<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
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 Rule 14a-11 (c) or
Rule 14a-12
NATROL, INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
</TABLE>
Payment of filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/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:
----------------------------------------------------------
(4) Date Filed:
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</TABLE>
<PAGE>
NATROL, INC.
21411 PRAIRIE STREET
CHATSWORTH, CA 91311
May 16, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting (the "Annual
Meeting") of Stockholders of Natrol, Inc., a Delaware corporation (the
"Company"), to be held on Tuesday, June 13, 2000, 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:
1. electing three Class II Directors for three-year terms;
2. considering and voting upon a proposal to approve an amendment (the
"Plan Amendment") to the Company's Amended and Restated 1996 Stock Option
and Grant Plan (the "Option Plan"); and
3. 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 May 1, 2000 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
and "FOR" the proposal to approve the Plan Amendment.
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,
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 13, 2000
------------------------
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting (the "Annual Meeting")
of Stockholders of Natrol, Inc. (the "Company") will be held on June 13, 2000,
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 three Class II Directors for three-year terms;
2. A proposal to approve an amendment (the "Plan Amendment") to the
Company's Amended and Restated 1996 Stock Option and Grant Plan (the
"Option Plan"); and
3. 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 May 1, 2000 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
Eve Dery Mendoza,
SECRETARY
Chatsworth, California
May 16, 2000
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 13, 2000
------------------------
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 June 13, 2000, 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 three Class II Directors for three-year terms, such
terms to continue until the annual meeting of stockholders in 2003,
and until their respective successors are duly elected and qualified;
2. A proposal to approve an amendment (the "Plan Amendment") to the
Company's Amended and Restated 1996 Stock Option and Grant Plan (the
"Option Plan"); and
3. 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 16, 2000 in connection
with the solicitation of proxies for the Annual Meeting. The Board of Directors
has fixed the close of business on May 1, 2000 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 approximately 13,374,765 shares of Common Stock outstanding and
entitled to vote at the Annual Meeting andapproximately 21 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 shares of Common Stock outstanding and entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Both abstentions and broker non-votes (as described below) will be
counted as present in determining the presence of a quorum. The affirmative vote
of a majority of the shares present or represented and entitled to vote at the
Annual Meeting is required to approve each proposal, other than the election of
directors, which requires a plurality of votes cast at the Annual Meeting.
Abstentions and broker non-votes will be disregarded in determining the "votes
cast" for purposes of electing directors and approving the Plan Amendment and
will not, therefore, affect the outcome of either proposal. A "broker non-vote"
is a proxy from a broker or other nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
the shares which are the subject of the proxy on a particular matter with
respect to which the broker or other nominee does not have discretionary voting
power.
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
<PAGE>
PROXIES RECEIVED BY THE COMPANY AND NOT REVOKED WILL BE VOTED AT THE ANNUAL
MEETING IN ACCORDANCE WITH THE INSTRUCTIONS 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 AND "FOR"
APPROVAL OF THE PLAN AMENDMENT. IT IS NOT ANTICIPATED THAT ANY MATTERS OTHER
THAN THE ELECTION OF DIRECTORS AND THE APPROVAL OF THE PLAN AMENDMENT, 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, 1999, 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 I
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of seven members and is
divided into three classes, with two Directors in Class I, three Directors in
Class II and two Directors 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, three Class II Directors will be elected to serve
until the annual meeting of stockholders in 2003 and until such Director's
successors are duly elected and qualified. The Board of Directors has nominated
Kraig Kitchen and P. Andrews McLane for re-election as a Class II Director and
has nominated Dennis Griffin to replace David Laufer, a current Class II
Director whose term is expiring with the 2000 Annual Meeting. 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 P. Andrews McLane and Kraig Kitchin and the election of Dennis Griffin as
Directors. The nominees have agreed to stand for election and to serve, if
elected, as Directors. However, if the 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
THE NOMINEES OF THE BOARD OF DIRECTORS AS DIRECTORS OF THE COMPANY.
2
<PAGE>
INFORMATION REGARDING DIRECTORS
Set forth below is certain information regarding the Directors of the
Company, including the Class II Directors who have been nominated for the
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 2002
Dennis R. Jolicoeur......................................... 51 1996
Norman Kahn(1)(2)........................................... 68 1995
CLASS II--TERM EXPIRES 2003
P. Andrews McLane*(1)(2).................................... 52 1996
Kraig Kitchin*(2)........................................... 38 1999
Dennis Griffin*............................................. 56 nominee
CLASS III--TERM EXPIRES 2001
Elliott Balbert............................................. 54 1980
Dennis DeConcini(2)......................................... 62 1999
</TABLE>
- ------------------------
* Nominee for election or 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 and each nominee 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 1999 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, is a Managing Director of the San Marino Financial
Group, an investment banking firm he founded in 1993.
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 is also a director of Affiliated Managers Group, Inc., an investment
management company, and several private companies, including Altamira Investment
Services, Inc., Questia Media, Inc. and United Pet Group, Inc.
Mr. Kitchin has served as a director of the Company since December 1999. He
is the President/ CEO as well as one of the founders of Premiere Radio networks.
Premiere Radio Networks, which was launched in 1987, is a subsidiary of Clear
Channel which syndicates radio programs.
3
<PAGE>
Mr. Griffin is the president of Endocrine Sciences, Inc. He became president
of Endocrine Sciences, Inc. in 1996. He joined Endocrine Sciences, Inc in 1974
and has occupied a number of positions including Marketing Director and Vice
President.
Mr. DeConcini has served as a director of the Company since December 1999.
Mr. DeConcini is a partner in the lobbying firm of Parry, Romani and DeConcini.
He served as the U.S. Senator from Arizona from 1977 to 1995.
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.
PROPOSAL II
APPROVAL OF THE PLAN AMENDMENT
INTRODUCTION
The Option Plan was initially adopted by the Board of Directors and approved
by the Company's stockholders in November 1996. The Option Plan was amended and
restated in June 1998 upon the approval of the Board of Directors and the
Company's stockholders. At a meeting of the Board of Directors on April 27,
2000, the Board of Directors unanimously voted to amend the Option Plan, subject
to approval by the affirmative vote of a majority of the shares present or
represented and entitled to vote at a duly called and held meeting of the
stockholders of the Company, to increase the number of shares of Common Stock
upon which the maximum number of shares available for issuance under the Option
Plan is calculated from 1,770,000 shares to 2,770,000 shares. As amended by the
Plan Amendment, the Option Plan (the "Amended Option Plan") would provide for
the issuance of 2,770,000 shares of Common Stock, which amount will be increased
as of each June 30 and December 31 by an additional number of shares of Common
Stock equal to fifteen percent (15%) of the shares of stock issued by the
Company in the previous six months. A copy of the Amended Option Plan is
attached to this Proxy Statement as APPENDIX A.
The Board of Directors believes that the Company's growth and long-term
success depend in large part upon retaining and motivating key personnel and
that this can be achieved in part through the design and implementation of
effective compensation policies and practices. The Board of Directors also
believes that stock options and other share-based incentive awards can play an
important role in the success of the Company by encouraging and enabling the
officers and other employees of the Company, upon whose judgment, initiative and
efforts the Company largely depends for sustained growth and profitability, to
acquire a proprietary interest in the long-term performance of the Company. The
Board of Directors anticipates that providing such persons with a direct stake
in the Company will assure a closer identification of the interests of the
participants in the Amended Option Plan with those of the Company, thereby
stimulating their efforts to promote the Company's future success and strengthen
their desire to remain with the Company. The Board of Directors believes that
the Amended Option Plan will help the Company accomplish these goals and will
keep the Company's share-based incentive compensation competitive with that of
its competitors.
At the Annual Meeting, the stockholders of the Company will be asked to
approve the Plan Amendment described above. Approval by the stockholders of the
Company is required for the Amended Option Plan to qualify for favorable
treatment under the Internal Revenue Code of 1986, as amended (the "Code").
Under the Code, stockholder approval is necessary for stock options relating to
the additional shares of Common Stock issuable under the Amended Option Plan to
qualify as incentive stock options under Section 422 of the Code.
4
<PAGE>
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a majority of the votes cast
is necessary to approve the Plan Amendment.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PLAN
AMENDMENT.
SUMMARY OF THE AMENDED OPTION PLAN
The Amended Option Plan permits (i) the grant of incentive stock options
under Section 422 of the Code ("Incentive Options"), (ii) the grant of
non-qualified stock options ("Non-Qualified Options"), (iii) the issuance or
sale of Common Stock with or without vesting or other restrictions ("Restricted
Stock") or without restrictions ("Unrestricted Stock" and collectively with
Restricted Stock, "Stock Grants"), (iv) the grant of Common Stock upon the
attainment of specified performance goals ("Performance Share Awards"), (v) the
grant of the right to receive cash dividends with the holders of the Common
Stock as if the recipient held a specified number of shares of the Common Stock
("Dividend Equivalent Rights") and (vi) the grant of the right to receive the
value of the excess of the fair market value of the Common Stock over the
exercise price of such rights ("Stock Appreciation Rights" or "SARs"). These
grants may be made to officers and other employees, directors, advisors,
consultants and other key persons of the Company and its subsidiaries. In
accordance with Section 162(m) of the Code, options with respect to no more than
150,000 shares of Common Stock may be granted to any one individual in any
calendar year.
The Option Plan currently provides for the issuance of 1,770,000 shares of
Common Stock, which amount shall be increased as of each June 30 and
December 31 by an additional number of shares of Common Stock equal to fifteen
percent (15%) of the shares of stock issued by the Company in the previous six
months. As of December 31, 1999, 2,321,105 shares of Common Stock were available
under the Option Plan. Of the shares reserved for issuance under the Option
Plan, (i) 1,611,500 shares were subject to outstanding options with a weighted
average exercise price of $7.31 per share as of December 31, 1999 and
(ii) 300,000 shares were sold as restricted stock awards for an aggregate
purchase price of $562,800 in November 1996.
The Amended Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the Amended Option Plan, the
Compensation Committee has full power to determine from among the persons
eligible for grants under the Amended Option Plan the individuals to whom grants
will be made, the combination of grants to participants and the specific terms
of each grant, including vesting.
Incentive Options may be made only to officers or other full-time employees
of the Company or its subsidiaries, including members of the Board of Directors
who are also full-time employees of the Company or its subsidiaries. The
Compensation Committee may delegate the power to grant options to non-executive
employees to the Company's Chief Executive Officer. The exercise price of
options granted under the Amended Option Plan is determined by the Compensation
Committee. In the case of Incentive Options, the exercise price may not be less
than 100% of the fair market value of the underlying shares on the date of
grant. If any employee of the Company or any subsidiary owns (or is deemed to
own) at the date of grant shares of stock representing in excess of 10% of the
combined voting power of all classes of stock of the Company or any parent or
subsidiary, the option exercise price for Incentive Options granted to such
employee may not be less than 110% of the fair market value of the underlying
shares on that date. Non-Qualified Options may be granted at prices which are
less than the fair market value of the underlying shares on the date granted.
Options terminate ten years from the date of grant and may be exercised for
specified periods subsequent to the termination of the optionee's employment or
other service relationship with the Company. At the discretion of the
Compensation Committee, any option may include a "reload" feature pursuant to
which an optionee
5
<PAGE>
exercising an option receives in addition to the number of shares of Common
Stock due on the exercise of such an option an additional option with an
exercise price equal to the fair market value of the Common Stock on the date
such additional option is granted.
The Amended Option Plan also permits Stock Grants, Performance Share Awards,
grants of Dividend Equivalent Rights and SARs. Stock Grants may be made to
persons under the Amended Option Plan, subject to such conditions and
restrictions as the Compensation Committee may determine. Prior to the vesting
of shares, recipients of Stock Grants generally will have all the rights of a
stockholder with respect to the shares, including voting and dividend rights,
subject only to the conditions and restrictions set forth in the Amended Option
Plan or in any agreement. The Compensation Committee may also make Stock Grants
in recognition of past services or other valid consideration, or in lieu of cash
compensation. In the case of Performance Share Awards, the issuance of shares of
Common Stock will occur only after the conditions and restrictions set forth in
the grant agreement are satisfied. SARs may be granted in tandem with, or
independently of, Incentive Options or Non-Qualified Options. The Compensation
Committee may also grant Dividend Equivalent Rights in conjunction with any
other grant made pursuant to the Amended Option Plan or as a free standing
grant. Dividend Equivalent Rights may be paid currently or deemed to be
reinvested in additional shares of Common Stock, which may thereafter accrue
further dividends. The Compensation Committee may, in its sole discretion,
accelerate or extend the date or dates on which all or any particular award or
awards granted under the Amended Option Plan may be exercised or vest.
Generally, upon a dissolution, liquidation or sale of a majority of the
outstanding voting stock or substantially all of the assets of the Company, 50%
of all unvested options, SARs and other awards shall become vested as of the
effective date of such transaction, except as the Compensation Committee may
otherwise specify with respect to particular awards and except that 100% of
unvested options held by directors vest in such circumstances. To the extent not
fully vested and exercised, options granted under the Amended Option Plan
terminate upon the dissolution, liquidation or sale of a majority of the
outstanding voting stock or substantially all of the assets of the Company,
except as the parties to any such transaction may otherwise agree in their
discretion. Vesting of options which remain in effect following a
change-in-control generally accelerates in the event the optionee's service
relationship with the Company is terminated by the Company without cause or by
the optionee for good reason within 18 months following the change-in-control.
CERTAIN TAX ASPECTS UNDER THE INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of transactions under the Amended Option Plan. It does not describe all federal
tax consequences under the Amended Option Plan, nor does it describe state or
local tax consequences. This description is qualified in its entirety by
reference to the Code and the rules and regulations promulgated thereunder.
INCENTIVE OPTIONS. No taxable income is generally realized by the optionee
upon the grant or exercise of an Incentive Option. If shares of Common Stock
issued to an optionee pursuant to the exercise of an Incentive Option are not
sold or transferred within two years from the date of grant or within one year
after the date of exercise, then (1) upon sale of such shares, any amount
realized in excess of the option price (the amount paid for the shares) will be
taxed to the optionee as a long-term capital gain and any loss sustained will be
a long-term capital loss, and (2) there will be no deduction for the Company for
federal income tax purposes. The exercise of an Incentive Option will give rise
to an item of tax preference that may result in alternative minimum tax
liability for the optionee.
If shares of Common Stock acquired upon the exercise of an Incentive Option
are disposed of prior to the expiration of the two-year and one-year holding
periods described above (a "disqualifying disposition"), generally (1) the
optionee will realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares of Common
Stock at exercise (or, if less, the amount realized on a sale of such shares of
Common Stock) over the option price
6
<PAGE>
thereof, and (2) the Company will be entitled to deduct such amount. Special
rules will apply where the optionee is subject to Section 16(b) of the Exchange
Act or where all or a portion of the exercise price of the Incentive Option is
paid by tendering shares of Common Stock.
If an Incentive Option is exercised at a time when it no longer qualifies
for the tax treatment described above, the option is treated as a Non-Qualified
Option. Generally, an Incentive Option will not be eligible for the tax
treatment described above if it is exercised more than three months following
termination of employment (or six months or one year in the case of termination
of employment by reason of death or disability, respectively).
NON-QUALIFIED OPTIONS. With respect to Non-Qualified Options under the
Amended Option Plan, no income is realized by the optionee at the time the
option is granted. Generally, (1) at exercise, ordinary income is realized by
the optionee in an amount equal to the difference between the option price and
the fair market value of the shares of Common Stock on the date of exercise, and
the Company receives a tax deduction for the same amount, and (2) at
disposition, appreciation or depreciation after the date of exercise is treated
as either short-term or long-term capital gain or loss depending on how long the
shares of Common Stock have been held. Special rules will apply where the
optionee is subject to Section 16(b) of the Exchange Act or where all or a
portion of the exercise price of the Non-Qualified Option is paid by tendering
shares of Common Stock.
As a result of Section 162(m) of the Code, the Company's deduction for
Non-Qualified Options and other awards under the Amended Option Plan may be
limited to the extent that a "covered employee" (i.e., the Chief Executive
Officer or other executive officer whose compensation is required to be reported
in the summary compensation table of this proxy statement) receives compensation
in excess of $1,000,000 in such taxable year.
OPTION PLAN BENEFITS
No grants have been made with respect to the additional 1,000,000 shares of
common stock reserved for issuance under the Amended Option Plan. The number of
shares of common stock that may be granted to executive officers and
non-executive officers is indeterminable at this time, as such grants are
subject to the discretion of the Compensation Committee.
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, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Elliot Balbert............................ 54 Chairman of the Board, Chief Executive
Officer and President
Dennis R. Jolicoeur....................... 51 Chief Financial Officer, Treasurer,
Executive Vice President and Director
Gary P. DeMello........................... 45 Vice President of Operations
Jon J. Denis.............................. 51 Vice President of Sales
Eve Dery Mendoza.......................... 40 General Counsel and Corporate Secretary
</TABLE>
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.
7
<PAGE>
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 1999. 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
1999. The Board of Directors has established an Audit Committee and a
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 Audit Committee consists of Messrs. Kahn and
McLane and held three meetings during 1999. 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
Option Plan and takes such other action as may be required in connection with
the Company's compensation and incentive plans. The Compensation Committee
consists of Messrs. Kahn, McLane, Kitchin and DeConcini and held five meetings
during 1999. The Board of Directors of the Company has not established a
nominating or similar committee.
During 1999, the Company granted to Mr. DeConcini options to purchase 15,000
shares of common stock, of which 5,000 shares will be vested as of May 31, 2000
and the remainder will vest quarterly over the following two years; to
Mr. Kitchin options to purchase 5,000 shares of common stock, all of which will
be vested as of May 31, 2000; to Mr. Kahn options to purchase 40,000 shares, of
which 10,000 shares were immediately exercisable, 10,000 shares will be vested
as of May 31, 2000 and the remainder will vest quarterly over the two years
thereafter; and to Mr. McLane options to purchase 20,000 shares of common stock,
of which 10,000 were immediately exercisable and 10,000 shares will be vested as
of May 31, 2000. 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.
8
<PAGE>
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
$100,000 during each of the fiscal years ended December 31, 1999 and
December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES ALL OTHER
------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- --------------------------- -------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Elliott Balbert, ......................... 1999 600,000 316,470 36,225
Chairman, Chief Executive Officer and 1998 600,000 400,000 35,834
President
Dennis R. Jolicoeur, ..................... 1999 250,000 119,392
Chief Financial Officer 1998 250,000 139,922
Gary P. DeMello, ......................... 1999 175,000 114,392 20,000
Vice President of Operations 1998 125,000 86,575 100,000
Jon J. Denis, ............................ 1999 300,000 129,392 20,000 6,000
Vice President of Sales 1998 270,000 85,244 100,000
Cheryl R. Richitt, ....................... 1999 175,000 114,392
Vice President of Corporate Development* 1998 150,000 86,575
</TABLE>
- ------------------------
* Ms. Richitt resigned from the Company in March 2000.
(1) In 1999, Mr. Balbert received $32,325 in life insurance benefits and $3,900
in benefits for the use of a Company car; in 1998, Mr. Balbert received
$32,172 in life insurance benefits $3,662 in benefits for the use of a
Company car. In 1998, Mr. Denis received a car allowance of $6,000.
OPTION GRANTS
The following table sets forth certain information concerning the individual
grant of options to purchase Common Stock to the Named Executive Officers of the
Company who received such grants during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT
NUMBER OF PERCENT ASSUMED ANNUAL
SECURITIES OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED OR BASE OPTION TERM(3)
GRANTED TO EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME (#)(1) IN FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- ---- ---------- -------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gary P. DeMello(4)................ 20,000 2.4% 6.03 4/28/09 75,845 192,205
Jon J. Denis(4)................... 20,000 2.4% 6.03 4/28/09 75,845 192,205
</TABLE>
- ------------------------
(1) Vesting of options is subject to the continuation of each employee's service
relationship with the Company. The options terminate ten years after the
grant date, subject to earlier termination in accordance with the Option
Plan and the applicable option agreement.
9
<PAGE>
(2) The exercise price equals the fair market value of the stock as of the grant
date as determined by the Board of Directors.
(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) 1,667 shares vest quarterly for three years commencing July 28, 1999.
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, 1999. None of the Named Executive Officers
of the Company exercised any stock options during 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 (#)(1) AT DECEMBER 31, 1999 ($)(1)
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Gary P. DeMello(2)............................. 108,334 111,666 438,859 93,041
Jon J. Denis(3)................................ 94,934 125,066 329,574 179,826
Cheryl Richitt(4).............................. 127,250 43,750 639,500 214,375
</TABLE>
- ------------------------
(1) Based on the last reported sale price on the Nasdaq National Market on
December 31, 1999 of $7.00 less the option exercise price.
(2) 5,000 shares will vest on January 1, 2000 and every three months thereafter
until July 1, 2000; 20,000 shares vested or will vest on April 8, 2000 and
every year thereafter until April 8, 2003; and 1,666 shares vested or will
vest on January 28, 2000 and every three months thereafter until April 28,
2002.
(3) 33,400 shares will vest on August 11, 2000; 25,000 shares will vest on
October 26, 2000 and every year thereafter until October 26, 2002; and 1,666
shares vested or will vest on January 28, 2000 and every three months
thereafter until April 28, 2002.
(4) Ms. Richitt resigned from the Company in March 2000. 133,750 shares were
vested at the time of her resignation and the remainder expired unvested.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
In November 1996, the Company sold 300,000 shares of restricted stock to
Mr. Dennis Jolicoeur under the Option 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 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. The loan balance at December 31, 1999 was $555,063.
10
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board consists of Dennis DeConcini, Norman
Kahn, Kraig Kitchin 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 Option
Plan and the Company's 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, executive benefits, 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 a number of
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.
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 officers' 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 executives for
1999, the Compensation Committee took into consideration a number of
achievements. These included record corporate revenues and earnings, the
increasing penetration of the Natrol brand into both the mass market and health
channels of distribution, the successful integration of two acquisitions
completed during the prior year and the completion of the acquisition of Prolab
Nutrition, Inc. which enhanced the Company's ability to market sports nutrition
products.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee determined the 1999 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 reviewed compensation of other CEOs in the nutritional supplements industry
and other similarly situated companies.
To establish Mr. Balbert's 1999 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
11
<PAGE>
granted stock options in 1999 in light of his existing stock ownership in the
Company. Mr. Balbert's bonus compensation for 2000, as well as the bonus
compensation for the Named Executive Officers, will be tied to a number of
specific goals which are heavily weighted by the financial performance of the
Company.
STOCK OPTIONS
Each corporate officer, other than the Chief Executive Officer, is the
holder of options or stock that vest over time. Such options are intended to
increase executive officers' equity interests in the Company, providing
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 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. The Compensation
Committee recognizes its responsibility to the Company's stockholders to
increase the value of the Company's Common Stock and intends to continue to
review, establish and implement compensation policies that are consistent with
competitive practices, are based on the Company's and the executives'
performance and permit the Company to attract, motivate and retain executives
who will the Company and build corporate and shareholder value.
Members of the Compensation Committee:
Dennis DeConcini
Kraig Kitchin
Norman Kahn
P. Andrews McLane
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 Option 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. DeConcini, Kitchin, Kahn and McLane, none of whom is an
employee of the Company.
12
<PAGE>
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 1999. 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 18 companies in the nutritional supplement business. The peer group includes
Celestial Seasonings (CTEA), Chattem, Inc. (CHTT), Herbalife International
(HERBA), Hauser, Inc. (HAUS), IVC Industries (IVCO), Natural Alternatives
(NAII), Natures Sunshine (NATR), NBTY, Inc. (NBTY), Nutraceutical, Inc. (NUTR),
Pharmaprint, Inc. (PPRT), Pure World, Inc. (PPRT), Rexall Sundown (RXSD),
Twinlab Corp. (TWLB), United Natural Foods, Inc. (UNFI), Usana, Inc. (USNA),
Weider Nutrition (WNI), Whole Foods Markets (WFMI) and Wild Oats Markets (OATS).
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.
<TABLE>
<CAPTION>
JULY 22, 98 DEC 31, 98 DEC 31, 99
----------- ---------- ----------
<S> <C> <C> <C>
Natrol...................................................... $100.00 $ 66.67 $ 42.43
S&P 500..................................................... $100.00 $110.41 $133.64
S&P Smallcap 600............................................ $100.00 $ 67.69 $113.21
Russell 2000................................................ $100.00 $ 94.16 $114.18
Peer Group.................................................. $100.00 $ 67.69 $ 53.87
</TABLE>
13
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of May 1, 2000 based on representations to the
Company by each director and Named Executive Officer. 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 44.7%
TA Associates Group(3).................................... 2,160,000 16.0%
T. Rowe Price Associates, Inc.(4)......................... 1,000,000 7.4%
Dennis R. Jolicoeur(5).................................... 296,292 2.2%
Cheryl R. Richitt(6)...................................... 158,119 1.2%
Gary P. DeMello(7)........................................ 150,737 1.1%
Jon J. Denis(8)........................................... 99,933 *
Eve Dery Mendoza(9)....................................... 5,375 *
Norman Kahn(10)........................................... 175,000 1.3%
P. Andrews McLane(11)..................................... 23,686 *
Kraig Kitchin(12)......................................... 25,000 *
Dennis DeConcini(13)...................................... 5,000 *
All executive officers and directors as a group
(nine persons)(14)...................................... 6,810,523 50.4%
</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.
(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
14
<PAGE>
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 14, 2000. 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 may be deemed to be a beneficial owner of such securities; however,
T. Rowe Price expressly disclaims that it is, in fact, the beneficial owner
of such securities.
(5) Constitutes 792 shares of unrestricted stock and 295,500 shares of
restricted stock held by Mr. Jolicoeur, of which 235,500 shares will be
vested within 60 days of May 1, 2000 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 24,614 shares of stock owned by Ms. Richitt and 133,500 shares
of Common Stock which may be purchased upon the exercise of stock options.
(7) Constitutes 2,404 shares of Common Stock owned by Mr. DeMello and 148,333
shares of Common Stock which may be purchased within 60 days of May 1, 2000
upon the exercise of stock options. Excludes 71,667 shares of Common Stock
which may be acquired pursuant to unvested stock options, of which 11,667
vest in quarterly installments through April 2002 and 60,000 vest in annual
installments through April 2003.
(8) Constitutes 99,933 shares of Common Stock which may be purchased within
60 days of May 1, 2000 upon the exercise of stock options. Excludes 120,067
shares of Common which may be acquired pursuant to unvested stock options,
of which 33,400 shares vest in August, 2000, 75,000 shares vest in annual
installments through October 2002, and 11,667 shares vest in Quarterly
installments through April, 2002.
(9) Constitutes 5,375 shares of Common Stock which may be acquired within
60 days of May 1, 2000 upon the exercise of stock options. Excludes 21,625
shares of Common which may be acquired pursuant to unvested stock options.
(10) Includes 175,000 shares held by The Kahn & Filles Limited Partnership, a
limited partnership of which Mr. Kahn's children are limited partners and of
which Mr. Kahn is indirectly the general partner.
(11) Constitutes 3,686 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 (3) 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. It also includes 20,000 shares of Common Stock which
may be purchased by Mr. McLane within 60 days of May 1, 2000 upon the
exercise of stock options.
15
<PAGE>
(12) Constitutes 20,000 shares Common Stock owned by Mr. Kitchin and 5,000
shares of Common Stock which may be purchased by Mr. Kitchin within 60 days
of May 1, 2000 upon the exercise of stock options.
(13) Constitutes and 5,000 shares of Common Stock which may be purchased by
Mr. DeConcini within 60 days of May 1, 2000 upon the exercise of stock
options.
(14) Does not include Cheryl Richitt who resigned from the Company in
March 2000.
MARKET VALUE
On December 31, 1999, the closing price of a share of the Company's Common
Stock on the Nasdaq National Market was $7.00.
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 2001 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 2001 annual
meeting of stockholders must be received by the Company on or before
January 12, 2001 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 2001 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.
INDEPENDENT ACCOUNTANTS
The Company has selected Ernst & Young LLP as the independent public
accountants for the Company for the fiscal year ending December 31, 2000. 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.
16
<PAGE>
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
1999, the Section 16 Persons complied with all Section 16(a) filing requirements
applicable to them other than a Form 3 for each of Messrs. Kitchin and
DeConcini, each of which was inadvertently filed late after their appointment to
the Board of Directors in December 1999.
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 16, 2000
17
<PAGE>
APPENDIX A
NATROL, INC.
AMENDED AND RESTATED 1996 STOCK OPTION AND GRANT PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Natrol, Inc. Amended and Restated 1996 Stock
Option and Grant Plan (the "Plan"). The purpose of the Plan is to encourage and
enable the officers, employees, directors, consultants, advisors, and other key
persons of Natrol, Inc. (the "Company") and its Subsidiaries (as defined below)
upon whose judgment, initiative and efforts the Company largely depends for the
successful conduct of its business to acquire a proprietary interest in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"ACT" means the Securities Exchange Act of 1934, as amended.
"AWARD" or "AWARDS," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"COMMITTEE" has the meanings specified in Section 2.
"DIVIDEND EQUIVALENT RIGHT" means Awards granted pursuant to Section 10.
"EFFECTIVE DATE" means the date on which the Plan is approved by
stockholders as set forth in Section 16.
"FAIR MARKET VALUE" of the Stock on any given date means (i) if the Stock is
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall not be less than the closing price reported for the Stock on such exchange
or system for such date or, if no sales were reported for such date, for the
last date preceding such date for which a sale was reported; or (iii) if the
Stock is not publicly traded on a securities exchange or traded in the
over-the-counter market or, if traded or quoted, there are no transactions or
quotations within the last ten trading days or trading has been halted for
extraordinary reasons, the Fair Market Value on any given date shall be
determined in good faith by the Committee with reference to the rules and
principles of valuation set forth in Section 20.2031-2 of the Treasury
Regulations. Notwithstanding the foregoing, the Fair Market Value of the Stock
on the first day of the Company's Initial Public Offering shall be the initial
public price as set forth in the final prospectus for such Initial Public
Offering.
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"INCENTIVE STOCK OPTION" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"INDEPENDENT DIRECTOR" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an Incentive
Stock Option.
"OPTION" or "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.
"PERFORMANCE SHARE AWARD" means any Award granted pursuant to Section 9.
"RESTRICTED STOCK AWARD" means any Award granted pursuant to Section 7.
"STOCK" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"STOCK APPRECIATION RIGHTS" means any Award granted pursuant to Section 6.
"SUBSIDIARY" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"UNRESTRICTED STOCK AWARD" means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS
(a) COMMITTEE. The Plan shall be administered by the Board of Directors of
the Company, or at the discretion of the Board, by a committee of the Board
comprised, except as contemplated by Section 2(c), of not less than two
Independent Directors. All references herein to the Committee shall deemed to
refer to the entity then responsible for administration of this Plan at the
relevant time (i.e., either the Board of Directors or a committee or committees
of the Board, as applicable).
(b) POWERS OF COMMITTEE. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers, employees, Independent Directors,
consultants and key persons of the Company and its Subsidiaries to whom
Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Unrestricted Stock Awards, Performance
Share Awards and Dividend Equivalent Rights, or any combination of the
foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and conditions,
including restrictions, not inconsistent with the terms of the Plan, of any
Award, which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
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(v) to accelerate at any time the exercisability or vesting of all or
any portion of any Award and/or to include provisions in Awards providing
for such acceleration;
(vi) to impose any limitations on Awards granted under the Plan,
including limitations on transfers, repurchase provisions and the like and
to exercise repurchase rights or obligations;
(vii) subject to the provisions of Section 5(a)(iii), to extend at any
time the period in which Stock Options may be exercised;
(viii) to determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award shall
be deferred either automatically or at the election of the participant and
whether and to what extent the Company shall pay or credit amounts
constituting interest (at rates determined by the Committee) or dividends or
deemed dividends on such deferrals; and
(ix) at any time to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
(c) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Board, in its discretion,
may appoint the Chief Executive Officer of the Company as a one-person Committee
in addition to the Committee contemplated by Section 2(a) having authority
(co-extensive with such other Committee) to grant Awards to individuals who are
not subject to the reporting and other provisions of Section 16 of the Act or
"covered employees" within the meaning of Section 162(m) of the Code.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be such aggregate number of shares
of Stock as does not exceed the sum of (i) 2,770,000 shares; plus (ii) as of
each June 30 and December 31 after June 30, 1998, an additional positive number
equal to fifteen percent (15%) of the shares of Stock issued by the Company
during the six-month period then ended; provided, however, that the maximum
number of shares of Stock for which Incentive Stock Options may be granted under
the Plan shall not exceed 2,770,000 shares. For purposes of the foregoing
limitations, the shares of Stock underlying any Awards which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. Subject to such overall
limitation, shares of Stock may be issued up to such maximum number pursuant to
any type or types of Award. The shares available for issuance under the Plan may
be authorized but unissued shares of Stock or shares of Stock reacquired by the
Company. Upon the exercise of a Stock Appreciation Right settled in shares of
Stock, the right to purchase an equal number of shares of Stock covered by a
related Stock Option, if any, shall be deemed to have been surrendered and will
no longer be exercisable, and said number of shares of Stock shall no longer be
available under the Plan.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock as a class are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company or any successor
company, or additional shares or new or different shares or other securities of
the Company or any successor Company or other non-cash assets are distributed
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with respect to such shares of Stock or other securities, the Committee shall
make an appropriate or proportionate adjustment in (i) the maximum number of
shares reserved for issuance under the Plan, (ii) the number of Stock Options or
Stock Appreciation Rights that can be granted to any one individual participant,
(iii) the number and kind of shares or other securities subject to any then
outstanding Awards under the Plan, and (iv) the price for each share subject to
any then outstanding Stock Options, Stock Appreciation Rights or other Awards
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of shares) as to which such Stock
Options, Stock Appreciation Rights or other Awards remain exercisable. The
adjustment by the Committee shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but the Committee in its discretion may make a cash payment in
lieu of fractional shares.
(c) MERGERS AND OTHER TRANSACTIONS. In the case of (i) the dissolution or
liquidation of the Company, (ii) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an unrelated person or entity,
(iii) a merger, reorganization or consolidation in which the holders of the
Company's outstanding voting power immediately prior to such transaction do not
own a majority of the outstanding voting power of the surviving or resulting
entity immediately upon completion of such transaction, (iv) the sale of all of
the Stock of the Company to an unrelated person or entity or (v) any other
transaction in which the owners of the Company's outstanding voting power prior
to such transaction do not own at least a majority of the outstanding voting
power of the relevant entity after the transaction (in each case, a
"Transaction"), 50% of all unvested Options, Stock Appreciation Rights and other
Awards which are not vested as of the effective date of such Transaction (or
100% in the case of Options or other Awards held by non-employee Directors)
shall become vested as of such effective date, except as the Committee may
otherwise specify with respect to particular Awards. Upon the effectiveness of
the Transaction, the Plan and all outstanding Options, Stock Appreciation Rights
and other Awards granted hereunder shall terminate, unless provision is made in
connection with the Transaction for the assumption of Awards, the continuation
of Awards by the Company as survivor or the substitution of such Awards with new
Awards of the successor entity or parent thereof, with appropriate adjustment as
to the number and kind of shares and, if appropriate, the per share exercise
prices, as provided in Section 3(b) above. In the event of such termination,
each grantee shall be permitted to exercise for a period of at least 15 days
prior to the date of such termination all outstanding Options, Stock
Appreciation Rights and other Awards held by such grantee which are then
exercisable or become exercisable upon the effectiveness of the Transaction.
Notwithstanding anything herein to the contrary, in the event that provision is
made in connection with the Transaction for the assumption or continuation of
Awards, or the substitution of such Awards with new Awards of the successor
entity or parent thereof, then, except as the Committee may otherwise determine
with respect to particular Awards, any Award so assumed or continued or
substituted therefor shall be deemed vested and exercisable in full upon the
date on which the grantee's employment or service relationship with the Company
and its subsidiaries or successor entity terminates if such termination occurs
(i) within eighteen (18) months after such Transaction and (ii) such termination
is by the Company or its Subsidiaries or successor entity without Cause (as
defined below) or by the grantee for Good Reason (as defined below), subject,
however, to the following sentence. Notwithstanding the foregoing, in the event
that the Company receives written advice from its independent public accountants
in connection with any Transaction to the effect that vesting of any Award under
the circumstances contemplated by the preceding sentence would preclude or
otherwise adversely affect the ability of the Company or any other party to such
Transaction to account for the same as a "pooling of interests" within the
meaning of APB No. 16 (or any successor provision), which Transaction would
otherwise qualify for such accounting treatment, then vesting of such Awards
shall not accelerate on a subsequent termination of grantee's employment or
service relationship within 18 months following such Transaction as contemplated
by the preceding sentence. For purposes of this Section 3(c), the term "Cause"
means a vote of the Board of Directors of the Company or the successor entity,
as the case may be, resolving that the grantee should be dismissed as a result
of (i) any material breach by the
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grantee of any agreement to which the grantee and the Company are parties,
(ii) any act (other than retirement) or omission to act by the grantee which
would reasonably be likely to have a material adverse effect on the business of
the Company or its subsidiaries or successor entity, as the case may be, or on
the grantee's ability to perform services for the Company or its subsidiaries or
successor entity, as the case may be, including, without limitation, the
conviction of any crime (other than ordinary traffic violations), or (iii) any
material misconduct or willful and deliberate non-performance of duties by the
grantee in connection with the business or affairs of the Company or its
subsidiaries or successor entity, as the case may be; and the term "Good Reason"
means the occurrence of any of the following events: (A) a substantial adverse
change in the nature or scope of the grantee's responsibilities, authorities,
title, powers, functions, or duties; (B) a reduction in the grantee's annual
base salary except for across-the-board salary reductions similarly affecting
all or substantially all management employees; or (C) the relocation of the
offices at which the grantee is principally employed to a location more than
fifty (50) miles from such offices.
(d) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Committee may direct that the substitute
awards be granted on such terms and conditions as the Committee considers
appropriate in the circumstances. Any substitute Awards granted under this Plan
shall not count against the share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Participants in the Plan will be such officers and other employees,
Independent Directors, consultants, advisors and other key persons (including
prospective employees) of the Company and its Subsidiaries who are responsible
for or contribute to the management, growth or profitability of the Company and
its Subsidiaries as are selected from time to time by the Committee, in its sole
discretion.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be pursuant to a stock option
agreement which shall be in such form as the Committee may from time to time
approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. Non-Qualified Stock Options
may be granted to officers, employees, Independent Directors, advisors,
consultants and other key persons of the Company and its Subsidiaries. To the
extent that any Option does not qualify as an Incentive Stock Option, it shall
be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after November 5,
2006.
(a) TERMS OF STOCK OPTIONS. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock covered
by a Stock Option shall be determined by the Committee at the time of grant
but shall not be less than 100% of the Fair Market Value on the date of
grant in the case of Incentive Stock Options. If an employee owns or is
deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any parent or subsidiary corporation
and an Incentive Stock Option is granted to such employee, the option price
of such Incentive Stock Option shall be not less than 110% of the Fair
Market Value on the grant date.
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(ii) GRANT OF DISCOUNT OPTIONS IN LIEU OF CASH COMPENSATION. Upon the
request of a participant and with the consent of the Committee granted in
its sole discretion, such participant may elect each calendar year to
receive a Non-Qualified Stock Option in lieu of any cash bonus or other
compensation to which he may become entitled during the following calendar
year, but only if such participant makes an irrevocable election to waive
receipt of all or a portion of such cash compensation. Such election shall
be made on or before the date set by the Committee which date shall be no
later than 15 days (or such shorter period permitted by the Committee)
preceding January 1 of the calendar year for which the cash compensation
would otherwise be paid. A Non-Qualified Stock Option shall be granted to
each participant who made such an irrevocable election on the date the
waived cash compensation would otherwise be paid. The exercise price per
share shall be determined by the Committee. The number of shares of Stock
subject to the Stock Option shall be determined by dividing the amount of
the waived cash compensation by the difference between the Fair Market Value
of the Stock on the date the Stock Option is granted and the exercise price
per share of the Stock Option. The Stock Option shall be granted for a whole
number of shares so determined; the value of any fractional share shall be
paid in cash.
(iii) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed
to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the term of such option shall be no more
than five years from the date of grant.
(iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date; provided, however, that Stock Options granted in lieu of cash
compensation shall be exercisable in full as of the grant date. The
Committee may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(v) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made
by one or more of the following methods; provided, however, that the methods
set forth in subsections (B) and (C) below shall become available only after
the closing of the Initial Public Offering:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) Through the delivery (or attestation to the ownership) of shares
of Stock that have been purchased by the optionee on the open market or
that have been held by the optionee for at least six months, and are not
then subject to restrictions under any Company plan, if permitted by the
Committee in its discretion; such surrendered shares shall be valued at
Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to
the Company to pay the purchase price; provided that in the event the
optionee chooses to pay the purchase price as so provided, the optionee
and the broker shall comply with such procedures and enter into such
agreements of indemnity and other agreements as the Committee shall
prescribe as a condition of such payment procedure; or
(D) By the optionee delivering to the Company a promissory note if
the Board has authorized the loan of funds to the optionee for the
purpose of enabling or assisting the
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optionee to effect the exercise of his Stock Option; provided that at
least so much of the exercise price as represents the par value of the
Stock shall be paid other than with a promissory note.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws. In the event an optionee
chooses to pay the purchase price by previously-owned shares of stock
through the attestation method described in Section 5(a)(v)(B), the shares
of Stock transferred to the optionee upon the exercise of the Stock Option
shall be net of the number of shares attested to.
(vi) TERMINATION. Unless otherwise provided in the option agreement or
determined by the Committee, upon the optionee's termination of employment
(or other business relationship) with the Company and its Subsidiaries, the
optionee's rights in his Stock Options shall automatically terminate.
(vii) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during any
calendar year shall not exceed $100,000. To the extent that any Stock Option
exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(b) RELOAD OPTIONS. At the discretion of the Committee, Options granted
under the Plan may include a "reload" feature pursuant to which an optionee
exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Committee may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee, or by the optionee's legal representative or
guardian in the event of the optionee's incapacity. Notwithstanding the
foregoing, the Committee may provide in an option agreement that the optionee
may transfer, without consideration for the transfer, his Non-Qualified Stock
Options to members of his immediate family, to trusts for the benefit of such
family members, to partnerships in which such family members are the only
partners; provided, however, that the transferee agrees in writing to be bound
by the terms and conditions of this Plan and the applicable Option Agreement.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is an
Award entitling the recipient to receive an amount in cash or shares of Stock or
a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise over the exercise price per Stock
Appreciation Right set by the Committee at the time of grant, which price shall
determined by the Committee in its sole discretion (or over the option exercise
price per share, if the Stock Appreciation Right was granted in tandem with a
Stock Option) multiplied by the number of
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shares of Stock with respect to which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the form of
payment.
(b) GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted by the Committee in tandem with, or independently of, any
Stock Option granted pursuant to Section 5 of the Plan. In the case of a Stock
Appreciation Right granted in tandem with a Non-Qualified Stock Option, such
Stock Appreciation Right may be granted either at or after the time of the grant
of such Option. In the case of a Stock Appreciation Right granted in tandem with
an Incentive Stock Option, such Stock Appreciation Right may be granted only at
the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall be
exercisable at such time or times and to the extent that the related Stock
Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable portion
of any related Option shall be surrendered.
SECTION 7. RESTRICTED STOCK AWARDS
(a) NATURE OF RESTRICTED STOCK AWARDS. A Restricted Stock Award is an
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Committee, shares of Stock subject to such restrictions
and conditions as the Committee may determine at the time of grant ("Restricted
Stock"). Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the Committee
shall otherwise determine, certificates evidencing the Restricted Stock shall
remain in the possession of the Company until such Restricted Stock is vested as
provided in Section 7(d) below.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award. If a
participant's employment (or other business relationship) with the Company and
its Subsidiaries terminates for any reason, or upon such other events as may be
stated in the instrument evidencing the Restricted Stock Award, the Company or
its assigns shall have the right or shall agree, as may be specified in the
relevant restricted stock agreement, to repurchase same or all of the shares of
Stock subject to the Award at such purchase price as shall be set forth in such
instrument.
(d) VESTING OF RESTRICTED STOCK. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which Restricted Stock shall become
vested, subject to such further rights of the Company or its assigns as may be
specified in the instrument evidencing the Restricted Stock Award.
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
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SECTION 8. UNRESTRICTED STOCK AWARDS
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Committee may, in its sole
discretion, grant (or sell at a purchase price determined by the Committee) an
Unrestricted Stock Award to any participant, pursuant to which such participant
may receive shares of Stock free of any vesting restrictions ("Unrestricted
Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as
described in the preceding sentence in respect of past services or other valid
consideration, or in lieu of any cash compensation due to such individual.
(b) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF COMPENSATION. Upon
the request of a participant and with the consent of the Committee, each such
participant may, pursuant to an advance written election delivered to the
Company no later than the date specified by the Committee, receive a portion of
the cash compensation otherwise due to such participant in the form of shares of
Unrestricted Stock either currently or on a deferred basis.
(c) RESTRICTIONS ON TRANSFERS. The right to receive shares of Unrestricted
Stock on a deferred basis may not be sold, assigned, transferred, pledged or
otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Committee may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Committee in its sole discretion shall determine whether and to whom
Performance Share Awards shall be made, the performance goals applicable under
each such Award, the periods during which performance is to be measured, and all
other limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Committee may rely on the performance goals and
other standards applicable to other performance unit plans of the Company in
setting the standards for Performance Share Awards under the Plan.
(b) RESTRICTIONS ON TRANSFER. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) RIGHTS AS A SHAREHOLDER. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Committee).
(d) TERMINATION. Except as may otherwise be provided by the Committee at
any time, a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Committee may in its sole discretion accelerate, waive or,
subject to Section 13, amend any or all of the goals, restrictions or conditions
imposed under any Performance Share Award.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Stock specified in the Dividend Equivalent Right (or other
award to which it relates) if such shares were held by the
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recipient. A Dividend Equivalent Right may be granted as a component of another
Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment or such other price as may then apply under a
dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent
Rights may be settled in cash or shares of Stock or a combination thereof, in a
single installment or installments. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall
be settled upon exercise, settlement, or payment of, or lapse of restrictions
on, such other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other award.
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
SECTION 11. TAX WITHHOLDING
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) PAYMENT IN STOCK. Subject to approval by the Committee, a participant
may elect to have such tax withholding obligation satisfied, in whole or in
part, by (i) authorizing the Company to withhold from shares of Stock to be
issued pursuant to any Award a number of shares with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due, (ii) transferring to the Company shares of Stock owned
by the participant with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due, or
(iii) in a combination of (i) and (ii).
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under
the policy pursuant to which the leave of absence was granted or if the
Committee otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION.
The Board may, at any time, amend or discontinue the Plan and the Committee
may, at any time, amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or
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<PAGE>
amended Award if it were then initially granted under this Plan for the purpose
of satisfying changes in law or for any other lawful purpose, but no such action
shall adversely affect rights under any outstanding Award without the holder's
written consent. If and to the extent determined by the Committee to be required
by the Code to ensure that Incentive Stock Options granted under the Plan are
qualified under Section 422 of the Code, Plan amendments shall be subject to
approval by the Company stockholders who are eligible to vote at a meeting of
stockholders.
SECTION 14. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 15. GENERAL PROVISIONS
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may
require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable
securities law and other legal and stock exchange or similar requirements have
been satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(c) TRADING POLICY RESTRICTIONS. Stock Option and Stock Appreciation Right
exercises and other Awards under the Plan shall be subject to the Company's
insider trading policy, as in effect from time to time.
SECTION 16. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board. This Plan amends in certain respects and
integrates and supersedes versions of the Plan as heretofore in effect.
SECTION 17. GOVERNING LAW
This Plan shall be governed by Delaware law except to the extent such law is
preempted by federal law.
<TABLE>
<S> <C> <C>
Adopted and Effective: June 18, 1998
Amended: April 27, 2000
</TABLE>
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<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 13, 2000
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 Monday, May 1, 2000, 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 13, 2000, 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 AND "FOR"
THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED 1996 STOCK OPTION AND GRANT
PLAN IN PROPOSAL 2. 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
- ---------------- ----------------
/ / PLEASE MARK
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 P. Andrews McLane, Kraig Kitchin and Dennis Griffin as
Class II Directors to hold office for three-year terms until the 2003
Annual Meeting of Stockholders and until their respective successors
are duly elected and qualified.
<PAGE>
FOR WITHHELD
/ / / /
-------------------------------
/ / For all nominees except as noted above
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PLAN AMENDMENT.
2. To approve an amendment to the Company's Amended and Restated 1996
Stock Option and Grant Plan.
FOR WITHHELD ABSTAIN
/ / / / / /
3. 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:________________________
