<PAGE>
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1185 Linda Vista Drive
San Marcos, California 92069
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 1996
An Annual Meeting of Stockholders of Natural Alternatives International,
Inc., a Delaware corporation (the "Company"), will be held at the Olympic
Resort Hotel, 6111 El Camino Real, Carlsbad, California 92009 on Friday, May
10, 1996, at 3:00 p.m., for the following purposes:
1. Approval of an amendment to the Company's Certificate of Incor-
poration to provide for a classified board of directors;
2. Election of five directors of the Company in three classes to
serve until the 1996, 1997 and 1998 Annual Meetings of Stockholders res-
pectively (and until the election and qualification of their successors);
3. Approval of an amendment to the Company's Certificate of Incor-
poration to provide newly created directorships resulting from any
increase in the number of directors, or resulting from the death, resigna-
tion, disqualification, or removal of a director, or other cause shall be
filled solely by the vote of the remaining directors then in office;
4. Approval of an amendment to the Company's Certificate of Incor-
poration to provide no director of the Company may be removed except for
cause as defined, and to require a vote of 70% of the outstanding shares
to remove a director;
5. Approval of an amendment to the Company's Certificate of Incor-
poration to provide at any meeting of stockholders only such business may
be acted on as is brought either by stockholders in accordance with cer-
tain notice procedures or by the Board of Directors;
6. Approval of an amendment to the Company's Certificate of Incor-
poration to provide only persons who are nominated in accordance with
certain procedures are eligible for election as directors;
7. Approval of an amendment to the Company's Certificate of Incor-
poration to prohibit the Company from making certain stock repurchases ex-
cept under certain conditions.
8. Approval of an amendment to the Company's Certificate of Incor-
poration to add a "fair price" provision requiring observation of speci-
fied minimum price and procedural requirements by defined parties who
seek a merger or other business combination unless certain requirements
are met.
9. Approval of an amendment to the Company's Certificate of Incor-
poration as an election not to be governed by the provisions of Section
203 of the Delaware General Corporation Law.
10. Approval of an amendment to the Company's Certificate of Incor-
poration to require a vote of 70% of the outstanding voting shares to
amend or repeal the provisions set forth in Proposals 2-11 herein and
existing Second, Seventh and Eighth Articles of the Company's Certificate
of Incorporation.
11. Approval of the Restated Certificate of Incorporation of the Com-
pany in the form attached hereto as Exhibit "A".
12. Ratification and approval of the 1994 Nonqualified Stock Option
Plan and the grant of options to purchase 500,000 shares thereunder.
13. Confirmation of KPMG Peat Marwick LLP as the Company's indepen-
dent auditors for the fiscal year ending June 30, 1996.
14. Transaction of such other business as may properly come before
the Annual Meeting of Stockholders or any adjournment thereof.
The Board of Directors has fixed the close of business on March 31, 1996
as the record date for determination of stockholders entitled to notice of and
to vote at the Annual Meeting of Stockholders or any adjournment. A complete
list of such stockholders will be available at the executive offices of the
Company for ten days before the meeting.
<PAGE>
All stockholders are cordially invited to attend the Annual Meeting of
Stockholders in person. Regardless of whether you plan to attend the meet-
ing, please sign and date the enclosed Proxy and return it promptly in the
accompanying envelope, postage for which has been provided if mailed in the
United States. The prompt return of Proxies will ensure a quorum and save the
Company the expense of further solicitation. Any stockholder returning the
enclosed Proxy may revoke it prior to its exercise by voting in person at the
meeting or by filing with the Secretary of the Company a written revocation or
a duly executed Proxy bearing a later date.
By Order of the Board of Directors
Marie A. Le Doux, Secretary
San Marcos, California
March 31, 1996
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1185 Linda Vista Drive
San Marcos, California 92069
PROXY STATEMENT
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Natural Alternatives International, Inc., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders ("Annual Meeting")
to be held on Friday, May 10, 1996 at 3:00 p.m., local time, or at any adjourn-
ment or postponement thereof. The Annual Meeting will be held at the Olympic
Resort Hotel, 6111 El Camino Real, Carlsbad, California 92009. This Proxy
Statement and the accompanying Proxy and annual report are first being mailed
to stockholders on or about April 10, 1996.
VOTING
Only stockholders of record at the close of business on March 22, 1996
will be entitled to vote at the Annual Meeting. On March 22, 1996 there were
approximately 5,297,375 shares of Common Stock outstanding. The Company is in-
corporated in Delaware, and is not required by Delaware corporation law or
its Certificate of Incorporation to permit cumulative voting in the election of
directors.
On each or any other matter properly presented and submitted to a vote at
the Annual Meeting, each share will have one vote and an affirmative vote of
a majority of the shares represented at the Annual Meeting and entitled to
vote thereon (where the holders of a majority of the shares entitled to vote
are present in person or by Proxy) will be necessary to approve the matter.
REVOCABILITY OF PROXIES
When the enclosed Proxy is properly executed and returned, the shares it
represents will be voted at the Annual Meeting in accordance with any direc-
tions noted thereon, and if no directions are indicated, the shares it repre-
sents will be voted in favor of the proposals set forth in the notice at-
tached hereto. Any person giving a Proxy in the form accompanying this
statement has the power to revoke it any time before its exercise. It may be
revoked by filing with the Secretary of the Company at the Company's principal
executive office, 1185 Linda Vista Drive, San Marcos, California 92069, an in-
strument of revocation or a duly executed Proxy bearing a later date, or it
may be revoked by attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of the solicitation of Proxies, in-
cluding the preparation, assembly, printing, and mailing of this Proxy State-
ment, the Proxy, and any additional material furnished to stockholders.
Copies of solicitation material will be furnished to brokerage houses, fiduci-
aries, and custodians holding shares in their names that are beneficially
owned by others to forward to such beneficial owners. In addition, the Com-
pany may reimburse such persons for their cost of forwarding the solicitation
material to such beneficial owners. The solicitation of Proxies by mail may be
supplemented by telephone, telegram, and/or personal solicitation by direc-
tors, officers, or employees of the Company. No additional compensation will
be paid for any such services. Except as described above, the Company does not
intend to solicit Proxies other than by mail.
<PAGE>
PROPOSAL 1
AMENDMENT TO PROVIDE FOR A
CLASSIFIED BOARD OF DIRECTORS
Proposed Article Twelfth, which follows, would provide for the Board to be
divided into three classes of directors serving staggered three year terms. As
a result, approximately one-third of the Board will be elected each year.
Initially, members of Class I are expected to be elected at the May 10, 1996
Annual Meeting of Stockholders. Directors elected to Class I positions will
serve for three years until the third subsequent scheduled Annual Meeting of
Stockholders.
Commencing with the election of Class I directors, each class of directors
elected at a subsequent annual meeting will be elected to a three year term.
Vacancies occurring in any class (or arising from an increase in the size of
the Board) may be filled solely by the affirmative vote of a majority of the
remaining Board to serve for the remainder of the term of the class. This pro-
posal gives the Board a greater likelihood of continuity and experience since
at any one time at least one-third of the Board will be in its second year of
service and at least one-third will be in its third year of service. Members
elected within the most recent year will comprise approximately one-third of
the membership of the Board. Although the Board is not aware of any problems
experienced by the Company in the past with respect to continuity and stability
of leadership and policy, as the Company grows the Board believes a classified
Board will decrease the likelihood of problems of continuity and stability
arising in the future.
If included in the amended and Restated Certificate of Incorporation
("Certificate"), proposed Article Twelfth would be applicable to every future
election of directors. As such, the holders of a majority of the shares of
Common Stock would require more time to replace a majority of the directors.
A classified Board with staggered three year terms may also make the Company
less attractive to tender offerors since, if the Board should be comprised of
five members as at present, a majority stockholder would, under the proposed
amendment, normally need at least two annual meetings to obtain control of a
majority of the Board, as opposed to one meeting. The Board believes the pro-
posed amendment will more likely lead a well financed bidder into direct nego-
tiation with the Board and therefore discourage potential hostile takeovers of
the Company. Although management presently controls approximately 41.84% of
the Common Stock, that control may be diluted by future issuances of voting
stock. Therefore, management has proposed this and other amendments at this
time, in part to encourage future potential interested parties to negotiate
with the Board.
This proposal is not the result of any specific effort to accumulate the
Company's securities or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise. Further,
although this provision may be beneficial to management in a hostile tender
offer, it could also have an adverse impact on stockholders who may want to
participate in such a tender offer.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to
vote at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE TWELFTH
TWELFTH: The Board shall be divided as nearly equal in number as possible
into three classes, designated Class I, Class II and Class III. The term of
office of Directors of one class shall expire at each regularly scheduled
annual meeting of stockholders held for the purpose of electing directors of
that class, and in all cases as to each Director until his or her successor
shall be elected and shall qualify or until his or her earlier resignation,
removal from office, death or incapacity. Additional directorships resulting
from an increase in the number of Directors shall be apportioned among the
classes as equally as possible. The initial term of office of Directors of
Class I shall begin at the first regularly scheduled meeting of stockholders
held on May 10, 1996; that of Class II shall begin at the first regularly sche-
duled meeting of stockholders occurring in 1997 or thereafter; and that of
Class III shall begin at the first regularly scheduled meeting of stockholders
occurring in 1998 or thereafter; and in all cases as to each Director shall
continue until his or her successor shall be elected and shall qualify, or
until his or her earlier resignation, removal from office, death or incapacity.
At each regularly scheduled annual meeting of stockholders held for the purpose
of electing directors of that class, the number of Directors equal to the
number of Directors of the class whose term expires at the time of such meeting
(or, if less, the number of Directors properly nominated and qualified for
election) shall be elected to hold office until the third succeeding annual
meeting of stockholders held for the purpose of electing directors of that
class, after their election.
<PAGE>
PROPOSAL 2
NOMINATION AND ELECTION OF DIRECTORS
The director to be elected will be elected to one of three classes of
directors, to hold office for one, two, or three years respectively, and until
the Annual Meetings held in 1997, 1998 and 1999 and until his or her successor
is elected and has qualified, or until his or her death, resignation, or re-
moval. Five directors are to be elected at the Annual Meeting, two to Class I,
one to Class II and two to Class III. All nominees for director were elected
by the stockholders at the Company's 1994 annual meeting of stockholders.
The five candidates receiving the highest number of affirmative votes cast
at the Annual Meeting shall be elected as directors of the Company. Each
person nominated for election has agreed to serve if elected. If any of such
nominees shall become unavailable or refuse to serve as a director (an event
that is not anticipated), the proxy holders will vote for substitute nominees
at their discretion. Unless otherwise instructed, the proxy holders will vote
the Proxies received by them for the five nominees named below.
The Board of Directors recommends that stockholders vote FOR each named
nominee.
NOMINEES
Set forth below is information regarding the nominees, including informa-
tion furnished by them as to their principal occupations for the last five
years, and their ages as of September 6, 1995.
Name Age Director Since
------------------ --- --------------
Class I
---------
Mark A. Le Doux 41 1986
Class II
---------
Lee G. Weldon 56 1992
Marie A. Le Doux 78 1986
Class III
---------
William R. Kellas 44 1988
William P. Spencer 43 1986
MARK A. LE DOUX was a director, the President and Chief Executive Officer
of Natural Alternatives, Inc., the predecessor corporation, from its forma-
tion in 1981 until the 1986 merger into the Company. Mr. Le Doux has been a
director of the Company since the August 1986 merger of the predecessor cor-
poration into the Company, which continued the business and operations of the
predecessor. Since August 1986, Mr. Le Doux has also been the President and
Chief Executive Officer of the Company. From 1976 to 1980, he held the posi-
tion of Executive Vice President and Chief Operating Officer of Kovac Labora-
tories, a company which was engaged in the business of manufacturing nutri-
tional supplements. He attended the University of Oklahoma and graduated Cum
Laude with a Bachelor of Arts in Letters in 1975. Mr. Le Doux graduated from
the Thomas Jefferson School of Law, San Diego in 1979 with a Juris Doctorate.
He is the son of Marie A. Le Doux.
WILLIAM P. SPENCER has been a director of the Company since August 1986,
and has also been Executive Vice President, Chief Operating Officer and Chief
Financial Officer since that time. Prior to August 1986, Mr. Spencer was a di-
rector, Vice President, and Chief Financial Officer of Natural Alternatives,
Inc., the predecessor corporation. Prior to joining Natural Alternatives,
Inc., he was with San Diego Trust and Savings Bank for ten years, the last four
as Vice President. Mr. Spencer received a Bachelor of Science in the field of
Finance in 1974, and a Masters in Business Administration, also in the area of
Finance, in 1979 from San Diego State University.
MARIE A. LE DOUX has been a director of the Company since August 1986, and
has also been Chairperson and Secretary since that time. Mrs. Le Doux was
also the Chairperson/Advisor of the Company's predecessor from its formation
until 1986. She has thirty-eight years of experience in the area of nutri-
tion. In 1978, Mrs. Le Doux was awarded an Honorary Fellowship from the In-
ternational Academy of Preventive Medicine. In 1981, she received an Honor-
ary Ph.D. in Humanities from the Heritage Institute. For the last eighteen
years, Mrs. Le Doux has been the President of Play N' Talk International, a
company which is in the business of preparing instructional materials for chil-
dren's reading programs. She is the mother of Company President and CEO,
Mark A. Le Doux.
WILLIAM R. KELLAS, Ph.D. has been a director of the Company since October
1987. Dr. Kellas graduated from the University of Southern California earning
a Bachelor of Science Degree in Business with a Minor in Physics in 1974. He
earned his Ph.D. in Health Sciences from the Doctors University of Natural
Health Sciences in 1985. Dr. Kellas also graduated from Harvard University's
Financial and Management Program. From 1974 to 1984, Dr. Kellas was employed
by IBM as the firm's Western Regional Marketing Manager. From 1984 to 1985,
Dr. Kellas was a District Manager for Wang Laboratories. Presently, Dr.
Kellas is the President of a biochemical firm called Professional Preference,
which sells computerized regimens of protocols designed to regenerate an in-
dividual's immune system and fight related degenerative diseases.
LEE G. WELDON has been a director of the Company since June 1992. He was
the Chairman and Chief Executive Officer of Kal Healthway, Inc., a food sup-
plement distributor, until it was acquired by another company in 1995. In
1963, Mr. Weldon graduated from UCLA and obtained a Bachelor of Science de-
gree in Business Administration.
<PAGE>
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1995, the Board of Directors held
four meetings. The Board of Directors has an Audit Committee and a Compen-
sation Committee. All members of the Board of Directors hold office until
the next annual meeting of stockholders or the election and qualification of
their successors. All directors receive $500 for each Board of Director's
meeting personally attended. Executive officers serve at the discretion of
the Board of Directors.
The Audit Committee recommends a firm to be appointed by the Board of Di-
rectors, subject to ratification by the stockholders, as independent auditors
to audit the Company's financial statements and to perform services related
to the audit. The Audit Committee also has the responsibility to review the
scope and results of the audit with the independent auditors, review with man-
agement and the independent auditor's the Company's interim and year-end op-
erating results, consider the adequacy of the internal accounting and control
procedures of the Company, review any non-audit services to be performed by the
independent auditors and consider the effect of such performance on the audi-
tors independence. The Audit Committee was established in February 1993, and
consists of Messrs. Kellas, Weldon and Spencer.
The Compensation Committee establishes rates of salary, bonuses, retire-
ment and other compensation for all directors and officers of the Company and
for such other personnel as the Board of Directors may designate. No member of
the Compensation Committee may vote upon his or her own compensation except
for such items as are applicable to a group that also includes personnel who
are not directors or officers of the Company. The Compensation Committee was
established in May 1992, and consists of Messrs. Kellas and Weldon. Messrs.
Kellas and Weldon are directors and are not officers or employees of the Com-
pany or any of its subsidiaries.
During the fiscal year ended June 30, 1995, each Board member attended at
least 75% of the aggregate of the meetings of the Board of Directors and of
the Committees on which he or she served.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION. The following table sets forth
compensation for services rendered in all capacities to the Company during
the fiscal year ended June 30, 1995, by each of the executive officers and
two additional individuals for whom disclosure is required.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------- ------------
Securities
Other Annual Underlying All Other
Compensation Options/ Compensation
Name and Principal Position Year Salary ($) Bonus($) ($)(1) SARs(#) ($)(2)
- ---------------------------- ---- ---------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Le Doux, President, 1995 172,942 101,203 11,502 100,000 14,961
Chief Executive Officer 1994 158,450 157,867 27,770 60,000 22,559
and Director 1993 106,750 53,231 12,402 --- 14,817
William P. Spencer, 1995 168,058 83,854 543 125,000 35,538
Executive Vice President, 1994 200,250 124,357 40,668 125,000 35,394
Chief Operating Officer, 1993 93,710 37,266 2,836 --- 14,465
Treasurer,
Chief Financial Officer,
Chief Acctg. Officer,
and Director
John A. Wise, Vice President 1995 110,365 54,939 --- 60,000 13,272
Research & Development 1994 133,530 41,763 42,794 106,000 12,986
1993 65,492 5,000 9,812 --- 3,208
William A. Toomey 1995 97,486 52,047 12,018 55,000 9,527
Vice President 1994 111,760 48,092 19,729 55,000 11,866
International Marketing 1993 80,005 --- --- --- 2,323
</TABLE>
(1) Amounts do not exceed the lesser of $50,000 or 10% of salary and bonus
combined for named executive, except as set forth in the following table for
the year ended June 30, 1994.
(2) See following table.
<PAGE>
SUMMARY OF CASH AND OTHER COMPENSATION
<TABLE>
<CAPTION>
Mark A. William P. John A. William A.
Le Doux Spencer Wise Toomey
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Other Annual Compensation-1994
Personal Transportation n/a $ 9,739 $ 9,524 $ 3,949
Other Personal Expenses n/a 20,516 22,480 11,318
Tax Payment Reimbursements n/a 10,413 10,790 4,462
------- ---------- ------- ----------
Totals n/a $ 40,668 $42,794 $ 19,729
======= ========== ======= ==========
All Other Compensation - 1995
401(k) Employer Contributions $ 5,060 $ 4,518 $ 7,273 $ 2,280
Life Insurance Premiums 1,813 13,895 93 93
Medical, Dental and Vision 5,838 14,875 5,906 7,154
Years of Service Award --- --- --- ---
Board of Director Meetings 2,250 2,250 --- ---
------- ---------- ------- ----------
Totals $14,961 $ 35,538 $13,272 $ 9,527
======= ========== ======= ==========
All Other Compensation - 1994
401(k) Employer Contributions $10,303 $ 12,662 $ 8,510 $ 7,601
Life Insurance Premiums 3,567 13,909 107 107
Medical, Dental and Vision 6,289 6,085 4,369 4,158
Years of Service Award 150 488 --- ---
Board of Director Meetings 2,250 2,250 --- ---
------- ---------- ------- ----------
Totals $22,559 $ 35,394 $12,986 $ 11,866
======= ========== ======= ==========
All Other Compensation - 1993
401(k) Employer Contributions $ 6,571 $ 5,310 $ --- $ ---
Life Insurance Premiums 860 2,210 95 49
Medical, Dental and Vision 5,386 5,445 2,280 2,274
Years of Service Award 1,000 500 833 ---
Board of Director Meetings 1,000 1,000 --- ---
------- ---------- ------- ----------
Totals $14,817 $ 14,465 $ 3,208 $ 2,323
======= ========== ======= ==========
</TABLE>
OPTION GRANTS. The following table contains information concerning the
stock option grants to the Company's Chief Executive Officer and each of the
other named executive officers and the required additional individuals that
were made for the fiscal year ended June 30, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Securities % of Total Exercise Assumed Rates of Stock Price
Underlying Options Granted or Appreciation for Option Term (1)
Options to Employees in Base Price Expiration --------------------------------
Name Granted (#) Fiscal Year (2) ($/Sh) Date 5% ($) 10% ($)
- ------------------ ------------ --------------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Le Doux 100,000 20.00% $ 4.625 01/24/00 99,700 214,600
William P. Spencer 125,000 25.00% $ 4.625 01/24/00 124,600 268,300
John A. Wise 60,000 12.00% $ 4.625 01/24/00 59,800 128,800
William A. Toomey 55,000 11.00% $ 4.625 01/24/00 54,800 118,000
</TABLE>
(1) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price appre-
ciation over the five-year option term will be at the assumed five
percent and ten percent levels or at any other defined level. Unless
the market price of the Company's common stock does in fact appre-
ciate over the option term, no value will be realized from the option
grants made to the executive officers and required additional indivi-
duals.
(2) The options granted to the named executives and the required additional
individuals were granted under the Company's 1994 Nonqualified Stock
Option Plan on January 24, 1995 at the fair market value price of
$4.625. The following restrictions apply to the options granted:
(a) The recipient must be employed with the Corporation on the date
of exercise, (b) Fifty percent of the granted options are exercisable on
the date of grant, (c) The remaining fifty percent are exercisable on
September 23, 1995.
OPTION EXERCISES AND HOLDINGS. The following table sets forth information
concerning option exercises and option holdings under the 1992 Incentive Stock
Option Plan, the 1992 Nonqualified Stock Option Plan and the 1994 Nonquali-
fied Stock Option Plan for the year ended June 30, 1995, with respect to the
Company's Chief Executive Officer, the named executive officer, and the required
additional individuals:
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Value Realized Options/SARs at Fiscal In-the-Money Options/SARs
Shares Market Price at Year End (#) At Fiscal Year End ($) (1)
Acquired Exercise Less --------------------------- ---------------------------
Name Exercise (#) Exercise Price ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ------------ ------------------ ----------- ------------- ----------- -------------
1992 Plans
- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Le Doux 0 0 60,000 0 $ 82,200 $ ---
William P. Spencer 0 0 125,000 0 $ 171,250 $ ---
John A. Wise 0 0 100,000 0 $ 137,000 $ ---
William A. Toomey 0 0 55,000 0 $ 75,350 $ ---
1994 Plan
- ---------
Mark A. Le Doux 0 0 50,000 50,000 $ 81,000 $ 81,000
William P. Spencer 0 0 62,500 62,500 $ 101,250 $ 101,250
John A. Wise 0 0 30,000 30,000 $ 48,600 $ 48,600
William A. Toomey 0 0 27,500 27,500 $ 44,550 $ 44,550
</TABLE>
(1) The closing price of the Company's common stock at June 30, 1995, as
quoted on the American Stock Exchange was $6.25.
EMPLOYMENT AGREEMENTS. Messrs. Le Doux and Spencer each have Employment
Agreements ("Agreements") with the Company effective October 1, 1995, through
September 30, 1996. Pursuant to the Agreements, Messrs. Le Doux and Spencer
receive annual base salaries of $182,000 and $150,800, respectively. The
Agreements also provide severance payments in the event of a merger, liquida-
tion or sale of all or substantially all of the assets of the Company in an
amount equal to 2.99 times the employees' average annualized base salary and
performance bonus for the five year period immediately preceding the severance
payment. The Agreements also contain restrictive covenants prohibiting Messrs.
Le Doux and Spencer, from competing with the Company during the term of their
employment and for two years thereafter.
401(K) PLAN
The NATURAL ALTERNATIVES Partnership for Profits Plan ("Plan") is considered
a qualified plan under Section 401(k) of the Internal Revenue Code. All
employees of the Company with twelve months service and at least one thousand
hours of service during the twelve month period are eligible for the Plan. The
Plan provides for employee contributions of up to 15% of compensation. Employ-
er contributions are determined by the Board of Directors at their discretion.
The Company may match up to 100% of each employee's contribution which does not
exceed 5% of the employee's total compensation. Employee contributions in the
Plan are 100% vested. Participants become vested in employer contributions at
the rate of 34% the first year, 67% the second year and 100% after three years.
The Company contributed to the Plan and expensed $50,345, $84,296 and $34,674,
in 1995, 1994 and 1993, respectively.
STOCK OPTION PLANS
The Company maintains three stock option plans: the 1992 Incentive Stock
Option Plan ("Incentive Plan") and the 1992 Nonqualified Stock Option Plan
("1992 Nonqualified Plan"), both of which were approved by the stockholders
of the Company at its Annual Meeting of Stockholders on June 5, 1992, and
the 1994 Nonqualified Stock Option Plan ("1994 Nonqualified Plan") which was
approved by the Board of Directors on December 9, 1994. The 1992 Incentive
Plan provides for the granting of "incentive stock options" as described in
Section 422 of the Internal Revenue Code (Code). The 1992 and 1994 Nonquali-
fied Plans provide for the granting of nonqualified stock options which are not
intended to qualify under any provision of the Code. On September 9, 1993, all
options then authorized under the Incentive Plan and the 1992 Nonqualified
Plan were granted at the fair market value price of $4.875 per share. On
December 9, 1994, the Stockholders approved an amendment to the Incentive
Plan, increasing the number of common shares that may be granted from 200,000
to 500,000. There have been no additional options granted to date under the
Incentive Plan. On January 24, 1995, options for 500,000 shares under the 1994
Plan were granted at the fair market value of $4.625 per share.
INCENTIVE PLAN
PURPOSE
The purpose of the Incentive Plan is to promote the interests of the Company
by providing a method whereby key management personnel of the Company and its
subsidiaries responsible for the management, growth and financial success of
the Company may be offered incentives to encourage them to acquire a pro-
prietary interest or to increase their proprietary interest in the Company,
and to remain in the employ of the Company and its subsidiaries. The total
number of shares issuable under the Incentive Plan is 500,000 shares, sub-
ject to certain adjustments.
ADMINISTRATION
The Incentive Plan is to be administered by either the Board of Directors
("Board") or the Company's Compensation Committee. Subject to the express
provisions of the Incentive Plan, the Board or the Compensation Committee will
have complete authority to determine the employees to whom, and the times at
which options are to be granted, the number of shares to be subject to each
option, the option term, and all other terms and conditions of an option.
The Board or the Compensation Committee will also have the authority to
interpret the provisions in the Incentive Plan and to prescribe rules and
regulations for its orderly administration.
<PAGE>
EXERCISE PRICE
The exercise price of incentive stock options granted under the Incentive
Plan may not be less than 100% of the fair market value of the Common Stock
on the date of the option grant. With respect to any key employee who owns
stock representing more than 10% of the voting power of the outstanding capital
stock of the Company, the exercise price of any incentive stock option may not
be less than 110% of the fair market value of such shares at the time of
grant and the term of such option may not exceed five years. Each option
granted under the Incentive Plan will be exercisable at such time or times,
during such period, and for such number of shares as is determined by the
Board or the Compensation Committee and set forth in the instrument eviden-
cing the option. No option granted under the Incentive Plan shall have a term
in excess of ten years from the date of grant.
RESTRICTIONS ON TRANSFER
During the lifetime of the optionee, the option will be exercisable only by
the optionee and may not be assigned or transferred by the optionee other than
by will or the laws of descent or distribution. Should an optionee cease to be
an employee of the Company or its subsidiaries for any reason other than death,
then any outstanding option granted under the Incentive Plan will be exercis-
able by the optionee only during the three month period following cessation of
employee status, and only to the extent of the number of shares for which the
option is exercisable at the time of such cessation of employee status.
ADJUSTMENT PROVISIONS
If the Company or its stockholders enter into an agreement to dispose of all
or substantially all of the assets or outstanding capital stock of the Company
by sale, merger, reorganization or liquidation, each option outstanding will
become exercisable during the 15 days immediately prior to the scheduled
consummation of such sale, merger, reorganization or liquidation with respect
to the full number of shares of the Company's Common Stock purchasable under
such option, unless the successor corporation or parent assumes or replaces
the outstanding options.
In the event any change is made to the outstanding shares of the Company's
Common Stock without the receipt of consideration by the Company, then unless
such change results in the termination of all outstanding options, appro-
priate adjustments will be made to the maximum number of shares issuable under
the Incentive Plan and to the number of shares and the option price per share
of the stock subject to each outstanding option.
FEDERAL INCOME TAX CONSEQUENCES
Incentive stock options under the Incentive Plan are intended to be eligible
for the favorable federal income tax treatment accorded "incentive stock
options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds options acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted
and more than one year from the date on which the shares are transferred to
the optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the
optionee disposes of the stock before the expiration of either of these hold-
ing periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize ordinary income equal to the lesser of (a) the excess
of the stock's fair market value on the date of exercise over the exercise
price, or (b) the optionee's actual gain, if any, on the purchase and sale.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Ex-
change Act.
To the extent the optionee recognizes ordinary income by reason of a dis-
qualifying disposition, the Company generally will be entitled (subject to
the requirement of reasonableness and perhaps, in the future, the satisfac-
tion of a withholding obligation) to a corresponding business expense deduction
in the tax year in which the disqualifying disposition occurs.
1992 AND 1994 NONQUALIFIED PLAN
PURPOSE
The purpose of the 1992 and 1994 Nonqualified Plans ("Nonqualified Plans")
is to provide an incentive to eligible employees, consultants, officers and
directors whose present and potential contributions are important to the con-
tinued success of the Company, to afford those individuals the opportunity to
acquire a proprietary interest in the Company and to enable the Company to
enlist and retain qualified personnel for the successful conduct of its busi-
ness. Officers, directors, consultants and employees of the Company and its
subsidiaries whom the administrators deem to have the potential to contribute
to the success of the Company shall be eligible to receive options under the
Nonqualified Plans.
<PAGE>
ADMINISTRATION
The administrators of the Nonqualified Plans shall be either the Board or a
committee designated by the Board. The administrators have full power to se-
lect, from among the officers, directors, employees and consultants of the
Company eligible for options, the individuals to whom options will be granted,
and to determine the specific terms of each grant, subject to the provisions of
the Nonqualified Plans.
EXERCISE PRICE
The exercise price for each share covered by the Nonqualified Plans will be
determined by the administrators, but will not be less than 60% and 100% of the
fair market value of a share of Common Stock of the Company on the date of
grant of such option for the 1992 Nonqualified Plan and the 1994 Nonqualified
Plan, respectively. The term of each option will be fixed by the administra-
tors of the Nonqualified Plans. In addition, the administrators will determine
the time or times each option may be exercised. Options may be exercisable in
installments, and the exercisability of options may be accelerated by the
administrators.
RESTRICTIONS ON TRANSFER
Options granted pursuant to the Nonqualified Plans are nontransferable by
their participants, other than by will or by the laws of descent or distribu-
tion, and may be exercised during the lifetime of the participant only by the
participant. In the event of an optionee's termination of employment or con-
sulting relationship for any reason other than death or total and permanent
disability, an option may be thereafter exercised, to the extent it was exer-
cisable at the date of such termination, for such period of time as the admini-
strator shall determine at the time of grant, but only to the extent that the
term of the option has not expired.
ADJUSTMENT PROVISIONS
Subject to the Nonqualified Plans' change in control provisions, in the
event of the sale of substantially all of the assets of the Company or the mer-
ger of the Company with or into another corporation, each outstanding option
shall be assumed or substituted by such successor corporation or parent or sub-
sidiary of such successor corporation. The Nonqualified Plans also provide
that in the event of a change of control of the Company, certain acceleration
and valuation provisions shall apply, except as otherwise determined by the
Board at its discretion prior to the change of control.
In the event of any change in capitalization in the Company which results in
an increase or decrease in the number of outstanding shares of Common Stock
without receipt of consideration by the Company, an appropriate adjustment
shall be made in the number of shares which have been reserved for issuance
under the Nonqualified Plans and the price per share covered by each outstan-
ding option.
FEDERAL INCOME TAX CONSEQUENCES
Nonqualified stock options granted under the Nonqualified Plans generally
have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a non-qualified stock option at the fair market value of the op-
tion. Upon exercise of a nonqualified stock option, the optionee will recog-
nize taxable ordinary income equal to the excess of the stock's fair market
value on the date of exercise over the option exercise price. Generally, with
respect to employees, the Company is required to withhold taxes in an amount
based on the ordinary income recognized. Subject to the requirement of reason-
ableness and the satisfaction of any withholding obligation, the Company gener-
ally will be entitled to a business expense deduction equal to the taxable or-
dinary income realized by the optionee. Upon disposition of the stock, the op-
tionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section 16(b)
of the Exchange Act.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee is a standing committee of the Board of Directors
of the Company. The Compensation Committee is responsible for adopting and
evaluating the effectiveness of compensation policies and programs for the
Company and for making determinations regarding the compensation of the Com-
pany's executive and other officers, subject to review by the full Board of
Directors. In fiscal year 1995 the members of the Committee were William R.
Kellas and Lee G. Weldon, who are non-employee directors of the Company.
The following report is submitted by the Compensation Committee members with
respect to the executive compensation policies established by the Compensation
Committee and compensation paid or awarded to executive and other officers
for fiscal year 1995.
<PAGE>
In adopting and evaluating the effectiveness of, compensation programs
for executive officers, as well as other employees of the Company, the Compen-
sation Committee is guided by three basic principles:
1. The Company must offer competitive salaries to be able to attract and
retain highly-qualified and experienced executives and other management
personnel.
2. Annual executive compensation in excess of base salaries should be tied
to the Company's performance.
3. The financial interest of the Company's senior executives should be
aligned with the financial interest of the stockholders, primarily through
stock option grants and other equity-based compensation programs which reward
executives for improvements in the long term value of the Company's Common
Stock.
SALARIES AND EMPLOYEE BENEFIT PROGRAMS. In order to retain executives and
other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries, health
care and other employee benefit programs to its executives and other key em-
ployees which are comparable or better than those offered by competing
businesses.
In establishing salaries for executive officers, the Compensation Committee
reviews (i) the historical performance of the executives; and (ii) available
information regarding prevailing salaries and compensation programs offered by
competing businesses. Another factor which is considered in establishing
salaries of executive officers is the cost of living in Southern California
where the Company is headquartered, as such cost generally is higher than in
other parts of the country.
The Committee believes the base salary and employee benefits in 1994 were
generally modest relative to the Company's competitors. Base salary generally
increased and potential employee benefits were increased in 1995 as more empha-
sis was placed on incentive compensation and stock bonuses to reward employees.
PERFORMANCE-BASED COMPENSATION. The Compensation Committee believes that,
as a general rule, annual compensation in excess of base salaries should be
dependent on the employees performance and the Company's performance, and
should be issued if at all based on recommendations of the Committee, and the
discretion of the Board. Accordingly, at the beginning of each fiscal year,
the Compensation Committee establishes an incentive compensation program
("Bonus Plan") for executive officers and other key management personnel under
which executive officers and other key management personnel may earn bonuses,
in amounts ranging up to 100% of their annual salaries, provided the Company
achieves or exceeds the pre-tax net income goal established for the year.
The net income goal is established in part on the basis of an annual operat-
ing plan developed by management and approved by the Board of Directors. The
annual operating plan and the Company's stock option plans are designed to
maximize profitability, within the constraints of economic and competitive
conditions, some of which are outside the control of the Company, and are de-
veloped on the basis of (i) the Company's performance in the prior year; (ii)
estimates of sales revenue for the plan year based upon recent market conditions
and trends and other factors which, based on historical experience, are expected
to affect the level of sales that can be achieved; (iii) historical operating
costs and cost savings that management believes can be realized; and (iv) com-
petitive conditions faced by the Company. By taking all of these factors into
account, including market conditions, the net income goal in the annual opera-
ting plan, which is also a factor on which bonus awards are determined under the
Bonus Plan, is fixed at what is believed to be a realistic level so as to make
the incentives meaningful to executives and to avoid penalizing executives and
other key management personnel for conditions outside of their control.
In certain instances, bonuses under the Bonus Plan are awarded not only on
the basis of the Company's overall profitability, but also on the achievement
by an executive of specific objectives within his or her area of responsibility.
For example, a bonus may be awarded for an executive's efforts in achieving
greater than anticipated cost savings, or establishing new or expanding existing
markets for the Company's products. Typically, the maximum bonus that may be
awarded for achievement of specific objectives is determined at the beginning
of the year to provide the requisite incentive for such performance.
As a result of this performance-based Bonus Plan, executive compensation, and
the proportion of each executive's total cash compensation that is represented
by incentive or bonus income, increases in those years in which the Company's
profitability increases. On the other hand, in years in which the Company
experiences less than anticipated profit growth, bonuses, and therefore also
total executive compensation, should tend to be lower. The Bonus Plan was ter-
minated on July 15, 1995. The Board of Directors may now award bonuses at its
discretion.
STOCK OPTIONS AND EQUITY-BASED PROGRAMS. In order to align the financial
interest of senior executives and other key employees with those of the stock-
holders, the Company grants stock options to its senior executives and other
key employees on a periodic basis, to purchase Common Stock of the Company.
Stock option grants reward senior executives and other key employees for per-
formance that results in increases in the market price of the Company's Common
Stock, which directly benefits all stockholders.
Stock options were granted to executive officers and key employees of the
Company in fiscal year 1995. The stock option grants for 1995 were based on the
Committee's perception of each executive's contribution to the Company's fiscal
performance and achievement of its strategic objectives, the responsibilities
associated with his/her position, his/her salary and bonus compensation, and
the size of grants by comparable companies. The members of the Committee as-
signed no specific weight to any of these specific factors in making option
grant determination.
<PAGE>
OTHER MATTERS. In August 1993, Congress enacted tax legislation that, among
other things, places a ceiling of $1 million on the amount of an executive
officer's annual compensation that may be deducted for federal income tax pur-
poses in any year (the "Deductibility Cap"). The legislation provides
compensation paid under certain incentive compensation plans may be excluded
from the calculation of compensation subject to the Deductibility Cap,
provided the plans meet certain conditions, which are contained in regulations
recently adopted by the Internal Revenue Service. The Compensa-
tion Committee monitors the potential impact of the Deductibility
Cap and does not currently believe, that
changes to the Company's compensation plans are needed to preserve the deducti-
bility of executive compensation paid by the Company.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. Le Doux, the President and
Chief Executive Officer, has an employment contract which establishes his base
salary level and evaluation substantially in accordance with the foregoing
policies. During fiscal year 1995, Mr. Le Doux's base salary pursuant to his
employment agreement was $172,942, and he received an incentive bonus award of
$101,203. In determining Mr. Le Doux's base salary and incentive award for
fiscal year 1995, the Compensation Committee, at its discretion, considered Mr.
Le Doux's role in implementing the Company's stated strategic goals and
achievement of record gross revenues and net income. No specific weight was
assigned to these factors by the Compensation Committee in determining the
amount of Mr. Le Doux's base salary and incentive award. In addition, consis-
tent with the Company's policy of linking executive compensation with achieve-
ment of long-term strategic goals, Mr. Le Doux was granted options during fis-
cal year 1995 to purchase an aggregate of 100,000 shares of the Company's
Common Stock.
Compensation Committee
William R. Kellas
Lee G. Weldon
The material in this report and the accompanying Stockholder Return Perform-
manse Table is not "soliciting material," is not deemed filed with the SEC and
is not to be incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No current member of the Company's Compensation Committee is a current or
former officer or employee of the Company or its subsidiaries.
STOCKHOLDER RETURN PERFORMANCE TABLE
Set forth below is a table comparing the yearly percentage in the cumulative
total stockholder return on the Company's Common Stock with the cumulative
total return of the Standard and Poors 500 Index and the AMEX Consumer Goods
Index for the period beginning June 30, 1990 and ending June 30, 1995. The
table assumes that all dividends have been reinvested.
Cumulative Total Return
-------------------------------------------------
6/90 6/91 6/92 6/93 6/94 6/95
---- ---- ---- ---- ---- ----
Natural Alternatives 100 63 126 133 246 175
International
S & P 500 100 107 122 138 140 177
AMEX Consumer Goods 100 117 151 170 160 199
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of February 29, 1996 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table in Executive Compensation; (iii) all executive officers
and directors of the Company as a group; and (iv) all those known by the Com-
pany to be beneficial owners of more than 5% of the Common Stock.
<PAGE>
DIRECTOR AND OFFICERS
<TABLE>
<CAPTION>
Amounts and Nature
Title of Name and Address of Beneficial Percent
Class of Beneficial Owner Ownership (1)(2) of Class (2)
- ------------ --------------------- ------------------ ------------
<S> <C> <C> <C>
Common Stock Marie A. Le Doux(3) 1,097,301 20.72%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock Mark A. Le Doux (4) 539,317 10.18%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock William R. Kellas (5) 29,500 0.56%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock William P. Spencer (6) 254,792 4.81%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock Lee G. Weldon (7) 41,880 0.79%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock John A. Wise (8) 158,500 2.99%
1185 Linda Vista Dr.
San Marcos, CA 92069
Common Stock William A. Toomey (9) 95,000 1.79%
1195 Linda Vista Dr.
San Marcos, CA 92069
Common Stock All Directors and 2,216,290 41.84%
Officers as a Group
(7 Persons)
</TABLE>
(1) Except as indicated in the footnotes to this table and pursuant to appli-
cable community property laws to the Company's knowledge, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock.
(2) Shares of common stock which were not outstanding but which could be
acquired upon exercise of an option within 60 days from the date of this filing
are considered outstanding for the purpose of computing the percentage of out-
standing shares beneficially owned. However, such shares are not considered to
be outstanding for any other purpose.
(3) Includes 183,000 shares held by the Marie Le Doux Charitable Lead Annuity
Trust, 550,000 shares held by the Le Doux Family Limited Partnership, 55,000
held by the Marie Le Doux Foundation, 50,000 held by the Marie Le Doux Charit-
able Unitrust and 10,000 shares which Mrs. Le Doux has the right to acquire
upon exercise of options exercisable within 60 days after the Record Date.
Marie Le Doux disclaims beneficial ownership for all of the shares not held in
her name.
(4) Includes 7,200 shares held as custodian for Marcelle Le Doux, 800 shares
held in the name of Mr. Le Doux's wife, and 800 shares held as custodian for
Jean-Marc Le Doux. Also includes 160,000 shares which Mr. Le Doux has the right
to acquire upon exercise of options exercisable within 60 days after the Record
Date. Excludes 550,000 shares held by the Le Doux Family Limited Partnership
of which Mr. Le Doux is the General Partner, and also excludes 55,000 held by
the Marie Le Doux Foundation of which Mr. Le Doux is the trustee. Mr. Le Doux
disclaims benefical ownership for all of the shares held by the partnership,
and the foundation.
(5) Includes 1,500 shares of common stock held in the name of Dr. Kellas' wife
and 15,000 shares which Dr. Kellas has the right to acquire upon exercise of
options exercisable within 60 days after the Record Date.
(6) Includes 800 shares held by Jennifer Spencer, and 1,600 shares held as
custodian for Lauren and Brittany Spencer. Also includes 240,000 shares which
Mr. Spencer has the right to acquire upon exercise of options exercisable with-
in 60 days after the Record Date.
(7) Includes 15,000 shares which Mr. Weldon has the right to acquire upon exer-
cise of options exercisable within 60 days after the Record Date.
(8) Includes 158,500 shares which Mr. Wise has the right to acquire upon exer-
cise of options exercisable within 60 days after the Record Date.
(9) Includes 95,000 shares which Mr. Toomey has the right to acquire upon exer-
cise of options exercisable within 60 days after the Record Date.
There is no arrangement known with Company, the operation of which may at a sub-
sequent date, result in a change of control of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of owner-
ship and changes in ownership with the Securities and Exchange Commission
("SEC") and the American Stock Exchange. Executive officers, directors and
greater than 10% stockholders 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 reporting forms received by the
Company, the Company believes that during its most recent fiscal year ended June
30, 1995, that its officers, directors and greater than 10% stockholders, except
as set forth below, complied with the filing requirements under Section 16(a)
from the period of June 30, 1994 through June 30, 1995. Director William
Kellas, filed late Form 4's for two purchase transactions of Company stock for
the period from June 30, 1994 to June 30, 1995.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases offices and production facilities from its two principal
stockholders, Marie A. Le Doux and Mark A. Le Doux. The lease expires in 2012
and provides for rent payable of $60,000 per year. In the opinion of management
and an independent certified appraiser who evaluated the lease at its incep-
tion, the lease is on terms no less favorable than could be obtained from un-
affiliated parties. The Company has recently entered into an agreement with
the Le Douxs' to acquire for $545,000 these leased facilities. The properties
have been independently appraised at $580,000. The Company expects to fund the
acquisition through conventional mortgage financing and to consummate the
transaction during the fourth quarter of fiscal 1996.
The Company entered into an agreement with the father-in-law and mother-in-
law of the President of the Company in December 1991, which provides commissions
on sales to a particular customer. The term of the agreement is ten years and
will expire in December 2001. The commission equals 5% of sales, with earnings
capped at $25,000 per calendar quarter. Amounts paid under this agreement were
$100,000, $95,864 and $105,092 for the years ending June 30, 1995, 1994 and
1993, respectively. There were no accrued and unpaid amounts owed under the
agreement at June 30, 1995 or 1994.
During fiscal year 1994, the Company wrote-off a $42,000 note plus accrued
interest of approximately $9,000 from an unrelated company formerly controlled
by John Wise, an executive of the Company. Mr. Wise had controlled the un-
related company at the time the note was advanced.
Included in notes receivable is a promissory note from the Company's Presi-
dent. The balance of the note, including accrued interest, was $91,992 and
$86,772 as of June 30, 1995 and 1994, respectively. Additionally, the Company
made a noninterest bearing loan in the amount of $100,000 to the Chairman of
the Board, which is secured by proceeds from a life insurance policy on the
Chairman of the Board's life.
During fiscal year 1995, the Company's President paid $26,483 for certain ex-
penses on behalf of the Company. Also, during this period, the Company paid
commissions in the amount of $10,800 to the Chairman of the Board.
PROPOSAL 3
AMENDMENT TO PROVIDE FOR
FILLING OF VACANCIES OR NEW POSITIONS ON THE BOARD
The Board recommends the Company's Certificate of Incorporation be amended
and Restated to add Article Thirteenth, which provides if a new Board seat
is created or a vacancy occurs on the Board for any other reason it shall be
filled solely by the affirmative vote of a majority of the remaining directors
in office, even though less than a quorum, or by the sole remaining director.
Directors so elected will hold office for the remainder of the full term of the
class of directors in which the new directorship was created, as determined in
the same manner or in which the vacancy occurred, and until such director's
successor shall have been elected and qualified. Any decrease in the number
of directors constituting the Board shall not shorten the term of any incumbent
director.
The proposed amendment eliminates any stockholder power to fill vacancies or
newly created directorships on the Board. The provision is intended to provide
stability within the management and organization of the Company by vesting the
power to fill vacant positions solely in the elected representatives of the
stockholders. It will prevent a third party seeking majority representation on
the Board and from obtaining such representation simply by enlarging the Board
and then filling the new directorships with its own nominees.
The proposed amendment is in accordance with the General Corporation Law of
the State of Delaware which provides that vacancies and newly created director-
ships resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, although less than a
quorum, unless the Certificate of Incorporation or Bylaws provide otherwise.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE THIRTEENTH
THIRTEENTH: Newly created directorships resulting from any increase in the
number of directors, or vacancies in any existing directorships resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less then a quorum, or by the sole remaining director. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the Class of Directors in which the new
directorship was created as determined in the same manner as the identity of
the directors, or the vacancy occurred, and until such director's successor
shall have been elected and qualified. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
<PAGE>
PROPOSAL 4
AMENDMENT TO PROVIDE FOR REMOVAL OF DIRECTORS ONLY FOR CAUSE
Under the existing terms of the Company's Bylaws, any director of the Company
may be removed with or without cause by the affirmative vote of the stockholders
having a majority of the voting power of the Company given at a special meeting
of the stockholders called for the purpose, or if action is taken without a
meeting, by a consent in writing signed by the holders of outstanding stock of
the Company having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which the required
number of stockholders entitled to vote thereon were present and voted. The
Company's Bylaws do not define "cause".
If adopted, proposed Article Fourteenth of the amended and Restated Cer-
tificate of Incorporation would make it more difficult for the Company's stock-
holders to remove a director. First, the proposed amendment would permit
removal only upon the vote of the holders of 70% of the outstanding shares of
the Company. Second, the proposed amendment defines "cause", limiting it to
conviction of a felony or an adjudication by a court of competent jurisdiction
that a director was liable for gross negligence or misconduct in the performance
of the director's duties to the Company.
By making it more difficult for stockholders to remove directors, the pro-
posed amendment may discourage outsiders from seeking to acquire control of the
Company because they may be delayed in making changes in existing management.
In considering the proposed amendment, stockholders should recognize the amend-
ment would also make it more difficult to remove a director in circumstances in
which a majority of the stockholders believe it is desirable to do so, but which
do not constitute a take-over attempt.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE FOURTEENTH
FOURTEENTH: No director of the Corporation may be removed except for cause,
and the vote of the holders of seventy percent (70%) of the outstanding shares
of all classes of capital stock of the Corporation entitled to vote generally
in the election of directors, considered for this purpose as one class, shall be
required to remove a director for cause. Cause for removal shall be deemed to
exist only if the director whose removal is proposed has been convicted in a
court of competent jurisdiction of a felony or has been adjudged by a court of
competent jurisdiction to be liable for gross negligence, breach of fiduciary
duty, or misconduct in the performance of the director's obligations to the
Corporation, and such conviction or adjudication has become final and non
appealable.
PROPOSAL 5
AMENDMENT TO PROVIDE NOTICE REQUIREMENT FOR STOCKHOLDERS
TO PRESENT PROPOSALS AT A MEETING OF STOCKHOLDERS
The Board recommends the Company's Certificate of Incorporation be amended
and Restated to add new Article Fifteenth, which provides the only business that
may be conducted at any meeting of the stockholders is business that has been
brought before the meeting by, or at the direction of, the Board, or by any
stockholder of the Company who provides timely notice of the proposal in writing
to the Secretary of the Company. To be timely, a stockholder's notice must be
delivered to, or mailed to and received at, the principal executive offices of
the Company not less than 60 days prior to the scheduled meeting, regardless of
any postponements, deferrals or adjournments of that meeting to a later date.
If, however, less than 70 days notice or prior public disclosure of the date of
the scheduled meeting is given or made, notice by the stockholder, to be timely,
must be so delivered or received not later than the close of business on the
tenth day following the earlier of the day on which such notice of the date of
the scheduled meeting was mailed or the day on which such public disclosure was
made.
The stockholder's notice to the Secretary must set forth in writing each
matter the stockholder proposes to bring before the meeting including: a brief
description thereof and the reasons for conducting such business at the meeting;
the names and addresses, as they appear on the corporate books, of stockholders
supporting such proposal; the class and number of shares of the Company's stock
which are beneficially owned by the supporting stockholders on the date of the
presenting stockholder's notice; and any financial interest of the presenting
stockholder in such proposal. The determination as to whether the notice pro-
visions have been met will be made by the presiding officer on or before the
date of the meeting. This provision applies only to new business and not to
other reports of officers, directors, or committees of the Board.
At the present time neither the Certificate of Incorporation nor the Bylaws
of the Company specify what business may be conducted at a stockholder's meet-
ing. The Bylaws currently provide at Section 2.11 thereof for certain pro-
cedures and notice requirements for stockholders to present proposals at annual
meetings. These Bylaw provisions will conflict with the provisions of this Pro-
posal 5 and will be deleted. Pursuant to the authority granted to the Board by
Section 8.03 of the Bylaws regarding Amendments, the Board, upon approval of
this Proposal 5, shall delete Section 2.11 of the Bylaws and renumber the re-
maining sections. Currently any business may be conducted as long as it is
specified in the notice of the meeting, or is properly brought before the meet-
ing and is in compliance with the Bylaws. A determination as to whether
business (other than as specified in the notice of a meeting) is properly
brought before a meeting would generally be made by the Chairman of the meeting
at the time such business was presented.
The proposed amendment provides an orderly procedure for notification to the
Board concerning business which is to be presented at stockholders' meetings.
This will enable the Board to plan such meetings and also, (to the extent it
deems it necessary or desirable), to inform the stockholders, prior to the
meeting, of any new business that will be presented at the meeting. The Board
will also be able to make a recommendation or statement of its position so as to
enable stockholders to better determine whether they desire to attend the
meeting or grant a proxy to anyone. The proposed amendment does not give the
Board any power to approve or disapprove the business that stockholders desire
to be conducted at the meeting, but it does provide for a more orderly procedure
for conducting the meeting.
<PAGE>
The proposed procedure may limit the ability of stockholders to initiate dis-
cussion at a stockholders' meeting. It will preclude conducting business at a
particular meeting if the proper notice procedures have not been followed. This
may also have the effect of discouraging ill-considered, disruptive discussions
at stockholders' meetings. Nothing in the proposed amendment precludes dis-
cussion by any stockholder of any business properly brought before a meeting.
The Board continues to be concerned that a person or group planning to in-
fluence the Company's business and affairs for the purpose of securing a short-
term profit may initiate extraordinary corporate action by making uninvited
presentations at a stockholder's meeting, in an attempt to achieve such a result
without offering stockholders or the Board adequate opportunity to consider and
act upon the proposal. Although management is not aware that any person or
group is presently attempting or contemplating such a proposal, the Board con-
siders it desirable to take action to ensure that all business conducted at
stockholder's meetings be properly presented to the Board in an adequate amount
of time in advance of such meeting for the Board to properly consider the pro-
posal, and allow stockholders an opportunity for an open and full consideration
of the issues and consequences involved in any such proposal. Thus, the Board
is proposing an amendment to the Company's Certificate of Incorporation which is
intended to achieve that result.
The proposed amendment may make it more difficult and time consuming to
initiate control over the Company's business and affairs, and may reduce the
viability of the Company to an unsolicited takeover proposal. The proposed
amendment will help ensure the Company will have what it considers to be ade-
quate time to review and to present to all stockholders the Company's views on
any future stockholder proposals.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE FIFTEENTH
FIFTEENTH: At any regularly scheduled meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the meeting (a) by, or at the direction of, the
Board or (b) by any stockholder of the Corporation who complies with the notice
procedures set forth in this Article Fifteenth. For a proposal to be properly
brought before a meeting by a stockholder, they must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a stock-
holder's notice must be delivered to, or mailed and received at, the principal
executive office of the Corporation no less than 60 days prior to the scheduled
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date; provided, however, that if less than 70 days notice or
prior public disclosure of the date of the scheduled meeting is given or made,
notice by the stockholder, to be timely, must be so delivered or received not
later than the close of business on the tenth day following the earlier of the
day on which such notice of the date of the scheduled meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting: (a) a brief description of the proposal desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (b) the name and address, as they appear on the Corporation's books, of
the stockholder proposing such business and any other stockholder known by such
stockholder to be supporting such proposal; the class and number of shares
of the Corporation's stock which are beneficially owned by the stockholder on
the date of such stockholder's notice and by any other stockholders known by
such stockholder to be supporting such proposal, on the date of such stock-
holder notice; and (d) any financial interest in any aspect of the proposal of
the stockholder making the proposal or any other stockholder known by such
stockholder to be supporting the proposal.
The presiding officer of the meeting shall determine and declare at or before
the meeting whether the stockholder proposal was made in accordance with the
terms of this Article Fifteenth. If the presiding officer determines that a
stockholder proposal was not made in accordance with the terms of this Article
Fifteenth, he or she shall so declare at the meeting and any such proposal shall
not be acted upon at the meeting.
This provision shall not prevent the consideration and approval or dis-
approval at the meeting of reports of officers, directors and committees of the
Board, but, in connection with such reports, no new business shall be acted upon
at such meeting unless stated, filed and received as herein provided.
PROPOSAL 6
AMENDMENT TO PROVIDE NOTICE REQUIREMENTS
FOR NOMINATIONS OF DIRECTORS BY STOCKHOLDERS
The Board recommends the Company's Certificate of Incorporation be amended
and Restated to add Article Sixteenth, which provides that, only persons who are
nominated in accordance with the procedures specified in Article Sixteenth shall
be eligible for election as directors. Such nominations may be made at a meet-
ing of the stockholders, called for the purpose of electing directors, by or at
the direction of the Board, by any nominating committee or person appointed by
the Board, or by any stockholder of the Company entitled to vote for the
election of directors at the meeting, provided such stockholder has complied
with certain notice procedures. Written notice of a stockholder nomination must
be made to the Secretary of the Company not less than 60 days prior to the
scheduled meeting, regardless of any postponements, deferrals or adjournments
of that meeting to a later date. If, however, less than 70 days notice or prior
public disclosure of the date of the scheduled meeting is given, notice by the
stockholder must be so delivered or received not later than the close of
business on the tenth day following the earlier of the day on which such notice
of the date of the scheduled meeting was mailed or the day on which public dis-
closure was made.
<PAGE>
This notice must set forth the name, age, business address and residence
address of the person being nominated, that person's principal occupation or
employment, the class and number of shares of capital stock of the Company which
are beneficially owned by that person, and any other information required to be
disclosed under the rules of the Securities and Exchange Commission. The notice
must also include the name and the address of the stockholder presenting the
nomination, and the class and number of shares of the company's stock which are
beneficially owned by that person on the date of the stockholder notice. Other
relevant information may also be requested by the Company. The validity of the
notice will be determined by the presiding officer at or before the stockholder
meeting.
Without this amendment, a stockholder could nominate any person for election
as a director, without prior notice to the Board or other stockholders, at any
meeting called for the purpose of electing directors. The advance notice re-
quirement, by preventing stockholder nominations from the floor at a meeting of
stockholders, affords the Board a meaningful opportunity to consider the quali-
fications of the proposed nominees and, to the extent it deems it necessary or
desirable, to inform stockholders about such qualifications. The Board believes
this provision will further the objective of identifying candidates who have
the character, education, training, experience and proven accomplishments that
give promise of significant contribution to the responsible and profitable con-
duct of the Company's business. The Board believes it is advantageous to be
able to consider in advance the qualification of any proposed nominee, as
opposed to being confronted with a surprise nomination at or shortly before a
meeting of stockholders.
The proposed amendment may make it more difficult and time consuming to
initiate control over the Company's business and affairs, and may reduce the
viability of an unsolicited takeover proposal. The proposed amendment should
help ensure the Company will have what it considers to be adequate time to
review, and to present to all stockholders the Company's views on any future
nominations to the Board.
The proposed amendment may make it more difficult or discourage the assump-
tion of control by a holder of a substantial block of the Company's voting
shares, a proxy contest, or the removal of the incumbent Board, by limiting the
opportunity for such actions to those actions which are properly noticed prior
to the stockholder's meetings. This could increase the likelihood incumbent
directors and management will retain their positions. The amendment does not
take away the stockholder's right to take any of these actions as long as the
notice procedures are complied with. The proposed amendment is in part intend-
ed to encourage persons seeking to acquire control of the Company to initiate
such an acquisition through arms-length negotiations with the Company's manage-
ment and its Board of Directors.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE SIXTEENTH
SIXTEENTH: Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders called for the purpose of electing directors, by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors, or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting so long as the
stockholder complies with the notice procedures set forth in this Article Six-
teenth. Such nominations, other than those made by or at the direction of the
Board of Directors, or by any nominating committee or person appointed by the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive office of
the Corporation not less than 60 days prior to the scheduled meeting, regard-
less of any postponements, deferrals or adjournments of that meeting to a later
date; provided, however, that if less than 70 days notice or prior public
disclosure of the date of the scheduled meeting is given or made, notice by
the stockholder, to be timely, must be delivered or received not later than the
close of business on the tenth day following the earlier of the day on which
such notice of the date of the scheduled meeting was mailed or the day on which
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth: (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class and number of shares of capital stock of the Corp-
oration which are beneficially owned by the person and (iv) any other infor-
mation relating to the person that is required to be disclosed in solicitations
for proxies for election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934, as amended; and (b) as to the stockholder giving notice
(i) the name and address, as they appear on the Corporation's books, of the
stockholder and (ii) the class and number of shares of the Corporation's stock
which are beneficially owned by the stockholder on the date of such stockholder
notice. The Corporation may require any proposed nominee to furnish such other
information as may be required by the Corporation in its reasonable discretion,
in order to determine the eligibility of such proposed nominee to serve as a
director of the Corporation.
PROPOSAL 7
AMENDMENT TO PROHIBIT THE PAYMENT OF GREENMAIL
The Board recommends that the Company's Certificate of Incorporation be
amended to add the following new Article Seventeenth prohibiting "greenmail".
The term "greenmail" is used to describe a negotiated stock repurchase by a
corporation at a premium above the then current market price, in exchange for an
agreement by the seller not to proceed with an acquisition attempt. If the real
purpose of a takeover bid were to force the Company to repurchase an accumu-
lated stock interest at a premium price, management faces the risk that if
it does not repurchase the seller's stock, the Company's business and
management will be disrupted. In addition, receipt of
greenmail may confer a benefit on one stockholder not available to the stock-
holders generally, and result in unequal treatment of stockholders. The pro-
posed amendment, by prohibiting the payment of "greenmail", would eliminate the
opportunity for such disruption or dissimilar treatment.
<PAGE>
Under Delaware corporation law, a corporation may enact amendments to its
certificate of incorporation that prevent greenmail from being paid. The pro-
posed amendment would prevent the repurchase of a substantial block of the
Company's stock at a premium price from any person who has owned five percent
or more of the outstanding shares of the Company's stock for a period of less
than two years, without the prior approval of the holders of a majority of the
Company's shares not owned by such person. The proposed amendment also contains
terms designed to distinguish transactions that present the risk of greenmail
from repurchase transactions that either serve valid corporate purposes, or that
do not otherwise present the risk of greenmail.
The proposed amendment would not apply to a tender offer or exchange offer by
the Company made on the same terms to all holders of its shares, or to an open
market stock purchase program approved by the Board.
The proposed anti-greenmail amendment prevents a short-term (less than two
years) investor holding five percent or more of the Company's stock from receiv-
ing different treatment from other stockholders by having its Company stock
bought back by the Company at a premium above the market price unless approved
by holders of a majority of the other shares. It also discourages the accumu-
lation of a block of stock by a person who does not have the resources or the
intent to make a bona fide acquisition proposal to the Company. The disruption
of the Company's operations that such an accumulation and the accompanying
threats would cause would be eliminated. Prohibiting greenmail would also have
the effect of restricting the ability of Company management to seek to retain
its position by buying off at a premium price a serious potential acquisition
offer at a price that would be beneficial to the stockholders.
Since the amendment is designed to discourage accumulations of large blocks
of the Company's stock by purchasers whose objective is to have such stock
repurchased by the Company at a premium, adoption of the amendment could tend
to reduce any temporary fluctuations in the market price of the Company's stock
which may be caused by accumulations of large blocks of the Company's stock.
Accordingly, stockholders could be deprived of certain opportunities to sell
their stock at a temporarily higher market price.
In addition, greenmail may have the effect of increasing the price of the
Company's stock by serving as a credible signal to potential alternative bidders
that an opportunity is available that warrants attention, thereby resulting in
a takeover of the Company at a favorable price to the stockholders in general.
The proposed amendment by eliminating greenmail payments will have the effect of
eliminating this signaling function.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to
vote at the Annual Meeting is required to adopt the proposed amendment to the
Certificate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE SEVENTEENTH
SEVENTEENTH: 1. In addition to any affirmative vote required or permitted by
law or this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Paragraphs 1(a) and 1(b) of this
Article Seventeenth, the Corporation shall not effect, directly or indirectly,
any Stock Repurchase from an Interested Stockholder unless said Stock Repurchase
is authorized by the affirmative vote of the Voting Stock, voting together as a
single class, which shares are beneficially owned by Persons other than such
Interested Stockholder.
The preceding provisions of this Article Seventeenth shall not be applicable to
any Stock Repurchase from an Interested Stockholder if such Stock Repurchase is
effected by the Corporation pursuant to:
(a) a tender offer or exchange offer by the Corporation for some or all of
the outstanding shares of any or all classes of stock of the Corporation made on
the same terms to all holders of such shares; or
(b) an open market stock purchase program approved by a majority of those
members of the Board who were duly elected and acting members of the Board prior
to the time such person became an Interested Stockholder.
2. For purposes of this Article Seventeenth:
(a) The following terms shall be defined by reference to the Securities
Exchange Act of 1934 and the Rules in effect thereunder on the date of this
Restated Certificate:"Subsidiary" under Rule 12b-2;
(b) An "Interested Stockholder" shall mean a Person (other than any Sub-
sidiary of the Corporation, any profit-sharing, employee stock ownership or
other employee benefit plan of the Corporation or any Subsidiary of the Corp-
oration, or any trustee of or fiduciary with respect to any such plan when
acting in such a capacity) who: (i) has been a Beneficial Owner for a period of
less than two years immediately prior to the Determination Date of five percent
or more of the issued and outstanding shares of Voting Stock (including any
Voting Stock which such Person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or under-
standing or upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding; or (ii) is an Affiliate of the Corporation who
became the Beneficial Owner of five percent or more of the issued and out-
standing shares of Voting Stock at any time within the two-year period immed-
iately prior to the Determination Date; or (iii) is an assignee of or has other-
wise succeeded to any shares of Voting Stock which were beneficially owned by
any Interested Stockholder at any time within the two-year period prior to the
Determination Date, if such assignment or succession shall have occurred in the
course of a transaction or series of transaction not involving a public offering
within the meaning of the Securities Act of 1933.
(c) The terms "Stock Repurchase" shall mean any direct or indirect pur-
chase by the Corporation or any Subsidiary of the Corporation of any shares of
the stock of the Corporation at a price greater than the Market Price of such
shares, or any direct or indirect purchase of such shares for any consideration
other than cash.
<PAGE>
(d) "Market Price" shall mean the closing sale price on the trading day
immediately preceding the Determination Date of a share of the Corporation's
stock on the Composite Tape for American Stock Exchange-Listed stocks, or, if
such stock is not listed on such Exchange, on the principal United States
securities exchange on which stock is listed, or, if such stock is not listed on
any such exchange, the closing bid quotation with respect to a share of such
stock on the last trading day immediately preceding the Determination Date on
the National Association of Securities Dealers, Inc. automated quotations system
or any similar system then in use, or if no such quotations are available, the
fair market value on the Determination Date of a share of such stock as deter-
mined in good faith by a majority of the Board.
(e) "Determination Date" shall mean the date upon which the determination
of Market Price is made by the Board.
(f) The term "Person" shall mean any individual, firm, corporation or
other entity and shall include any group comprising any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of stock.
3. Nothing contained in this Article shall be construed to relieve any Inter-
ested Stockholder from any fiduciary obligation imposed by law.
4. The Board shall have the power and duty to determine for the purposes of
this Article Seventeenth on the basis of information known to its members after
reasonable inquiry, (1) whether a Person is, and if so, when such Person be-
came, an Interested Stockholder, (2) the number of shares of stock of the Corp-
oration or other securities of which any Person is a Beneficial Owner and the
number of votes entitled to be cast by such Person, (3) whether a Person is an
Affiliate or Associate or another, and (4) whether the price proposed to be
paid for any shares of stock of the Corporation is in excess of the Market Price
of such shares. Any such determination made in good faith shall be binding on
and conclusive for all parties.
For the purposes of determining whether a Person is an Interested Stockholder
pursuant to Paragraph 2(b) of this Article, the shares of stock of the Corp-
oration deemed to be outstanding shall include shares deemed beneficially owned
by such Person through application of Paragraph 2(a) of this Article, but shall
not include any other shares of stock of the Corporation that may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
PROPOSAL 8
AMENDMENT TO PROVIDE A FAIR PRICE PROVISION
Proposed Article Eighteenth, which follows, provides certain safeguards for
the prevention of coercive and unfair two-part takeovers or other Business Com-
bination (as hereinafter defined) which could eliminate or fundamentally change
the interests of the remaining stockholders. Proposed Article Eighteenth would
require that unless certain minimum price requirements are satisfied, such Bus-
iness Combinations must be approved by either the affirmative vote of 75% of the
Board and the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock (to the extent stockholder approval is required under
Delaware law) or the affirmative vote of the holders of two-thirds of the out-
standing shares of Common Stock. In order to comply with the minimum price re-
quirements, the Acquiring Person (as hereinafter defined) would have to give
holders of shares of each class or series of capital stock of the Company a Fair
Price, as such term is defined in the proposed Article below.
A Business Combination is defined in proposed Article Eighteenth to include
(i) mergers or consolidations with an Acquiring Person; (ii) sales or other dis-
positions of all or substantially all of the Company's or an Acquiring Person's
assets to the other; (iii) the adoption of any plan or proposal for the liquid-
ation of the Company proposed by or on behalf of an Acquiring Person; and (iv)
reclassifications of securities, recapitalizations and any other transactions
which would have the effect, directly or indirectly, of increasing an Acquiring
Person's proportionate ownership of the outstanding shares of any class of
equity or convertible securities of the Company or a subsidiary of the Company.
An Acquiring Person is principally defined as any individual, firm, corp-
oration, or other entity (other than the Company, a subsidiary of the Company
or any Company employee benefit plan) which is the beneficial owner of 15% or
more of the outstanding Common Stock of the Company.
Acquisitions of stock by persons attempting to acquire control of the Company
through market purchases may cause the market price of the stock to reach levels
which are higher than would otherwise be the case. Proposed Article Eighteenth
may discourage such purchases, particularly those of less than all of the
Company's outstanding shares, and may thereby deprive holders of the Company's
stock of an opportunity to sell at least some of their shares at a temporarily
higher price. Because of the potentially higher percentage voting requirements
for stockholder approval of any subsequent Business Combination and the possi-
bility of having to pay a higher price to other stockholders in such a Business
Combination, it may become more costly for a purchaser to acquire control of the
Company after adoption of this proposal. Proposed Article Eighteenth may there-
fore decrease the likelihood that a hostile tender offer will be made and, as
a result, may adversely affect those stockholders who would desire to part-
icipate in such a tender offer.
<PAGE>
Another effect of adoption of proposed Article Eighteenth would be to give
veto power to the holders of a minority of the voting stock with respect to a
Business Combination which is opposed by the Board but which the holders of a
majority of the outstanding shares believe to be desirable and beneficial.
Nevertheless, the Board believes that the advantages to the Company and its
stockholders generally of proposed Article Eighteenth clearly outweigh any
potential disadvantages and give greater flexibility to the Board than does
Section 203 of the Delaware General Corporation Law. Under the proposed Art-
icle, provided at least 75% of the Board approve, only a majority of the out-
standing Common Stock will be required to approve a proposed Business Combina-
tion, as opposed to the two-thirds stockholder approval required by Section 203.
There is no exception to the two-thirds requirement contained in Section 203
based solely on Board approval.
The adoption of proposed Article Eighteenth will not preclude the Board's op-
position to any future acquisition proposal which it believes not to be in the
best interest of the Company and the stockholders, whether or not such a propo-
sal purports to satisfy the minimum price criteria of proposed Article Eight-
eenth.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a ma-
jority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the Certi-
ficate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE EIGHTEENTH
EIGHTEENTH: The affirmative vote of the holders of not less than two-thirds of
the outstanding shares of the Corporation's common stock (other than the shares
beneficially owned by an "Acquiring Person" as hereinafter defined) shall be
required for the approval or authorization of any "Business Combination" (as
hereinafter defined) of the Corporation or any subsidiary of the Corporation
with any Acquiring Person, notwithstanding the fact that no vote may be re-
quired, or that a lesser percentage may be specified by law or otherwise; provi-
ded, however, that the two-thirds outstanding common stock requirement shall
not be applicable and such Business Combination shall require only such affirma-
tive vote as is required by law or otherwise if: (i) the Board of Directors of
the Corporation by at least a 75% vote has expressly approved such Business Com-
bination either in advance of or subsequent to such Acquiring Person becoming
an Acquiring Person; or (ii) as of the date of the consummation of a Business
Combination, the holders of a particular class or series of capital stock, as
the case may be, of the Corporation receive a Fair Price as such term is de-
fined in subsection (c) below.
For the purpose of this Article Eighteenth:
(a) The term "Business Combination" shall mean any (i) merger or consoli-
dation of the Corporation or a subsidiary of the Corporation with an Acquiring
Person or any other Corporation which is or after such merger or consolidation
would be an "Affiliate" or "Associate" (as hereinafter defined) of an Acquiring
Person; (ii) sale, lease or transfer (in one transaction or a series of trans-
actions) with any Acquiring Person or any Affiliate of any Acquiring Person, of
all or substantially all of the assets of the or of a subsidiary of the Corpora-
tion to an Acquiring Person or any Affiliate or Associate of any Acquiring
Person; (iii) adoption of any plan or proposal for the liquidation or dissolu-
tion of the Corporation proposed by or on behalf of an Acquiring Person or any
Affiliate or Associate of any Acquiring Person; (iv) reclassification of securi-
ties (including any reverse stock split) or recapitalization of the Corporation
or any other transaction that would have the effect, either directly or indi-
rectly, of increasing the proportionate ownership of any class of equity or con-
vertible securities of the Corporation or any subsidiary of the Corporation
which is directly or indirectly beneficially owned by an Acquiring Person or any
Affiliate or Associate of any Acquiring Person; and (v) an agreement, contract
or other arrangement providing for any of the transactions described in this
definition of Business Combination.
(b) The term "Fair Market Value" shall mean (i) in the case of shares, if
such shares are listed on an exchange, the highest closing bid quotation with
respect to the shares during the 30-day calendar period preceding the date in
question, or the highest closing sale price quoted during the 30-day calendar
period immediately preceding the consummation of the Business Combination on
the National Association of Securities Dealers, Inc. automated quotations system
or any similar system then in general use, or, if no such quotations are avail-
able, the fair market value of a share on the date in question as determined by
75% of the Board of Directors; and (ii) in the case of property other than cash
or shares, the fair market value of such property on the date in question as
determined by 75% of the Board of Directors.
(c) The term "Fair Price" shall mean that the aggregate amount of cash and
the Fair Market Value of consideration other than cash to be received per share
are at least equal to the highest of the following: (i) if applicable, the
highest per share price, including any brokerage commissions, transfer taxes,
and soliciting dealers' fees, paid by the Acquiring Person for any shares ac-
quired by it within the two year period immediately preceding the consummation
of the Business Combination or the transaction in which it became an Acquiring
Person, whichever is higher; or (ii) the Fair Market Value per share.
(d) The term "Person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any Person and any other
Person with whom such person or any Affiliate or Associate of such Person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of voting stock of the
Corporation.
<PAGE>
(e) The term "Acquiring Person" shall mean any Person (other than the
Corporation, or any subsidiary or any profit-sharing, employee stock ownership
or other employee benefit plan of the Corporation or any subsidiary or any
trustee of or fiduciary with respect to any such plan when acting in such capa-
city) who or which: (i) is the Beneficial Owner (as hereinafter defined for pur-
poses of this Section only) of 15% or more of the outstanding common stock of
the Corporation: (ii) is an Affiliate or Associate of the Corporation and at
any time within the two year period immediately prior to the date in question
was the Beneficial Owner of 15% or more of the outstanding common stock of the
Corporation; or (iii) is at such time an assignee of or has otherwise succeeded
to the beneficial ownership of any shares of outstanding common stock of the
Corporation which were at any time within the two year period immediately prior
to such time beneficially owned by any Acquiring Person, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the Securi-
ties Act of 1933.
(f) A Person shall be a Beneficial Owner of any common stock: (i) which
such Person or any of its Affiliates or Associates beneficially owns, directly
or indirectly; or (ii) which such person or any of its Affiliates or Associates
has, directly or indirectly, (a) the right to acquire whether such right is
exercisable immediately or not, pursuant to any agreement, arrangement or under-
standing or upon the exercise of conversion rights, exchange rights, warrants
or options, or otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding;
(g) An Acquiring Person shall be deemed to have acquired a share of the
common stock of the Corporation at the time when such Acquiring Person became
the beneficial owner thereof.
PROPOSAL 9
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS:
ELECTION NOT TO BE GOVERNED BY THE PROVISIONS OF SECTION 203
OF THE DELAWARE GENERAL CORPORATION LAW
Proposed Article Nineteenth, which follows, would remove the Company from the
requirements of Section 203 of the Delaware General Corporation Law. Section
203 of the Delaware General Corporation Law generally provides that certain
transactions between a Delaware Corporation and an "interested stockholder" be
approved, with certain exceptions, by two-thirds of the Corporation' s out-
standing voting stock (excluding from such computation stock owned by the in-
terested stockholder). An interested stockholder ("Interested Stockholder") is
(i) an owner of 15% or more of the outstanding "voting stock" of the corpora-
tion; or (ii) an affiliate or associate of the corporation who was the owner of
15% or more of the outstanding voting stock of the corporation at any time
within the three year period prior to the date on which it is sought to be de-
termined whether such person is an Interested Stockholder, and the affiliates
and associates of such person. The term "owner" includes (i) beneficial owner-
ship; (ii) shares held by other persons with whom the Interested Stockholder
has an understanding for the purpose of acquiring, holding, voting or disposing
of the shares; and (iii) other arrangements, such as options to acquire shares.
Section 203 is an attempt to restrict two-part takeovers of corporations. A
two-part takeover is designed to put maximum pressure on stockholders to sell
their shares in a tender offer in order to avoid receiving a diminished value
in a subsequent merger after the tender offer is completed. Tender offers or
other non-open market acquisitions of stock are usually made at prices above the
prevailing market price of a company's stock. An entity or person who acquires
control or even a significant minority position in a company could subsequently,
by virtue of such control or position, force minority stockholders to sell or
exchange their shares at a price which would not reflect any premium such en-
tity or person may have paid in order to acquire its or his controlling in-
terest, but would instead effectively be set by such entity or person. Such a
price might be lower than the price paid in acquiring its interest, or be paid
in a less desirable form (i.e., equity or debt securities instead of cash.)
The Board has proposed the adoption of a Fair Price amendment (see Article
Eighteenth above) which is more restrictive than Section 203. To avoid con-
fusion, the Board recommends electing not to be governed by Section 203 as pro-
vided under such section. By law, the election not to be governed by Section
203 will not be effective until 12 months after the adoption of the amendment
and will not apply to any Business Combination between the Company and any
person who became an Interested Stockholder prior to the amendment.
Mark A. Le Doux and Marie A. Le Doux will not be considered Interested Stock-
holders, as defined in Section 203, since they either (i) acquired greater than
15% of the outstanding Common Stock prior to December 23, 1987, or (ii) ac-
quired their shares of Common Stock by gift from a person falling within (i)
above, both of which are exceptions under Section 203 to the definition of In-
terested Stockholder.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a ma-
jority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the Certi-
ficate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE NINETEENTH
NINETEENTH: The Corporation expressly elects not to be governed by Section 203
of the Delaware General Corporation Law, as amended from time to time, which
relates to business combinations with interested stockholders.
<PAGE>
PROPOSAL 10
AMENDMENT TO REQUIRE A 70% VOTE TO AMEND OR REPEAL
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
The Board recommends the Company's Certificate of Incorporation be amended to
add Article Twentieth which requires that in order to amend, repeal or adopt any
provision inconsistent with Articles Second, Seventh, Eighth, Twelfth, Thir-
teenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth
and Twentieth of the amended and Restated Certificate of Incorporation the af-
firmative vote of at least 70% of the outstanding shares of voting stock of the
Company shall be required.
Under the General Corporation Law of the State of Delaware, amendments to the
Certificate of Incorporation require the approval of the holders of a majority
of the outstanding stock entitled to vote thereon, but the law also permits a
corporation to include provisions in its Certificate of Incorporation which
require a greater vote than the vote otherwise required by law for any corporate
actions. With respect to such supermajority provisions, Delaware law requires
that any alteration, amendment or repeal thereof be approved by an equally large
stockholder vote.
The requirement of an increased stockholder vote is designed to prevent a per-
son holding or controlling a majority, but less than 70%, of the shares of the
Company from avoiding the requirements of the proposed amendments by simply re-
pealing them.
Proposed Article Twentieth which follows, would require that in order to
amend, repeal or adopt any provision inconsistent with any proposed Articles
Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth,
Nineteenth and Twentieth herein and existing Articles Second, Seventh and
Eighth, the affirmative vote of at least seventy percent (70%) of the outstan-
ding shares of voting stock shall be required.
VOTE REQUIRED FOR ADOPTION OF PROPOSED AMENDMENT
Under Delaware corporation law, the affirmative vote of the holders of a ma-
jority of the shares of stock of the Company entitled to notice of and to vote
at the Annual Meeting is required to adopt the proposed amendment to the Certi-
ficate.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSED ARTICLE TWENTIETH
TWENTIETH: Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
seventy percent (70%) of the voting power of all of the then outstanding shares
of the stock of the Corporation entitled to vote generally in the election
of Directors, voting together as a single class, shall be required to amend in
any respect or repeal this Article Twentieth, or Articles Second, Third, Eighth,
Ninth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth,
Nineteenth, and Twentieth.
PROPOSAL 11
APPROVAL OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board recommends the Restated Certificate of Incorporation in the form
attached hereto as Exhibit "A" be approved in its entirety. The significant
changes in the Restated Certificate of Incorporation are summarized in Proposals
2-11 as described above. Because of the number of significant changes to the
Certificate of Incorporation, the Board determined a Restated Certificate of
Incorporation would more clearly set forth both the proposed changes and the
resulting complete Certificate of Incorporation, rather than simply an amend-
ment to the Certificate of Incorporation.
Vote Required for Adoption of Proposed Amendment
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to
vote at the Annual Meeting is required to adopt the proposed Restated Certi-
ficate of Incorporation.
The Board of Directors recommends that stockholders vote FOR the proposed
amendment.
PROPOSAL 12:
RATIFICATION AND APPROVAL OF THE 1994 NONQUALIFIED STOCK OPTION
PLAN AND THE GRANT OF OPTIONS TO PURCHASE 500,000 SHARES
The Company is seeking stockholder ratification and approval of the 1994
Nonqualified Stock Option Plan ("1994 Plan"), and the grant of options to pur-
chase 500,000 shares pursuant thereto. The 1994 Plan is attached as Exhibit B
to this Proxy Statement.
The 1994 Plan was approved by the Board of Directors on December 9, 1994.
The total number of shares which were reserved for issuance under the 1994 Plan
was 500,000 shares. On January 24, 1995, the Board of Directors granted
options to purchase all 500,000 shares of Common Stock under the 1994 Plan.
As of March 20, 1996, none of these options were exercised.
<PAGE>
A summary description of the principal terms and conditions of the 1994
Plan is set forth on pages 11-13 of the Proxy Statement. The summary of the
1994 Plan is qualified in its entirety by reference to Exhibit B.
The Board of Directors believes the 1994 Plan and the options granted to
date are necessary to enable the Company to compete successfully with other
companies to attract and retain valuable employees. The Board of Directors
further believes that the options granted under the 1994 Plan provide an in-
centive for the optionees to continue to promote the best interest and long-
term performance of the Company.
Vote Required for Ratification of 1994 Plan and the Grant of options to pur-
chase 500,000 shares thereunder
Under Delaware corporation law, the affirmative vote of the holders of a
majority of the shares of stock of the Company entitled to notice of and to
vote at the Annual Meeting is required to ratify and approve the 1994 Plan and
the grant of options to purchase 500,000 shares thereunder.
The Board of Directors recommends that stockholders vote FOR ratification and
approval of the 1994 Plan and the options granted thereunder
PROPOSAL 13:
SELECTION OF AUDITORS
Subject to stockholder approval at the Annual Meeting, the Board of Directors
has selected KPMG Peat Marwick LLP to continue as the Company's independent au-
ditors for the fiscal year ending June 30, 1996. A representative of KPMG Peat
Marwick LLP is expected to be present at the Annual Meeting. The representative
will have an opportunity to make a statement and will be available to respond to
appropriate questions from stockholders.
Stockholder ratification of the selection of KPMG Peat Marwick LLP as the Com-
pany's independent auditors is not required by the Company's Bylaws or other-
wise. However, the Board is submitting the selection of KPMG Peat Marwick LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Board will reconsider whether
or not to retain that firm. Even if the selection is ratified, the Board in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Board determines that such a change would
be in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented
and voting at the meeting will be required to ratify the selection of KPMG Peat
Marwick LLP.
The Board of Directors recommends a vote FOR Proposal 13
STOCKHOLDERS' PROPOSALS
Stockholders who intend to submit proposals at the 1997 Annual Meeting must
submit such proposals to the Company no later than March 1, 1997 in order for
them to be included in the Proxy Statement and the form of Proxy to be distri-
buted by the Board of Directors in connection with that meeting. Stockholders
proposals should be submitted to Natural Alternatives International, Inc., 1185
Linda Vista Drive, Suite D, San Marcos, CA 92069.
ANNUAL REPORTS
The Company's 1995 Annual Report on Form 10-K which includes audited financial
statements for the Company's fiscal year ended June 30, 1995, is being mailed
with this Proxy Statement to stockholders of record on or about April 10, 1996.
OTHER MATTERS
The Board of Directors know of no other matters which will be brought before
the Annual Meeting. However, if any other matter properly comes before the An-
nual Meeting or any adjournment thereof, it is intended that the persons named
in the enclosed form of Proxy will vote on such matters in accordance with
their best judgment.
Marie A. Le Doux, Secretary
San Marcos, California
March 31, 1996
<PAGE>
EXHIBIT A: RESTATED CERTIFICATE OF INCORPORATION
RESTATED CERTIFICATE OF INCORPORATION
OF
NATURAL ALTERNATIVES INTERNATIONAL, INC.
Natural Alternatives International, Inc., a corporation organized and ex-
isting under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation (which is hereinafter referred to as the
"Corporation") is Natural Alternatives International, Inc.
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on October 26, 1989 ("Original Certificate")
and a Certificate of Amendment was filed with the Secretary of State of the
State of Delaware on April 5, 1991.
3. The Restated Certificate of Incorporation has been duly proposed by
resolutions adopted and declared advisable by the Board of Directors of the Cor-
poration, duly adopted by the stockholders of the Corporation at a meeting duly
called, and duly executed and acknowledged by the officers of the Corporation in
accordance with the provisions of Sections 103, 242 and 245 of the General Cor-
poration Law of the State of Delaware and, restates, integrates and further
amends the provisions of the Original Certificate and, upon filing with the
Secretary of State in accordance with Section 103, shall thenceforth supersede
the Original Certificate and shall, as it may thereafter be amended in accor-
dance with its terms and applicable law, be the Restated Certificate of the
Corporation.
4. The text of the Original Certificate is hereby amended and restated to
read in its entirety as follows:
FIRST: The name of the Corporation is Natural Alternatives International,
Inc.
SECOND: For the purpose of this Certificate of Incorporation:
A. "Affiliate" and "Associate" have the meanings set forth in Rule
12b-2 under the Securities Exchange Act of 1934 as in effect on the date of fi-
ling of this Certificate.
B. "Beneficial Owner," "Beneficial Ownership" and "Beneficially
Owns" have the meanings set forth in the Rule 13d-3 under the Securities Ex-
change Act of 1934 as in effect on the date of filing of this Certificate.
C. "Continuing Director" means, as to any Related Person, a member
of the Board of Directors of the Corporation (the "Board") who (1) is unaffili-
ated with and is not the Related Person and (2) was a member of the Board of Di-
rectors of Natural Alternatives International, Inc., a Colorado corporation,
prior to October 22, 1989 or thereafter became a member of the Board prior to
the time that the Related Person became a Related Person, and any successor of a
Continuing Director who is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board.
D. "Disinterested Shares" means, as to any Related Person, shares of
Voting Stock held by stockholders other than a Related Person.
E. "Related Person" means and includes any individual, corporation,
partnership or other person or entity, or any group of two or more of the fore-
going that have agreed to act together, which, together with its Affiliates and
Associates, Beneficially Owns, in the aggregate, ten percent (10%) or more of
the outstanding Voting Stock, and any Affiliate or Associates of any such indi-
vidual, corporation, partnership or other person, entity or group.
F. "Voting Stock" means all outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors of the
Corporation, and each reference to a percentage or portion of shares of Voting
Stock shall refer to such percentage or portion of the votes entitled to be cast
by such shares.
THIRD: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
FOURTH: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware ("GCL").
FIFTH: The total authorized number of shares of the Corporation shall be
8,500,000 shares, consisting of shares designated as Common Stock, $.01 par
value, and 500,000 shares designated as Preferred Stock, $.01 par value.
Shares of the Preferred Stock may be issued from time to time in one or
more series. The Board of the Corporation is hereby expressly authorized to
establish and designate one or more series of the Preferred Stock, to fix the
number of shares constituting each series, and to fix the designations and the
powers, rights, preferences, qualifications, limitations, and restrictions of
the shares of each series and the variations of the relative powers, rights,
preferences, qualifications, limitations and restrictions as between series, and
to increase and to decrease (but not below the number of shares of such series
then outstanding) the number of shares constituting each series. Such determin-
ations may be fixed by a resolution or resolutions adopted by the Board.
SIXTH: Elections of directors at an annual or special meeting of the
stockholders may be by written ballot unless the Bylaws of the Corporation shall
otherwise provide.
SEVENTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the stock-
holders at an annual or special meeting duly noticed and called, as provided in
the Bylaws of the Corporation, and may not be taken by a written consent of the
stockholders pursuant to the GCL.
<PAGE>
EIGHTH: Special meetings of stockholders of the Corporation for any pur-
pose or purposes may be called at any time by the Board, or by a majority of
members of the Board; provided, however, that where a proposal requiring stock-
holder approval is made by or on behalf of a Related Person or director affili-
ated with a Related Person, or where a Related Person otherwise seeks action
requiring stockholder approval, then the affirmative vote of a majority of the
Continuing Directors shall also be required to call a special meeting of stock-
holders for the purpose of considering such proposal or obtaining such approval.
Special meetings of stockholders of the Corporation may not be called by any
other person or persons or in any other manner.
NINTH: A. The Corporation may indemnify, to the full extent authorized
or permitted by law, any person made, or threatened to be made, a defendant or
witness to any action, suit or proceeding (whether civil or criminal or other-
wise) by reason of the fact that he, his testator or intestate, is or was direc-
tor or officer of the Corporation or by reason of the fact that such director of
officer, at the request of the Corporation, is or was serving any other corpor-
ation, partnership, joint venture, employee benefit plan or other enterprise,
in any capacity. Nothing contained herein shall affect any rights to indemni-
fication to which employees other than directors or officers may be entitled by
law. No amendment or repeal of this Section A of Article Ninth shall apply to
or have any effect on any right to indemnification provided hereunder with res-
pect to any acts or omissions occurring prior to such amendment or repeal.
B. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence,
a director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional mis-
conduct or a knowing violation of law, (ii) pursuant to Section 174 of the GCL,
or (iv) for any transaction from which such director derived an improper per-
sonal benefit. No amendment to or repeal of this Section B of this Article
Ninth shall apply to or have any effect on the liability or alleged liability of
any director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
C. In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on be-
half of any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of any corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of the law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of cre-
dit, surety bonds and/or other similar arrangements), as well as enter into con-
tracts providing indemnification to the full extent authorized or permitted by
law and including as part thereof provisions with respect to any or all of the
foregoing to ensure the payment of such amounts as may become necessary to ef-
fect indemnification as provided therein, or elsewhere.
TENTH: The provisions set forth in this Article Tenth and in Article Ninth
herein may not be repealed or amended in any respect, unless such action is
approved by the affirmative vote of the holders of not less than 66.67% of the
outstanding shares of Voting Stock of the Corporation.
ELEVENTH: Subject to the provisions in this Restated Certificate of In-
corporation, the Corporation reserves the right to repeal, alter, amend, or res-
cind any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
TWELFTH: The Board shall be divided as nearly equal in number as possible
into three classes, designated Class I, Class II and Class III. The term of of-
fice of directors of one class shall expire at each annual meeting of stock-
holders, and in all cases as to each director until his or her successor shall
be elected and shall qualify or until his or her earlier resignation, removal
from office, death or incapacity. Additional directorships resulting from an
increase in the number of directors shall be apportioned among the classes as
equally as possible. The initial term of office of directors of Class I shall
begin at the first regularly scheduled meeting of stockholders held on May 10,
1996; that of Class II shall begin at the first regularly scheduled meeting of
stockholders occurring in 1997 or thereafter; and that of Class III shall begin
at the first regularly scheduled meeting of stockholders occurring in 1998 or
thereafter, and in all cases as to each director until his or her successor
shall be elected and shall qualify, or until his or her earlier resignation,
removal from office, death or incapacity. At each annual meeting of stock-
holders, the number of directors equal to the number of directors of the class
whose terms expires at the time of such meeting (or, if less, the number of di-
rectors properly nominated and qualified for election) shall be elected to hold
office until the third succeeding annual meeting of stockholders after their
election.
THIRTEENTH: Newly created directorships resulting from any increase in the
number of directors, or vacancies in any existing directorships resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less then a quorum, or by the sole remaining director. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the Class of Directors in which the new di-
rectorship was created, or the vacancy occurred, and until such director's suc-
cessor shall have been elected and qualified. No decrease in the number of di-
rectors constituting the Board shall shorten the term of any incumbent director.
<PAGE>
FOURTEENTH: No director of the Corporation may be removed except for
cause, and the vote of the holders of seventy percent (70%) of the outstanding
shares of all classes of capital stock of the Corporation entitled to vote gen-
erally in the election of directors, considered for this purpose as one class,
shall be required to remove a director for cause. Cause for removal shall be
deemed to exist only if the director whose removal is proposed has been convic-
ted in a court of competent jurisdiction of a felony or has been adjudged by a
court of competent jurisdiction to be liable for gross negligence, breach of fi-
duciary duty, or misconduct in the performance of the director's obligations to
the Corporation, and such conviction or adjudication has become final and
nonappealable.
FIFTEENTH: At any regularly scheduled meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been brought before the meeting (a) by, or at the direction
of, the Board, or (b) by any stockholder of the Corporation who complies with
the notice procedures set forth in this Article Fifteenth. For a proposal to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive office of the Corporation no less than 60 days prior
to the scheduled meeting, regardless of any postponements, deferrals or adjourn-
ments of that meeting to a later date; provided, however, that if less than 70
days notice or prior public disclosure of the date of the scheduled meeting is
given or made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth day of the following
the earlier of the day on which such notice of the date of the scheduled meeting
was mailed, or the day on which such public disclosure was made. A stock-
holder's notice to the Secretary shall set forth as to each matter the stock-
holder proposes to bring before the meeting: (a) a brief description of the pro-
posal desired to be brought before the meeting and the reasons for conducting
such business at the meeting; (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any other
stockholder known by such stockholder to be supporting such proposal; (c) the
class and number of shares of the Corporation's stock which are beneficially
owned by the stockholder on the date of such stockholder's notice and by any
other stockholder known by such stockholder to be supporting such proposal on
the date of such stockholder notice; and (d) any financial interest of the
stockholder making the proposal or any other stockholder known by such stock-
holder to be supporting the proposal.
The presiding officer of the meeting shall determine and declare at or be-
fore the meeting whether the stockholder proposal was made in accordance with
the terms of this Article Fifteenth. If the presiding officer determines that
a stockholder proposal was not made in accordance with the terms of this Article
Fifteenth, he or she shall so declare at the meeting and any such proposal shall
not be acted upon at the meeting.
This provision shall not prevent the consideration and approval or dis-
approval at the meeting of reports of officers, directors and committees of the
Board, but, in connection with such reports, no new business shall be acted
upon at such meeting state, filed and received as herein provided.
SIXTEENTH: Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of the Corporation may be made at a meeting of stock-
holders called for the purpose of electing directors, by or at the direction of
the Board, by any nominating committee or person appointed by the Board, or by
any stockholder of the Corporation entitled to vote for the election of direc-
tors at the meeting so long as the stockholder complies with the notice proce-
dures set forth in this Article Sixteenth. Such nominations, other than those
made by or at the direction of the Board, or by any nominating committee or per-
son appointed by the Board, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to, or mailed and received at, the principal executive office of
the Corporation not less than 60 days prior to the scheduled meeting, regardless
of any postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than 70 days notice or prior public disclosure
is given or made, notice by the stockholder, to be timely, must be delivered
or received not later than the close of business on the tenth day following the
earlier of the day on which such notice of the date of the scheduled meeting was
mailed or the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth (a) as to each person whom the stock-
holder proposes to nominate for election or reelection as a director (i) the
name, age, business address and residence address of the person, (ii) the prin-
cipal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving notice (i) the name and address, as they appear on the
Corporation's books, of the stockholder and (ii) the class and number of shares
of the Corporation's stock which are beneficially owned by the stockholder on
the date of such stockholder notice. The Corporation may require any proposed
nominee to furnish such other information as may be required by the Corporation.
In its reasonable discretion, in order to determine the eligibility of such pro-
posed nominee to serve as a director of the Corporation.
SEVENTEENTH: 1. In addition to any affirmative vote required or permitted
by law or this Restated Certificate of Incorporation or the Bylaws of the Cor-
poration, and except as otherwise expressly provided in Paragraphs 1(a) and 1(b)
of this Article Seventeenth, the Corporation shall not effect, directly or in-
directly, any Stock Repurchase from an Interested Stockholder unless said Stock
Repurchase is authorized by the affirmative vote of the Voting Stock, voting to-
gether as a single class, which shares are Beneficially Owned by Persons other
than such Interested Stockholder.
The Preceding provisions of this Article Seventeenth shall not be ap-
plicable to any Stock Repurchase from an Interested Stockholder if such Stock .
Repurchase is effected by the Corporation pursuant to:
(a) a tender offer or exchange offer by the Corporation for some or
all of the outstanding shares of any or all classes of stock of the Cor-
poration made on the same terms to all holders of such shares; or
(b) an open market stock purchase program approved by a majority of
those members of the Board who were duly elected and acting members of the
Board prior to the time such person became an Interested Stockholder.
<PAGE>
2. For purposes of this Article Seventeenth:
(a) The following terms shall be defined by reference to the Securi-
ties Exchange Act of 1934 and the Rules in effect thereunder on the date
of this Restated Certificate: "Subsidiary" under Rule 12b-2;
(b) An "Interested Stockholder" shall mean a Person (other than any
Subsidiary of the Corporation, any profit-sharing, employee stock owner-
ship or other employee benefit plan of the Corporation or any Subsidiary
of the Corporation, or any trustee of or a fiduciary with respect to any
such plan when acting in such capacity) who: (i) has been a Beneficial
Owner for a period of less than two years immediately prior to the Deter-
mination Date of five percent or more of the issued and outstanding shares
of Voting Stock (including any Voting Stock which such Person or any of
its Affiliates or Associates has (a) the right to acquire (whether such
right is exercisable immediately or only after the passage of time), pur-
suant to any agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or otherwise,
or (b) the right to vote pursuant to any agreement, arrangement, or under-
standing); or (ii) is an Affiliate of the Corporation who became the
Beneficial Owner of five percent or more of the issued and outstanding
shares of Voting Stock at any time within the two-year period immediately
prior to the Determination Date; or (iii) is an assignee of or has other-
wise succeeded to any shares of Voting Stock which were Beneficially Owned
by any Interested Stockholder at any time within the two-year period imme-
diately prior to the Determination Date, if such assignment or succession
shall have occurred in the course of a transaction or series of trans-
actions not involving a public offering within the meaning of the Securi-
ties Act of 1933.
The term "Stock Repurchase" shall mean any direct or indirect pur-
chase by the Corporation or any Subsidiary of the Corporation of any
shares of the stock of the Corporation at a price greater than the Market
Price of such shares, or any direct or indirect purchase of such shares
for any consideration other than cash.
(d) "Market Price" shall mean the closing sale price on the trading
day immediately preceding the Determination Date of a share of the Cor-
poration's stock on the Composite Tape for American Stock Exchange-Listed
stocks, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange on which such stock is listed, or, if
such stock is not listed on any such exchange, the closing bid quotation
with respect to a share of such stock on the last trading day immediately
preceding the Determination Date on the National Association of Securities
Dealers, Inc. automated quotations system or any similar system then in
use, or if no such quotations are available, the fair market value on the
Determination Date of a share of such stock as determined in good faith by
a majority of the Board.
(e) "Determination Date" shall mean the date upon which the deter-
mination of Market Price is made by the Board.
(f) The term "Person" shall mean any individual, firm, corporation or
other entity and shall include any group comprising any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or in-
directly, for the purpose of acquiring, holding, voting or disposing of
stock.
3. Nothing contained in this Article shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
4. The Board shall have the power and duty to determine for the purposes
of this Article Seventeenth on the basis of information known to its members
after reasonable inquiry, (1) whether a Person is, and if so, when such Person
became, an Interested Stockholder, (2) the number of shares of stock of the Cor-
poration or other securities of which any Person is a Beneficial Owner and the
number of votes entitled to be cast by such person, (3) whether a Person is an
Affiliate or Associate or another, and (4) whether the price proposed to be paid
for any shares of stock of the Corporation is in excess of the Market Price of
such shares. Any such determination made in good faith shall be binding on and
conclusive for all parties.
For the purposes of determining whether a Person is an Interested Stock-
holder pursuant to Paragraph 2(b) of this Article, the shares of the stock of
the Corporation deemed to be outstanding shall include shares deemed Benefi-
cially Owned by such Person through application of Paragraph 2(a) of this
Article, but shall not include any other shares of stock of the Corporation that
may be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
EIGHTEENTH: The affirmative vote of the holders of not less than two-
thirds of the outstanding shares of the Corporation's common stock (other than
the shares beneficially owned by an "Acquiring Person" as hereinafter defined)
shall be required for the approval or authorization of any "Business Combi-
nation" (as hereinafter defined) of the Corporation or any subsidiary of the
Corporation with any Acquiring Person, notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified by law or other-
wise; provided, however, that the two-thirds outstanding common stock require-
ment shall not be applicable and such Business Combination shall require only
such affirmative vote as is required by law or otherwise if: (i) the Board of
the Corporation by at least a 75% vote has expressly approved such Business Com-
bination either in advance of or subsequent to such Acquiring Person becoming
an Acquiring Person; or (ii) as of the date of the consummation of a Business
Combination, the holders of a particular class or series of capital stock, as
the case may be, of the Corporation receive a Fair Price as such term is defined
in subsection below.
<PAGE>
For the purpose of this Article Eighteenth:
(a) The term "Business Combination" shall mean any (i) merger or consoli-
dation of the Corporation or a subsidiary of the Corporation with an
Acquiring Person or any other Corporation which is or after such
merger or consolidation would be an "Affiliate" or "Associate" of an
Acquiring Person; (ii) sale, lease or transfer (in one transaction
or a series of transactions) with any Acquiring Person or any Affil-
iate of any Acquiring Person, of all or substantially all of the
assets of the Corporation or a subsidiary of the Corporation to an
Acquiring Person or any Affiliate or Associate of any Acquiring Per-
son; (iii) adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Ac-
quiring Person or any Affiliate or Associate of any Acquiring Person;
(iv) reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation or any other transaction
that would have the effect, either directly or indirectly, of in-
creasing the proportionate ownership of any class of equity or con-
vertible securities of the Corporation or any subsidiary of the Cor-
poration which is directly or indirectly beneficially owned by an
Acquiring Person or any Affiliate or Associate of any Acquiring Per-
son; and (v) an agreement, contract or other arrangement providing
for any of the transactions described in this definition of Business
Combination.
(b) The term "Fair Market Value" shall mean (i) in the case of shares, if
such shares are listed on an exchange, the highest closing bid quota-
tion with respect to the shares during the 30-day calendar period pre-
ceding the date in question, the highest closing sale price quoted
during the 30-day calendar period immediately preceding the consumma-
tion of the Business Combination on the National Association of Se-
curities Dealers, Inc. automated quotations system or any similar
system then in general use, or, if no such quotations are available,
the fair market value of a share on the date in question as determined
by 75% of the Board; and (ii) in the case of property other than cash
or shares, the fair market value of such property on the date in ques-
tion as determined by 75% of the Board.
The term "Fair Price" shall mean that the aggregate amount of cash and
the Fair Market Value of consideration other than cash to be received
per share are at least equal to the highest of the following: (i) if
applicable, the highest per share price, including any brokerage com-
missions, transfer taxes, and soliciting dealers fees, paid by the
Acquiring Person for any shares acquired by it within the two year
period immediately preceding the consummation of the Business Com-
bination or the transaction in which it became an Acquiring Person,
whichever is higher; or (ii) the Fair Market Value per share.
(d) The term "Person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any Person and
any other Person with whom such person or any Affiliate or Associate
of such Person has any agreement, arrangement or understanding, di-
rectly or indirectly, for the purpose of acquiring, holding, voting
or disposing of voting stock of the Corporation.
(e) The term "Acquiring Person" shall mean any Person (other than the Cor-
poration, or any subsidiary or any profit-sharing, employee stock
ownership or other employee benefit plan of the Corporation or any
subsidiary or any trustee of or fiduciary with respect to any such
plan when acting in such capacity) who or which: (i) is the Bene-
ficial Owner (as hereinafter defined for purposes of this section
only) of 15% or more of the outstanding common stock of the Cor-
poration; (ii) is an Affiliate or Associate of the Corporation and
at any time within the two year period immediately prior to the date
in question was the Beneficial Owner of 15% or more of the outstanding
common stock of the Corporation; or (iii) is at such time an assignee
of or has otherwise succeeded to the beneficial ownership of any
shares of outstanding common stock of the Corporation which were at
any time within the two year period immediately prior to such time
beneficially owned by any Acquiring Person, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(f) A Person shall be a Beneficial Owner of any common stock: (i) which
such Person or any of its Affiliates or Associates beneficially owns,
directly or indirectly, (a) the right to acquire whether such right
is exercisable immediately or not, pursuant to any agreement, arrange-
ment or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (b) the right
to vote pursuant to any agreement, arrangement or understanding.
(g) An Acquiring Person shall be deemed to have acquired a share of the
common stock of the Corporation at the time when such Acquiring Person
became the Beneficial Owner thereof.
NINETEENTH: The Corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law, as amended from time to time, which
relates to business combinations with interested stockholders.
<PAGE>
TWENTIETH: Notwithstanding any other provision of this Restated Certi-
ficate of Incorporation, the affirmative vote of the holders of at least seventy
percent (70%) of the voting power of all of the then outstanding shares of the
stock of the Corporation entitled to vote generally in the election of Direc-
tors, voting together as a single class, shall be required to amend in any res-
pect or repeal this Article Twentieth, or Articles Second, Seventh, Eighth,
Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth,
and Nineteenth.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed this day of __________________, 1996.
Natural Alternatives International, Inc.
By: /s: Mark Le Doux
_________________________________
Mark A. Le Doux, President
[SEAL]
ATTEST
By: /s: Marie Le Doux
_________________________________
Marie A. Le Doux, Secretary
<PAGE>
PROXY CARD
PROXY
NATURAL ALTERNATIVES INTERNATIONAL, INC.,
a Delaware Corporation
ANNUAL MEETING OF STOCKHOLDERS
May 10, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. Le Doux, William P. Spencer,
William R. Kellas, Lee G. Weldon and Marie A. Le Doux as proxies, each with the
power to appoint his or her substitute, and hereby authorizes them to represent
and vote, as designated below, all of the shares of Common Stock of Natural
Alternatives International, Inc., held of record by the undersigned on March 22,
1996, at the Annual Meeting of Stockholders to be held on May 10, 1996, or any
adjournment thereof.
1. Proposal to amend the Certificate of Incorporation to provide for a
classified board of directors.
___ FOR ___ AGAINST ___ ABSTAIN
2. For the election as directors of the nominees listed below, except to
the extent that authority is specifically withheld.
___ FOR all nominees listed below ___ WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
Mark A. Le Doux, William P. Spencer, William R. Kellas, Lee G. Weldon and
Marie A. Le Doux
(INSTRUCTION: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided below.)
3. Proposal to amend the Certificate of Incorporation to provide that
newly created directorships shall be filled by the vote of the remaining di-
rectors.
___ FOR ___ AGAINST ___ ABSTAIN
4. Proposal to amend the Certificate of Incorporation to provide that no
director may be removed except for cause as defined, and to require a vote of
70% of the outstanding shares to remove a director.
___ FOR ___ AGAINST ___ ABSTAIN
5. Proposal to amend the Certificate of Incorporation to provide that at
any meeting of the stockholders, only such business may be acted on as is
brought by either the Board of Directors or by the stockholders in accordance
with certain notice procedures.
___ FOR ___ AGAINST ___ ABSTAIN
6. Proposal to amend the Certificate of Incorporation to provide that
only persons who are nominated in accordance with certain procedures are eligi-
ble for election as directors.
___ FOR ___ AGAINST ___ ABSTAIN
7. Proposal to amend the Certificate of Incorporation to prohibit the
Company from making certain stock repurchases except under certain conditions.
___ FOR ___ AGAINST ___ ABSTAIN
<PAGE>
8. Proposal to amend the Certificate of Incorporation to add a fair price
provision which requires that certain minimum price and procedural requirements
be observed by certain parties who seek to accomplish mergers or other business
combinations unless they meet certain requirements.
___ FOR ___ AGAINST ___ ABSTAIN
9. Proposal to amend the Certificate of Incorporation to elect not to be
governed by the provisions of Section 203 of the Delaware General Corporation
Law.
___ FOR ___ AGAINST ___ ABSTAIN
10. Proposal to amend the Certificate of Incorporation to provide that the
vote of 70% of the outstanding shares is required to amend or repeal the pro-
posed amendments to the Restated Certificate of Incorporation described in
Proposals 2-10 herein, and to existing Articles Second, Seventh, and Eighth.
___ FOR ___ AGAINST ___ ABSTAIN
11. Proposal to approve, in addition to the specific amendments described
in Proposals 2-10 above, the Restated Certificate of Incorporation in its en-
tirety.
___ FOR ___ AGAINST ___ ABSTAIN
12. Proposal to ratify and approve the 1994 Nonqualified Stock Option
Plan and the grant of options to purchase 500,000 shares thereunder.
___ FOR ___ AGAINST ___ ABSTAIN
13. Proposal to confirm KPMG Peat Marwick LLP as the Company's independent
auditors for the fiscal year ending June 30, 1996.
___ FOR ___ AGAINST ___ ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this Proxy
will be voted for Proposals 1, 2, 3, 4, 5, 6, 7, 8 9, 10, 11, 12 and 13.
DATED: _________________________
________________________________________
Signature
________________________________________
Signature if Held Jointly
________________________________________
Number of Shares
Please sign exactly as your name appears on your stock certificate. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If the shares are owned by a corporation, sign in the full corporate name by the
President or other authorized officer. If the shares are owned by a Partner-
ship, sign in the name of the Partnership name by an authorized person. Please
mark, sign, date and return the Proxy promptly using the enclosed envelope.
EXHIBIT B: 1994 NONSTATUTORY STOCK OPTION PLAN
NATURAL ALTERNATIVES INTERNATIONAL, INC.
1994 NONQUALIFIED STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of the Natural Alternatives
International, Inc. 1994 Nonqualified Stock Option Plan is to enable Natural
Alternatives International, Inc. to provide an incentive to eligible
employees, consultants, officers and directors, whose present and potential
contributions are important to the continued success of the Company, to
afford these individuals the opportunity to acquire a proprietary interest in
the Company, and to enable the Company to enlist and retain in its employment
qualified personnel for the successful conduct of its business. It is
intended that this purpose will be effected through the granting of stock
options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or such of its Committees as shall be
administering the Plan, in accordance with Section 5 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable securities laws,
Delaware corporate law and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in accordance
with Section 5 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
<PAGE>
(g) "Company" means Natural Alternatives International, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship is not interrupted or terminated by the
Company, any parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; or (ii) transfers between locations of the Company or
between the Company, its Parent, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last mar-
ket trading day prior to the day of determination, as reported in such source
as the Administrator deems reliable;
(ii) If the Common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in such source as the Administrator deems
reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Nonqualified Stock Option" means the options granted pursuant to
this 1994 Nonqualified Stock Option Plan.
(p) "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual Option. The Notice of Grant is part of the
Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "Option Exchange Program" means a program whereby outstanding options
are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means an Employee or Consultant who holds an outstanding
Option.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(c) of the Code.
(x) "Plan" means this 1994 Nonqualified Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
rule thereto, as in effect when discretion is being exercised with respect to
the Plan.
(z) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 9 of the Plan.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility. Nonqualified Stock Options may be granted to Employees,
Consultants and Directors. If otherwise eligible, an Employee, Consultant or
Director who has been granted an Option may be granted additional Options.
<PAGE>
4. Stock Subject to the Plan. Subject to the provisions of Section 9 of the
Plan, the total number of Shares reserved and available for distribution under
the Plan is 500,000 Shares. Subject to Section 9 of the Plan, if any Shares
that have been optioned under an Option cease to be subject to such Option
(other than through exercise of the Option), or if any Option granted hereunder
is forfeited or any such award otherwise terminates prior to the issuance of
Common Stock to the participant, the shares that were subject to such Option
shall again be available for distribution in connection with future Option
grants under the Plan; provided, however, that Shares that have actually been
issued under the Plan, upon exercise of an Option, shall not in any event be
returned to the Plan and shall not become available for future distribution
under the Plan.
5. Administration.
(a) Composition of Administrator. The Plan shall be administered by the
Compensation Committee of the Board of Directors or such other committee of the
Board of Directors consisting of at least two members, as it shall determine
("Committee").
(b) Authority. The Committee shall have the full authority and discre-
tion to determine, consistent with the provisions of the Plan, the persons to
be granted an Option, the times at which Option shall be granted, the number of
shares of common stock covered by each Option, the Option price, the method
of payment for each Option, the term of each Option, and all other terms and
conditions thereof.
(c) Indemnification. In addition to such other rights of indemnification
they may have as Directors or as members of the Committee, members of the
Board of Directors and of the Committee shall be indemnified by the Company
against reasonable expenses, including attorneys' fees, actually and necessari-
ly incurred in connection with the defense of any action, suit or proceeding,
or in connection with any appeal therein, to which they are, or any of them
may be, a party by reason of any action taken or failure to act under or in
connection with the Plan, or any option (and/or related right) granted there-
under, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company),
or paid by them in satisfaction of a judgment of any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such person is liable for negligence or
misconduct in his duties; provided that within sixty (60) days after the
institution of such action, suit or proceeding, such person shall offer the
Company, in writing, the opportunity at its own expense, to handle and defend
the same.
(d) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
(e) Rules. The Board shall fill all vacancies, however caused, in the
Committee. The Board may, from time to time, appoint additional members to
the Committee, and may at any time remove one or more Committee members and
substitute others. One member of the Committee shall be selected by the Board
as chairman. The Committee shall hold its meetings at such times and places as
it shall deem advisable. All determinations of the Committee shall be made
by a majority of its members, either in person or participating by conference
telephone at a meeting, or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business
as it shall deem advisable, and shall keep minutes of its meetings.
6. Duration of the Plan. The Plan shall remain in effect until terminated
by the Board under the terms of the Plan.
7. Options.
(a) Options. The Administrator, in its discretion, may grant Options to
eligible participants. Each Option shall be evidenced by a Notice of Grant
which shall expressly identify the Options as Nonqualified Stock Options, and
be in such form and contain such provisions as the Administrator shall from
time to time deem appropriate. Without limiting the foregoing, the Admini-
strator may at any time authorize the Company, with the consent of the res-
pective recipients, to issue new Options in exchange for the surrender and
cancellation of outstanding Options. Option agreements shall contain the
following terms and conditions:
(i) Exercise Price; Number of Shares. The per Share exercise price
for the Shares issuable pursuant to an Option shall be such price as is
determined by the Administrator, provided however, that it shall not be less
than one hundred percent (100%) of the Fair Market Value of the Common Stock on
January 24, 1995 the date the Options were granted by action of the Board of
the Company.
The Notice of Grant shall specify the number of Shares to which it
pertains.
(ii) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator will determine the terms and conditions to be
satisfied before Shares may be purchased, including the dates on which Shares
subject to the Option may first be purchased. The Administrator may specify
that an Option may not be exercised until the completion of the service period
specified at the time of grant; provided, however, no more than 250,000
shares of the Optioned Stock may be exercised prior to September 24, 1995. Any
such period is referred to herein as the "waiting period." At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised, which shall not be earlier than the end of the waiting
period, if any.
(iii) Form of Payment. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator and may consist entirely of:
(1) cash;
(2) check;
<PAGE>
(3) promissory note with such terms and conditions as determined
by the Board;
(4) other Shares which (1) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (2) have a Fair Market Value on the date of
surrender not greater than the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(5) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and any broker approved by the
Company, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price;
(6) any combination of the foregoing methods of payment; or
(7) such other consideration and method of payment for the issu-
ance of Shares to the extent permitted by Applicable Laws.
(iv) Other Provisions. Each Option granted under the Plan may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(v) Buy-Out Provisions. The Administrator may at any time offer on
behalf of the Company to buy out, for a payment in cash or Shares, an Option
previously granted, based on such terms and conditions as the Administrator
shall establish and communicate to the Optionee at the time that such offer is
made; provided, however, that buy-out offers made to Insiders may only be
payable in cash.
(b) Method of Exercise.
(i) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and as shall be permissible under the
terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator and permitted
by the Option Agreement consist of any consideration and method of payment
allowable under subsection 7(a)(iii) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstan-
ding the exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 9 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter shall be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(ii) Rule 16b-3. Options granted to individuals subject to Section
16 of the Exchange Act ("Insiders") shall, to the extent practicable,
desirable, or as determined by the Administrator, comply with the applicable
provisions of Rule 16b-3 and may contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan transactions.
(iii) Termination of Employment or Consulting Relationship. In the
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability), the Optionee may
exercise his or her Option, but only within such period of time as is deter-
mined by the Administrator at the time of grant, not to exceed five (5) years
from the date of such termination, and only to the extent that the Optionee was
entitled to exercise it at the date of such termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). To the extent that Optionee was not entitled to exercise an
Option at the date of such termination, and to the extent that the Optionee
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
(iv) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within such
period of time following the date of termination due to Disability not exceed-
ing ten (10) years as is determined by the Administrator, and only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). To the extent that Optionee
was not entitled to exercise an Option at the date of such termination, and
to the extent that the Optionee does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
(v) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the deceased
Optionee's Option by bequest or inheritance may exercise the Option, but only
within ten (10) years following the date of death, and only to the extent that
the Optionee was entitled to exercise it at the date of death (but in no event
later than the expiration of the term of such Option as set forth in the
Option Agreement). To the extent that Optionee was not entitled to exercise an
Option at the date of death, and to the extent that the Optionee's estate or a
person who acquired the right to exercise such Option does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
<PAGE>
8. Non-Transferability of Options and Rights. Options may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
9. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option has not been
previously exercised, it will terminate immediately prior to the consummation
of such proposed action. The Board may, in the exercise of its sole discretion
in such instances, declare that any Option shall terminate as of a date fixed
by the Board and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to the provisions of paragraph (d)
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent Option substituted
by the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation does not agree to
assume the Option or to substitute an equivalent option, the Administrator
shall, in lieu of such assumption or substitution, provide for the Optionee
to have the right to exercise the Option as to all or a portion of the
Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be exercisable
for a period of fifteen (15) days from the date of such notice, and the
Option will terminate upon the expiration of such period. For the purposes of
this paragraph, the Option shall be considered assumed if, immediately follow-
ing the merger or sale of assets, the Option confers the right to purchase, for
each share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in Fair
Market Value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
(d) Change in Control. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, then the following acceleration
and valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its discretion,
prior to the occurrence of a Change in Control, any Options outstanding on
the date such Change in Control is determined to have occurred that are not
yet exercisable and vested on such date shall become fully exercisable and
vested;
(ii) Except as otherwise determined by the Board, in its discretion,
prior to the occurrence of a Change in Control, all outstanding Options, to
the extent they are exercisable and vested (including Options that shall
become exercisable and vested pursuant to subparagraph (i) above), shall be
terminated in exchange for a cash payment equal to the Change in Control
Price, (reduced by the exercise price, if any, applicable to such Options).
These cash proceeds shall be paid to the Optionee or, in the event of death of
an Optionee prior to payment, to the estate of the Optionee or to a person
who acquired the right to exercise the Option by bequest or inheritance.
(e) Definition of "Change in Control". For purposes of this Section 9, a
"Change in Control" means the happening of any of the following:
(i) When any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company represen-
ting fifty percent (50%) or more of the combined voting power of the Company's
then outstanding securities entitled to vote generally in the election of
directors; or
<PAGE>
(ii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
shareholders of the Company approve an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets; or
(iii) A change in the composition of the Board of Directors of the
Company, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date the Plan is approved by the
directors, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with
an actual or threatened proxy contest relating to the election of directors
of the Company).
(f) Change in Control Price. For purposes of this Section 9, "Change in
Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60-day period immediately preceding the
date of determination of the Change in Control Price by the Board (the "60-Day
Period"), or (ii) the highest price paid or offered per Share, as determined
by the Board, in any bona fide transaction or bona fide offer related to the
Change in Control of the Company, at any time within the 60-Day Period, or (iii)
such lower price as the Board, in its discretion, determines to be a
reasonable estimate of the fair market value of a Share.
10. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company may, in the discretion of the
Board of Directors, obtain shareholder approval of the Plan, or any Plan
amendment to the extent necessary and desirable to comply with Rule 16b-3 (or
any successor rule or statute or other applicable law, rule or regulation,
including the requirements of any exchange or quotation system on which the
Common Stock is listed or quoted). Such shareholder approval, if required,
shall be obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
12. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Ability to Use Stock to Satisfy Withholding. At the discretion of
the Administrator, Optionees may satisfy withholding obligations as provided in
this Section 12. When an Optionee incurs tax liability in connection with
the award, vesting or exercise of an Option, which tax liability is subject to
tax withholding under applicable tax laws (including federal, state and local
laws), the Optionee may satisfy the withholding tax obligation (up to an
amount calculated by applying such Optionee's maximum marginal tax rate) by
electing to have the Company withhold from the Shares to be issued upon
award, vesting or exercise of the Option that number of Shares, or by
delivering to the Company that number of previously owned Shares, having a Fair
Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld or delivered, as the case may be, shall be
determined on the date that the amount of tax to be withheld is determined (the
"Tax Date").
(b) Election to Have Stock Withheld. All elections by an Optionee to have
Shares withheld or to deliver previously owned Shares pursuant to this
Section 12 shall made in writing in a form acceptable to the Administrator
and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) all elections shall be subject to the consent or disapproval of
the Administrator; and
(iii) if the Optionee is an Insider, the election may, at the
discretion of the Board, comply with the applicable provisions of Rule 16b-3
and may, at the discretion of the Board, be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(c) Section 83(b) Elections. In the event that (i) an election to have
Shares withheld is made by an Optionee, (ii) no election is filed under
Section 83(b) of the Code by such Optionee and (iii) the Tax Date is deferred
under Section 83 of the Code, the Optionee shall receive the full number of
Shares with respect to which the Option has been awarded, has vested or has
been exercised, as the case may be, but such Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
<PAGE>
13. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exer-
cise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable
Laws, and the requirements of any stock exchange or quotation system upon which
the Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations Re: Federal Securities Laws. The shares
of Common Stock underlying this Option, as of the date hereof, have not been
registered under the 34 Act and the Corporation has no plans to register
them. The Optionee represents that if this Option is exercised in whole or in
part at a time when there is not in effect, under the 34 Act, a registration
statement applicable to the shares issuable upon exercise, then the purchase
of such shares is expressly conditioned upon the following representations,
warranties and covenants:
(i) Any shares purchased upon exercise of this Option shall be
acquired for the Optionee's account for investment only, and not with a view
to, or for sale in connection with, any distribution of the shares in
violation of the 34 Act, or any rule or regulation under the 34 Act. Further,
the Optionee either has a pre-existing personal or business relationship with
the Corporation or any of its officers, directors or controlling persons, or
by reason of Optionee's business or financial experience, or the business or
financial experience of their professional advisors who are unaffiliated with
and not compensated by the Corporation, they could reasonably be assumed to
have the capacity to protect their own interests in connection with the grant,
exercise and sale of the Option Shares.
(ii) The Optionee has had such opportunity as he or she has deemed
adequate to obtain from representatives of the Corporation such information
as is necessary to permit the Optionee to evaluate the merits and risks of
his or her investment in the Corporation.
(iii) The Optionee is able to bear the economic risk of holding
shares acquired pursuant to the exercise of the Option for an indefinite
period.
(iv) The Optionee understands that:
(1) the shares acquired pursuant to the exercise of the Option
will not be registered under the 34 Act or under any state securities laws and
are "restricted securities" within the meaning of Rule 144 under the 34 Act;
(2) such shares cannot be sold, transferred or otherwise disposed
of unless they are subsequently registered under the 34 Act;
(3) in any event, the exemption from registrations under Rule 144
will not be available for at least two (2) years, and even then will not be
available unless a public market then exists for the Common Stock, adequate
information concerning the Corporation is then available to the public, and
other terms and conditions of Rule 144 are complied with; and
(4) there is now no registration statement on file with the
Securities and Exchange Commission with respect to the 1994 Nonqualified Plan
of the Corporation and the Corporation has no obligation or current intention
to register any shares acquired pursuant to the exercise of this Option under
the 34 Act.
By making payment upon exercise of this Option, the Optionee shall be
deemed to have reaffirmed, as of the date of such payment, the representations
made in this Section 7.2.
(c) Legend On Stock Certificates. All stock certificates representing
shares of Common Stock issued to the Optionee upon exercise of this Option
shall have affixed thereto a legend substantially in the following form, in
addition to any other legends required by applicable state law:
The shares of stock represented by this
certificate have not been registered under the
Securities Act of 1933, or under the
securities laws of any state, and may not be
transferred, sold or otherwise disposed of in
the absence of an effective registration
statement with respect to the shares
evidenced by this certificate, filed and made
effective under the Securities Act of 1933,
and registration or exemption under state
securities laws, or an opinion of counsel
satisfactory to the Corporation to the effect
that registration under such Act and state
securities laws is not required.
14. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to ob-
tain authority form any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by
an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option
may be void in the discretion of the Board of Directors, with respect to such
excess Optioned Stock, unless if required or determined desirable by the
Board, shareholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in accordance with
Section 11(b) of the Plan.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
