr. McLane is also a director of Affiliated Managers Group, Inc., an
investment management company, and several private companies, including Altamira
Investment Services, Inc., an investment management company based in Toronto,
Canada, United Pet Group, Inc., and Allegis Realty Investors, LLC, a real estate
investment management firm.
Mr. Balbert founded the Company in 1980 and has served as the Company's
Chairman of the Board, Chief Executive Officer and President since its
inception.
3
<PAGE>
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and the
principal occupation and business experience for at least the last five years
for each are set forth below as of December 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
Elliot Balbert.................. 53 Chairman of the Board, Chief Executive Officer and President
Dennis R. Jolicoeur............. 50 Chief Financial Officer, Treasurer, Executive Vice President and Director
Cheryl A. Richitt............... 40 Vice President of Marketing
Gary P. DeMello................. 44 Vice President of Operations
Jon J. Denis.................... 50 Vice President of Sales
Eve Dery Mendoza................ 39 General Counsel and Corporate Secretary
</TABLE>
Ms. Richitt joined the Company in September 1989 and has served as Vice
President of Marketing since 1992. Prior to joining the Company, Ms. Richitt
held sales and administrative positions with Vidal Sassoon and Rachel Perry,
Inc., a natural cosmetics company.
Mr. DeMello joined the Company in June 1992 and has been Vice President of
Operations since that time. Prior to joining the Company, Mr. DeMello was the
Director of Purchasing for Tree of Life, Inc.
Mr. Denis joined the Company as Vice President of Sales in August 1997.
Prior to the joining the Company, Mr. Denis served as Vice President of Sales at
Conair Inc., a personal care and appliance products company, for 15 years,
preceded by eight years in various sales positions at Revlon, Inc.
Ms. Mendoza joined the Company in January 1999. Prior to joining the
Company, from September 1997 until November 1998, Ms. Mendoza served as General
Counsel and Corporate Secretary for Pharmanex, Inc., a nutritional supplement
company that was sold to Nu Skin Enterprises in October 1998. Before joining
Pharmanex, Ms. Mendoza worked as a business law attorney in private practice, as
in-house Counsel for City National Bank, and Associate Counsel for Glendale
Federal Bank.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held seven meetings during 1998. No
director attended fewer than 75% of the total number of meetings of the Board of
Directors and of Committees of the Board of Directors on which he served during
1998. The Board of Directors has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends the firm to be appointed as independent accountants
to audit financial statements and to perform services related to the audit,
reviews the scope and results of the audit with the independent accountants,
reviews with management and the independent accountants the Company's annual
operating results, considers the adequacy of the internal accounting procedures,
and considers the effect of such procedures on the accountants' independence.
The Compensation Committee reviews and recommends the compensation arrangements
for officers and other senior level employees, reviews general compensation
levels for other employees as a group, determines the options or stock to be
granted to eligible persons under the Company's Amended and Restated 1996 Stock
Option and Grant Plan (the "1996 Stock Plan") and takes such other action as may
be required in connection with the Company's compensation and incentive plans.
The Audit Committee consists of Messrs. Kahn, Laufer and McLane and held three
meetings during 1998. The Compensation Committee consists of Messrs. Kahn,
Laufer and McLane and held two meetings during 1998. The Board of Directors of
the Company has not established a nominating or similar committee.
4
<PAGE>
On April 8, 1998, the Company granted options to purchase 25,000 shares of
Common Stock under the Natrol, Inc. 1996 Stock Option and Grant Plan, as amended
(the "1996 Stock Plan"), to Mr. Laufer, a non-employee director. Such options
vest as follows: 12,500 shares vested on the date of grant, 4,200 shares vest on
each of April 8, 1999 and April 8, 2000 and 4,100 shares vest on April 8, 2001
as long as he continues to serve as a director of the Company.
Directors receive such compensation for their services as the Board of
Directors may from time to time determine. Further, each director is reimbursed
for reasonable travel and other expenses incurred in attending meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth information concerning compensation for
services rendered in all capacities awarded to, earned by or paid to the
Company's Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") who earned in excess of
$100,000 during each of the years ended December 31, 1998 and December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) ($)(1)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Elliott Balbert ..................................... 1998 600,000 400,000 -- 35,834
Chairman, Chief Executive Officer and President 1997 600,000 400,000 -- 29,500
Dennis R. Jolicoeur ................................. 1998 225,000 139,922 -- --
Chief Financial Officer 1997 212,500 61,953 -- --
Cheryl R. Richitt ................................... 1998 150,000 86,575 -- --
Vice President of Marketing 1997 128,786 62,274 100,000 --
Gary P. DeMello ..................................... 1998 125,000 86,575 100,000 --
Vice President of Operations 1997 112,180 44,234 -- --
Jon J. Denis ........................................ 1998 270,000 85,244 100,000 6,000
Vice President of Sales 1997 100,731 26,633 100,000 2,307
</TABLE>
- ------------------------
(1) In 1998, Mr. Balbert received $32,172 in life insurance benefits $3,662 in
benefits for the use of a Company car; in 1997, Mr. Balbert received $27,400
in life insurance benefits and $2,100 in benefits for the use of a Company
car. Mr. Denis received a car allowance of $6,000 in 1998 and $2,307 in
1997.
5
<PAGE>
OPTION GRANTS
The following table sets forth certain information concerning the individual
grant of options to purchase Common Stock to the Named Executive Officers of the
Company who received such grants during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS EXERCISE OR PRICE APPRECIATION
OPTIONS GRANTED TO BASE PRICE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PER EXPIRATION ---------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
- ---------------------------------------- ----------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary P. DeMello(4)...................... 100,000 26.3% 10.40 4/8/08 654,040 1,657,492
Jon J. Denis(5)......................... 100,000 26.3% 11.25 10/26/08 707,506 1,792,960
</TABLE>
- ------------------------
(1) Vesting of options is subject to the continuation of such employee's service
relationship with the Company. The options terminate ten years after the
grant date, subject to earlier termination in accordance with the 1996 Stock
Plan and the applicable option agreement.
(2) The exercise price equals the fair market value of the stock as of the grant
date as determined by the Board of Directors after consideration of a number
of factors, including, but not limited to, the Company's financial
performance, the Company's status as a private company at the time of
grants, the minority interests represented by the option shares and the
price of shares of equity securities sold to or purchased by outside
investors.
(3) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full 10-year term of the options. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise of the option or the sale of the underlying shares, or
reflect nontransferability, vesting or termination provisions. The actual
gains, if any, on the exercises of stock options will depend on the future
performance of the Common Stock.
(4) 20,000 shares vest on each anniversary date commencing April 8, 1999 and
ending on April 8, 2003.
(5) 25,000 shares vest on each anniversary date commencing October 26, 1999 and
ending on October 26, 2002.
OPTION EXERCISES AND OPTION VALUES. The following table sets forth
information concerning the number and value of unexercised options to purchase
Common Stock of the Company held by the Named Executive Officers of the Company
who held such options at December 31, 1998. None of the Named Executive Officers
of the Company exercised any stock options during 1998.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31,
DECEMBER 31, 1998(#)(1) 1998($)(1)(2)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Cheryl Richitt (1a)....................................... 116,250 83,750 1,053,750 748,750
Gary P. DeMello (1b)...................................... 65,000 135,000 593,125 379,375
Jon J. Denis (1c)......................................... 33,300 166,700 296,370 593,630
</TABLE>
- ------------------------
(1) a) 5,000 shares vested or will vest on January '>1, April 1, July 1, and
October 1, 1999 and 6,250 shares vested or will vest on January 29, 1999
and every three months thereafter until July 29, 2001.
b) 5,000 shares vested or will vest on January 1, 1999 and very three months
thereafter until July 1, 2000 and 20,000 shares vested or will vest on
April 8, 1999 and every year thereafter until April 8, 2003.
c) 33,300 shares will vest on August 11, 1999, 33,400 shares will vest on
August 11, 2000; and, 25,000 shares will vest on October 26, 1999 and
every year thereafter until October 26, 2002.
(2) Based on the last reported sale price on the Nasdaq National Market on
December 31, 1998 of $11.00 less the option exercise price.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board consists of Norman Kahn, David
Laufer and P. Andrews McLane.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers of the company and administers the incentive
compensation and benefit plans of the Company. These plans include the 1996
Stock Plan and the Natrol, Inc. 1998 Employee Stock Purchase Plan. The members
of the Compensation Committee have prepared the following report on the
Company's executive compensation policies and philosophy for current and future
compensation.
GENERAL
Compensation packages generally include base salary, performance-based
bonuses, benefits such as car allowance, and stock options. The salary and bonus
components of the compensation of the Company's executive officers, including
the Named Executive Officers, are designed to work together to fulfill certain
compensation objectives including: attracting and retaining well qualified
executive officers who will enhance the performance of the Company; rewarding
management for the attainment of short and long-term objectives; aligning the
interests of management with those of the Company's stockholders; and relating
executive compensation to the Company's financial performance and the
achievement of corporate goals.
The Compensation Committee believes that tenure and the level of
responsibility assumed by individual executives should be reflected in the
establishment of base salary amounts. Base salaries should also be competitive
and the Compensation Committee has attempted to set the base salaries of its
executive officers to be competitive within the nutritional supplement industry
and other consumer products companies that would be seeking executives with
similar experience to that of the Company's executive officers.
7
<PAGE>
Additionally the Compensation Committee believes that performance-based
incentives that align the goals of individual executives with those of the
Company and its shareholders is of key importance. Accordingly, a material
portion of each executive officer's compensation is tied to a bonus compensation
program that is related to the overall financial performance of the Company.
In reviewing the incentive compensation of the Company's executive officers
for 1998, the Compensation Committee took into consideration a number of
achievements, including record corporate revenues and earnings, the successful
completion of the Company's initial public offering, the acquisition and
integration of the Pure-Gar and the Laci Le Beau businesses, and the increasing
penetration of the Natrol brand into both the mass market and health channels of
distribution.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee determined the 1998 base salary of Elliott
Balbert, the Company's Chief Executive Officer, based on several factors,
including Mr. Balbert's leadership, industry knowledge and experience, the
Company's history of sustained growth under his leadership, and the Company's
historical practices and internal salary structures. The Compensation Committee
also considered compensation of other CEOs in the nutritional supplements
industry and other similarly situated companies.
To establish Mr. Balbert's 1998 bonus compensation, the Compensation
Committee generally looked at the same principal factors used to establish the
bonus compensation of the Company's other executive officers, taking into
particular consideration the Company's financial performance as it relates to
absolute corporate earnings growth and the growth in earnings per share. Mr.
Balbert was not granted stock options in 1998 in light of his existing stock
ownership in the Company.
The Compensation Committee anticipates Mr. Balbert's bonus compensation for
1999, as well as the bonus compensation for the Named Executive Officers, will
be tied to a number of specific predetermined goals which are heavily weighted
by the financial performance of the Company.
STOCK OPTIONS
Each corporate officer, other than the Chief Executive Officer, is also the
holder of options or restricted stock that vest over time. Such options are
intended to increase executive officers' equity interests in the Company,
providing the executives with the opportunity to share in the future value they
are responsible for creating as well as to directly align the interests of the
Company's executive officers with those of the Company's shareholders.
In summary, the Compensation Committee is committed to attracting,
motivating and retaining executives who will help the Company meet the
increasing challenges of the nutritional supplement industry.
Members of the Compensation Committee Norman Kahn
David Laufer
P. Andrews McLane
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since 1997, all executive officer compensation decisions have been made by
the Compensation Committee. The Compensation Committee reviews and recommends
the compensation arrangements for officers and other senior level employees,
reviews general compensation levels for other employees as a group, determines
the options or stock to be granted to eligible persons under the 1996 Stock Plan
and takes such other action as may be required in connection with the Company's
compensation and incentive plans. The current members of the Compensation
Committee are Messrs. Kahn, Laufer and McLane, none of whom is an employee of
the Company.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock, based on
the market price of the Company's Common Stock with the total return of
companies included within the Standard & Poor Small Cap 600 Market Index, the
Standard & Poor 500 index, the Russell 2000 Small Cap index, and a peer group of
companies for the period commencing July 1998 and ended December 1998. Available
market indexes include few, if any, of the Company's competitors. As such, the
Company created a peer group index which consists of the publicly traded stocks
of 13 companies in the nutritional supplement business. The peer group includes
Celestial Seasonings (CTEA), Chattem, Inc.(CHTT), Herbalife International
(HERBA), IVC Industries (IVCO), Natural Alternatives (NAII), Natures Sunshine
(NATR), NBTY, Inc.(NBTY), Nutraceutical, Inc.(NUTR), Pharmaprint, Inc.(PPRT),
Rexall Sundown (RXSD), Twinlab Corp. (TWLB), Usana, Inc. (WSNA) and Weider
Nutrition (WNI).The calculation of total cumulative return assumes a $100
investment in the Company's Common Stock, the Nasdaq Stock Market Index and the
Industry Index on July 22, 1998, the date of the Company's initial public
offering, and the reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURNS
<S> <C> <C> <C> <C>
Natrol versus Peer Group and Market Indexes
Total Return based on $100 Initial investment & reinvestment of
dividends
S&P 500 S&P Small Cap 600 Russell 2000 Natrol
7/22/98 $100.00 $100.00 $100.00 $100.00
12/31/98 $110.41 $100.71 $94.16 $66.67
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURNS
<S> <C>
Natrol versus Peer Group and Market Indexes
Total Return based on $100 Initial investment & reinvestment of
dividends
Peer Group
7/22/98 $100.00
12/31/98 $57.85
</TABLE>
9
<PAGE>
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
In July 1997 the Company and Jon J. Dennis entered into a letter agreement
pursuant to which the Company agreed to pay Mr. Denis an annual base salary of
$270,000 and provide certain incentive compensation based on sales and severance
benefits equal to six months base salary for the first six months of the term
and three months base salary thereafter. The Company's obligations under the
letter agreement terminated in August 1998.
In November 1996, the Company sold 300,000 shares of restricted stock to Mr.
Jolicoeur under the 1996 Stock Plan for an aggregate purchase price of $562,800.
Also in November 1996, the Company loaned Mr. Jolicoeur $562,500 and agreed to
pay Mr. Jolicoeur annual bonuses equal to the amount of interest on the loan
(computed at a rate of 6.6% per annum). The loan to Mr. Jolicoeur matures in
November 2004, is required to be prepaid to the extent of the after-tax net
proceeds realized from the sale of the restricted stock as such restricted stock
is sold, and is secured by a pledge of the restricted stock, with recourse to
Mr. Jolicoeur's personal assets limited to 25% of the principal and accrued and
unpaid interest thereon.
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of April 21, 1999 based on representations to the
Company by each director and Named Executive Officer and all Executive Officers
and Directors as a group. The table also sets forth certain information
regarding the ownership of Common Stock by each person or "group" (as that term
is defined in Section 13 (d) (3) of the Securities Exchange Act of 1934) known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT
- -------------------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Elliott Balbert(2).......................................................................... 6,029,500 45.3%
TA Associates Group(3)...................................................................... 2,160,000 16.2%
T. Rowe Price Associates, Inc.(4)........................................................... 1,000,000 7.5%
Dennis R. Jolicoeur(5)...................................................................... 300,703 2.3%
Cheryl R. Richitt(6)........................................................................ 138,960 1.0%
Gary P. DeMello(7).......................................................................... 95,464 *
Jon J. Denis(8)............................................................................. 34,255 *
Norman Kahn(9).............................................................................. 175,000 1.3%
David Laufer(10)............................................................................ 16,700 *
P. Andrews McLane(11)....................................................................... 3,686 *
All executive officers and directors as a group (eight persons)............................. 6,794,268 51.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address of the TA Associates Group is High Street Tower, Suite 2500,
125 High Street, Boston, MA 02110-2720. The address of Mr. McLane is c/o TA
Associates, Inc., High Street Tower, Suite 2500, 125 High Street, Boston,
MA 02110-2720. The address of T. Rowe Price is 100 East Pratt Street,
Baltimore, Maryland 21202. The address of all other listed stockholders is
c/o Natrol, Inc., 21411 Prairie Street, Chatsworth, CA 91311.
10
<PAGE>
(2) Includes 6,029,500 shares owned by the Balbert Family Trust, a revocable
trust of which Mr. Balbert and his wife, Cheryl Balbert, are trustees and
of which Mr. and Mrs. Balbert and other members of their family are the
beneficiaries. Also includes 125,000 shares of Common Stock owned by Mr.
Balbert's daughter, of which Mr. Balbert disclaims beneficial ownership.
(3) Includes (i) 1,368,000 shares of Common Stock owned by Advent VII L.P.,
(ii) 630,000 shares of Common Stock owned by Advent Atlantic and Pacific
III L.P., (iii) 136,800 shares of Common Stock owned by Advent New York
L.P., and (iv) 25,200 shares of Common Stock owned by TA Venture Investors
L.P. Advent VII L.P., Advent Atlantic and Pacific III L.P., Advent New York
L.P., and TA Venture Investors L.P. are part of an affiliated group of
investment partnerships referred to, collectively, as the TA Associates
Group. The general partner of Advent VII L.P. is TA Associates VII L.P. The
general partner of Advent Atlantic and Pacific III L.P. is TA Associates
AAP III Partners L.P. The general partner of Advent New York L.P. is TA
Associates VI L.P. The general partner of each of TA Associates VII, L.P.,
TA Associates VI L.P. and TA Associates AAP III Partners, L.P. is TA
Associates, Inc. In such capacity, TA Associates, Inc. exercise sole voting
and investment power with respect to all of the shares held of record by
the named investment partnerships, with the exception of those shares held
by TA Venture Investors L.P.; individually, no stockholder director or
officer of TA Associates, Inc. is deemed to have or share such voting or
investment power. Principals and employees of TA Associates, Inc.
(including Mr. McLane, a director of the Company) comprise the general
partners of TA Venture Investors L.P. In such capacity, Mr. McLane may be
deemed to share voting and investment power with respect to the 25,200
shares held of record by TA Venture Investors L.P. Mr. McLane disclaims
beneficial ownership of all shares, except as to shares held by TA Venture
Investors L.P., as to which he holds a pecuniary interest. See Note 11.
(4) Based solely on a Schedule 13G filed on behalf of T. Rowe Price Associates,
Inc. ("T. Rowe Price") with the Securities and Exchange Commission on
February 9, 1999. According to T. Rowe Price, these securities are owned by
various individual and institutional investors of which T. Rowe Price
serves as investment advisor with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of
the Securities Exchange Act of 1934, T. Rowe Price has indicated that it
may be deemed to be a beneficial owner of such securities; however, T. Rowe
Price has expressly disclaimed in the Schedule 13G that it is, in fact, the
beneficial owner of such securities.
(5) Constitutes 703 shares of unrestricted stock and 300,000 shares of
restricted stock held by Mr. Jolicoeur, of which 165,000 shares will be
vested within 60 days of April 21, 1999 and 15,000 additional shares vest
each calendar quarter thereafter, subject to repurchase upon termination of
Mr. Jolicoeur's employment with the Company and in the event of a sale of a
majority of the voting stock or substantially all of the assets of the
Company. See "Certain Transactions."
(6) Constitutes 210 shares of stock owned by Ms. Richitt and 138,750 shares of
Common Stock which may be purchased within 60 days of April 21, 1999 upon
the exercise of stock options. Excludes 61,250 shares of Common stock which
may be acquired pursuant to unvested stock options, which vest in quarterly
installments through July 2001.
(7) Constitutes 464 shares of Common Stock owned by Mr. DeMello and 95,000
shares of Common Stock which may be purchased within 60 days of April 21,
1999 upon the exercise of stock options. Excludes 105,000 shares of Common
Stock which may be acquired pursuant to unvested stock options, of which
25,000 vest in quarterly installments through July 2000 and 80,000 vest in
annual installments through April 2003.
(8) Constitutes 955 shares of Common Stock owned by Mr. Denis and 33,300 shares
of Common Stock which may be purchased within 60 days of April 21, 1999
upon the exercise of stock options. Excludes 166,700 shares of Common which
may be acquired pursuant to unvested stock options, which vest in annual
installments through October 2002.
11
<PAGE>
(9) Includes 175,000 shares owned by the Norman Kahn Trust. This number does
not include 50,000 shares owned by Mr. Kahn's daughter Jacqueline H. Kahn
nor does it include 21,500 shares of stock owned by his daughter Alexandra
M. Kahn of which Mr. Kahn disclaims any beneficial ownership.
(10) Constitutes shares of Common Stock which may be purchased by Mr. Laufer
within 60 days of April 21, 1999 upon the exercise of stock options.
Excludes 8,300 shares of Common Stock which may be acquired pursuant to
unvested stock options, which vest in three annual installments through
April, 2001.
(11) Constitutes shares of Common Stock beneficially owned by Mr. McLane through
TA Venture Investors Limited Partnership, all of which shares are included
in the 2,160,000 shares described in footnote (5) above. Does not include
any shares beneficially owned by Advent VII L.P., Advent Atlantic and
Pacific III L.P. or Advent New York L.P., of which Mr. McLane disclaims
beneficial ownership.
MARKET VALUE
On December 31, 1998, the closing price of a share of the Company's Common
Stock on the Nasdaq National Market was $11.00.
EXPENSES OF SOLICITATION
The Company will pay the entire expense of soliciting proxies for the Annual
Meeting. In addition to solicitations by mail, certain Directors, officers and
regular employees of the Company (who will receive no compensation for their
services other than their regular compensation) may solicit proxies by
telephone, telegram or personal interview. Banks, brokerage houses, custodians,
nominees and other fiduciaries have been requested to forward proxy materials to
the beneficial owners of shares held of record by them and such custodians will
be reimbursed for their expenses.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR YEAR 2000 ANNUAL MEETING OF STOCKHOLDERS
Stockholder proposals submitted pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934 intended to be presented at the Company's 2000 annual
meeting of stockholders must be received by the Company on or before January 12,
2000 in order to be considered for inclusion in the Company's proxy statement
and form of proxy for that meeting. These proposals must also comply with the
rules of the Securities and Exchange Commission governing the form and content
of proposals in order to be included in the Company's proxy statement and form
of proxy. Any stockholder proposals intended to be presented at the Company's
2000 annual meeting of stockholders, other than a stockholder proposal submitted
for inclusion in the Company's Proxy Statement as described above, must be
received in writing by the Company at its principal executive office not less
than 75 days or more than 120 days prior to the first anniversary of the date of
the preceding year's annual meeting together with all supporting documentation
required by the Company's By-laws. In the event, however, that the annual
meeting is scheduled to be held more than 30 days before such anniversary date
or more than 60 days after such anniversary date, notice must be so delivered
not later than the later of (i) the 15th day after the date of public
announcement of the date of such meeting or (ii) the 75th day prior to the
scheduled date of such meeting. Proxies solicited by the Board of Directors will
confer discretionary voting authority with respect to these proposals, subject
to rules of the Securities and Exchange Commission governing the exercise of
this authority. Any such proposal should be mailed to: Secretary, Natrol, Inc.,
21411 Prairie Street, Chatsworth, California 91311.
12
<PAGE>
INDEPENDENT ACCOUNTANTS
The Company has selected Ernst & Young LLP as the independent public
accountants for the Company for the fiscal year ending December 31, 1999. The
firm of Ernst & Young LLP has served as the Company's independent public
accountants since July, 1995. A representative of Ernst & Young LLP will be
present at the Annual Meeting and will be given the opportunity to make a
statement if he or she so desires. The representative will be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than 10% of the Company's
outstanding shares of Common Stock (collectively, "Section 16 Persons"), to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission and Nasdaq. Section 16 Persons are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain Section 16 Persons that no Section 16(a)
reports were required for such persons, the Company believes that during Fiscal
1998, the Section 16 Persons complied with all Section 16(a) filing requirements
applicable to them other than an amended Form 3 which was inadvertently filed
late by Mr. Balbert.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are duly presented, proxies will be voted in
accordance with the discretion of the proxy holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Eve Dery Mendoza
SECRETARY
Chatsworth, California
May 11, 1999
13
<PAGE>
PROXY CARD
NATROL, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF NATROL, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, JUNE 15, 1999.
The undersigned hereby constitutes and appoints Elliott Balbert and Eve
Dery Mendoza, or either of them, as Proxies each with full power of
substitution, and hereby authorizes each of them to represent and to vote all
shares of Common Stock of Natrol, Inc. (the "Company") held of record by the
undersigned as of the close of business on Wednesday, April 21, 1999, at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held at the
Chatsworth Hotel, 9777 Topanga Boulevard, Chatsworth, California at 9:00
a.m., local time on Tuesday, June 15, 1999, and at any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE
VOTED AT THIS ANNUAL MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF IN
THE MANNER DESCRIBED HEREIN. IF NO DIRECTION IS GIVEN, THE PROXY WILL BE
VOTED "FOR" EACH OF THE NOMINEES OF THE BOARD OF DIRECTORS LISTED IN PROPOSAL
1. IN THEIR DISCRETION, THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. A STOCKHOLDER WISHING TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS NEED ONLY SIGN AND
DATE THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
The undersigned hereby acknowledge(s) receipt of a copy of the
accompanying Notice of Annual Meeting of Stockholders, the Proxy Statement
with respect thereto and the Company's Annual Report to Stockholders and
hereby revoke(s) any proxy or proxies heretofore given. This proxy may be
revoked at any time before it is exercised.
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
- ---------------- ----------------
SEE REVERSE SIDE SEE REVERSE SIDE
- ---------------- ----------------
<PAGE>
- ----- PLEASE MARK
X VOTE AS IN
- ----- THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
OF THE BOARD OF DIRECTORS OF THE COMPANY.
1. Election of Norman Kahn and Dennis R. Jolicoeur as Class I Directors to
hold office for three-year terms until the 2002 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified.
FOR WITHHELD
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/ / / /
/ / / /
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-------
/ /
/ /
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For all nominees except as noted above
2. In their discretion, the Proxies are each authorized to vote upon such
other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
-------
MARK HERE IF YOU PLAN TO ATTEND THE MEETING / /
/ /
-------
-------
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
/ /
-------
Please sign exactly as your name(s) appear(s) hereon. All holders must sign.
When signing in a fiduciary capacity, please indicate full title as such.
If a corporation or partnership, please sign in full corporate or
partnership name by authorized person stating his or her title or
authority.
PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY.
Signature: _________________________________ Date: ___________________________
Signature: _________________________________ Date: ___________________________
